PROVIDING GROWTH
MINDSET

Bachem’s mindset is focused on solidifying and extending its market leadership. A cornerstone of Bachem’s corporate culture is its determination to be the best partner customers can turn to and to generate maximum value for the customer.

PROVIDING GROWTH
RESEARCH

Bachem leads the way in the development of peptide-based compounds thanks to the tremendous expertise and many years of experience of its employees. Biotech and pharma companies clearly profit from Bachem’s leadership position in peptides. Many of the world’s top universities and research institutes also maintain close collaboration with the Company.

PROVIDING GROWTH
PRODUCTION

The utilization and integration of innovative technologies and processes guarantee quality and efficiency for the customer. Ultra-modern infrastructure and ultra-high reliability give Bachem a tremendous competitive advantage and make it a valued partner for peptide projects

PROVIDING GROWTH
SERVICES

Bachem’s priorities are always closely aligned with customer needs. Its top priorities are close and productive collaboration with customers and, increasingly, providing a full range of support services in regulatory matters.

Chairman / CEO
Letter

Milestones
Review / Outlook

Key
Figures

The World
of Peptides

Letter to
shareholders

Dr. Kuno Sommer, Dr. Thomas Früh

Dear Shareholders,

Bachem stayed sharply focused on its core peptides business during the past year, in line with its strategy announced three years ago. The Group stands resolute in its drive to be the partner of choice for customers, ensuring the successful implementation of peptide projects of whatever kind by virtue of its unique expertise and innovative spirit. Thanks to steady progress in the formulation of peptides and greater efficiency in peptide production, the peptide market remains highly attractive. Besides delivering on its targeted organic growth, Bachem expanded its market leadership in the global peptides business in 2015 by acquiring the American Peptide Company (APC). This acquisition strengthens Bachem’s position in the US, the world’s largest peptides market, enables on-demand access to additional production capacity for its internationally growing project portfolio, and reduces the CHF portion of its cost base. As part of the APC acquisition agreement with ILS Inc., a subsidiary of Otsuka Chemical Co Ltd., which has been a good business partner of ours for a number of years, Bachem can also strengthen its position in the particularly challenging Japanese market. In addition to organic growth, we will continue to seek other opportunities in the form of targeted alliances or acquisitions as a means of extending our leadership position in our core business in the coming years.

Bachem completely achieved its sales and profit targets for fiscal 2015 despite the persisting market and currency headwinds. The growth momentum observed in the US and European markets during the preceding two years was sustained, leading to record sales – even when excluding the effect of the APC acquisition – and allowing Bachem to pass the CHF 200 million mark for the very first time. The negative impact of the weak euro was largely offset by lower sourcing costs and by the positive impact of a stronger dollar. Business with active peptide agents stayed on a growth trajectory. The portfolio of New Chemical Entities (NCE) projects, which is a key driver of future sales trends, growthew significantly once again and now boasts 241 projects at different stages of development. Sales of established peptide generics and research grade peptides both increased by more than 20%.

As expected, Bachem again achieved a significant increase in profits in 2015. Operating profit advanced by 7.3% versus the previous year and amounted to 38.5 million CHF. This number includes the previously expected loss from APC. Factoring out the extraordinary gain on the divestment of the immunology product line in the 2014 fiscal year, operating profit for 2015 increased by 13.5%.

With its unfailing commitment to quality and reliability in all dealings with customers, Bachem continues to diligently work towards extending its leadership position in the peptides market. Despite the volatile exchange rate environment, we are confident we will be able to maintain our sales growth within the long-term target range of 6% to 10% p.a. in local currency. Profit growth will take priority over sales growth.

In view of the results achieved in the past fiscal year, the continued positive outlook and the company’s financial stability, the Board of Directors will propose an increase in the dividend from 2.00 CHF to 2.25 CHF at the upcoming General Meeting.

Key
Figures

  • > Table view
  • > Chart view
Sales
(in MCHF)
EBIT
(in MCHF)
Net Income
(in MCHF)
2013
170.7
2014
183.9
2015
208.6
2013
2014
2015
2013
29.5
2014
35.9
2015
38.5
2013
2014
2015
2013
23.6
2014
29.1
2015
31.8
2013
2014
2015
Changes in %
 
2015
2014
CHF
LC
SALES (IN MCHF)
208.6
183.9
+13.4
+13.8
EBITDA (IN MCHF)
56.8
55.1
+3.2
+6.0
EBITDA IN % OF SALES
27.2
29.9
 
 
EBIT (IN MCHF)
38.5
35.9
+7.3
+12.0
EBIT IN % OF SALES
18.5
19.5
 
 
NET INCOME (IN MCHF)
31.8
29.1
+9.5
 
NET INCOME IN % OF SALES
15.3
15.8
 
 
EARNINGS PER SHARE
(EPS – IN CHF)
2.35
 
2.15
 
+9.3
 
 
 
CASH FLOW FROM OPERATING ACTIVITIES
(IN MCHF)
61.4
 
47.2
 
+30.1
 
 
 
RETURN ON EQUITY (IN %)
9.1
8.5
 
 
NUMBER OF EMPLOYEES
(IN FULL-TIME EQUIVALENTS)
859
 
711
 
 
 
 
 
SALES PER EMPLOYEE 1 (IN CHF)
277 000
283 000
 
 
1  
Basis: average full-time equivalents excluding apprentices.

Highlight
AMERICAN PEPTIDE COMPANY

ACQUISITION IN THE US

A clear focus on the core business of peptides and active participation in the consolidation in the industry are the key principles underpinning Bachem’s strategy. Bachem already identified American Peptide Company (APC) based in California as a potential acquisition target several years ago.

The acquisition of American Peptide Company (APC) in March 2015 is an important milestone in Bachem’s drive to extend its global leadership. Briskly growing demand for the Company’s products and services necessitated the expansion of production capacity, and the new site in Vista provided that opportunity. With its full order books, Bachem could benefit from the existing underutilization of the new cGMP plant. The Vista site is the only ISO-certified site in the Bachem Group, making it ideal for the production of peptides for cosmetics and diagnostic products and for capturing additional market share in these sectors. Furthermore, APC’s product pipeline and customer base have boosted the Group’s growth. Following the successful integration of APC in the Bachem Americas organization during the past fiscal year, the first phase in ramping up the production capacity in Vista is set for completion in the first quarter of 2016.

APC’s Sunnyvale site focusing on research and development projects was shut down at the end of 2015. APC produced research chemicals to customer specifications at the Sunnyvale site. Bachem has now transferred these projects to its St. Helens, UK site, which has been designated a Center of Excellence for custom synthesis and the production of catalog products as part of Bachem’s drive to concentrate its activities in this business area. Bachem expanded capacity at the St. Helens site accordingly. Project transfer proceeded smoothly thanks to the close and very effective teamwork of staff at both facilities. In addition, management reached out to customers at an early stage in the process to familiarize them with the strategy and optimize conditions so as to maximize the likelihood of retaining the relocated customer projects for Bachem in the future.

Milestones
Review

Growth was the distinguishing feature of the 2015 fiscal year. Sales rose for the fifth year in a row, and both regions showed very pleasing trends. This led to an increasing rate of capacity utilization and necessitated further job growth and investments in capacity expansion projects at all sites. In addition to the successful integration of APC, the abandonment of the minimum EUR/CHF exchange rate by the Swiss National Bank put the entire organization under increased pressure.

PARTNER OF CHOICE

Bachem performed well amid persisting market challenges. As market leader with more than 40 years of experience in peptide synthesis and a steadfast focus on quality, Bachem serves its customers as a reliable and trusted partner.

HIGH DEMAND

Demand for peptide-based compounds continued to grow during the year under review and pushed both sales and the order backlog to record highs. Management consequently created more jobs and invested additional capital in production capacity.

EXPANDED PROJECT PIPELINE

Bachem’s project portfolio grew significantly during the past year. At year-end Group companies in Europe and North America were working on a total of 241 development projects for customers (previous year 199). Several projects, including some generic peptides, are on the verge of receiving regulatory approval.

QUALITY MATTERS

Bachem made specific investments in compliance and replacements to ensure unfailing compliance with the company’s high standards. Bachem’s commitment to quality and reliability in all dealings with customers is a key factor for its success.

EUR/CHF CURRENCY EFFECT SUCCESSFULLY OFFSET

Fluctuations in various foreign exchange rates had a negative effect of 1.7 million CHF on EBIT. The negative effect of the much weaker EUR to CHF was diminished somewhat by the stronger USD. Bachem managed to compensate for much of the remaining negative currency effect by stepping up its sourcing in EUR and capturing further cost savings and efficiency gains. Thanks to the excellent sales momentum, the remaining gap was completely bridged and operating profit in CHF increased considerably.

PROVIDING HIGH PERFORMANCE

Bachem is an internationally unique team of experts who collaborate in an interdisciplinary manner to create sound and sustainable solutions. Under the motto of “Providing High Performance”, Bachem is constantly strengthening its professionalism and performance level in the areas of finance, IT and human resources.

INTEGRATION OF AMERICAN PEPTIDE COMPANY

After the acquisition of American Peptide Company (APC) in March 2015, Bachem integrated the firm into the Group and merged it with Bachem Americas, Inc. headquartered in Torrance, California by year-end. APC’s production site in Vista, California, already made a positive contribution to Group sales in the first year of consolidation. APC’s second production site in Sunnyvale, California, was closed and its activities and customer relationships were successfully transferred to Bachem’s Center of Excellence for custom synthesis in England.

Milestones Outlook
SHAPING THE FUTURE TOGETHER

INVESTMENT AND GROWTH

Bachem endeavors to extend its leading market position. The company is investing in additional production capacity at all of its sites, hiring more staff and continuously optimizing its organizational structure and processes. Growing demand from customers and the sizeable order backlog provide a sound platform for future, self-powered organic growth. Management is also examining potential alliances in emerging Asian markets to supplement that growth.

MARKET LEADERSHIP

Bachem is recognized around the world as the leader in the peptide market. This perception is built on a foundation of superior quality, reliability, know-how and experience. With its vast expertise, Bachem can and will continue to offer its customers and business partners groundbreaking, sustainable solutions.

ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM

As a result of the company’s growing size and to further the optimization of group-wide processes, Bachem will modernize its ERP system and ensure that it meets increasing demands. The integration and harmonization of internal workflows significantly reduces complexity across a wide range of business operations and enables Bachem to enhance operational efficiency.

AUTOMATION

As the degree of automation steadily increases, business processes are becoming even more secure, quality and production efficiency are being improved further, and the costs associated with manual interventions are on the decline. Automation has been achieved, for example, by establishing a direct connection to systems for the addition and removal of solvents in the production process, by introducing electronic process control systems and by fully automating the synthesis of peptides.

COLLABORATION

Close collaboration with customers is crucial for Bachem’s success. It is rooted in quality, innovation and partnership.

“INVESTMENTS FOR GROWTH”
INTERVIEW WITH DR. THOMAS FRÜH, CEO,
AND STEPHAN SCHINDLER, CFO

What does growth mean to you?

Thomas Früh: Growth is often used synonymously for success. But we can find many examples in nature and the world of business that show that growth at all cost might be rewarding in the short term but will actually pose existential risks in the long term. At Bachem we therefore decide in a very deliberate manner where we want to grow, what the envisioned optimal size would be, and what time frame we want to set for achieving that growth.

Stephan Schindler: Moreover, growth per se as a measure of success is always relative. More and more growth is needed to reach whatever goals are set. Like with a drug addiction, companies can become increasingly ruthless in the pursuit of growth and seek success over the competition at the expense of other stakeholders. We deliberately foster a culture in which nature and our corporate social responsibility are not subordinated to the achievement of commercial success. This means, for example, that long-term profitability comes before short-term growth.

The project portfolio grew significantly last year, like in the previous year. Wouldn’t a sharper focus be better for profits?

Thomas Früh: In the short term, sure, that could be true, but having a large and broad project portfolio will fuel Bachem Group’s success and growth in the medium to long term. As the “Pioneering Partner for Peptides”, we give each and every project entrusted to us our full attention. We support customers at every stage of a project and do our best to ensure that therapeutic agents are developed quickly and efficiently, approved by regulatory authorities and then produced in a consistently reliable process that ensures top quality.

Bachem’s capital expenditure is higher now than it has been in years. Are investment needs really so high?

Stephan Schindler: Amortization has exceeded capital expenditure for the past few years. That is not viable for any company in the long run. It was only possible because we were able to utilize more and more of our existing capacity and thus absorbed additional volumes from a growing market. Since demand is still firm, but our capacity is now fully utilized, we do not want to lose these growth opportunities to the competition.

Where or what are the primary targets of your investments?

Thomas Früh: As Stephan Schindler mentioned, we are primarily investing in capacity expansion projects. The acquisition of American Peptide Company (APC) in March of last year can be seen in this light. APC gave us additional production capacity that we are now utilizing with success. Another investment priority is our plant in Bubendorf, Switzerland. A new building under construction there will provide the additional capacity we need to meet growing demand for NCE development projects. At the same time we are optimizing the availability of high-volume manufacturing assets at the other facilities. Other important objectives are expanding our center of excellence for custom synthesis in England and meeting the increasingly demanding requirements with regard to quality assurance, regulatory affairs and control banding.

Stephan Schindler: Growth on the production side is creating more challenges for internal operations such as the accounting, IT and human resource departments. We are therefore investing in the ongoing professionalization of these units. Investments are also being made in infrastructure. One example here is the new Enterprise Resource Planning (ERP) system.

What will the future bring?

Thomas Früh: (laughs) Nobody knows that. But I do believe the action we take can determine to some extent what our future will look like. Bachem offers its customers the full range of peptide services from a single source – from research chemicals and custom synthesis to compound development and production. We do so with the expertise and experience of the acknowledged sector leader and, thanks to our steady investment in the business, with ultra-modern plant and equipment, reliable quality assurance and control, and cost-optimized processes. For the long-term benefit of all stakeholders.

 

The world
of Peptides

SPECIAL FIELD OF APPLICATION

Cosmetics

Peptide-based agents are used in top-end personal care products, for example as ingredients in antiaging products that promise to reduce wrinkles.

Nutrition Products

The artificial sweetener aspartame is a dipeptide that is 200 times sweeter than table sugar. It is an important agent in diabetology.

Cancer Therapies

Peptides are useful in oncology both in diagnostic imaging procedures and for treatment purposes.

What are Peptides?

Peptides are chains of 2 to about 100 amino acids. Longer chains are called proteins. Peptides are organic compounds made up of natural amino acids in living organisms. Originally isolated from biological sources, they are synthesized chemically today. The biological properties of peptides depend on the number of amino acids involved and their position in the chain. The 20 natural α–amino acids are sufficient to form the basis for an unimaginably large number of peptides, each with their own distinctive physical, chemical and biological properties.

WHAT ARE PEPTIDES USED FOR?

Peptides are mainly used as highly active and highly specific drug substances. In keeping with the diversity of their biological functions, they are used in an extensive range of therapeutic areas. Oncology, diabetes and obesity are three prominent examples of therapeutic areas in which peptides generate billions of dollars in revenues. Peptides are much in demand in the treatment of cardiovascular and neurodegenerative diseases, renal failure, as antibiotics, in vaccines and in drugs for rare diseases (orphan drugs).

AVAILABLE DOSAGE FORMS

Peptides taken orally would undergo rapid breakdown in the digestive system and would therefore be unlikely to reach their target organs. Peptide-based drugs are usually administered by the parenteral route for that reason. In addition to conventional injections, implants with durations of action ranging from a matter of days to months and nasally delivered drugs are increasingly becoming available. Research and development activities are ongoing on sublingual and transdermal dosage forms and drug delivery using nanoparticles for transport.

The world
of Peptides

THE PRINCIPLE OF MIRROR IMAGE
PROTEIN PHAGE DISPLAY.

BACHEM SPRING SYMPOSIUM
“DESIGNED FOR SUCCESS: MODIFIED PEPTIDES”

The Importance of Protein Chirality was highlighted at this year’s Spring Symposium, where peptide specialists from industry and academia met to share current trends in peptide R & D. The folded structure of a protein defines its interactions with other molecules. Selective binding ligands could be, e.g., other proteins or peptides. A natural protein consists predominantly of L-amino acids and glycine, and its folded structure is chiral. The folded structure of a protein composed of D-amino acids is the mirror image of the all-L-amino acid protein molecule. Hence, for developing an all-D-protein ligand for a natural protein, the L-protein ligand has to be mirrored a second time.

The all-D-amino acid enantiomer of the target protein is prepared by total chemical synthesis and used as the target for phage display of a library of L-protein ligands. An L-protein, which binds to the all-D target with high affinity, is selected. Then, the corresponding all-D-protein is synthesized, which will bind to the native all-L-aminoaminoacid target protein.

Professor Stephen Kent from the University of Chicago, a pioneer in the chemical synthesis of proteins, evaluated this concept for its potential in drug development in collaboration with Reflexion Pharmaceuticals, a company he co-founded. Peptides and proteins consisting of D-amino acids resist degradation by proteases. Used as therapeutics, they combine an increased half-life with non-immunogenicity. As an example for engineering a D-protein ligand to recognize an L-protein target, vascular endothelial growth factor Type A (VEGF-A), an angiogenesis-inducing protein overexpressed in tumors, was chosen as the natural protein target. All-D VEGF-A was produced by total chemical synthesis using native chemical ligation.

Then, the laboratory of Professor Sachdev Sidhu at the University of Toronto used the all-D VEGF-A as the target for phage display of a library of small protein ligands, and the L-protein binding to all-D VEGF-A most efficiently was selected. The corresponding D-protein of the same amino acid sequence was prepared by total chemical synthesis and shown to bind to native VEGF-A and act as an antagonist preventing receptor binding.

Professor John Robinson’s group from the University of Zurich is working on synthetic protein epitope mimetics. The group has developed a type of macrocyclic peptides acting as Β-hairpin mimetics. An L-Pro-D-Pro scaffold stabilizes the conformation of the loops. A Β-hairpin-mimetic tetradecapeptide derives from the antimicrobial peptide protegrin I and shows a vast increase in activity.

It acts specifically against Pseudomonas species. Pseudomonas bacteria such as P. aeruginosa pose a grave problem, as they are often detected in hospitals and have acquired multi-anti- biotic resistance. The peptide antibiotic POL7080 developed by Polyphor is the result of further optimization of Robinson’s protegrin mimetic.

BACHEM’S
360° BUSINESS MODEL

PEPTIDE DRUGS

Assuring commercial supply
Managing logistics
Adhering to regulations
Meeting customer expectations

BIOTECH COMPANIES
PHARMACEUTICAL COMPANIES

RESEARCH

Over 6400 products
Made in-house
Available from stock
Ordered through webshop

UNIVERSITIES
RESEARCH CENTERS
INDUSTRY

CLINICAL DEVELOPMENT

Optimization of processes and analytics
Development of formulations
Scale-up, validation and fill finish
Project management through partnership

BIOTECH COMPANIES
PHARMACEUTICAL COMPANIES

PRECLINICAL DEVELOPMENT

Custom synthesis services
Assistance in drug discovery
Characterization of by-products
Conducting stability studies

BIOTECH COMPANIES
PHARMACEUTICAL COMPANIES

Bachem’s 360° business model is the expression of a business philosophy that is totally focused on client needs. Through vertical integration and full utilization of synergies, Bachem is best able to offer its unique expertise and experience in peptide chemistry to benefit client projects in all stages of development. Bachem. Pioneering Partner for Peptides

RESEARCH

Bachem offers the world’s largest collection of amino acid derivatives which are used by customers interested in manufacturing peptides. Also solid phase supports for peptide synthesis are available. Other essential product lines are bioactive peptides, enzyme substrates and inhibitors as well as some organic molecules. New products are added to maintain an innovative touch. Strong emphasis is placed on quality.

PRECLINICAL DEVELOPMENT

During preclinical development, lead finding and lead optimization require large panels of peptides. These are generated as custom synthesized molecules for customers around the world. Frequent consultation with Bachem experts allows further refining of target compounds. As such, a clear partnering aspect is required to come up with pioneering concepts and molecules to bring into clinical development.

CLINICAL DEVELOPMENT

When clients have selected their lead compound, they commence clinical trials. It is a decade-long process to approval of the drug. During this time, there is a close collaboration to learn more about the product. Each production step is scrutinized and manufacturing reproducibility strived for. Scale-up and full control of the process is targeted. Validation and control of the process is the end result of an intense partnership.

PEPTIDE DRUGS

The responsibility to manufacture sufficient drug substance rests on the shoulders of the Contract Manufacturing Organization. This can only be done by being extremely reliable and also by coordinating activities closely with our partners. Forecasting the quantity needed is extremely difficult, especially for new drugs where the commercial success has not been proven. Hence, responsiveness to customer needs becomes paramount.