Shares of Abbott Laboratories jumped on Friday after Club Holding Company scored a surprise victory in a trial into the safety of its formula for premature babies. News Abbott Labs' specialty formula is not responsible for a young child developing a severe intestinal disease known as necrotizing enterocolitis, or NEC, a Missouri state court jury found Thursday night — concluding a nearly five-week trial closely watched by investors. The jury also acquitted Mead Johnson, a subsidiary of Reckitt Benckiser, and St. Louis Children's Hospital of liability in the case. The plaintiffs argued that Abbott and Mead Johnson's formulations — used to treat premature babies in neonatal intensive care units — increased the risk of NEC, and that the companies did not properly disclose that risk. For their part, Abbott and Mead Johnson strongly deny the allegations and defend the products as medically necessary treatments for infants in certain situations when breast milk cannot be used. “We are pleased with the jury’s decision,” Abbott spokesman Scott Stoffel said in a statement to CNBC on Friday morning. “The decision reinforces what we, the medical community, and regulatory agencies have said: that preterm infant formula products are safe, and there is no reliable scientific evidence that they cause or contribute to NEC. Abbott stands firm on the vital role that preterm infant formula plays. Human milk fortifiers serve hospital-based use.” In nutrition for premature infants. Mountain Abbott Laboratories' year-to-date ABT stock performance. BIG PICTURE Investors were on edge ahead of Thursday night's ruling, because both companies have lost similar cases this year — the Mead Johnson case in March, followed by Abbott Labs in late July. Mead's March defeat, in particular, put the NEC issue firmly in the spotlight, causing a sharp and prolonged sell-off in shares of both companies. We have purchased additional Abbott Labs shares on multiple occasions, believing that the size of the market cap decline does not adequately reflect the potential damages the company might have to pay if its legal battle goes poorly despite the medical community standing by its side. This includes three major US health agencies, which last month issued a statement supporting specialized infant formulas such as Abbott's. The legal burden on Abbott Labs has been real, even if the stock has found some momentum in recent months. Through Thursday's close, the stock was up nearly 13% from its 2024 lows hit on July 18. Abbott's highest close of the year, at $120.96 per share, came on March 8 — before NEC concerns became prevalent. Based on Friday's pre-market gains, the stock was on track to approach those levels. The bottom line is that Abbott Labs still faces other lawsuits over its specialty formulas across the country, but Thursday night's win is significant. The stock's reaction shows that, rising more than 4.5%. “They won the case they were supposed to lose… The day prosecutors brought it to Abbott is over,” Jim Cramer said Friday on CNBC. “This stock is very cheap,” he added. Abbott shares were trading at about 22 times forward earnings estimates on Friday, below their five-year average of 24, according to FactSet. One reason this win was significant is that the venue for this case was generally considered plaintiff-friendly, and Cramer has repeatedly pointed out that the case Abbott Labs lost in July was also in Missouri state court. These concerns were exacerbated during the October trial when the judge did not allow a recent statement by US health agencies to be presented to the jury. “There is no conclusive evidence that formula for premature infants causes NEC,” the Food and Drug Administration, Centers for Disease Control and Prevention and National Institutes of Health wrote in an October statement. At the time, we welcomed this statement as a win for Abbott, but we had to temper our expectations after the judge made his decision. However, we expected that Abbott Labs might lose this case, but at least as trials begin in other states, the company will likely be able to use the supporting statement from the FDA, Centers for Disease Control and Prevention, and National Institutes of Health to support its defense. With victory in hand, Abbott Labs will now begin the next phase of its legal battle on much stronger ground. The hope is that the conversation around Abbott Labs will eventually become squarely focused on its attractive fundamentals, which emerged last month in its third-quarter earnings report. When that happens, healthcare investors are bound to like what they hear. (Jim Cramer's Charitable Trust is a long ABT fund. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. 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Stacy Wescott | Chicago Tribune | Tribune News Service | Getty Images
Abbott Laboratories Shares jumped on Friday after Club Holding Co. scored a surprise victory in a trial into the safety of its formula for premature babies.
