GSK to pay $2.2bn to settle Zantac lawsuits

GSK has agreed to pay $2.2bn to settle about 80,000 Zantac lawsuits in the US.

In a statement released after the close of markets on Wednesday, the pharmaceuticals firm said it had reached an agreement with 10 firms who represent 93% of the Zantac (ranitidine) state court product liability cases pending against it in the US.

GSK also said it had agreed to pay $70m to resolve a whistleblower complaint by a laboratory called Valisure, which alleged that the pharmaceuticals company defrauded the US government by concealing the cancer risks of heartburn drug Zantac for decades.

GSK has not admitted any liability in either settlement.

"While the scientific consensus remains that there is no consistent or reliable evidence that ranitidine increases the risk of any cancer, GSK strongly believes that these settlements are in the best long-term interests of the company and its shareholders as they remove significant financial uncertainty, risk and distraction associated with protracted litigation," the company said.

GSK expects to recognise at £1.8bn charge relating to these settlements in the third quarter, and said this will be funded through existing resources. The charge also covers the remaining 7% of outstanding claims.

Zantac was removed from the US market in 2020 amid fears over low levels of the contaminant N-nitrosodimethylamine (NDMA), which can increase with time and temperature and pose a risk of cancer.

Derren Nathan, head of equity research at Hargreaves Lansdown, said GSK "has taken a giant leap towards drawing a line under the long-running legal battle concerning alleged cancer to heartburn remedy Zantac".

"This is a significantly better outcome than initially expected, with some estimates standing at as much as $45bn just a couple of years ago. Since then, GSK and other drugmakers implicated in the case, Sanofi and Boehringer Ingelheim, have seen several key rulings go in their favour. GSK continues to accept no liability.

"Looking ahead, GSK’s operational performance should be the key driver of investment. Execution has been impressive of late, with two upgrades already in the bag this year. There have been some headwinds for key vaccine programmes Arexvy and Shingrix. But recent emerging longer-term data for Arexvy against Respiratory Syncytial Virus (RSV) has been positive. And overall, recent clinical progress elsewhere in the portfolio has also seen a bigger share of successes than failures.

"The upcoming Zantac settlements substantially derisk the investment case for GSK shares which are trading at a hefty discount to the sector, meaning this could be an opportune time to consider increasing exposure to the stock."

Broker Shore Capital said: "Whilst this headline figure is still significant, we highlight it is only a fraction of the up to circa $30bn downside scenario we felt the market has been pricing into the share. We believe this should serve as a clearing event for GSK and be broadly well received.

"This now provides an excellent opportunity for the share to properly rerate and allow people to refocus their attention on the improving growth outlook GSK has been delivering since the demerger of Haleon."