The surprise settlement by GSK of the vast majority of Zantac lawsuits in the United States has removed a “major overhang” over the drugs company’s share price and resulted in a relief rally.
The FTSE 100 company rose by as much as 6.6 per cent on the London Stock Exchange on Thursday after it announced after the market closed on Wednesday that it had reached an agreement to settle for up to $2.2 billion about 80,000 US state court cases alleging that its old heartburn blockbuster Zantac caused cancer.
Ranitidine, marketed as Zantac, helped to fund GSK’s global expansion and became one of the first prescription blockbusters, generating more than $1 billion in annual sales.
Investors and analysts reacted positively to the settlement: the City expected GSK to reach a mass agreement with claimants, the timing was sooner than envisaged and the cost at the lower end of forecasts.
Concerns over potentially far larger liabilities had first caused a sell-off in GSK and other multinational drugs companies that sold Zantac in August 2022.
Analysts at Morgan Stanley had forecast at the time that there was “considerable uncertainty” and that the total financial impact could possibly reach between $10.5 billion and $45 billion, “based on historical precedents, of which GSK could potentially assume 30 per cent to 60 per cent of the liability”.
GSK’s settlement is with ten firms that together represent 93 per cent of the Zantac product liability cases and the agreements, the terms of which are confidential, are expected to be completed by the end of the first half of next year. GSK has not admitted any liability.
GSK believes that the settlements are towards the bottom of a $2 billion to $8 billion range that investors had been modelling recently.
Claimants in the remaining 6,000 cases, which are spread across a number of smaller law firms, have not refused to settle, Julie Brown, GSK’s chief financial officer, and Mark Cheffo, external counsel, told analysts in a call last night, and are also expected to be settled in time.
Most of the outstanding cases are in Delaware, where GSK is appealing against a decision in June that ruled that experts could testify on behalf of the claimants.
Analysts at Goldman Sachs said the implied settlement of about $27,500 per case was in line with the settlement costs of other companies involved in the Zantac litigation and “removes the prospect of a significantly larger potential settlement scenario”.
The US drugs company Pfizer and the French company Sanofi have recently reached separate settlements.
The Goldman Sachs analysts added that the relatively low cost of the settlement could provide headroom for GSK to launch further bolt-on acquisitions.
Analysts at UBS said the settlement was a “clear positive, removing a major overhang and uncertainty for investors”, but they warned that GSK continued to face near-term challenges elsewhere, including weaker uptake for its new blockbuster respiratory vaccine Arexvy and increased competition for its long-acting HIV prevention products and slower-than-expected demand for its Shingrix shingles vaccine in China.
GSK is due to report its third-quarter results on October 30, the day of the budget.
Alongside the state settlements, GSK has reached an agreement to pay a total of $70 million to resolve a complaint filed by Valisure, a Connecticut-based laboratory, also without admitting liability.
In its statement GSK said: “While the scientific consensus remains that there is no consistent or reliable evidence that Ranitidine increases the risk of any cancer, GSK strongly believes that these settlements are in the best long-term interests of the company and its shareholders as they remove significant financial uncertainty, risk and distraction associated with protracted litigation.”
Shares in GSK closed up 3.2 per cent, or 47p, at £15.05, valuing it at £61.4 billion. The stock is up about 3.3 per cent this year and still down about 15 per cent since they were sold off in July 2022.
