Shore Capital hails "another ray of light" at GSK after Zantac litigation update

(Sharecast News) - Shore Capital has reiterated its 'buy' rating on GSK after the biopharma giant's latest update about its ongoing Zantac litigation, saying that the stock's valuation is still undemanding compared with the wider market. GSK welcomed a decision from the Delaware Supreme Court to review a lower court ruling that allowed the introduction of expert evidence in the ongoing litigation over Zantac, or ranitidine. It said the interlocutory review, granted under exceptional circumstances, was seen as a positive step, as it continued to defend itself against claims that its now-discontinued heartburn drug increased cancer risk.

GSK emphasised that the scientific consensus, supported by 16 epidemiological studies involving over a million patients, did not establish a reliable link between ranitidine and cancer. The majority of outstanding US cases against GSK, representing around 75,000 claimants, reside in Delaware state court

Shore Capital analyst Sean Conroy called the news "another ray of light" in the ongoing cases against GSK. "By no means does this news today clear the Zantac overhang, but we view this as a another positive for GSK (and other defendants). We believe this helps to support the view that there is no reliable evidence that Zantac caused certain cancers and GSK has strong grounds to continue defending itself in ongoing litigation," Conroy said.

"We believe the potential for further settlements in 2024 had increased as a result of June's Daubert ruling so this review should help allay some of these concerns and we anticipate some recovery in the share price."

The analyst believes that Zantac litigation has "disproportionately" weighed on the stock since the demerger of Haleon in 2022, despite the growth outlook for GSK improving, while the worst-case scenario for settlements - which Conroy said it up to $30bn - has already been priced into the shares.

"We still view the current discount to peers as unwarranted and largely attributable to misguided assumptions around the potential cost of litigation," he added.

GSK's stock was up 1.6% at 1,643.5p by 1156 BST.