Nestlé may sell peanut allergy unit in heath-strategy u-turn

Nestlé SA put its Palforzia peanut-allergy treatment up for sale only two years after buying it, as Chief Executive Officer Mark Schneider reverses course on one of his biggest acquisitions beyond the Swiss company’s traditional food and beverage operations.

Schneider told analysts Tuesday that Nestle is trying to correct mistakes quickly and aims for consistent results in the coming years even as the market becomes more volatile. He set new targets for earnings growth and profitability through 2025.

“We did have high hopes for this business,” the CEO said, speaking at a strategy seminar in Barcelona. Instead of a blockbuster, Palforzia looks more like a niche therapy, he added.

The course-correction is the biggest strategy shift since the Swiss company was targeted by activist investor Third Point in 2017. Nestle bought out the maker of Palforzia in a $2.6 billion deal in 2020, and its launch was marred by the pandemic. Going forward, Schneider said Nestlé will sharpen the focus of the health-science unit on consumer products and medical nutrition, areas that benefit from relatively inelastic demand.

Palforzia’s marketing investments weighed down the health-science business’s profitability, and after the pandemic eased, it became apparent that fewer than expected patients would take up the drug, Schneider said.

The CEO set new financial targets Tuesday ahead of an investor meeting in Barcelona. Underlying earnings per share should rise 6 percent to 10 percent annually in constant currency through 2025, the maker of Nespresso capsules and DiGiorno pizzas said. Schneider also gave margin targets for those years that exceed analysts’ estimates.

No blockbuster

Palforzia is the first and only oral treatment to help reduce the severity of allergic reactions to peanuts that has approval from the US Food and Drug Administration. The Swiss company expected the treatment could become a blockbuster with sales of $1 billion, but its introduction in the US was snarled due to the pandemic. 

Nestlé shares fell as much as 1.1 percent in Zurich. 

Schneider’s M&A track record is mostly positive, with the CEO completing more than 60 deals during his seven years as CEO. Nestle said the net annual return on acquisitions since 2018 is between 11 percent and 13 percent. Schneider admitted that two exceptions have been Palforzia and Freshly, a meal-subscription company Nestle bought in 2020 for $950 million.

Nestlé has agreed to merge Freshly with Kettle Cuisine, a gourmet food company owned by private equity firm L Catterton. The Swiss company will hold a minority stake.

Schneider also said Nestlé will keep looking for acquisition targets and that there are M&A opportunities in the vitamin, mineral and supplement sector. The 57-year-old CEO said he’s fully committed to his job and is “here for the long-term.”

The company has gained 86 billion francs ($91 billion) in market value under his watch.

The company raised its sales forecast for this year to organic growth between 8 percent and 8.5 percent. The previous guidance was about 8 percent. The company also forecast that its underlying trading operating margin should grow to between 17.5 percent and 18.5 percent by 2025, up from about 17 percent this year. Bloomberg News

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