Letter to
shareholders


Dr. Kuno Sommer
Chairman of the Board of Directors
Thomas Meier
CEO and Chairman of the Corporate Executive Committee

Dear Shareholders,

For many people and companies around the world, the biggest challenge over the past fiscal year has been the COVID-19 pandemic with its often drastic social and economic impacts; and it still is today. At Bachem, we adapted very quickly to the current situation at all sites, implemented protective measures, and adapted and optimized operating processes. In this way, we were not only able to secure the system-relevant supply of active ingredients, but even to increase it in critical areas. Our workforce can take well-deserved pride in what they have accomplished.

Overall, 2020 was an excellent year for Bachem. Despite the major challenges, we achieved significant progress in a highly demanding market environment. Both in product and in geographic terms, our growth is broad-based. Successful product launches generated strong demand, and thanks to our long-term planned investments in modern production equipment we achieved large economies of scale in the production of peptides. We also significantly advanced the digitalization of business and manufacturing processes, improving not only the quality of our work but also our profitability. With our consistent entry into the development and production of small interfering RNA (siRNA) and antisense oligonucleotides (ASO) we have expanded our product range. Production according to GMP conditions was already achieved in the first year, and business development in this product line continues to be better than expected. We are also pleased to have attracted 272 new outstanding colleagues to Bachem in the past year.

The announced investments are proceeding according to plan, and as of today we expect a global investment volume of more than 400 million CHF in the next five years. New production capacities are being built and new jobs are being created at all our sites.

For the first time, Bachem was able to increase Group sales to over 400 million CHF, increasing the total by 28.1% to 402.0 million CHF. The high level of value creation and innovative strength is also reflected in net profit, with the EBITDA margin rising from 27.8% to 30.5%. Operating profit increased again significantly by 55.0% to 96.7 million CHF, with the EBIT margin rising from 19.9% to 24.0%. Due to the Group’s strong business performance, we will propose an increase in the dividend from 3.00 CHF to 3.25 CHF per share at the Annual General Meeting on April 28, 2021.

The continued strong demand for our products and innovations in the peptides business, as well as the successful development of our oligonucleotides business, make us confident that Bachem will remain on its current profitable growth trajectory. Our goal is to further expand our market leadership in peptides based on innovation and quality, while also assuming a leading position in oligonucleotides.

We would like to thank our partners for the trusting cooperation and, above all, our 1 529 employees throughout the Group for their tireless and outstanding commitment and dedication. And we would like to thank you, our esteemed shareholders, for the trust you have placed in us and for your loyalty to our company.

Key
Figures

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Sales
(IN MCHF)
EBIT
(IN MCHF)
Net Income
(IN MCHF)
2018
282.5
2019
313.7
2020
402.0
2018
2019
2020
2018
54.8
2019
62.4
2020
96.7
2018
2019
2020
2018
46.6
2019
54.2
2020
78.1
2018
2019
2020
Changes in %
 
2020
2019
CHF
LC
SALES (IN MCHF)
402.0
313.7
+28.1
+34.0
EBITDA (IN MCHF)
122.6
87.2
+40.5
+55.3
EBITDA IN % OF SALES
30.5
27.8
 
 
EBIT (IN MCHF)
96.7
62.4
+55.0
+75.3
EBIT IN % OF SALES
24.0
19.9
 
 
NET INCOME (IN MCHF)
78.1
54.2
+44.1
 
NET INCOME IN % OF SALES
19.4
17.3
 
 
EARNINGS PER SHARE (EPS – IN CHF)
5.58
3.91
+42.5
 
CASH FLOW FROM OPERATING ACTIVITIES (IN MCHF)
115.0
64.3
+79.0
 
RETURN ON EQUITY (IN %)
16.9
13.0
 
 
NUMBER OF EMPLOYEES (IN FULL-TIME EQUIVALENTS)
1 475
1 209
 
 
SALES PER EMPLOYEE 1 (IN CHF)
309 000
282 000
 
 
1  
Basis: average full-time equivalents excluding apprentices.

PROGRESS
REPORTS

Switzerland Flag

SYSTEM RELEVANT SUPPLY

Both Swiss sites in Bubendorf and Vionnaz have shown an outstanding performance throughout the year and further increased the utilization and output significantly. An impressive number of capacity and technology- related investment projects were accomplished and demonstrate Bachem’s commitment to further growth. The highly skilled employees, their flexibility, efficiency, and great attitude combined with Switzerland’s dual education system are the backbone to excel throughout operations. Despite the global pandemic’s challenges and uncertainties, the Swiss sites set new benchmarks in the efficient development and production of highly complex peptides, including the new Molecular Hiving Technology, new oligonucleotides, and the large scale production of selected small molecules.

US Flag

RECORD MANUFACTURING OUTPUT

2020 was a year of notable growth in manufacturing output for both US sites in Torrance and Vista, benefiting from added capacity and automation, and enabled by Operational Excellence initiatives that have provided optimized production planning and utilization of resources. The product portfolio has been further expanded, providing the foundation for future growth opportunities. This portfolio includes several products that are now manufactured as investigational therapeutics in the fight against COVID-19. At both sites, investments have been initiated to achieve debottlenecking, increase automation, and to further expand manufacturing capacity, which will be available in 2021.

UK Flag

SUPPORTING THE CUSTOMERS THROUGH THE COVID-19 PANDEMIC

The year brought many challenges due to the COVID-19 pandemic. Thanks to the agility, hard work and dedication of the entire UK team the site remained operational throughout the year to support the customers’ requirements for research chemicals, including almost 100 peptides related to COVID-19. Continued focus on lean manufacturing principles resulted in numerous efficiencies, enabling the rapid manufacture required for such critical projects with strong potential for future commercialization. Successful ISO13485 re-certification, along with expanded service offering, further supports the customers in the IVD sector. The construction of new office space ensured adherence to social distancing requirements to protect staff, and continued investment in manufacturing equipment supported a fast and efficient production process.

Japan Flag

EXPANSION OF THE ASIAN MARKET

There were many challenges throughout the year; however the Bachem Japan team humbly served its customers and gained more traction in Asia. Bachem is now starting to see the positive effects from the opening of the Tokyo office in April 2018. The NCE pipeline is growing nicely and so is the Generics business in Japan, South Korea, Taiwan, and China. Based on this new business, Bachem expects the growth seen in 2020 to continue also in the next years. Progress could also be achieved on the regulatory side of the business. Despite the challenging regulatory situation in some Asian countries, Bachem has seen breakthrough approvals as a result of its continuous efforts. In view of these encouraging developments in 2020, Bachem in Asia is looking positively to the future.

Milestones Review

STRENGTH AND DEPENDABILITY ON A GROWTH TRAJECTORY

HEALTHCARE DELIVERY ROLE DURING THE PANDEMIC

In a period dominated by the COVID-19 pandemic, Bachem again displayed strength and dependability in fiscal year 2020. Without interruption, every production unit worked tirelessly under difficult circumstances to manufacture urgently needed pharmaceutical ingredients and deliver them to customers. Working in shifts, facing personal restrictions in their private lives and with enormous dedication, everyone involved played an extremely important part in supplying patients with lifesaving drugs. This performance was supported by a well-organized and resilient supply chain management team responsible for planning, procurement of materials, and distribution. Work at construction sites on projects needed to expand capacity also continued uninterrupted. Further, by working from home, over 300 employees helped prevent potential infections at production centers and the work stoppages and supply failures these might have caused. With the dedication of every employee and in compliance with strict protective measures, the Group fully lived up to its responsibilities as a supplier of essential goods. Bachem reaffirmed its position as “Leading Partner in Tides”; in fact it expanded this leadership in an extremely challenging environment. With excellent results, the company held steady on its growth trajectory.

OLIGONUCLEOTIDES ON THE PATH TO SUCCESS

In 2020 Bachem successfully launched the planned addition of oligonucleotides to its portfolio. Initial facilities for small and medium-scale production were installed, qualified and brought online. Together with non-GMP quantities, Bachem also successfully produced a first GMP batch for a clinical study. With a growing project portfolio, highly motivated specialists and commercial-scale production facilities scheduled to come online in 2021, Bachem is clearly on the road to success and growth.

NORTH AMERICA WITH NEW RECORD

In North America, sales again saw substantial gains in 2020, following on from 30% growth the previous year. In local currencies, the prior-year result was surpassed by 48.9%. Even with the strongly negative impact of USD/CHF exchange rate movements, the region recorded a 40% gain in the reporting currency. This gratifying development underscores the increasing importance of the US market to corporate results. With sales up some 62 million CHF for a full-year total of 217 million CHF, the North America region turned in its best performance in the company’s history. The main reason for these excellent sales figures was once again very good progress in key NCE and generics projects. Bachem was able to successfully support the submission or approval of various projects, and approval of others is expected in the near future. Innovative new dosage forms, such as oral and nasal applications of existing generics, are buoying continuing high demand for peptide-based pharmaceutical ingredients. Concurrently, Bachem also increased sales of existing products that are experiencing heightened demand due to market expansions, demographic changes or direct effects of the COVID-19 pandemic.

MILESTONES OUTLOOK

STRIDING AHEAD AS LEADING PARTNER IN TIDES

The continued strong demand for our products and innovations in the peptides business, as well as the successful development of our oligonucleotides business, make us confident that Bachem will remain on its current profitable growth trajectory. Our goal is to further expand our market leadership in peptides based on innovation and quality, while also assuming a leading position in oligonucleotides.

PEP-TIDES

The pace of growth in the established peptides business, driven by market approval of new compounds and dosage forms and by a broad-based project portfolio, continues to accelerate. As the market leader, Bachem has the ability to capture a strong portion of this growth while also serving as a dependable partner for outsourcing projects.

OLIGONUCLEO-TIDES

Bachem has expanded its product range by consistently entering the development and production of small interfering RNA (siRNA) and antisense oligonucleotides (ASO). Production according to GMP conditions was already achieved in the first year and business development in this product line continues to be better than expected. In the medium term, Bachem is aiming for annual sales of over 100 million CHF in the oligonucleotides business and thus a leading market position among oligonucleotide contract developers and manufacturers (CDMOs).

OUTLOOK

Bachem is targeting sales of over 500 million CHF in 2022. For profit, a percentage growth above that of sales is targeted. In order to enable consistent and profitable growth of the Group, the company is planning a global investment volume of over CHF 400 million over the next 5 years.

Our trainees are highly motivated

APPRENTICESHIP TRAINING
WITH A FUTURE

Bachem performs vocational training for a number of different occupations. In 2020 twelve new trainees began their apprenticeships for the Swiss Federal Certificate of Proficiency at headquarters in Bubendorf as laboratory technicians, commercial specialists, IT specialists and logistics specialists.

Bachem has been supporting and promoting apprenticeship training since the company’s founding. The first apprentice, who completed his training for the Federal Certificate of Proficiency as a chemical laboratory technician in 1979, will celebrate 45 years with the company in 2021. Today he is one of two trainers at the corporate apprenticeship lab. Since his successful completion, over 300 young men and women have trained at Bachem Bubendorf and Vionnaz as chemical/pharmaceutical technologists, chemical lab technicians, IT specialists, commercial specialists, logistics specialists and general mechanics.

The commitment to vocational training is based on fundamental values. The company lives up to its social responsibilities by helping trained specialists launch their careers. As a training facility, Bachem supports and challenges the workforce and brings together different generations in the same work processes. Giving trainees the opportunity to perform demanding tasks in on-the-job training programs in production enriches their learning experience, promotes diversity and contributes significantly to Bachem’s corporate culture.

At headquarters in Bubendorf, Bachem runs an in-house training laboratory with two full-time trainers. Outside of Bachem, chemical lab tech trainees only attend specialized vocational school classes. All other classes are taken alongside peers in the training lab – in close proximity to the production organizations where on-the-job practical training programs are held. Nearness to the production facilities along with numerous social events and camaraderie among classmates builds a sense of belonging and teamwork.

Bachem looks back with pride on 45 successful years of vocational training – successes both in training career starters and also in hiring them when their training is complete.

A large proportion of trainees who have completed their apprenticeships stay and grow further with Bachem. Many former apprentices who undertake external training such as specialized courses, higher technical college, technical university studies university degrees and even dissertations return to Bachem. After the early years of their successful careers, many former apprentices get involved in vocational training themselves, supporting trainees as line managers during the next generation’s apprenticeships. These trainers make up the backbone of the vocational training program.

At the beginning of the vocational training at Bachem, the focus was exclusively on training laboratory occupations. Over the years the training spectrum has grown broader and more diverse. Bachem is following this evolution with full conviction. For the company, in-house training is a key tool for meeting a high, steadily growing need for skilled labor. In apprenticeship vocational training, Bachem can influence the professional and cultural agenda while aligning training content flexibly with future needs.

Peptides &
OLigonucleotides

WHAT ARE PEPTIDES?

Peptides are chains of 2 to about 100 amino acids. Longer chains are called proteins and occur in all living organisms. Originally isolated from biological sources, nowadays peptides are synthesized chemically. The biological properties of peptides depend on the number of amino acids and their position in the chain. Just 20 natural amino acids are sufficient to produce 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 specific active pharmaceutical ingredients in medicines. In line with their diverse biological functions, they are used in a wide variety of applications. Cancer treatments, diabetes and obesity are three prominent pharmaceutical areas. Peptides are active substances that are much in demand for the treatment of cardiovascular and neurodegenerative diseases, renal failure, as antibiotics, in vaccines and in drugs for rare diseases.

WHAT DOSAGE FORMS ARE AVAILABLE?

By providing the first oral dosage forms – for diabetes, for example – peptide applications have opened up new opportunities to maximize patient comfort in recent years. This has been possible thanks to targeted optimization of the peptide structure and of the formulation in the drug to prevent the active substances from undergoing the natural digestion process in the human body. In the past, peptide-based drugs had usually been administered by the parenteral route. In addition to conventional injections, depot formulations with durations of action ranging from a few days to several months and nasally administered drugs are increasingly being used.

CANCER THERAPIES

Peptides are used in oncology for imaging and cancer treatments.

COSMETICS

Peptides are used in high-quality cosmetic products, for example to counteract age-related wrinkles.

NUTRITION PRODUCTS

The sweetener aspartame is a dipeptide that is 200 times sweeter than table sugar.

WHAT ARE OLIGO-NUCLEOTIDES?

Higher organisms store their genetic information in genes in the form of long deoxyribonucleic acid (DNA) chains. This information is translated into proteins using shorter ribonucleic acid (RNA) chains, for example mRNA. DNA and RNA are each made up of just four different components, which encode the information based on the number and sequence of the monomers. Short oligonucleotides are constructed from up to a 100 or so nucleotides and are manufactured on an industrial scale by chemical synthesis.

WHAT TYPES OF OLIGONUCLEOTIDES ARE USED AS TREATMENTS?

Single-stranded antisense oligonucleotides bind reversibly to mRNA, thereby inhibiting the translation into proteins. RNA interference forms the basis for the new active ingredient class known as siRNA. These double-stranded molecules utilize a natural mechanism to degrade mRNA, which likewise prevents protein synthesis. By contrast, mRNA can be administered so that a protein is specifically produced in the body itself. Longer mRNA sequences for use in vaccines are produced by molecular biological methods.

HOW DO OLIGONUCLEOTIDES DIFFER FROM OTHER ACTIVE SUBSTANCES?

Antisense oligonucleotides and siRNA modify the genetic information read at RNA level before it is translated into proteins. Since they do not alter the genetic material, they do not count as gene therapies. Classical medicines and antibodies intervene only at the protein level. Since the siRNAs based on RNA interference can result in dosing intervals of six months, they have huge potential for the treatment of common disorders such as high cholesterol levels.

GENETIC TESTS

Oligonucleotides can be used in genetic testing to clarify relationships and for diagnostic or forensic purposes.

TREATMENT OF GENE DEFECTS

Oligonucleotides can be used to treat Duchenne muscular dystrophy by skipping a defective sequence in precursor mRNA.

METABOLIC DISORDERS

Oligonucleotides act against cardiovascular and metabolic disorders with elevated blood levels.

BACHEM’S
360° BUSINESS MODEL

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.