UPDATE 1-Legal charge slashes Glaxo quarterly profit

* Q2 earnings 2.6p a share, down 92 pct from previous year

* Q2 EPS before legal charge 29.3p vs consensus 28.7p

* Q2 sales 7.03 bln pounds vs consensus 7.02 bln

* 5 new drugs to progress into Phase III development

* Shares up 0.4 percent

(Adds detail on products, graphic, background)

By Ben Hirschler

LONDON, July 21 (Reuters) - GlaxoSmithKline (GSK.L) earnings slumped 92 percent in the second quarter, hit by a big charge to settle litigation over diabetes pill Avandia, antidepressant Paxil and a former factory in Puerto Rico.

The earnings wipe-out had been expected, since Britain's top drugmaker said last week it was taking a 1.57 billion pounds ($2.4 billion) charge to settle legal claims. [ID:nLDE66E081]

The group's underlying financial performance, however, was broadly in line with expectations.

Chief Executive Andrew Witty said the company's main businesses were performing well in the face of challenges, including generic competition to herpes drug Valtrex in the United States and mounting pressure on drug prices in Europe.

Glaxo's share were 0.4 percent higher by 1110 GMT on Wednesday, slightly outperforming a flat overall market for European drug stocks .SXDP.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For graphic comparing Glaxo to rest of Big Pharma click on:

here

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Witty has set out a distinctive strategy of "de-risking" Glaxo's operations by embracing diversification into areas such as consumer healthcare, emerging markets and biotechnology.

The goal is to reduce reliance on "white pills in Western markets", the part of the business most vulnerable to generic competition and pricing pressure.

At the same time the new drug pipeline is showing promise and Glaxo said it was moving five experimental drugs into the final-stage Phase III clinical development. This includes a new AIDS drug which Glaxo and its partner Shionogi (4507.T) said earlier on Wednesday was moving into pivotal testing. [ID:nLDE66J0O0]

Industry analysts also have high hopes for lupus drug Benlysta, which has already been filed for regulatory approval and could reach the market early next year.

Pretax profit in the second quarter was 494 million pounds, equivalent to earnings before major restructuring of just 2.6 pence per share, on sales up 4 percent to 7.03 billion pounds.

EPS before the legal charge was 29.3p, against a mean consensus forecast for 28.7p, according to Thomson Reuters I/B/E/S. Analysts had expected sales of 7.02 billion pounds.

(Editing by Paul Sandle)