GSK shares drag FTSE 100 lower as company faces billions in bill following verdict in Zantac trial

GSK shares plunged this morning after a U.S. court ruled on Friday that the company must face a jury trial over the possible carcinogenic properties of its heartburn drug Zantac.

A judge in the US state of Delaware on Friday allowed nearly 80,000 lawsuits against the pharmaceutical company, arguing that the reports from the company's experts did not have the necessary scientific basis.

The ruling could open the floodgates for further lawsuits and expose GSK to tens of billions of dollars in potential liabilities and appeals. In 2022, Morgan Stanley estimated the industry's potential liability at up to $45 billion (£35.3 billion).

Following this ruling, analysts estimated that GSK's liability could exceed five billion dollars (3.9 billion pounds).

As investors digested the news, GSK shares traded as much as 10 percent lower in early trading.

Judge Vivian Medinilla of the Delaware Supreme Court said instead that the strength of each side should be decided by a jury.

In her conclusion, Medinilla said, “In Delaware… the courts entrust scientific questions to scientists… It would be inappropriate to simply dismiss these experts as 'show-offs or paid witnesses.'”

“Delaware courts are reluctant to get involved in the heart of technical debates between opposing scientists,” she added.

Brent Wisner, who tried the cases in state courts in Delaware and California, said: “This case has always been about putting the science before a jury… Now the fate is set. GSK, Boehringer Ingelheim and Sanofi will have to answer for their 40 years of misconduct.”

GSK intends to appeal the ruling

GSK announced today that it would appeal the ruling. “The ruling does not mean that the court agrees with the scientific conclusions of the plaintiff's experts, nor does it establish liability,” it added.

However, with GSK shares down almost 10 percent this morning, it seems the market is concerned about the company's future liabilities.

Launched in 1988, Zantac was one of the first drugs to have annual sales of over $1 billion (£800 million). It was one of GSK's flagship products, but was later sold to Pfizer and other pharmaceutical companies.

The drug eventually became the world's best-selling medicine, but was removed from shelves by some manufacturers in 2019 after the cancer-causing chemical NDMA was detected in some doses.

Tests have shown that ranitidine, the active ingredient in Zantac, can convert to NDMA when exposed to heat.

However, GSK, Pfizer and the other owner companies claim that the drug does not have any carcinogenic properties.

The story continues

“After 16 epidemiological studies examining data on ranitidine use in humans, the scientific consensus is that there is no consistent or reliable evidence that ranitidine increases the risk of cancer,” GSK said today.

Joint liability for Zantac

The U.S. Food and Drug Administration finally asked manufacturers to remove Zantac from the market in 2020.

There are currently nearly 80,000 lawsuits pending against GSK and the other pharmaceutical companies that own the rights to the drug in Delaware, 4,000 in California and another 2,000 across the United States.

Before last week's ruling, however, the company had had some success in getting lawsuits dismissed. In Florida, for example, a federal judge dismissed about 50,000 lawsuits against the company.

Last month, GSK and a competitor won a case in Illinois, the first to go to a jury.

“The state court's decision contradicts the federal court's MDL ruling under the same legal standard, which dismissed all claims relating to five types of cancer,” GSK said in a statement today, referring to the previous ruling.

In another case last month, lawyers for 89-year-old Angela Valadez asked a Chicago jury to pay GSK £500 million, claiming her cancer was a result of taking the over-the-counter drug Zantac from 1995 to 2014.

The FTSE 100 group won the case, but the trial also highlighted the extent of the potential compensation GSK is entitled to.

Analysts at JPMorgan said this morning that there was a 50 percent chance of a $5 billion (£3.9 billion) Zantac liability. Citi analyst Peter Verdult estimated the debt burden at between $2 billion (£1.6 billion) and $3 billion (£2.4 billion).

Redburn Atlantic has said it will settle the case for a sum well below what the share price implies, between $10 billion and $15 billion (£7.9 billion and £11.8 billion), but expects the amount to be around a tenth of that.

City AM assumes that GSK has not made any provisions for liabilities beyond the legal costs of defending the litigation (£45 million).

The company added that the ruling would have no impact on its investment plans or capital allocation policies.

Russ Mould, investment director at AJ Bell, said: “Investors had reached a point of relaxation over GSK's Zantac scandal as a series of US lawsuits linking the heartburn drug to cancer appeared to be losing momentum.”

“However, a judge in Delaware has thrown a wrench into the works by giving the green light for 70,000 cases to proceed and allowing expert witnesses to testify in court that the drug may cause cancer… In the short term, this only adds more uncertainty to the investment case,” Mould added.