How much could the Zantac lawsuits cost?
Pharmaceutical giant GSK is in trouble as it faces a barrage of lawsuits over its heartburn drug Zantac, with tens of thousands of patients claiming the drug caused them cancer.
A ruling by a US court on Friday has significantly increased the stakes for the company: a judge had declared the scientific evidence presented by lawyers to be valid in over 70,000 cases.
GSK and the other pharmaceutical companies involved, Pfizer and Sanofi, deny the claim that Zantac causes cancer. GSK has announced that it will appeal the ruling in Delaware.
Following this decision, shares of the London-listed company plummeted by almost 10 percent, making it the biggest test for the FTSE 100 on Monday.
The financial consequences for GSK could be enormous and the legal proceedings, the first of which was settled in June last year, are damaging the company’s reputation and value.
Russ Mould, investment director at AJ Bell, said this had “put a significant dent in the balance” after investors had calmed down when GSK’s Zantac appeared to be losing momentum recently. Just last month, an Illinois court dismissed one person’s claim that Zantac caused cancer.
“In the short term, this will only lead to more uncertainty when it comes to investments,” he said.
Cost estimates
Analysts at Shore Capital recently estimated that GSK shares already included costs of up to $30 billion (£24 billion) for the legal dispute.
In 2022, analysts at Morgan Stanley estimated the industry’s potential liability to be as high as $45 billion (£35.3 billion).
Since last summer, a total of $40 billion (£31.5 billion) has been wiped from the market value of the big pharmaceutical companies linked to the drug. It was one of the first drugs to reach $1 billion (£787 million) in annual sales, but was pulled from shelves in the UK in 2019 and in the US a year later.
Analysts at Citi estimate the settlement costs related to Zantac at $3 billion (£2.4 billion). At the same time, Redburn Atlantic has stated that the lawsuit “will be settled for an amount of $10 billion to $15 billion (£7.9 billion to £11.8 billion), which is well below the value embedded in the share price.” The company expects the amount to be about a tenth of that.
City AM believes GSK has not made any provisions for liability beyond the legal costs of defending itself against the litigation. Last year, the company announced that it had paid £45 million in legal fees in 2022 to deal with the various claims.
Similar cases and how much it costs
Although the settlement costs are only estimates at this stage, there are numerous examples of how much trouble this could cause for GSK.
Johnson & Johnson (J&J) has faced similar lawsuits over its talc products, such as baby powder. Tens of thousands of companies claim that this powder can cause cancer.
In response, Johnson & Johnson has proposed a settlement of nearly $6.5 billion (£5.1 billion) to resolve almost all of the claims. This amount is part of an $11 billion (£8.7 billion) reserve to deal with more than 59,000 claims.
The American company insists that the lawsuits are unfounded, but has stopped selling talc-based baby powder in the United States in 2020 and worldwide in 2022 due to declining demand.
German pharmaceutical giant Bayer AG has also set aside $16 billion (£12.6 billion) to settle legal disputes over its weedkiller Roundup, which is believed to be carcinogenic because of its main ingredient glyphosate. About $10 billion (£7.9 billion) of this reserve has been spent so far, a company spokesman said last week.
Bayer strongly denies this wave of lawsuits and CEO Bill Anderson described them as an “existential” threat to the company.
