Bayer R&D Investor Day 2005

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1 Science For A Better Life CropScience Bayer R&D Investor Day 2005 December 8, 2005 London Bayer R&D Investor Day 2005 Innovation Driving Future Growth Bernward Garthoff Member of the Board of Management Bayer CropScience Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 2

2 Forward Looking Statements This presentation contains forward-looking statements based on current assumptions and forecasts made by Bayer Group management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in our public reports filed with the Frankfurt Stock Exchange and with the U.S. Securities and Exchange Commission (including our Form 20-F). The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments. Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 3 Combining the success factors to manage innovation Best-in-class development pipeline in agrochemicals Innovative formulation & application technologies to fully exploit commercial potential of our active ingredients Plant Biotechnology pursuing attractive business potential Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 4

3 Bayer CropScience Key Strategic Priorities Enhance Profitability towards Targets Operational excellence Financial discipline Active Portfolio Management Capitalize on successful life cycle management Leverage synergy potentials between Crop Protection, Environmental Science and BioScience Innovation Leadership Deliver best-in-class agrochemicals pipeline Open up new markets through plant biotechnology Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 5 Innovation is Key to Meet Future Farming Needs Mobility of insect pests & spread of epidemic diseases like Asian Rust New modes of action to manage resistances and to address new areas of applications Products with better efficacy and efficiency Products with lower toxicity and favorable environmental profiles Crops with improved characteristics and better adoption to growing conditions Stringent regulatory environment Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 6

4 Manage Innovation at Bayer CropScience Successful R&D based on global network Excellent resources and IP position State-of-the-art technologies Identify new active ingredients Strong track record of new molecules Best-in-class development pipeline Optimize existing portfolio Proximity innovation in specialty business Improved formulations and application technology Explore plant biotechnology Capture opportunities and accept challenges Actively involve stakeholders Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 7 R&D: A Global Network of Facilities and Competencies An extensive network of R&D facilities spanning the entire globe A strong R&D team with 3,800 scientific staff worldwide 9 key R&D sites on 3 continents supplemented by field testing stations Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 8

5 The Development of a New Crop Protection Product is a very Complex Process Research Development Commercialization Genomics Process Development Chemical Libraries Pilot Plant High Throughput Screening Bio-Informatics Agro-Kinetics Chemical Synthesis Formulation Field Trials Toxicology Eco Biology Regulatory Approval Manufacturing Market Launch Stewardship Greenhouse Testing Environment Life-Cycle Management Lead Optimization Registration Dossier Year Substances >>50, Cost: ~ 200 million Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 9 Strong Emphasis on IP-Protection in our Innovation Process Active Ingredient Priority Patent Filings Insecticides Fungicides Herbicides Bayer CropScience Syngenta BASF DuPont Dow Well-balanced IP position in all three market segments in Crop Protection Source: Derwent, World Patent Index Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 10

6 Bayer CropScience R&D: Well Funded for Success R&D Spending in the Industry 2004 (in million) 679 Bayer CropScience 650 Agrochemicals Seeds & Biotech Total Syngenta Monsanto DuPont BASF Dow Bayer CropScience: Highest R&D budget in agrochemicals: Crop Protection & Environmental Science BioScience focus on agronomic performance, industrial & consumer applications Continuous flow of innovation Mid-term total R&D spending target of 625 million Source: Company Reports, Cropnosis Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 11 Strong Pipeline to Support Future Growth 9 active ingredients launched between development projects scheduled for launch between Insecticides Fungicides Herbicides Seed Treatment * Subject to regulatory approval Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 12

7 Prothioconazole The Emerging Gold Standard in Fungi Control New chemical class: Triazolinthiones New paradigm for resistance management, e.g. Strobilurins / Septoria Broader, better fusarium activity Launch schedule: 2004 D 2005 UK, IRL, A, CZ 2006* F, B, NL, H, PL Curative and protective properties Cornerstone for mixing partner strategies with other specific and broad spectrum fungicides Anticipated peak sales of Prothioconazole-based products: > 300 million Prothioconazole Prothioconazole Prothioconazole & Prothioconazole & Prothioconazole & (foliar application) (seed treatment application) Tebuconazole Spiroxamine Fluoxastrobin * subject to regulatory approval Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 13 Best-in-Class Pipeline Drives Future Growth Sales of Products Containing New Active Ingredients (in million) ~ 2, ,000 4 Fungicides 4 Herbicides 2 Insecticides proforma Target Target Peak Sales Potential 26 new active ingredients to be launched between 2000 and 2011 Combined peak sales potential of about 2 billion New active ingredients launched in major countries since 2000 Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 14

8 Top Products and New Actives with Over-proportional Margin Contribution Gross Margin 2004 (Portfolio Average Index = 100) Focus on higher-margin top products Portfolio Average (Index) Optimizing portfolio by out-phasing of older low-margin products Consistently introducing new active ingredients Share of New Active Ingredients in Agrochemical Sales 9.5 % 12.5 % 0 Remaining Portfolio Top 12 Active Ingredients New Active Ingredients New active ingredients launched in major countries since 2000 Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide Development Projects Scheduled for Market Launch between Insecticides Flubendiamide* Against lepidoptera Fungicides Fluopicolide Potatoes, vine, vegetables Herbicides Pyrasulfotole* Cereals Spirotetramat* Ketoenol # 3 BYF 1047 Resistance inducer against rice blast 2 Herbicides Corn 2 Fungicides 1 Safener Best-in-class development pipeline to further drive business growth * ISO-proposed common names Market launch subject to regulatory approvals Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 16

9 Fluopicolide A New Fungicide for Oomycete Control New chemical class: Acylpicolides A novel mode of action Important tool for resistance management Top performance against a wide range of oomycete diseases in vine, potatoes and vegetables Reliable and consistent high level of efficacy at low application rate Scheduled for market launch in 2006 Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 17 Flubendiamide A New Insecticide for Lepidopteran Control Joint global development based on chemistry by Nihon Nohyaku New mode of action Tool for resistance management Broad-spectrum control of lepidopterous insect pests with outstanding larvicidal activity Safe to beneficial insects Broad crop utility, fast-acting and long-lasting effect Scheduled for market launch in 2007 ISO-proposed common name Market launch subject to regulatory approval Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 18

10 Spirotetramat The Third Ketoenol Compound Substance class with new mode of action: Insect Lipid Biosynthesis Inhibitor Ketoenol innovative proprietary insecticides Unique biological properties and very diversified spectrum of activity to control sucking insects 3 rd molecule now offers systemic action with broad-spectrum control and multi-crop utility Spirodiclofen Spiromesifen Spirotetramat Ketoenol #3 Launched 2003 Launched 2005 Launch planned 2008/2009 ISO-proposed common name Market launch subject to regulatory approval Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 19 Pyrasulfotole A New Cereal Herbicide New mode of action in cereals, fast acting Innovative tool for resistance management Outstanding broad-spectrum activity Strategic element for life cycle management of our leading products High crop compatibility based on combination with proprietary safener technology Excellent portfolio fit strengthens position in all cereal herbicide segments ISO-proposed common name Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 20

11 Formulation Technology Deliver the Active Ingredient(s) to the Target Crop Protection products are most commonly mixed in water and sprayed Active ingredients, however, are often not water soluble Different technologies are used to formulate" the active ingredient into a product with optimal application properties Formulated product is optimized for Safe and convenient use Type of application and specifics of the active ingredient(s) Storage stability Delivery of the required dose to the site of action Reliable mixing and application of product under various climatic conditions Formulation know-how translates into competitive edge Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 21 OD-Technology New Formulation with Superior Biological Performance OD = Oil Dispersion Technology adapted by Bayer CropScience for Use in Agrochemicals Standard WG formulation Active ingredient is incorporated into an oil-based liquid This oil-based liquid brought in solution in water Mixes easily with water in the spray-tank Superior Biological Performance Higher retention and excellent rain fastness Better distribution and improved uptake Excellent coverage as a consequence of superior retention and distribution Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 22 Atlantis OD: even distribution 3x more fluid stays on the leaf!

12 Seed Treatment: Innovative Application Technology Setting New Standards Applied Grams A.I. per Hectare in Corn Treated Area in m² 1,400 1,200 1, Spray Granules Seed treatment Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 23 Shaping the Future of Seed Treatment as a Clear Market Leader Global Seed Treatment Market 2004: ~ 1billion Fungicides 52% Insecticides 37% 11% Insecticidal & Fungicidal Application Bayer CropScience Market Share: ~ 43 % Systematically built the Seed Treatment Business Transformed ST from a technical niche to a booming market Strategic investments smoothly integrated: Zeneca, Gustafson Unrivaled product portfolio Unique expertise in application technologies as an opportunity for future product differentiation Long-term & strong technologydriven collaborations with seed companies Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 24

13 Major Markets Welcome Plant Biotech 81 million hectares grown in 2004: +20 % over million farmers, 17 countries % of global GM area grown Canada 6 % China 5 % USA 59 % Brazil 6 % Rest of the World 4 % Argentina 20 % GM technology accepted Limited acceptance Source: Clive James ISAAA (International Service for the Acquisition of Agri-biotech Applications) Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 25 Not yet accepted BioScience R&D Pipeline: Aiming beyond the Farm Gate In the making Agronomic Traits Modified Starch Modified Canola Oil 2 nd generation insect control Herbicide tolerance Opportunities Plant-made Pharmaceuticals Competencies to create new business Specifically adapted for industrial use Future Agronomic Traits Abiotic stress tolerance From commodity to specialty BioMaterials & Nutrition Exploring future opportunities Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 26

14 Towards Healthier Oils Alliance with Downstream Industry High demand for high quality and healthy oils (low and zero trans fat) Bayer CropScience and Cargill formed an alliance to produce canola that will provide high stability oil for Cargill s customers. Bayer CropScience contributes its technologies to develop top producing InVigor hybrid seed varieties to Cargill for contracted growers. Captures value through seed, seed treatment and agrochemical sales Later phase: other oil profiles Cargill contributes its know-how in high-performance high oleic canola oils for the food industry InVigor hybrids with special oil profiles expected to be commercially grown in North America as of 2007 Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 27 Improve Crop Productivity by Broadening the Growth Range of Crops Yield Stress tolerance traits Agrochemicals (insecticides, herbicides, fungicides, seed treatment) Agronomic practice (fertilizers, irrigation) Basic crop genetics sub-optimal environment optimal environment Bayer CropScience has developed a technology to make crop plants more tolerant to a wide range of non-biological stress factors Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 28

15 Abiotic Stress Tolerance: A Promising Agronomic Trait Stress causes disorder in the plant s energy balance Increasing levels of stress lead to damage of the plant Regulating the reaction to stress enables the plant to temporarily withstand stresses like e.g. heat, cold, drought Insurance against weather events Potential for yield increase and crop planting in low-yield areas Canola Abiotic stress tolerant Control Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 29 Proprietary Technology to Enable Stress Tolerance in Crops Adaptation Acclimation The PARP pathway Preservation of energy state Poly (ADP-ribose) polymerase PARP Bayer CropScience is focusing on the preservation of energy metabolism in stressed plants - addressing the PARP-pathway Providing protection against a multitude of stresses, not only single causalities Solid IP position on obtaining stress resistance Promising results in preliminary field trials in key crops Will apply to core crops and license to third parties Stress tolerance Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 30

16 Stakeholder Acceptance - Essential for Introduction of New Technologies Economy Producer demands and desires Environment resources Technology License to Produce Ecology Consumer / Citizen private demands and desires Norms & Values State and Society collective demands and desires Based on V Zachariasse, NL 2001 Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 31 Innovation Driving Future Growth Innovation is key to meet global farming needs and thus provides competitive advantages driving our business. Bayer CropScience has the people and invests the money to ensure a continuous flow of innovation delivering a best-in-class pipeline in agrochemicals developing superior plant biotechnology solutions Bayer R&D Investor Day London December 8, 2005 Bernward Garthoff Slide 32

17 Science For A Better Life CropScience Bayer R&D Investor Day 2005 December 8, 2005 London