GlaxoSmithKline reported sliding 2007 profits and gave warning yesterday that earnings this year were under pressure from collapsing sales of Avandia, its diabetes drug, and intense competition from manufacturers of generic treatments.

JP Garnier, the chief executive, presenting his last set of annual results before his retirement in May, said that earnings per share would fall this year by a mid-single digit percentage.

Mark Purcell, the Deutsche Bank analyst, described the guidance as “very disappointing”.

GSK said that annual sales for 2007 had fallen by 2 per cent to £22.7billion. Pre-tax profits were £7.5billion, down from £7.8billion last year. The decline was driven by a steep fall in sales of Avandia after the publication of a study last May linking the drug to an increased risk of heart attacks. Annual sales of Avandia fell to £1.2billion, down from £1.6billion in 2006.

Growing competition from manufacturers of generic drugs also led to weaker sales of Coreg IR, the heart drug, Welbutrin XL, the antidepressant, and Zofran, the anti-nausea treatment.

Nevertheless, Dr Garnier and his successor, Andrew Witty, insisted that GSK's underlying business remained sound, despite the weak results and poor outlook for next year. “The shadow of Avandia will continue over us in 2008 and make life a little bit more difficult for us,” Dr Garnier said. “But underneath all this, you have a very strong business. In fact, without the Avandia incident, the company would have grown 19 per cent in 2007.”

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