The US FDA said it will allow a2 Milk to sell infant formula in the US. Photo / File
The US Food and Drug Administration (FDA) will allow the sale of a2 Milk infant formula in the US.
A2 Milk’s share price rallied today by 40c or 7.0 per cent to $6.15 on the news.
In August, a2 Milk said the FDA had deferred its request to sell product in the States.
Speculation earlier this year that a2 Milk would get the nod from the FDA prompted a spike in its share price.
The FDA has been allowing product made overseas into the highly-controlled US infant formula market as a result of severe shortage.
A product recall by Abbott Nutrition and the months-long closure of a major formula production facility in Sturgis, Michigan, prompted the shortage.
“Today, the US FDA is providing an update on additional steps it has taken that will lead to more infant formula available in the US under the agency’s increased flexibilities,” it said in a statement.
The FDA also said it would allow product produced in Ireland for French food group Danone into the country.
Separately, a2 Milk said it believed the FDA’s move represented a “significant opportunity” to develop its brand in the infant formula category over the long term but expected its margins to be lower than average.
The FDA said a2 Milk’s a2 Platinum infant formula for babies up to six months old, and a2 Platinum follow-on formula for 6-12 month would be allowed for sale.
“Both products (Danone and a2 ) will be sold at major US retail outlets,” it said.
The FDA said it reviewed information about nutritional adequacy and safety, including microbiological testing, labeling and additional information about facility production and inspection history.
“The agency continues to dedicate all available resources to help ensure that safe and nutritious infant formula products remain available for use in the US,” it said.
“Important progress has been made toward improving the infant formula supply in the US and paving the way for a more robust and diverse marketplace for the future,” it added.
The FDA issued guidance in May 2022 outlining a process by which it would not object to the importation of infant formula products intended for a foreign market, or distribution in America of products manufactured here for export to foreign countries.
“This guidance also may provide flexibilities to those who manufacture infant formula products domestically and may be able to further increase the quantity of domestically-produced product for the US market,” it said.
A2 Milk is supplied by NZX-listed Synlait, in which it has a 20 per cent holding.
Separately, a2 Milk said the FDA’s move was a major opportunity to develop its brand in the IMF category over the long-term, but it expected margins to be lower than average.
A2 Milk said it was difficult to predict formula sales potential in the highly competitive US market.
“In the near-term, and prior to confirming distribution plans, sales during 2023 are expected to be up to 1 million cans all within the second half of 2023, assuming enforcement discretion remains in place throughout the period,” it said.
“Actual sales will ultimately depend on customer demand, consumer offtake, supply shortages and market conditions at the time.”
In terms of 2023 earnings impact, while incrementally beneficial, the company expected gross margins to be lower than average, and distribution costs to be higher.
A2 Milk’s managing director and CEO David Bortolussi said the company was pleased with the US announcement.
“We have scalable production capacity in New Zealand with Synlait plus existing a2 Milk US sales, marketing and supply chain capability that can be leveraged.
“We are increasing our supply to respond to this situation, while importantly ensuring that we continue to meet the needs of our other infant formula consumers and trade partners in China and other markets. If the US requires further support over an extended period, we have the proven ability to scale up significantly.”
Jarden’s director of equity research Adrian Allbon said the FDA approval was good news for a2.
“I think people will perceive it as definitely positive news because it provides market access,” Allbon said.
“The only issue is the market access is temporary, they have to go through the full process and the US market structure is quite different.”
He said there was a rebate scheme, which effectively enshrined the monopoly status in each state of a particular brand “which is why they have such a concentrated situation to start with”.
Allbon said how positive the news for A2 Milk was dependent on how ultimately the FDA and the US government wanted to reset the industry structure.
Over the last seven years, a2 Milk has been investing in its liquid milk business in the US, based in Boulder, Colorado.
In September, the FDA announced new guidance providing a pathway for infant formulas operating under enforcement discretion in the US to remain on the market.
“This will help ensure the US continues diversifying its infant formula market, and make families less susceptible to shocks in the infant formula market,” it said.