It’s fair to say it’s been a bad week for both GSK (LSE: GSK) and Haleon (LSE: HL) shares. After starting the week at 1,667p, GSK has fallen to around 1,430p. Spin-off Haleon, meanwhile, has fallen to around 266p after beginning the week at 308p.
So, what’s going on with these two UK stocks? And has the recent share price weakness provided a buying opportunity for me?
Why GSK and Haleon are down this week
The reason the two companies have seen their share prices fall this week is that investors are concerned about US litigation related to Zantac, a heartburn drug. Zantac – which was originally marketed by a forerunner of GSK – was withdrawn from shelves in 2019 after being linked to cancer.
According to Credit Suisse, more than 2,000 lawsuits have been filed in the US (against a number of healthcare companies that sold the drug), with the first trial beginning later this month. And analysts at Morgan Stanley say the total damages could be as high as $40bn.
I’ll point out that this is not exactly new news. The issue has been rumbling on in the background for several years now and in its recent prospectus, Haleon highlighted the risk of potential lawsuits. However, the litigation has received more media attention lately, and as a result, investors have panicked.
“I think the panic … really comes down to market psychology as opposed to having learned anything new,” wrote Barclays analyst Emily Field in an email earlier this week.
Zantac statements
It’s worth noting that both GSK and Haleon have released statements regarding Zantac litigation today.
It its statement, GSK said:
- Based on investigations and experiments, GSK, the US Food & Drug Administration (FDA), and the European Medicines Agency all independently concluded that there’s no evidence of a causal association between Zantac and the development of cancer.
- Plaintiff litigation is inconsistent with the scientific consensus and the company will vigorously defend all claims.
Meanwhile, in its statement, Haleon said:
- It’s not aware of any material developments in relation to the Zantac litigation since the Haleon prospectus was issued in June.
- It’s not a party to any of the Zantac claims.
These statements suggest to me that both companies believe that they’re in the clear here.
Is this a buying opportunity?
After the recent share price falls, both GSK and Haleon trade at relatively low valuations. GSK trades at around 11 times this year’s forecast earnings while Haleon trades at around 15. So, there could be some value on offer here. However, given the uncertainty over the litigation, I’m not convinced the risk/reward is so attractive right now.
Looking past the potential litigation, there are other issues that concern me. GSK has lost its consumer health business, which was the area of the business I liked the most due to its stability. Without this, revenues could be more volatile.
Meanwhile, Haleon has a huge debt pile, which is an issue in a rising-interest-rate environment. Additionally, GSK and Pfizer plan to sell their Haleon shares when the lock-up period ends in November. This could put pressure on the share price.
All things considered, I think the best move, for me personally, is to leave these two stocks alone for now and focus on better, safer opportunities.
