collapsed for the second straight trading session Thursday on surging worries about litigation over Zantac, a heartburn drug that the Food and Drug Administration effectively pulled from the market in 2020 over contamination concerns.
The selloff, which has erased tens of billions of dollars in market value from the three companies, showcases the power of the commentary of a single Wall Street analyst. Nothing has changed regarding the Zantac litigation, which is complicated and remains at its relatively early stages. Key trials aren’t expected to begin until next year.
What got the attention of investors was a note Tuesday from
analyst Laura Sutcliffe, who downgraded
to Neutral from Buy, in part over the litigation.
all dropped Wednesday and Thursday. Sanofi’s (ticker: SAN. Paris) Paris-listed shares recovered late in the session on Thursday to close down 3.3%, after falling 8.2% Wednesday. GSK’s (GSK. London) London-listed shares were down 10.1% after a 5.5% drop. And the London-listed shares of Haleon (HLN. London), which separated from GSK last month, were down 4.9%, after dropping 8.1%.
(PFE) shares were also down, falling 4% on Thursday after climbing 0.3% on Wednesday.
Consumers have filed thousands of lawsuits claiming injury from Zantac, which the FDA requested that the companies stop selling in 2020. The agency had said in 2019 that it had identified low levels of NDMA, what it called a “probable human carcinogen,” in samples of the drug, which was by then an over-the-counter treatment.
The companies say evidence has shown that the drug didn’t cause cancer.
In her note, Sutcliffe didn’t weigh in on the end result of the litigation, only on the impact of the uncertainty on Sanofi shares.
“We do not have a view on the likelihood or magnitude of a potentially negative outcome for Sanofi at this stage, but we do think that even not knowing will be enough to deter some investors,” she wrote.
The litigation is particularly complex because of the convoluted history of the Zantac, which has been sold at different times, and in various forms, by GSK,
and Sanofi, among others.
GSK sold the prescription version of the drug in the U.S. beginning in 1983, then sold the over-the-counter version from 1995 to 1998. In 2000, Pfizer bought the company that owned the over-the-counter version at the time, and marketed it until 2006. After that, the drug wound up with the private German firm Boehringer Ingelheim, which sold it in 2017 to Sanofi.
That twisted path pulls in much of the pharmaceutical sector, but understanding how any liabilities might be split among the firms is even more fraught. One key question is whether Haleon, which was formerly a consumer health joint venture between GSK and Pfizer, could inherit any of the liability.
In its prospectus issued in June, Haleon referred to “indemnification obligations” to GSK and Pfizer, which it said “may include liabilities related to OTC Zantac.”
In a statement to Barron’s, Haleon said the matter wasn’t yet settled.
“GSK and Pfizer have each served Haleon with notice of potential claims of indemnification,” the company said in its statement Thursday. “It’s important to note that indemnification hasn’t yet been determined between the parties. Given the Zantac OTC business has been sold several times, the allocation of liabilities on such sales’ indemnities is complex, and may make third parties liable ahead of any Haleon exposure.”
In a note Wednesday, J.P. Morgan analyst Celine Pannuti, who has an Underweight rating on Haleon, wrote that the litigation represented a “potential overhang” for Haleon shares. She noted, however, that nothing had materially changed over the past few days.
GSK told Barron’s that there is “no reliable evidence” that ranitidine, the generic name for Zantac, increases the risk for cancer.
“Any suggestions to the contrary are inconsistent with the science, and GSK will defend itself against all meritless claims alleging otherwise,” the company said in a Thursday statement.
Pfizer, for its part, noted in a statement that it hasn’t sold Zantac in “more than fifteen years,” and did so only briefly. The company said it would “continue to defend itself vigorously in court.”
In a lengthy statement issued Thursday, Sanofi referred to “highly speculative news flow regarding U.S. Zantac litigation,” noting that there had been no new developments. The company said it was confident in its legal defense, and that there is no “reliable evidence” that Zantac caused the “alleged injuries.”
“Sanofi’s sales of Zantac account for only a very small percentage of the product’s total sales over the 35+ years that [prescription] and OTC Zantac was available,” the company said. “Potential historical brand liability was not all passed to Sanofi upon its acquisition of Zantac.”
On an investor call in late July, Sanofi’s executive vice president of consumer healthcare, Julie Van Ongevalle, had said the company stood by its legal defenses.
“Sanofi contends that the plaintiffs will be unable to prove that Zantac causes any type of cancer,” Van Ongevalle said.
That assurance wasn’t enough for UBS’s Sutcliffe, who in her note this week wrote that the Zantac issue was drawing increasing investor attention. “We expect there will be more noise, not less, over the coming months,” she wrote.
Not all analysts are similarly concerned. In a note Wednesday, SVB Securities analyst David Risinger, who has an Outperform rating on Sanofi, wrote that the Zantac risk was “overblown.”
Important trials are expected to start until next year in the Zantac litigation, when a combined federal proceeding known as a multidistrict litigation that combines a number of Zantac cases, being run out of a district court in Florida, will begin to hold its first so-called bellwether trials. A separate joint proceeding in California state court is also scheduled to hold trials next year.
Write to Josh Nathan-Kazis at firstname.lastname@example.org