Abbott stock surged early Friday after a Missouri jury decided baby formula from Abbott Laboratories and Reckitt's Mead Johnson unit are not responsible for a boy's intestinal disease.
Lawyers for plaintiff Kaine Whitfield had argued for a $6.2 billion verdict over the course of the five-week trial in St. Louis, Missouri, according to Reuters. In two earlier trials, Mead was ordered to pay $60 million and Abbott received a $495 million verdict. The latter verdict came from the same judge in Whitfield's case.
"This was the case everyone was waiting for (after the eye-popping verdict in the first trial) and the win should provide some relief to Abbott shares," Evercore ISI analyst Vijay Kumar said in a report.
Abbott stock popped 4.6% to 118.60. Shares retook their 50-day line and a buy point at 118.54 out of a cup-with-handle base. Abbott stock had previously broken out on Oct. 16, but shares later fell as much as 5% below their entry. Savvy investors usually cut their losses when a stock drops 7% to 8% below the buy point.
Abbott Stock: Lawsuits Still Pending
There are about 1,000 lawsuits still pending against Abbott and Mead. They claim baby formula from the health care giants caused newborns to develop necrotising enterocolitis, or NEC. This is a serious gastrointestinal illness that mostly affects premature babies.
In the Whitfield case, Kaine's mother, Elizabeth Whitfield, alleged the companies failed to warn that their special baby formula used in newborn intensive care units could case NEC.
Kaine is now 7 years old. He was born at 28 weeks, weighing just over 2.2 pounds. He developed NEC after being fed baby formula at St. Louis Children's Hospital. Though he had surgery for his illness, he will have lifelong development and health problems, according to the lawsuit.
The Food and Drug Administration, Centers for Disease Control and Prevention and National Institutes of Health recently put out a joint statement saying there is "no conclusive evidence that preterm infant formula causes NEC."
It's rare for the three agencies to make joint statements, Kumar said. The judge allowed the joint view to be entered into the trial record. That wasn't the case in the first trial where Abbott received the $495 million verdict.
"As the cases move to federal courts, we think the joint consensus statement will further strengthen Abbott's position in NEC related lawsuits," he said.
Shares Are Trading At A Discount
Kumar kept his outperform rating and 128 price target on Abbott stock.
He notes Abbott shares are trading at a "significant discount" for the company's life sciences tools peers.
"Shares have been range-bound in the low 100s to 120s range," he said. "We would expect shares to trade at the higher end of this range on (Thursday evening's news) and roughly 120 to form a new support level for Abbott stock," he said.
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