Bayer Chemicals launches into turbulent seas

Bayer Chemicals became a separate legal entity from the rest of the Bayer group just over one month ago, having operated as a virtual company since the middle of 2002.

The company took the opportunity presented by the CPhI meeting in Frankfurt, Germany, last week to showcase the business in the first press conference held since it became a separate company.

At the conference, Bruce Olson, Bayer Chemicals' executive vice president for sales and marketing, said that the poor performance at Bayer Chemicals over the first six months of the year made the need to improve the business clear.

First-half sales were €1.75 billion, a 25 per cent decline on the same period of 2002, while earnings before income tax plummeted 56 per cent to €40 million. Bayer's explanations for the decline are well-established (it points mainly to the sale of the Haarmann & Reimer business and currency factors), but even taking these into account, "the sales growth is no better than flat",​ said Olson.

So why take Bayer Chemicals​ independent at such a difficult time? Olson told In-Pharmatechnologist.com that the primary reason is to allow better focus through portfolio management, cost-cutting and a concentration on products that can deliver "profitable, top-line growth".

Part of this process will involve a shift away from commodity products towards those where the company can offer some differentiation compared to its competitors. He noted that 38 per cent of the unit's sales come from basic chemicals at present, but predicted that this will go down in the future.

Olson noted that, "we will maintain our position in commodity businesses it help fund…other activities, as long as we are able to generate acceptable levels of return on invested capital."​

He also pointed to expansion outside Europe as a key foundation of the new strategy at Bayer Chemicals. The company is clearly under-represented in the Asia-Pacific region, he said. Expansion in these areas will be achieved by providing technical support to the local sales team in these markets and, to this end, several of Bayer's scientists and technologists have already transferred to China from the EU.

Dr Rudolf Hanko, vice president of the Fine Chemicals unit within Bayer Chemicals, told the conference that while total sales for Fine Chemicals were flat in the first half of 2003, within this unit pharmaceutical chemicals put in a rise of 18 per cent.

Hanko believes Bayer can draw on its experience across the sectors within the pharmaceutical industry to provide a superior service to its customers. For example, the company can adapt its service to the differing needs of big pharma companies, which have large development departments and tend to insource most API development, small pharma and biotech firms that have little in-house capability.

For big pharma, he noted, outsourcing in the early stages is usually limited to intermediates and raw materials, while a biotech firm may outsource the API itself. A big company will outsource to manage risk, but smaller firms - which often intend to license out the drug - have different goals, such as proving proof-of-concept and hitting development milestones with a minimum cash burn.

"Spending enormous amounts on process development at an early stage, when the chance of failure is 90 per cent, is usually not in the best interests of the customer",​ he pointed out.

With this in mind, Bayer recently set up a 'kilogram team' specifically to concentrate on the supply of small quantities of substance for development, with an emphasis on speed, rather than process optimisation.

One priority will be on the use of Bayer's performance products to create higher-value products, while a major effort will be undertaken to persuade companies to outsource the development and manufacturing that many companies would ordinarily do in-house.

Hanko explained to In-Pharmatechnologist.com that the company's differentiating factor could be represented by a combination of specific chemistries and engineering capabilities afforded by Bayer's well-established infrastructure. For example, the company has the glass-lined infrastructure to cope with the handling of corrosive active pharmaceutical ingredients (APIs), something that many of its competitors cannot manage.

Another core competency at Bayer is chiral synthesis, and Hanko believes the attraction of Bayer here is scale - the company claims it can produce a chiral intermediate via asymmetric hydrogenation with more than 98 per cent enantiomeric excess on a greater than 50 metric tonne scale.

More investment in SMB​

Bayer has invested considerable time and effort in developing chiral simulated moving bed (SMB) technology for the development and manufacture of chiral compounds, and believes it has real advantages over rival technologies.

Hanko told In-Pharmatechnologist.com that SMB can "outperform crystallisation processes that have been in place and optimised for a number of years",​ although he also noted that it is not the cheapest technology.

Bayer is committed to the technology, witnessed by the announcement at the CPhI that it will construct a new production-scale SMP unit to increase capacity from the kilo-to-several-tonne facility located at the firm's central organics pilot plant (ZeTO) to over 100 tonnes/year.

The new plant is being constructed for the chiral separation of a key intermediate for an already-launched API, and will cost around €10 million to set up. It should start operating in 2005.

Bayer is not number one in any side technology, but the breadth of its technologies - and its ability to undertake all the necessary chemistries involved in the production of most APIs - is a big selling point for the firm's custom manufacturing activities, concluded Hanko.