UK Pharma Giant GSK's Stock Soars by 6.5%, But Behind It Lies a $2.2 Billion Pricey Settlement! Will the Zantac Cancer Scandal Come to an End?

Shares of British pharmaceutical giant GlaxoSmithKline (GSK) rose a remarkable 6.5% on Thursday after the company announced it would pay up to $2.2 billion to settle a series of lawsuits in the United States. The lawsuits allege that Zantac, GSK's discontinued heartburn drug, may cause cancer. The deal announced on Wednesday was well below the expectations of some market analysts, including JP Morgan's forecast of $3.5 billion. The settlement covers 80,000 outstanding cases against GSK in the United States, or 93 percent of its outstanding cases, and marks a significant development in the long-running legal dispute.

Analysts at Jefferies noted that the settlement is expected to significantly ease "market pressure on the stock from Zantac."

In August last year, the combined market value of GSK, Sanofi, Pfizer and Haleon, the four pharmaceutical companies that also sold Zantac, was wiped out by nearly $40bn in just one week because of concerns about lawsuits and potential damages.

Shares in GSK, the strongest performer on the FTSE, are on track to open on Thursday for their biggest one-day percentage gain since December 2022.

GSK will also pay $70 million to settle a whistleblower lawsuit brought by a laboratory in Connecticut.

GSK made clear in its statement that the settlement does not constitute an admission of wrongdoing or liability, but is based on the long-term interests of the company and is designed to avoid the uncertainty of further litigation.

Brentford-based GSK expects the settlement to record a charge of 1.8 billion pounds ($2.36 billion) in its third-quarter results, but stressed that the charge would not affect its stated investment plans. The company plans to report its third-quarter financial results on Oct. 30.

Zantac has been one of the world's best-selling drugs since it was approved by U.S. regulators in 1983 and has been marketed at various times by pharmaceutical companies including GSK, Pfizer, Sanofi and Boehringer Ingelheim. However, due to concerns that the drug could degrade into the carcinogen NDMA under certain conditions, Zantac was withdrawn from the market in 2020, a move that subsequently triggered a series of legal actions.