* New company called Nestle Health Science
* Wholly-owned subsidiary to be operational from Jan. 1
* Shares rise 0.5 percent, in line with sector
(Adds analyst comment, comparison with Unilever)
By Katie Reid
LAUSANNE, Switzerland, Sept 27 (Reuters) - Nestle, the world's biggest food group, is setting up a new company to develop products it says will tackle diseases including diabetes in a deeper move into the profitable health and wellness arena.
The maker of Nescafe coffee, KitKat chocolate bars and Maggi soup has been advancing into the high-margin sector of foods with health-benefit claims to tap into growing consumer awareness of good diet.
Nestle CEO Paul Bulcke said at a media conference on Monday the market was still crystalising, with some estimating it at between $100 billion and $150 billion.
The company said Nestle Health Science, to be operational from Jan. 1, 2011, will conduct research into foods that may prevent and even treat ailments such as diabetes, cardiovascular disease and Alzheimer's disease.
The parent company will invest around 500 million Swiss francs ($507 million) over the next decade and the new offshoot is set to compete both with rival food companies and some drugmakers.
Rival Unilever is also pushing into the healthy food arena, with a range of products that include cholesterol-lowering and omega-3-enriched margarines.
"With this move, Nestle is affirming even more strongly its focus on the nutritional side of its business. This could dampen somewhat the recurrent rumours of a bid for L'Oreal," said Vontobel analyst Jean-Philippe Bertschy.
The Swiss company has a 30 percent stake in French cosmetics groups L'Oreal and has the right to bid for the 31 percent stake held by L'Oreal's billionaire heiress, Liliane Bettencourt, if the family decides to sell.
Nestle's new business will be run at arm's length from its main food, beverages and nutrition activities, the group said, and will incorporate its HealthCare Nutrition unit.
The HealthCare Nutrition unit had a turnover of 1.6 billion Swiss francs in 2009, while Nestle as a group has annual sales of over 100 billion francs.
Luis Cantarell, currently head of Nestle's operations in the Americas, will lead the new company from the start of next year, an appointment Kepler Capital Markets analyst Jon Cox said added authority to the new organisation.
At 1430 GMT, shares in the group were trading 0.5 percent higher, broadly in line with the STOXX European food and beverage index.
Health conditions such as obesity, diabetes and cardiovascular diseases, whose causes are blamed in part on poor diet and lack of exercise, are affecting more people across the world, putting greater stress on strained healthcare systems.
Around 285 million people have diabetes, one of the major causes of premature illness and death worldwide, according to the world diabetes foundation website.
Chronic diseases currently account for some 60 percent of all deaths, while healthcare costs in the United States as well as in emerging countries will spiral in coming years, Nestle's Brabeck said.
"Given increased regulatory pressure we assume an increased scientific focus to back health claims on food products and Nestle should benefit given its resources," said Kepler's Cox.
Vevey-based Nestle said as a result of Cantarell's move, Chris Johnson would join the Nestle executive board, taking up the role of executive vice president in charge of Zone Americas.
Nestle also said Nandu Nandkishore would become deputy executive vice president in charge of Nestle Nutrition. (Additional reporting by Pascal Schmuck; Editing by David Cowell) ($1 = 0.9853 Swiss franc)