Nestle invests in kiwi cure for constipation

ZURICH (Reuters) - Nestle SA (NESN.VX) is buying a stake in a New Zealand maker of kiwi fruit-based products to prevent and treat constipation, taking the world's biggest food company further into the fast-growing medical nutrition market.

Nestle, which helped Auckland-based Vital Foods get out of the starting-blocks via its venture capital fund, said its 18 percent stake would allow it to take the small firm's products to the next stage - toward clinical trials and new markets.

"We can invest more money in developing clinical trials to support evidence in IBS (irritable bowel syndrome) and, if these work, expand them," Luis Cantarell, chief executive of Nestle Health Science, told Reuters in an interview.

Irritable bowel syndrome, which affects millions of people, is a common functional disorder of the digestive system and can cause stomach cramps, bloating, diarrhea and constipation.

Nestle sees medical foods as a potential big growth area as populations age at the same time as strained health care budgets put disease prevention rather than treatment in the spotlight

Vital Foods, which was founded in 1991 and employs about 20 people, makes functional drinks and dietary supplements to improve the health of the digestive system.

CROSS FERTILISATION

Nestle set up its Nestle Health Science company and research institute this year to build a new business that cuts across both food and pharmaceuticals at a time of growing overlap between the two sectors.

Pharmaceutical companies are pushing into non-prescription products to make up for lower revenues due to patent expiries on top-selling drugs and consumer goods companies are increasingly seeking to develop foods with health benefits.

Some of the biggest players in so-called medical nutrition include Nestle, U.S. pharma group Abbott Laboratories (ABT.N) and French food company Danone (DANO.PA).

"Nestle was among the first to spot the potential of health and wellness in food and drinks and it is the first to realize that food and drink will play a key role in combating illnesses in the future," said Kepler Capital Markets analyst Jon Cox.

The nutritional and over-the-counter healthcare markets are expected to grow by 5 percent annually to $200 billion by 2015, according to analysts at Morningstar.

"The potential is huge, as there are big challenges coming up for the healthcare system overall in the years to come: three out of five people will die from a chronic disease by 2020," said Vontobel analyst Jean-Philippe Bertschy.

"It is a high-growth, high-margin business targeting new channels of distribution such as pharmacies, medical delegates and opinion leaders, the Internet and hospitals," he said.

NESTLE FUND

Cantarell said Nestle Health Science would use its existing clinical nutrition business in Australia to conduct clinical studies on IBS with Vital Foods' products.

"This is an interesting piece of a puzzle. If it works, we may see opportunities to cross-fertilize with other companies, like the one we bought in the U.S., Prometheus," he said.

In May, Nestle Health Science bought U.S. gastrointestinal diagnostics firm Prometheus Laboratories, which makes tests and drugs to diagnose and treat inflammatory bowel diseases, for an estimated $1.1 billion.

Cantarell said Nestle Health Science saw Vital Foods as a strategic investment, but did not give any financial details and said it would decide later whether to increase its stake.

Before taking the stake, Nestle had invested in Vital Foods through its venture capital fund, set up 10 years ago to get better access to new science, technology and know-how through acquisitions, minority stakes, licensing and joint-ventures

"The fund is a good way for us to put seeds in companies we want to help, better understand and collaborate with," he said.

Earlier this year, Nestle Health Science bought CM&D Pharma, another company in which the fund had invested and which develops dietary treatments for kidney patients.

Cantarell said Nestle Health Science had identified three big areas it wants to develop: gastrointestinal, metabolic and brain health.

While he sees metabolic health as having the biggest market potential, Nestle will initially focus on gastrointestinal diseases because of its expertise in food.

Nestle built the new company on its existing nutrition business which had a turnover of 1.7 billion Swiss francs ($2.09 billion) in 2010.

(Additional reporting by Emma Thomasson; Editing by Jane Merriman)