GSK readies for pivotal ruling in Zantac cases

Since his diagnosis for bladder cancer in 2019, Michael Caratti says he has undergone “a 180 degree change in my life”.

The 69-year-old former IT technician, who has had his bladder removed and now uses a urostomy bag, believes his “traumatic” experience was caused by a daily prescription of the heartburn medication Zantac from 2005 to 2018.

He now hopes to bring a case to trial alleging that the product — sold by GSK, Sanofi, Pfizer and Boehringer Ingelheim over many years, caused his disease. It is one of about 80,000 remaining cases relating to Zantac that have prompted a combined hit of tens of billions of dollars to the values of the companies involved, with the drug’s developer GSK the most exposed to the litigation.

The immediate fate of 72,000 of them lies with a judge in Delaware who, after a hearing in January, is expected to announce within weeks whether to admit plaintiffs’ scientific evidence alleging that the drug breaks down into a carcinogen.

If Judge Vivian Medinilla decides in her so-called Daubert ruling to reject the evidence as unreliable, as analysts expect and a federal judge did in Florida last year, “the case in Delaware is dead”, said Brent Wisner, the lawyer bringing the lawsuit. But he warned that GSK could face much higher liabilities if his evidence is allowed in trials.

“They are playing a very, very dangerous game because right now before the Daubert ruling there’s an opportunity for them to reach a resolution,” he said. “After Daubert, if we win it’s a different world.”

GSK said that after “16 peer-reviewed epidemiological studies . . . the resulting scientific consensus is that there is no consistent or reliable evidence that ranitidine [the active ingredient in Zantac] increases the risk of any type of cancer”. It added that the Delaware ruling would only determine whether plaintiffs’ evidence could be presented at trial, and would “neither provide a view on the merits of forthcoming cases, nor determine liability”.

Zantac was a best-seller for GSK after its US approval in 1983, the first drug to achieve “blockbuster” status by generating more than $1bn in revenue, and was later sold by the other pharma groups.

But in 2019 a small laboratory in Connecticut reported that it had discovered “extremely high levels” of NDMA when it heated ranitidine. NDMA is a substance also found in cigarettes and processed foods that is classed as a probable human carcinogen.

The US Food and Drug Administration and the European Medicines Agency recommended suspension of ranitidine products and the FDA asked all manufacturers to withdraw their products based on the drug.

The event passed largely unnoticed by investors until 2022, when an analyst note published by Morgan Stanley estimated the potential liability at up to $45bn. Companies linked to the drug lost a combined $40bn in value in days.

Pharma groups contest the lab’s results and practices. GSK points to subsequent research by the FDA, EMA and other scientists that have failed to establish a causal association between their drug and cancer. The federal court in Florida found that plaintiffs’ scientists’ findings were based on “unreliable methodologies”, in effect dismissing almost 2,500 cases in 2022, a decision that GSK said “ensured that . . . litigation-driven science does not enter the courtroom”.

But cases continue in state courts. The continued threat of legal action has “clearly impacted GSK’s share price performance” over the past 18 months, the company said in its annual report in February, and its stock remains 5 per cent below the 2022 sell-off.

Investors who spoke to the Financial Times said they were hoping for a swift resolution to the legal overhang, with one top-30 active shareholder describing the prospect of going to trial as “scary, unpredictable and appealing to a jury that understands no science”.

A ruling in California to permit expert testimony has already been followed by a string of settlements. Last month, French group Sanofi decided to settle 4,000 claims in cases outside Delaware.

“Sanofi is settling these cases, not because we believe the claims have any merit, but rather to avoid the expense and ongoing distraction of the litigation. No concessions of liability have been made,” the company said.

Dani Saurymper, an asset manager for Pacific Asset Management and small GSK shareholder, said Sanofi’s decision and recent settlements by GSK showed that companies would “rather settle any liability than run the risk of going into any court and having a Monsanto-Bayer-type award”.

Bayer has had to pay out billions of dollars after juries in litigation that was also led by Wisner found a link between a weedkiller developed by Monsanto, the US company the German group acquired in 2018, and cancer.

Despite the Florida ruling, Wisner said GSK’s decision to settle several cases before going to trial showed the strength of his case. In upcoming cases in California, he said he would refer to a study by former GSK scientist Richard Tanner, who in 1981 found NDMA when ranitidine was combined in lab studies with high levels of nitrite, which occurs at lower levels in the human stomach. The study was not shared with the FDA until 2019.

GSK has said naturally occurring levels of nitrite in the stomach do not produce the same results, noting that the FDA was unable to replicate the study.

Since the initial 2022 sell-off and the Florida ruling, analysts have pared back their estimates for total litigation exposure. Litigation analysts at Bloomberg Intelligence have suggested that total value for these cases is $2.5bn-$4bn, with GSK responsible for 30 per cent. This is a far cry from the value hit being traded into the company’s shares, according to Shore Capital analyst Sean Conroy, who believes a worst-case scenario of up to $30bn has continued to be priced into the stock.

A definitive Daubert ruling in GSK’s favour would lead investors back to GSK, according to several analysts and investors, and would cap what Barclays analysts have described as an “unexpectedly strong start to the year” for the company, which has been the best-performing large pharma stock in Europe behind Novo Nordisk, maker of hit diabetes treatment Ozempic and weight-loss drug Wegovy.

This follows GSK’s spin-off of its consumer health division Haleon, and the strong performance of its vaccines unit, including Arexvy, a new vaccine for respiratory syncytial virus that reached blockbuster status within nine months of launch.

Caratti hopes his Californian case will go to trial in July. “I just want to get justice for me and thousands of other people that took their drug and got cancer,” he said.

For investors who believe the claims are without merit, there is a desire to refocus on GSK’s business.

“We don’t think it’s going to be enormously damaging,” said Alessandro Valentini, a director of top-15 active GSK investor Causeway Capital Management. “We just want it to be done. We want it to be over.”