Big Pharma Is Headed For A Big Lawsuit

Image source: Wikimedia Commons

What's going on?

Shares of major pharmaceutical firms GlaxoSmithKline (GSK), Haleon, and Sanofi tumbled last week as a potentially cancer-causing drug goes to court.

What does this mean?

Heartburn drug Zantac was pulled from the market in 2020 when it was found to contain a cancer-causing substance, and drugmakers GSK and Sanofi have been braced for a lawsuit ever since. But if investors were shocked that Big Pharma could put profit above health, they certainly didnt show it until now. Legal proceedings are kicking off next week, and investors suddenly seem a lot more nervous about holding stocks that could be affected. There could be a few worth worrying about too, since Sanofi is just one of many drugmakers with rights to the drug, and there are a handful of distributors involved as well. But GSK could have the most to lose: the powerhouse first brought Zantac to the market, and its spin-off Haleon might be tarred with the same brush. Investors just ditched them all: shares of GSK, Haleon, and Sanofi fell about 10% last week.

Why should I care?

For markets: Bayers remorse.


Investors value a company based on the cash its expected to make in the future, so anything including potentially billion-dollar lawsuits that threatens those cash flows will reduce what an investors willing to pay for the shares today. After all, theyve seen profit-wrecking pharma payouts before: Bayer bought agricultural biotechnology firm Monsanto for $63 billion in 2018, and ended up paying $12 billion only a couple years later to settle lawsuits around Monsantos weed-killer Roundup.



For you personally: Not-so-defensive stock.


This isnt great timing: investors tend to hold healthcare stocks during recessionary times like these because they make products people need no matter what. Still, some investors will fare better than others: those who own a basket of healthcare stocks via an exchange-traded fund rather than individual ones are better protected against selloffs that affect a few specific companies.

Originally posted as part of the Finimize daily email.

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