You are what you eat
It’s simple logic that eating healthier foods can help you feel better. However, many people just don’t eat the way they should. Thus, lifestyle-related illnesses like obesity and diabetes run rampant. High blood pressure, strokes, and heart attacks have material lifestyle components, too.
Physicians have been trying to get patients to change for years. Now food companies are joining the fray, and their timing may be just about perfect. First, the baby boomer generation is heading toward retirement and their peak medical use years. Second, the U.S. government is stepping into the health care market in a big way. Preventative medicine will likely become increasingly important as a tool to keep costs down and people healthier.
A Food Giant
Nestle is a giant in the packaged food industry. However, the company has begun to push the boundaries of what is food and what is medicine. In 2011, the company created the Nestle Health Science division. While still small, acquisitions and partnerships have been used to quickly build the business.
In 2012, the company purchased a stake in Accera (dietary management of Alzheimer’s disease), created a joint venture with Chi-Med (nutritional and medicinal products derived from plants), and bought Wyeth Nutrition from Pfizer (infant nutrition). One of its more recent purchases was of Pamlab, which essentially makes prescription vitamins for diabetic peripheral neuropathy, depression, schizophrenia, pregnancy, and mild cognitive impairment.
A Tough Quarter
The first quarter was a tough one for the Health Sciences division, with reimbursement issues and new competitors in key markets taking shelf space from core brands. That said, this group isn’t the one driving performance today. Emerging markets, which account for about 45% of the top line, are the most notable contributors at Nestle. The emerging market push, then, should provide ample time for the nutrition division to establish itself.
The shares recently yielded around 2.5% and have been on a slow and steady ascent. The top and bottom lines can be a little volatile at this foreign company, as can the dividend payment, but it is a world leader in packaged foods and is a relatively safe way to play the push toward medicinal food.
Not Just Yogurt Anymore
Danone is a yogurt giant. In addition to yogurt and milk products (which account for about half of the top line), however, it also sells baby food, water, and products made by its “clinical nutrition” unit.
One of the most obvious medicinal products that Danone sells is Activa. This yogurt is specifically designed to help digestion and shows the impact of medicinal foods across the company’s product portfolio. However, the clinical nutrition division, which represents less than 10% of sales today, makes formula for infants allergic to cow milk, supplements for children not growing properly, and foods to help the elderly avoid things like age related muscle loss. Products for the elderly make up around half of the division’s sales.
Automatic Growth
The company believes its Medical Nutrition business has “automatic growth potential as the world population ages and it becomes clear that specialized nutrition holds some answers to the problems linked to aging and the challenges of independent living.” The division has grown revenues by 50% since 2007, so this still small division clearly has potential.
Danone’s shares yield around 2.5%. Although they are near their highs, they have been on a generally upward path for a decade. The top and bottom lines are a little volatile and the dividend varies based on performance, but this is another relatively safe way to get in on the medical shift in the food industry.
Specifically Prepared Meal Plans
Although NutriSystem Inc. (NASDAQ:NTRI) is best known for its weight management food programs, it has introduced a meal plan for those with diabetes. This ongoing medical issue is a growing concern. The unique aspect of this company is that it controls virtually all aspects of the eating process. So, for those who find it too difficult to choose healthy foods themselves, NutriSystem Inc. (NASDAQ:NTRI) can step in and take choice out of the equation.
The economic downturn between 2007 and 2009 took a heavy toll on the company’s diet business. That makes sense since having someone else prepare your food for you isn’t cheap and is largely a discretionary purchase. Revenues have fallen in each of the last five years and now stand at about half of their pre-recession peak. However, the company has no debt and $35 million in cash and investments on hand, so it has plenty of staying power.
This is a high risk turnaround play on the diet business with a medicinal food kicker. And it had a recent yield of around 8%.
An Industry in its Infancy
The idea of medical foods is still in its infancy. However, partnering with two industry giants is a great way to gain relatively low-risk exposure to the space. NutriSystem Inc. (NASDAQ:NTRI) is a higher risk play, but could be a big beneficiary if prevention takes center stage for diabetes related illnesses and obesity.
The article Medical Food originally appeared on Fool.com and is written by Reuben Brewer.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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