Shares in global bio-pharmaceutical firm GSK (GSK) have performed poorly in recent times, relatively speaking, lagging the FTSE 100 index by 4% and peer AstraZeneca (AZN) by a whopping 87% over the last five years.

Operationally there have been clear signs of improvement, with the company delivering strong trading updates throughout 2023 which saw the shares finally outperform both the blue-chip index and AstraZeneca.

Yet, while the business now appears to be performing better, the shares are still being held back by concerns over US litigation claims linking its heartburn drug Zantac with cancer.

However, there is an upcoming event which might have a big impact on the shares says Shore Capital healthcare analyst Sean Conroy.

In a recent research note, Conroy highlighted pre-trial hearings scheduled from 22 January to 25 January relating to around 80,000 Delaware cases as providing a clue to whether GSK is likely to make settlements in 2024.

The outcome of the hearings could have a big bearing on the performance of the shares, believes Conroy: ‘Further clarity could support a material re-rating of the shares and we believe there remains a compelling risk-reward profile ahead of further updates on Zantac’.

To recap, GSK won a landmark case in December 2022 after a Florida Multi-District litigation federal court dismissed around 50,000 claims due to a lack of consistent scientific evidence that Zantac caused cancer.

In June 2023, GSK reached a confidential settlement in a California case which prevented it going to trial reflecting management’s desire to ‘avoid distraction related to protracted litigation in this case’.

Conroy estimates the shares currently discount a worse-case scenario equivalent to a settlement value of around $30 billion, which implies roughly 22% downside to his base case settlement.

Meanwhile, litigation experts at Bloomberg estimate a total settlement value for the Delaware cases, which represent the majority of claimants, of between $2.5 billion and $4 billion, with GSK bearing around 30% of the total as it is not the sole defendant.

Zantac became an over-the-counter heartburn treatment in the mid-1990s after GSK launched the drug on prescription in the early 1980s.

Other firms which subsequently sold Zantac and its generic equivalents and are also named as defendants in the litigation cases include US firm Pfizer (PFE:NYSE) and French drug maker Sanofi (SAN:EPA).

Zantac sales were banned in 2019 after the discovery of a ‘probable’ carcinogen in the treatment.

Conroy estimates GSK shares trade on nine times his forecast for 2025 earnings per share, implying an unjustified 40% discount to its peers. 

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