GlaxoSmithKline announced a £304m loss for the three months ending June 2010, a result of mounting legal costs accredited to their Paxil and Avandia drugs.

The world’s second-largest drug company posted the loss, in comparison to a profit of £1.34bn for the first quarter, despite an increase in revenue by 4% to £7bn.

GlaxoSmithKline has now settled the majority of its legal obligations. It has also been handed a reprieve by a US regulatory panel allowing diabetes drug Avandia to remain on the market despite medical concerns.

Avandia had been associated with an increased risk of heart disease, and the drug must now contain warnings on its packaging. Antidepressant Paxil had been linked with birth defects.

GlaxoSmithKline chief executive Andrew Witty also commented on increased competition for its genital warts treatment Valtrex.

“For the quarter, sales were impacted by several individual factors and adverse prior-year comparisons,” Witty said.