Bayer puts faith in crop science

06 November 2006 00:00  [Source: ICB]

New products and ingredients that will be coming to market in 2008 give hope to the sector's No.1

Changes in weather and eating habits, sluggish growth and ecological concerns are dogging the traditional insecticide, herbicide and fungicide sectors. As agricultural chemical markets are becoming increasingly volatile, weak results by industry majors in the first half of 2006 are showing themselves.

The industry is starting to experience similar problems to those affecting pharmaceuticals. Due to generic substitution, demand for branded crop-protection ingredients, for example, is set to fall by 0.6%/year over the next decade.

As there are no signs of a fundamental revival, agrochemical producers must diversify their portfolios and mobilise biotech resources to play in the genetics league.

Flexing muscle power

Few players have more muscle to tackle the market's challenges than Bayer CropScience. As one of the beneficiaries of European market consolidation, it can draw on Bayer's traditional technology and marketing resources and those of the former Aventis CropScience, AgrEvo, Hoechst, Rhone-Poulenc, Schering, Fisons and Boots.

Still, Bayer CropScience needs a boost. Speaking recently at its Monheim, Germany, headquarters, CEO Friedrich Berschauer admitted that the agrochemical producer, which calls itself global leader in the conventional end of the market, will miss its targeted 25% margin of sales over earnings before interest, tax, depreciation and amortisation this year.

The company hopes a profitability enhancement scheme put in place in August - 1,500 European and North American jobs are being eliminated and 15 of 50 worldwide sites shut - will help it reach its goal by 2009.

However, Bayer CropScience management knows that the right portfolio mix and strong new products emerging from its €2bn ($2.5bn) research and development (R&D) pipeline will be crucial. To keep the pipeline filled, Bayer will lift R&D spending to €750m/year by 2015, 13% more than in 2005.

Overall, the plan calls for investing in products with above-average profitability. While still developing innovative chemical ingredients, the crop-protection specialist also wants to expand in seeds and traits, which it hopes will eventually account for 15% of its sales, compared with 4.5% now.

The global commercial seeds market is expected to grow from about €13bn in 2005 to €18bn by 2015, with hybrids the most dynamic. Here, Bayer intends to play an important role, Berschauer says, while pointing out that this is "not solely a GM market not all seeds are characterised by insect resistance or herbicide tolerance".

Before buying the GM-heavy Aventis business in 2002, Bayer's then management said that a lack of consumer acceptance made "green" bioscience too scary to touch. Executives are careful not to go down this route too strongly, especially as the firm faces lawsuits from US farmers over gene-spliced rice that turned up in the wrong places.

Bayer claims to have built up a good position in conventional vegetable, rice, cotton and canola seeds, where annual growth of 4% over the next 10 years is likely to give the segment more than a third of the global market by 2015. It is also seeking to diversify into oilseed, food/feed and industrial seed crops.

A US deal with DuPont, in which Bayer will supply active ingredients for use with DuPont's sulphonylurea product, will allow the Germans to move into the US corn market without supplying seed. Berschauer says: "We will benefit from using our own traits - for herbicide tolerance, for example - and also from the increase in crops such as corn."

In a move to put more mass into the BioScience and Environmental Science business units, plans are to increase the plant biotechnology research budget from €80m to more than €200m by 2015. In future, these two units will account for "a quarter or more of our total business", says Berschauer.

Portfolio management

In its more traditional fields, Bayer is "practising active portfolio management", managing board member Rudiger Scheitza remarks. Ideally, this will mean launching active ingredients while phasing out older products. Three of the 10 top-selling active ingredients, together accounting for 40% of sales, have been launched since 2000.

In that period, the company has developed 17 new active ingredients to market maturity. As one with significant promise, Scheitza spotlights fluopicolide, a new fungicide ingredient marketed as Infinito. Sales of €1bn from products based on these ingredients are budgeted for 2006. Bayer recently sold the carbamate-based herbicide ingredient Asulox/Asilan and two insectide ingredients to India's United Phosphorus, and hopes to divest another two ingredients before the end of the year.

New products being prepared for launch by 2008-2009 include the ketoenol-based Spirotetramat insecticide, which suppresses lipid synthesis. Scheitza says that Bayer has new active ingredients in fungicides, a sector in which it aims to be No. 1. It is also well positioned in herbicides, where it hopes to introduce products with the new "safener" technology. And in seed treatments, it intends to defend its market leadership.

By: Dede Williams
+44 20 8652 3214

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