LEVERAGING
EXCELLENCE

THROUGH “LEVERAGING EXCELLENCE”, BACHEM STRIVES TO CONTINUOUSLY OPTIMIZE ALL PROCESSES AND SYSTEMS ALONG THE VALUE CHAIN, WITH A FOCUS ON THE COMPANY’S OVERALL STRATEGY AND THE NEEDS OF ITS CUSTOMERS. THIS MINDSET IS DEEPLY ROOTED IN THE CORPORATE CULTURE.

NEW
INFRASTRUCTURE

CEO MESSAGE
DR. THOMAS FRÜH

LEVERAGING
EXCELLENCE

LEVERAGING
EXCELLENCE

LEVERAGING
EXCELLENCE

LEVERAGING
EXCELLENCE

TOKYO
NEW ASIA HUB

Chairman / CEO
Letter

Milestones
Review / Outlook

Key
Figures

The World
of Peptides

Letter to
shareholders


Dear Shareholders,

As the “Pioneering Partner for Peptides”, Bachem’s position as market leader is secure. By focusing group-wide on our core peptide business, we are consistently pursuing our goal of remaining the best in this field worldwide. With the market and competitive environment continuing to present challenges, Bachem achieved its sales and profit growth targets once again in fiscal year 2018. Though we got off to a difficult start in the first half of the year, the fall-off in sales caused by project delays was offset by a sharp rise in the second half. As a result, sales growth came to 8.0% for the year as a whole. Sales of active substances continued to develop encouragingly. The new chemical entities (NCE) product category, which is crucial to our future success, grew by over 20%. Bachem again succeeded in significantly boosting its operating profit in 2018. Profit from operations increased by 8.3% over the prior year while the EBIT margin reached 19.4%. Supported by positive currency effects, net profit rose by 11.7%.

For the next few years, we are confident that sales in local currencies will continue to grow steadily in line with our long-term forecast of 6-10% per year. With our newly founded local branch in Japan, we also want to derive greater benefit from the fastgrowing Asian markets. We continue to give earnings growth precedence over sales growth. One factor we expect to contribute to higher profits in the coming years is the implementation of our digitalization and automation projects.

Moreover, as part of a strategic assessment, we have identified the market for therapeutic oligonucleotides as an option for augmenting and broadening our portfolio. Although their chemical structure differs significantly from that of peptides, we see considerable potential for synergies in terms of manufacturing and customer ties. Together with a team of specialists, therefore, we plan to build up a new pipeline of oligonucleotide projects in the next few years. We see these activities as complementing the core peptides business and believe they have the potential in the medium term to become a parallel – and equally strong – mainstay of our business.

In the light of the results we have achieved plus our continuing good prospects and our financial stability, the Board of Directors will propose at the Annual General Meeting that a dividend of 2.75 CHF per share be paid.

Key
Figures

  • > Table view
  • > Chart view
Sales
(IN MCHF)
EBIT
(IN MCHF)
Net Income
(IN MCHF)
2016
236.5
2017
261.6
2018
282.5
2016
2017
2018
2016
45.1
2017
50.6
2018
54.8
2016
2017
2018
2016
41.2
2017
41.8
2018
46.6
2016
2017
2018
Changes in %
 
2018
2017
CHF
LC
SALES (IN MCHF)
282.5
261.6
+8.0
+7.5
EBITDA (IN MCHF)
77.9
71.5
+8.9
+6.7
EBITDA IN % OF SALES
27.6
27.3
 
 
EBIT (IN MCHF)
54.8
50.6
+8.3
+5.2
EBIT IN % OF SALES
19.4
19.3
 
 
NET INCOME (IN MCHF)
46.6
41.8
+11.7
 
NET INCOME IN % OF SALES
16.5
16.0
 
 
EARNINGS PER SHARE (EPS – IN CHF)
3.43
3.08
+11.6
 
CASH FLOW FROM OPERATING ACTIVITIES (IN MCHF)
25.8
36.5
-29.3
 
RETURN ON EQUITY (IN %)
12.3
11.3
 
 
NUMBER OF EMPLOYEES (IN FULL-TIME EQUIVALENTS)
1 097
1 057
 
 
SALES PER EMPLOYEE 1 (IN CHF)
271 000
266 000
 
 
1  
Basis: average full-time equivalents excluding apprentices.

PROGRESS
REPORTS

Japan Flag

FIRST LOCAL PRESENCE IN ASIA

2018 was a milestone year for Bachem in Asia: After a phase of careful evaluation and planning, the Group’s first local site – a sales office in Tokyo – was inaugurated. The founding date: July 2, 2018. In the Japanese calendar this date is known as “Taian” (大安), a “lucky day” and hence an ideal time to get married, found a company or embark on a new endeavor. With its highly motivated local team, Bachem can now approach the Asian market more directly and serve its customers on site. The local sales organization is focusing primarily on the API (Active Pharmaceutical Ingredient) business, which is already well established in Japan but is also gaining in importance in other countries such as South Korea, Taiwan and China. It is important for Bachem to be as close to its customers as possible in terms of language and culture, as well as being physically present. And now Bachem has taken the first step in Asia!

Switzerland Flag

AUTOMATED WAREHOUSE AS THE BACKBONE FOR FURTHER EXPANSION IN BUBENDORF

IIn Bubendorf, Switzerland, a newly constructed logistics building for solids and liquids was commissioned as scheduled. The new facility marks a further milestone in the expansion of the site. The automated high-bay warehouse enables a more efficient and safer materials handling and management with fewer personnel. Construction to the maximal possible building volume provides sufficient storage capacity to support future growth of the site operations. This expansion demonstrates Bachem’s clear commitment to Operational Excellence in all areas of the value chain, including intralogistics. The new Enterprise Resource Planning (ERP) system launched across all sites constitutes the backbone for merging laboratory and production information systems. This will drive more efficient use of data for faster decision-making processes. Coupled with the investment in the automation of routine process steps, Bachem thereby consolidates its leading market position also in the digital age.

GB Flag

GROWING DEMAND FOR DIAGNOSTIC PEPTIDES THANKS TO ISO CERTIFICATION

The ISO certification of the Center of Excellence in St. Helens has triggered significant growth, particularly in the area of diagnostic peptides. The expansion project launched last year enabled a substantial increase in production output. Such increase is likely to continue apace thanks to further investments and advances in automation. Moreover, state-of-the-art manufacturing technology – the use of microwave-assisted peptide synthesis, for example – and additional capacity shorten delivery times and increase flexibility to respond to specific customer needs. With these successfully implemented measures, Bachem sets itself apart in this fiercely competitive business. The company is well positioned to respond to the growing demand in all sectors, including diagnostics and cosmetics, and exploit opportunities as they emerge.

US Flag

HIGH CAPACITY UTILIZATION WITH SUBSTANTIAL INCREASE IN PRODUCTIVITY IN CALIFORNIA

Last year’s expansion in capacity at the Vista site in California was effectively utilized with high-volume projects, which contributed to the significant growth in the US market. Over the last year the US management team placed the emphasis on the training of all line managers according to the Bachem principles and values. This accelerated the development of an efficient organization well prepared for further growth. Such training also helped to establish Operational Excellence as a comprehensive strategy towards continuously improving workflows and chemical manufacturing processes and productivity. Utilization of the production facilities was further optimized and manufacturing costs lowered thanks to production planning closely coordinated across the sites and integrated with global procurement of materials.

Milestones Review

SUCCESSFUL PROJECTS CREATE A STRONG FOUNDATION

NEW ERP-SYSTEM

Beginning of May 2018 Bachem commissioned a new ERP system. Building on the “Chemical Company” model of SAP S4/HANA, an interdisciplinary project team had worked for around two years to prepare for the companywide introduction of the new system. After intensive and comprehensive testing, the new system – the backbone of information processing at Bachem – went live in the form of a “Big Bang” at all sites. Thanks to the magnificent project work, the switch to the new system went entirely to plan, and operations could be continued almost seamlessly. As usual in all projects of this kind, the go-live was followed by a further intensive phase during which previously undetected bugs could be corrected and the final teething problems resolved. In launching the new ERP system, Bachem has created an important basis for the initiatives, starting in the next few months, for the ongoing improvements to Operational Excellence. Greater transparency, even more efficient processes and targeted cost reductions will contribute to the planned improvement in profitability.

FORMATION OF JAPAN K.K.

Following intensive preparations, the new subsidiary was founded in Tokyo, Japan, at the beginning of July 2018. Bachem Japan K.K. will assume responsibility for distribution for the Active Pharmaceutical Ingredients (API) business in Japan and other Asian countries such as South Korea, China and Taiwan. This will make Asia a third regional pillar together with Europe and North America. The new local presence will significantly strengthen project support and customer relations in this important growth market.

EXCELLENT CONTRIBUTION OF VISTA

After taking over the American Peptide Company (APC) in 2015, Bachem renovated its facility in Vista, California. The various expansion projects during the year under review and the knock-on effects on production capacity illustrated the potential of this site. Compared to the year of acquisition, Vista quintupled its contribution to Group sales. A key contributory factor was the successful and efficient utilization of the newly created capacity. After some initial difficulties, the integration of this facility was successfully concluded. With continuous improvements and selective expansion projects, Bachem is aiming to achieve a further increase in both productivity and profitability.

COMMISSIONING OF C1

Following the procurement and commissioning of the new automated high-bay warehouse “C1” at the Bubendorf site in Switzerland, Bachem has reached an important milestone in terms of safety and efficiency. The central warehouse for solids and liquids provides the plant with starting materials and ensures GMP-compliant storage of semi-finished and finished products. A fully automated materials management solution optimizes the use of available space and, thanks to the interfaces with the ERP system, facilitates cross-process integration in the value chain. With its state-ofthe- art safety installations, Bachem meets the latest requirements relating to employee safety and the protection of products and the environment.

OPERATIONAL EXCELLENCE

Bachem again achieved further efficiency improvements and cost savings during the past year. Efforts focused on integration and harmonization of internal processes, reducing complexity, process automation and consistent application of best practices. The groupwide rollout of a new enterprise resource planning (ERP) system was a further driver in the company’s successful advance.

MILESTONES OUTLOOK

“LEVERAGING EXCELLENCE” CREATES NEW POSSIBILITIES

SUSTAINABLE SUCCESS

In line with the saying “the best is the enemy of the good”, Bachem will not sit back and have faith in its leading position in the market. The company does not understand “Leveraging Excellence” to mean simply maximizing short-term profits. Rather, Bachem makes investments and launches initiatives aimed at long-term success. Processes and systems along the value chain are continuously optimized and new products and services developed.

PRODUCT PORTFOLIO

The introduction of the new ERP system improves transparency in terms of processes and internal costs. This enables Bachem to better analyze its existing product portfolio regarding turnover and profitability contributions and thereby streamline its product range through a facts-based approach. This in turn helps optimize capacity planning and – thanks to prioritization – avoid shortages and hence improve profitability.

OLIGONUCLEOTIDES

Motivated by specific requests from customers, Bachem has started to position herself as a provider for the development and production of active agents in the field of oligonucleotides. This new product category opens up promising prospects and will in future be expanded to become a parallel mainstay of our business alongside peptides.

AUTOMATION

Targeted investments in the automation of production processes will enable Bachem to fulfill increasing quality demands in the years to come. Meanwhile, profitability will improve thanks to the digital networking of internal processes and the resulting gains in efficiency.

INTERVIEW
DR. ALEX FÄSSLER
THOMAS MEIER

DR. ALEX FÄSSLER, COO (until December 31, 2018)
Thomas Meier, COO (as of January 1, 2019)

What does excellence mean for the corporate culture at Bachem?

Dr. Alex Fässler: We view it as a winning combination of the outstanding expertise of our personnel and their enthusiasm. Our aim is to manufacture products of the best possible quality – for our customers, and therefore ultimately for the patients who need the medicines produced with our peptides.
Thomas Meier: We strive to synthesize more complex peptides using innovative technologies. Our scientific excellence is supplemented by the collaboration of teams, which interact seamlessly across all business units. At the same time, we stream and accelerate our business processes, thereby lowering manufacturing costs.

What kind of working environment does Bachem offer its employees?

AF: Our employees perform demanding tasks and work as a team towards clear, ambitious goals. Thereby we create a working environment in which they are able to play their part in this process. The steady growth makes Bachem a particularly attractive employer since ambitious employees are given the opportunity to quickly assume responsibility for projects and line management.

Why is teamwork so important at Bachem?

TM: The successful development and manufacture of peptides requires the cooperation of various specialists, who contribute their expertise and work in partnership with our customers to develop collaborative solutions. This is our only way that enables us to develop active drug substances for hitherto unmet medical needs.

How do you promote innovative processes?

AF: Our strength lies in the development of innovative manufacturing processes and technologies. This enables us to manufacture peptides cost-effectively with innovative and continuously optimized processes. The daily challenge lies in advancing the current state while incorporating external input.

How does Bachem ensure quality in this production process?

TM: The slogan “Quality matters” applies to Bachem in general and to each individual team. Our internal quality assurance ensures that the quality of our products meets the standards demanded by the authorities and our customers – ultimately in the interest of the patients. We guarantee adherence through clearly defined processes and instructions. We must recognize though that assurance of quality overall can only be as good as each of our individual employees.

We are in the middle of the digital revolution. How do you meet this challenge?

AF: We view the digital revolution as an opportunity because new technologies allow us to collect and analyze large data volumes as a basis to improve manufacturing as well as business processes. Of course, this also creates a need for investments: To fully embrace such processes, capital is then needed to develop and implement the new technologies. We actively shape the digitalization process and successfully integrate it in our work environment. Today we are able to manufacture more efficiently and cost-effectively than was the case even a few years ago.

How can you achieve these efficiency improvements?

TM: It primarily involves two areas. On one hand, we can automate certain manual operations – for example, the addition of fluids or recording of measurements. Quality control is also increasingly performed by automated devices. Barcode readers acquire large volumes of data extremely reliably and accurately. On the other hand, the digital revolution enables us to process data in ever smarter ways. We can evaluate and correlate recorded values faster and better. As a result, in a Research and Development setting we understand more rapidly whether an initial development idea will be successful to reach our goal.

The World
of Peptides

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 -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.

COSMETICS

Peptide-based agents are used in top-end personal care products, for example as ingredients in anti-aging 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

BACHEM SPRING SYMPOSIUM 2018

On behalf of Bachem, Dr. Anne-Kathrin Stoller, Chief Marketing Officer, welcomed numerous guests from the worlds of industry and science to presentations tackling the theme of “The Promise of Brain Peptides for the Diagnosis & Therapy of CNS Diseases”. In the highly topical field of diseases of the central nervous system (CNS), peptides offer considerable potential as active substances. Experts from across the globe took this year’s symposium as an opportunity to present innovative projects and discuss the latest developments in the world of peptides.

One example is the neurodegenerative Alzheimer’s disease, which is being studied by Professor Hiroshi Mori at Osaka University in Japan. He presented an innovative mutation of the amyloid -peptide that could lead to a breakthrough in the development of drugs to combat Alzheimer’s. Dr. Dave Garman, NoNO Inc., demonstrated the potential of novel peptides as stroke treatments.

In addition to disorders of the central nervous system, peptides can also be used in other new applications: Dr. Anna Secher, Novo Nordisk A/S, described the effect of GLP-1 receptor antagonists in the brain and explained how they can be used in the treatment of overweight. Professor Kristian Strømgaard from Copenhagen University showed how challenges in the development of new active substances can be overcome by the analysis of protein-protein interactions in the brain.

A case study investigating the manufacture of a peptide-protein conjugate currently being tested in clinical trials for the treatment of Alzheimer’s was the subject of the concluding presentation by Dr. Markus Wiesner, Bachem AG. The development of the GMP production process that enables the active substance to be produced in large quantities impressively demonstrates how Bachem, as a pioneer in the field of peptides, is ideally positioned to efficiently solve the challenges of its customers.

During a visit to the Bubendorf site the participants were able to see for themselves the state-of-the-art research and production facilities where such projects are managed at Bachem. The tour provided an impressive demonstration of the complexity associated with the development of a GMP manufacturing process for peptides in practice.

The exchanges between the experts from a variety of disciplines in industry and science are one of the key factors contributing to the success of the Bachem Spring Symposium. The event, moderated by Professor Helma Wennemers from ETH Zurich, gave rise to some lively discussions that were continued in greater depth at the Symposium dinner. With its Spring Symposium Bachem – together with its partners from the worlds of science and industry – is making a crucial contribution to the successful development of peptides as active pharmaceutical ingredients.

BACHEM’S
360° BUSINESS MODEL

PEPTIDE DRUGS

Assuring commercial supply
Managing logistics
Adhering to regulations
Meeting customer expectations

BIOTECH COMPANIES
PHARMACEUTICAL COMPANIES

RESEARCH

Over 6 500 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

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.