Reckitt Benckiser shares hit 10-year low over baby formula fears

Household goods giant Reckitt Benckiser’s shares slumped after rival Abbott's $495 million baby formula lawsuit. Should investors be worried?

The Reckitt Benckiser Group plc logo is displayed on a smartphone screen
(Image credit: Jaque Silva/SOPA Images/LightRocket via Getty Images)

Shares in Reckitt Benckiser have slumped by 9% to a 10-year low after a US court ruling that a baby formula produced by rival Abbott Laboratories had caused a little girl to develop fatal necrotising enterocolitis (NEC), a bowel disease, says Jack Simpson in the Guardian. The verdict, which saw Abbott ordered to pay $495 million (£385 million) in damages, follows similar judgments against both companies over their formulae for premature babies. With Reckitt due to face its own NEC-related trial in September, investors are “waiting to see whether the company will be subject to further payouts”. 

The lawsuits amount to little more than a “shakedown” against both firms and their “life-sustaining formula for pre-term infants”, which only makes them a few million a year in sales, says The Wall Street Journal. Experts think the causes of NEC are “unclear”, with recent trials showing “that the formulas and fortifiers don’t increase the incidence of NEC”. But both companies may be forced “to pull their products from the market”. This in turn could have “consequences for the health of premature infants”, with Abbott’s CEO already warning of a “public health crisis” if the verdict is allowed to stand.

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Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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