Haleon’s terrible start to life on the London Stock Exchange has intensified after the consumer health group admitted it may get caught up in a massive lawsuit involving a heartburn drug in the US.
The company, which sells Sensodyne toothpaste and Centrum vitamins, warned it could be on the hook for indemnities to drugs giant GlaxoSmithKline (GSK), from which it demerged from last month.
The shock admission comes after GSK was connected with an impending raft of personal injury lawsuits concerning Zantac, a once-popular drug in the US and the UK, which was pulled from shelves in 2019 amid fears it contained a chemical that caused cancer.
Tensions: Haleon’s Dave Lewis and GlaxoSmithKline chief Emma Walmsley
That has led to more than 2,000 cases being filed in the US, with the first trial due to begin on Monday, August 22 in the state of Illinois. If GSK is held liable in any of the court cases, it has served Haleon with a notice that it may try to recover payments from the company.
The incident piles further pressure on GSK chief executive Dame Emma Walmsley and could cause tension with Haleon chief executive Brian McNamara and its chairman, former Tesco boss Sir Dave Lewis.
The demerger of Haleon was a key plank of Walmsley’s strategy to boost GSK’s drug pipeline as well as revive its flagging share price and silence activist investors who have questioned her leadership. But the current situation means those critical voices may begin to grow louder again.
McNamara could also face pressure to boost Haleon’s value after GSK previously turned down a £50billion offer for the business from Unilever this year in favour of pushing ahead with the demerger. Haleon currently carries a market cap of around £25billion, less than half the price of Unilever’s bid.
Zantac was originally developed by GSK but after its patent expired it was produced and sold by several drug companies including Sanofi and Pfizer. Parallels are being drawn with German pharma giant Bayer, which two years ago agreed to pay £9billion to settle a lawsuit relating to Roundup, a weedkiller made by its subsidiary Monsanto which was also claimed to cause cancer. News of the Zantac litigation is not new, with Haleon referencing it in its prospectus prior to listing on the London market.
But Haleon and GSK’s shares have taken a hit ahead of the first trial as investor concerns exploded this week.
‘The share price reaction goes to show most investors don’t bother to read the small print [of the prospectus], so they’ve been caught off-guard after the potential liabilities hit the news,’ said the AJ Bell analyst Danni Hewson.
Forecasts from several analysts have also spooked the market, with Morgan Stanley predicting total damages could be as high as £37billion.
Both Haleon and GSK have come out swinging against the lawsuits, with the former saying it is not a party to any of the Zantac claims and has ‘never marketed’ the drug in the US.
GSK, meanwhile, said it will ‘vigorously defend’ itself against the claims, highlighting that ‘substantial scientific evidence’ that supported conclusions from US and European regulators that there was no link between Zantac and the development of cancer.
Shares in both companies rallied, with Haleon up 2.2 per cent, or 5.8p, to 271.6p while GSK rose 3.6 per cent, or 50p, to 1450p.
But worries about Zantac are more bad news for Haleon, which has struggled to gain ground following a lacklustre debut on the London market, which at the time was the largest float since mining giant Glencore in 2011.
Its shares originally listed at 330p but have dropped 17 per cent since then. GSK’s shares are also down nearly 15 per cent following the demerger.
Astra treatment given green light in America
AstraZeneca is celebrating after a cancer drug secured US approval.
The firm’s Enhertu treatment, which it developed with Japanese firm Daiichi Sankyo, has been given the green light by the Food and Drug Administration regulator for use in patients suffering from an aggressive and difficult to treat form of lung cancer.
It followed the results of a clinical trial in which nearly 58 per cent of patients saw positive responses from the treatment.
It is the first drug to be approved by US regulators for a type of metastatic non-small cell lung cancer (NSCLC).
Lung cancer is the second most common form globally, with more than 2m patients diagnosed in 2020.
Survival rates for patients suffering from NSCLC are particularly poor – only 8 per cent live longer than five years after diagnosis.
The drug can now be given to patients who have inoperable tumours or where the cancer has spread beyond the lungs.
AstraZeneca will pay £103m to Daiichi Sankyo as part of a development agreement between the two companies. Astra shares went up 2 per cent, or 206p, to 10,712p.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.