Reckitt Benckiser’s shares slump after Abbott baby formula ruling over bowel disease link

Reckitt Benckiser’s share price has dropped to a 10-year low after a US court ruled that a formula produced by rival Abbott Laboratories had caused a baby girl to develop a serious bowel disease.

Shares in the British consumer goods group , which is facing similar legal action over its Enfamil formula, saw its shares plunge by about 9% to roughly £40.75 a share on Monday after Abbott was ordered to pay $495m (£385m) in damages by a court in Missouri on Friday.

A St Louis jury concluded that Abbott’s specialised formula for premature babies had led to an Illinois baby developing necrotising enterocolitis (NEC), a dangerous bowel condition. Abbott intends to appeal.

The judgment is the latest lawsuit against Abbott and Reckitt over alleged health effects caused by their formulas for premature babies.

Related: Reckitt Benckiser: how one terrible deal wrecked the company

In March, Reckitt, whose other major brands include Durex and Nurofen , was ordered to pay $60m in damages to a mother who claimed that Enfamil, produced by Reckitt company Mead Johnson, had led to the death of her baby.

Reckitt faces its own NEC-related trial in September and investors are waiting to see whether the company will be subject to further payouts.

Analysts Jefferies said the Abbott ruling was likely to “depress sentiment” for Abbott and Reckitt, and has already estimated a discount for the legal liability of £3bn for Reckitt.

It said: “With [Reckitt’s] own new individual trial due to start on 30 September and multidistrict litigation action gaining momentum, that risk may be extended this week we think.”

According to Reuters, there are now 1,000 cases that have been filed against each, or both, of the companies in US federal or state courts.

The lawsuits claim the companies did not warn doctors that infants receiving formula had a greater risk of a deadly disease than infants who are breastfed or given donor milk or human milk-derived formula. Abbott and Reckitt have denied the claims and say there is no evidence their products cause NEC.

Responding to Friday’s judgment, an Abbott spokesperson said: “Verdicts like these, where the science and opinions of healthcare professionals who spend their lives treating these babies are ignored, make it difficult to continue supplying these products indefinitely.”

Analysts from JP Morgan said the $495m damages figure was much higher than expected, with analysts expecting a payout of between a $60m and $100m.

The brokerage said: “With a final settlement likely a way away, we wouldn’t be surprised to see the verdict weigh on sentiment until there’s a clearer path forward for resolution of the matter.”

Abbott’s stock was down 6.9% at $98.32 before the closure of markets on Monday, while Reckitt’s £40.75 share price on Monday was its lowest since January 2013.

Reckitt said: “We stand behind the safety and efficacy of our preterm nutrition products, which neonatologists recommend when clinically appropriate as a part of the standard of care in neonatal intensive care units (NICUs).

“Claims by plaintiffs’ lawyers that these products cause NEC are not supported by the science or the medical consensus and are irresponsible.”