Abbott likely to settle baby formula cases for $200M-$300M – analyst

The $495 million verdict in a lawsuit against Abbott Labs (NYSE:ABT) related to its baby formula was higher than expected, though ultimately the pharma giant can settle all the cases for $200-$300 million, according to a Wells Fargo analyst.

“We see the ultimate settlement in the range of $200-300M which should be quite manageable for ABT,” Wells Fargo analyst Larry Biegelsen wrote in a note on Monday. “If we assume ABT settles all 1,000 NEC cases for $300K each, the total settlement would be $300M. ABT has over $6B in cash on its balance sheet.”

Late Friday, a jury in St. Louis awarded a plaintiff $495 million in compensatory and punitive damages over claims the Abbott’s baby formula caused a potentially deadly bowel disease known as necrotizing enterocolitis, or NEC.

Abbott shares, which earlier fell as much 5.1% on news of the verdict, have pared most of their decline and are now down 0.8% on Monday.

Wells Fargo’s Biegelsen, who has an overweight rating and $133 price target on Abbott (ABT), pointed out that the Abbott verdict was much more than a similar verdict against Reckitt Benckiser’s (OTCPK:RBGPF) in March over the same baby formula claims because St. Louis allows for punitive damages. The Abbott jury awarded $400 million in punitive damages and $95 million in compensatory damages.

The next trial over the baby formula claims in set for late September in St. Louis, according to Biegelsen.

In the first case to go to trial in March, Reckitt Benckiser was ordered to pay $60 million in damages to a mother whose premature child died after consuming the company’s Enfamil baby formula. The verdict sent Reckitt Benkiser’s shares tumbling 15% on March 15 and Reckitt shares fell another 9% on Monday in London after news of the Abbott verdict.

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