M&A strategy

Cash rich Nestlé’s M&A allergy bet sours. CEO comes clean; time to rewrite Rx playbook

M&A has long been part of Nestlé’s DNA, organic growth alone hasn’t made it the world’s largest food company. Rowntree chocolate (Kit Kat), Purina pet care, Gerber baby food are amongst its most famous plays.

I worked in the company for 17 years in several markets – a requirement for all global executives – and M&A was always on the agenda.

Since I’ve left, the company has changed dramatically, one of the biggest changes was the appointment of an outsider as CEO, Mark Schneider. Previously internal candidates were favoured.

Schneider did not come with typical food-FMCG credentials, rather he was a pharma executive. Under his watch Nestlé’s transformed away from a food grocery aisle business to a higher margin portfolio focused on nutrition, sold across a wider range of sales channels and online.

Schneider has not been afraid to take big bets.

However, not everything always goes to plan.

In November 2016 Nestlé took a stake in a biotech startup, Aimmune, that had developed a peanut allergy remedy.

Nestlé is rather familiar with peanuts. There was a time when many of its confections contained peanuts. Many have since been reformulated. There was always a small, minority of consumers who suffered from nut allergens. Nestlé’s packaging was carefully labelled to warn the unsuspecting of risks. 

Between 2016 and 2020 Nestlé consistently upped its stake in Aimmune buying the business outright for $2.6b.

Aimmune’s hero product was Palforzia. Personally, given Nestlé’s marketing smarts, I think they could have gone with a better name choice. (It’s a mouthful, hard to remember and doesn’t have any link to peanuts, allergies or immunity). Palforzia doesn’t cure peanut allergies, rather it lessens their frequency and allergic reactions. It’s an Rx product so it must be prescribed. 

Getting Doctors to prescribe new drugs isn’t straightforward. One key requirement is a medical sales force, or lacking that, strong sales and marketing partners, with presence in clinics, surgeries and hospitals. 

What Route to Market model Aimmune/Nestlé planned to use remains unclear. Suffice to say that at last week’s Nestlé investor conference, Schneider acknowledged his decision to buy Aimmune was wrong. Patients were not prepared to spend $ thousands on Palforzia he said, adding, surprisingly, peanut allergy sufferers were too niche a market.

Nestlé now looks set to dispose of Aimmune.

Schneider’s humility to acknowledge he made the wrong call – and is taking action – is welcome; humility is a rare trait amongst CEOs.

Nonetheless, Nestlé needs to rewrite its pharma playbook. Whilst Schneider knows that industry, the vast majority of Nestlé executives don’t.