Key points:
- Glaxo and Haleon both fell heavily yesterday
- Neither have recovered this morning
- The problem is over uncertainty with Zantac product liability litigation
Both GlaxoSmithKline (LON: GSK), (NYSE: GSK), and Haleon (LON: HLN), (NYSE: HLN) have been hard hit by legacy problems from Zantac. Despite the fact that Haleon is now a separate company, independently listed – after the demerger from GSK – this does indeed affect HLN shares as well. The problem is some wildly unknown series of damages that may, or may not, come from the now withdrawn drug, Zantac. Some of this is down to the possible damages, of course, but more of it is concerning uncertainty. No one does know what those damages might amount to and the estimates are in such a wildly wide band that they're not all that much use either.
The background here is that Zantac was an excellent selling antacid treatment sold over the counter. Then in 2019 Glaxo withdrew it from the market because one of the ingredients was identified as a risk factor in certain cancers. Well, so is acid reflux such a cause of certain cancers but that's not how consumer lawsuits work. So, there are those who are suing for the damages, possible damages, potential damages, of their having taken Zantac. Anything they win in the courts will be to the detriment of Glaxo shareholders of course. Even if there's an insurance company in the middle – and most certainly not all of this risk will have been laid off – that will just mean premiums in the future.
That Haleon didn't even exist at this time doesn't matter in the slightest. Any and every daughter company – spin off, sold on, whatever – of GSK is going to be equally liable for whatever damages are paid out. Perhaps not in the first instance, but the legal liability – whatever that turns out to be – clearly is not extinguished by the demerger.
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There is a certain fun to this of course, which is that if Glaxo had sold Haleon to Pfizer instead of emerging it then they would have both got a higher price than shareholders currently have and also have unloaded at least some part of that liability onto Pfizer shareholders. But that's how such decisions work out some times.
The problem is really that no one knows what the damages might be. That there will be some is obvious, given how the American courts work – maybe they even should in this instance. This is why GSK dropped 10% yesterday and there's only a very minor recovery this morning. HLN also dropped on the same news – how many court cases are in the pipeline is becoming more apparent. But that total risk? The best estimate right now appears to be “$10 to $45 billion” which is not wholly useful.
GSK says that there isn't a medical problem here and that it will defend all claims. Haleon that others are in the line before HLN to have to pay anything if there are any awards. All of that could entirely be true but given the American court system people are still worried.