Deutsche Bank has maintained its "buy" rating on GSK PLC (LSE:GSK, NYSE:GSK) despite the recent setback in the Zantac litigation as it focused on the long-term potential of the stock.
After hours on Friday, the Delaware Superior Court allowed over 70,000 lawsuits related to the heartburn drug to proceed, creating a significant overhang for the pharmaceutical giant.
DB emphasised that, while the market had somewhat anticipated this negative outcome, it still poses a considerable challenge for GSK.
The decision from Judge Vivian Medinilla permits expert witnesses to testify that Zantac may cause cancer.
The ruling, based on the Daubert standard, means the evidence presented by the plaintiffs' experts is deemed sufficiently reliable to be heard at trial.
DB said it expected a low to mid-single-digit drop in GSK’s share price as investors react to the extended litigation. GSK registered a 9.4% drop.
Despite the legal challenges, DB holds a positive long-term view on GSK with a 1,950p share price target - a 21% premium to the current price of 1,610p.
It believes that the eventual resolution of the Zantac litigation will allow GSK to refocus on its core business and growth opportunities.
Zantac, once a top-selling heartburn medication, was found to potentially produce NDMA, a probable human carcinogen, leading to its recall and discontinuation.
The lawsuits allege that GSK, along with Pfizer and Sanofi, failed to adequately warn consumers about this risk.
The Delaware ruling means these lawsuits will move forward, keeping the legal issues front and centre for GSK.
Earlier, GSK has stated it will "vigorously defend itself" and plans to appeal the decision. The company argues that the ruling does not reflect agreement with the plaintiffs' scientific conclusions and does not determine liability. GSK remains committed to providing clear evidence about the safety and efficacy of its products.
The company’s shares fell over 10% in early trading following the news, wiping out most of the gains made this year. GSK’s strong balance sheet and diversified portfolio provide a cushion, but the litigation overhang will likely weigh on investor sentiment in the near term.