GlaxoSmithKline’s (GSK) shares jumped more than 6% following the announcement of a settlement up to $2.2 billion ($2.01bn EUR) to settle tens and thousands of lawsuits filed in the US regarding its discontinued heartburn medicine, Zantac.
The lawsuits alleged the drug, which has been pulled off the market, caused Cancer.
The settlement covers approximately 80,000 claimants, or 93% of all cases that GSK faced.
GSK has agreed, in addition to this major settlement to GSK’s $70 million (EUR64m), to pay additional whistleblower claims brought against it by US-based independent lab Valisure.
The stock rose by 6% during early London trading. This reversed a drop of 4,2% over the past 12 months.
Settlement in the long-term interest of shareholders: GSK
In a press release following the announcement, GSK reiterated their stance on scientific evidence regarding Zantac. They also stated that the settlement would remove significant financial uncertainties.
GSK believes that the settlements are in its best interests as they remove the financial uncertainty, risk and distraction that come with prolonged litigation.
GSK expects to charge an additional PS1.8bn (2.15bn EUR) in 2024 Q3 results to account for settlements. This includes the State Courts Settlement and the Qui Tam Settlement as well as the remaining 7% pending cases.
GSK said that despite the large payout, these settlements will not impact its growth strategy or R&D investment, as costs are covered by existing resources.
Analysts: Settlement will remove drag on GSK share price
This settlement is a major relief for GSK shareholders.
Bloomberg Intelligence’s John Murphy said that the resolution “lifts major investor concerns and allows the shares trade on fundamentals. This suggests upside given GSK’s current significant discount compared to peers across a wide range of earnings multiples.”
The Zantac lawsuit had loomed over GSK’s shares, contributing to its underperformance when compared to competitors.
Jefferies analysts noted that GSK stock will likely “uptick”, by around 10% now that the uncertainty surrounding Zantac litigation has been lifted.
Peter Welford is an analyst with Jefferies. He described the final settlement amount as “the worst-case scenario”.
Positive long-term outlook despite lingering risks
Shore Capital analysts also agreed that GSK’s share price has suffered as a result of the Zantac litigation.
GSK’s desire for settlements is not based on any scientific or legal merit, but rather in the long-term interest of shareholders. It also aims to avoid any further distractions or financial uncertainty caused by a protracted litigation.
Market analysts such as Sean Conroy of Shore Capital believed before the settlement that GSK’s share price had already factored up to $30 billion worth of potential liabilities. This further lowered the company’s value.
UBS analysts led by Jo Walton noted that the 7% of plaintiffs yet to settle their claims with GSK may still cause problems for GSK.
GSK reached an agreement with 10 of the largest law firms that handle Zantac claims, while the remaining lawsuits were handled by smaller firms.
Analysts predict that GSK’s share price will improve in the months to come, now that the majority of the litigation risk has been resolved.
This post GSK jumps 6 % after $2.2B Zantac Settlement: Why analysts see more upside could be modified as new information becomes available
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