GSK Plc's shares experienced a sharp decline following a court ruling that the UK pharmaceutical company, along with Sanofi and others, must face trials to determine if their heartburn treatment, Zantac, causes cancer. The stock plunged up to 10% in London trading, resulting in approximately £7 billion ($8.9 billion) being wiped off GSK's market value. This represents the most significant drop since a previous Zantac-related rout in August 2022. The selloff effectively erased nearly half of the stock's gains for the year, just as GSK was starting to show signs of progress.

Investors are expressing concerns about the potential lingering effects of prolonged litigation on pharmaceutical companies, as evidenced by Bayer AG's ongoing battles related to the weedkiller Roundup, which have led to a 70% decline in their shares since the acquisition of Monsanto in 2018. Unlike a federal judge in Florida who dismissed the cancer evidence as unreliable in 2022, Superior Court Judge Vivian Medinilla ruled on Friday that consumers were not relying on flawed science to support their claims that Zantac could lead to various types of cancer.

Zantac, once a popular antacid, has been the subject of numerous personal-injury lawsuits in the United States. Sanofi has reported approximately 25,000 cases in Delaware, a significantly lower number compared to the roughly 69,000 in which GSK is named as a defendant. Sanofi's shares experienced a 1% decline in Paris trading. Citi analyst Peter Verdult estimated that a settlement would cost around $3 billion, while Bloomberg Intelligence's Holly Froum estimated a total settlement value of $5 billion to $7.5 billion, with GSK bearing approximately 40-50% of the risk.

In response to the ruling, GSK announced its intention to appeal, emphasizing that the decision does not imply agreement with the plaintiffs' experts' scientific conclusions or determine liability. Redburn Atlantic analyst Simon Baker considered the ruling to be a "considerable surprise" and expressed confidence in GSK's appeal, citing clear legal precedent.

This court decision poses an ongoing threat to GSK, adding to the challenges faced by Chief Executive Officer Emma Walmsley. Despite successfully launching the first vaccine for a common respiratory virus and fending off activist investor Elliott Investment Management, the Zantac litigation continues to weigh on the company. Since Walmsley assumed her position in 2017, GSK's stock has dropped approximately 3%, largely due to concerns surrounding Zantac that arose in August 2022, resulting in a selloff that erased gains made under Walmsley's leadership. It took the stock over a year to recover from that downturn.

Plaintiffs argue that drugmakers were aware that ranitidine, the active ingredient in Zantac, could transform into the potential carcinogen NDMA under specific conditions. In 2020, the US Food and Drug Administration called for the removal of all ranitidine-based drugs from the market. Judge Vivian Medinilla in her decision acknowledged the FDA recall and allowed the consumers' experts to testify. The companies and consumers will now have the opportunity for their experts to present evidence to juries, who will ultimately determine Zantac's cancer risks.

Zantac originally entered the US market as a prescription drug in 1983 before becoming an over-the-counter heartburn treatment in 1995. Developed as a joint venture between GSK and Warner Lambert, the drug changed hands among various companies before Sanofi acquired it in 2017.