Big Pharma’s heartburn win is a valuation salve

Zantac heartburn pills are seen in this picture illustration taken October 1, 2019. REUTERS/Brendan McDermid/Illustration

LONDON, Dec 7 (Reuters Breakingviews) - Pharmaceutical investors are accustomed to disappointment. An industry rule of thumb says that nine out of 10 drugs fail clinical trials, while treatments that succeed can bite companies on the tail if they have unanticipated side effects. The ghost of massive legal bill that drugmaker Bayer (BAYGn.DE) paid in 2020 has been haunting the sector. But a U.S. judge just made that spectre seem less threatening.

The equity value of GSK (GSK.L), Sanofi (SASY.PA) and Haleon (HLN.L) crashed in August, after analysts warned of a massive thwack linked to claims that heartburn medication Zantac caused cancer. The drugmakers who sold it at different times reckoned science was on their side. On Tuesday, a Florida judge broadly agreed and threw out roughly 50,000 claims in federal court. GSK, Haleon and Sanofi’s combined worth rose by $14 billion on Wednesday morning.

The drugmakers are still vulnerable. Plaintiffs can appeal the ruling, which also does not prevent tens of thousands of other cases being heard in state courts around the United States. But Sanofi reckons it potentially decreases the scope of the litigation by over 50%. JPMorgan analysts reckon the judge has just removed 70% of the liability risk for GSK.

That will help free the drugmakers’ hands for a possible cash splurge. Morgan Stanley analysts had estimated the overall Zantac litigation hit could have been as high as $45 billion. The looming danger made it difficult for drugmakers to make a case for ratcheting up research and development spending, or binge on bombed-out biotech stocks with some M&A. Both Sanofi and GSK are set to lose exclusive patents on some of their bestselling remedies in the coming years, meaning that revenue from key drugs could fall off a cliff. With more litigation certainty, they can get to work re-filling the pipeline.

The big-picture effect may be to inject a little optimism into pharma investors’ thinking. The rapid August Zantac selloff showed that shareholders by default prepare for the worst. That was arguably justified by the precedent of Germany’s Bayer, which in 2020 agreed to pay as much as $10.9 billion to settle U.S. lawsuits claiming that its widely used weedkiller Roundup caused cancer. The Zantac judge has just proved that courts can be a help as well as a hindrance.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)


Drugmakers GSK, Pfizer, Haleon, Sanofi and Boehringer Ingelheim on Dec. 6 were spared thousands of U.S. lawsuits claiming that the heartburn treatment Zantac caused cancer, after a judge found the claims were not backed by sound science.

The ruling by U.S. District Judge Robin Rosenberg in West Palm Beach, Florida, knocks out roughly 50,000 claims in federal court, though it does not directly affect tens of thousands of similar cases pending in state courts around the United States.

A Sanofi spokesperson said the decision “significantly decreases the scope of the litigation potentially by over 50%”, with the remaining litigation being only in state court.

All the drugmakers have denied that Zantac causes cancer.

Shares in GSK were up 9% to 15.08 pounds as of 0958 GMT on Dec. 7, while Sanofi rose 5% to 90.03 euros. Haleon’s share price rose 4% to 3.07 pounds.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

Editing by Liam Proud and Oliver Taslic

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