Wal-Mart Stores Inc has pulled cans of Enfamil baby formula from the shelves of 3,000 of its stores this week and other US retailers followed after the death of a Missouri newborn who drank the formula.
Shares of the formula's manufacturer, Mead Johnson Nutrition Co, fell 10 per cent on Thursday, their biggest one-day decline ever.
Ten-day-old Avery Cornett of Lebanon, Missouri, tested positive for Cronobacter, a bacteria that has sometimes been linked to rare illnesses in newborns and has been found in milk-based powdered baby formula.
A federal investigation is under way and so far no link has been found between Cornett's illness and the formula which was purchased at a Wal-Mart store in Missouri.
Wal-Mart began taking 12.5-ounce cans of Enfamil Newborn from lot number ZP1K7G from shelves late Monday night, a spokeswoman said.
Mead Johnson said that lot number of Enfamil Newborn tested negative for the bacteria when it was packaged. Mead Johnson has not recalled the formula.
The US Food and Drug Administration, the US Centers for Disease Control and local health officials are investigating the source of the contamination, said FDA spokeswoman Siobhan DeLancey. Investigators tested formula from open and unopened containers as well as the distilled water used to reconstitute the formula. All were from the Cornett home.
"Those tests are pending. We won't get results until the middle of next week," DeLancey said.
The Missouri Department of Health and Senior Services urged consumers who purchased Enfamil formula with that lot number to throw it away or return it to the store.
Walgreen Co, Supervalu, Safeway Inc and Kroger Co said they took Enfamil from that lot off their shelves. Costco Wholesale Corp, Target Corp and CVS Caremark Corp said they did not carry it.
It is not clear exactly how long the investigation will take, but Mead Johnson spokesman Chris Perille said a week or more was not uncommon.
Cornett died on Sunday, according to the Lebanon Daily Record. It said he was taken to the hospital late last week after appearing lethargic and displaying what his family said were signs of a stomach ache.
He was one of two infants infected with Cronobacter in Missouri in the past month, according to the state's Department of Health & Senior Services. The other infant recovered.
A growing number of Cronobacter infections among newborns has provided evidence that milk-based powdered infant formulas have served as the source, the department said in a statement. One study testing such formula products from different countries found the bacteria in 14 per cent of samples.
"Powdered milk-based infant formulas are heat-treated during processing, but unlike liquid formula products they are not subjected to high temperatures for sufficient time to make the final packaged product commercially sterile," the department said.
FDA's DeLancey said Cronobacter can live in the environment very easily.
"The population that's really vulnerable to it are these little, little babies -- premature infants, babies six weeks and under, because their immune systems are just so immature," she said.
Mead Johnson said it was confident that all of its products are safe when prepared, stored and used according to the label instructions.
"The batch of our product used by the child's family tested negative for Cronobacter when it was produced and packaged, and that has been reconfirmed from our batch records following this news," Perille said.
The company is working with the health authorities, he said.
Even if the product was not tainted, the Enfamil brand is likely to suffer, analysts said.
"Until the issue is resolved - and even for a period of time after - we would expect weak Enfamil sales," said JP Morgan analyst Ken Goldman in a research note. "The question is how bad and how long the perception of tainted formula - right or wrong - will last in the public's mind."
Rival Abbott Laboratories voluntarily recalled millions of containers of its Similac powdered formula last year after beetles were found in the products and in a plant where they were made.
Using that situation as a benchmark, RBC Capital Markets analyst Edward Aaron predicted that any recall, if it happens, would be limited to the US business and could linger for about nine months. His worst-case scenario envisions a 50 per cent drop in demand, thereby reducing Mead Johnson's fiscal 2012 earnings by 50 cents per share.
"Recalls are expensive, but the real cost is litigation, fines and reputation damage," said Gene Grabowski, chair of the crisis and litigation practice at Levick Strategic Communications. They are "far more costly than any recall."
Grabowski, who has advised on infant formula recalls in the past, said the fact that children were affected makes a recall more likely, though not certain.
Mead Johnson shares closed down 10 per cent at $68.76 (S$89.11) on Thursday on the New York Stock Exchange, off an earlier low at $60.68.