Nestle to buy medical device company Phagenesis in stages

ZURICH (Reuters) - Nestle (NESN.S) announced a deal on Thursday to buy Phagenesis, a British medical device company working on a new treatment for dysphagia, a condition where patients are unable to swallow safely.

Nestle Health Science will make an undisclosed upfront payment, followed by milestone-based funding, while Phagenesis completes evaluation of its Phagenyx device that uses electrical stimulation to help sufferers regain control of swallowing.

The acquisition will be based on successful completion of European and U.S. development programmes anticipated by 2019, Nestle said.

The deal is the latest acquisition by Nestle in the medical sphere as the Swiss food giant increasingly refocuses its business on the area between food and pharmaceuticals.

With estimated sales of about 4 billion Swiss francs (3.12 billion pounds) out of Nestle's total 88.8 billion francs in 2015, the health business is seen as faster growing and more profitable than Nestle's traditional food and beverage operations, which include Nescafe instant coffee and KitKat chocolate bars.

Analysts say growth in the business was 7.6 percent in 2015, compared with a 4.2 percent rate for the group as a whole, while Nestle is aiming to lift annual sales of health products to as high as 10 billion francs.

Vevey, Switzerland-based Nestle has also recruited Ulf Mark Schneider from German healthcare group Fresenius (FREG.DE) as its next chief executive to spearhead its growth in this area.

Analysts said the Phagenesis deal showed Nestle's determination to expand in the sector with acquisitions.

"It could be the start of many more to come," said Jon Cox, an analyst at Kepler Cheuvreux. "Nestle has made a clear statement of intent with the appointment of Ulf Mark Schneider to become CEO that it will develop its health and nutrition business."

Phagenesis, based in Manchester, said the investment would enable it to accelerate the development of Phagenyx, a device that restores the neurological control of swallowing by 'kick-starting' the re-organisation of the brain with an electrical signal.

The condition particularly affects stroke patients and can lead to life-threatening complications, including aspiration pneumonia, malnutrition and dehydration.

(Reporting by John Revill; editing by Brenna Hughes Neghaiwi and Adrian Croft)