Abbott on the Rise: Jury Verdict Brings Progress in Baby Food Legal Dispute

Shares of Abbott Laboratories rose nearly five percent in premarket trading on Friday. This positive development followed a court ruling that cleared both the company and a Reckitt unit from liability in a lawsuit related to premature infant formula. On Thursday, a jury in St. Louis, Missouri, determined that neither Abbott nor the Reckitt unit Mead Johnson was responsible for the severe intestinal disease of a young boy. This marks the first major success for the companies after losses in two prior cases. The lawsuit was one of about 1,000 similar cases in the U.S. that accused the companies of failing to properly warn about the risks of their specialized formulas used in neonatal intensive care units. At the center of these cases is necrotizing enterocolitis (NEC), a condition that almost exclusively affects premature infants and has a mortality rate exceeding 20 percent. Following the verdict and the "overwhelming societal support for infant formula," J.P. Morgan analyst Robbie Marcus believes it is prudent to reduce potential liability and improve Abbott's chances in future trials or at least strengthen the company's negotiating power in potential settlements. He noted that investors had anticipated potential liabilities of $2 billion to $3 billion in NEC-related cases, and the recent victory could reduce Abbott's total liability by $500 million to $1 billion. Previous judgments had led to settlements of $60 million against Mead and $495 million against Abbott. Nevertheless, U.S. authorities and some scientists convened by the National Institutes of Health found that current evidence does not support the hypothesis that the formula causes NEC. Although companies were not allowed to present the authorities' statements to the jury in this trial, Evercore analyst Vijay Kumar believes this further strengthens Abbott's position in NEC-related litigation. Abbott's shares are currently valued at 24.25 times their estimated earnings for the next twelve months, compared to 14.73 for Reckitt.