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Msg  107 of 109  at  5/24/2023 8:24:08 PM  by


Baby-Formula Makers Face FTC Investigation for Collusion; Agency investigating whethe

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Baby-Formula Makers Face FTC Investigation for Collusion; Agency investigating whether formula manufacturers coordinated before bidding for state contracts

; New York, N.Y.

The Federal Trade Commission is investigating whether baby-formula makers colluded on bids for lucrative state contracts.

The agency, in documents posted to its website, said it is looking into whether Abbott Laboratories and other formula manufacturers have "engaged in collusion or coordination with any other market participant regarding the bidding" for state contracts.

The FTC is also investigating whether company coordination affected sales more broadly, outside of the Women, Infants and Children formula-supply program , FTC Commissioner Alvaro Bedoya wrote.

Abbott, which sells Similac formula, said it is cooperating with the FTC's investigation. In February, Abbott lawyers said in an email to the FTC that they weren't aware of any evidence suggesting "even a hint of collusion or coordination." The lawyers also said they didn't understand the factual basis of the agency's investigation.

In January, the FTC had asked Abbott, one of the leading manufacturers of baby formula in the U.S., for information for the agency's investigation of companies that bid for the state infant-formula supply contracts, Abbott had said earlier this year.

Nestlé, which supplies Gerber formula through WIC, has also received a request for information from the FTC known as a civil investigative demand, according to a company spokeswoman. She said the company has responded to the FTC.

Reckitt Benckiser, the third company frequently awarded WIC contracts, said it can't comment on specific government investigations. A spokeswoman said Reckitt complies with regulatory and enforcement agency requests it receives as a matter of principle.

The FTC declined to comment, saying further information is nonpublic.

Abbott shares opened Wednesday down slightly. Nestle stock was flat and Reckitt fell 1.3%.

The probe is among several of Abbott launched by federal agencies, including a criminal investigation by the Justice Department, that followed the closure of a company manufacturing plant last year. The shutdown contributed to a nationwide formula shortage.

New details about the FTC investigation emerged in two documents, posted on the agency's website, detailing Abbott's efforts to pare back the information request and the FTC's rejection of the company's request.

The FTC posted the documents in April, but they haven't been widely reported.

The documents didn't suggest a link between the shortages last year and the FTC's investigation, though the agency described the infant-formula market as highly concentrated and said Abbott controls nearly half of it.

The Food and Drug Administration and academics have said the infant-formula market remains vulnerable to shocks in part because WIC and the larger formula market are dominated by a few companies and just-in-time supply chains are fragile.

An Abbott Laboratories plant for baby-formula production. PHOTO: Sylvia Jarrus for The Wall Street Journal

The WIC supplemental nutrition program provides formula and certain nutritious food items to low-income families. The federal government funds WIC's roughly $6 billion yearly budget, but states administer the program, including selecting an exclusive formula supplier in exchange for discounts.

The contracts can be lucrative for formula makers because they significantly increase the winning company's market share in a given state.

They also boost the winning company's sales to non-WIC consumers in that state because stores are required to stock certain amounts and tend to feature the products on shelves. Winning brands might also be recommended by doctors or provided by hospitals in that state.

The FTC has asked Abbott for materials about their state contracts and other formula business dating back to 2016, according to the agency documents.

Starting in February, Abbott lawyers sought to narrow the scope of FTC's request for company materials, according to the documents posted on the agency website.

The next month, in March, Abbott filed a petition asking the FTC to limit its request for documents, saying it was too wide-ranging.

Compliance with the agency's demands, the company said, would require Abbott to produce terabytes of data, costing millions of dollars in attorney's fees and other costs, and diverting time and attention from its focus on providing formula to families.

The FTC request "could be read to encompass virtually every document and email relating to Abbott's Infant Nutrition business for the last seven years, which would be unduly burdensome, especially given that those materials have little or no relevance to the question being investigated," Abbott said in its petition.

FTC commissioners denied the petition. Abbott provided "little more than 1,000 pages of documents—a fraction of the expected production," Bedoya wrote. "Abbott's conduct demonstrates delay, not diligence."

Bedoya said the expense of fulfilling the FTC's request shouldn't trouble a Fortune 100 company such as Abbott, "especially when weighed against the public need of uprooting potential collusion in the vital and extremely lucrative infant formula market."

According to both filings, the FTC is interested in the company's non-WIC information to learn about any "spillover effects" between WIC contracts and non-WIC sales.

As of early May, Abbott held contracts with 32 states to supply formula for WIC, according to the U.S. Department of Agriculture. Reckitt's Mead Johnson division works with 12 states, and six work with Nestlé to offer Gerber products.

Reckitt said it holds a contract for soy-based formula in a 13th state. Nestlé sold a Wisconsin formula factory, along with U.S. and Canadian rights to Gerber's Good Start brand last year, but Nestlé is still fulfilling its existing WIC contracts for the formula.

States have been required since 1989 to solicit competitive bids for formula under the WIC program, in an effort to contain costs and in response to concerns that manufacturers were rapidly driving up formula prices.

The WIC program saved $1.7 billion in fiscal year 2018 through rebates offered as part of the competitive bid system, according to the USDA.


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