Pharmaceutical Stock Investors Brace for Billions in Heartburn Drug Litigation Charges

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Shares of GSK, Sanofi and Haleon sold off sharply this week, shedding tens of billions in market value, amid investor fears of potential US court charges targeting the popular heartburn drug. Stomach Zantac.

This has been a known issue for years, but investor concern exploded this week in the run-up to the first legal proceeding scheduled for August 22.

What is Zantac?

Zantac is the brand name for a drug called ranitidine, a medication used to relieve heartburn. It was originally invented and sold by GSK as a prescription drug in the 1980s before becoming an over-the-counter drug.

In 2019, regulators launched a safety review amid concerns the drug contains a probable carcinogen called NDMA, prompting manufacturers to pull it from shelves. And by 2020, the US FDA and the European Medicines Agency have requested that all versions of the treatment be withdrawn from the market.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 US with plaintiffs alleging that consuming Zantac can cause NDMA.

The first trial begins on August 22, and key lead cases will begin in early 2023.

Packets of Zantac, a popular drug that decreases stomach acid production and prevents heartburn, on a pharmacy shelf in New York City.

Drew Angerer | fake images

The litigation is particularly complicated because many pharmaceutical players have been involved with the drug.

The drug’s patent expired in 1997, so there are several manufacturers, retailers and distributors of the drug named as defendants in the lawsuits.

There have been multiple owners of OTC rights in the US since 1998, including GSK, Sanofi, Pfizer, and Boehringer Ingelheim.

Haleon, the consumer health business that was spun off from GSK last month, is not primarily responsible for the claims, according to the company, but may be tangentially linked.

company responses

In response to the violent share price movements this week, GSK, Sanofi and Haleon have issued statements in defense.

Pharmaceutical stock prices stabilized on Friday morning.

A GSK spokesman said: “The overwhelming weight of scientific evidence supports the conclusion that there is no increased risk of cancer associated with the use [of] ranitidine…Suggestions to the contrary are therefore inconsistent with the science and GSK will vigorously defend against all unsubstantiated claims.”

A Sanofi spokesperson said: “There is no reliable evidence that Zantac caused any of the alleged injuries under real-world conditions, and Sanofi remains fully confident in its defenses. Given the strength of our case and the uncertainty of future proceedings, we do not contingencies have been foreseen. established.”

Zantac is the brand name for a drug called ranitidine, a medication used to relieve heartburn.

The Washington Post | The Washington Post | fake images

Haleon’s involvement and potential responsibility seem less clear.

Haleon claims he is not a party to any of Zantac’s claims, saying he “never marketed Zantac in any form in the US.” and “is not primarily responsible for any over-the-counter or prescription claims.”

However, as GSK noted in a prospectus issued on June 1, “to the extent that GSK and/or Pfizer are liable with respect to OTC Zantac, Haleon may be required to indemnify GSK and/or Pfizer” under certain conditions. .

Pfizer said in a statement Thursday that it believes the outcome of the litigation is “not likely to be material” to the company.

“As revealed in our filings with the US Securities and Exchange Commission since February 2020, multiple lawsuits have been filed against many defendants, including Pfizer, involving Zantac,” Pfizer said.

“Pfizer sold Zantac only between 1998 and 2006, and the recall of Zantac products from the market in 2019 and 2020 did not involve any Pfizer products. Pfizer has significant defenses to this litigation and there are significant legal and factual issues that still need to be addressed. by the courts. Pfizer also has substantial indemnification claims against others, which have been acknowledged by various manufacturers in their disclosures,” it added.

What do the analysts say?

“As with all legal outcomes, there are considerable uncertainties,” Credit Suisse’s European pharmaceutical team said in a note. “That’s particularly true in this case where four companies have been involved in owning the rights to Zantac over time.”

According to the team, as the creator of the brand, GSK could be responsible for most of the responsibilities, rather than the OTC manufacturers.

British equity research firm Redburn said in a note that since there are multiple manufacturers of the drug, as well as retailers and distributors named as defendants, this potentially reduces the absolute impact at the company level.

Deutsche Bank Research’s pharmaceuticals team on Thursday upgraded its recommendation on Sanofi from hold to buy on the basis that “Zantac’s reflection is starting to look a bit overblown.”

The German bank doesn’t think this is an obvious buying opportunity, but says “holding a Sell at these levels feels excruciating.”

The team adds: “Both GSK and SAN now appear to present a classic conundrum: gripped by anxiety about an impending liability glut that they cannot yet fully assess.”

How big could the settlements be?

Credit Suisse says this depends on the strength the court sees in any link between the NDMA and cancer and any evidence of wrongdoing.

Previous drug deals have ranged from $30,000 to $270,000 per claimant based on evidence of wrongdoing.

There are currently more than 2,000 known plaintiffs, but this is expected to increase as the trials proceed.

Comparison with Bayer, Monsanto

For many investors and analysts, this ordeal brings back memories of the Bayer Roundup saga.

Shortly after Bayer took over Monsanto in 2018, Roundup-related lawsuits escalated 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 pointed out to investors before the deal was completed, GSK identified the Zantac litigation as a key risk for Haleon in the prospectus issued. to investors in June.

In the nearly 500-page document, GSK warned: “The Group has indemnification obligations in favor of the GSK Group and the Pfizer Group, which could be significant and have a material adverse effect” on the group’s finances.

Unlike Bayer’s Roundup, Zantac has been withdrawn by regulators around the world. Additionally, there are currently more than 2,000 claims related to Zantac and other ranitidine products compared to Bayer, which faced 130,000 cases related to glyphosate.

“We do not believe the evidence points to this as another glyphosate, but it is quite possible that we will see a liability of the magnitude of a billion dollars,” writes Deutsche Bank.

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