Chr. Hansen breaks into HMO arena with €310m Jennewein acquisition

22 Sep 2020 --- Chr. Hansen will acquire all of the shares of Jennewein Biotechnologie in a move to break into the “emerging and exciting” human milk oligosaccharide (HMO) space. Chr. Hansen states that Jennewein’s six HMOs will have “strong functional synergies” with its own probiotic bacteria.

“We plan to keep the HMO business running under Health & Nutrition as a separate, full-value chain with strong support from Chr. Hansen for the time being,” Mauricio Graber, CEO of Chr. Hansen, tells NutritionInsight.

The total consideration equals €310 million (US$364 million) on a debt-free basis. The transaction is expected to be completed this month and will be financed through committed facilities from existing debt financing partners. 

“Jennewein is a strong fit for our microbial portfolio, as its fermentation platform is also scalable and offers good long-term margin potential as volumes increase. Combining the companies will create an even stronger competitive advantage,” Graber adds.

Jennewein is expected to generate sales of around €50 million (US$59 million) in 2021, but with a net EBIT loss. 

€200 million investment over five years
Through long-term contracts, the company has already secured a meaningful part of its intended €200 million (US$235 million) investment earmarked for production assets until 2025. 

Among these moves is an investment in a brown-field factory to expand HMO capacity to supply the expected demand. 

The acquisition is in line with Chr. Hansen’s 2025 Strategy of pursuing bolt-on acquisitions, as reported by NutritionInsight last month. 

Graber notes that given the addressable market and the expected growth rates, this is now the company’s fifth strategic lighthouse and will aid organic growth beyond 2020/21.

Creating synergies
Chr. Hansen states that HMOs are synergistic with probiotics and help create and strengthen a well-balanced microbiota, support the development of a strong immune function and protect infants from infections.

Explaining why Chr. Hansen chose to enter the HMO space via an acquisition versus internal R&D, Graber notes that there is already a great deal of intellectual property within HMO companies. “It would be very difficult to enter this space from the outside.”

HMOs are essential milk sugars that naturally occur in human breast milk.The acquisition is touted as strengthening and expanding the company’s microbial and fermentation technology platforms by adding the “high-growth” business area of HMO. 

In addition to Jennewein’s six commercialized HMOs, the company also boasts a strong product pipeline, a global customer base and a strong IP portfolio of more than 200 patents granted in key markets.

“We are starting a new chapter in the pre- and synbiotic market by combining the strengths of Chr. Hansen and Jennewein. Fifteen years ago, Jennewein started with the ambition to make HMOs available for all infants,” says Dr. Stefan Jennewein, founder and CEO of Jennewein. 

Dr. Jennewein will now become the chief science and technology advisor. He further notes that the company was initially intrigued by HMOs’ anti-infective effects, particularly against human pathogenic viruses.

“However, today it is clear that even more beneficial effects can be expected from the combination of HMOs with probiotics. Thus, Chr. Hansen is the perfect match for Jennewein to bring the HMO story to the next level.”

The promising HMO market
HMOs are essential milk sugars that naturally occur in human breast milk and nurture the infant microbiome. Chr. Hansen estimates that HMOs’ addressable market will be worth more than €400 million (US$470 million) by 2025, and more than €1 billion (US$1.2 billion) long-term.

“The fast-growing HMO market is a new space that we have been following with strong interest for some years. In truth, we are making a long-term investment and commitment to HMOs, which I am convinced will bring long-term value creation to our shareholders,” says Graber. 

According to the company, functional ingredients – especially HMOs and probiotics – are driving the premiumization trend in infant formula, and there is a significant potential to increase the penetration of these two ingredients.

According to Innova Market Insights, the global infant nutrition market’s value is growing twice as fast as volume. A key element in this space is infant formula, with new technological breakthroughs – like HMO development – helping to decrease the gap between formula and breast milk. 

According to the market researcher, there has been a 12 percent increase in baby milk or formula claiming to mimic human breast milk (CAGR, 2014 to 2018). As of 2018, 14 percent of baby milk or formula was touted as mimicking human breast milk, in spite of the gaps that remain. 

The use of HMOs for adult supplementation also has major potential, with Glycom’s CEO recently sharing that this space could become even bigger than current infant formula usage.

By Katherine Durrell