A2 Milk to send up to 1 million tins of infant formula to the US within six months after FDA nod
A2 Milk shares surged after it finally gained FDA approval to send up to 1 million tins to America within six months.
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The A2 Milk Company will send up to 1 million tins of infant formula to the US – with the first shipment expected within two months – after the Food and Drug Administration finally granted it temporary import approval.
The trans-Tasman dairy company and its manufacturing partner, New Zealand’s Synlait, are already ramping up production after it gained the green light overnight on Wednesday. The approval came almost six months after A2 lodged an application with the FDA to help ease infant formula shortages following a contamination scandal at US giant Abbott Laboratories.
A2 shares surged on the news, adding 8.4 per cent in early trade before closing Thursday up 4.6 per cent, or 24c, at $5.51.
The company this week launched court action against Care Corporation – which owns infant formula brand Care A2 Plus – alleging it engaged in misleading and deceptive conduct by infringing its trademarks.
Care – founded in 2019 – was in May one of the first companies to approval from the FDA.
A2 chief executive David Bortolussi said the approval was “a significant opportunity to develop its brand in the (infant formula) category over the long term”. “We are pleased to be able to assist parents and caregivers in the US by providing access to significant volumes of high quality, A2 Platinum infant and toddler milk formula manufactured in New Zealand during this challenging period,” he said.
“The A2 Milk Company is well positioned to support this initiative being one of the leading premium international infant milk formula brands with annual sales exceeding 30 million cans. We have scalable production capacity in New Zealand with Synlait plus existing A2MC US sales, marketing and supply chain capability that can be leveraged.”
The company expects to send up to 1 million tins of infant formula to the US in the next six months. Mr Bortolussi said it will be the same formulation as the one available in Australia but the packaging, scoop and instructions will be different. After allowing time to make this changes, he said the company expected to make its first shipment to the US in late December or January.
He said the FDA decision would deliver “incrementally beneficial” earnings this financial year, while gross margins would be lower than average, given the distribution and marketing costs.
“We haven’t quantified that. But we just want to make it clear to the market that, particularly in the near term, it will be a lower margin business,” he said.
Mr Bortolussi said the company was also stepping up its supply to meet demand in the US, which has experienced severe shortages of infant formula after Abbott Laboratories – which supplies about 49.5 per cent of the market – shut down its factory in Michigan earlier this year on contamination concerns, before closing its doors again in June after the site was flooded.
“We are increasing our supply to respond to this situation, while importantly ensuring that we continue to meet the needs of our other IMF consumers and trade partners in China and other markets,” Mr Bortolussi said.
The company has received approval to sell and distribute A2 Platinum infant formula – Stages 1 and 2. It will also supply Stage 3 toddler product, which does not require enforcement discretion.
Blake Waltrip, the chief executive of A2’s US division, said the company already had strong brand awareness in America.
“Over the past seven years, we have invested in developing our liquid A2 Milk business in the US based in Boulder, Colorado. We currently supply A2 Milk whole, 2 per cent reduced fat, fat free, half and half and Hershey’s A2 milk with nationwide distribution to approximately 27,000 stores in the grocery, mass, natural and club channels,” he said.
“We have established customer relationships with all major retailers, many of which have expressed strong interest in ranging our A2 Platinum product.”
The FDA also granted Danone permission to temporarily import infant formula from Ireland overnight on Wednesday. The agency said it was working with companies that have received enforcement discretion – which includes ASX-listed Bubs – to gain permanent approval.
Three manufacturers dominate the US infant formula market. Abbott Laboratories is the biggest player followed by Mead Johnson with 20.6 per cent and Perrigo with 11.9 per cent.
Originally published as A2 Milk to send up to 1 million tins of infant formula to the US within six months after FDA nod
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