GlaxoSmithKline Plc profits fell five per cent in the first quarter, hit by tumbling sales of diabetes drug Avandia and generic competition to other products, the world’s second biggest drug maker said. The decline was less than analysts had feared, helped by strong sales of over-the-counter remedies, which offset a decline in pharmaceuticals.

Jean-Pierre Garnier, who retires next month, said it was an “honorable” performance, given a safety scare over Avandia that had prompted many patients and doctors to stop using the medicine.

Operating profit was £2.05 billion pounds on sales up two per cent at 5.69 billion, equivalent to underlying “business performance” EPS of 25.6 pence.

Glaxo reiterated its cautious forecast that underlying earnings per share (EPS) would decline by a mid-single-digit percentage in 2008, in constant currencies.

The quarterly results highlight the challenges facing incoming chief executive Andrew Witty.

Other major drug companies have reported mixed results over the past week, reflecting a global slowdown in sales and a squeeze on margins.

Pfizer Inc., the industry leader, shocked investors with worse than expected results although others, like Novartis AG, have managed to salvage profits with cost cutting.

Glaxo is seeking salvation from its large pipeline of new drugs, which include 157 projects in clinical development.

The core prescription drug business was hit hard by a 56 per cent slump in sales of Avandia, following a US report last May linking the medicine to increased heart attack risk.

Glaxo insists Avandia is as safe as other oral anti-diabetics but Garnier said it was unclear whether Avandia would recover.

Cheap generic competition to heart drug Coreg also hurt profits but strong growth in the vaccines and consumer health business helped buttress the overall performance, vindicating Glaxo’s decision to maintain a broad business, in the face of calls for a break-up from some investors.