Shares
in
GSK
opened
with
an
almost
double-digit
plunge
today
after
a
weekend
ruling
opened
the
firm
to
a
legal
pandora’s
box
concerning
heartburn
drug
Zantac,
which
plaintiffs
allege
causes
cancer.
GSK’s
share
price
dropped
9.5%
in
early
trading
to
£15.98
from
£16.16,
well
below
Morningstar
analysts’
most
recent Fair
Value
Estimate
of
£22.20p.
This
shift
comes
as
a
Delaware
judge
agreed
scientific
evidence
produced
by
litigants
on
the
effects
of
Zantac
was
admissible.
The
decision exposes
the
business
to
around
70,000
complaints
from
litigants,
who
allege
their
cancer
diagnoses
originate
from
an
exposure
from
carcinagen
NDMA.
In
2020,
the
US
Food
&
Drug
Administration
had
pulled
Zantac
from
shelves
after
it
found
low
levels
of
a
“probably
carcinogen”
in
samples
of
the
drug.
Key
Morningstar
Metrics
For
GSK:
• Morningstar
Fair
Value
Estimate:
2,200p
•
Morningstar
Rating: ★★★★
•
Morningstar
Economic
Moat
Rating:
Wide
•
Morningstar
Uncertainty
Rating:
Medium
If
found
liable
GSK
could
now
face
heavy
compensation
liabilities.
The
case
also
puts
privately-owned
pharmaceutical
companies
like
Boehringer
Ingelheim,
alongside
GSK
competitor
Sanofi
(SAN),
into
the
firing
line
because
they
marketed
the
drug
too.
In
a
statement
GSK
said
it
would
“immediately
seek
an
appeal.”
“[The]
scientific
consensus
is
that
there
is
no
consistent
or
reliable
evidence
that
[the
drug
previously
sold
as
Zantac]
increases
the
risk
of
any
cancer,”
it
said.
“GSK
will
continue
to
vigorously
defend
itself
against
all
claims.”
Morningstar
Analyst
View
of
GSK
Shares
Morningstar
analyst
and
director
of
equity
strategy
Damien
Conover
is
yet
to
issue
an
updated
note
on
GSK’s
Fair
Value
Estimate.
However,
in
a
note
in
May,
he
said
GSK
shares
remained
undervalued
because
the
market
did
not
fully
appreciate
the
company’s
solid
product
portfolio.
“In
the
[first]
quarter,
total
sales
increased
13%
operationally
(excluding
Covid-19
sales),
but
we
expect
a
slight
deceleration
in
growth
over
the
next
three
years
as
recent
launches
slow,”
he
said
at
the
time.
“HIV
drugs
(representing
over
20%
of
total
sales)
gained
14%,
supported
by
strong
gains
from
long-acting
drugs,
which
should
continue
and
provide
a
cushion
for
the
key
2028
patent
losses
on
short-acting
HIV
drugs.”
However,
litigation
litigation
risk
is
a
contributing
factor
to
Conover
assigning
the
company’s
shares
a
Medium
Risk
Rating.
“We
assume
a
more-than-50%
probability
of
GSK
seeing
future
costs
related
to
product
governance
ESG
risks
(such
as
off-label
marketing
or
litigation
related
to
side
effects)
and
model
base
case
annual
legal
costs
at
2%
of
non-GAAP
net
income,”
he
said.
“[But]
the
risk
overhang
of
potential
major
legal
costs
related
to
Zantac
litigation
will
likely
weigh
on
the
company’s
valuation.”
This
story
will
be
updated
as
more
information
arrives
on
GSK’s
Fair
Value
Estimate
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