- GSK agrees $2.2 billion settlement
- Removes 93% of outstanding cases
- Stock overhang removed
Embattled pharmaceutical giant GSK (GSK) has agreed to pay up to $2.2 billion (£1.8 billion) to settle lawsuits in the US related to its Zantac heartburn treatment, resolving 80,000 pending cases which represent around 93% of all outstanding cases.
The shares jumped 6.5% to £15.52 as investors welcomed the removal of financial uncertainty and a lower settlement figure than some analysts were projecting, with the team at JP Morgan having penciled in costs of up to $3.5 billion.
SETTLEMENT IN BEST INTERESTS OF SHAREHOLDERS
In agreeing to the settlement, GSK has not admitted any liability and stands by its view that the scientific consensus shows there is no reliable or consistent evidence Zantac increases the risk of cancer.
The company believes the decision to settle is in the best long-term interests of shareholders and removes ‘significant’ financial uncertainty and distraction from protracted litigation.
GSK also confirmed it had reached agreement in principle to pay $70 million to resolve a related whistleblower case filed by a Connecticut laboratory, subject to approval from the US Department of Justice.
The company expects to take an incremental charge of £1.8 billion in the third quarter in relation to the settlements made and the remaining 7% of pending court cases, partially offset by reduced future legal costs.
The costs will be funded from existing resources and GSK confirmed no change to its ‘growth agenda’ or investment plans emanating from the settlements.
WHAT ARE THE EXPERTS SAYING?
Shore Capital’s Sean Conroy commented: ‘Whilst this headline figure is still significant, we highlight it is only a fraction of the up to c.$30bn downside scenario we felt the market had been pricing into the shares. We believe this should serve as a clearing event for GSK and be broadly well received.’
Conroy estimates the implied settlement of $27,500 per claimant is in line with those made by Pfizer (PFE:NYSE) and Sanofi (SAN:EPA). This is a ‘far cry’ from the $200,000 plus Conroy believes investors initially priced into the shares when concerns first broke in August 2022.
While some state-level cases remain, Conroy believes the settlement should effectively ‘draw a line’ under the Zantac saga.
