Glaxo stock surges on Avandia vote

NEW YORK (CNNMoney.com) -- GlaxoSmithKline's stock rose nearly 4 percent on Tuesday, the day after FDA advisors voted to keep its diabetes drug Avandia on the market.

"Glaxo clearly avoided the worst-case scenario of Avandia's withdrawal with the panel recommendation," said Bank of America analyst Christ Schott, in a published note. "We believe that legal liability will remain minimal assuming the FDA follows the panel's recommendation."

Panelists voted 22-1 in favor of keeping Avandia on the U.S. market. But the advisors also acknowledged the potential health risks of the drug, with a 20-3 vote that existing data supports the conclusion that Avandia increases the risk of cardiac ischemic -- which causes oxygen deprivation to parts of the body in diabetics.

The panel votes are non-binding, but are taken as suggestions by the regulators for the Food and Drug Administration when they make decisions regarding drug safety.

Avandia has come under fire following an analysis, published by an esteemed and controversial cardiologist in May, that linked the drug to heightened risk of heart attack.

The British drugmaker Glaxo (up $1.93 to $51.36, Charts) has disputed the findings of the study, which was authored by Dr. Steven Nissen, chief cardiologist of the Cleveland Clinic and published in The New England Journal Medicine.

But while Glaxo dodged the FDA panel bullet, the drug is "not out of the woods yet," said Schott. The analyst said that, based on panelist comments leading up to the votes, the drug will probably get hit with strengthened cardiovascular warning labels. Schott also said the FDA will "likely" remove combination use of the drug with insulin from its label, eliminating up to 15 percent of Avandia sales. In 2006 Avandia sales totaled $3 billion.

Avandia competes most directly with the diabetes drug Actos from Takeda Pharmaceuticals. These drugs are members of the same drug class and both carry FDA warnings for increasing the risk of heart failure. But Actos was not connected to the recent negative fallout that plagued Avandia, and seems to be profiting off from it.

Barbara Ryan, analyst for Deutsche Bank North America, said in a published report that Avandia prescription volumes were down 50 percent in the week ended July 20, compared to the week preceding May 18, when Nissen's article was published. For those same time periods, Actos prescriptions were up 19 percent, and prescriptions for the diabetes drug Januvia from Merck & Co., Inc. (down $0.36 to $49.76, Charts, Fortune 500) were up 25 percent.