GlaxoSmithKline lost another £1.6 billion in value today after brokerage Merrill Lynch issued a sell note saying that the adverse publicity around its diabetes drug, Avandia, would hit sales for at least two years even if it was not forced to withdraw it.

Avandia is Glaxo's No 2 best selling medicine after the asthma drug Advair, but Glaxo has now lost more than £13 billion in value or 13 per cent in the past nine days since research published in the New England Journal of Medicine indicated that Avandia increased the risks of heart attack by 43 per cent and the risks of death by other causes by 64 per cent, although the leading cardiologist behind the research, Dr Steven Nissen, acknowledged that more studies are needed.

Merrill Lynch told clients this morning in a research note that while it concurs with the view that Avandia's heart attack risks are scientifically questionable, the resultant publicity will further hurt sales of the drug and Glaxo's share price.

"The overhang to both Avandia sales and GSK share price is likely to remain for the forseeable future." said analyst Graham Parry. He cut forecast earnings per share for 2008 by 2 per cent and by 7 per cent for 2012. He said the concerns raised were unlikely to be either firmly refuted or proven until the publication of a key safety study in 2009.

"In the intervening period, the stock will likely remain under pressure as both Avandia safety and Glaxo's reputiaton are placed under intense public scrutiny."

Congressional hearings are set for June 6 and there will be a hearing before the Food and Drug Administration panel in July or August.

The shares lost 29p to £12.27, making a total loss in the past few days of £2.30 per share, or £13.3 billion in market value.

Yesterday broker Deutsche Bank cited a report by pharmaceutical research firm ImpactRx, which showed that Avandia's market share of new prescription had fallen from 10 per cent to around zero in two days after the article was published.

Deutsche said: "While two days of prescription data cannot be regarded as a rigorous test of clinician sentiment to the NEJM article...this reaction is far worse than we had anticipated and suggests that there could be as much as 22 per cent downside risk to GSK's near term earnings."

Glaxo has said that its own studies, shared with regulators, were more detailed than Dr Nissen's research and showed no greater risk of heart attacks than rival drugs or placebos. It also said yesterday that two days of sales data was not enough to establish a trend.

It attempted to fight back again today, persuading UK medical journal The Lancet to publish a letter online today which stressed that an on-going long term detailed study of Avandia - known as ADOPT- had so far shown that the risks of heart problems with Avandia were no worse that those with two other drugs used for diabetes.