Science for a Better Life

Bayer Fosters Growth in its three Subgroups by Living Up to its Slogan and Stimulating Innovation

03.12.2012 -

Success Factors - With numerous new products, the Bayer Group aims to help improve people's lives while exploiting billions in potential sales. "Innovation is the only way to address the global challenges that exist at the beginning of the third millennium," says Dr. Marijn Dekkers, Chairman of Bayer's Management Board.

This year alone, Bayer will therefore once again invest some €3 billion in research and development, which focuses on the life sciences businesses HealthCare and CropScience. However, the third subgroup - MaterialScience - does not lag behind; in terms of patent applications it is even the most innovative segment. With regard to the number of patent applications it is the leading segment. Dr. Michael Reubold spoke with Dr. Dekkers and asked him about his innovation strategy for Bayer's three businesses.

CHEManager Europe: Dr. Dekkers, you just confirmed that Bayer is on track to reach its goals for the year 2012. Your confidence seems to be based particularly on the upward trend in Bayer's life science businesses that continued in the third quarter. This will once more draw the attention of analysts and shareholders - who keep questioning your 3-pillar strategy - to your diversified portfolio. Please share with us the arguments that support your diversification strategy.

Dr. Marijn Dekkers: The decisive factor for us is that our three subgroups - HealthCare, CropScience and MaterialScience - have leading positions in financially attractive markets. And that is certainly the case.
At HealthCare, our pharmaceuticals business occupies leadership positions in major therapeutic areas and we are the global number two in non-prescription medicines. In our CropScience business, we are the global number three overall and the number two in crop protection. And in MaterialScience we are either the global market leader or the number two in all our main product groups.

There is no doubt that all of our businesses serve markets that will continue to grow, because people are living longer and need a wider range of better drugs, the global population is increasing and must be properly fed, and we need greater resource efficiency. Bayer is making significant scientific and technological contributions in all of these areas.

Your current portfolio composition in terms of revenues is split about 5:2:3 between HealthCare, CropScience and MaterialScience. Do you plan to change this ratio through investments or divestments? Your recent acquisitions have strengthened the life sciences businesses almost exclusively.

Dr. Marijn Dekkers: We are clearly committed to augmenting our organic growth with strategic bolt-on acquisitions in the life sciences area. Take our numerous collaborations and acquisitions in the area of seeds and biotechnology as an example - most recently the acquisition of AgraQuest, a global supplier of biological pest management solutions. With this in mind, we are not targeting a specific sales ratio for our subgroups.

Recently, you said that Bayer's current and future success and growth are based on new and innovative products in the life sciences. How well-stocked is your innovation pipeline in the life science businesses?

Dr. Marijn Dekkers: The famous pharmaceuticals patent cliff that many competitors are facing is something we don't have at Bayer, because none of our top products will be going off-patent in the next few years. On the contrary, four of our products that are currently in the launch phase or which we expect to be approved in the near future have peak sales potentials of €1 billion or more each. Apart from our blood thinner Xarelto, which we believe could achieve peak sales of over €2 billion, there are the cancer drugs Stivarga, containing the active ingredient regorafenib, and the investigational compound radium-223 dichlorid, or Alpharadin. And we also have the eye medicine VEGF Trap-Eye, marketed under the Eylea brand. Our pharmaceutical pipeline comprises about 35 development projects.

CropScience expects products with estimated launch dates between 2011 and 2016 to have a total peak sales potential of €4 billion. These include eight crop protection products with new active ingredients and 18 new projects in the Seeds business for the broad-acre crops of cotton, canola, rice, wheat and soybeans.

These figures clearly demonstrate our innovative capability as well as the importance of our researchers and developers for Bayer's future and for scientific progress.

In the life sciences, Bayer is able to leverage product synergies between the areas of human health, animal health and plant health. Do you plan to systematically develop the interfaces between these segments? What measures will you take in order to allow your R&D teams to maximize the opportunities of this cross-fertilization?

Dr. Marijn Dekkers: We have a unique position thanks to our extensive expertise with respect to the health of people, animals and plants. Bayer is the only global company to combine all three under one roof. It is from this very position that we are also breaking new ground in terms of innovation. Thanks to significant progress in the biosciences, there is a steady flow of new findings about fundamental cellular mechanisms in people, animals and plants.

These mechanisms may be very similar across different species and can thus enable new research approaches.
We have therefore created the framework our researchers need to work together on innovations - systematically and much more intensively across subgroup boundaries. The objective is to strengthen Bayer's innovative power through collaboration and optimally leverage our business portfolio.

In the materials business innovation is also crucial to growth. How do you rate and foster your innovation pipeline in MaterialScience?

Dr. Marijn Dekkers: Bayer MaterialScience has a very successful history of innovation and a promising project pipeline. We are focused on three areas of research and development. We conduct fundamental research together with external partners - for example in order to make use of carbon dioxide as a new raw material for the production of plastics.

We are also active in process research to make our production as energy- and resource-efficient as possible. One example is the gas phase phosgenation technology for isocyanate production, which helps to lower energy use by 60% compared to traditional processes. In the field of application development we are working on solutions for global challenges such as population growth, increasing mobility and the need for greater energy efficiency and climate protection. Among our latest developments is extremely fine-pored rigid polyurethane foam for highly effective insulation.

Innovation is not only a question of money, but also of the ideas of your researchers. Do you expect difficulties in the near future to get the amount of highly qualified and creative people you need, and do they have enough space and time in today's ROI-driven economy to be creative?

Dr. Marijn Dekkers: Until now, we've had no difficulties recruiting outstanding researchers and that is unlikely to change in the foreseeable future. And, of course, our researchers are given the space they need to be creative. We can only continue to be as innovative as we have been in the past nearly 150 years if we have a culture that gives space to lateral thinkers and accepts new ideas. And it's only by remaining innovative that we can stay competitive.

When innovations become products, their success not only depends on their usability, but often on the public acceptance. Are you concerned about the degree of technology skepticism that is becoming obvious especially in Europe?

Dr. Marijn Dekkers: Of course, I'm concerned. If we're investing €3 billion in research and development year after year, then we should be given a fair chance of actually earning money with our innovative products. This means we need a society that is open to innovation and doesn't instantly cast doubt on anything new. Novel products that can help improve people's life should be valued appropriately. If not, the business model of innovative companies will cease to function at some point - with serious consequences. After all, there can be no doubt that we need innovations.

Do you have a certain target ratio for internal and external growth or do you place greater importance on one than the other?

Dr. Marijn Dekkers: Our focus is on organic growth - but neither the success of research nor market developments can be reliably forecast. When we develop a new pharmaceutical active ingredient, for example, the likelihood of eventually receiving approval increases from Phase I to Phase III - but it's the regulators who decide.

In making acquisitions, we're looking for bolt-on additions to our businesses which can provide access to new technologies, innovative products and attractive markets. The question is always what potential targets are on the market and what the price tags are.
We aim to take advantage of all the viable opportunities - whether for internal or external growth. If we set quotas we would restrict our own freedom of action.

Some of Bayer's businesses are still showing good growth rates in mature markets, others will have to focus on emerging markets. What will Bayer's global footprint and regional revenue breakdown look like in ten years?

Dr. Marijn Dekkers: The trend we have seen in recent decades will continue, which means growth rates in the emerging markets will be higher on average than in the mature markets. The reason is that these countries are still in the process of catching up in terms of health services, purchasing power and economic efficiency, to name just three examples.

At Bayer, the emerging countries increased their share of Group sales in the first nine months of this year by half a percentage point against the prior-year period to 36.2%, a figure that is likely to increase in the future. We are greatly expanding our organizations in the emerging markets, stepping up our marketing, expanding research and development, and increasing our production capacities there.

So there will be shifts in the regional distribution of our business in the coming years. But I cannot give any specific forecasts, because this trend can obviously be affected by various factors such as economic developments.

In order to improve Bayer's competitiveness and financial performance you have initiated several efficiency improvement programs. What are the main areas where efficiency needs to be improved?

Dr. Marijn Dekkers: We launched an efficiency program two years ago. Under the tagline of "More innovation - less administration," we are investing our resources even more systematically in Bayer's growth and innovative capability. Specifically, this is about researching, developing and marketing new products - and expanding our activities in the emerging markets. We have to generate the financial resources we need for this expansion by carefully redistributing resources, improving efficiency and making cost savings. This involves almost all units of the company, especially the administrative and service functions. We will achieve our target of €800 million in annual savings starting in 2013.

Bayer is a pioneer and role model in Corporate Social Responsibility and Sustainability. Nowadays, these topics are not only tools to improve a corporation's reputation but are crucial for economic success. Bayer's business model and strategy fully embrace these principles. What are the benefits for companies - multinationals or SMEs - that follow your example?

Dr. Marijn Dekkers: The fundamental question for every individual and every company should be whether we are leaving a good world for our children. This is the essence of sustainability - and ultimately ensures our license to operate. At Bayer we consider social responsibility as an essential part of our mission "Bayer: Science For A Better Life."

And I am convinced that every company - big or small - needs to develop its own sustainability and CSR strategies. There are many stakeholders who attach increasing significance to a convincing sustainability strategy - take the Carbon Disclosure Project as an example.
Another important aspect is employee retention: employees identify more strongly with a company that is not only commercially successful but that also demonstrates social and ecological responsibility.