Zantac fallout unfairly weighing on GSK, says Shore Capital

Shore Capital has raised its target price and maintained a positive stance on biopharma giant GSK, saying that worries about the potential cost of Zantac litigation are unfairly weighing on the stock.

Ahead of GSK's full-year results at the end of the month, the stock currently trades at just nine times earnings, compared with sector peers who trade at a multiple of 15."

We continue to view the current discount to peers as unwarranted and largely attributable to misguided assumptions on the potential cost of Zantac litigation. This has disproportionately overshadowed the improved and increasingly attractive growth story we believe GSK delivered in 2023," said Shore Capital analyst Sean Conroy.

GSK has already settled numerous lawsuits in the US that claimed that its discontinued heartburn drug Zantac caused cancer, and the majority of outstanding cases relate to filings within Delaware that cover c.80,000 plaintiffs.

"Pre-trial hearings on the admissibility of expert testimony are scheduled on 22-25 Jan and should serve as an important indicator as to whether GSK is likely to make further settlements in 2024," Conroy said.

However, he said: "As a reminder, the analogous Daubert hearings in the federal-level multi-district litigation (MDL) ruled in favour of GSK (and other manufacturers) and resulted in the outright, robust dismissal of all MDL cases given the lack of credible scientific evidence."

Conroy said that a worst-case scenario, in which Zantaz litigation costs GSK a total of $30bn, is currently being reflected in the share price. "[We] highlight any further clarity could support a material rerating of share; we have updated our sensitivity analysis and believe there remains a compelling risk-reward profile ahead of further updates on Zantac," he said.

The broker has lifted its target price from 1,850p to 2,000p and kept a 'buy' rating.