FDA deferral the latest of woes for A2 Milk as class action pasteurises

The FDA has deferred further consideration of one of Australia’s top dairy producers A2 Milk’s (ASX: A2M) request to import infant milk formula (IMF) into the United States. Though the application has not been rejected, it is also not close to being approved.

Since February 2022, the US has been facing an acute shortage of commercial milk formula, following the supply chain crisis and closure of a top baby formula maker factory Abbott Laboratories due to contamination. In the beginning of May, over 40% of baby formula was out of stock at American retail stores. 

In light of that, the US decided to import baby formula from different countries, including Europe and Australia. Australian baby food and formula producers Bubs Australia (ASX: BUB) struck a deal with American grocery chains to import up to a million pounds of baby formula to America. This would come under the “Operation Fly Formula” mission initiated by the company. 

Despite this increasing demand, A2 milk couldn’t get on the importer bandwagon. A2 Milk had hoped to take advantage of this shortage by importing their IMF product, a2 Platinum, into the States. However, the FDA’s decision to defer further consideration of the application has dealt a significant blow to the company. 

Moreover, it continues their poor financial performance after FY21 revenue fell 30% to $1.21 billion. Net profit after tax fell even more to be down 79.1% to $80.7m. 

Adding to their woes, the FDA deferment is supplemented by the class action suit against the Company filed by Shine Lawyers and Slater and Gordon. Following a 62% drop in market value in FY21, Shine Lawyers launched a class action on behalf of Australian and New Zealand shareholders who suffered losses after acquiring A2 Milk shares on the ASX or on the NZX, between 19 August 2020 and 7 May 2021. They noted that the Company engaged in “misleading and deceptive conduct” and breached its continuous disclosure obligations by not informing the market of substantial decline in profits, despite being aware internally.

A2 Milk denied any wrongdoings in a press release, claiming that it has always complied with its disclosure obligations, denies any liability and will defend itself in court.

Since the announcement of the FDA deferral, the Company’s shares are down over 9%. This furthers investor worries as A2 Milk tries to get back on its feet following a tumultuous year.