Wolfgang Reichenberger is the former CFO of food giant Nestlé, and currently serves as general partner for Inventages, a venture capital firm keenly focused on nurtition. NBJ recently spoke to Mr. Reichenberger from his offices in the Bahamas about the future of food companies and a burgeoning “middle space” between food and pharma.

NBJ: What is the relationship between Inventages and Nestlé?

Wolfgang Reichenberger: I was with Nestlé for 29 years. Back in 2005, Nestlé announced the etablishment of a large investment fund. Nestlé had already invested in venture capital, but this was a many-fold increase in that commitment. The size of that fund is now about €500 million. There are other funds at Inventages too — earlier funds and add-ons — and the total comes to well over a billion dollars.

NBJ: Where's your current focus?

WR: The fund which I'm officially co-managing now was created to bring products to the commercial stage. Preparation for commercialization is the most expensive stage in the growth of a company. Early attempts at scientific research and the first clinical trials require a lot of money. Maybe not as much money as required in pharma, but when you're talking about bringing functional nutrition products to market, communication of benefits is very different than for a new iced tea or a new coffee. Here we are talking about a channel that deals with doctors, a channel that talks to key opinion leaders, creates communities either physically or virtually to discuss certain benefit areas — it's a very different type of marketing.

NBJ: Nestlé and other major food companies have made recent announcements spotlighting the convergence happening between food and pharma. Broadly speaking, do you see that convergence as well?

WR: First off, I don't think of it as convergence. It is, rather, the creation of a middle or central space between the groups, with reasons on both ends. On the pharma side, there is a long list of reasons why therapeutic drugs are probably not the only future for drug companies. And on the side of the food companies, the issue is unhealthy foods containing too many bad ingredients. Food companies have improved their ingredient list, and there are certain goals you can accomplish by just taking trans fat, sugar and salt out of your traditional products, but there are other, bigger goals to achieve. There are limits to what you can take out of food, and you will never be able to reverse the progression of certain medical conditions that have already set on in certain populations. For that, you have to look at different products and different ingredients all together. It's not about turning food companies into medical food or dietary supplement companies, but more and more, companies do see the need to move into this middle space. Take Nestlé, Unilever and Danone. Those are very different business models, so you cannot just give that type of business to your traditional organization. I think all those who have made announcements have to create a new unit that is totally separate and segregated from the rest of the organization to effectively address these issues. This drive for more nutrition started at Nestlé years ago, when I was still there. Major food companies recognize that certain levels of health can now be achieved through better nutrition, but they've known that for years. What's most interesting to me is the creation of a new business unit to address this. The space needs a new model and a new approach to truly succeed.

NBJ: It must be harder to grow from a mature base of operations, when so much interest is directed at nutrition and treating illness.

WR: Yes, but don't forget to look at the world map. Your statement is more true for the United States, but there are still lots of growth opportunities in traditional food products for the five billion people in the developing world. Those people don't necessarily need sophisticated or medical food. Maybe they do, but first come the basic needs, which are fulfilled by traditional food companies. There can be some growth there still. I'd say that what you can achieve depends a lot on geography.

NBJ: What kind of food company can best capitalize on this opportunity?

WR: I wouldn't say there will be winners and losers, since this is a different business model, probably with a bit higher risk but higher margins and growth rates to compensate. There will be companies who don't participate at all, and they can still do quite well in core businesses. It's a strategic choice to enter this space, a field which is close to food but not really food. There will certainly be pioneers to tackle this space, but I'll leave the future to determine that.

NBJ: How would you categorize the products in this new middle space?

WR: Most are dietary supplements and medical foods. The core of the strategy is to have more sophisticated products that address specific needs. Foods with new ingredients, however, tend to have more difficulty being approved than dietary supplements. Supplements — in the United States particularly — have an easier route to market because people already know that the product accepts risks that aren't expected from food. These new products are most likely to fall under the regulatory category of dietary supplement or medical food. Medical food is even one step higher than supplement because it has to be prescribed by a medical practitioner.

NBJ: Wouldn't Nestlé, and other companies of interest to Inventages, steer clear of that prescription-based food model?

WR: Not at all. It's an important area, and Nestlé has some of these products in its existing portfolio. We are looking for other ideas and new products in that area all the time. We have made one investment in a company called Accera. They alrady have a product on the market, Axona, which has shown efficacy in treating Alzheimer's disease in clinical trials. It's a medical food, so there is a prescription required and the food is given under medical supervision. This is not just for the patient in the hospital, however. This is for your great grandmother who suffers from Alzheimer's.

NBJ: Is Inventages most interested in any specific health conditions?

WR: The areas we like tend to bookend the aging process, with a focus on infancy and then again on senescence. Childhood is an obvious strength for our limited partner, and it's important to build products in particular areas of benefit to capitalize on those synergies. You get more knowledge, and already know the competition. Once you get to market, it's also easier to communicate product benefits to a key group of opinion leaders. So if you are already in one category — let's say neuro-degenerative diseases, such as Alzheimer's — it's easier to add more content than to go into something totally different, such as bone health. Not to say we wouldn't do bone health, but when you already have some context and have already built the networks, it's easier to add on new companies. I think there are enough health conditions established in the marketplace for multiple companies and funds to compete. It's critical, however, to not take too much time to market. So while it's clearly necessary to follow clinical work, we don't push anyone to overstretch that. You can have a good product — even just slightly better than the competition — but if you're one year too late, you've probably lost the battle.

NBJ: What do you make of Lovaza and the potential for pharma crossover into supplements?

WR: As you know, pharma has good reasons to move into that space, but again, I see this less as encroachmnet or convergence, and more as an entirely new business model. Some companies will understand it better than others, whether they come from pharma or food. It takes expertise in financing, research and manufacturing to compete in nutrition. It takes an international network of contacts. I think pharma has a lot invested in prescription drug sales, anyway, so it's not easy for me to see how they would leave that model in any meaningful way.

NBJ: Are there investments by Inventages that line up well with this new middle space between food and pharma?

WR: One is a product we have in a test market in New Zealand from a company called Vital Foods. They have a supplement product called Phloe. It was co-marketed in the United States for awhile, and it remains very successful in New Zealand for bowel health, addressing that condition with a natural compound derived from kiwi fruit. My family uses it, and the ladies are especially addicted to it. Not to say it's only a ladies product — I use it as well.

NBJ: Much of the Nestlé announcement spoke about personalized nutrition. In 20 years, could we see food companies with products that are as important to our health as the role of a primary doctor? How big can this get?

WR: Yes, that will become an important area. Is it totally individualized? Probably not, because you always need economies of scale. From the venture-capital perspective, we are looking at and continue to take interest in companies that look at genetic mapping, for example, or medical history, or athletic and training history, ideally linking all these things together and measuring certain biomarkers on an ongoing and non-invasive basis. These are services that could be available to consumers and could probably become a tool for food companies to develop products for certain groups of people with similar gene codes or similarly diagnoses. We're definitely looking for those.

NBJ: Where would you like to see Inventages get more involved?

WR: One that comes to mind is beauty-from-within. I think this is a fast-growing space for supplements, or medical foods targeting certain dermatologic or cosmetic conditions. As I said earlier, we see more issues developing around aging. We have a good network in that space, so I think you could see more from us there going forward.

NBJ: How do you view the investment markets right now? How tough is it out there?

WR: I think the markets are, overall, getting healthier. For companies matching our investment focus and our plan, the deal flow has been steady at 10-15, sometimes 20 companies a week. So it's quite active. I would say that, since the financial crisis a few years ago, nobody wanted to spend money. I think that changed during the middle months of last year. Companies can find money now. In many cases, we are not the only ones shopping these days.

What's in Your Medicine Cabinet?

NBJ: Do you take any supplements?

Wolfgang Reichenberger: Here's my list:

• fish oil, 2.4g, less than Lovaza, but I live on an island and regularly eat fish

• garlic, odorless please

• vitamin C, 500mg

• vitamins D and E

• magnesium-calcium-zinc combo

• Phloe, from Vital Foods, a portfolio company, for digestive health