GSK PLC’s sell rating has been withdrawn by Credit Suisse as Zantac liabilities set to rise to $5 billion


GSK PLC (LSE:GSK, NYSE:GSK) has been upgraded by Credit Suisse on the assumption that its potential liability in the lawsuits against Zantac will be well below the US$12 billion that has been wiped from its market capitalization in recent years. weeks.

The Swiss bank swapped its ‘sell’ rating for a ‘hold’, but cut the share price target to 1,430 pence from 1,630 pence to reflect a base case scenario of $5 billion in costs responsibility of Zantac.

Grossly underperforming the broader sector, shares have lost more than a quarter of their value since the start of July, falling from over 1,800p to under 1,340p following lawsuits filed which claim that Zantac acid indigestion medicine can cause cancer.

Those fears “are likely to remain an overhang for some time, with any litigation outcome possibly taking a few years to materialize,” analyst Dominic Lunn wrote in a note to clients.

“As the originator of Zantac and based on cumulative sales, we expect it is likely that GSK will bear a significant portion of any liability in the event of a settlement.”

However, he said the US$12 billion wiped from GSK’s market capitalization “is far greater than what we would expect to be GSK’s share of any settlement in the event of a settlement.”

Credit Suisse’s pharmaceutical team estimated approximately $100,000 per case, which led to the base case assumption of $5 billion in additional debt for GSK to cover any potential Zantac liability.

On a more positive note, its respiratory syncytial virus (RSV) vaccine “could be better” than Pfizer’s, with the FTSE 100 company saying its RSV vaccine efficacy is “exceptional”.

Analysts interpret this to be above 70%, compared to Pfizer’s RSV vaccine efficacy of 66.7%.

Headline data from next month’s upcoming ID Week conference is expected to support Credit Suisse’s forecast of a potential peak sales of US$2 billion for seniors to VRS at GSK.

The upgrade was also based on strategic findings from the bank’s PharmaValues ​​2023 rating system, which places GSK “in the middle of the pack”, based on an analysis of major pharmaceutical and specialty companies across the country. evaluation and six strategic measures that are supposed to underpin a society. medium-term outlook.

GSK has performed well in generic drug valuation and risk, which also benefits its growth metric.

On valuation, GSK is trading at 11.4x forecast 2023 earnings, a 22% discount to its peers at 14.7x.


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