Business Strategy

The Bayer Group is focusing on the fast-growing, innovation-driven health care, nutrition and high-tech materials businesses in line with its mission statement: “Bayer: Science For A Better Life.” By strategically aligning ourselves to these attractive markets and concentrating on our core competencies, we are able to invest more intensively in growth areas and innovative technologies. We aim to achieve leadership roles and expand our already strong market positions. We will also press ahead with cost-containment and efficiency-improvement efforts in order to further increase the company’s value over the long term.

Bayer HealthCare

HealthCare’s goal remains to grow with or above the market in both segments. We aim to further strengthen this subgroup and expand it into a world-leading diversified health care enterprise. For example, we plan to keep the business share outside of Pharmaceuticals at a minimum 30% for the long term, sharpen the focus on specialty pharmaceuticals, further increase the productivity of research and development and place even greater importance on the emerging markets.

As of January 1, 2009, the larger of our HealthCare segments, Pharmaceuticals, comprises four business units: General Medicine, Specialty Medicine, Women’s Healthcare and Diagnostic Imaging. We intend to maintain a distinct focus on indications with major potential for the improvement of diagnosis and therapy.

Our General Medicine business unit focuses on products that are normally prescribed by general practitioners. We are well represented in this market with our established brands info

Glucobay® and info

Ciprobay®. In the United States, these products are marketed through the existing alliance with Schering-Plough. (Please note that Schering-Plough Corporation, New Jersey, and the company acquired by Bayer in June 2006, i. e. Bayer Schering Pharma AG (formerly named Schering AG), Berlin, Germany, are unaffiliated companies that have been entirely independent of each other for many years.) The Specialty Medicine unit possesses a promising portfolio in the areas of hematology, oncology and neurology, with products including info

Kogenate®, info

Nexavar® and info

Betaferon®/ info

Betaseron®.

The Women’s Healthcare and Diagnostic Imaging units offer market-leading products such as info

YAZ®/

Yasmin® and info

Magnevist®.

Research and development (R&D) is an important growth driver for our Pharmaceuticals segment, which accounts for the greater part of R&D spending in the HealthCare subgroup. Life cycle management, in licensing, alliances and collaborations are important elements in our strategy. Such business development activities supplement our own research efforts and are designed to strengthen our portfolio, which focuses on diseases with a high unmet medical need. Examples include the recombinant Factor VIIA protein MAXY-VII acquired from Maxygen, Inc., and the preclinical oncology program acquired from Nycomed GmbH.

Our Consumer Health segment comprises the Consumer Care, Medical Care and Animal Health divisions. The goal of our Consumer Care Division is to build a leading position in the global over-the-counter (OTC) medicines market. The strategy of Consumer Care is aimed at fully leveraging the growth potential of proven brands such as info

Aspirin®,

Aleve®,

Canesten®, info

Bepanthen®, info

One-A-Day®, info

Rennie® and info

Alka-Seltzer®. We are pursuing a clear course of expansion in fast-growing regions such as central and eastern Europe and Asia/Pacific, and we aim to further develop our business in new growth segments. Recent examples of these growth initiatives include the acquisition of the OTC business of Sagmel, Inc. in eastern Europe and the OTC cough and cold business of Chinese company Topsun Science and Technology Qidong Gaitianli Pharmaceutical Co., Ltd. We acquired these businesses in order to position ourselves successfully against competitors in the Commonwealth of Independent States (CIS) and China, respectively. We intend to continue exploiting external growth opportunities through strategically relevant acquisitions and in-licensing. Effective January 1, 2009, the Intendis dermatological business, formerly part of the Pharmaceuticals Division, is managed and reported within the Consumer Care Division.

Effective January 1, 2009, Bayer HealthCare’s Diabetes Care Division and our Medrad medical devices business were combined in the Medical Care Division. Medical Care’s goal is to strengthen its competitive position in the areas of blood glucose measurement, diabetes management and contrast injection systems used to diagnose cardiovascular and other diseases. To this end, we are expanding our product range by developing new measurement systems and test strips to facilitate even more user-friendly monitoring devices for people suffering from diabetes. At Medrad we are also continuing to develop a new generation of injection platforms for use in the diagnosis of cardiovascular diseases and in computed tomography and magnetic resonance imaging (MRI). We also intend to develop new IT platforms for MRI. Apart from these development activities, we aim to expand our portfolio by investing in additional business areas, the acquisitions of iSense Corporation and Possis Medical, Inc. being the most recent examples of such projects. iSense is a U.S.-based company developing a minimally invasive continuous system for monitoring glucose in intercellular tissue. Possis Medical is a leading provider of mechanical thrombectomy devices used to treat narrowed or blocked arteries and veins. We intend to continuously improve our products, contain costs and use our resources more efficiently. Our strategy also includes supplementing our own strengths with strategic partnerships in specific fields of expertise.

In the Animal Health Division, we aim to achieve global leadership positions in the livestock and companion animal markets and to become a preferred supplier and partner. Our strategy is directed toward achieving organic growth by focusing on countries and markets with long-term market sales potential and successfully managing the life cycles of existing core brands. In addition, we are pursuing external growth opportunities through acquisitions and in-licensing.

Bayer CropScience

Bayer CropScience is aligning its corporate planning to the long-term trends in agricultural markets. As a leading innovation-driven enterprise, comprising the Crop Protection, Environmental Science and BioScience business units, its aim is to provide products and integrated solutions that contribute to the production of high-quality agricultural raw materials. Against the background of limited arable land and a steadily increasing world population that places growing demands on the quality of food and clothing and consumes more energy, it is essential to safeguard and further increase agricultural yields. We manage our business responsibly in keeping with our commitment to sustainable development and our goal of profitable long-term growth.

Innovation forms the basis for CropScience to create value in the future. The development of new active ingredients and formulations along with high-quality seed enables us to replace older products and technologies with innovative products that have an improved performance spectrum, offer better environmental compatibility and user safety, and increase value-added for our customers. These new products also help us to boost sales and are an important prerequisite for meeting our profitability targets. Our strict cost management is making a further contribution. The initiative to optimize cost structures and raise efficiency that we launched in August 2006 should be largely completed by the end of 2009. By 2010 it should lead to annual savings of about €300 million compared with the start date of the initiative.

In Crop Protection, the largest business unit, CropScience intends to defend and further expand its leading market positions in the areas of insecticides, fungicides, herbicides and seed treatments, building on its broad regional presence and innovative, highly effective products.

We endeavor to achieve this strategic goal by steadily enhancing our product mix. This not only means regularly launching new active ingredients and products from our research and development pipeline and successfully managing product life cycles, but also carrying out research in new growth areas. Examples include projects aimed at making plants healthier and increasing yields by improving nutrient uptake and stress tolerance.

As part of our efforts to offer our customers comprehensive solutions, we develop integrated concepts for specific crops in the various regions. These efforts involve both the Crop Protection and BioScience business units.

The Environmental Science business unit makes use of the development and production capacities of Crop Protection and its innovative active ingredients. In terms of sales, it is among the world’s leading suppliers of products for non-agricultural applications. Our strategy is to further expand this position by developing and marketing high-quality products for consumers and professional users. The focus here is on the development of innovative products and solutions that are individually tailored to customer needs, easy to use, safe to handle and satisfy society’s increasing demands with regard to health, hygiene, growing and greening. The environmental compatibility and sustainability of such products are also important criteria.

Our BioScience business unit comprises the research, development and commercialization of seeds and solutions based on plant biotechnology and modern breeding methods. BioScience subsidiary Nunhems is a leading developer and supplier of high-quality vegetable seeds. Our activities for the agriculture market focus on three core crops – cotton, canola and rice. We market the technologies we develop not only in our own seed products, but also – with the help of our partners – for other crops such as corn and soybeans. CropScience intends to expand its activities in seeds and plant biotechnology with the aim of raising BioScience sales to approximately €1 billion by 2015.

Bayer MaterialScience

The strategy of MaterialScience is based on safeguarding its existing competitive position in its traditional markets and achieving profitable growth in emerging markets such as China and India, central and eastern Europe and Brazil. We aim to maintain our profitable position in the isocyanates market and attain earnings leadership in polycarbonates. We are therefore endeavoring to steadily raise the efficiency of production and administration processes and strengthen downstream business activities such as info

BaySystems® in the Polyurethanes business unit and compounding in the Polycarbonates business unit. By 2012 MaterialScience plans to further increase the proportion of differentiated business in relation to sales of its high-volume products such as info

TDI or polycarbonate resins. We also intend to drive forward our newly formed Functional Films and Carbon Nanotubes businesses and create efficient resources and competencies in the emerging markets. Investments in additional production capacities will be reviewed in light of the current financial and economic crisis.

Our goal in the Polyurethanes business unit is to expand our global market leadership in isocyanates and at the same time achieve cost leadership in all areas. Our 250,000 tons per year TDI plant in Shanghai, China, is due on stream in 2010, supporting our growth in Asia. We also intend to consolidate the production of isocyanates in Europe and increase our output depending on market development. Our polyether polyols will primarily support the isocyanates business to complement the solutions we offer to customers. In the BaySystems® business we aim to achieve profitable growth and further expand our global market share. We will therefore proceed with our successful systems house strategy.

The Coatings, Adhesives, Specialties business unit is seeking to defend and selectively expand its position in the market for basic and modified isocyanates. With this goal in mind, we plan to meet growing demand in the growth regions by increasing production capacities and expanding our technical centers. We aim to achieve higher profitability in our resins activities by narrowing the focus of our portfolio toward modern solutions such as waterborne and UV-curing systems. In addition, lean distribution structures at Viverso, based in Bitterfeld, Germany, are contributing to increased profitability in this business unit.

The polycarbonate industry faces increasing commoditization. We are addressing this trend with a differentiated strategy. On the one hand, we aim to achieve cost leadership by operating world-scale facilities. On the other, we intend to increasingly offer customized solutions and compounded products, selectively investing at existing and new sites. We are working to improve the profitability of our semi-finished products, such as those for polycarbonate sheet, by optimizing our product portfolio. We also plan to enhance the overall performance of the Polycarbonates business unit by increasing the efficiency of distribution in standard segments, focusing our research activities and optimizing our cost structures.

We have combined our activities in the area of innovative surfaces and carrier materials in the new “Functional Films and Specialties” unit. This area includes applications in cosmetics, medical technology, carbon nanotubes for improving the properties of plastics and metals, and the activities of the Functional Films unit, which include three-dimensionally formable electroluminescent films, LCD diffuser films for flat screens, formable coated films for electronic and automotive applications and info

Makrofol® soft-touch films used in automotive interior components and cellphone housings. We intend to strengthen and expand these activities by combining them and exploiting the resulting synergies.

As part of a strategic realignment of the Thermoplastic Polyurethanes (TPU) business unit, the TPU granules activities will be integrated into the Polyurethanes business unit and the TPU films activities into the Functional Films business of the Coatings, Adhesives, Specialties business unit. We believe we can raise efficiency in the manufacture and marketing of TPU granules by linking these activities into the global systems house network. We expect the integration of TPU films into the Functional Films business to strengthen our technological and applications capabilities and boost market prospects. The integration is to be completed by April 1, 2009.

The service functions Procurement and Trading, Technology Services, Health Safety Environment & Quality, Corporate Energy Policy & Reporting, along with site management at the multi-business-unit sites in Baytown and Shanghai, are combined within the Industrial Operations unit. In addition, the Basic Chemicals unit ensures the supply of chlorine, sodium hydroxide solution, hydrogen, carbon monoxide and nitric acid at the German plants on the Lower Rhine and at the multi-business-unit sites.

The New Business unit identifies and evaluates market and technology trends for all MaterialScience business units, translating business ideas into specific projects for the development of new products and applications beyond the company’s existing core business.