- GSK, Sanofi shares surge after litigation thrown out
- Favourable ruling removes most of overhang
- Ongoing volatility expected until case resolved
Shares in pharma giant GSK (GSK) are on track for their biggest daily gain since 1998, surging 12% to £15.49 after a US court threw out a class action suit claiming its heartburn drug Zantac caused cancer.
French pharma group Sanofi (SAN: EURONEXT) also a defendant in the case saw its shares gain 8% to €91.77, their biggest gain since 2008.
US pharma company Pfizer (PFE: NYSE) and German pharma company Boehringer Ingelheim also benefit from the ruling. All four companies have marketed Zantac.
WHY DID THE JUDGE THROW OT THE CASE?
A Florida Multi-District litigation federal court dismissed the roughly 50,000 claims due to a lack of consistent scientific evidence that Zantac caused cancer.
GSK said: ‘The ruling reflects the state of that science and ensured that unreliable and litigation-driven science did not enter the federal courtroom.’
Zantac was approved by regulators in 1983 and by 1998 it was the world’s best-selling drug and one of the first ever to top $1 billion of sales.
WHAT DOES THE RULING MEAN?
Analysts at Jefferies had estimated a worst-case scenario for GSK of between $1 billion to $17 billion before the ruling and a $800 million to $8 billion potential liability for Sanofi.
Jefferies reckons the federal ruling clears around 80% of the Zantac overhang. The drug makers are not out of the woods yet, and the ruling can be challenged, but it ‘bodes well’ for the thousands of state cases said Jefferies.
The roughly £7 billion gain in the market value of GSK on Wednesday claws back most of the £8 plus billion that was wiped off in August when the Zantac litigation worries emerged.
Pharma analyst Susie Jana at Shore Capital said: We expect GSK shares to recover some of its Zantac related declines today but note there is likely to be ongoing volatility until the issue is fully resolved.’
Investment director at AJ Bell Russ Mould commented: ‘This outcome is probably the best GSK could have hoped for given how comprehensively the judge in the case dismissed the plaintiffs’ arguments.
‘It will allow the market to focus on the recent improvements in GSK’s underlying performance and the fact it is now a leaner and more efficient operation thanks to the spin-off of its consumer health division, now trading as Haleon.’
Shares in Haleon (HLN) gained 4% to 307.57p.
Haleon shares declined more than 20% in August on concerns it was involved in the Zantac litigation cases, which the company subsequently confirmed it wasn’t.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and editor (Steven Frazer) owns shares in AJ Bell.
