3rd Jun 2024 10:56
(Alliance News) - An adverse US court ruling regarding GSK PLC's heartburn drug, Zantac, was a "surprise," and will, in the short-term, pour "more uncertainty over the investment case," analysts on Monday said.
On Monday, GSK said it will appeal a US court ruling that it should face jury trials relating to cases concerning Zantac.
On Friday, a Delaware judge allowed more than 70,000 lawsuits over the discontinued drug to go forward to trial, ruling that expert witnesses can testify in court that the drug may cause cancer.
Shares in GSK fell 9.2% in response to 1,603.50 pence in London on Monday. The wider FTSE 100 index was up 0.1%.
But the London-based pharmaceutical manufacturer said the decision by the state court contradicts the federal court's multi-district litigation ruling under the same legal standard, which dismissed all cases alleging five cancer types, in December 2022.
"Scientific consensus is that there is no consistent or reliable evidence that ranitidine increases the risk of any cancer, and GSK will continue to vigorously defend itself against all claims," the company said in a statement.
Zantac was a heartburn drug that was pulled off the market in 2020 at the request of the US Food & Drug Administration, after low levels of a "probable carcinogen" were found in samples. The carcinogen, known as NDMA, is not harmful in very small amounts. However, tests showed that there were excessive quantities of NDMA in ranitidine, otherwise known as Zantac. Multiple litigations have followed.
GSK pointed out the litigation in Delaware remains at an early stage, and the ruling, under the Daubert standard, relates only to the question of whether the methodology used by plaintiffs' experts is sufficiently reliable to allow them to present their evidence at trial.
"The ruling does not mean that the court agrees with plaintiffs' experts' scientific conclusions, and it does not determine liability," GSK noted.
GSK said it would continue to "vigorously" defend itself against all claims and manage this litigation in the best interests of shareholders.
Citi said the ruling came as a "surprise," and suggested the market will likely "fret" over the decision.
"While a procedural decision, this does now give exposure to [more than] 70,000 cases," the broker noted.
Citi pointed out its current 2,100 pence share price target assumes USD3 billion of settlement costs related to Zantac.
The broker noted that Sanofi SA recently settled 4,000 cases for USD100 million, or USD25,000 per plaintiff. Using this as a proxy would imply a USD1.75 billion hit for GSK, Citi calculated, "which in theory should mean any share price impact is modest."
However, Citi suggested bears will argue Sanofi’s exposure is modest as they only sold over-the-counter Zantac for a limited period of time before withdrawing the product in 2019.
The broker explained the appeal process, if accepted, would take 8 to 10 months.
AJ Bell Investment Director Russ Mould noted investors had reached a "point of some comfort" with GSK’s Zantac issue but this ruling has thrown a "significant spanner into the works."
"In the short term this just pours more uncertainty over the investment case," he said.
Nonetheless, Citi said it would "take advantage of any material weakness" and reiterated a 'buy' rating.
By Jeremy Cutler, Alliance News reporter
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