"Why Nestlé — yes, that Nestlé — is acting a lot like a drug company" by Rebecca Robbins, March 30, 2016
Nestlé, the global food behemoth known for selling chocolate and frozen pizza, has been acting a lot like a big drug company lately.
Its Nestlé Health Science subsidiary, which develops nutritional products to improve health, is pouring money into companies targeting conditions like gut infections, muscle loss, and Alzheimer’s disease. It just opened an outpost in the biotech hub of Kendall Square.
And CEO Greg Behar, who took charge of the subsidiary in 2014 after more than a decade in the pharmaceutical industry, spent three days last week in the Boston area last week, in part to scout biotech companies as investment targets. He said he’s looking for startups with strong management and good science in fields such as brain and gastrointestinal health.
So far, Nestlé Health Science has focused on bringing dietary supplements to market. They’re lightly regulated — no clinical trials needed — so they’re far quicker and cheaper to get on store shelves than traditional pharmaceuticals.
But federal regulators don’t let supplement makers advertise with specific health claims. So while Nestlé can say its shakes and powders boost brain health in a general sense, it can’t say they treat dementia or stave off Alzheimer’s.
That may change as the new focus is turning heads.
“It definitely is a serious foray into the biotech arena,” said Noubar Afeyan, CEO of venture capital firm Flagship Ventures, which has a strategic and financial partnership with Nestlé Health Science.
Launched five years ago, Nestlé’s health science subsidiary employs 3,000 people globally and brings in annual revenue of about $2 billion. The big drivers: high-protein nutritional shakes sold under the Boost brand, and shakes and soups marketed under the Meritene brand as reducing “tiredness and fatigue,” among other benefits. Together, Boost and Meritene account for about a quarter of the subsidiary’s yearly revenue.
The health science subsidiary accounts for just a tiny fraction of the Swiss corporation’s overall sales. But executives say they want to eventually increase the subsidiary’s revenue by a factor of five.
To that end, the subsidiary has disclosed a collective $200 million in investments in and deals with biotechs Seres Therapeutics and Pronutria Biosciences, both Flagship companies based in Cambridge.
Nestlé’s increasing interest in health products comes at a time when dietary supplements are under increasing scrutiny from regulators.
In recent months, the FDA has created a new office devoted to regulating supplements, also called nutraceuticals. It has issued a slew of warning letters and recalls. Federal prosecutors, meanwhile, have filed a flurry of criminal charges against supplement makers for allegedly selling products they knew to be dangerous.
And both the Pentagon and the US Anti-Doping Agency have expressed concern about the widespread use of supplements that purport to improve well-being but don’t have evidence to back those claims.
Behar said a regulatory crackdown wouldn’t set Nestlé Health Sciences back. “We don’t see an impact for us because we are, I would say, much more conservative in general” than many supplement makers in terms of the claims it makes about its products, he said.
But Nestlé’s investment targets haven’t entirely escaped scrutiny: Nestlé is a major investor in the Colorado biotech Accera, which sells a shake aimed at Alzheimer’s patients. The FDA hit Accera with a warning in 2014 for making unfounded claims that it could treat certain stages of the disease. Accera is no longer actively promoting its shake and is now developing a more traditional drug aimed at Alzheimer’s by targeting brain metabolism.
Behar said he doesn’t see any big competitors approaching the market for therapeutic nutrition the way Nestlé does. But that doesn’t mean the company has the field to itself.
Pharma giant Abbott Laboratories sells Ensure shakes to aging baby boomers. And at around the same time Nestlé launched its Health Science subsidiary, GlaxoSmithKline acquired a line of energy drinks and sports nutrition products, and Sanofi acquired more than 40 supplements from a company in India.
“I think you’re going to find Nestlé competing [with big pharmaceutical companies], both more directly in terms of product as well as for personnel” and for mergers and acquisitions, said Robert Waldschmidt, a financial analyst for the UK investment bank Librium.
I'll bet they won't be regulated like other things (app will make you feel fine).
You would be better off with a juice from the market.