Economy

Innovations create value

Our commercial success depends to a large extent on our innovative capability and the long-term focus of our corporate policy. In 2006, we rigorously pursued the optimization and strategic development of our portfolio. The year was dominated by the acquisition and integration of Schering.

Including the figures from Schering, Berlin, Germany, we spent €2.3 billion on research and development in 2006, putting us at the head of the German chemical and pharmaceutical industry. Alongside constant optimization of our product portfolio and production processes, special attention is paid to developing product innovations that strengthen our core business. On average, we submit three new patent applications every working day. That testifies to the achievements of our employees and especially of the more than 10,000 people who work in research and development.

All employees worldwide are expected to come up with innovative business ideas. The “Triple-i” initiative introduced throughout the Bayer Group in spring 2006 stands for inspiration, ideas and innovation. It has been extremely well received by our employees and around a year after its launch more than 2,200 suggestions for new products had been submitted. These are currently being evaluated. One proposal, for example, focuses on utilizing progress in cell therapy to develop new therapeutic agents. In future, encapsulated cells whose metabolic profile has therapeutic properties could be implanted without being rejected by the human immune system. Many of the ideas submitted relate to specific suggestions for new products in the subgroups and are currently being pursued further in the business units.

Other challenges which we are looking to meet with innovative business ideas are big issues such as climate change, demographic trends and the related scarcity of natural resources such as water. Our aim is to contribute to sustainable development by introducing new medicines, innovative materials and products that secure yields and improve crop quality, and thereby to position Bayer on the markets of the future.

Innovations: Market success

Further new products launched in 2006 are already proving very successful. One example is our new cancer drug Nexavar®, which generated sales of around €130 million in its first year on the market.

Active substances introduced by CropScience in its core markets since 2000 achieved their sales target of €1 billion in 2006. Constant innovations are being made in crop protection as a result of research and development in response to feedback from the markets and the registration authorities. Innovative products include, for example, seed dressings which allow very targeted use of crop protection products. At the same time, we often discontinue the sale of less suitable products by replacing them with others with improved biological efficiency and better environmental and health profiles. This includes the gradual replacement of WHO Class I formulations, an undertaking to which Bayer CropScience committed itself in 1995. All these measures optimize Bayer CropScience’s product range and are an important requirement for sustainable development in agriculture.

More detailed information on these and other successful products can be found in our Annual Report.

Counterfeits: Action taken

Counterfeit drugs have become a serious problem worldwide in recent years. They can pose a threat to the health of patients or even put lives at risk. For the manufacturers of the original products they result in a considerable loss of revenues and may cause damage to their reputation. The extent of counterfeiting activity and the products affected vary widely around the world. In the western world, for example, the most common targets are expensive prescription-only drugs and so-called “lifestyle” drugs.

Bayer has an extensive concept for countering counterfeit drugs. For example, it uses modern security technology for the packaging of Nexavar®, its new cancer drug, and Kogenate® for the treatment of hemophilia. Information on the possible risks of counterfeit drugs and how to recognize original products also plays a central role in Bayer HealthCare’s security concept. A special website has been established to provide information for patients.

A strategy for combating counterfeit products is provided by Bayer Technology Services in the form of Protexxion®. This innovative identification technology for the forgery-proof authentication of objects and packaging was presented with the Hermes Award in April 2007. This is Europe’s leading innovation prize.

Opportunities for innovation: Biotechnology and nanotechnology

Biotechnology and nanotechnology offer enormous opportunities for innovation. Already, every fourth pharmaceutical product introduced by Bayer is a biopharmaceutical based on active ingredients produced in bioreactors. Many new medicines, including products used to treat cancer, are monoclonal antibodies. These proteins and vaccines can also be generated in plants, an area where Bayer leads the world.

Rising production of biofuels from canola, sugar cane, soya, wheat and corn is opening up new niche markets. Bayer sustainably supports the efficient production of these crops, for instance through seeds and crop protection. In addition, we have special expertise in the planning and construction of biofuel production facilities at our Chemical Parks. An investor is currently planning to build a facility for the production of biofuel in Leverkusen in Germany. Bayer experts are working on all stages of this construction project, from initial planning to start-up.

We are also convinced that nanotechnology offers attractive scope for innovation. Examples include dirt-repellent surfaces and self-regenerating coatings. In spring 2007, Bayer started production of carbon nanotubes which are marketed as Baytubes®. These minute tubes are prime examples of nanotechnology: Although their mass is only one-quarter of the mass of steel, they can withstand mechanic strain five times better. Applications include lighter, longer and thus more resistant rotors for wind turbines. When applying nanotechnology we also pay attention to the safety aspects of this new technology