Bubs [ASX:BUB] Slides 8% on More US Supply Deal News

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Infant formula producer Bubs Australia [ASX:BUB] provided the market with another update regarding its recent emergency supply deal with the US.

This time, however, the market wasn’t as enthused.

BUB shares fell 8% in late afternoon trade as the impact of its US supply deal has largely been priced in.

Investors are also likely mulling over BUB’s recent $68 million capital raise at a discounted price of 52 cents per share.

ASX:BUB BUBs stock chart

Source: Tradingview.com

Bubs flags FDA changes

Bubs updated the market on Thursday about the US FDA’s new framework for expanded access to infant formula options.

The FDA released a statement overnight about its plans to strengthen the US’s infant formula supply chain.

In May, the FDA issued temporary guidance permitting the importation of infant formula from international suppliers — like Bubs — to address the US’s baby formula shortage.

This ‘enforcement discretion’ described in the May guidance is set to remain in effect until 14 November 2022.

But as the FDA noted, some of the companies tapped to provide temporary relief wish to supply the US market permanently.

As a result, the FDA said it intends to:

Host meetings this summer with companies that import, sell, and/or distribute formula under the FDA’s temporary enforcement discretion policy to determine what additional steps would be needed to provide a pathway to long-term, uninterrupted marketing for safe and nutritious formula. 

Provide a pathway for companies that import, sell, and/or distribute formula under the FDA’s temporary enforcement discretion policy to continue to supply infant formula to the U.S. past November. 

Unsurprisingly, BUB said it has expressed interest in continuing to serve the US market permanently.

Bubs CEO Kristy Carr said:

We welcome Commissioner Califf’s announcement today and look forward to continuing to work with the FDA over the coming months to address any additional steps required to ensure we can supply and market Bub’s safe and nutritious formulas without interruption beyond November and over the longer term.

Bubs was one of the first international manufacturers to apply to the FDA to import infant formula under the initial enforcement discretion policy. Our long-standing commitment to the US market ensured our ability to provide rapid response at the speed of safety, and satisfy the very stringent quality and safety nutrition requirements of the FDA, having first launched our toddler products in the United States in 2021 with our retail partners.’

BUB’s outlook as its American dream is made

So far, Bubs has provided the US with 360,000 of its scheduled 1.25 million tins of baby formula in aid of the continuing baby formula shortage affecting American families.

Two days ago, Bubs also announced a $68 million equity raise.

The fresh capital is earmarked for funding growth opportunities, with BUB’s US expansion one of them.

Bubs Executive Chair Dennis Lin reflected:

Following the recent equity raise, our business is well-resourced to continue to provide safe, reliable and clean nutrition to American families with a transparent supply chain. We welcome the statement from FDA Commissioner Dr Robert Califf toady, which provides our business with further clarity to continue to expand our US team and ramp up production plans.

With today’s announcement t by the FDA, we look to immediately allocate additional production volumes for the US and work with our retail and distribution partners to serve American families beyond November. We will also continue to work with FDA under its guidance to ensure that Bubs can serve the American market permanently.’

Now, it can be quite challenging to find opportunities in the current market.

Volatility is high and any rally is quickly snuffed out by a string of red days as the market digests the uncertainty surrounding the global economic outlook.

But the stock market is not homogenous — opportunities can still present themselves…provided you know where to look.

Our small-cap expert Callum Newman has a knack for sniffing out under-the-radar opportunities.

His latest report focuses on three battery stocks he believes have the potential to be the next ‘chosen ones’ for leading battery mineral supply partners.

You can find out more by reading the report ‘Elon’s Chosen Ones’.


Kiryll Prakapenka,

For Money Morning

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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