A2 Milk’s baby formula foray into US frustrated by FDA delay

Dairy company a2 Milk’s plans to follow competitors into the US baby formula market received another blow this week when the Food and Drug Administration deferred the company’s application to import milk formula into America.

“We received information today indicating that the FDA is deferring further consideration of all requests for enforcement discretion approval at this time in relation to infant milk formula supply to the US,” a2 chief executive David Bortolussi said in a statement to the ASX on Wednesday.

A2 is one of 160 companies that have applied to patch the US’s baby formula crisis, hoping to follow local rivals Bubs Australia and Bellamy’s Organic into the world’s biggest market. The company’s share price tumbled 7 per cent yesterday to close at $4.76.

The a2 Milk Company chief David Bortolussi still hopes to follow Bubs Australia and Bellamy’s Organic and get permission to sell infant formula in the United States.Credit: Edwina Pickles

Smaller baby formula maker Bubs was cleared to send more than a million tins of powdered formula to the US in late May. The deal was trumpeted by President Joe Biden amid a severe shortage of baby formula in the country, sparked by the closure of a major manufacturing facility in Michigan linked to two deadly bacterial infections in infants.

Bellamy’s, another Australian producer, was approved by the FDA shortly after Bubs.

The supply deals were originally designed as emergency measures that would last until November. But last month, the FDA opened up a potential pathway for formula makers like Bubs to permanently supply the US.

A2’s Bortolussi said despite the FDA delay, the company was ready to supply to the US and had the relationships necessary on the ground to handle distribution. The company began selling milk in the US in 2015.

“Feedback from our US team on the ground is that the infant milk formula crisis has not been solved, with significant retail out-of-stock issues continuing across the country,” he said.

Bubs CEO Kristy Carr : The smaller formula maker has raised its revenue forecasts thanks to the US deal.Credit: James Brickwood

“We are well positioned to support the US, being one of the leading premium international infant milk formula brands. We have scalable production capacity in New Zealand plus existing sales, marketing and supply chain capability in the US distributing to all major retailers and around 27,000 stores nationwide that can be leveraged.”

Despite the share price plunge, Bortolussi said short-term supply of formula to the US wouldn’t have a major impact to the company’s bottom line.

“We would not expect that this opportunity over the current FDA enforcement discretion period would have a material impact on the company’s financial results in [financial year 2023] due to the market dynamics and cost to serve the US infant milk formula market.”

Off the back of its deal with the US, Bubs has upgraded its revenue forecasts and announced a $63 million capital raising to increase staff and boost its manufacturing capability.

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