ByHeart CEO explains ‘the biggest misconception’ about the baby formula shortage

ByHeart Co-Founder and CEO Ron Belldegrun explains the key factors of the baby formula shortage after meeting with President Biden, oversights that allowed this crisis, and adding diversity to the supply chain.

Video transcript

SEANA SMITH: President Biden meeting with baby formula makers yesterday. And while the president said that he wasn't aware of the crisis until April, just two months ago, a month and a half ago, other executives in the industry knew there will be problems as soon as Abbott recalled-- issued its recall back in February. Here's what Robert Cleveland-- he's the senior vice president of nutrition at Reckitt-- had to say.

ROBERT CLEVELAND: We were aware of the general impact that this would have. And so from the moment that that recall was announced, we reached out immediately to retail partners like Target, Walmart, to tell them this is what we think will happen. And this is the inventory we have on hand right now. You should order it. And any inventory in your distribution centers should be pushed to shelves as fast as possible.

SEANA SMITH: All right, well, our next guest also met with the president. He was at the meeting yesterday. We want to bring in Ron Belldegrun. He's the co-founder and CEO of ByHeart. Ron, it's great to see you. There is a clear disconnect, as you can see, from that of the timing of when the shortage was first flagged by those of you in the industry versus when President Biden was aware, and then the government's response. I guess, a two-part question here. Could the shortage then have been avoided? And where is the FDA in all this? How much blame should we be placing on the FDA in this situation?

RON BELLDEGRUN: Well, first of all, thanks for having me. Look, first of all, I'll say I think it's great that the administration is pulling together the various stakeholders to discuss such a critical topic. I mean, this situation is unthinkable. You know, I had my second baby this past weekend. So [INAUDIBLE].

DAVE BRIGGS: We noticed.

SEANA SMITH: We heard.

RON BELLDEGRUN: --CEO of ByHeart, but as a parent as well. No one should need to experience the anxiety of not having a sole source of nutrition for their baby. So we were grateful to be included in the conversation. As one of only five companies in the country that manufacture infant formula, we feel major responsibility to be part of a sustainable solution to this problem.

And as you know, five years ago, we made a decision, a commitment to own our entire supply chain, to take a path no new entrant has in decades, and acquire manufacturing, directly source our ingredients, conduct the largest clinical trial from a new brand in 25 years. And that was really motivated by a desire to innovate on this critically important food. But now, as you point out, we're sitting in the midst of a national crisis. And we feel validated in that approach that we can be part of that sustainable solution.

To answer your question on why various stakeholders may have been surprised by this, I'll tell you why, in our view, it's been a surprise to many parents and to many people across the country. I mean, one of the biggest misconceptions in this category, it's something that you don't often realize, is when you're standing in front of a crowded infant formula aisle, and you see lots of different labels and lots of different brands and lots of containers, it seems as though there's lots of choice and you would think there are dozens of companies that are supporting this most foundational food, right?

But the reality is that 90% of the shelf is for just three brands that have dominated for 100 years. And every new entrant in the last few decades have taken the same path to outsource the one and only contract manufacturer in the country and utilize an expedited kind of generics path to market, which only allows for sort of incremental change based on existing recipes. So it's actually a much more fragile supply chain than I think many people realized. And that's something that we're kind of seeing now.

DAVE BRIGGS: And Rob, you mentioned those four companies accounting for more than 90% of the market. But Abbott itself was more than 40% of the market prior to this crisis. What needs to change in this system? What can the government do, in your estimation, to assure that we're never here again, that mothers are never watching their babies starve, that we're never watching airplanes fly from foreign countries airlifting formula to the United States?

RON BELLDEGRUN: Yes, look, I think it's great, first of all, that the administration is taking steps to provide near-term relief to a really urgent problem. And that's-- we have babies out there without sole source of nutrition. So some of the moves that have been taken with import and other are great near-term solutions to get formula into the hands of babies. But for us to never find ourselves in this situation again, we also need some sustainable solutions. This is too fragile a supply chain. This is the United States. We can't be in a situation where one company has a recall and 40% of the country is without infant formula.

And the only way to change that is to really invest in new manufacture and bring on more diversity to the supply chain. So we became the first new manufacturer in over 15 years with our launch earlier this year. We have the most recent FDA registration. We're investing in initiatives that will collectively allow for up to 500,000 new families to get fed, even above our projections. And that's some 50% of new births. And we're very focused on building that infrastructure here in the United States.

We also need to drive more incentives for other companies to do the work that we've done. The fact that all other new entrants have outsourced to a contract manufacturer means that none of the new entrants in the last 15 years have brought in incremental manufacturing or new clinical studies to continue to advance the field. And so, we need more companies to set up infrastructure here, run clinical trials, and build new manufacturing and meet, really, the very heightened, and appropriately so, regulatory standards for manufacturing infant formula in this country.

SEANA SMITH: Well, Ron, from your meeting with the president yesterday, I guess, are you confident that we are going to see change? And then, because we're looking at some of the statistics, one in five US states is 90% out of baby formula. And this comes after some of the President Biden's initiatives started. I guess, how soon could we potentially see actual change in your industry?

RON BELLDEGRUN: Look, I think what we heard yesterday is that I think every stakeholder involved is working tirelessly to solve this issue. It's, sole source of nutrition for babies is universal. You know, no parent-- this is the most anxiety provoking idea that one can imagine, to be without sole source of nutrition. So I think we heard around the table each company in this space really working to get us out of this national crisis.

I can tell you we, at ByHeart, are throwing everything that we have at this situation. As one of just five companies in this country that manufacture formula, we feel a big responsibility and are taking that responsibility very seriously. We're investing heavily into our manufacturing in Reading, Pennsylvania with a new $30 million investment. We are hiring aggressively. We're adding a whole new shift. We're already working 24/7 hours a day, five days a week. We're moving to 24/7.

Even just within days of the enforcement discretion policy being announced, we have two submissions in the FDA to expand our manufacturing footprint and accelerate fulfillment to get parents formula even quicker. And all of that here in the United States to really create a hopefully sustainable solution and incremental manufacturing here at home.