Shares in British drugmaker GSK (LON:GSK) fell sharply Monday following a Delaware judge's decision to allow more than 70,000 lawsuits to proceed, alleging that its discontinued heartburn medication Zantac caused cancer.
The stock plunged more than 9.1% in London trading.
GSK expressed its disagreement with the ruling and announced plans to appeal immediately.
Analysts indicated that GSK's potential liability from the litigation could exceed the $2 billion to $3 billion that the market had anticipated.
The judge's decision, issued late Friday, permits expert witnesses to testify that Zantac may cause cancer. GSK, along with former Zantac manufacturers Pfizer, Sanofi (NASDAQ:SNY), and Boehringer Ingelheim, had contested the scientific validity of the expert testimonies.
The litigation has been a significant concern for GSK, contributing to a nearly $40 billion reduction in the combined market value of GSK, Sanofi, Pfizer, and Haleon in a span of about a week in August 2022, amid fears of extended legal battles and potential compensation costs.
“While the ruling is only a determination of admissibility of expert evidence and, importantly, does not constitute a determination that the judge agrees with expert conclusions, it is a negative for GSK, likely to see share price downside, in our view,” analysts said in a note.
They noted that GSK faces significant risks from unpredictable jury trials potentially awarding damages over $2 billion unless it successfully appeals or settles. The cost of settling claims is now estimated between $2 billion and $8 billion, leaning towards the higher end due to the ruling, analysts added.
“We think the outcome is worse than expected by market with stock having rallied 22% this year partly due to hope of near-term Zantac resolution in GSK’s favour.”
Unlike GSK, Sanofi’s exposure is seen as relatively low, with settlement costs unlikely to exceed 2% of its market capitalization in the worst-case scenario and potentially even lower.