Reckitt Benckiser Sees Share Surge After Legal Victory in Infant Formula Case
Reckitt Benckiser’s subsidiary, Mead Johnson, has been exonerated in a lawsuit concerning its premature baby formula, which was accused of causing intestinal disease in infants. This verdict has resulted in a notable increase in the company’s share price.
A jury in the United States determined that Mead Johnson, which specializes in nutritional products, did not act carelessly by providing infant formula for preterm babies without appropriate warnings about the risks of intestinal diseases. The jury also ruled in favor of Abbott Laboratories, Mead’s co-defendant in the case.
The positive verdict led Reckitt’s shares to rise by 6.6 percent, equating to an increase of 310p, closing at £49.94 on Friday.
This lawsuit marks the third in a series of cases; previously, each company had lost one of the prior suits.
Despite this favorable outcome, the latest case is anticipated to be appealed, and further legal challenges are set for next year, with nearly a thousand similar lawsuits filed in the United States, raising concerns regarding the continued availability of these infant formulas.
The lawsuits contend that the companies failed to inform healthcare professionals of the heightened risk of necrotizing enterocolitis (NEC) for infants using their formulas. NEC is a severe intestinal condition primarily affecting premature infants, with a reported mortality rate exceeding 20 percent.
Earlier this year, a jury ordered Mead Johnson to pay $60 million after a lawsuit stated that a mother’s premature baby died after using the Enfamil formula. Mead Johnson is currently appealing that decision.
In a related case in July, a jury found that Abbott’s Similac brand—which is comparable to Enfamil—had caused a child to develop necrotizing enterocolitis, resulting in a $495 million liability for Abbott.
The recent case centers on a young boy who developed a significant intestinal illness, with allegations that the two companies did not adequately warn about the dangers associated with their infant formulas, which are frequently utilized in neonatal intensive care units.
During the five-week trial held in St. Louis, Missouri, the legal team representing the plaintiff, Kaine Whitfield, urged jurors to award damages exceeding $6.2 billion.
Kaine, who is now seven years old, was born prematurely at under 28 weeks and was diagnosed with the disease after being fed formula. He underwent surgery for his condition and will suffer from long-term health and developmental issues, as per the lawsuit.
Mead Johnson remarked that the verdict signifies that the claims presented lacked support from scientific evidence or consensus within the medical community.
Investment analysts at Jefferies expressed that the ruling could reduce concerns regarding potential settlement liabilities and foresee that Reckitt’s stock price will bounce back from the declines experienced since the litigation commenced.
In statements made in July, Reckitt indicated that it was exploring various options concerning Mead Johnson.
For extremely premature infants, since mothers often are unable to produce milk, a mix of donated breast milk and specialized formulas is typically utilized for feeding.
Although it’s widely accepted that breast milk offers better protection against necrotizing enterocolitis, both Reckitt and Abbott refute claims that their hospital-exclusive formulas cause the condition.
In an analyst note, Jefferies analysts David Hayes and Molly Wylenzek commented on Reckitt, suggesting that while litigation risks continue, the share price may fluctuate between £47 and £55, reflecting pre-litigation valuations.
As a member of the FTSE 100, Reckitt is a major player in the consumer goods sector with a wide portfolio of brands. The company acquired Mead Johnson, the maker of Enfamil, in a $16.6 billion transaction in 2017.
Analysts at RBC Europe noted the verdict as significant, stating it alters the previously negative narrative surrounding the companies involved.
Following prior verdicts, U.S. regulatory bodies and a scientific working group formed by the National Institutes of Health concluded that available evidence did not support the theory that formula feeds lead to necrotizing enterocolitis. Both Abbott and Mead were restricted from presenting these findings during the recent trial.
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