After a brief wobble following the UK trade figures, the FTSE 100 has edged back into positive territory. But GlaxoSmithKline is in decline on concerns about its Avandia diabetes treatment.
Next week US regulators will look at Avandia's safety but ahead of that, the European Medicines Agency has just said it would launch its own investigation into the risks and benefits of the drug. Glaxo has always defended the drug but its sales have fallen in recent years after safety concerns emerged.
Panmure Gordon repeated its buy recommendation despite the US meeting on Avandia next week:
Political pressure may impose more severe limitations on use, or in a worst case remove the drug from the market altogether. Continuing Avandia sales in the US are no longer sizeable enough to impact the investment thesis but people will extrapolate to future liabilities if the review turns brutal for Glaxo. We believe the market over-estimates the size of any potential liabilities, and will be buyers on any weakness if the shares precipitates.
But Credit Suisse was rather more downbeat ahead of the company's second quarter results on July 21:
Glaxo continues to have a tough year following the loss of Valtrex. Whilst pandemic flu revenues will help bridge the gap, Advair growth is slow and vaccine problems persist (effective Rotarix relaunch, slow Cervarix uptake in US, Centers for Disease Control stockpile wind-downs decrease demand).
Whilst Avandia now contributes little to earnings, market concerns remain over potential liabilities and the panel vote next week represents a risk. The second half looks set to be better than the first, but with the outstanding issues highlighted, we retain our underperform.
Glaxo is currently down 16p at £11.26, whereas the FTSE 100 is up 7.3 points at 5112.75.
