The first in an expected flurry of lawsuits was filed yesterday as a New York law firm sought class action status for a shareholder’s claim that GlaxoSmith-Kline had misled shareholders about the safety of its Avandia diabetes drug.

Kaplan Fox & Kilsheimer, the law firm bringing the case, accuses GSK of failing to disclose to investors the findings of a so-called meta-analysis that showed the drug increased the risk of heart attacks.

Although GSK presented the results to the Food and Drug Administration in September 2005, it publicly disclosed the analysis only after Steven Nissen, a top US cardiologist, published his own meta-analysis last month. Dr Nissen’s research, integrating 42 separate clinical trials, found Avandia increased the risk of a heart attack by 43 per cent.

Prescriptions of Avandia have fallen by 15 to 20 per cent since Dr Nissen published his research in the New England Journal of Medicine on May 21. Avandia is GSK’s second-biggest selling drug, with $3.2 billion of sales last year.

BACKGROUND

• GSK plan to beat fakes may be scrapped

• Why Ribena has got a new squeeze

• US Panel allows Glaxo to keep selling Avandia

• US rule on Avandia, with £1.2bn at stake for GSK

• GSK doubles buyback

No company is out of reach of activists

Shareholder activism is going to become one of the overriding themes of the second half of the year

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Kaplan’s lawsuit seeks unspecified damages relating to the share price decline after the publication that saw its market capitalisation fall by about $18 billion.

GSK, which is led by JP Garnier, chief executive, rejected the allegations about its conduct yesterday. A company spokesman said: “We will vigorously defend our medicine against these claims. We believe that GSK has behaved responsibly and transparently at all times.”

Kaplan Fox filed the lawsuit in the US District Court for the Southern State of New York on behalf of Leon D. Borochoff, a shareholder who bought his undisclosed stake in the form of American depositary receipts on May 16 at $56.92 apiece.

Kaplan Fox said that GSK’s American depositary receipts declined by $4.53 per share, or 7.8 per cent, to close at $53.18, as a result of Dr Nissen’s report. It is seeking damages on behalf of all investors who bought their shares between October 27 and May 21.

The lawsuit said GSK “engaged in a scheme to deceive the market” with conduct that “artificially inflated GSK’s stock price” and “as a result plaintiff and other members of the class suffered economic loss.”

Last month, Deutsche Bank analyst Mark Purcell claimed litigation linked to use of the drug could cost GlaxoSmith-Kline up to $5 billion.

But Shawn Manning, pharmaceuticals analyst at Bridgwell Group in London, said he doubted the legal action would succeed. He said the meta-analysis conducted by Dr Nissen was fundamentally flawed and there was no real evidence to suggest Avandia was more dangerous than other diabetes drugs in the same class. “Lawyers will rattle the cage but I don’t see this as a real issue,” he said.

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