Abbott Labs (NYSE:ABT) stock is falling more than 4% after a St. Louis jury found its premature infant baby formula responsible for a potentially fatal bowel disease.
As of this writing, ABT stock is trading around the $100 mark. The market capitalization of Abbott is $175 billion on estimated sales of $38.4 billion for 2024.
A Formula for Legal Trouble
The case was filed on behalf of Margo Gill and her daughter, who developed necrotizing enterocolitis (NEC) and suffered severe brain damage after being given a formula derived from cow’s milk called Similac Special Care 24.
The case is among more than 1,000 claims against Abbott, Reckitt Benckiser (OTCMKTS:RBGLY) and other formula makers. A $60 million verdict was rendered against Reckitt in March for its Enfamil formula, which also used cow’s milk. RBGLY stock is down more than 9% as of this writing.
Reckitt has been trying to distance itself from its Mead Johnson unit, which makes Enfamil. An analyst called the Abbott ruling a “worst case scenario” for any effort to spin off or sell the business.
James Hurst, an attorney for Abbott Labs, called the $400 million punitive award and $95 million in compensatory damages a “gut punch.” One spokesman for the company said there are few options for feeding premature babies who can’t breastfeed. Abbott argued in court that “there is no scientific evidence showing that Abbott’s preterm infant products cause or contribute to causing NEC.” Rather, the company argued the damage was caused by birth trauma.
Shareholders sued Abbott last year over the 2022 closure of its Michigan baby formula plant. President Joe Biden’s administration has also been criticized for its support of the global formula industry.
Analysts estimate that the global market for infant formula is worth over $53.5 billion and is expected to grow at a compound annual growth rate (CAGR) 0f 5.6% between 2024 and 2029. Abbott, Reckitt, Perrigo (NYSE:PRGO) and Nestle (OTCMKTS: NSRGY) collectively control a majority of the U.S. market.
What Happens Next?
Abbott will appeal the verdict, as Reckitt appealed its verdict. Shares in all the big baby formula makers are down on the year.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
