GSK’s shares rose by as much as 6.5% on Thursday before settling back slightly lower after it agreed a $2.2 billion settlement over lawsuits in the US, which alleged the drugmaker’s now-discontinued heartburn drug Zantac triggered cancer.
The agreement was much lower than many analysts and investors had expected, including a projection from JP Morgan of $3.5 billion.
In a statement to the stock exchange, GSK said: “[We have] today announced that we have reached agreements with 10 plaintiff firms who together represent 93% (approximately 80,000) of the Zantac state court product liability cases pending against GSK.”
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
The company said that it will additionally pay $70m to resolve a whistleblower complaint by laboratory Valisure, which alleged GSK defrauded the US government by hiding Zantac's cancer risks.
Latest Videos FromMoneyWeek
The company said it will fund the settlements through existing resources and has no plans to change its investment plans for research and development.
GSK admitted no wrongdoing or liability in the settlements, and said they were in the best long-term interest of the company to avoid the risk of continuing litigation.
What were GSK’s troubles with Zantac?
GSK launched Zantac in 1981 and it was first approved for sale in the US in 1983 as a prescription medication. It went on to become the world's best-selling drug, with annual sales in excess of $1bn.
In 2020, US regulators halted the sale of Zantac over concerns that a key ingredient, ranitidine, had the potential to turn into a substance that may trigger cancer when exposed to heat.
This led to a wave of lawsuits against the drug's manufacturers.
What does the Zantac settlement mean for GSK’s share price?
The size of the settlement will come as a relief for GSK, with many anticipating that the company would have had to part with much greater sums to strike a deal with claimants.
The court case has dogged the company’s share price for a number of years and the sharp rise today comes as no surprise.
Lucy Coutts, investment director at wealth management firm JM Finn, told Reuters: "The settlement of $2.2 billion is lower than market expectations of $3.5 billion, and the announcement came sooner than expected. The Zantac clouds are lifting, and GSK will likely resolve the few remaining cases quickly,"
She added: "Importantly, its core earnings are unaffected so investors can now focus on GSK delivering on its late-stage pipeline."
Meanwhile, the company’s performance has been strong, with the second quarter results showing sales of £7.9 billion, up 13% year-over-year. Core operating profit was also up 18% at £2.5 billion.
