The stock market is forward-looking and has already priced in a significant financial hit for GSK (GSK) from US litigation associated with claims its Zantac heartburn treatment might have links to cancer.

The first court case, due to start next week, was withdrawn ahead of trial by the plaintiff. However, this is only one of thousands and it could be some time before a line is drawn under the issue given the first ‘bellwether trial’, as Shore Capital describes it, isn’t scheduled to begin until February 2023.

Uncertainty over the outcome could still weigh on the stock in the interim and prevent a meaningful recovery in the share price.

Zantac became an over-the-counter drug in the mid-1990s and while it was GSK which launched the treatment on prescription in the early 1980s, others which subsequently sold Zantac and its generic equivalents are tied to the scandal including Pfizer (PFE:NYSE) and Sanofi (SAN:EPA).

The drug’s sale was banned after the discovery of a ‘probable’ carcinogen in the treatment in 2019.

Also dragged into the affair is consumer health specialist Haleon (HLN) which recently demerged from GSK. Though it is not party to any claims over sales of Zantac it may still face liabilities under contractual provisions agreed with its former owners.

This threat is compounding a miserable start to life as a public company for Haleon. Its shares began trading on 18 July at 330p after the demerger but as we write, less than a month on, they are down at 260.8p.

Berenberg analysts estimate the market has priced in a potential legal settlement for all the parties involved of $40 billion regarding Zantac. They add: ‘We believe the share price risk has been overstated based on current evidence levels and the number of claimants. However, the litigious environment of the US can be difficult to predict.

‘Assuming a potential $150,000 settlement per claimant, the share price moves imply over 330,000 claimants, significantly above the 3,450 personal injury cases filed and around 100,000 unfiled claims on the registry.’

Litigation analysts working for Bloomberg believe a settlement value could instead fall between $5 billion and $7 billion with GSK potentially liable for 30% of that amount, or $2 billion.

For its part GSK strongly denies the claims, arguing there is no reliable evidence of a link with any form of cancer.

Clearly there is potential for a significant share price relief rally for the affected stocks if the settlement comes in at the lower level anticipated by Bloomberg’s experts or if the cases fail to make any progress. But we won’t know in the short term. 

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