Nestle SA said it wants to "pioneer a new industry between food and pharma" by creating a medical nutrition institute in Switzerland and a stand-alone subsidiary called Nestle Health Science SA.
The Vevey-based company is already one of the world's biggest producers of processed foods including Nesquik cereal, Haagen-Dazs ice cream and Nespresso coffee, with sales of some $100 billion last year.
The decision to expand its medical nutrition segment is a direct challenge to North Chicago, Illinois-based Abbott Laboratories, which has steadily increased its presence outside the traditional pharmaceutical market.
Peter Brabeck-Letmathe, Nestle's chairman and former chief executive, said health care systems worlwide are struggling to cope with the growing number of people suffering from diabetes, obesity, cardiovascular disease and Alzheimer's.
"Finding efficient and cost-effective ways to prevent and treat acute and chronic diseases" will be the goal of Nestle's research combining food and medical science, he said.