Milk formula market needs more manufacturers, but newcomers avers huge hurdles

The infant formula shortage has exposed an inflexible industry dominated by just three to four big players who own most of the infant formula production in the United States. When one of the plants suddenly closes, there is little room to maneuver, as happened to the Abbott Nutrition plant in Sturgis, Michigan, in February after a bacterial infection.
By May, stores were reporting that up to 40% of infant formula was out of stock, exacerbated by continued supply chain slowdowns and formula recalls.

According to research firm Euromonitor International, Abbott, Reckett Benkiser and Nestle make the top five brands of infant formula in the US — Enfamil, Similac, Gerber, PediaSure and Isomil.

Why haven’t new companies made their way into such an important industry? Too many barriers to entry.

High entry barriers

Brothers and sisters Ron Beldegrun and Mia Fant have spent over five years trying to make it in the highly concentrated infant formula market.

They are the co-founders of New York-based ByHeart, a direct-to-consumer formula maker that uses grass-fed organic cow’s milk and stripped of some of the ingredients used in brand-name formulas that have become unpopular with health-conscious parents such as like dairy products. corn syrup, maltodextrin (a starch additive in foods), soy or palm oil.

Bringing their product to market was not easy. Beldegrun and Fanta’s formula had to meet all federal nutrient requirements, a long and difficult process. They spent two years looking for a manufacturing partner before deciding to acquire a US facility for their own production.

They then built a direct sourcing supply chain for all ingredients to ensure quality and safety, and conducted rigorous six-month clinical trials on 300 children to test the safety and effectiveness of their formula.

Bringing a new formula to market is extremely expensive. Funt said the startup has raised more than $190 million in pre-market capital from investors including Polaris Partners, D1 Capital Partners and Bellco Capital.

ByHeart is the first new FDA-registered infant formula manufacturer in over 15 years.

“Infant formula is – that’s right – the most regulated food in the world. The path to providing babies with nutrition from a single source must be traversed with the utmost rigor,” Beldegrün said. “But for the benefit of babies and their parents, there should be more incentives for new brands to rise to the challenge. We need more state and federal support for infant formula and product innovation.”

Beldegrun said ByHeart is the first new manufacturer of infant formula in more than 15 years to be registered with the FDA. “We own our production, we source our ingredients directly and sell them directly to consumers,” he said.

ByHeart launched its brand in late March at the height of the country’s growing baby food shortage.

Just eight weeks after the launch, Belldegrun said that ByHeart’s new customer base had grown nearly 15 times the company’s annual forecasts. ByHeart has temporarily suspended accepting new subscribers and ramped up production at its facility to 24/7.

“Wake Up Call”

Shazi Wisram founded her baby food company Happy Family Organics in 2003 at the kitchen table.

It quickly grew into a leading organic baby food brand and was acquired by Danone 10 years later. Visram began working on organic infant formula for the brand in 2012. Happy Baby Organic Infant Formula hit stores in 2017.

Helaina founder and CEO Laura Katz.

“It’s extremely difficult to bring a new brand of infant formula to market,” said Wisram, who remains in office. CEO of Danone Happy Family Organics but left in 2017 to start his second company HealthyBaby in 2020.

“The regulatory process to get a product on the shelves is extremely strict, very slow and capital intensive. If you are starting from scratch, the most aggressive time-to-market is three to five years from recipe development to supply chain. development, then clinical trials, FDA review, and finally manufacturing.”

Happy Family used an existing supplier to reformulate an existing infant formula with probiotics and organic ingredients that was already approved for sale in the United States, so they were not required to conduct clinical trials of the new formula.

Helaina still has a year or more to produce her formula and bring it to market.

“Even then, it was a multi-year process to ensure that we ensured sufficient time on site,” Wisram said. “The barriers to innovation in this category are so high, and the current shortage is a wake-up call, that we need a regulatory framework that supports pathways to innovation while maintaining maximum quality and safety for our children.”

Diet scientist and entrepreneur Laura Katz develops infant formula using precision fermentation to recreate the human proteins found in breast milk.

Katz, who launched her formula startup Helaina in 2019, said the goal is to produce formula with health benefits previously available only through breast milk.

She was 23 years old when she first started exploring her idea. Now 29-year-old Katz is close to the finish line, but he knows it could take a year or more. To date, it has raised $25 million from Siam Capital, Spark Capital and others as it looks to start production.

“Infant formula is a very sensitive and vital product and therefore establishing its safety through testing and clinical trials is such a long way to go,” she said. “But with constant innovation comes a better choice for consumers.”

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