The baby formula shortage that has morphed into a crisis in the U.S. could soon see some relief following an agreement between market leader Abbott Laboratories (NYSE:ABT) and the Food and Drug Administration.
What Happened: Abbott announced late Monday that it has agreed to enter into a consent decree with the FDA regarding the restart of production at the former's Sturgis, Michigan infant formula plant.
Abbott, which through its Abbott Nutrition arm manufactures baby formula, voluntarily recalled powdered infant formulas produced at the plant in mid-February due to reports of bacterial contamination. The plant was shut down following the death of two infants and the indisposition of four more.
Meanwhile, an FDA inspection of the plant between Jan. 31 and March 18 found that the company hadn't taken enough precautions to prevent contamination.
The consent decree, which is contingent upon court approval, details the steps necessary for the restart of production and maintenance of the facility.
"Our number one priority is getting infants and families the high-quality formulas they need, and this is a major step toward re-opening our Sturgis facility so we can ease the nationwide formula shortage. We look forward to working with the FDA to quickly and safely re-open the facility," said Abbott CEO Robert Ford.
The FDA said in a statement that the proposed consent decree will require Abbott to retain an independent expert to review operations at the facility as well as testing of products. Upon testing, if contamination is detected, the company is required to cease production and notify the regulator.
The proposed consent decree also requires the implementation of a sanitation plan, environmental monitoring plan and employee training programs, it added.
Related Link: Abbott Spent $5B On Stock Buybacks Instead Of Fixing Its Baby Formula Factory
What's Next: Upon effectiveness of the agreement on the consent decree, the FDA needs to confirm that initial requirements for restart have been met. Abbott could restart the site within two weeks of greenlighting by the FDA.
Abbott plans to initially produce EleCare. Alimentum and metabolic formulas first before the production of Similac and other formulas. From the restart of the site, it would take six to eight weeks before the products are made available on shelves, the company said.
The company also noted that it has been working on corrective actions since the FDA inspection and submitted a response and corrective plan to the agency on April 8.
Signaling commitment to alleviate the crisis, President Joe Biden told reporters Monday that the government is discussing with manufacturers the import of baby formula.
The FDA, on its part, has been in ongoing discussions with all infant formula manufacturers to increase supply, the agency said in its communication.
Abbott said in Monday's release it is maintaining its previously issued full-year 2022 guidance of at least $4.70 in adjusted earnings per share. The company also added that it does not expect the expenses related to the consent decree will have a material impact on its financials.
Abbott closed Monday's session down 0.15% at $109.71, according to Benzinga Pro data.
