Management Report

11. Research, Development, Innovation

Innovation is the key driver of Bayer’s future growth. That is why Bayer focuses on research and development. In 2012 a total of €3,013 million (2011: €2,932 million) was spent on research and development. This was equivalent to 7.6% (2011: 8.0%) of sales. The number of employees working in research and development worldwide was 12,900.

The importance of global networking and collaboration – both among the units of our enterprise and with external companies and organizations – is steadily increasing. Our life-science areas of HealthCare and CropScience therefore work particularly closely together. We expect common research projects and the joint use of technology platforms to stimulate innovations for the improvement of human, animal and plant health. In addition, research projects with external partners from science and industry form a key component of our innovation strategy. These collaborations and alliances with leading universities, public research institutions and partner companies are supplemented by crowdsourcing, incubators like the CoLaborator™ in the United States, and science hubs in emerging regions such as Asia to tap into external innovative potential using the open innovation approach.

With strong and efficient research and development, an international network of partners and our focus on growth areas and markets, we are laying the foundations for Bayer’s future success. Our activities are centered on our customers’ needs – true to our mission “Bayer: Science For A Better Life.”

Research and Development Expenses 2012

HealthCare

In 2012 we invested €1,962 million (2011: €1,948 million) in research and development in the Pharmaceuticals and Consumer Health segments. This amounted to 65.1% of the Bayer Group’s entire research and development spending and was equivalent to 10.5% (2011: 11.3%) of HealthCare sales. At the end of 2012, some 7,500 employees of the HealthCare subgroup were working in research and development.

Research and development expenses in the Pharmaceuticals segment amounted to €1,566 million (2011: €1,556 million), or 14.5% (2011: 15.6%) of segment sales. Our research and development outlay underscores our focus on growth through innovation. Drug discovery in the Pharmaceuticals segment is concentrated in the areas of cardiology and oncology, along with gynecological treatments and hematology. Other areas of focus are the therapeutic areas of inflammation and ophthalmology. In addition, we are strengthening our established products through life-cycle management, an example being the development of innovative forms of administration for contraceptives.

Research activities and capacities are bundled in Germany at the sites in Berlin and Wuppertal, and in the United States in the Mission Bay neighborhood of San Francisco and at Berkeley, California. Work in Berlin and Wuppertal mainly focuses on the discovery, optimization and development of new active substances. Research is also carried out at these sites in the fields of drug metabolism, pharmacokinetics, toxicology and clinical pharmacology. Our research and development activities in Mission Bay and Berkeley are concentrated on biologicals and hematology. We also operate an innovation center in Beijing, China.

We conducted clinical studies with several drug candidates from our research and development pipeline during 2012 to drive the development of new substances to treat diseases with a high unmet medical need. Following the completion of the required studies with a number of these drug candidates, we submitted applications to one or more regulatory agencies for approvals or approval extensions.

Four active ingredients/products have blockbuster potential. Of special importance is our anticoagulant Xarelto™ (rivaroxaban), which continues to be launched in more countries. In 2012 we filed for, and in some cases already received, marketing authorization in additional indications. In the area of oncology, regorafenib (registered in the United States under the trademark Stivarga™) is approved for the treatment of advanced colorectal cancer in some countries, and approval is pending in others. At the end of 2012, we filed for marketing authorization for radium-223 dichloride (Alpharadin) for the therapy of bone metastases in prostate cancer patients. Other promising products being launched include Eylea™ (aflibercept) for the treatment of wet age-related macular degeneration.

The most important drug candidates currently in the registration process are:

Products Submitted for Approval[Table 3.28]
Indication
Aflibercept E.U., Japan; treatment following central retinal vein occlusion
FC-Patch Low E.U.; contraceptive patch
Octocog alfa*
(recombinant Factor VIII)
U.S.A.; prophylaxis of hemophilia A in adults
Radium-223 dichloride
E.U., U.S.A.; treatment of hormone-refractory prostate cancer patients
with bone metastases
Regorafenib E.U., Japan; treatment of colorectal cancer
Regorafenib
U.S.A., Japan; treatment of metastatic and/or unresectable gastrointestinal
stromal tumors
Riociguat E.U., U.S.A.; treatment of pulmonary hypertension (CTEPH)
Riociguat E.U., U.S.A.; treatment of pulmonary hypertension (PAH)
Rivaroxaban E.U., U.S.A.; secondary prophylaxis of acute coronary syndrome
YAZ™ Flex Plus
U.S.A.; oral contraception with flexible dosage regimen and folic acid
supplementation
* octocog alfa = active ingredient of Kogenate™

The following table shows our most important drug candidates currently in Phase II or III of clinical testing:

Research and Development Projects (Phases II and III)* [Table 3.29]
Indication Status
Aflibercept Treatment of diabetic macular edema Phase III
Aflibercept
Prevention of abnormal retinal angiogenesis
following pathological myopia

Phase III
BAY 86-6150 (rFVIIa mutein) Treatment of hemophilia A Phase II/III
BAY 94-9027 (rFVIII mutein) Treatment of hemophilia A Phase III
Ciprofloxacin Inhale Treatment of pulmonary infection Phase III
LCS-16 (ULD LNG Contraceptive System) Intrauterine contraception, duration of use: up to 5 years Phase III
Prasterone** Treatment of vulvovaginal atrophy Phase III
Rivaroxaban Prevention of major adverse cardiac events (MACE) Phase III
Sodium deoxycholate*** Injection for reduction of submental fat Phase III
Sorafenib Treatment of breast cancer Phase III
Sorafenib Treatment of liver cancer, adjuvant therapy Phase III
Sorafenib Treatment of kidney cancer, adjuvant therapy Phase III
Sorafenib Treatment of thyroid cancer Phase III
Tedizolid Treatment of complicated skin and lung infections Phase III
Amikacin Inhale Treatment of lung infections Phase II
BAY 80-6946 (PI3k inhibitor) Treatment of recurrent/resistant non-Hodgkin’s lymphoma Phase II
BAY 94-8862 (MR antagonist) Chronic heart failure Phase II
Radium-223 dichloride Treatment of bone metastases in cancer Phase II
Refametinib (MEK inhibitor) Cancer therapy Phase II
Regorafenib Cancer therapy Phase II
Riociguat Pulmonary hypertension Phase II
Sorafenib Cancer therapy Phase II

* as of February 11, 2013

** prasterone = Vaginorm

*** sodium deoxycholate = ATX-101

The nature of drug discovery and development is such that not all compounds can be expected to meet the pre-defined project goals. It is possible that any or all of the projects listed above may have to be discontinued due to scientific and/or commercial reasons and will not result in commercialized products. It is also possible that the requisite Food and Drug Administration (FDA), European Medicines Agency (EMA) or other regulatory approvals will not be granted for these compounds.

We regularly evaluate our research and development pipeline in order to prioritize the most promising pharmaceutical projects.

Xarelto™ (active ingredient: rivaroxaban) has been used since 2008 for prophylaxis of venous thromboembolism (VTE) in adult patients following elective hip or knee replacement surgery. Xarelto™ is registered in more than 120 countries around the world and marketed in this indication by HealthCare outside the United States. In 2011, Xarelto™ was also approved in the European Union for stroke prevention in patients with atrial fibrillation as well as for the treatment of deep vein thrombosis (DVT) and the prevention of recurring DVT and pulmonary embolism following acute DVT in adult patients. In Japan, Xarelto™ was approved in January 2012 for prophylaxis of stroke and systemic embolism in patients with non-valvular atrial fibrillation. Market introduction began in April 2012.

In the United States, where Xarelto™ has been approved since 2011 for VTE prevention in adult patients following elective hip or knee joint replacement surgery and to reduce the risk of stroke in patients with non-valvular atrial fibrillation, Janssen Pharmaceuticals, Inc., United States – a subsidiary of Johnson & Johnson – holds the commercialization rights for Xarelto™. Bayer HealthCare supports the sales team of Janssen Pharmaceuticals, Inc. in selected hospitals and specialty markets in the United States.

Based on the successful EINSTEIN-PE study, we submitted an application to the European Medicines Agency (EMA) in April 2012 for marketing authorization of Xarelto™ in the treatment of pulmonary embolism and the secondary prevention of recurrent deep vein thrombosis and pulmonary embolism. We were granted marketing authorization in November 2012. In May 2012, our cooperation partner Janssen Research & Development, LLC, United States, submitted applications to the U.S. Food and Drug Administration (FDA) seeking approval for Xarelto™ in the treatment of deep vein thrombosis or pulmonary embolism and in secondary prevention of recurrent venous thromboembolism (VTE). In November 2012, the FDA granted marketing authority for these applications following a priority review.

In December 2011, we submitted an application to the EMA for marketing authorization for Xarelto™ (rivaroxaban) in secondary prevention following acute coronary syndrome (ACS). The application for marketing approval in this indication in the U.S. was submitted to the FDA by our cooperation partner Janssen Research & Development, LLC. In June 2012, we received a Complete Response Letter from the FDA regarding the ACS indication. The requested information was submitted in September 2012 by our cooperation partner Janssen Research & Development, LLC. The application for Xarelto™ in the prevention of stent thrombosis in patients with acute coronary syndrome was submitted at the same time. The European application for marketing authorization for secondary prevention after acute coronary syndrome also includes prevention of stent thrombosis.

Riociguat is the first member of a new class of vasodilating agents known as soluble guanylate cyclase (sGC) stimulators. Administered in tablet form, riociguat is currently being investigated as a new approach for the treatment of various forms of pulmonary hypertension. The registration-relevant Phase III CHEST-1 and PATENT-1 studies each reached their primary endpoints in October 2012. In both studies, the substance demonstrated a statistically significant improvement in physical fitness among patients with chronic thromboembolic pulmonary hypertension (CTEPH) or pulmonary arterial hypertension (PAH) compared with placebo. Based on these studies, we submitted riociguat in February 2013 for marketing approval in the United States and the European Union for the treatment of CTEPH and PAH.

Regorafenib is a novel, oral multi-kinase inhibitor that inhibits various signaling pathways responsible for tumor growth. In 2012, we submitted regorafenib for marketing authorization in the treatment of patients with metastatic colorectal cancer (mCRC) in the United States, Europe and Japan. The registration applications are based on the results of the worldwide Phase III CORRECT study. In September 2012, regorafenib was approved in this indication by the U.S. FDA under the trade name Stivarga™. The Japanese Ministry of Health, Labour and Welfare (MHLW) granted priority review status for this substance.

In April 2012, regorafenib reached the primary endpoint – statistically significant extension of progression-free survival – in the Phase III GRID clinical trial. The GRID trial investigated regorafenib in the treatment of patients with metastatic and/or unresectable gastrointestinal stromal tumors (GIST) whose disease had progressed despite prior treatment with imatinib and sunitinib. In August 2012, the substance was submitted for approval in the treatment of GIST in the United States. In October 2012, the U.S. Food and Drug Administration (FDA) granted priority review status to the application. In December 2012, an application for registration was filed with the Japanese MHLW.

In 2011, we signed an agreement with Onyx Pharmaceuticals, Inc., United States, under which Onyx will receive a royalty on any future global sales of regorafenib in oncology.

In a registration-relevant Phase III study (ALSYMPCA), radium-223 dichloride (Alpharadin) – the cancer drug we are jointly developing with Algeta ASA, Norway – demonstrated a significant improvement in overall survival in patients with hormone-refractory prostate cancer (CRPC) and bone metastases. Based on these positive results, we filed registration applications with the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) for radium-223 dichloride for the treatment of CRPC in December 2012.

Eylea™ (active ingredient: aflibercept) is our joint developmental project with Regeneron Pharmaceuticals, Inc., United States. Aflibercept blocks the natural growth factor VEGF (vascular endothelial growth factor), thus preventing the abnormal formation of new blood vessels that tend to leak blood. The medication is administered directly into the eye. Regeneron Pharmaceuticals holds exclusive rights in the United States, where Eylea™ has been approved since 2011 for the treatment of wet age-related macular degeneration (AMD). Bayer will market the product outside the United States. In 2012, Eylea™ was approved in various countries, including Japan, Australia and certain Latin American countries, for the treatment of wet AMD. In November 2012, the European Commission granted marketing authorization. The market introduction of Eylea™ in Australia, Japan and Europe began in November 2012.

In September 2012, based on the successful Phase III COPERNICUS and GALILEO studies, our cooperation partner Regeneron received an approval extension for Eylea™ in the United States for the treatment of macular edema following central retinal vein occlusion (CRVO). In December 2012, we filed with the European Medicines Agency (EMA) for marketing authorization in this indication. In January 2013, a registration application was filed with the Japanese MHLW.

In addition to the wet AMD indication, further Phase III studies are currently ongoing with aflibercept for the treatment of diabetic macular edema (DME) and choroidal neovascularization (mCNV) caused by severe myopia.

Our cooperation partner Genzyme Corp., United States, has applied for marketing authorization for the humanized monoclonal antibody alemtuzumab under the trade name Lemtrada™ for the treatment of multiple sclerosis. The relevant approval submissions were made in the European Union and the United States in the second quarter of 2012. We will share in the future success of Lemtrada™ through possible royalty payments, milestone payments and global co-promotion.

In July 2012, we launched an international Phase III trial to evaluate the investigational compound BAY 94-9027 for the treatment of hemophilia A. The PROTECT VIII trial is designed to investigate whether the recombinant coagulation factor VIII (rFVIII) BAY94-9027 can prolong the duration of protection from bleeding when used prophylactically, while also having the ability to treat acute bleeding events. This could mean less frequent infusions for patients.

In the area of women’s healthcare, we are conducting research into gynecological therapies and additional contraception options. FC-Patch Low (ethinylestradiol/gestodene) is intended to become the only transparent product of its kind and the smallest, lowest-dosed contraceptive patch on the market. In September 2012, we applied for marketing authorization for this product in the European Union. In December 2012, the European registration process for our new, low-dose hormone-releasing intrauterine device LCS-12 was successfully concluded. This device is smaller than Mirena™ and has a duration of use of up to three years. We plan to market this new contraceptive coil in the European Union under the brand name “Jaydess.” In January 2013, LCS-12 received approval in the United States under the trademark Skyla™. A further, also small hormone-releasing device (LCS-16), with a duration of use of up to five years, is currently in Phase III clinical development. In October 2012, the European Commission authorized the approval of our new low-dose combined oral contraceptive Flexyess™ (drospirenone/ethinylestradiol). The flexible extended regimen enables users to choose the number and timing of their periods according to their needs. First launches of the product are expected in the second half of 2013.

We also invest in continuous life-cycle management to identify possible additional indications and improved delivery forms for products already on the market. For example, the additional indication for our oral contraceptive Qlaira™/ Natazia™ – treatment of heavy and/or prolonged menstrual bleeding not caused by any diagnosed conditions of the uterus – was approved in the United States in March 2012.

Another example is our cancer drug Nexavar™ (active ingredient: sorafenib), which we are continuing to develop jointly with Onyx Pharmaceuticals, Inc., United States. The successful active substance sorafenib, which attacks both cancer cells and the vascular system of the tumor, has been registered for the treatment of advanced renal cell carcinoma since 2005 and for hepatocellular carcinoma since 2007. We plan to develop the product beyond these two therapeutic areas with a broadly based life-cycle management program. In January 2013, a Phase III clinical trial investigating sorafenib as a monotherapy in patients with locally advanced or metastatic radioactive iodine (RAI)-refractory differentiated thyroid cancer met its primary endpoint of a statistically significant improvement in progression-free survival. Based on these data, we plan to apply for marketing authorization for sorafenib in the treatment of RAI-refractory differentiated thyroid cancer. Sorafenib is also being investigated in Phase III registration studies as an adjuvant therapy following curative tumor resection in patients with renal cell carcinoma and hepatocellular carcinoma. We are also conducting Phase III studies in breast cancer. Two Phase III clinical trials with sorafenib did not show the desired results: a study in patients with advanced non-small-cell lung cancer whose disease had progressed after two or three previous treatments and a combination study with sorafenib and erlotinib in liver cancer did not meet their primary endpoints.

Research and development expenditures in the Consumer Health segment amounted to €396 million (2011: €392 million), or 5.1% (2011: 5.4%) of segment sales.

In our Consumer Care Division, research and development activities at the product development centers in Morristown, New Jersey, United States, and Gaillard, France, focus on developing non-prescription (over-the-counter = OTC) products, medical skincare products and nutritional supplements to market maturity. These activities center on supporting both existing and new brands. Aligned to end consumers, our development strategies are geared toward expanding and improving our brand portfolio through new products, packaging and delivery forms using the latest technologies. We also work to achieve reclassification of current prescription medicines as OTC products. We introduced a number of new product line extensions to various markets in 2012. They included new delivery forms and uses for existing brands such as Canesten™, Bepanthen™/ Bepanthol™ and Alka-Seltzer Plus™.

The research and development activities of our Medical Care Division focus on blood glucose monitoring and the continuing development of contrast agents and medical equipment used in the diagnosis or treatment of various diseases.

At the four U.S. research and development locations for our diabetes care business, the largest of which is in Tarrytown, New York, we are working to strengthen our product lines and continue expanding into attractive segments of the diabetes market. We made further progress in 2012 with the launch of several innovative products in key markets to meet the specific needs of people with diabetes. Examples include the next generation of Contour™ XT (Contour™ Next EZ in the U.S.) and Contour™ Next USB blood glucose meters and the new Contour™ Next sensors, which demonstrate superior accuracy compared to competitive systems.

The aim of our research and development activities in the area of contrast agents and medical equipment is to steadily improve our contrast agents and our contrast injection, thrombus removal and other vascular intervention systems in order to build on our leadership position. We also intend to enter additional attractive segments such as medical data management tools for contrast agents and contrast injection systems. Our research and development centers are located near Pittsburgh, Pennsylvania, and Minneapolis, Minnesota, in the United States; in Berlin, Germany; and in Sydney, Australia. In August 2012, the European regulatory authorities extended their approval of the contrast agent Gadovist™ (active ingredient: gadobutrol) to include the diagnosis of diseases in the whole body by magnetic resonance imaging (MRI). Further clinical studies are currently ongoing with gadobutrol in a variety of indications for marketing approval in other countries. Gadovist™/ Gadavist™ was first registered in 1998 and is now approved in more than 90 countries. In September 2012, we introduced our Jetstream™ atherectomy system at the annual meeting of the Cardiovascular and Interventional Radiological Society of Europe (CIRSE). The device can be used to treat a wide range of vessel diameters and features continuous active aspiration to remove excised stenotic material and thrombus from the treatment site. A unique technology allowing its use in thrombus, soft plaque and calcified lesions, the Jetstream™ device offers an additional treatment option for peripheral artery disease (PAD).

The Animal Health Division focuses its research and development activities at the Monheim site in Germany on antibiotics and antiparasitics as well as active substances to treat non-infectious disorders in animals. The research activities of Animal Health have been integrated with the Global Drug Discovery unit of BHC since March 2011. The advantage lies in the joint use of technology platforms and the pooling of know-how and experience in drug discovery. At the same time, Animal Health continues to collaborate with CropScience research, especially in the area of parasitology. Thus we are exploiting the advantage we have as the only company in the world that conducts research within the same organization into improving the health of people, animals and plants. As well as developing new products to combat bacterial infections and parasites in companion animals and livestock, we are continuing to expand the product portfolio for the treatment of chronic kidney diseases in cats. In addition, a number of product line extensions were approved in different markets, such as Seresto™ (active ingredients: imidacloprid and flumethrin) in Europe. Seresto™ is a collar for dogs and cats with considerably longer duration of action against ticks and fleas.

Open innovation

We gain access to complementary technologies and external innovation potential through strategic collaborations with partners. Our Pharmaceuticals segment works with various partners during the individual development stages of a medicine. A number of examples are listed in the following table:

Pharmaceuticals Cooperation Partners[Table 3.30]
Partner Cooperation objective
Algeta ASA
Codevelopment of radium-223 dichloride for the treatment of hormone-refractory prostate cancer patients with bone metastases
Amgen Research GmbH Access to BiTE™ antibodies for developing novel tumor therapies
Ardea Biosciences Inc.
Codevelopment of oncological products based on MEK (mitogen-activated
ERK kinase) inhibitors
BioInvent International AB Access to antibody library with antibody inlicensing option
Celera Corp. Expansion of oncology research portfolio
German Cancer Research Center Strategic partnership along the entire R&D value chain
Dyax Corp. Access to antibody library with option to develop novel tumor therapies
EndoCeutics Inc. Development of prasterone to treat vaginal atrophy and female sexual dysfunction
Evotec AG
Research collaboration to identify and validate development candidates in
endometriosis
ImmunoGen Inc. Inlicensing of a technology to develop antibody-linked toxins
Janssen Pharmaceuticals Inc. of Johnson & Johnson Development of Xarelto™ (rivaroxaban)
Ludwig Boltzmann Institutes
Research into lung vascular disease, especially pulmonary hypertension;
search for ways to treat heart-muscle weakness
Nektar Therapeutics
Codevelopment of a targeted antibiotic inhalation therapy for lung infections (Amikacin Inhale)
Novartis AG
Development of a targeted antibiotic inhalation therapy for lung infections
(Ciprofloxacin Inhale)
OncoMed Pharmaceuticals Inc. Discovery and development of novel anti-cancer stem cell therapeutics
Onyx Pharmaceuticals Inc.
Codevelopment of Nexavar™ and development of regorafenib in various types of cancer
Prometheus Laboratories Inc. Development of diagnostic in-vitro assays for personalized medicine
Qiagen Manchester Ltd. Development of companion diagnostic tests in oncology
Regeneron Pharmaceuticals Inc. Development of aflibercept to treat eye dieases
Seattle Genetics Inc. Inlicensing of a technology to develop antibody-linked toxins
Trius Therapeutics Inc. Codevelopment of tedizolid to treat a range of infections
Tsinghua University Establishment of a joint research center

In 2008 we entered into a strategic alliance with the German Cancer Research Center (DKFZ) in Heidelberg, Germany, which is focused on the identification and early development of new therapeutic approaches for cancer. This collaboration is designed to turn new scientific discoveries about cancer into new medicines or therapies as quickly as possible. In 2011, the partnership was extended for an additional three years. A total of 19 projects have been initiated so far.

Since 2009, we have operated the internet platform “Grants4Targets.” With this crowdsourcing approach, we give researchers at universities, other research institutions or start-up companies the opportunity to propose biological target structures for cooperation with Bayer through an internet portal. We make expertise and financial assistance available to researchers to support the discovery of new therapeutic approaches in oncology, gynecology, cardiology and hematology. By combining the expertise of industry and academia, we aim to accelerate the progression from fundamental research to new and promising treatment options. A total of 825 applications have been submitted via internet so far, of which 114 projects are receiving support.

Since 2011, we have been collaborating with the Ludwig Boltzmann Institute (LBI) for Pulmonary Vessel Research in Austria on research into disorders of the pulmonary blood vessels, particularly pulmonary hypertension. A further collaboration with a Ludwig Boltzmann Institute, the LBI for Translational Heart Failure Research in Austria, was formed in October 2011 to search for new approaches to treat myocardial insufficiency.

In March 2012, we signed an agreement with Tsinghua University in Beijing, China, to collaborate over a three-year period in the field of biomedical sciences. The agreement further expands our existing strategic cooperation at the Bayer-Tsinghua Joint Research Center for Innovative Drug Discovery (BTC).

In April 2012, we extended our cooperation with Amgen Research GmbH, Munich, Germany, to include the research, development and commercialization of a new bispecific T-cell engager (BiTE™) antibody against a new, undisclosed target structure expressed in multiple tumors. Under the terms of the present agreement, we will collaborate with Amgen from the research phase through the completion of any Phase I clinical trials, upon which we will assume full control of further development and potential commercialization of the antibody.

In September 2012, we opened “CoLaborator™” – a new center in the Mission Bay district of San Francisco, California, United States, for young bioscience firms. This incubator concept is geared toward supporting young start-up companies founded by academic researchers. The scientists benefit from both the laboratory infrastructure and the expertise of the Bayer researchers and the potential this offers for the professional, goal-oriented design of development programs. At the same time, we aim to be the initial contact point for young companies in their search for possible cooperation partners.

In October 2012, we entered into a strategic alliance with Evotec AG, Hamburg. Together with this company we will carry out research into multiple target molecules associated with endometriosis over a five-year period. The aim is to identify three drug candidates for clinical development in the treatment of this disorder.

In October 2012, we signed an agreement with Qiagen Manchester Ltd., U.K., to jointly develop molecular in-vitro tests, also known as companion diagnostics. These tests are to be used to identify patients who are highly likely to respond to new cancer drugs from HealthCare.

CropScience

One of the aims of CropScience is to offer its customers tailored and innovative solutions for selected crops along the entire value chain, and in doing so to support agriculture and help to feed the world population. To achieve this aim, CropScience is investing heavily to research and develop new products, focusing increasingly on seed and new growth areas such as plant health and stress tolerance. CropScience also utilizes its global network of partners from science and industry to drive growth through joint development projects.

In 2012, €782 million (2011: €723 million) in research and development expenditures, or 26.0% of the Bayer Group total, were made in the CropScience subgroup. This was equivalent to 9.3% (2011: 10.0%) of subgroup sales.

CropScience maintains a global network of research and development facilities employing some 4,400 people. Our largest R&D sites for crop protection products are located in Monheim and Frankfurt am Main, Germany, and in Lyon, France. The major research centers of the Seeds unit, which focuses on improving seed through seed technology and breeding, are located in Ghent, Belgium; Haelen, Netherlands; and in Morrisville, North Carolina, and Lubbock, Texas, United States. The acquisition of AgraQuest, Inc. added a new facility for biological crop protection products in Davis, California, United States, to the research and development network.

While research is carried out centrally at a small number of sites, our development and plant breeding activities take place both at these sites and at numerous field testing stations across the globe. This ensures that future active substances and crop varieties can be tested according to specific regional requirements.

To better respond to the future development of global markets, we are increasing our research and development spending in the Seeds unit, with its seeds and traits, and in new growth areas such as plant health and stress tolerance. Our biologics research, which focuses on biological crop protection products, is also to be expanded following the acquisition of U.S. company AgraQuest. We plan to invest a total of some €5 billion in research and development between 2011 and 2016.

As part of our integrated research approach, our scientists in the fields of seed technology, agricultural chemistry and biologics are working increasingly closely to optimally pool the expertise acquired through chemical and biological research as well as field development, and align it to our long-term research objectives and business strategies for the various crops.

In the Crop Protection unit, we identify and develop innovative, safe and sustainable products for use in agriculture as insecticides, fungicides, herbicides or seed treatments. In the fields of chemistry, biology and biochemistry, modern technologies such as genetic analysis, high-throughput screening and bioinformatics play an important role in identifying new chemical lead structures. Collaborations with external partners complement our own activities.

In addition, we are broadening the range of uses for our products by developing new mixtures or innovative formulations of products already on the market so that they can be applied in additional crops or be made easier to handle.

In addition to numerous seed varieties, our integrated product pipeline in crop protection and seed technology contains a total of over 30 projects with estimated launch dates between 2011 and 2016 and a combined peak sales potential in excess of €4 billion. During this period, Crop Protection plans to begin marketing for eight projects in the area of chemical crop protection and a number of biological crop protection products; in our Seeds business, we plan to bring more than 15 projects to market-readiness for the broad-acre crops of cotton, oilseed rape/canola, rice, wheat and soybeans alone; and we also intend to launch several hundred new vegetable varieties under the Nunhems™ brand.

During 2012 we achieved further progress with product registrations. For example, the fungicide Luna™ (fluopyram) was approved by the U.S. Environmental Protection Agency (EPA). It was already available in the United States for the 2012 growing season. Luna™ was developed to combat a number of problematic fungal diseases in fruit and vegetables. It enables excellent disease control and ensures better storability and longer shelf life of the harvested produce, thus playing an important part in ensuring supply security. Luna™ is now approved in various countries of North America, Europe, Latin America, Asia and Africa. In March 2012, we were granted the first marketing authorization worldwide from the Canadian authorities for the new fungicidal seed treatment EverGol™ (penflufen) and began introducing this product to the market. Further registrations for the EverGol™/ Emesto™ product line were received in the United States. These products offer farmers much better options for controlling fungal diseases even at very low application rates.

In addition to numerous new formulations, we plan to launch three promising new chemical crop protection products during the period through 2016, subject to their successful registration:

Planned Product Launches[Table 3.31]
Product (active ingredient) Indication Planned launch
Sivanto™ (flupyradifurone)

Insecticide to control sucking pests such as
aphids, cicadas and whiteflies in fruits, vegetables
and broad-acre crops


2014/2015
New Bayer brand (N.N.) Insecticide 2014
New Bayer brand (triafamone)

Herbicide: control of various weeds,
including millet and grass species;
preventive application possible


2015

Another event in 2012 was the acquisition by CropScience of U.S. company AgraQuest, Inc., headquartered in Davis, California. The transaction closed in August 2012 and will enable CropScience to further expand its research and its product pipeline in the area of biological crop protection. AgraQuest is a global supplier of innovative biological pest management solutions based on natural microorganisms. The acquisition is also aimed at enabling us to build a leading technology platform for biological crop protection products and further strengthen our strategically important vegetables business.

In Seeds we are conducting research to improve plant traits and are developing new seed varieties in our established core crops – cotton, oilseed rape/canola, rice and vegetables. We have extended our research activities to include two new core crops – cereals and soybeans. Our research and development activities focus on the agronomic traits of these crops. Our researchers are working to increase the quality and yield potential of crop plants – for example, by improving the profile of rapeseed (canola) oil or enhancing the properties of cotton fibers. We are also targeting the development of plants with high tolerance against external stress factors such as extreme temperatures and drought. Further areas of focus include developing new herbicide tolerance technologies based on alternative mechanisms of action, and improving insect resistance and disease tolerance. To do this we employ modern breeding techniques ranging from marker-assisted breeding to plant biotechnology methods.

In addition to our own proprietary products, we have strengthened our Seeds business through strategic acquisitions. In 2012, for example, we acquired the watermelon and melon seed business of Abbott & Cobb Inc., headquartered in Feasterville, Pennsylvania, United States. The acquisition supports our vegetable seed business. We also formed several research alliances in 2012, including a collaboration for the development and marketing of wheat with the Texas AgriLife research institute of Texas A&M University in the United States. These partnerships will support our enhanced focus on the Seeds business.

Business growth at Seeds is also supported by the introduction of new varieties and traits.

In the first quarter of 2012, we began commercializing conventional oilseed rape varieties in several European countries, thus taking a major step toward regional expansion in this crop.

In 2011, we launched our proprietary glyphosate herbicide tolerance technology GlyTol™ in FiberMax™ cotton seed varieties in the United States.

In 2014, we plan to offer a new combined insect-resistance and herbicide-tolerance solution for cotton, featuring both TwinLink™ and GlyTol™ technologies for the first time, offering farmers integrated pest and weed control. We also expect to launch a new hybrid canola seed line in Australia in 2014.

Starting in 2014, we plan to commercialize a number of new hybrid rice varieties with improved stress and insect resistance under the Arize™ brand.

By 2015 we intend to offer soybean farmers in North America a groundbreaking herbicide-tolerant trait stack with a new mode of action. This product will be tolerant to both isoxaflutole and glyphosate herbicides and will be an important resistance management tool.

We are steadily bringing new vegetable seeds to market under the Nunhems™ brand, with around 70 varieties introduced in 2012 and a comparable number of innovations anticipated for 2013.

The Environmental Science unit tests compounds developed by Crop Protection or with external partners and evaluates them for possible non-agricultural uses. Current development projects include gels and baits to combat insect pests, as well as herbicides, fungicides, biological solutions, and products for the control of disease-transmitting insects.

In 2012, the Environmental Science portfolio was further expanded in the United States – partly through the successful launch of Esplanade™, a product for professional users based on the active ingredient indaziflam, and the consumer product Durazone™. In Europe, we strengthened the Bayer Garden™ business by launching Permaclean™, our new combination product with residual action. Environmental Science also made good progress with the introduction of LifeNet™ mosquito nets. Further registrations were achieved, and the product is now approved in 19 African countries.

Open innovation

CropScience has assembled a global network of research and industry partners from diverse segments of the agriculture industry, chemical and biological research, and the food industry. These cross-industry partnerships enable us to better understand and do justice to the needs of our customers over the long term.

CropScience conducts research in collaboration with many partners around the world. For example, we extended the successful research collaboration between CropScience and the Innovative Vector Control Consortium (IVCC) in the U.K. Initially established as a research consortium in November 2005, the IVCC has since evolved into a product development partnership (PDP). The IVCC contributes know-how and technical resources to jointly drive the development of new insecticides for vector control in the public health sector and the related information systems. The parties have agreed to cooperate for a further three years in the search for new active ingredients effective against mosquitoes, which transmit diseases such as malaria and dengue fever.

In the Seeds business, an important partnership exists with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Grains Research and Development Corporation (GRDC) in Australia. CropScience and the CSIRO began strategic collaborations in wheat research in 2009. The aim of the research partnership between CropScience, the CSIRO and the GRDC is to discover innovative ways to raise wheat yields and thus make global wheat production more sustainable. The partnership, announced in 2012, results from the development by the CSIRO of a biotechnological process that raised wheat yields in greenhouse testing.

Special mention should be made of our food chain partnerships. Our worldwide in-house network of country organizations enables us to collaborate with other companies throughout the global food chain, adding value to it in ways that include ensuring traceability and increasing the quality of produce. Our expertise in the crop protection and seeds businesses thus helps to create the basis for healthy nutrition, sustainable food production and compliance with food safety standards. Among the main partners participating in the 240 food chain partnerships are U.S.-based PepsiCo, Inc., and Wal-Mart Stores, Inc., and the UNIVEG group of Belgium. As part of the project with UNIVEG, one of the world’s largest fruit and vegetable wholesalers, quality table grapes from India reached the European market for the first time at the beginning of 2012. CropScience has developed its own identity document for participating farmers with the aim of improving traceability and data management. This identity document ensures that UNIVEG in Europe can satisfy the strict regulatory requirements regarding quality, safety, traceability and sustainability.

Strengthening research in the life sciences

Bayer is the only global company simultaneously researching improvements in human, animal and plant health. From this unique position, Bayer is also breaking new ground in terms of innovation strategy. Systematic, greatly intensified collaboration among researchers across subgroup boundaries is serving to stimulate innovation. In 2012, a concept was developed to enable researchers in our two life-science subgroups – HealthCare and CropScience – to make optimum use of collaboration opportunities. The concept includes a Life Sciences Fund that provides some €30 million annually in finance for new technology platforms and research projects established in collaboration with other companies or research institutes. The aim is to support central areas of research such as gene regulation, energy metabolism and molecular signaling pathways and to increase the joint use of groundbreaking technology platforms. Systematically exploiting life-science synergies in this way will enable Bayer to continue strengthening its innovative potential in pharmaceuticals, animal health and the agriculture business.

MaterialScience

Research activities at MaterialScience are focused in part on the development of plastics manufacturing processes that conserve energy and resources. In addition, the subgroup works closely with customers to develop new applications for our high-tech materials that can help to improve energy and resource efficiency or safety, for example.

In 2012, MaterialScience spent €242 million (2011: €237 million) for research and development. The subgroup thus accounted for roughly 8.0% of the Bayer Group’s total research and development expenses. The ratio of R&D expenses to sales in the subgroup itself was 2.1% (2011: 2.2%). In addition, MaterialScience spent €115 million (2011: €118 million) on joint development projects with customers.

A total of about 900 people were employed in research and development in 2012, many of them at our Innovation Centers in Leverkusen, Germany, and Pittsburgh, Pennsylvania, United States, or at the Polymer Research & Development Center in Shanghai, China. The facility in Shanghai was expanded in 2011 and plays a key role in developing new products for the Asian market and enlarging Bayer’s technical expertise in the region. At the same time, this local presence is aimed at more closely linking the company’s research and development activities with customers in the emerging markets.

The focus in the Polyurethanes (PUR) business unit is on further increasing the efficiency of polyurethane rigid foam as an insulating material against cold and heat. Polyurethane plays a key role in helping to reduce energy consumption and protect the climate, especially in the construction industry and along the cold storage chain. Our innovations are geared toward further enhancing the material’s insulating properties and optimizing flame retardancy in particular.

An exemplary innovation that considerably raises energy efficiency in refrigerated appliances is our Baytherm™ Microcell. Compared with current standard solutions, this novel material has up to 10% lower thermal conductivity thanks to substantially smaller pores. An efficient cold storage chain is of great importance, particularly in light of increasing urbanization in the emerging countries. We aim to support economic development in these countries with innovations on many levels – such as mobility.

In the automotive industry, techniques such as lightweight construction, which reduces fuel consumption, are rapidly gaining ground. Our polyurethane supports this trend. Our new Bayflex™ RIM system, which is lighter even than water, enables an up to 30% weight reduction in car body parts.

In the area of process development, we aim to further improve efficiency in order to safeguard our cost leadership for the long term. Our objective is to manufacture polyurethane raw materials with minimum energy consumption and greenhouse gas emissions. For example, we are working on the use of renewable raw materials – and also of carbon dioxide – as feedstocks for polymers. In early 2011, for example, we started up a globally unique pilot plant in Leverkusen that produces polyether polycarbonate polyol (PPP) – a starting material for polyurethanes – using waste carbon dioxide.

Our research and innovation activities in the Polycarbonates (PCS) business unit focus on developing new products, particularly for weight-saving applications, that set new energy efficiency and safety standards and allow greater design freedom. Here we concentrate on selected development areas.

In the consumer electronics sector, new applications for our materials are resulting in components that are lighter, more compact, flame-retardant and at the same time break-resistant. MaterialScience therefore cooperates with partners – including the Institute for Composite Materials (IVW) in Kaiserslautern, Germany – to develop reduced-weight and glass-fiber-reinforced materials for applications such as ultramobile laptops. These materials enable the production of extremely thin-walled yet durable housing components that cater both to consumers’ habits and to the IT industry’s stringent flame-retardancy requirements.

We are also developing polycarbonate materials for LED illumination management. LEDs have a broad array of applications – from street lighting to special uses such as the front headlamps of vehicles. Here, the considerably lower electricity consumption and the ability to produce ultra-small lamps play a major role. A current focus is on building a portfolio of materials for this field of application. In addition to materials with customized optical properties, such as those for optical lenses or light guides, we are developing a thermally conductive material to direct the heat development that occurs particularly in LEDs away from the housing.

Another innovation is the use of recycled plastics such as Bayblend™ GR polycarbonate blends in laptop housings, for example.

In the Coatings, Adhesives, Specialties (CAS) business unit, we are driving the development of raw materials for high-performance polyurethane coatings, adhesives and sealants.

Extreme-durability coatings are used in automobiles, buses, trains, ships and airplanes, for example, and are also needed for wind turbines, pipelines and steel structures. All of these markets are showing strong, steady growth. Our development work is directed toward the next generation of environmentally friendly coatings, which consume less resources and can be more efficiently applied. Here we are concentrating on low-solvent, solvent-free and waterborne systems. As we continue to develop our adhesives and sealants portfolio, we are again focusing on environmentally compatible and user-friendly systems to replace the solvent-based systems that still are widely used.

In addition to these conventional fields of application, we are evolving our portfolio of products and solutions toward new and lucrative market segments based on the outstanding mechanical and optical properties and broad diversity of aliphatic polyurethane systems.

Our activities in functional films partly center on products based on polycarbonates or thermoplastic polyurethanes. Multifunctional or holographic films are created by using additional surface technologies and modifying the material properties. These open up new fields of application in attractive areas such as 3D flat panel displays. Another area of focus is on electroactive polymers (EAP) as a platform technology. Our research activities relate mainly to polymer films that serve as a basis for developing alternative engine and generator designs and sensor films together with industrial partners.

In addition to specific development activities, we are also involved in certain interdisciplinary developments. An example is a special system solution for the manufacture of coated parts for use in automotive interiors, for example. It is produced in a single process step, yielding significant cost advantages and boosting productivity.

Open innovation

In line with the open innovation approach, MaterialScience increasingly collaborates with external scientific institutions such as RWTH Aachen University in Germany and the Chinese Academy of Sciences, China. Our innovation capability is also spurred by collaborations with customers or other industry sectors, such as via the future_bizz corporate network. We aim to work with the best partners from the industry sectors that are important to us in order to combine competencies and turn them into innovations. External networks in science and industry are nurtured both by the business units and centrally through the New Business department.

A successful alliance with Kast GmbH & Co., Germany, and the Institute of Concrete Structures and Building Materials at Karlsruhe Institute of Technology (KIT) involves the development of a special adhesive for buildings. In combination with a glass fiber fabric, it can strengthen masonry and thus delay the collapse of walls in the event of an earthquake. Another advantage of the system, named EQ-Top™, is that it is easy to use because it can be hung like wallpaper.

In the area of energy efficiency, we developed the innovative, modular street lighting concept “Eco StreetLine” in cooperation with Hella KgaA, Germany. The use of efficient LED technology reduces energy consumption compared with conventional street lighting, while the long service life of the optical lenses cuts operating costs.

In collaboration with Hella KGaA and the Fraunhofer Institute of Laser Technology in Aachen, Germany, we have also developed a process chain for the manufacture of plastic free-form optics for automotive lighting. The project received funding from the German Ministry of Education and Research.

Bayer Technology Services

Bayer Technology Services is an important research, development and engineering partner for the entire Bayer Group. All Bayer subgroups work closely with this service company worldwide on technology solutions, particularly in the fields of process technology, plant engineering, automation and product development.

Together with the subgroups, Bayer Technology Services is developing new energy- and resource-efficient production processes to safeguard technology and cost leadership over the long term. An example is polymer synthesis for MaterialScience. Centralized development work on technologies relevant to more than one subgroup, such as nanotechnology and biotechnology, along with expertise in mathematical simulation and statistical data analysis, is important for HealthCare and CropScience so that they can accelerate the development of new products. This also includes the development of entirely new production concepts at facilities such as the INVITE research center, a collaborative venture between Bayer Technology Services and Dortmund Technical University. New flexible, modular production concepts being developed for HealthCare are an example in this area.

Last updated: February 28, 2013  Copyright © Bayer AG
http://www.annualreport2012.bayer.com