Abbott Laboratories (NYSE:ABT) has agreed to pay $670 million to settle claims involving about 2,000 people who alleged that its specialized preterm infant formulas contributed to necrotizing enterocolitis (NEC), a serious and potentially fatal bowel disease affecting premature infants. The settlement also resolves Abbott’s appeal of a $495 million verdict involving an Illinois mother, after that judgment was upheld by a Missouri appeals court. Abbott did not admit liability and continues to maintain that its products are safe.
The bigger issue for investors is that the settlement does not fully end the litigation. Abbott says claims from as many as 12,700 people remain, although that figure includes duplicate and unsupported claims as well as cases where it is unclear which manufacturer’s formula was used. More than 825 federal cases are consolidated in Chicago, with additional cases pending in state courts.
That makes the settlement both a cost and a potential step toward reducing uncertainty around the litigation.
Bull Case
The strongest argument for Abbott Laboratories (NYSE:ABT) is that the $670 million settlement could put a meaningful portion of the legal risk behind the company. Rather than continuing to spend years fighting individual cases and risking additional large jury awards, Abbott has chosen to settle with a sizable group of plaintiffs. The company said the agreement is intended to substantially resolve the broader litigation.
There is also an important distinction between the products involved in the lawsuits and Abbott’s broader nutrition business. The litigation concerns specialized formulas and products used for premature infants in hospitals, rather than the ordinary infant formulas sold through stores. That limits the direct exposure of Abbott’s wider consumer nutrition portfolio.
Abbott Laboratories (NYSE:ABT)’s underlying business also gives investors some cushion against the settlement. The company reaffirmed its 2026 comparable sales growth guidance of 6.5% to 7.5% and raised its adjusted EPS outlook to $5.45-$5.60 after its second-quarter results. Medical Devices, Diagnostics and other businesses continue to provide growth engines outside Nutrition.
There is also evidence that the Nutrition business itself is recovering. Abbott reported that second-quarter Nutrition sales benefited from a recovery in U.S. infant-formula market share and growth in its adult nutrition business. Most importantly, the scientific and regulatory picture is not as straightforward as the lawsuits suggest. Reuters reported that U.S. regulatory agencies and an NIH-convened working group found that higher NEC rates were linked to the absence of breast milk rather than formula use. Abbott can therefore continue defending the safety of its products while settling cases for financial and strategic reasons.
Bear Case
The biggest concern is that $670 million may not be the final bill. Abbott Laboratories (NYSE:ABT) still faces thousands of potential claims, and the company itself says claims from as many as 12,700 people remain, even though that number contains duplicates and other questionable cases. If more juries side with plaintiffs, additional settlements or judgments could become expensive.
The decision to abandon its appeal of the $495 million verdict is also uncomfortable for investors. Abbott previously indicated that interest could have pushed the value of that judgment to roughly $600 million. Settling that case as part of the broader agreement may be financially sensible, but it also removes an avenue for the company to challenge a major adverse precedent.
There is a reputational risk as well. Infant formula is a particularly sensitive product category because it involves premature and medically vulnerable babies. Even though the lawsuits concern specialized hospital products, continued headlines about NEC could damage trust among parents, healthcare professionals, and hospitals.
The litigation could also distract management and require additional legal expenses for years. The fact that plaintiffs and manufacturers have received mixed results in the relatively small number of cases that have reached trial means the ultimate liability remains difficult to predict.
For investors, the bigger question is therefore not whether Abbott can absorb $670 million. It almost certainly can. The concern is whether this settlement represents the beginning of the end or simply another large payment in a much larger legal process.
Conclusion
The $670 million settlement is clearly a negative development for Abbott Laboratories (NYSE:ABT), but it does not fundamentally change the investment story on its own. The payment is substantial, yet Abbott has a large and diversified healthcare business, while its 2026 earnings outlook remains solid and its medical-device and diagnostics operations continue to support growth.
The key risk is the unresolved litigation. If the settlement helps Abbott establish a clearer framework for resolving the remaining claims, investors could eventually view the payment as the price of removing a major overhang. If additional large verdicts follow, the $670 million could look more like an initial installment than a final resolution.
Overall, the news is a near-term legal and reputational setback, but the bull case remains intact as long as Abbott can contain the remaining claims and keep its broader businesses growing.
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Disclosure: None. This article is originally published at Insider Monkey.
