Nestlé to take on pharmaceutical sector

Nestlé is challenging the global drugs industry with plans to invest SFr500m ($510m) over the next decade to support the creation of a standalone health science business to tackle obesity and chronic disease.

The Swiss food group, which announced the move on Monday, appointed Luis Cantarell, one of its most experienced executives, to “pioneer a new industry between food and pharma” that will develop products to combat diabetes, heart problems and Alzheimer’s.

The decision reflects a trend among food and pharmaceutical groups that are converging around high-margin non-prescription health products, for both humans and animals.

“The combination of health economics, changing demographics and advances in health science show that our existing healthcare systems . . . are not sustainable and need redesigning,” said Peter Brabeck, chairman, a key backer of the Swiss group’s push into nutrition.

Pharmaceutical groups including Pfizer, GlaxoSmithKline and Sanofi-Aventis have placed increasing emphasis on consumer health products sold over the counter, in an effort to diversify away from high-risk traditional drug development.

Nestlé recently completed the divestment of Alcon, its specialist eyecare business, to Novartis.

The new health science division, to open in January, will include the group’s existing healthcare nutrition business, which had sales of SFr1.6bn last year.

By setting up a standalone subsidiary, the group may avoid perceived conflicts between core products, such as chocolate, and obesity – which now affects a sixth of the world’s population.

Some analysts are sceptical about a food company’s ability to break into this area, citing the time it has taken arch rival Danone of France, which has invested heavily in recent years, to see a significant payback.

Regulators, including the European Food Safety Authority, have begun imposing tougher standards to ensure any health-related claims are backed by science.

However, Nestlé said it was no newcomer and already had a pet food that holds back Alzheimer’s in dogs. The group says its Pro Plan Senior is “the first and only dog food to contain ANTI AGE – a nutrient blend proven to improve cognitive function and mental alertness in senior dogs.”

Mr Brabeck said the division would grow via acquisitions, licensing and integration of start up companies, some already associated via Nestlé venture capital funds.

Medical nutrition has been built up steadily through acquisitions – notably of Novartis’s medical nutrition business in 2007. Many analysts expect Nestlé to acquire further, with Mead Johnson, a big US health nutrition group, widely tipped.

The latest changes also mark unusual management volatility for a group known for its stability. The departure of Mr Cantarell from his current job heading the Americas, will mean the appointment of a the fifth new boss in six years to what has become Nestlé’s biggest division.

Mr Cantarell will be succeeded by Chris Johnson, an American credited with the introduction of the group’s highly successful information technology system, and a fast riser in Nestlé’s ranks.

The Financial Times

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