Bayer

Decisive step to create a pure Life Science company

Dialogue with physicians: Bayer CEO Dr. Marijn Dekkers and Associate Professor Dr. Jürgen Zumbé, Director of the Urology Department at Leverkusen Hospital

In 2014, just a year after our 150th anniversary, Bayer opened up a new chapter in its history: we initiated the decisive step toward becoming a pure Life Science company. In the future we will focus our entire innovative capability on designing molecules and solutions that improve human health or nutrition. Never has our mission “Bayer: Science For A Better Life” more ­truly reflected who we are and what we do.

While we continued to harvest the fruits of our own science and ­research in 2014 with the global marketing of our recently launched pharmaceuticals as well as our crop protection products and seeds, we also successfully acquired the consumer care business of Merck & Co., Inc., United States – making us the global number two in consumer care. This largely stable business now helps us to compensate volatility in other businesses.

Bayer MaterialScience also performed well in 2014, successfully ­addressing previous challenges. Against this background, MaterialScience requested further significant investment in its organic growth along with financial headroom for possible future acquisitions.

In recent years, however, Bayer’s strategy and strong performance have increasingly been driven by our success in the Life Sciences. This has meant that MaterialScience is competing for resources against businesses that we believe continue to promise significantly higher returns. Therefore we decided to demerge MaterialScience so that it will have independent access to the capital ­market, while Bayer focuses solely on the Life Sciences.

This is a turning point in Bayer’s history. But our action is con­sistent with what our founders did and what the focus of our ­research has been for more than 150 years. The best way we can ­innovate is by inventing new molecules that ultimately lead to ­innovative applications. The only thing that has changed over time are the markets or fields of application in which our molecules ­deliver the largest value contribution. Today, the focus is on the Life ­Sciences. It is crucial for Bayer’s long-term success that we ­continually ­adjust our business portfolio to market requirements and respond to the needs of customers and society.

In September 2014, the Supervisory Board unanimously approved the demerger of MaterialScience, which we intend to float on the stock market by mid-2016. We are all convinced that this strategic decision will bring great benefits and opportunities – for Bayer and for Material­Science. The new, independent company is set to retain leadership positions in all of its business areas. We strongly believe in its future success.

As a pure Life Science company, Bayer will have a unique research focus on the health of humans, animals and plants. And this research shows us today that the similarities between the different species are far greater than was generally assumed just a few ­decades ago. This is especially true at the cellular biochemical ­level at which our active ingredients operate. While we are still at an early stage, we are in the best position to potentially leverage many synergies from species’ common characteristics.

To continue innovating and help physicians to care for their ­patients, veterinarians to look after animals and farmers to feed the growing world population, we must increasingly invest in ­research and ­development (R&D). Our R&D budget for the Life ­Sciences in 2014 was €3.2 billion. Overall we expect the R&D-to-sales ratio to continue increasing in the coming years.

The success of our pharmaceutical products, in particular, has great significance in this regard. We are among the fastest-growing of the world’s major pharmaceutical companies. Last year we lifted Pharmaceuticals sales by 11.2 percent on a currency- and portfolio-adjusted basis. The increase was driven by our recently launched products Xarelto™, Eylea™, Stivarga™, Xofigo™ and Adempas™.

CropScience, too, achieved a sales improvement of 11.2 percent on a currency- and portfolio-adjusted basis, gaining market share especially with the new products we brought to market in the past few years.

Spurred by these successes, our company’s financial development has also been outstanding. We can look back at another record year for Bayer. Revenues increased in 2014 to over €42 billion, which means we saw more than 7 percent growth after adjusting for currency and portfolio effects. Our clean EBITDA amounted to €8.8 billion, up by nearly 5 percent compared with the prior year. Core earnings per share rose by 7.3 percent to €6.02.

Thanks to this successful development and the appreciation it has brought from investors, Bayer for the first time became the company with the highest market capitalization in the German share index DAX.

To continue strengthening our Life Science businesses, we need not only organic growth but also bolt-on acquisitions. These improve our regional positioning, round out our product portfolio and can give us access to major new technologies. In 2014 we spent a total of €13.5 billion for acquisitions.

The largest among these was Merck & Co., Inc.’s consumer care business. This significantly strengthens Bayer’s business with non-prescription products across multiple therapeutic categories and geographies. We also acquired Dihon Pharmaceutical Group Co. Ltd., China, a consumer care company specializing in dermatology products. And we successfully completed the acquisition of Algeta ASA, Norway, with which we had already collaborated on the development and commercialization of the cancer drug Xofigo™ since 2009.

Acquisitions in CropScience include the Biagro group in ­Argentina. Biagro’s portfolio comprises organic seed treatments as well as crop protection products based on bacterial and fungal strains. In addition, we acquired the seed business of Paraguayan company Granar, which specializes in the breeding, production and marketing of improved seeds, especially for soybeans.

I would like to emphasize at this point that our excellent ­employees are our core business asset. Our corporate values of Leadership, Integrity, Flexibility and Efficiency – represented by the acronym LIFE – remain the cornerstones of our behavior. ­Continuous learning is a fundamental part of our organizational and talent development. Building specific skills, removing ­organizational obstacles and ­making improvements every day ­remain important elements of Bayer’s culture.

In the future we also intend to intensify the dialogue with our various stakeholders. We are convinced of what we do and of the value of our products. We will communicate even more effectively to customers, society and politicians how our products improve the lives of millions of people across the globe.

I am concerned by the growing number of critical stakeholders whose claims and demands are based on emotions and beliefs rather than on scientific facts. It is up to all of us to ensure that society creates the right framework for future innovations. In this context it is also important to us that economic growth be achieved in harmony with environmental and social responsibility. We adhere to the fundamentals of sustainable development and the ten principles of the Global Compact of the United Nations.

On behalf of the entire Bayer Group management team, I would like to thank our employees for their dedication, motivation and ingenuity. Bayer would not be the great company it is today without them.

We enter 2015 with continued optimism. Bayer’s innovations have helped millions of people around the world and, in doing so, have strengthened our leadership position. In 2014 we added more innovative products to our portfolio and posted record financial results. We are committed to continue with this approach in 2015 and beyond as we finalize our transformation into a pure Life Science company and work to further improve people’s lives.

Finally, I would like to thank you, our stockholders, for your ongoing support for our strategy and appreciation of our performance.

Sincerely,

Dr. Marijn Dekkers

Chairman of the Board of Management of Bayer AG

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Last updated: February 26, 2015  Copyright © Bayer AG
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