September 1,2020

Swiss giant Nestlé has had a mixed bag in its dive into pharma, including a disappointing exit from prescription meds last year. The company since then has pivoted around nutrition and picked up two prescription assets in the process—and now it's making a big bet on a controversial allergy med. 

Nestlé will buy out California-based Aimmune Therapeutics for more than $2.1 billion in a bid to acquire Palforzia, a peanut allergy drug that received FDA approval in February, the companies said Monday.

With Nestlé's existing 25.6% stake in Aimmune, the all-cash deal values the company at $2.6 billion. At $34.50 per share, the price amounts to a 174% premium on Aimmune's closing price Friday, Nestlé said in a release.

The pact will merge Aimmune into an existing Nestlé subsidiary, forming a standalone business unit under the Aimunne moniker. The deal is expected to close in the fourth quarter. 

Bringing Aimmune on board will add some heft to Nestlé's health sciences unit, launched in 2011, and its food allergy portfolio. Palforzia has blockbuster aspirations as the only approved peanut allergy therapy on the market, with Evaluate Pharma pegging its 2024 sales at roughly $1.28 billion. 

The two companies have been working together since 2016, when Nestlé took a $145 million flyer on Aimmune. The Swiss company followed that up with investments of $30 million in February 2018, $98 million in November 2018 and $200 million in January 2020. 

Early in its launch, Palforzia has been stricken with slow uptake given widespread lockdowns around COVID-19, Piper Sandler analysts wrote in a note to clients after the deal was announced. However, once allergy clinics start running at full speed, Palforzia could make the Nestlé's rich premium look like a steal in the long run.

"While we understand the uncertainty that COV(ID)-19 disruption presents, we also think as pandemic-related disruption recedes and Palforzia’s true demand begins to manifest, it will be deemed that Nestle got itself a bargain here," the analysts wrote. 

Nestlé's move into pharma has hit some disappointing setbacks, but the company has pressed forward and continued to add new assets.

In January, Nestlé picked up two Allergan pancreatic replacement enzymes, Zenpep and Viokace, as part of the Irish drugmaker's efforts to close a $63 billion merger with AbbVie. Those two prescriptions drugs were the first added to Nestlé's portfolio since the company exited the prescription drug space with a selloff of dermatology brand Galderma—which it bought in 2014 for $3.6 billion—in 2019.

The company pivoted to nutrition, and saw the Allergan meds as a fit. “Zenpep is a natural fit within our gastrointestinal medical nutrition portfolio," a spokeswoman said at the time of the merger. "It complements other products and is aligned with our approach of nutritional support for ingestion, digestion and absorption.”

Meanwhile, Palforzia's blockbuster path is less than certain. Analyst have questioned whether the frequent doctor visits required to administer it and reported gastrointestinal side effects would derail the allergy med's commercial chances.

In a note to investors in March 2019, a Credit Suisse analyst said physicians were largely positive on the clinical need for Palforzia but raised concerns about the drug's commercial chances.

"However, we see significant interest in the product from physicians and patients/parents," the analyst added, saying Palforzia's side effects seem "manageable" and a targeted sales force could handle the commercial challenge.