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Reckitt’s share price dropped to its lowest level in more than a decade on Monday after a jury in the US ruled against competitor Abbott Laboratories in the latest in a series of lawsuits against the two companies over the health impacts of their premature infant formulas.
The consumer goods group’s share price fell 9.6 per cent as the market digested the news from late on Friday that a jury in Missouri had awarded $495mn in damages to a mother whose child suffered brain damage after consuming an Abbott product.
Reckitt’s shares plummeted as much as 20 per cent in March following a similar trial in which a jury awarded $60mn in damages to a mother who said her baby died after consuming Enfamil baby formula, which is manufactured by Reckitt’s US infant formula business Mead Johnson.
The group has sought to overturn the verdict, arguing that it has no scientific basis. Medical professionals say that while breast milk reduces the risk of NEC in premature babies, specialised infant formula is sometimes the only feed available.
Investors were waiting for the outcome of the next trial to get a better sense of whether the March verdict against Reckitt could escalate into a long-running class action. A wave of similar claims have been filed in state and federal courts across the US targeting both Mead Johnson and Abbott.
Jefferies analysts said the Abbott ruling was “not helpful for sentiment” and had already estimated a discount for the legal liability of £3bn.
“With [Reckitt’s] own new individual trial due to start on September 30 and MDL [multidistrict litigation] action gaining momentum, that risk may be extended this week we think,” they wrote.
Barclays estimates a settlement cost for Reckitt of between £500mn and £2bn.
In the two cases, lawyers successfully claimed that Reckitt and Abbott had failed to warn parents that formula feeding increased the risk of contracting necrotising enterocolitis, an often fatal bowel disease in premature infants.
Iain Simpson, an analyst at Barclays, said the outcome of the Abbott trial was “close to a worst-case scenario”.
“Precedent suggests this sum may well be substantially reduced on appeal, but it is notably larger than the $60mn awarded against Reckitt in the Watson case in Illinois in March,” he wrote.
The share price moves come days after Reckitt announced it was assessing strategic options for Mead Johnson, which has been a thorn in the side of the consumer group since it acquired it for $17bn in 2017.
Top shareholders have been pushing for Reckitt to offload the business but, with a litigation risk hanging over the company, the possibility of an initial public offering or sale are slimmer.
