(Reuters) – Abbott Laboratories shares rose nearly 5% before the bell on Friday, after a jury cleared the company and a Reckitt unit of liability in a lawsuit over their premature baby formulas’ risks.
A jury in St. Louis, Missouri found on Thursday that Abbott and Reckitt unit Mead Johnson are not responsible for a young boy’s severe intestinal disease, marking the first victory for the companies after large losses in two previous trials.
The lawsuit was one of about 1,000 similar cases pending nationwide over allegations the companies failed to warn that their specialized formulas used by newborn intensive care units in hospitals could cause necrotizing enterocolitis (NEC).
NEC almost exclusively affects premature infants and has an estimated mortality rate of more than 20%.
After the verdict and the “overwhelming societal support of infant formula, we think its prudent to lower the liability exposure and raise the odds of an Abbott victory in the trials, or at least improve the company’s negotiating power in a settlement,” J.P.Morgan analyst Robbie Marcus said in a note.
Marcus said investors were assuming a potential liability of $2 billion to $3 billion in NEC-related cases and the win could reduce Abbott’s total liability by $500 million to $1 billion.
Verdicts in two lawsuits had already led to settlements of $60 million against Mead and $495 million against Abbott.
After that, however, U.S. regulatory agencies and some scientists convened by the National Institutes of Health said current evidence does not support the hypothesis that the formula causes NEC.
While the companies were not allowed to present the agencies’ statement to the jury in the latest trial, Evercore analyst Vijay Kumar said it further strengthens Abbott’s position in NEC-related lawsuits.
Abbott shares are priced at 24.25 times their estimated earnings for the next 12 months, a common benchmark for valuing stocks, compared with 14.73 for Reckitt.
(Reporting by Mariam Sunny in Bengaluru; Editing by Shilpi Majumdar)
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