Shares in GSK (GSK) gained over 5% to £14.31 on Friday, topping the FTSE 100 leaderboard after the pharmaceutical company settled a Zantac case before it was due to start on 24 July.

The shares remain around 20% below the £17.50 level they were trading before the Zantac litigation came to light last August.

GSK’s shares have been held back by class action litigation cases which claim the heartburn drug Zantac causes cancer. A landmark ruling in December by a Florida Multi-District court found the case had no scientific merit and dismissed roughly 50,000 claims.

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.

WHY DID GSK SETTLE?

The case was brought by California resident James Goetz in Alameda County Superior Court and GSK reached a ‘confidential settlement’ to prevent it going to trial.

The case would have been the first Zantac case to be tested in front of a jury. GSK said: ‘The settlement reflects the company’s desire to avoid distraction related to protracted litigation in this case.

‘GSK does not admit any liability in this settlement and will continue to vigorously defend itself based on the facts and the science in all other Zantac cases.’

Shore Capital’s healthcare analyst Sean Conroy said he believes the settlement does not have any direct impact on other state level cases or the landmark ruling in December.

Conroy commented: ‘This decision does suggest the company is willing to make settlements on a case-by-case basis to try to clear the current overhang.

‘We continue to believe the current share price reflects potential liabilities of up to circa $30 billion are being priced into the share. All told, we understand GSK is named in circa 4,500 cases at both a federal and state level in the US covering circa 130,000 claimants.’

Conroy believes investor focus on the legal cases is deflecting attention from an ‘improving growth outlook’ at GSK. The shares trade on a forecast 2024 PE (price to earnings) ratio of nine times compared with a sector average of around 16 times.

OTHER VIEWS

Danni Hewson, head of financial analysis at AJ Bell, argues the settlement news is ‘not a full stop on the saga but is the latest punctuation point in what shareholders will hope is its final stanza.

‘As it begins to put this issue behind it, focus will turn to its efforts to catch up with its close UK peer AstraZeneca (AZN) which has drastically outperformed it in share price terms in recent years.

‘Over the last decade AstraZeneca has achieved a total return in excess of 300% while GSK’s own total return through this period is less than 50%. AstraZeneca even stole its thunder in vaccines, typically a GSK specialism, during the pandemic.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (James Crux) own shares in AJ Bell.

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