Pharmaceutical stocks GSK, Sanofi and Haleon have wiped out a combined $31 billion in market cap this week as worries mount surrounding litigation around recalled heartburn drug Zantac.
The companies are among the defendants in a series of lawsuits claiming Zantac contains a cancer-causing substance called NDMA. The first trial is set to begin this month in Illinois and, ahead of the court case, the pharmaceutical stocks have plummeted.
As of Wednesday's close, the trio have lost a combined $20 billion in market cap this week alone.
On the stock market today, shares of GSK, formerly known as GlaxoSmithKline, fell 6.7% to 35.73. Shares of GSK's recent spinoff, Haleon, toppled 3.4% to 6.29. Sanofi stock declined 3.9% to 43.42. Together, their market caps have lost a collective $31.1 billion since Friday.
Pfizer, which owns a chunk of Haleon and also marketed Zantac at one point, saw shares dip 3.3% to 48.29.
Analysts say the litigation could push investors to swear off all three pharmaceutical stocks until there's more clarity in the litigation. The cases are consolidated into multidistrict litigation. The first will start Aug. 22. Another is scheduled for September, then more are due in February, May and October 2023.
"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," pharmaceuticals stock analyst Laura Sutcliffe of UBS said in a report to clients.
Losses Mount For Pharmaceutical Stocks
The Food and Drug Administration recalled Zantac in 2019 after testing showed it produces high levels of NDMA. The substance can cause cancer in animals. Plaintiffs say the companies didn't properly warn against the risk, leading them to develop cancer after using Zantac.
With the court dates looming, SVB Securities analyst David Risinger says the risk is "overblown."
A number of companies have marketed Zantac over the years, including GSK in the 1990s. Pfizer, privately held Boehringer Ingelheim and Sanofi followed in the 2000s, he said.
"We believe the weakness presents a buying opportunity given the stock's valuation and high-single digit (earnings per share) growth prospects," Risinger said of Sanofi. He kept his outperform rating on the pharmaceutical stock.
Pfizer Plans Its Defense
Representatives of GSK and Haleon didn't return requests for comment.
In a recent filing with the Securities and Exchange Commission, Pfizer noted plaintiffs have filed lawsuits against companies that manufactured and/or sold Zantac. Other companies also sold a generic version of Zantac.
"Pfizer, which has not sold a Zantac product in more than 15 years and did so only for a limited period of time, will continue to defend itself vigorously," spokeswoman Pamela Eisele told Investor's Business Daily by email.
Thousands Of Plaintiffs
Despite "recent highly speculative news flow" impacting pharmaceutical stocks, Sanofi said there haven't been any material developments in the litigation. The company noted it "quickly mobilized" in 2019 when the FDA found traces of NDMA in Zantac. After running its own confirmatory testing, Sanofi said it pulled all Zantac products from the U.S. and Canada.
"Since 2019, the medical, scientific, and regulatory communities have extensively evaluated the safety of Zantac's active ingredient ranitidine, and the data shows there is no evidence of consumer harm from real-world use of Zantac," Sanofi said in a news release. "Over time, both FDA and the European Medicines Agency have evaluated the available data and found no evidence that ranitidine causes cancer."
The company also noted it acquired the over-the-counter rights to Zantac after it already was on the market for 35 years. Its involvement with the drug spanned less than three years. The first trial that involves Sanofi won't take place until February. Roughly 2,850 people have named Sanofi a defendant. That comes from a total 3,450 plaintiffs involved in various Zantac liability cases.
"Given that Sanofi acted responsibly at all times and the lack of scientific support for plaintiffs' claims, Sanofi is fully confident in its defenses to the litigation," the company said. "Sanofi stands by the safety of the medicine today."
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
