Market reaction to Sanofi's upcoming litigation over Zantac is 'overblown,' analysts say

A sudden downturn in the market value of Sanofi—largely fueled by concerns about upcoming multi-district litigation in the United States over heartburn drug Zantac—has some declaring that the sky is falling for the French pharma.

But is it really? Analysts from SVB Securities and ODDO BHF believe the market is overreacting to the news.

After Sanofi acquired the antacid from Boehringer Ingelheim in a 2017 asset swap, the company pulled the med from the U.S. market in 2019. The move came during an FDA investigation that eventually found Zantac produced high levels of a potential cancer-causing agent called N-nitrosodimethylamine (NDMA) when exposed to heat over a period of as little as five days.

Plaintiffs have filed lawsuits in several states—including Illinois, Florida and California—alleging that Sanofi knew of the danger and failed to warn customers before taking it off shelves. But ODDO analysts Martial Descoutures and Damian Choplain say it will be a tough case to prove.

“We see two aspects in favor of Sanofi,” they wrote to clients Thursday. For one, Sanofi "immediately withdrew the product from the market at the beginning of the FDA’s questioning as a preventative measure," the analysts wrote.

Plus, the level of the carcinogen "synthesized through Zantac is reportedly lower than the amounts found in common foods," the analysts continued.

Similarly, SVB believes the Zantac risk is “overblown.” Analyst David Risinger points out that additional stock pressure has come from Monday’s news that an independent data monitoring committee has recommended studies of Sanofi’s tolebrutinib should be put on hold worldwide because of liver toxicity concerns.

“We believe the weakness presents a buying opportunity given the stock’s valuation,” Risinger wrote in a note to clients. “Sanofi appears to have relatively low exposure to potential liability given that the company only marketed Zantac for two years versus 3-11 years for other major companies.”

Other companies that had marketing rights to Zantac include its developer GSK (1995-98) and Pfizer (2000-06). The share prices of GSK and its newly formed consumer spinout Haleon have fallen significantly this week. While Haleon's have dropped from $7.49 on Monday to $6.30 by mid-morning on Thursday, GSK’s shares have tumbled from $40.00 on Tuesday to $35.22 by mid-morning on Thursday.

All of the companies have been named in the lawsuits. Pfizer and Boehringer have remained quiet, but on Thursday GSK and Sanofi responded with adamant rebukes of the claims. 

"The overwhelming weight of the scientific evidence supports the conclusion that there is no increased cancer risk associated with the use of ranitidine," GSK said in a release. "GSK will vigorously defend itself against all meritless claims alleging otherwise."

In its statement, Sanofi expressed dismay that the "highly speculative news flow regarding the U.S. Zantac litigation" had sparked such reaction during a period devoid of any "material developments."

Sanofi also pointed to the short duration that it marketed Zantac and that it is not a defendant in many of the cases set to go to trial. 

Also on Thursday, Haleon told Reuters that it bears no responsibility in the litigation.

“We have never marketed Zantac in any form in the U.S., as Haleon or as GSK consumer healthcare,” a spokesperson told the news outlet.

Meanwhile, Sanofi's share price has taken a similar fall, going from $48.66 on Tuesday to $43.02 by mid-morning on Thursday. Pfizer has seen a drop in its value this week as well, though much less dramatic.

The recent selloffs were sparked, according to Bloomberg, by an investor note from Morgan Stanley that said the companies could be exposed to liabilities of $10.5 billion to $45 billion. The estimate was based on similar litigation settlements in the past. 

At the start of August, Sanofi said it was aware of roughly 2,850 plaintiffs who had filed against the company. ODDO points out that the numbers will grow if the first verdict in Illinois finds the company liable. Still, ODDO said that an 8% drop in Sanofi's valuation this week is "excessive," compared to the potential losses the company could sustain.

Based on its statement, Sanofi doesn't expect the losses to amount to much.

"The science does not support the plaintiffs’ claims in this litigation," Sanofi said. "There is no reliable evidence that Zantac causes any of the alleged injuries under real-world conditions, and Sanofi remains fully confident in its defenses. Given the strength of our case and the uncertainty of future proceedings, no contingencies have been established."