Bayer realigns operations to become pure life-science company
Bayer - a world-leading innovation company with core competencies in the fields of health care, agriculture and hi-tech materials - looks back at a long and successful history spanning 152 years, albeit one of constant change and renewal.
Bayer - a world-leading innovation company with core competencies in the fields of health care, agriculture and hi-tech materials - looks back at a long and successful history spanning 152 years, albeit one of constant change and renewal. The Leverkusen-based multinational has continually adjusted its business portfolio to fulfil market requirements and better respond to the needs of customers and society. In September last year, Bayer made a decisive step to embark on one of the biggest changes in its evolution, realising that its long-term growth will be shored up by fields of application where its inventiveness is best put to use.
"We have initiated the demerger of our material science business unit and thus our transformation into a pure life-science company," says Michael Konig, a member of Bayer's board of management who is responsible for the Asia-Pacific region. "We are just stronger in the fast-growing and research-driven areas of life sciences where our innovative capabilities can create true value. Our portfolio transformation is currently well on track and is proceeding according to plan."
Spearheaded by Marijn Dekkers, Bayer's Dutch-born and US-trained CEO who took the helm in 2010, the revamp will lead to the creation of two global companies. Bayer MaterialScience, which will be renamed Covestro on September 1, will be floated on the stock market, either through an initial public offering or a spin-off, by mid-2016 at the latest. With sales reaching Euro11.65 billion last year, the division is a renowned supplier of application solutions and high-performance plastics, such as polycarbonates and polyurethanes with varied everyday applications ranging from laptops to soccer balls. As a stand-alone company, Bayer MaterialScience will gain direct access to capital for its growth and development.
As a more integrated life science company, Bayer will strengthen the interface between its life science subgroups, Bayer HealthCare and Bayer CropScience, and seek growth through more interdisciplinary and interspecies research in medicine and agriculture. With the restructuring, the German innovator will be able to allocate all its resources to simultaneously research improvements in human, animal and plant health.
"This is a turning point in our history," Konig says. "But as we implement this major realignment, we are staying true to our mission statement of 'Science for a Better Life'. At its core, Bayer is still focused on inventing new molecules that ultimately lead to innovative applications, whether that's a pharmaceutical or a crop protection ingredient - all aligned towards improving people's quality of life. That's what our founders did, and that's what our scientists do today.
All that changed over time are the markets in which we did our innovation. We were focused on synthetic dyes 152 years ago; now it's on life sciences."
Drive towards reinvention
In recent years, Bayer has increasingly worked on strengthening its life science activities, spurred by the successful introduction of novel pharmaceutical products and growth of its crop protection and environmental science businesses.
Last year, Bayer posted strong sales of its recently launched drug products: the anticoagulant Xarelto (rivaroxaban), cancer drugs Stivarga (regorafenib) and Xofigo (radium-223 dichloride), eye medicine Eylea (aflibercept), and Adempas (riociguat) for the treatment of pulmonary hypertension. These drugs bolstered Bayer's performance, leading to another record year with revenues up more than 7 per cent on a currency- and portfolio-adjusted basis to over Euro42 billion. In Bayer CropScience's businesses of seeds, crop protection and non-agricultural pest control, the company reported gains in market share.
Meanwhile, Bayer's development efforts are centred on five new substances for treating diseases with a high unmet medical need. Currently in advanced trials, these active substance candidates are finerenone, vericiguat and molidustat in the cardiology and cardiorenal syndrome areas, copanlisib in oncology, and vilaprisan in gynaecology. For this year, Bayer plans to invest a total of over Euro6 billion in research and development and in property, plant and equipment.
"We have always chosen the frontier type of markets where innovation is the driving force," Konig says. "Since discovering aspirin in 1897, the Bayer name has become synonymous with products that truly have a high percentage of invention in them."
To expand and supplement its life science development portfolio, Bayer pursues bolt-on acquisitions on top of organic growth. A total of Euro13.5 billion was spent last year for acquisitions; the largest among these was Merck & Co's consumer care business. Merck has significantly enriched Bayer's product line with non-prescription products across multiple therapeutic categories and geographies. With leading brands such as Claritin, Coppertone and Dr Scholl's, Bayer has emerged as the global No 2 in consumer care after the Merck consumer care buyout.
Another notable acquisition is Dihon Pharmaceutical, a Chinese consumer care company specialising in over-the-counter (OTC) products in the fields of dermatology and traditional Chinese medicine. Bayer expects to boost sales in emerging markets outside of China with Dihon selling its products in Nigeria, Vietnam, Myanmar and Cambodia. Additionally, Bayer acquired Norwegian company Algeta, its partner in the development and commercialisation of the cancer drug Xofigo.
In the field of crop science, Bayer took over Argentina's Biagro, a provider of organic seed treatments and crop protection products based on bacterial and fungal strains. Bayer also purchased the seed business of Paraguayan company Granar, which is engaged in the breeding, production and marketing of improved seeds, particularly soybeans. And just recently, Bayer announced the signing of an agreement to acquire SeedWorks India. The company specialises in the breeding, production and marketing of hybrid seeds of tomatoes, hot peppers, okra and gourds.
Parallel development in China
With operations in China, India and Japan extending over a century, Bayer has built a solid foundation in Asia. The company is relying on this strong foothold to manage the challenges and capture the opportunities resulting from Asia's explosive economic growth. Last year, Bayer generated sales totalling Euro9.1 billion in the region, a considerable increase from its Euro6.9 billion total in 2010.
Greater China, consisting of the mainland, Hong Kong and Taiwan, is Bayer's largest single market in the region and one of its main centres of global investment. Its link with China dates back to the latter part of the 19th century, when it started selling dyes there. Since then, its business expanded to medicines in the 1930s and centred on chemicals and materials in the 1990s and early 2000s in accordance to China's industrial development and economic reforms. In order to support China's transformation into the world's largest manufacturing nation, Bayer launched a sizeable investment programme to build up its materials business and set up a world-scale integrated production site in Shanghai. The Shanghai facility is the largest and most important production site for Bayer MaterialScience in Asia.
"We have always included China into our strategy," Konig says. "Needless to say, China has become an integral part of our operations. The development of our portfolio there is parallel to the economic and social development of the country. With the needs of China and Chinese society shifting to life sciences, we've also adjusted our focus and portfolio in the last 10 to 12 years."
Last March, Bayer rolled out a number of new pesticides for the Chinese market covering five major crops - rice, corn, wheat, vegetables and fruits. These products are intended to supplement the company's key brands in crop protection including insecticide Decis, herbicide Puma and fungicide Antracol. For the health care market, Bayer's bestsellers are the antiplatelet agent Bayaspirin, the antacid Talcid and the oral antidiabetic drug Glucobay. In early May, Bayer's anticoagulant blockbuster Xarelto (rivaroxaban) was approved by the China Food and Drug Administration for two additional indications - for stroke prevention in patients with non-valvular atrial fibrillation and for the treatment of deep vein thrombosis.
Bayer continues to pour in investments to expand its health care business as it steps up efforts to address increasing concerns on public health and nutrition. Apart from its recent acquisition of OTC drug maker Dihon, the company has earmarked around Euro100 million to double the production capacity of its plant in Beijing. The expansion is in response to rising domestic demand for Bayer's cardiovascular and anti-diabetes products.
"With this investment, Beijing will become the largest pharmaceuticals packaging site in Bayer HealthCare's global production network," Konig says. "This shows our continuous strong commitment to China."
Open innovation
Committed to the concept of open innovation, Bayer invites collaboration with outstanding research partners from science and industry worldwide, including external scientific institutions, start-up companies and academic spin-offs. Its existing strategic tie-ups are mainly based in the US, Europe, China and Japan. One strategic partner in Germany is RWTH Aachen University, with which it established the CAT Catalytic Center. In China, Bayer has forged a close alliance with Tongji University, while its research activities in the US are carried out together with prominent universities.
To integrate the clinical profiles of Asian patients into drug development activities at an early stage, Bayer is steadily expanding its research and development activities in the Greater China region. In January last year, Bayer HealthCare and Beijing University inked a three-year cooperation deal in the area of translational research and its use in drug discovery.
"We pursue innovation because it plays a vital role in overcoming today's biggest challenges posed by population growth, climate change, dwindling natural resources and increasing urbanisation," Konig says. "It is also the fundamental basis for Bayer's long-term sustainability and corporate growth."
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