Analysis on Core Customer Stability Strategies for Capstone Biotech's ARA Products Post-Nestlé Recall Incident

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On January 5, 2026, Nestlé Group issued a preventive recall notice across 31 countries and regions globally, recalling certain batches of infant formula products[1][2]. In its official statement, Nestlé stated that during testing of Arachidonic Acid Oil (ARA) and related oil mixtures used to produce potentially affected products, it found quality issues in the oil raw materials provided by the supplier. The relevant batches of products may contain Bacillus cereus (Cereulide), a bacterium whose toxin is heat-resistant and may cause foodborne illnesses[3]. As of now, no confirmed disease reports related to the relevant products have been received.

Nestlé did not disclose the specific name of the involved supplier in its announcement, but based on industry information and various parties’ statements, the outside world has identified A-share listed company Capstone Biotech (Wuhan) Co., Ltd. as the subject[1][4]. As a leading enterprise in China’s ARA industry, Capstone Biotech began commercial supply to Nestlé in 2021, with a supply volume of 150-160 tons in 2024, accounting for approximately 20% of Nestlé’s total ARA procurement volume[4].

Founded in 2004 and listed on the STAR Market in 2019, Capstone Biotech is the first high-tech enterprise in China to large-scale produce Polyunsaturated Fatty Acids (PUFA) via microbial fermentation[2][5]. The company’s main products include biosynthetic nutrients such as ARA, algal DHA, Sialic Acid (SA), fermentation-derived β-carotene, and Human Milk Oligosaccharides (HMOs), which are used in fields including infant formula, dietary supplements, health foods, and formula foods for special medical purposes[1].

In terms of customer structure, Capstone Biotech has accumulated

and formed long-term stable cooperative relationships with well-known domestic and foreign infant formula enterprises such as Nestlé, Danone, Cargill, Feihe, Yili, Junlebao, Beingmate, and Mengniu, with some cooperative relationships lasting over 10 years[6]. In 2024, the company’s ARA product revenue reached RMB 390 million, representing a year-on-year increase of 29.17%, with a product gross profit margin of 44.08%; the ARA business accounted for as high as 70.27% of total revenue[1][5]. The company’s products are sold in more than 30 countries and regions including China, Europe, Australia, New Zealand, South Korea, Southeast Asia, and the United States[5].

Impact Dimension	Specific Performance	Severity
Stock Performance	Plummeted by 14.15% in the early trading session on January 8, closing down 11.91%[1][4]	High
Regulatory Pressure	Received a regulatory work letter from the Shanghai Stock Exchange, requiring timely response and fulfillment of information disclosure obligations[4]	High
Customer Trust	Multiple dairy enterprises urgently distanced themselves, issuing statements that they did not use raw materials from the involved supplier[3]	High
Market Confidence	Executives reduced their holdings at a sensitive time, fueling market speculation about internal personnel hedging in advance[4]	Medium-High
Competitive Landscape	Demand for DSM-Firmenich’s ARA raw materials surged, as the company stated, "Affected by the above incident, demand for the company’s ARA raw materials has surged, and we will fully coordinate production capacity to meet market demand"[1][3], taking the opportunity to seize market share and pose direct competitive pressure on Capstone Biotech	Medium-High

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Based on the current situation, the risks to the stability of Capstone Biotech’s core customer cooperation are mainly reflected in the following levels:

Nestlé is an important customer of Capstone Biotech, with its supply volume accounting for approximately 20% of Nestlé’s total ARA procurement[4]. If Capstone Biotech is confirmed as the involved raw material supplier, it will directly face:

• Nestlé may re-evaluate its supplier selection, reduce procurement volume or terminate cooperation
• Nestlé will launch a global supplier replacement plan
• The trust foundation of the long-term cooperative relationship (established in 2021) will be shaken

As enterprises such as Danone, Junlebao, Feihe, Yili, Mengniu, and FrieslandCampina have issued statements that they did not use ARA raw materials from the involved supplier[3], this "cutting ties" behavior reflects the high sensitivity within the industry to supply chain security. If Capstone Biotech’s subsequent test results are unfavorable, it may trigger a wider range of customer churn:

• Customers that have not yet made a clear statement may adopt a wait-and-see attitude, delaying or reducing procurement orders
• New customers under negotiation may suspend cooperation processes
• Several major domestic formula milk powder enterprises may list Capstone Biotech on their supplier blacklist[1]

In recent years, Capstone Biotech has vigorously expanded its international market, with its products entering more than 30 countries and regions globally. Incidents involving infant food safety have a particularly significant impact on international business:

• International customers have stricter requirements for food safety and may re-audit supplier qualifications
• New customers in international markets may re-evaluate cooperation risks
• Damaged brand reputation will affect further expansion into international markets in the future[5]

Notably, DSM-Firmenich, a veteran giant in the ARA sector, quickly issued a statement after the incident, emphasizing that the problematic ARA raw materials involved were not supplied by it, and stated, "Affected by the above incident, demand for the company’s ARA raw materials has surged, and we will fully coordinate production capacity to meet market demand"[1][3]. This statement indicates that DSM-Firmenich is taking the opportunity to seize market share, posing direct competitive pressure on Capstone Biotech.

In addition, other ARA suppliers such as Richen Bioscience and Roquette may also take the opportunity to expand their market share, further squeezing Capstone Biotech’s market space.

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Based on the above analysis, it is recommended that Capstone Biotech systematically promote core customer stability work from the following five dimensions:

Capstone Biotech’s current information disclosure strategy is too passive, only suspending announcements on the grounds that "test results are not yet available"[4]. This silent response posture can no longer meet the dual demands of regulators and the market. It is recommended to take the following measures:

• Proactively release phased progress announcements
  : Even if test results are not fully available, regularly inform investors and customers of verification progress to demonstrate a proactive and responsible attitude
• Clearly disclose verification processes and timelines
  : Explain to customers the specific testing institutions, testing items, and expected time nodes for product testing to reduce anxiety caused by uncertainty
• Proactively align with regulatory requirements
  : In response to the regulatory work letter from the Shanghai Stock Exchange, promptly and completely reply to the information required to be disclosed in the letter to demonstrate the sincerity of compliant operations

• Senior-level direct communication
  : Company executives should proactively communicate directly with senior managers of core customers such as Nestlé, Danone, and Feihe to understand customer concerns and provide first-hand information
• Technical team docking
  : Arrange the technical team to dock with customers’ quality management departments, explaining in detail the product production process, quality control system, and progress of problem troubleshooting
• Regular customer notifications
  : Establish a regular customer notification mechanism to continuously update incident progress and the company’s response measures through written reports, video conferences, and other forms

What customers care most about is product safety and quality controllability. It is recommended that Capstone Biotech take the following measures:

• Third-party testing and certification
  : Invite internationally recognized third-party testing institutions to conduct comprehensive testing on relevant batches of products and disclose the test results
• Demonstration of full-process traceability system for production
  : Show customers the full-process traceability system from raw material procurement, production and processing, quality testing to logistics and distribution to prove that product quality is controllable
• Historical quality records
  : Compile records that the company has never had a major quality accident since its establishment, as well as various international certifications (such as EU Novel Food, US FDA GRAS, etc.), to enhance customer confidence[5]

• Proactively upgrade quality standards
  : On the basis of the existing quality management system, proactively raise testing standards and increase the frequency of testing for specific indicators such as Bacillus cereus
• Introduce international benchmarking
  : Invite international food safety experts to audit and certify production facilities and the quality management system to enhance customer trust
• Establish customer-exclusive quality reports
  : Provide customized product quality reports for core customers to meet the personalized requirements of different customers

Some of Capstone Biotech’s cooperative relationships with core customers such as Nestlé, Danone, and Feihe have lasted over 10 years[6]. During a crisis, efforts should be made to strengthen the value of these long-term cooperative relationships:

• Review of historical cooperation
  : Show customers the historical achievements of bilateral cooperation, emphasizing the irreplaceable role Capstone Biotech plays in customers’ supply chains
• Shared development vision
  : Discuss future cooperation plans with customers, including new product development, technological innovation, market expansion, etc., turning the crisis into an opportunity to deepen cooperation
• Upgraded customized services
  : Provide long-term customers with value-added services such as more favorable procurement terms, priority supply guarantees, and exclusive technical support

• Joint quality control
  : Establish a joint quality control mechanism with core customers to jointly formulate raw material acceptance standards and quality testing processes
• Technological collaborative innovation
  : Carry out joint R&D projects with customers to jointly develop new products that meet market demand and enhance cooperation stickiness
• Information sharing mechanism
  : Establish an information sharing mechanism with core customers to promptly notify industry trends, policy changes, technological development trends, etc.

• Product quality insurance
  : Purchase sufficient product liability insurance for products to provide risk protection for customers
• Supply guarantee commitment
  : Commit to core customers that in the event of supply interruption, their supply will be prioritized, and alternative supply solutions will be provided
• Price stability mechanism
  : Provide price stability commitments to core customers during the crisis to avoid affecting customer interests due to market fluctuations

Although the ARA business is Capstone Biotech’s core revenue source, over-reliance on a single business and a small number of large customers poses risks. Recommendations:

• Expand new customer groups
  : Accelerate the development of new customers in fields such as formula foods for special medical purposes, dietary supplements, and functional foods
• Develop new application scenarios
  : Promote the application of ARA in new fields such as biomedicine and cosmetics to reduce dependence on the infant formula market
• Regional market balance
  : Further balance the layout of domestic and international markets to reduce the impact of fluctuations in a single regional market

In response to market concerns about corporate governance, especially the issue of executives reducing their holdings at a sensitive time[4], recommendations:

• Improve information disclosure system
  : Establish a more timely and transparent information disclosure mechanism to enhance market confidence
• Standardize executive behavior
  : Formulate relevant norms for executives’ share increases or reductions during sensitive periods to avoid market misunderstandings caused by share reduction behaviors at sensitive times
• Strengthen investor relations management
  : Proactively communicate with institutional investors and analysts to promptly respond to market concerns

• Establish a crisis management system
  : Improve the full-process management mechanism for crisis early warning, response, and recovery
• Regular drills
  : Regularly organize emergency drills for scenarios such as supply chain quality accidents, customer complaints, and public opinion crises
• Professional team building
  : Establish a professional crisis public relations team to enhance the company’s ability to respond to emergencies

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If subsequent tests prove that there are no quality issues with the ARA raw materials supplied by Capstone Biotech, the company should:

• Issue a clarification announcement immediately
  : Release an official announcement to clarify the facts and attach an authoritative test report
• Proactively invite customers to verify
  : Invite representatives of core customers to conduct on-site inspections of production facilities and testing processes
• Legal rights protection
  : Reserve the right to pursue legal liability for false reports or malicious information dissemination in the past
• Customer compensation plan
  : Provide appropriate forms of compensation or discounts for the troubles caused to customers by the incident

If quality issues do exist in some batches of products, the company should:

• Proactively recall problematic batches
  : Proactively recall potentially affected product batches to demonstrate a responsible attitude
• Comprehensive inspection and rectification
  : Conduct a comprehensive inspection of the production process, identify the root cause of the problem, and carry out thorough rectification
• Compensate customers for losses
  : Provide reasonable compensation for direct losses caused to customers by the problematic batches
• Disclose rectification report
  : Submit a detailed rectification report to customers and regulatory authorities to demonstrate the determination and measures for rectification

If Capstone Biotech is confirmed as the supplier of Nestlé’s problematic ARA raw materials, this will be the most severe scenario:

• Frankly take responsibility
  : Proactively acknowledge the problem, do not shirk responsibility, and demonstrate the enterprise’s sense of responsibility
• Fully cooperate with investigations
  : Actively cooperate with regulatory authorities’ investigations and provide all required information
• Emergency communication with customers
  : Conduct emergency communication with all core customers immediately, explain the situation, and propose solutions
• Restructure the supply chain
  : Negotiate with customers to establish new supply chain arrangements, including alternative suppliers, quality control mechanisms, etc.
• Long-term trust rebuilding
  : Formulate a long-term trust rebuilding plan to win back customer trust through continuous high-quality delivery and services

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Time Node	Key Actions	Objective
First Week	Release incident progress announcement; Senior management proactively contacts core customers; Launch third-party testing	Demonstrate a proactive response attitude and stabilize customer emotions
Second Week	Announce test results; Organize on-site customer inspections; Complete communication with regulatory authorities	Eliminate information asymmetry and rebuild customer trust
Third to Fourth Weeks	Take targeted measures based on test results; Strengthen the quality management system; Optimize customer cooperation terms	Consolidate customer relationships and reduce churn risk
Second to Third Months	Conduct customer satisfaction surveys; Promote new customer development; Optimize diversified layout	Fully resume business operations and reduce the impact of the incident

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The Nestlé recall incident currently faced by Capstone Biotech is a major crisis, but it is also a critical moment to test and enhance the enterprise’s management capabilities. From the perspective of crisis management, a

response attitude is the fundamental prerequisite for stabilizing core customer cooperation.

Based on the above analysis, it is recommended that Capstone Biotech prioritize the following

:

1. Accelerate information disclosure
   : Complete product testing as soon as possible, proactively release phased progress announcements, and respond to market and customer concerns
2. Proactive senior-level communication
   : Company executives directly communicate with senior management of core customers such as Nestlé, Danone, and Feihe to provide first-hand information
3. Strengthen quality assurance
   : Invite third-party institutions to conduct comprehensive testing and certification, and show customers the improved quality management system
4. Strengthen value recognition
   : Review the history of long-term cooperation, emphasize the strategic value of cooperative relationships, and propose plans to deepen cooperation
5. Rebuild governance confidence
   : Standardize information disclosure and executive behavior to rebuild investor and market confidence in the company

Through the above systematic crisis response and customer stability strategies, Capstone Biotech is expected to minimize the impact of this incident on core customer cooperation, demonstrate the enterprise’s professional capabilities and sense of responsibility during the crisis, and lay a more solid foundation for long-term development.

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[1] Beijing News - "Nestlé Milk Powder Recall Incident Spreads, Multiple Brands Respond Urgently, Capstone Biotech’s Stock Plummets" (https://m.bjnews.com.cn/detail/1767850596168757.html)

[2] Sina Finance - "Nestlé Recall Storm Hits Suppliers? Capstone Biotech Receives Regulatory Work Letter" (https://cj.sina.cn/articles/view/7199910176/1ad25e92000101fezo)

[3] Jiemian News - "Major Dairy Enterprises Urgently Cut Ties with Capstone Biotech, the Supplier Caught in Nestlé’s Recall Incident" (https://m.jiemian.com/article/13860736.html)

[4] Phoenix Net Finance - "Caught in Nestlé Recall Storm, Capstone Biotech Has Not Yet Responded to the Shanghai Stock Exchange’s Regulatory Letter" (https://finance.ifeng.com/c/8prKyb0F8Zo)

[5] Tencent News - "Nestlé Recalls Some Infant Formula in Multiple Countries, Capstone Biotech Suspected of Being Involved" (https://news.qq.com/rain/a/20260108A05MN200)

[6] 21st Century Business Herald - "Capstone Biotech Responds to Nestlé Milk Powder Recall: Relevant Raw Materials Under Testing, Results Not Yet Available" (https://finance.sina.com.cn/roll/2026-01-07/doc-inhfnqzt2166638.shtml)