The central figure in Nestlé's $2.6B Aimmune buyout? Covid-19
Nestlé surprised few this summer when they spent $2.6 billion to buyout Aimmune. The Swiss Butterfingers-and-health conglomerate had long shown more interest in them and Palforzia, their recently approved peanut allergy treatment, than any of the traditional Big Pharmas.
When talks began, though, in the second quarter, Aimmune was only looking for a partner to help them commercialize the therapy in Europe. In fact, as part of its series of investments in the company, Nestlé had signed a “Standstill Agreement,” that would prevent them from acquiring the biotech until November 202o.
That, though, was before Covid-19 struck the US, shutting down much of the country, reshaping the medical system, and setting Aimmune’s plans for a large commercial rollout ablaze. The SEC’s insider account of negotiations doesn’t directly link the buyout to the pandemic and its toll on Palforzia’s launch. But it does note the size of the offer compared to Aimmune’s newly depressed stock price, grim worst-case scenario projections from management at the height of negotiations, and the role the “potential effects of COVID-19 on Aimmune’s business and the long-range plans of Aimmune” played as the two sides tumbled towards a deal that likely would have been rejected just 6 months prior.
By the time negotiations began, Nestlé already owned 25.6% of the California biotech. They had first invested in 2016 and 2018 and put another $200 million in on February 4, buying up shares for $31.97 five days after Palforzia won approval. The money was supposed to finance Palforiza’s commercial debut. Aimmune had just hired a team of experienced 80 account managers and laid out plans for extensive education plans, with presentations and workshops for hundreds of physicians and allergists across the country.
“Aimmune management demonstrated that they have done their homework on the launch strategy for Palforzia,” Baird analyst Brian Skorney, an Aimmune bull, said in a note on February 3, “and we expect their extensive market research and planning should increase the odds of commercial success.” He added on February 5 that the Nestlé investment should be “more than enough to fund the launch of Palforzia.”
But on May 11, in their Q1 call, the company announced Covid-19 had grounded commercialization to a halt. Shares, meanwhile, tumbled to $11.48 in the February stock crash and never recovered.
At the same time, Aimmune was looking for a partner to commercialize in Europe, where they were expecting approval by year’s end. Nestlé emerged as one of several interested parties.
Then in July, the Nestlé board of directors, reviewing the partnership, began considering a larger transaction. They directed chairman Paul Bulcke and CEO Ulf Mark Schneider to review an unspecified recommendation from the board. Three days later, on a teleconference with Aimmune’s directors, the two executives raised the prospect of a buyout, floating a price per share of $30 — which was $6 less than the company’s January market peak.
The directors passed it onto management in a meeting on July 13. In addition to the usual M&A discussions, the Aimmune team was faced with the question of whether the offer justified waving the standstill agreement that precluded Nestlé from buying the company. It did not.
Nestlé came back a week later with an offer of $32.50, roughly double the stock price — not enough, Aimmune directors determined, for a full waiver of the agreement but enough for a partial waiver that would allow the Aimmune team to give a half-day presentation and explain further their Palforzia plans.
After a phone call between Aimmune chairman Mark McDade and Nestlé Health CEO Greg Behar, the two sides signed a confidentiality pact. (Behar, though a member of Aimmune’s board through Nestlé’s prior investments, did not take part in Aimmune’s director discussions).
Aimmune gave the presentation and then, while they waited to hear back from Nestlé, directors and management met on August 4 to identify additional parties that could have interest at the premium Nestlé was offering. They also discussed the toll Covid-19 was taking on the company. Their Q2 earnings, announced the same day as the Nestlé presentation, had shown zero Palforzia sales. At the meeting, meanwhile, management gave new presentations. In a best-case scenario, sales would go back on track and they would surpass the $1.2 billion in revenue by 2024 analysts had projected for Palforzia. But in a worst-case, revenue would be cut in half all the way through 2025.
Nestle returned with an offer of $34.00 to continue discussions. Aimmune’s reps reached out to five different companies about a buyout, four by email and one by phone. Over the next two weeks, all five said they had no interests.
Over the next two weeks, Aimmune would agree to partially waive the standstill and enter late-stage talks on a $34.00 basis.
Then on August 24, Nestlé said they had further concerns. Their review had turned up hard questions over the cost of developing the rest of Aimmune’s pipeline, which includes Palforzia-like treatments for egg and tree nut allergies and a Xencor-licensed antibody for food allergies, and they were worried about the net revenue from Palforiza sales. Still, they said, they were willing to discuss a deal at $34. “There were valuation concerns,”
Aimmune reiterated they were worth more, pressing for $35 and told McDade to call back Behar to say the board “were not in consensus as to the advisability of a potential transaction” at $34. The stock, meanwhile, had fallen to less than $13.
Nesté told Aimmune the next morning they were preparing an offer for $34.50. After a “robust” debate later that same morning, the directors agreed to take it if it came. The offer came in writing that night. They signed the deal and waived the standstill. A press release followed on the 31st.