Bayer Says Energy, Supply Chains Are Top Priorities

Energy, inflationary pressures, and mitigating supplier risk are high priorities for Bayer. In Germany, the company aims to be independent of Russian gas by the end of the year and says that procurement management and supply chain stability are top priorities.

Energy, inflationary pressures, and mitigating supplier risk are high priorities for Bayer. In Germany, the company aims to be independent of Russian gas by the end of the year and says that procurement management and supply chain stability are top priorities. What are key next moves?

Bayer: earnings, energy, inflation and the supply chain
Bayer reported in third-quarter earnings earlier this month (November 2022) and acknowledged priorities to mitigating supply-chain disruptions and to reduce its dependence on Russian supply of natural gas in its operations. Overall, the company reported that its third-quarter 2022 sales rose by 5.7% to EUR 11.28 billion ($11.58 billion) on a currency- and portfolio-adjusted basis across its pharmaceutical, consumer health, and crop protection businesses.

Werner Baumann
Chairman of the Board of Management
Bayer AG
Source: Bayer AG

“Despite rising inflation and global supply chain problems, we were again able to boost sales and earnings,” said Werner Baumann, Bayer’s Chairman of the Board of Management, when presenting the company’s third quarter 2022 results earlier this month (November 2022).

Bayer says it expects the cost increases triggered by high inflation to continue next year (2023). In Germany, the company says it aims to be independent of Russian gas by the end of the year (2022). The company says that as global supply chains remain very much under strain, procurement management and supply-chain stability are top priorities for the company. In order to shore up supply-chain stability and mitigate the impact of any supply bottlenecks, the company says it is working closely with suppliers and contract manufacturers and is continuing to build up inventories.

In its pharmaceutical business, sales of prescription medicines increased by 2.9% to EUR 4.96 billion ($5.09 billion) in the third quarter of 2022. Bayer continued its market launch of new products, especially Nubeqa (darolutamide), a drug for treating prostate cancer, and Kerendia (finerenone), a drug for reducing the risk of kidney function decline, kidney failure, cardiovascular death, non-fatal heart attacks, and hospitalization for heart failure in adults with chronic kidney disease associated with Type 2 diabetes. Sales of the cancer drug Nubeqa nearly doubled thanks to significant gains in all regions. The Pharmaceutical Division also received milestone payments via its cell and gene therapy and chemoproteomics platforms. Overall sales growth was held back by tender procedures in China, particularly for the cancer drug Nexava (sorafenib) and the oral anticoagulant Xarelto (rivaroxaban), which saw their global sales fall by 54% and 8.1%, respectively. Xarelto sales were also impacted by the expiration of its patent in Brazil. By contrast, sales of the ophthalmology drug Eylea (aflibercept) rose by 4.3%. Business was up in all regions, with volumes mainly increasing in Europe and China.

Industry’s call for action: energy and inflation.
The impact of energy uncertainty and inflationary pressures is not being felt only by individual companies, but industry as a whole. Two industry groups, the European Chemical Industry Council (Cefic), which represents European chemical manufacturers, and Medicines for Europe, which represents generics and biosimilars companies in Europe, have recently called for more action by European Union (EU) officials to address energy concerns and inflation in Europe.

Facing high energy prices and the resulting financial pressures on chemical production in Europe, Cefic issued late last month (October 2022) a detailed proposal for EU authorities to take to address rising energy prices in an effort to mitigate declining chemical production in Europe and the negative financial impact on chemical manufacturers in Europe. The adverse impact on rising energy prices in Europe is evidenced by a first-time chemicals trade deficit in Europe. For the first half of 2022, for the first time ever, the EU imported more chemicals than it exported, both in volume and value, resulting in a trade deficit of EUR 5.6 billion ($5.6 billion), according to information from Cefic.

The chemical industry is the fourth largest manufacturing industry in the EU and supplies all other value chains, including pharmaceuticals, and is one of the most energy-intensive industries in Europe. In 2019, the fuel and power consumption of the chemical industry including pharmaceuticals, in the 27 member states of the EU, amounted to 50.8 million metric tons of oil equivalent (about 591 TWh), according to information from Cefic and Eurostat, the statistical office of the EU. EU-27 gas and electricity account for nearly two thirds of total energy consumption (respectively 211 TWh and 166 TWh) in the EU. Gas consumption in the EU chemical industry accounts for about 10% of total EU gas consumption. Cefic is calling on the European Commission and EU member states to immediately design and implement closely coordinated pan-European measures to limit the impact of energy prices vis-à-vis competing economies, increase energy supply, and incentivize reductions in energy consumption, which target the upcoming winter and prepare for 2023 and beyond.

Medicines for Europe is also calling for policy action by EU authorities to mitigate the adverse impact of rising costs on the industry. It points to inflationary pressures impacting all major components needed to manufacture medicines, such as raw materials, transport, fuel, and energy. These inflationary pressures, coupled with what it characterizes as “rigid pricing policies in Europe,” for generic medicines have created a situation that it says threatens the availability of essential medicines in Europe. Medicines for Europe is calling for action in two key areas: reforming pricing policies and supporting manufacturing operations in Europe. Specifically, the association is calling for reforms in medicines procurement and pricing models to include security of supply as a criteria and to allow companies to adjust off-patent medicine prices to inflation. To support manufacturing operations in Europe, Medicines for Europe is calling for protection of the prescription medicines manufacturing sector in the EU and national emergency plans for gas/oil supplies. It is further calling on EU member states to tackle the impact of inflation with the local industry to maintain the availability of essential medicines.

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