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Shares of GlaxoSmithKline, Sanofi and Haleon sold sharply this week, shedding tens of billions of market value, as investors feared potential US litigation fees focused on the popular heartburn drug Zantac.
This has been a known issue in the background for years, but investor anxiety exploded this week in the run-up to the first scheduled legal action on August 22.
What is Zantac?
Zantac is the brand name for a drug called ranitidine, which is a drug used to relieve heartburn. It was originally invented and sold by Glaxo as a prescription drug in the 1980s before moving on to over-the-counter medications.
In 2019, regulators launched a safety review amid concerns that the drug contained a possible carcinogen called NDMA, prompting manufacturers to pull it off shelves. By 2020, the US Food and Drug Administration and the European Medicines Agency have requested that all versions of the treatment be withdrawn from the market.
Since then, more than 2,000 cases have been filed in the United States with plaintiffs alleging that Zantac consumption can generate NDMA.
The first trial begins in August. 22 with major cases starting in early 2023.
Packets of Zantac, a popular drug that reduces stomach acid production and prevents heartburn, sit on a shelf at a New York City drugstore.
Drew Angerer | Getty Images
Litigation is particularly complex because many pharmaceutical companies are involved in drugs.
The drug’s patent expired in 1997, so there are many manufacturers, retailers and distributors of the drug being defendants in the lawsuits.
There have been several OTC rights holders in the United States since 1998, including GSK, Sanofi, Pfizer and Boehringer Ingelheim.
Haleon, the consumer health company that spun off from GlaxoSmithKline last month, is not primarily responsible for the claims, according to the company, but they may be tangentially related.
In response to violent moves in stock prices this week, GlaxoSmithKline, Sanofi and Haleon have all issued statements in their own defense.
Pharmaceutical company shares stabilized on Friday morning.
A GlaxoSmithKline spokesperson said: “The enormous weight of scientific evidence supports the conclusion that there is no increased cancer risk associated with the use of [of] Ranitidine… Suggestions to the contrary are inconsistent with the science and GSK will vigorously defend itself against all baseless allegations.”
A Sanofi spokesperson said: “There is no credible evidence that Zantac caused any of the alleged injuries under real-world conditions, and Sanofi remains fully confident in its defences. Given the strength of our case and the uncertainty about future actions, no emergencies have been established.” “
Zantac is the brand name for a drug called ranitidine, which is a drug used to relieve heartburn.
The Washington Post | The Washington Post | Getty Images
Haleon’s involvement and possible responsibility are less clear.
Haleon stresses that it is not a party to any of Zantac’s claims, saying that it “never marketed Zantac in any way in the United States” and “is not primarily responsible for any OTC or prescription claims.”
However, according to GSK Mark in its June 1 prospectus, “To the extent that GSK and/or Pfizer assume liability with respect to OTC Zantac, Haleon may be required to indemnify GSK and/or Pfizer” under certain circumstances.
Pfizer was not immediately available for comment when contacted by CNBC on Friday.
What do the analysts say?
“As with all legal outcomes, there is a significant amount of uncertainty,” Credit Suisse’s European pharmaceutical team said in a note. “This is particularly true in this case where four companies have shared ownership of the Zantac rights over time.”
As the brand’s builder, GSK could be on the hook for the bulk of the commitments, rather than OTC manufacturers, according to the team.
Redburn said in a research note that because there are several drug manufacturers in addition to the defendant’s retailers and distributors, this would likely reduce the absolute impact at the company level.
Deutsche Bank’s pharmaceutical research team on Thursday raised its recommendation for Sanofi from “Hold” to “Buy” on the grounds that “Zantac knee-jerk is starting to look somewhat exaggerated.”
The German bank doesn’t think it’s a clear buying opportunity but argues that “to maintain selling at these levels is terrible”.
The team adds, “Both GSK/SAN now appears to present a classic puzzle: they are trapped in worrying about an impending burden of responsibility that they cannot fully assess yet.”
What is the size of the settlements?
Credit Suisse says this depends on the strength the court sees of any link between NDMA and cancer and any evidence of wrongdoing.
Previous drug settlements ranged from $30,000 to $270,000 per claimant based on evidence of wrongdoing.
There are currently over 2,000 known claimants, but this is expected to increase as trials progress.
Comparison of Bayer, Monsanto
For many investors and analysts, this ordeal brings back memories of the saga of the Bayer Roundup.
Soon after Bayer took charge of Monsanto in 2018, lawsuits related to the press report swelled rapidly, ultimately costing Bayer billions of dollars and years of legal and financial uncertainty.
As in the case of Bayer’s acquisition of Monsanto where the risk of litigation was reported to investors prior to the completion of the transaction, GSK indicated that Zantac’s lawsuit represented a major risk to Haleon in its prospectus issued to investors in June.
In the nearly 500-page document, GSK warned, “The group has indemnity obligations in favor of the GSK Group and the Pfizer Group, which may be significant and have a material adverse impact” on the group’s finances.
Contrary to the Bayer report, Zantac has been pulled by regulators around the world. Furthermore, there are currently more than 2,000 claims related to Zantac and other ranitidine products compared to Bayer, which has faced 130,000 cases related to glyphosate.
Deutsche Bank wrote: “We don’t believe the evidence points to this as another glyphosate, but it is very possible that we could see a billion-dollar liability.”
Pharmaceutical stocks explode as investors brace for billions in litigation over heartburn drugs – Digital Tech Blog
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