Haleon and GSK Share Prices Drop After Zantac Lawsuit Setback

A state judge in California recently ruled in a case brought against GSK and Haleon in the Zantac litigation, signaling a resurgence of investors' fears even though a federal court had eased investor concerns about the litigation about Zantac nearly four months ago.

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According to the Alameda County judge overseeing a case involving approximately 2,000 Zantac lawsuits filed in California state courts on Thursday, certain expert witnesses will be allowed to present certain arguments during the trial that is scheduled for July in which the judge will be tasked with resolving the disputes. According to the plaintiffs, the drug Zantac is linked to various forms of cancer in many of these cases

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It's a complex story, but the bottom line is that GSK GSK -2.55% (ticker: GSK), the remaining defendant in the Zantac lawsuits, as well as Sanofi (SNY), Haleon (HLN), and Pfizer (PFE), which are all part of the Zantac lawsuits, are still vulnerable to litigation risks related to Zantac.

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ADRs for GSK and Haleon fell 3% and 1.9%, respectively, on Friday. Shares of Pfizer PFE +0.17%, which have been less vulnerable to Zantac fears, fell 0.4%.

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Investors have been watching the Zantac case since August last year, when an analyst note on Sanofi SNY +1.39% mentioned a passing mention of it, and the stock of GSK, Haleon, and Sanofi plummeted in value. They lost tens of billions of dollars in value in the process.

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At the request of the Food and Drug Administration in 2022, Zantac was effectively withdrawn from the market. Several samples of the drug were found to contain low levels of a chemical known as NDMA, which it called to be a “probable human carcinogen” at the time of testing. As a result, thousands of patients have filed lawsuits alleging that after taking Zantac, they developed cancer.

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The matter is complicated by the fact that Zantac has been owned by a number of drug companies for decades after it was approved by the FDA in 1983. There were several companies that sold Zantac during those years, including GSK, Pfizer, Sanofi, and Boehringer Ingelheim, a private German drug company. One question is whether Haleon, which was created through the merger of Pfizer and GSK's consumer health divisions, will be held responsible.

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There is no evidence that Zantac causes cancer, according to all drug manufacturers.

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A federal court ruling in December appeared to diminish the chances that the companies would have to make a major payout in the future. As a result of this ruling, Judge Robin Rosenberg granted summary judgment in favor of the defendants in a combined proceeding in federal court in which thousands of Zantac lawsuits were consolidated.

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Judge Rosenberg, referring to Zantac by its generic name, wrote that "no scientist outside of this case has concluded that ranitidine causes cancer.".

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Although Judge Rosenberg's decision does not directly impact the state court cases, it does not have any bearing on them either. It was on Thursday when Judge Evelio Grillo issued the ruling that will allow certain expert witnesses who have been sought to be obstructed by the defendant, GSK, that the plaintiffs will be able to call in a coming trial in California. As a result of the California proceeding, Pfizer and Sanofi reached a settlement with James Goetz, who had filed the first lawsuit.

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A number of judges, including Judge Grillo, have made clear that they are not bound by the decision of the federal court. “Two judges may be able to review the same evidence, weigh it differently, and come to a different conclusion,” said Judge Grillo.

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There is a clear indication in the statement that GSK “respectfully disagrees with the ruling” and that litigation remains at an early stage of development. Based on the company's statement, there is a strong consensus among scientists that ranitidine does not increase the risk of cancer, based on scientific evidence.

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A Zantac lawsuit will be tried for the first time in the Goetz case, which means the man's lawyer, Brent Wisner, told Barron's that Judge Grillo's decision "demonstrates how incorrect the [federal court] was when it weighed the science and decided the case could not be tried in court."

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There is no doubt that this is an important ruling for the litigation. The upcoming hearing of Jim Goetz is expected to take place soon. This is the way the justice system works.

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In the weeks leading up to the Goetz trial starting on July 24, investors will be closely watching what happens.