Nestle buys U.S. firm as part of food pharma drive

ZURICH (Reuters) - Nestle SA (NESN.VX), the world's biggest food group, agreed to buy U.S. gastrointestinal diagnostics firm Prometheus Laboratories for an estimated $1.1 billion as part of the Swiss group's drive into health sciences.

Nestle said Prometheus, which is expected to have annual sales of around $250 million in 2012, makes tests to help doctors diagnose conditions such as inflammatory bowel diseases (IBD), including Crohn's disease and ulcerative colitis.

Nestle, maker of Nescafe coffee, KitKat chocolate bars and Maggi soup, hopes Prometheus's sales force will push its hospital nutrition products like Peptamen and Novasource.

While Nestle declined to give financial details, analyst Jean-Philippe Bertschy at bank and asset manager Vontobel estimated Nestle might have paid more than 1 billion Swiss francs ($1.1 billion) for the company.

"The combined entity will be able to leverage the products and geographic presence in gastrointestinal diagnostics. We see that acquisition as a decisive step for Nestle," he said.

Luis Cantarell, head of Nestle's health science unit created at the beginning of the year, said the company hoped to develop personalized nutrition offerings with Prometheus's diagnostics and expected the buy to accelerate its own research.

"We will incorporate the nutrition dimension through existing products and new products we are going to develop," he told Reuters. "Significant innovations in the next 12 to 24 months will be added to the existing platform."

As well as making tests for IBD and celiac diseases, San Diego-based Prometheus produces drugs to treat them. Nestle makes a range of nutritional products for feeding patients with the same conditions.

Prometheus cites estimates that 60 million Americans may have symptoms of irritable bowel syndrome, while about 1.2 million are affected by more chronic irritable bowel disease.

FOOD AS A DRUG

Nestle's move comes at a time of growing overlap between "Big Pharma" and "Big Food" as many drug companies are investing in non-prescription products including nutrition.

Consumer healthcare is set to become a larger part of revenue for drugmakers as patents on many top-selling medicines expire. The nutritional and over-the-counter healthcare markets are expected to grow by a healthy 5 percent annually to $200 billion by 2015, according to analysts at Morningstar.

Cantarell said Nestle had ambitious targets to expand the health science business, which expects sales of 1.7 billion Swiss francs this year, not including the latest acquisition. He said more buys were possible once Nestle had digested this one.

"The largest drug you have in your repertoire is the food you eat," he said. "Nestle Health Science will be built by organic growth and also by acquisitions."

Given soaring healthcare costs as the world's population ages, Nestle wants the new unit to develop products that may prevent and even treat ailments such as diabetes, cardiovascular disease and Alzheimer's disease.

In February, it bought UK-based CM&D Pharma Ltd, which makes a chewing gum to help kidney patients.

Cantarell said Nestle was waiting for the results of clinical trials for the gum to see how it could commercialize the product and was also set for the international expansion of clinical nutrition firm Vitaflo, which it bought in August.

Vevey-based Nestle said last year it would invest about 500 million francs in a new health science institute to research nutrition over the next decade.

Nestle shares, which last week hit a four-month high of 55.20 francs, were up 0.4 percent at 54.70 francs at 1208 GMT, compared with a 0.2 percent weaker European food and beverage index .SX3P.

(Additional reporting by Ben Hirschler in London; Editing by David Holmes and Will Waterman)