Shares of GSK plc (GSK), Sanofi (SNY) and Haleon (HLN) are under pressure on Thursday amid increased litigation concerns around the heartburn drug Zantac, which was recalled by the Food and Drug Administration back in 2019. Together, they have lost a combined $40B in market value since Tuesday’s close. Commenting on the stock price moves the topic has "triggered,” Deutsche Bank analyst Emmanuel Papadakis noted that the topic is not new but “has arrived in investor consciousness in recent days" and is likely to act as a short-term headwind for GSK and Sanofi.
ZANTAC LITIGATION: The recently spun off consumer products business of GSK, Haleon, issued a prospectus on June 30 and in it, the company noted that there were lawsuits outstanding around Zantac, with litigants claiming the drug causes cancer and that makers GSK, Sanofi and Pfizer (PFE) failed to properly warn customers. The drug was pulled from sale back in 2019 after the FDA raised safety concerns.
According to Haleon’s prospectus, GSK and/or Pfizer have been named as defendants in approximately 2,150 U.S. personal injury lawsuits involving Zantac. The first of these cases is scheduled to come to trial on August 22, followed by another in February 2023.
ZANTAC TOPIC NOT NEW: The lawsuits related to the NDMA impurity found in the legacy ranitidine-based version of Zantac is a topic that “is not new,” but one that has arrived “in investor consciousness in recent days it seems,” Deutsche Bank analyst Emmanuel Papadakis said in a research note. Acknowledging that it “is approaching visibility in the form of first cases,” the analyst stated that he does not think the evidence "points to this as another glyphosate," but it is very possible a liability of "some billions of dollars in magnitude" may be incurred. Furthermore, negative headlines from the pending cases are likely to act as a short-term headwind for investors' sentiment on both GSK and Sanofi, if they have not already.
It appears to him "very possible" that parties including GSK/Haleon, Pfizer, Boehringer Ingelheim and Sanofi may incur the risk of some degree of shared liability, with "the only real questions being what that magnitude of liability may be and when the market feels it can get a handle on it," Papadakis added. He estimates that precedents would suggest an implied shared liability from the present caseload in the $5B-$10B range.
SANOFI ‘CONFIDENT’ IN LEGAL DEFENSES: In a media update, Sanofi said that, "In response to the recent highly speculative news flow regarding the U.S. Zantac litigation at a time when there have not been any material developments, Sanofi remains confident in its legal defenses and wishes to make the following statement, consistent with what has been disclosed previously."
“On September 13, 2019, FDA issued a statement alerting the public that some ranitidine medicines, including over-the-counter Zantac, contained a nitrosamine impurity called N-nitrosodimethylamine, or NDMA, at low levels. NDMA is a known environmental contaminant found in drinking water, soil, and common foods, including meats, dairy products, and vegetables. People are routinely exposed to small amounts of NDMA every day. FDA subsequently announced that its preliminary testing showed NDMA levels exceeded FDA's allowable limit in some of the samples it tested."
“Upon receipt of this information, however, Sanofi quickly mobilized, ran additional confirmatory testing, and out of an abundance of caution issued a voluntary recall of all ranitidine Zantac OTC products in the U.S. and Canada. Since 2019, the medical, scientific, and regulatory communities have extensively evaluated the safety of Zantac's active ingredient ranitidine, and the data shows there is no evidence of consumer harm from real-world use of Zantac. Over time, both FDA and the European Medicines Agency have evaluated the available data and found no evidence that ranitidine causes cancer. Regardless of the scientific evidence, within days of FDA's 2019 announcement, purported class actions and personal injury lawsuits were filed in US courts, seeking economic damages or alleging that Zantac caused various cancers. However, given that Sanofi acted responsibly at all times and the lack of scientific support for plaintiffs' claims, Sanofi is fully confident in its defenses to the litigation.”
PRICE ACTION: In Thursday afternoon trading in New York, shares of GSK have dropped over 9% to $34.79, Sanofi’s stock has slipped about 3% to $43.67, and Haleon has slid more than 6% to $6.14.