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Reckitt’s chief executive has vowed to overturn the damaging verdict of a jury in the US that the company’s Enfamil baby formula caused the death of a premature infant, insisting that the products are safe to use.
“The case in question is not concluded and we will take all the steps available to us to overturn it,” Kris Licht told the Financial Times on Monday. “We don’t currently believe we have a liability [and] we think it is important not to overreact to a verdict that we think is not correct.”
Reckitt has not estimated its potential liability because it is confident it can appeal against the verdict. The company can either seek a post-trial dismissal motion or, if that fails, appeal to an Illinois district appellate court.
Shares in the consumer goods group fell 15 per cent on Friday last week as investors digested the news that a court in Illinois had instructed Reckitt to pay $60mn in damages to a mother who said her baby died after consuming one of its formulas for premature babies, Enfamil Premature 24.
Since the news, analysts have been drawing up calculations to assess the financial extent of the litigation risk for the company and its shareholders. Roughly 450 cases have been filed in courts across the US.
Barclays concluded a realistic worst-case scenario was a few thousand plaintiffs settling in “the high hundreds of thousands of dollars per case”. An extreme worst-case scenario they calculated would result in £2bn of damages.
“Any multiple is simply not how tort litigation works in the US, and it’s not how this is going to unfold,” said Licht, who took over as Reckitt’s boss in October last year. “It’s very important not to rush to any judgment of simplistic math.”
Analysts have warned that shareholders have become increasingly frustrated with Reckitt in recent months, and are eager to see significant strategic changes when the company’s new chair, former Sky boss Sir Jeremy Darroch, takes up the role in May.
Some have speculated that Reckitt has been trying to sell Mead Johnson, the infant formula business it acquired for $17bn in 2017. The FT reported that the company previously sought a sale of the business in 2022.
Licht neither confirmed nor denied that the company was exploring a sale.
“Mead Johnson is a good business and we will assess it against three criteria we set out for how we evaluate the portfolio,” he said. “I would not say that the verdict that we expect to overturn . . . changes my look at these things. The conversations about the portfolio are much bigger than that.”
Necrotising enterocolitis (NEC) is an often fatal condition in premature infants, and breastfeeding is known to reduce the risk. The plaintiff in Illinois successfully claimed that Reckitt failed to warn that infant formula feeding increased the risk of NEC.
In its defence, Reckitt has argued that medical professionals are aware of the increased risk of NEC associated with formula and that national clinical guidelines say premature infants should only receive formula when breastfeeding is impractical.
Analysts were reassured about the company’s stance on the verdict by a call senior executives held with them on Monday morning.
Bernstein analyst Bruno Monteyne said his initial concerns that Reckitt failed to adequately warn parents of the risk of feeding premature babies formula were assuaged because Reckitt explained that the products were exclusively used under the supervision of doctors, who should know the risk.
However, he added: “We are still unimpressed with the level of disclosure over the benefits of breastfeeding vs infant formula on the Enfamil website.”
James Edwardes Jones, analyst at RBC Capital, said his concerns were addressed but that the scale of the litigation risk was still uncertain.
“While we still have no idea on the outcome of the ongoing lawsuits or appeals, we are reassured by management’s confidence, as well as the fact that healthcare experts continue to use the product,” he said.