Abbott Laboratories announces a baby formula spinoff company

The healthcare company Abbott Laboratories announced on Wednesday that it’s planning to spin off its nutrition business into its own publicly traded company. The new entity will include products such as Ensure (the nutritional shakes) and Similac (a kind of infant formula).

Abbott claimed the separation sets each company up for “maximum success in its respective market,” it said. The separation may also be a sign of some of the unique challenges facing the infant formula business.

In addition to baby formula and nutritional shakes, Abbott also makes pharmaceuticals and medical devices and diagnostics. Patrick Wood, head of U.S. MedTech Research at UBS, said it makes sense that the company doesn’t want to do all of that.

“Running a consumer goods business is very different from running a medical devices business,” Wood said. “It's very different from running a diagnostics company.”

Wood said that with the separation, the spun-off company will deal with retailers and consumer trends, and Abbott can focus on healthcare. But he said this spinoff also shows some of the challenges around manufacturing infant formula.

“You have a very emotive category when you have children with pediatrics, right?” Wood said. “So any kind of product quality related issues … it's particularly painful.”

Abbott has been dealing with litigation over some of its products. Specifically, allegations that some of its specialty formulas were linked to a potentially fatal illness in preterm babies.

Some of that litigation is ongoing, and Marta Wosińska, a senior fellow at the Center on Health Policy at Brookings, worries that liability will land with the new company.

“Abbott might be offloading basically that legal exposure by spinning it off,” Wosińska said. “To me, that that would potentially increase the probability that they might decide to shut down that product line.”

Abbott didn’t respond to a request for comment on the litigation or where that liability will end up.

This move comes at a time of increased regulatory scrutiny of the industry, after a nationwide shortage in 2022. Bridget Young, a pediatrics professor at the University of Rochester, said that scrutiny made it clear how concentrated formula production is.

“When a shutdown happens, it shouldn't compromise the entire national supply chain,” she said. “But that is exactly what happened.”

Since then, a federal initiative called Operation Stork Speed has started examining ways to increase the resilience of the formula market. Young pointed out that any changes to regulation that come from that initiative will affect both existing formula companies and new players.