Nestlé Spent Billions on a New Peanut-Allergy Treatment. It Learned Great Medicine Isn’t Easy Money.
About the author: Allan Sloan is an independent business journalist and seven-time winner of the Loeb Award, business journalism’s highest honor.
A great medical breakthrough doesn’t necessarily make for a great medical investment. Nestlé, which is best known for products like chocolate chips, Purina petfood, and Nescafe coffee but also has a sizable health-sciences business, now realizes this.
Our story involves the first Food and Drug Administration–approved treatment for the peanut allergies that plague millions of families, including mine. It’s called Palforzia. Nestlé NESN +0.44% , a Switzerland-based multinational giant, acquired it in 2020 by purchasing a U.S. company called Aimmune Therapeutics at a cost of about $2.6 billion. The FDA approved the treatment earlier that year.
However, Nestlé’s problems with Palforzia, on which it says it expects a “significant impairment on its books,” are an example of what can happen when a big company decides to try to get a piece of the U.S. healthcare business—only to discover that the business is more complicated than it seems from the outside.
Because so many people are allergic to peanuts, shelling out big bucks for the owner of Palforzia seemed sensible. The name Palforzia, Nestlé told me, consists of “pal” for “peanut allergy” and “forzia” for strength. But alas, the purchase of Palforzia has turned into a financial fiasco.
“It was much, much harder to get the patient takeup that we had anticipated, and that we felt was expected because of the strong underlying medical need,” Nestlé CEO Mark Schneider said at an investor seminar, at which he announced that Nestlé has put Palforzia up for sale.
What’s startling is that the difficulties in signing up Palforzia users seem to have come as a surprise to a consumer-conscious company like Nestlé.
Those problems wouldn’t surprise any family that uses Palforzia. Getting kids with peanut allergies to the point that they can safely take Palforzia, designed for children ages 4 to 17, is difficult and time-consuming. Palforzia, you see, isn’t a magic pill like an antibiotic. It doesn’t cure peanut allergies. Rather, it protects peanut-allergic children from suffering horrible consequences if they ingest small quantities of peanuts or peanut products.
But before being approved to take Palforzia, a child must make at least 11 hour-plus doctor visits over a six-month period to build up tolerance for peanuts. That’s a visit about every two weeks. At each visit, the potential Palforzia patient is given an increased amount of peanut flour—and has to wait for an hour under medical supervision in case the increased dose triggers side effects.
In today’s world, where all the adults in so many households have jobs, it’s difficult for lots of families to commit to all those visits. That’s an obvious hindrance to signing up customers en masse.
I know about the up-dosing situation because one of my grandchildren uses Palforzia. Another grandchild was part of a clinical trial designed to build up children’s peanut tolerance so they don’t have to worry about going into anaphylactic shock if they accidentally consume peanuts. My grandkids were fortunate to have extended family nearby and enough child care and parents with job flexibility to let them do the required visits. But many families don’t have that kind of flexibility.
Another obstacle to Palforzia getting massive numbers of users, I suspect, is the wholesale price that Nestlé put on it: about $1,000 a month. Fortunately, medical insurance covers almost all the cost for my Palforzia-taking grandchild.
Palforzia isn’t a cure for peanut allergy—it’s a continuous maintenance dose of peanut flour. You don’t give a kid a Palforzia capsule to swallow. Rather, you open the capsule, spill the peanut flour inside it into something like applesauce or an unheated drink, and make sure that the kid consumes it—and then ensure that the kid doesn’t do anything excessively strenuous for an hour.
My peanut-allergic grandchild who’s not on Palforzia but whose peanut tolerance was built up by the clinical trial takes a daily maintenance dose of peanut M&Ms after dinner. (Yes, a doctor with a sense of humor actually wrote “peanut M&Ms” on a prescription blank.)
The company declined to say how many people are taking Palforzia compared with its projections. “However,” a spokesperson wrote me, “we can say that the numbers are not where we hoped they’d be.”
I’d love to be able to tell you whether Palforzia’s problems came as a total surprise to Nestlé, or whether it just underestimated them, but the spokesperson didn’t answer that. “We have believed in Palforzia’s ability to dramatically improve patients’ lives from the start and now know that patient recruitment for this type of niche treatment is better suited to a specialized pharma company,” the spokesperson wrote me.
Translated into English from corporatese, this means that Nestlé realizes it messed up.
The new owner of this medical breakthrough may end up paying a price reasonable enough for the purchase to become a great medical investment. And it may be able to cut Palforzia’s price and develop ways to reduce the number of up-dosing visits a kid needs. That could make it an even greater investment.
My family has benefited enormously from Palforzia. I hope that it’s around long enough—and becomes accessible enough—for lots of other families to benefit from it, too.