Reckitt Benckiser tumbles on baby formula compensation woes

Reckitt Benckiser tumbled on Friday amid concerns about baby formula compensation.

According to Reuters, an Illinois jury has ordered Reckitt unit Mead Johnson to pay $60m to the mother of a premature baby who died of an intestinal disease after being fed the company's Enfamil baby formula.

The jury in an Illinois state court in St. Clair County on Wednesday found that Mead Johnson was negligent and that it failed to warn of the risk of necrotizing enterocolitis (NEC), Reuters said.

The disease, which causes the death of bowel tissue, mostly affects premature newborns and has a fatality rate of about 15% to 40%.

The $60m verdict includes compensation for plaintiff Jasmine Watson's loss and grief, and for the pain and suffering of her baby, Chance Dean.

The verdict comes in the first trial out of hundreds of lawsuits claiming that various Enfamil and Abbott Laboratories' Similac formulas caused NEC.

According to the US National Institutes of Health, there is evidence that formula increases the risk, opens new tab of NEC in premature infants compared with breast milk.

"This verdict confirms what Mead Johnson has known for years: cow's-milk based baby formula causes NEC in preterm infants, often with fatal consequences," Ben Whiting, a lawyer for Watson, said in a statement.

Mead Johnson said in a statement that it was disappointed with the verdict and would appeal it.

"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," it said.

At 1325 GMT, Reckitt shares were down 10.5% at 4,699p.

Susannah Streeter, head of money and markets at 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.

"Based on the size of this fine, the share move is massively overstating the initial impact, which suggests investors are preparing for more to come. Plaintiffs are accusing its division, Mead Johnson, and rival Abbott, of concealing the higher risks of formula for premature infants compared to donor milk.

"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."