Nestlé has caught the dermatology fever sweeping through Big Pharma, as companies key in on the specialty sector's growth potential. But success for Galderma, its recent skincare pickup, will depend on the global food giant's marketing power as it pushes further into the healthcare sector.
As Bloomberg reports, on Tuesday, Nestlé forked over $3.6 billion to take sole possession of the skin-revival business Galderma, a venture it previously shared with L'Oreal. The unit, which controls nearly 7% of the global dermatology market, will join a new division, Nestlé Skin Health SA. Its acne and psoriasis treatments will add to a host of dermatology products ranging from prescription drugs to OTC soaps and sunscreens.
Nestlé's job with Galderma will likely include moving the business away from prescription products like its top-seller Epiduo, which are subject to a slow regulatory process and generic competition. Instead, Nestlé will focus on medical skincare items that it can sell across the store from the coffee and chocolate products it's known for worldwide, Euromonitor International analyst Oru Mohiuddin told Bloomberg.
As the news service notes, another challenge for the Swiss company will be turning around the unit's sales performance. Galderma's growth slowed to 3.9% last year, from more than 10% in previous years. With full control of Galderma, Nestlé will rely more heavily on its global marketing, research and distribution networks to turn that around. Galderma has also tapped new managers and reorganized its business units.
Nestlé is one of several consumer-product makers looking to personal-care brands to diversify beyond the slumping packaged-food business. So far, its foray into healthcare has had its ups and downs; a medical foods joint venture with Baxter ($BAX) and its buyout of Jenny Craig diet centers both met dead ends.
Dermatology, however, looks more promising, if pharma M&A trends are any indication. Canada's Valeant Pharmaceuticals ($VRX) has made a stream of recent deals in the space, most recently buying PreCision Dermatology for up to $500 million. Skin care has attracted even bigger players, too, with the likes of GlaxoSmithKline ($GSK) and Novartis ($NVS) beefing up their own offerings with multibillion-dollar buyouts over the last few years.
"Nestlé is still in investigative and experimental mode, so skin health makes sense in that context," consumer-goods consultant James Amoroso told Bloomberg. "What's the potential? Not even Nestlé knows."
- read the Bloomberg story