Nestlé`s Diversification through Palforzia: The Setback and Lessons

Case Code: BSTR663 Case Length: 13 Pages Period: - Pub Date: 2023 Teaching Note: Available

Price: Rs.400 Organization : Nestlé S.A. Industry : Food & Beverage Countries : United States Themes: M&A, Diversification Strategy, Product Strategy & Design,New Product Development

Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

Change in Strategic Direction Under Schneider

Schneider became Nestlé's CEO in January 2017. Born and raised in Germany, he received an MBA from Harvard University in 1993. Between 1989 and 2001, he had held several senior executive positions with a privately held, diversified German multinational company – the Haniel Group. Schneider served as the CEO of a German healthcare company, Fresenius SE & Co. KGaA (Fresenius) from 2003 to 2016, wherein he had joined as CFO in 2001. Under his leadership, the number of employees at Fresenius more than tripled, revenue quadrupled and net income increased twelvefold. He became a US citizen in 2003..

Why a Cure for Peanut Allergy was Important

It was widely believed that around 1-2% of the global population – both children and adults – was adversely affected by peanut allergies. Nestlé estimated that up to 240 million people worldwide suffered from food allergies, with peanut allergy being the most common. While many peanut allergy reactions were mild, some were severe, leading to breathing difficulties or a decrease in blood pressure, and, in some cases, to anaphylaxis..

The Acquisition of Aimmune

In August 2020, NHSc purchased the rest of Aimmune for US$ 2.6 billion, paying a staggering 174% premium for it. Schneider stated that the acquisition would take “the science business to the next level”. Greg Behar (Behar), CEO of NHSc, said, “Aimmune has $261 million in cash and $134 million in debt. With our prior investment of $473 million in Aimmune, we’ll be making cash payment of just under $2 billion.”..

What went wrong for Palforzia and Nestlé?

However, contrary to expectations, by 2022, it became evident that Palforzia’s commercial performance was not up to the mark and that there was a lower-than-anticipated adoption rate among medical professionals. This was despite the fact that incessant feedback from both medical professionals and parents had indicated that Palforzia was yielding more favorable outcomes than what had been indicated by the clinical data..

The Next Course of Action

There were other companies that had also burned their hands in the US allergy market, a fragmented space that was dominated by allergen extracts. Nestlé’s tryst with Palforzia led to some analysts speculating whether potential investments in the wider field of food allergy research and pharmaceutical advancement could be adversely affected in the future..

Exhibits

Exhibit I: Nestlé’s Time line.
Exhibit II: Nestle’s Business Divisions and Products.
Exhibit III: Different Treatments for Peanut Allergy.
Exhibit IV: North America, Europe and Australian Peanut Allergy Treatment Market.

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