- Shares rally as group defends litigation claims
- £9.9 billion hit to market value over two days
- Analysts estimate risk to be $2 billion
Shares in pharmaceutical leviathan GSK plc (GSK) rallied 4.4% after management said it would ‘vigorously defend itself against all meritless claims’.
The stock has fallen by roughly 15% over the past two days on rising uncertainty around ongoing litigation relating to one of GSK’s historical heartburn drugs Zantac (ranitidine).
NO INCREASED RISK
GSK has been named as a defendant in around 3,000 filed personal injury cases in federal and state court.
The main litigation cases have pursued links with the drug and bladder, gastric, liver and pancreatic cancer.
GSK stopped distributing and recalled the drug in 2019 due to the concerns raised by regulators that the product contained a cancer-causing impurity.
In a statement issued this morning, management said: ‘The overwhelming weight of the scientific evidence supports the conclusion that there is no increased cancer risk associated with the use of ranitidine.’
A trial is due to begin in Illinois on 22 August with further trials due to start in California in February 2023.
POTENTIAL IMPACT
Litigation analysts from Bloomberg have indicated a settlement value could fall between $5 and $7 billion, with GSK potentially liable for around 30% of this total or around $2 billion.
Assuming the estimates proposed by Bloomberg are not wide of the mark, the stock market has over-discounted GSK’s potential Zantac litigation risk which would partly explain today’s share price bounce.
The 15% decline in the group’s share price over the last two days equates to a £9.9 billion reduction in GSK’s market value.
EXPERT VIEW
Commenting on today’s news Shore Capital pharmaceutical analyst Susie Jana said: ‘The two day fall in GSK’s share price seems somewhat overdone in our view’.
She added: ‘GSK shares currently trades on 10.4x forward PER (FY23F) (from 12.2x). With the broader peer group also affected by movements, the average now sits at 15.1x (from 15.5x).'
‘We believe this discount largely reflects the negative sentiment towards GSK’s ability to deliver on longer term growth, but this has now seemingly been compounded further by this potential litigation risk.’
