FDA boss to launch infant formula review as approval lags for A2, Fonterra while Bubs revenue hits record

The boss of America’s powerful Food and Drug Administration has admitted the agency has ‘confronted a series of challenges that have tested’ its regulatory frameworks.

US Food and Drug Administration boss Robert Califf has admitted the agency has ‘confronted a series of challenges that have tested’ its regulatory frameworks. Picture: Gabe Palacio

The head of America’s powerful Food and Drug Administration is asking outside experts to review the agency’s food and tobacco programs as the US infant formula shortage worsens and import approval lags for two of Australia and New Zealand’s biggest dairy companies.

The “comprehensive evaluation” comes a day after the world’s biggest dairy exporter, Fonterra, said it would said it would reallocate scores of tins of infant formula – which it had earmarked for the US – to New Zealand to avoid the product perishing after it had struggled to gain FDA approval.

Fonterra – which has extensive operations in Australia – applied to the FDA in late May for temporary approval to export infant formula to the US to help ease the shortage. But the agency has yet to give it the green light, despite granting two smaller companies – ASX-listed Bubs and China-owned Bellamy’s Organic – approval.

This is despite the availability of infant formula products in US retailers diving to the lowest level so far this year, with about 30 per cent of products out of stock for the week ending July 3, according to market-research firm IRI.

Another ASX-listed company, A2 Milk – which has established retail distribution channels across the US after launching its fresh milk range in America five years ago – has also been waiting almost two months for FDA approval.

FDA Commissioner Robert Califf did not mention the infant formula crisis in a statement released on Wednesday (Australian time), but said the agency had “confronted a series of challenges that have tested our regulatory frameworks” and “stressed” its operations.

“Fundamental questions about the structure, function, funding and leadership need to be addressed. The agency’s inspectional activities related to the program also need to be evaluated, particularly in light of stresses related to the Covid-19 pandemic,” Mr Califf said.

“While America’s food supply is safe, and our Foods program experts have significantly contributed to the availability of more nutritious food options for consumers, the program has been stressed by the increasing diversity and complexity of the nation’s food systems and supply chain.

“As a result, for two of the agency’s key programs, I have commissioned external agency experts to conduct a comprehensive evaluation.”

Bubs was one of the first companies to gain temporary approval, known as enforcement discretion, to sell infant formula in the US, with President Joe Biden tweeting America had secured “safe” supplies from the company.

As a result, Bubs has generated more revenue in the past quarter than the whole of last financial year, according to an ASX statement filed on Wednesday.

Bubs delivered record $48.1m in revenue in the three months ending June 30 – a 278 per cent leap on the prior corresponding period and a 174 per cent jump on the previous quarter.

During the period, the company has imported more than 540,000 tins of infant formula to the US, funded by the Biden Administration’s “Operation Fly Formula”.

To date, Bubs is one of only eight manufacturers, including four multinationals, to be permitted to import infant formula into the US, co-founder and chief executive Kristy Carr said.

“The hallmark corporate DNA of Bubs agility was on full display in addressing the USA infant formula shortage,” Mrs Carr said.

“We are very proud of the way our entire team worked together in responding to an issue we felt strongly about and, at the same time, accelerate entry into a key market that was on our agenda for some time.”

Ms Carr said the company had also successfully reset its corporate daigou – or Chinese reseller – market, which collapsed at the start of the pandemic, with China sales up 523 per cent during the quarter, accounting for 64 per cent of all sales during the period.

“The strategic rethink about our Daigou business triggered by the COVID-19 pandemic and the subsequent signing of an equity alliance with Alpha Group, our largest corporate Daigou partner, has been rewarded with rapid growth in Corporate Daigou sales which now stand at a record high, growing thirteen-fold in Q4 FY22 compared to the same period prior year.

“We are also pleased with the successful roll out of Bubs SupremeTM A2 beta-casein in China, both through eCommerce and Mother and Baby Stores via Online-to-Offline with the same English label products sold in Australia and the USA, driving efficiencies across our supply chain.”

Bubs expects to report more than $2.4m in underlying earnings before interest, tax, depreciation and amortisation this year. Executive chairman Dennis Lin said the company had now “achieved scale”, generating more than $100m revenue this year.

“We expect margin accretive growth to continue, and anticipate FY23 revenue and margin contribution will be largely attributed to growth in China and the USA, and across our portfolio segments, with infant formula forming a significantly higher proportion of revenue than the current 60 per cent,” Mr Lin said.

“The USA represents the most dynamic opportunity and long-term growth prospect for the business. The team will be singularly focused on delivering earnings accretive growth in FY23 and beyond for our existing and new shareholders.”