Zantac litigation fears overdone at GSK, says Shore Capital

GSK announced on Tuesday it has started the process of appealing a recent decision by the Delaware Superior Court regarding the ongoing Zantac, or ranitidine, litigation.

In its statement, GSK emphasised the scientific consensus that there is no consistent or reliable evidence linking ranitidine to an increased risk of cancer, referencing 16 epidemiological studies involving over one million patients, which support this conclusion.

Shore Capital said that while GSK's stock is likely to be dampened temporarily as the market awaits further clarity around the size and scope of potential damages, the Zantac litigation has "disproportionately weighed on the share since the demerger of Haleon [in the summer of 2022] and overshadowed the improving growth outlook we believe GSK has been delivering".

Analysts calculate that the market initially priced in settlements of at least $200,000 per GSK claimant when the litigation issue first arose in August 2022. However, sector peers Sanofi and Pfizer are understood to have recently paid out just $25,000 per claimant in US cases.

"We still view the current discount to peers as unwarranted and largely attributable to misguided assumptions around the potential cost of Zantac litigation," Shore Capital said.

"We still believe that a worst case, up to c.$30bn downside scenario for litigation has been priced into the share and believe there remains a compelling risk-reward profile on offer."

The broker pointed out that the stock trades at just nine times 2025 earnings, compared with the average sector multiple at 17 and below GSK's historic multiple of 12.

Shore Capital estimates a fair value for the stock at around 2,200p, compared with Tuesday's price of 1,615p, down 0.4% on the day as of 1500 BST.