What happened
Shares of pharmaceutical company GSK (GSK +0.18%) -- formerly known as GlaxoSmithKline -- are down 9.4% as of 2:01 p.m. ET Thursday, according to data from S&P Global Market Intelligence, up slightly from an early intraday loss of 9.9%. The sell-off stems from reports of potential litigation regarding ulcer and acid reflux treatment ranitidine, better known as Zantac.
So what
After being sold for years, Zantac and other brand names of ranitidine were removed from the U.S. market by the FDA in early 2020 due to concerns the treatment could cause cancer. For the better part of the two years since then, neither investors nor consumers thought little more about it, perhaps distracted by the COVID-19 pandemic.
NYSE: GSK
Key Data Points
With the first of several lawsuits set to begin trials later this month, though, analysts are voicing more and more pessimism. UBS Group analyst Laura Sutcliffe commented in a note, "We do not have a view on the likelihood or magnitude of a potentially negative outcome for Sanofi at this stage, but we do think that even not knowing will be enough to deter some investors."
Deutsche Bank analyst Emmanuel Papadakis cautioned that these legal issues "are likely to act as a short-term headwind for both GSK and Sanofi (SNY 1.03%) shares." Sanofi also sold ranitidine while it was marketable.
Litigation against the two companies is expected to continue through late next year, with multiple lawsuits being prepared. Estimates of the combined prospective liability range from $10 billion to $45 billion, according to Morgan Stanley, which of course is a very wide range.
Now what
Both Sutcliffe and Papadakis are correct -- whatever legal action awaits GSK as well as Sanofi, simply not knowing what the future holds works against both stocks. For this reason, most interested investors would be better served remaining on the sidelines or pursuing other opportunities.
For investors who are wiling to take on above-average risk and stomach above-average volatility here, however, there's a bullish case to be made. SVB Securities analyst David Risinger considers the worry "overblown," suggesting the stock recent pullback "presents a buying opportunity given the stock's valuation and high-single-digit (earnings per share) growth prospects."
