Potential Lawsuits Causing Zantac Manufacturers Heartburn

Companies have lost billions in value in past week

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Aug 15, 2022
Summary
  • Analyst estimates of potential liability vary widely.
  • Concerns may be overblown, creating buying opportunities.
  • Based on past litigation, companies may seek to settle.
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Concerns over potential liability for a medication purported to cause cancer sliced billions off the value of several manufacturers of the drug in the past week. But were the cuts too deep? Opinions vary. But if the declines were out of proportion to the risk, shares of the producers may be a good deal.

The source of investors’ agita is potential lawsuits over the heartburn drug Zantac. What’s strange is the would-be link between ranitidine, the active ingredient in Zantac, and cancer seemed to have been put to bed years ago when the Food and Drug Administration determined no risk existed.

That’s all and well. But potential litigation centers not on the drug itself, but on a nitrosamine impurity found in the Zantac tablets, reported the pharma consulting group Evaluate. Nitrosamine is a chemical found in tobacco products and tobacco smoke. Nitrosamines are also found in many foods, including fish, beer, fried foods and meats. Some nitrosamines cause cancer in laboratory animals and may increase the risk of certain types of cancer in humans, according to the National Cancer Institute.

No one really knows at what level nitrosamine can be a risk of cancer, and it is not even known how much of this impurity Zantac contained

The estimates of potential damages vary. Analysts at Morgan Stanley think the manufacturers may be on the hook for as much as $45 billion. Evercore is much more sanguine, pegging the tab at $1 billion to $2 billion for each of the companies that actually sold Zantac.

The Zantac group includes GSK PLC (

GSK, Financial), Pfizer Inc. (PFE, Financial), Sanofi SA (SNY, Financial), Johnson & Johnson (JNJ, Financial) and newcomer Haleon PLC (HLN, Financial). In the past week, Pfizer shares were flat, while Johnson & Johnson was off 2.5%. GSK, Sanofi and Haleon were down 14%, 10% and 13%.

Investors’ skittishness is likely being caused by recent product liability settlements, including over opioids. But even the most egregious cases did not result in settlements amounting to anywhere near the billions that investors have wiped off big pharma valuations in the past week, emphasized Evaluate. In this reporter’s experience, the market usually overreacts to bad news and I think that could be the case here.

However, the possibility exists that one or more plaintiffs convince a court the companies were negligent and, as a result, they developed cancer from taking Zantac OTC. The odds of this are not good considering GSK has pointed to scientific publications that rebut a link with cancer. Furthermore, the extent of plaintiffs’ complaints has already been narrowed.

Of course, where there are deep-pocketed companies, lawyers are willing to take cases that may lack merit in the hope the defendants will offer fat settlements.

Disclosures

I am/we currently own positions in the stocks mentioned, and have NO plans to sell some or all of the positions in the stocks mentioned over the next 72 hours. Click for the complete disclosure
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