Procurement, Production and Distribution

Our activities in the areas of procurement, production and distribution are organized on a decentralized basis in view of our diversified business portfolio.

Bayer HealthCare

The Pharmaceuticals segment generally procures the starting materials for manufacturing the active ingredients of its ethical pharmaceuticals from external suppliers. To prevent supply bottlenecks and to mitigate major price fluctuations, these starting materials and intermediates we do not produce ourselves are generally purchased under global contracts or from several internally approved suppliers.

The active ingredients of our ethical pharmaceuticals currently are manufactured mainly at our sites in Wuppertal and Bergkamen, Germany, and Berkeley and Emeryville, California. The manufacturing and packaging of pharmaceutical products based on these active ingredients takes place at locations around the world including Berlin, Leverkusen and Weimar, Germany; Berkeley and Emeryville, California; Garbagnate, Italy; São Paulo, Brazil; Madrid, Spain; Beijing, China; and Turku, Finland.

Our pharmaceutical products are primarily distributed through wholesalers, pharmacies and hospitals. Co-promotion and co-marketing agreements serve to optimize our distribution network. In June 2007, for example, we began co-marketing the Schering-Plough product info

Zetia® in Japan under a strategic 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 totally independent of each other for many years.) In the United States, Schering-Plough also distributes Primary Care products from Bayer and co-markets our erectile dysfunction drug info

Levitra® with GlaxoSmithKline. The agreement with Johnson & Johnson subsidiary Ortho-McNeil on the further development and marketing of the anticoagulant info

Xarelto® ensures optimum progress in this area, conferring regional marketing rights that enable both partners to share in the product’s expected success.

In our Consumer Health segment the focus is on products marketed directly to consumers. Consumer Care procures certain high-volume raw materials such as acetylsalicylic acid and clotrimazole from within the HealthCare subgroup. The principal raw materials we purchase from third parties are naproxen, citric acid, ascorbic acid and other vitamins, and paracetamol. To minimize business risks, we diversify our raw material procurement sources worldwide and conclude long-term supply agreements. Among the division’s largest production sites are the facilities in Myerstown, Pennsylvania, United States; Gaillard, France; and Bitterfeld and Grenzach, Germany. While the division’s sales and distribution channels outside Europe are typically supermarket chains, drugstores and other large retailers, pharmacies are the usual distribution channel in Europe.

Some four fifths of the products of the Diabetes Care Division are procured from original equipment manufacturers (OEMs). Material prices and availability are contractually agreed in most cases and therefore are not subject to major fluctuations. We hold strategic reserves of certain direct materials or finished products in order to be able to supply our customers consistently and reliably. Our largest production site is located in Mishawaka, Indiana, United States. We generally market our Diabetes Care products to consumers outside Europe through pharmacies, drugstores, mass merchants, hospitals and wholesalers. In Europe, they are sold mainly through pharmacies.

The Animal Health Division procures the pharmaceutical active ingredients for its veterinary medicines both from within the Bayer Group and from external suppliers throughout the world. Our animal health products are manufactured mainly at the sites in Kiel, Germany, and Shawnee, Kansas, United States, and marketed worldwide. Depending on local regulatory frameworks, animal health products may be available to end users with a prescription issued by a veterinarian or over the counter from retail stores, drugstores and pharmacies.

Bayer CropScience

CropScience procures most of its raw materials for the manufacture of crop protection products externally in various parts of the world. The cost of some raw materials depends on fluctuating crude oil and energy prices and freight charges.

Our business is subject to the growing seasons for the relevant crops and the respective distribution cycles.

CropScience operates some 40 production facilities of its own around the world. Among the largest are the plants in Dormagen and Frankfurt am Main, Germany; Institute, West Virginia and Kansas City, Missouri, United States; and Vapi, India. In addition to the central locations for the manufacture of our active ingredients, a network of decentralized formulation and filling sites enables us to respond rapidly to local market needs.

Our crop protection products are marketed either via wholesalers or directly through retailers by means of a two- or three-step distribution system, depending on local market conditions.

The products of the Environmental Science unit for non-agricultural uses are marketed through various distribution channels. Our green industry, pest control and vector control products are sold directly to professional users, while home and garden products are marketed to consumers through specialist retailers.

BioScience produces its commercial seeds in numerous breeding stations around the world. The products are made available to growers, breeders, specialist dealers and processing industries. Traits developed using plant biotechnology are either incorporated into our own seed varieties or licensed to other seed companies for use in their products. In some cases, traits are also provided to other companies for research purposes.

Bayer MaterialScience

The primary raw materials for our products are petrochemical feedstocks, which we generally purchase under long-term agreements. This safeguards the supply of raw materials on competitive terms.

MaterialScience manufactures polyurethanes, polycarbonates, coating and adhesive raw materials and certain basic chemicals in close proximity to its customers at 30 locations around the world. Our largest production facilities for the European market are located in Dormagen, Krefeld-Uerdingen and Brunsbüttel, Germany; Antwerp, Belgium; and Tarragona, Spain. The major production site for the U.S. market is at Baytown, Texas, while customers in the Asia/Pacific region are supplied chiefly from Map Ta Phut, Thailand and Shanghai, China. Our focus is on world-scale facilities.

Our polyurethane raw materials, such as diphenylmethane diisocyanate ( info

MDI), toluene diisocyanate ( info

TDI) and polyether ( info

PET), and the polyurethane systems based on them that are offered in the market are used, for example, in the production of mattresses, refrigerator insulations, automotive bumpers and shoe soles. The Coatings, Adhesives, Specialties business unit manufactures raw materials for coatings used in the automobile and commercial vehicle industries, and for adhesives used in footwear. Examples of applications for our polycarbonates, which we market under the info

Makrolon®, info

Bayblend®, info

Makroblend® and other trademarks, include car headlamps, stadium roofs, housings for electrical appliances, and water bottles for water dispensers.

Depending on their fields of application, these products are used mainly in the automotive, construction, electronics, information technology, furniture, timber, chemical, sports equipment, leisure goods, textile, medical technology and manufacturing industries.

Our plastics materials are marketed primarily through regional distribution channels or directly to customers. We also work together with trading houses and local distributors who are responsible for business with small customers. Major customers with global operations are serviced directly by our key account managers.