- GSK and HLN are both mildly down this morning
- This despite the first of the Zantac cases being withdrawn without settlement
- The question is, does this remove all litigation risk?
GlaxoSmithKline (LONL: GSK) (NYSE: GSK) and Haleon (LON: HLN) (NYSE: HLN) shares have both fallen again today despite the news that the Zantac litigation is retreating in the rear view mirror. This isn’t what we’d expect to happen when a large potential legal liability seems less likely to so it’s worth trying to work out why this has happened.
GSK recently demerged HLN as we all know, both share prices have been weak since that point. GSK even did a stock consolidation to keep the price up but that didn’t quite work. GSK is now a pharmaceutical company, all the consumer products are over in Haleon. It might, in fact, have been better of that offer for what became Haleon from Pfizer had gone through. At least at this point shareholders would be better off. But, you know, the past is past and all that.
The specific problem is that only after the demerger did it become readily apparent that there’s a large legal problem overhanging both both share prices, GSK and HLN. It’s possible to think of this as being a rather remote problem, one that won’t come to fruition. But the estimates of how bad it could be if it does are very large – one analyst says it could be anything from $10 billion to $45 billion. That is, of course, vastly more than any insurance that might be carried by anyone at all.
It’s also possible to point out that even if it does then Glaxo is first in line here, then also possibly Pfizer. Haleon would be well behind in the queue to get hit by any awards – but that problem is large enough that it might pierce through that and still hit HLN shares.
We might expect both prices to recover considerably from here given that the Zantac litigation does seem to be retreating. As the announcement this morning says: “The Plaintiff’s counsel for Joseph Bayer, whose case was scheduled to be the first Zantac trial, informed the court and the parties yesterday that he will file a Notice of Voluntary Dismissal. GSK did not settle Mr. Bayer’s claim and has not paid anything in exchange for the voluntary dismissal.” Well, yes. Except there are some 3,000 cases running behind that one as well. The first might have been withdrawn, that might be indicative of the rest, might not be.
It’s even possible to think that there’s not much to any of the cases anyway. The potential cancer causing properties of one of the additives to Zantac is, shall we say, as yet unproven.
A logical explanation for why no recovery on this news about the Zantac litigation is that the markets as a whole have really only just woken up to this litigation risk. Given the American legal system there could be other shoes to drop. Higher risk means a lower share price. At some point – especially with Haleon – a lower price more than covers the risk and it becomes an attractive buy. But is this the point as yet?