FTC probing Abbott, other baby-formula makers for collusion

The Federal Trade Commission (FTC) is looking into whether major U.S. infant formula makers colluded when bidding on lucrative contracts to provide formula to lower-income families, according to a filing posted to the agency's website. 

According to the filing, the agency started a probe last year into whether Abbott Laboratories or any other infant formula maker "engaged in collusion or coordination with any other market participant regarding the bidding for WIC contracts." 

The Department of Agriculture’s Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provides free infant formula and certain nutritious food items to low-income families with infants. 

The FTC said the highly concentrated baby formula market is dominated by three major players including Abbott, which the FTC says controls nearly half of the market.  

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State agencies that administer the program bid out multi-year contracts to formula suppliers, according to the FTC. The manufacturer offering the lowest average net price becomes the sole infant formula supplier for that contract period.

More than half of infant formula sales in the U.S. are made through the WIC program, the FTC said.

However, it's been argued that these contracts can be lucrative because they can also lead to a boost in commercial sales and significantly increase the winning company's market share in a given state. 

"Although the boost in non-WIC sales motivates manufacturers to win WIC contracts, it may also create incentives to engage in collusive or coordinated market allocation, whereby incumbent WIC contract holders agree not to bid against each other so that they can continue enjoying dominant positions in non-WIC markets in their respective states," the FTC said.

Reckitt Benckiser told FOX Business that it can't comment on specific government investigations. However, the company said it complies with "any regulatory and enforcement agency requests that we receive." 

A spokesperson for Nestlé, which supplies Gerber formula through WIC, told FOX Business that it has also received a request for information and has responded to the FTC. 

In November, the company sold its infant formula factory in Wisconsin and the U.S. and Canadian rights to the Good Start infant formula brand to Perrigo Company, but is still fulfilling its existing WIC contracts, the spokesperson said. 

Abbott, which sells Similac formula, said it is cooperating with the FTC's investigation but declined comment. Its lawyers said in a letter to the FTC earlier this year that Abbott is "unaware of any evidence that creates even a hint of collusion or coordination." 

The notice continued: "Despite repeated asks, Staff have not directed us to any such evidence. We thus remain at a loss to understand the factual predicate for this investigation." 

Abbott has been the subject of several probes launched by federal agencies, including a criminal investigation by the Justice Department.

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That probe followed the closure of a manufacturing plant that contributed to a nationwide formula shortage.

The documents didn't suggest a link between the shortages last year and the FTC's investigation.

The Food and Drug Administration and academics have said the infant-formula market remains vulnerable to shocks in part because the market is dominated by four companies.

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As of May, Abbott held contracts with 32 states to supply formula for WIC. Reckitt's Mead Johnson division works with 13 states, and six work with Nestlé to offer Gerber products.

States have been required since 1989 to solicit competitive bids for formula under the WIC program, in an effort to contain costs.