GlaxoSmithKline (NYSE: GSK) reported a 3.5 percent drop in third-quarter earnings largely due to a European ban on its diabetes drug Avandia and restrictions on the drug in the United States.

GSK released its quarterly financial report Thursday before markets opened in the U.S.

For the three months ending Sept. 30, GSK reported a net profit of $2.03 billion.

In September, European regulators ordered Avandia off the market and the U.S. Food and Drug Administration placed stringent restrictions on its use in the United States, in both cases because of a heightened risk of heart attack associated with the drug.

GSK booked a one-time charge of $231.5 million related to Avandia, and says future global sales of its once-blockbuster drug will be minimal.

“GSK’s growth/risk profile is fundamentally changing,” GSK Chief Executive Officer Andrew Witty said in his analysis of the earnings report. “Our strategy to diversify our business is generating sustained sales growth from key investment areas such as Vaccines, Respiratory, Dermatology, Emerging Markets, Japan and Consumer Healthcare.

“At the same time, our generic exposure in the USA is reducing and regulatory uncertainty around Avandia has diminished.

“This is not to say that significant issues do not remain. Clearly our operating environment is challenging and the measures being put in place by governments to reform healthcare and reduce deficits are impacting our performance along with others in our sector.”

The Avandia rulings and generic competition for Valtrex herpes medication drove GSK sales down 8 percent in the United States and 9 percent in Europe, the company said.

In the United States, GSK reported a 32 percent increase in vaccine sales, a 34 percent rise for cancer drugs and a 20 percent boost for Lovaza, its fish oil pill to control triglyceride fats in the blood.

Whitty said the group estimated that third-quarter revenue was reduced by 2 percent because of U.S. health care reform and European government spending cuts.

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GSK operates its U.S. headquarters in RTP.

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