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Reckitt Surges Most in 24 Years After Baby Formula Trial Win

(Bloomberg)

(Bloomberg) -- Shares of Reckitt Benckiser Group Plc jumped the most in 24 years following a US jury verdict that cleared it and Abbott Laboratories over claims they hid potential risks of their premature-infant formulas. 

The first win in litigation over the products saw the shares rise as much as 11.7%, the biggest increase since March 2000, as investors welcomed the removal of a significant overhang on the stock. Abbott and a unit of Reckitt are facing thousands of lawsuits and have already been held liable in separate trials. 

Jurors in state court in St. Louis reached the verdict Thursday, ending the latest trial of more than 1,000 lawsuits alleging the formulas can cause necrotizing enterocolitis, or NEC, a bowel ailment that has been linked to deaths and brain damage. A Reckitt spokesperson said that jurors agreed with arguments that there is a “scientific consensus there is no established causal link between the use of specialized preterm hospital nutrition products and NEC.”

Investors had not been expecting a win, “which makes the outcome that much more surprising,” said JP Morgan’s Robbie Marcus in a note. The win could decrease the total liability for Abbott by $500 million to $1 billion, said Marcus.

Both Abbott and Reckitt have been hit by the litigation, with their stocks taking a significant blow with each ruling. In July, Reckitt plunged to an 11-year low after a verdict against Abbott intensified concerns over the infant formula lawsuits. The latest win, puts a “spoke in the wheels of what has hitherto been an unremittingly adverse narrative,” said RBC Europe’s James Edwardes Jones in a note. The first positive outcome for Reckitt and Abbott “could lessen concerns about final settlement liabilities,” said Jefferies’ David Hayes. 

In the trial, the jury deliberated for less than a day before rejecting claims that formulas made by Abbott and Reckitt’s Mead Johnson caused NEC in Elizabeth Whitfield’s son, who was born prematurely and diagnosed with the condition while in a St. Louis hospital’s intensive-care unit. 

--With assistance from Joshua Gaunt-Warner.

(Updates with share price change, more detail from paragraph two)

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