Abbott’s $495m verdict sends shockwaves across the infant formula space

Abbott Laboratories was told to pay $400m in punitive and $95m in compensatory damages after a St. Louis trial jury found the infant formula manufacturer had failed to warn its formula could cause necrotizing enterocolitis (NEC), a potentially deadly disease, in premature babies.

The lawsuit, which claimed a premature infant developed NEC after being given Abbott’s Similac and/or Reckitt’s Enfamil cow’s milk-based formula, is the first in almost 1,000 against one of the largest US infant formula manufacturers.

It follows similar litigation against Mead Johnson Nutrition (MJN), with both companies now having been found to have contributed to a premature infant contracting NEC and failing to provide sufficient warnings. In the earlier lawsuit against Reckitt, the Enfamil maker was told to pay $60m in damages (more on this here​).

The Abbott verdict sent shockwaves across the Atlantic today, July 29, 2024, hitting the share value of MJN parent Reckitt Benckiser, which sunk to their lowest level in more than a decade. As of midday GMT, Reckitt’s shares are still more than 9% down.

Last week during Reckitt’s HY24 results press briefing, CEO Kris Licht announced the CPG major would consider selling MJN but that ‘all options’ remain on the table as Reckitt looks to focus its portfolio into several ‘powerbrands’ – more on this here​.

Licht said he believed the Watson lawsuit, which the company is appealing, “is not going to be a driver of the ultimate outcome of this litigation”.

But analysts from Jefferies think the outcome of the Abbott trial ‘is likely to depress sentiment on the risk for both cited defendants in these claims’. Jefferies estimates Reckitt is already discounting its share price in light of liability risk next year.

The analysts note that Abbott shares have lost around $30bn in market capital since the first verdict against Reckitt in March.

How the Abbott verdict went down

The case (Gill v. Abbott Laboratories, No. 2322-CC01251) was held in a St. Louis state court. It began July 9 before judge Michael Noble in the 22nd Judicial Circuit Court of Missouri.

The plaintiff, Illinois resident Margo Gill, brought the claim on behalf of her preterm baby, alleging the child developed NEC after being given Similac and/or Enfamil cow's milk-based products. The infant was forced to undergo surgery and has continued to suffer long-term health consequences.

Gill's legal representatives from Stranch, Jennings & Garvey and TorHoerman Law highlighted that of around 42,600 premature infants, 4,400 contract NEC, with 50% mortality. They argued that Abbott failed to provide adequate warning to the medical community and parents on the increased risk of contracting the disease, claiming that documents found at the company showed that the infant formula maker knew of risks.

Abbott's lawyers countered that the plaintiff was advancing a theory without merit and denied its formula caused NEC. The company also cited expert medical opinion that its product does not directly contribute to causing NEC and aimed to demonstrate that the NEC complications resulted from the preterm infant’s complicated birth, arguing oxygen deprivation had contributed to brain damage and NEC causation.

Abbott’s defense further claimed that the lack of warnings would not have made a difference in the case and the choice of formula used, suggesting that the packaging was not available to the family and they had been relying on the physicians.

A majority of jurors (9 out of 12, with a majority only needed in civil case trials in the US to return a verdict) found in favor of the plaintiff and also decided that Abbott had failed to provide warnings related to the risks of contracting NEC.

Why was Abbott told to pay more than Reckitt?

In contrast to Reckitt’s $60m verdict, Abbott Laboratories has been hit with a much heftier amount of damages at $495m in total. This is due to the punitive damages claim in the Abbott trial. Meanwhile, the Watson case against Reckitt was only for compensatory damages, with the plaintiff unable to request punitive damages under local law.

As for how the punitive damages claim was calculated in the Abbott trial, the compensatory claim sought by the plaintiff was outlined to start at $124m hust for the loss of benefits and medical costs; with the punitive damages claim directed to be ‘at least 3 times that’.

Reckitt is facing fresh litigation starting September 30.

A federal multi-district litigation against both MJN and Abbott is also gathering pace. Around 1,000 lawsuits have been filed in total, with more than 500 centralized in an Illinois federal court.