LONDON : British pharmaceutical giant GlaxoSmithKline said on Wednesday that net profits slipped during the second quarter owing to competition from generic drug manufacturers and poor sales of diabetes drug Avandia.

GSK's new chief executive Andrew Witty used his maiden results to unveil a major strategy overhaul aimed at diversifying the group's operations as it seeks higher growth and to reduce risk.

Net profit declined by 3.5 percent to 1.28 billion pounds (1.62 billion euros, 2.56 billion dollars) in the three months to the end of June, compared with 1.33 billion in the same period of 2007, GSK said in a results statement.

Group revenue climbed by 3.4 percent to 4.92 billion pounds, while pre-tax profits dipped to 1.83 billion pounds.

Avandia revenues plunged by 46 percent to 194 million pounds in the reporting period.

"GlaxoSmithKline is responding well to the challenges it is facing this year," Witty said in the earnings release.

"In the second quarter, the robust underlying performance of the company is helping to offset the anticipated increase in generic competition to products in the USA and a decline in Avandia sales," added Witty, who took over from Jean-Pierre Garnier at the end of May.

Unveiling his new strategy amid what is widely regarded as the toughest business environment in decades for the pharmaceutical sector, Witty added:

"These new strategic priorities will evolve GSK into a company that has a balanced group of healthcare businesses and a lower overall risk profile."

GSK said it wanted to place more emphasis on vaccines, over-the-counter medicines, consumer healthcare and expansion in emerging markets, marking a shift away from its reliance on prescription drugs.

GSK's stock price tumbled by 3.10 percent to 1,186 pence in afternoon trade, as investors concentrated on the earnings news. At the same time, London's FTSE 100 index of leading shares index on which GSK is traded gained 1.17 percent to 5,426.60 points.

Demand for controversial treatment Avandia began slumping last year after US medical journals said the drug significantly increased the risk of heart attack and cardiovascular problems.

The US Food and Drug Administration also required a label to be put on Avandia, and similar treatments, warning of increased risk of heart failure.

GSK, like much of the pharmaceuticals sector, is facing keen competition from generic drugs that are made by other companies once patent protection expires.

In a bid to combat falling profits, GSK said last year it would slash jobs and costs in a new efficiency programme called Operational Excellence.

Last October, the company said that it would target annual pre-tax savings of 700 million pounds per year by 2010.

"In broader terms, it said it is clear that the company can, and must, do more to improve shareholder value," said on Wednesday Witty, who was formerly head of Pharmaceuticals Europe for GlaxoSmithKline.

"I believe our new strategic priorities will drive the changes GSK needs to make and enable us to realise the opportunities we see in the future healthcare environment." - AFP/de