Reckitt Benckiser shares rise after infant formula lawsuit win

Reckitt Benckiser’s Mead Johnson has been found not liable over claims that its premature baby formula was responsible for causing intestinal disease, prompting a recovery in shares in the consumer goods giant.
A United States jury found that Mead Johnson, Reckitt’s nutrition subsidiary, did not behave negligently when it supplied premature baby infant formula without risk warning labels related to infant intestinal disease. The jury also found in favour of Reckitt’s co-defendant, Abbot Labs.
Shares in Reckitt rose 9 per cent, or 418p, to £51.02 this morning.
This is the third such case: Mead Johnson and Abbot each lost one of the previous two.
The latest case is expected to go to appeal and broader legal action is due to take place next year, with close to a thousand lawsuits filed in the United States related to similar claims, prompting warnings about the viability of keeping the infant formulas on the market.
The lawsuits allege that the companies did not warn doctors that babies receiving the formula were at greater risk of necrotising enterocolitis, a disease that almost exclusively affects premature infants and has an estimated mortality rate of more than 20 per cent.
There was a $60 million award against Mead in March after a mother said her premature baby had died after consuming Enfamil premature baby formula. Reckitt is appealing against that verdict
In July a jury found that Similac, Abbott Laboratories’ specialised baby milk formula for premature babies and a product similar to Enfamil, had caused a girl to develop necrotising enterocolitis, a potentially deadly bowel disease. Abbot was ordered to pay $495 million.
The latest case relates to a young boy’s debilitating intestinal disease and the two companies are accused of a failing to warn of their premature baby formulas’ risks. The formulas are used by newborn intensive care units in hospitals.
At the five-week trial in St Louis, Missouri state court, lawyers for Kaine Whitfield, the plaintiff, had urged jurors to award more than $6.2 billion.
Kaine, now seven years old, was born prematurely at less than 28 weeks and developed the disease after being fed formula. He had surgery for his illness and survived but will have lifelong developmental and health problems as a result, according to the lawsuit.
Mead Johnson said the verdict “demonstrates that the claims in this case were not supported by the science or experts in the medical community”.
The investment bank Jefferies said the outcome “could lessen concerns on final settlement liabilities” and predicted that Reckitt’s share price would recover some of the decline it had suffered since the litigation began.
Reckitt said in July said it was “considering options” for Mead Johnson.
For very premature babies, the mother is usually not lactating and doctors typically use a combination of donor breast milk and specialised formulas to feed the babies.
Although there is an acceptance that breast milk is better at protecting against necrotising enterocolitis, Reckitt and Abbott, a United States life sciences and nutrition business, deny that their formulas, which are available only in hospitals, cause the disease.
In an analysts’ note, David Hayes and Molly Wylenzek, of Jefferies, wrote of Reckitt: “With the litigation risk still not done, the stock is likely to move somewhere between £47 today and towards £55, based on pre-litigation valuation levels.”
Reckitt is a FTSE 100 consumer goods group that makes and sells dozens of brands. It acquired Mead Johnson, owner of the Enfamil infant formula brand, in a $16.6 billion deal in 2017.
Analysts at RBC Europe said the verdict “feels like a big deal, putting a spoke in the wheels of what has hitherto been an unremittingly adverse narrative”.
Following the earlier verdicts, regulatory agencies in the United States and a working group of scientists convened by the National Institutes of Health said current evidence did not support the hypothesis that formula causes necrotising enterocolitis. Abbott and Mead were not allowed to present those statements to the jury in the latest trial.