Two major investment banks have cut their target prices for GSK PLC (LSE:GSK, NYSE:GSK) as analysts drill down into the potential fallout from Zantac litigation and see the potential total liabilities for the companies involved to be over US$50bn.
Morgan Stanley (NYSE:MS) cut its share price target for the UK drugmaker to 1,550p from 1,860p, while Deutsche Bank cut it to 1,500p from 1,750p.
Even though the first of the legal cases against companies that sold the heartburn drug was dropped last month, Deutsche analyst Emmanuel Papadakis said a detailed review of the Zantac litigation led the bank to believe GSK and Sanofi are likely to "lose the scientific argument" and consequently are expected to incur liabilities.
The "only key uncertainty" of this, he said, "is the magnitude and distribution between defendant parties".
The present legal caseload would imply less than US$10bn total liability, based on historical precedents, the analyst said, though this is based on the present MDL (multidistrict litigation) registry.
This "may not be definitive" and the count of state cases is "likely to snowball if initial outcomes are favourable for plaintiffs", the analyst said, adding: "Future and international contingencies also need to be considered to derive a realistic ultimate quantum."
Deutsche Bank's US base-case present liability range is US$2bn-US$13bn but a "downside scenario" is US$5-US$54bn.
For future liabilities, an international element, if precedent is a guide, is likely to be a "minor" further risk, they added.