Reuters: Global Markets: Mead Johnson shares fall on report of safety issue in China

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Mead Johnson shares fall on report of safety issue in China Jul 10th 2012, 21:21 Tue Jul 10, 2012 5:21pm EDT (Reuters) - Shares of Mead Johnson Nutrition Co (MJN.N), maker of Enfamil baby formula, fell as much as 8 percent on Tuesday after an influential Chinese business magazine reported that a prohibited additive was found in some of its baby formulas in Hunan Province. The magazine, Caijing, said on its website that a quality inspection group in the province found vanillin, a compound found in vanilla beans, in Mead Johnson's formula for newborns up to six months old. No spices should be added to food for such young babies, the report said, citing China's National Food Safety Standards for Users of Food Additives. According to the report, the testing group said batches of Mead Johnson formulas made on October 22, 2011 and April 18, 2012 were found to contain the additive, which it said can be harmful to babies' liver and kidneys. Vanillin is not an ingredient in any of Mead Johnson's Stage 1 formulas designed for infants up to six months old, said company spokeswoman Gail Wood. "We are seeking clarification with the testing organization in China to understand their testing methodology and process," Wood said in an email. "Concurrently, a nationally certified test center is analyzing our Stage 1 product to confirm that it continues to meet all Chinese laws and regulations. Mead Johnson shares closed down 4.3 percent at $75.31 on the New York Stock Exchange after falling as low as $72.40. "The reports of an additive found in the baby formula in China triggered volatility in the shares and a flurry of action on Mead options," said WhatsTrading.com options strategist Frederic Ruffy. Despite the market's reaction, JP Morgan analyst Ken Goldman said he does not think Mead Johnson will suffer any meaningful sales or margin losses as a result of this issue. "We think there are two most likely scenarios here, and both are better than what is being reflected in the stock's drop," Goldman wrote in a research note. He said Mead Johnson could be forced to recall and replace the batches, or it could be exonerated fully by the Chinese government. Caijing also said the additive had been found in formulas made by Abbott Laboratories, owner of the Similac brand and Wyeth, owned by Pfizer Inc (PFE.N). Abbott said it does not use vanillin in its product. "There is no flavor addition in China Stage 1 infant formula and our product doesn't contain any material that is mentioned in the article," said Abbott spokesman Scott Stoffel. Pfizer spokeswoman Joan Campion said vanillin is not an ingredient of the company's Stage One formulas, and that the products are continuously monitored for stringent quality and safety. "We are concerned about the accuracy of this report, and we do not agree with the findings," Campion added. Abbott shares closed up 6 cents at $65.67, while Pfizer shares closed down 1 percent at $22.44. (Reporting by Martinne Geller and Ransdell Pierson in New York and Doris Frankel in Chicago; Editing by Bernard Orr) Link this Share this Digg this Email Reprints

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