Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB) shares tumbled 7.5% on Monday morning after a litigation decision in the US against Abbott Laboratories (NYSE:ABT) on Friday, where investors are reading across to the potential impact on the FTSE-listed company.
Abbott was ordered to pay $495 million over allegations that it hid the risks around its premature infant formula feed, with the case alleging that the formula risks causing a potentially fatal bowel disease.
A jury in Missouri awarded $95 million in compensation to Margo Gill the mother of a newborn girl who was left with severe neurological damage after contracting necrotizing enterocolitis (NEC), and $400 million in punitive damages, according to lawyers.
Analysts at Jefferies said the decision "is likely to depress sentiment on the risk for both cited defendants" Reckitt and Abbott in these claims, and Barclays analysts said it was "close to the worst case scenario" for Reckitt and co.
They added that Reckitt's share price is already discounting an estimated $3.5bn of liability risk next year, "but with its own new individual trial due to start on 30 September & MDL [multi-district litigation] class action gaining momentum, that risk may be extended this week we think".
The Jefferies analysts, who emphasised that they are not lawyers and any views or opinions in this note are not legally qualified, noted that the decision on Friday follows the $60m award against Reckitt subsidiary Mead Johnson in March.
"Both defendants were found to have contributed to a premature baby contracting NEC, and failing to provide sufficient warnings of that risk."
The Barclays analysts noted that last week Reckitt said it was considering "all strategic options" for its infant formula business.
"Settlement is now likely a precondition for a sale or IPO," they added, with a spin-off "may be the best option, and likely 5-6% dilutive to EPS".
*** Update: Adds second analyst comments ***