Nestlé/biotech: peanut gallery
Swiss group’s deal for maker of allergy treatment will take time to pay off
Nestlé is best known for its Kit Kat chocolate bars and Nespresso coffee. But recent M&A moves by the Swiss food and beverage giant are making it look increasingly like a drug company.
Its latest acquisition, California-based Aimmune Therapeutics, marks the company’s biggest gamble yet on health science. Nestlé has agreed to pay $34.50 a share to gain full ownership of the US biotech group, which made headlines earlier this year when it won US approval for peanut allergy treatment Palforzia. The offer represents a 173 per cent premium to Aimmune’s closing price on Friday, and values the business at $2.6bn, including debt.
The deal takes Nestlé boss Ulf Mark Schneider back into familiar territory. He led German healthcare company Fresenius for 13 years before joining Nestlé in 2017. His interests are reflected in deals. Since he took over Nestlé, it has sold off underperforming assets such as lunch meat and bulked up in fast-growing areas such as meat replacements and medical nutrition.
The combination of food and drugs is not as odd as it sounds. Sales of highly processed foods are on the wane. Food and pharmaceutical groups are converging around high-margin, non-prescription health products, for both humans and animals. Nestlé, for example, makes dog food that claims to fight dementia.
Having invested in products that range from gastrointestinal medication to health supplements, Nestlé is now targeting the food allergy market. Up to 240m people worldwide suffer from food allergies, according to the World Allergy Organization. Peanut allergies are the most common. Nestlé reckons Aimmune’s Palforzia treatment, which is made from peanut flour and given as a powder mixed with foods, could deliver potential annual sales of $1bn later this decade.
The keyword is “potential”. Like many biotech companies, Aimmune has as yet made no sales and reported a loss of $248m last year. It will take time for the investment to pay off. But with a market valuation of more than SFr303bn ($336bn) and plenty of cash from recent disposals, Nestlé can afford to be patient.