Baby formula lawsuit wipes £7bn off FTSE 100 giant
Daniel Woolfson
Mon, March 18, 2024
A feeding bottle with infant formula - Liudmila Chernetska/iStockphoto
Consumer goods giant Reckitt has suffered a £7bn share price slump after it lost a US legal case claiming its baby formula contributed to the death of a premature child.
London-listed Reckitt’s share price plunged by the most in two decades and to its lowest point in more than a decade after an Illinois jury ruled Reckitt had failed to warn about the risks of necrotising enterocolitis (NEC) from its milk-based Enfamil brand products.
NEC is an illness that damages the stomach and tends to affect premature babies. Reckitt’s US subsidiary Mead Johnson Nutrition had been sued by Jasmine Watson, who claimed the baby formula caused the death of her premature baby.
FTSE 100-constituent Reckitt has now been ordered to pay Ms Watson $60m (£47m) after losing the case.
Ashley Keller, a lawyer for Ms Watson, said: “The jury’s finding confirms what Mead Johnson folks already knew – that its formula dramatically increases the NEC risk. “This is the first verdict in the US, but won’t be the last, unless baby formula makers accept responsibility for their misdeeds.”
News of the decision sparked a near 20pc plunge in Reckitt’s share price, wiping around £7.3bn ($9.3bn) from its market value.
It comes amid hundreds of US lawsuits against formula makers over NEC. The Illinois case was the first to go to a jury trial.
Shares in Abbott Laboratories, another formula maker facing legal claims, fell almost 5pc. Jurors took less than two hours to decide that Mead Johnson should pay $60m in compensatory damages. Mr Keller said: “We only asked for $25m, but the jury came back with more than double that.”
More than 400 suits targeting Mead Johnson and Abbott are consolidated before a federal judge in Chicago for pre-trial information exchanges. The judge hasn’t yet scheduled a trial. Thousands of other suits are pending in state courts, Mr Keller said. Reckitt continues to insist its products are safe and not linked to NEC. It has vowed to appeal the Illinois case.
NEC has a fatality rate of as much as 40pc. It is a major cause of death among premature babies, though rarely occurs in full-term babies.
The disease, which affects intestinal tissues, can be hard to diagnose. According to the NHS, symptoms can include general signs of illness, problems feeding or vomiting, and a swollen and tender abdomen.
While it has a high fatality rate, it can be treated with intravenous feeding and antibiotics. In some cases it can require surgery.
Reckitt said in a stock market update that it stands by the safety of its products and “strongly rejects any assertion that any of our products cause NEC”.
The company added: “It is important to note that this is a single verdict in a single case and should not be extrapolated.
“This case, and others like it, exclusively involve products used under the strict supervision of neonatologists in neonatal intensive care units and provide lifesaving nutrition options for vulnerable premature infants.
“We are, of course, surprised and deeply disappointed with the verdict and will pursue all options to have it overturned.”
Reckitt is one of the world’s largest consumer goods companies, pulling in revenues of £14.6bn in 2023. As well as Enfamil, it makes products such as Durex condoms, Cillit Bang cleaning fluid and Gaviscon.
Nutrition brands account for about 16pc of its sales, contributing £2.4bn to its turnover last year.
News of the Illinois jury’s decision marks the latest in a series of blows for the company, which last month revealed a £55m hit to revenues caused by an accounting controversy in the Middle East.
Kris Licht, chief executive at Reckitt, said the company had unearthed “some commercial practices that we weren’t particularly pleased with”, leading to the dismissal of a number of employees.
Reckitt in January recalled two baby formula products from sale in the UK amid concerns they could contain dangerous bacteria, in an event unrelated to the case in the US.
Daniel Woolfson
Mon, March 18, 2024
A feeding bottle with infant formula - Liudmila Chernetska/iStockphoto
Consumer goods giant Reckitt has suffered a £7bn share price slump after it lost a US legal case claiming its baby formula contributed to the death of a premature child.
London-listed Reckitt’s share price plunged by the most in two decades and to its lowest point in more than a decade after an Illinois jury ruled Reckitt had failed to warn about the risks of necrotising enterocolitis (NEC) from its milk-based Enfamil brand products.
NEC is an illness that damages the stomach and tends to affect premature babies. Reckitt’s US subsidiary Mead Johnson Nutrition had been sued by Jasmine Watson, who claimed the baby formula caused the death of her premature baby.
FTSE 100-constituent Reckitt has now been ordered to pay Ms Watson $60m (£47m) after losing the case.
Ashley Keller, a lawyer for Ms Watson, said: “The jury’s finding confirms what Mead Johnson folks already knew – that its formula dramatically increases the NEC risk. “This is the first verdict in the US, but won’t be the last, unless baby formula makers accept responsibility for their misdeeds.”
News of the decision sparked a near 20pc plunge in Reckitt’s share price, wiping around £7.3bn ($9.3bn) from its market value.
It comes amid hundreds of US lawsuits against formula makers over NEC. The Illinois case was the first to go to a jury trial.
Shares in Abbott Laboratories, another formula maker facing legal claims, fell almost 5pc. Jurors took less than two hours to decide that Mead Johnson should pay $60m in compensatory damages. Mr Keller said: “We only asked for $25m, but the jury came back with more than double that.”
More than 400 suits targeting Mead Johnson and Abbott are consolidated before a federal judge in Chicago for pre-trial information exchanges. The judge hasn’t yet scheduled a trial. Thousands of other suits are pending in state courts, Mr Keller said. Reckitt continues to insist its products are safe and not linked to NEC. It has vowed to appeal the Illinois case.
NEC has a fatality rate of as much as 40pc. It is a major cause of death among premature babies, though rarely occurs in full-term babies.
The disease, which affects intestinal tissues, can be hard to diagnose. According to the NHS, symptoms can include general signs of illness, problems feeding or vomiting, and a swollen and tender abdomen.
While it has a high fatality rate, it can be treated with intravenous feeding and antibiotics. In some cases it can require surgery.
Reckitt said in a stock market update that it stands by the safety of its products and “strongly rejects any assertion that any of our products cause NEC”.
The company added: “It is important to note that this is a single verdict in a single case and should not be extrapolated.
“This case, and others like it, exclusively involve products used under the strict supervision of neonatologists in neonatal intensive care units and provide lifesaving nutrition options for vulnerable premature infants.
“We are, of course, surprised and deeply disappointed with the verdict and will pursue all options to have it overturned.”
Reckitt is one of the world’s largest consumer goods companies, pulling in revenues of £14.6bn in 2023. As well as Enfamil, it makes products such as Durex condoms, Cillit Bang cleaning fluid and Gaviscon.
Nutrition brands account for about 16pc of its sales, contributing £2.4bn to its turnover last year.
News of the Illinois jury’s decision marks the latest in a series of blows for the company, which last month revealed a £55m hit to revenues caused by an accounting controversy in the Middle East.
Kris Licht, chief executive at Reckitt, said the company had unearthed “some commercial practices that we weren’t particularly pleased with”, leading to the dismissal of a number of employees.
Reckitt in January recalled two baby formula products from sale in the UK amid concerns they could contain dangerous bacteria, in an event unrelated to the case in the US.
Rupert Hargreaves
Fri, 15 March 2024
Products produced by Reckitt Benckiser REUTERS/Stephen Hird
Shares in FTSE 100 consumer goods giant Reckitt plunged more than 15 per cent on Friday as concerns grew about the firm’s exposure to lawsuits in the US.
On Wednesday, an Illinois jury ordered Reckitt’s unit Mead Johnson to pay $60m (£41.1m) to the mother of a premature baby who died of an intestinal disease after being fed Mead’s baby formula product Enfamil.
The trial was the first of several hundred trials that are set to come to court surrounding the baby formula, and the result was always going to be seen as a test case for the company.
Mead Johnson could still appeal the Illinois court ruling.
More importantly for investors, the cleaning products to baby formula producer hasn’t made a provision for the lawsuits.
In a statement published late Friday afternoon, Reckitt said: “Reckitt/Mead Johnson stands by the safety of our products. We strongly reject any assertion that any of our products cause NEC, a serious gastrointestinal problem that mostly affects premature infants.
“While we continue to offer our deepest condolences to Ms. Watson, we strongly disagree with the jury’s decision to fault Mead Johnson and award damages. We continue to believe that the allegations from the plaintiff’s lawyers in this case were not supported by the science or experts in the medical community. This was underscored during the trial by a dozen neonatologist,” the statement continued.
The company added: “It is important to note that this is a single verdict in a single case and should not be extrapolated.
“This case, and others like it, exclusively involve products used under the strict supervision of neonatologists in neonatal intensive care units and provide lifesaving nutrition options for vulnerable premature infants.”
Reckitt summarized: “We are of course, surprised and deeply disappointed with the verdict and will pursue all options to have it overturned.”
The size of the initial case and the further impending court cases suggest Reckitt could be forced to make a substantial charge and provision for payouts that would take a large chunk out of its bottom line.
Reckitt reported an adjusted operating income of £3.4bn for 2023, disappointing investors with a worse-than-expected performance and lack of growth compared to peers.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: This ruling has come at a bad time for the Reckitt which had already been struggling with falling volumes across its household goods and hygiene ranges.
“It’s not simply the size of this payout which has caused nervousness, but the fact a long line of other lawsuits are pending, which could mount up to be huge sum for the company,” Streeter added.
“Although nutrition is Reckitt’s smallest division, it’s also been another volume drag, and hitting the headlines for the wrong reasons could also lead to reputational damage. After missing expectations in the fourth-quarter, investors were always going to be highly sensitive to set-backs and this judgement has led to a fresh loss of confidence.’’
The decline has taken the stock back to levels not seen since 2013.
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