US FDA defers infant formula request: What it means for a2 Milk

A2 Milk chief executive and managing director David Bortolussi. Photo / Supplied

A2 Milk said the Food and Drug Administration (FDA) had deferred the company's request to send infant formula to the US but said approval would not have made a material difference to its results for the current financial year.

The alternative dairy company 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.

The FDA's communication did not go into why it had deferred a2 Milk's request but had approved requests from very minor players, such as Australia's Bubs.

Chief executive David Bortolussi said feedback from a2 Milk's US team was that the infant milk formula crisis had not been solved with significant retail out-of-stock issues continuing across the country.

"The a2 Milk Company stands ready to support US parents and caregivers during this critical time with approximately 1 million cans of premium a2 Platinum infant milk formula (27m 8oz bottle serves) through to the end of the November discretionary period and has one of the largest capacities in the industry to provide long term supply," Bortolussi said.

"In any event, 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 2023 due to the market dynamics and cost to serve the US infant milk formula market," he said.

A2 Milk's result for the June 2022 year is due on August 29.

The company's share price has been pumped up by about a dollar in recent weeks on the back of expectations that it would gain approval to send product to the US.

After today's news, the stock dropped sharply, last trading at $5.17 - down 46 cents.

Dual-listed a2 Milk's main infant formula market is China, and analysts have long debated whether the ability to send some stock to the US would be a help or a hindrance for the former high flier, whose earnings have come under pressure in recent years.

In February, America's biggest infant formula maker, Abbott, recalled products and stopped production at one of its facilities in Michigan after bacteria was found at the site, which led to a national shortage.

While a2 Milk does not sell infant formula in the US, the company is making a big push there with its dairy products, which contain just the a2 beta protein and not the a1 beta protein that exists in standard milk.

In 2015 a2 Milk entered the US on a fresh milk platform, in much the same way as it had done in the Australian market, which later became a springboard for bigger and better things.

In the six months to December 31, the company's US segment revenue decreased 5.2 per cent versus the previous comparable period to $32.4m and ebitda decreased 41.5 per cent, resulting in a loss of $16.4m.

The US infant formula market has been notoriously difficult for outsiders to break into.

The major US players Abbott and Mead control about 70 to 80 per cent of the market.

The Swiss food giant Nestle has about 10 per cent followed by French food group Danone and then some minor players.

A2 Milk is firmly focused on China - the world's biggest infant formula market - where it has a significant presence despite a falling birth rate there.