Nestlé's pharma experiment nears an end with $10B skin health sale talks

Nestlé is in final talks with an EQT Partners-led consortium to sell its skin health unit for $10 billion. (Nestlé)(Nestle)

Just five years after Nestlé took full possession of dermatology specialist Galderma amid a pivot to pharma, the Swiss company is now in the final stage of bailing out of skin health as it refocuses on food and nutrition.

Nestlé has entered exclusive talks to sell its skin health unit to a consortium led by private equity EQT Partners for 10.2 billion Swiss francs ($10.1 billion), the company said Thursday. The price tag is much higher than the previously rumored $7 billion.

The deal is expected to close in the second half of the year. Upon closing, prescription brands including acne topical treatment Epiduo, aesthetic products such as facial lifter Restylane and consumer solutions Proactiv and Cetaphil—along with about 5,000 staffers—will likely leave Nestlé.

Nestlé bulked up in medical skin treatments when it shelled out $3.6 billion to take full control of Galderma from joint venture partner L’Oréal in 2014. That came as part of the company’s attempt to diversify beyond its sluggish food business and march deeper into the more profitable health sector.

To further fulfill that ambition, it soon moved to a $1.4 billion deal with Valeant to gain several cosmetic products, including Restylane. The two deals indicated that Nestlé was “serious about expanding their business into the health sphere,” Kepler Cheuvreux analyst Jon Cox told the Financial Times at the time.

In 2016, it tried to poach former Allergan executive Paul Navarre to run the business. As Navarre didn’t take up the position “for reasons related to his previous employment,” Nestlé instead named Galderma’s then-chief Stuart Raetzman, who previously served 20 years with Alcon.

RELATED: Nestlé to ax up to 450 skin health R&D jobs, exit facility

However, the dermatology dream didn’t last long. The franchise never lived up to Nestlé’s original expectations for growth. As it struggled against generic competition, the company in 2017 cut 450 jobs at an R&D facility in France and shuttered a Swiss factory that made Daylong sunscreen, among other skin products.

The slowdown culminated in a strategic review unveiled last September to “sharpen its focus on food, beverage and nutritional health products.” The company decided that future opportunities for the skin health unit “lie increasingly outside the Group’s strategic scope.”

Skin health contributed about CHF 2.7 billion net sales in 2017, and the CHF 2.8 billion in 2018 only made up about 3% of the company’s total, according to Nestlé.

RELATED: Allergan preludes major selloffs with $650M Almirall dermatology sale

Nestlé joins several other large corporations that are withdrawing from dermatology. Bayer sold its prescription dermatology portfolio to Dutch company LEO Pharma in 2018. The German conglomerate, amid a company-wide overhaul, just inked a deal with Nivea owner Beiersdorf to divest its Coppertone sunscreen for $550 million and is also looking to sell its foot care brand Dr. Scholl’s.

Novartis is in the process of offloading its Sandoz U.S. dermatology business, a dermatology development center and about 300 generics to India’s Aurobindo Pharma. Even Allergan has cast off five medical dermatology products—including recently approved antibiotic Seysara—to Spain’s Almirall for up to $650 million.