Two UK pension funds are vying to lead a US class-action lawsuit against GlaxoSmithKline (GSK), accusing the pharmaceutical giant of misleading the market over its controversial diabetes pill Avandia.

North Yorkshire Pension Fund and Avon Pension Fund, local government schemes that together manage more than £3 billion in assets, have both applied to be lead plaintiff in the case – a US term for the institution fronting a lawsuit on behalf of other investors.

Although UK funds frequently join US class-action lawsuits as minor players, it is highly unusual for them to seek such a prominent role.

The funds have jointly appointed Coughlin, Stoia, Geller, Rudman and Robbins, a New York law firm, to represent them.

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

Related Internet Links

• GlaxoSmithKline company information

• GlaxoSmithKline share price chart

• GlaxoSmithKline forecast

Related Links

• Risky game

• Avandia draws new heart attack claims

• 'Black box' warning for Glaxo's Avandia

The lawsuit seeks unspecified damages related to a slide in the group’s share price that followed a study published in May in the New England Journal of Medicine claiming that Avandia raised the risk of heart attack by 42 per cent.

The findings, denied by GSK, wiped about $18 billion off its market capitalisation.

The two UK funds are understood to be claiming they suffered losses of roughly $5 million as a result.

“We are joining [the lawsuit] because it is in our members’ interests to do so,” Neil Sellström, of the North Yorkshire fund, said.

“We monitor class actions and when one is launched against a company where we hold or have held the shares, we assess its merits and get involved where we think it is appropriate.”

Avon confirmed its involvement in the lawsuit but declined further comment.

A German and a US group are also seeking to act as lead plaintiff.

A judge is expected to make a final decision on which group to pick next week.

Both UK funds have indicated they will remain involved in the case in a lesser role regardless.

The lawsuit, originally filed inNew York on June 11 by the law firm Kaplan Fox, alleges that GSK “engaged in a scheme to deceive the market and a course of conduct that artificially inflated GSK’s stock price”.

It claims that GSK “failed to adequately disclose” important information about the risks of the drug and accuses the company of “fraud” and “deceit”.

A spokesman for GSK said that the company believed the lawsuit had no merit and would vigorously defend itself.

Kaplan Fox is seeking damages on behalf of all investors who bought shares between October 27, 2006 and May 21, 2007.

Prescriptions of Avandia have fallen 45 per cent in the US since the findings were published.

The company is awaiting a decision from the US Food and Drug Administration on Avandia, GSK’s second top-selling drug, which generated £1.4 billion in 2006.

The group is expected to impose more stringent labelling for the drug.

Dissatisfaction with GSK’s share price, which remains at similar levels to 2003, has led some investors to call for a break-up of the group or a sale of its consumer arm.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts