Abbott Laboratories’ US$500M verdict impacts Reckitt Benckiser

USA – Abbott Laboratories has been ordered to pay US$400 million in punitive damages and US$95 million in compensatory damages after a St. Louis jury found that the company failed to warn adequately that its infant formula could cause necrotizing enterocolitis (NEC).

The lawsuit, which alleged that a premature infant developed NEC, a potentially fatal disease,  after being given Abbott’s Similac and/or Reckitt’s Enfamil cow’s milk-based formula, is the first of nearly 1,000 such cases against major US infant formula manufacturers.

This verdict follows similar litigation involving Mead Johnson Nutrition (MJN), where Reckitt Benckiser, the parent company, was previously ordered to pay US$60 million in damages related to a preterm infant’s death attributed to Enfamil-branded formula.

The Abbott verdict has had significant repercussions, causing Reckitt Benckiser’s shares to drop to their lowest level in over a decade.

As of July 29, 2024, Reckitt’s shares were down by more than 9%. This development has intensified scrutiny on Reckitt Benckiser, which is already grappling with a tornado disaster that has shut down one of its key US distribution hubs.

In response to the Abbott ruling and ongoing litigation, Reckitt Benckiser CEO Kris Licht announced during the company’s HY24 results briefing that the company is considering selling Mead Johnson Nutrition. However, he emphasized that “all options” remain on the table.

Reckitt aims to streamline its portfolio, focusing on several “power brands.” Licht expressed a commitment to shareholder interests and suggested that a quick sale could be beneficial if it aligns with those interests.

“We want to do what’s right for shareholders, and we’ll look at all options,” Reckitt said, adding he’d welcome a quick sell-off.

Licht also commented on the Watson lawsuit, which Reckitt is appealing, noting that he does not expect it to significantly affect the litigation’s ultimate outcome.

Analysts from Jefferies believe that the Abbott trial’s outcome could further depress sentiment regarding the risk associated with both Abbott and Reckitt in these claims. They estimate that Reckitt has already factored in potential liability risks into its share price for the upcoming year.

Jefferies analysts also noted that Abbott’s market capitalization has declined by approximately US$30 billion since the initial verdict against Reckitt in March 2024.

Despite the challenges, Reckitt Benckiser remains focused on its strategic options. Licht acknowledged the complexity and uncertainty of ongoing litigation but highlighted that the business remains fundamentally strong and more stable than before the infant formula crisis.

Reckitt Benckiser’s efforts to streamline operations and explore strategic alternatives will be crucial as it navigates these turbulent times.