Abbott Laboratories and Reckitt Celebrate Legal Triumph in Baby Food Dispute

The shares of Abbott Laboratories rose by nearly 5 percent pre-market on Friday after a jury cleared the company and a Reckitt subsidiary of liability. The trial revolved around the risks of their specialized infant formula for premature babies. On Thursday in St. Louis, Missouri, it was determined that Abbott and the Reckitt unit Mead Johnson are not responsible for a severe intestinal disease in a young boy. This marks the first success for the companies following significant losses in two previous cases. The case was one of approximately 1,000 similar lawsuits pending nationwide. These alleged that the companies did not sufficiently warn neonatal intensive care units about the potential for their specialized formula to lead to necrotizing enterocolitis (NEC). NEC almost exclusively affects premature babies and has an estimated mortality rate of more than 20 percent. Following the verdict, J.P. Morgan analyst Robbie Marcus highlighted that the legal success could significantly reduce Abbott's potential liability, thereby strengthening the company's negotiating position in any future settlements. Court rulings in two prior cases already resulted in settlement payments of $60 million against Mead and $495 million against Abbott. However, U.S. regulators and some scientists convened by the National Institutes of Health have stated that current evidence does not support the hypothesis that the formula causes NEC. Although these statements could not be considered in the recent trial, Evercore analyst Vijay Kumar emphasized that they further strengthen Abbott's position. Compared to Reckitt, whose shares are valued at 14.73 times their expected earnings, Abbott’s shares have a valuation multiple of 24.25.