The drugmaker reports second-quarter profit rose 1.4 percent as sales increased of the Advair asthma med, its largest-selling drug. But overall revenue dropped 2.4 percent due to safety concerns over Avandia and lost patent protection on other products.

Demand for Avandia slumped 22 percent after researchers said on May 21 that the diabetes pill may increase the chances of heart attacks by 43 percent and doctors turned to other medicines. Glaxo’s antidepressant pill Wellbutrin XL and Zofran for nausea faced more competition from generic.

“The whole picture is dominated by Avandia,” analyst Nick Turner of Mirabaud Securities told Bloomberg News. Glaxo stock has lost about 14 percent of its since the May report on Avandia. In response, Glaxo is now doubling its share buyback to $25 billion.

UPDATE from Alexandra Hauber, an analyst at Bear Stearns who tracks Europe’s pharma: “In 2005 and 2006, Glaxo cut its SG&A ratio by 480 basis points, to 31.2 percent. We think the next 500 basis points may be harder to achieve without cutting too deeply into marketing muscle. This year’s trimming of the R&D ratio suggests most of the fat has already gone.

In addition, we are concerned that Glaxo may have to trim SG&A + R&D just to stand still, as the loss of blockbuster sales (Zofran, Avandia, Coreg) could put pressure on the gross margin.

Pipeline: Glaxo’s efforts to invigorate its R&D engine following the merger in 2001 have been unconvincing. The pipeline has delivered many headlines, but no significant blockbuster on the market. Looking out to 2010, we expect this score to increase from zero to one. This seems insufficient to maintain (or, ideally, grow) Glaxo’s large existing franchises.”