Tuesday - January 8, 2019
Crop Science Innovation Media Call

Address by Liam Condon, President of the Crop Science Division, and Bob Reiter, Head of R&D, Crop Science Division

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Megatrends Drive Need for Innovation in Agriculture

Okay. Thanks a lot and thank you all very much for joining us today. A lot of this content was recently presented at our Capital Markets Day in December, but there the interest was clearly on the financials, and the financials are, at the end of the day, just an outcome of the innovation that we’re generating, that’s why I’m particularly excited today that we can go deeper into the real content of that innovation. I’m just going to give a few introductory remarks and then Bob is going to go into some specifics of the very exciting pipeline that we have ahead of us.

Megatrends Until 2050

I think, first and foremost, we always need to frame the discussion and talk about why we need more innovation in agriculture, and, reality is, there’s never been a more important time for more innovation in agriculture right now. We’re facing a situation where the population is growing at a pretty strong rate; we’re expecting, up until 2050, another 2.2, up to two and a half billion people.

This is something that’s hugely underestimated, the impact that this is going to have on the planet. There’s an estimate that there will be a requirement of an additional 50% more food and feed required to meet the demand of this growing population, and it would be relatively easy to meet that demand if we could just ramp-up supply. However, supply is limited by the amount of arable land that we have available and arable land is limited; there’s not going to be more in the future than there is today. And by nature of the fact that the population is constantly increasing but arable land is limited, the per capita amount of arable land is actually declining constantly, which means we need to make more of the land that’s available, we need to have an intensification of productivity.

On top of that, one of the most, possibly, underestimated impacts in agriculture today is the impact that climate change is having. The planet, at the end of the day, is getting warmer, it’s getting dustier, it’s getter hotter, and this, of course, has negative impacts on productivity and on harvest going forward; there are estimates that up to 15-20% of harvests could be lost going forward.

Our Mission

So just standing, just keeping the current amount of food produced will actually be a big challenge going forward, but we don’t just need to keep producing what we’re doing today, we need to massively increase productivity. And this is, in essence, the challenge that we are facing, so really how do we ensure that there is enough food for a growing population and produce that food in a manner that is respectful of the very limited natural resources that are available? This is, in essence, the core challenge that Bayer Crop Science is stepping up to and where we believe, with our innovation, we can make a major contribution.

Shaping Agriculture to Benefit Farmers, Consumers and Our Planet

Now, on this slide you can see, in essence, what we have done by bringing Bayer and Monsanto together. We basically took the world’s leading seeds and traits platform, the world’s leader in biotechnology, with Monsanto, we took the most innovative crop protection portfolio, both with chemicals and biological solutions on the Bayer side, and augmented by additional biological solutions from Monsanto; and the world’s leading digital ag platform in the face of the Climate Corporation, through Monsanto, and put this all together into one company that is better able to develop tailored solutions for growers than any other company out there. Our goal, at the end of the day, is to truly shape agriculture and do that in a way that benefits farmers, consumers and our planet.

What we really want to do is generate more innovation faster than anybody else out there, we want to pioneer the digital transformation of agriculture and we want to help set entirely new standards of sustainability for agriculture. And the way we’re going to do this is ultimately by delivering truly tailored solutions for each and every farmer out there that deal with the variability that’s inherent on each and every farm. So this is, in essence, the promise of our new company and what we set out to achieve.

Leading Market Position in All Major Categories

Now, if you look at our starting point in the market, and you take the big crops and sub-segments of crops, you can pretty quickly see that we have a very strong starting position, so whether it’s corn, soybeans or horticulture, with fruit, vegetables, nuts, cereals, but also digital farming platform, we clearly have the number one position today. But this isn’t something where we are willing to rest on our laurels. The only reason that we have this number one position today is after bringing the two companies together, is because we, today, have the most innovative portfolio. But we will only maintain that leading position going forward if we continue to innovate strongly, and Bob’s going to talk a little bit about what we’re so excited about for the future going forward.

Just a note on these market positions. These are in value terms, the global market values, and our number one position is related to the value of the inputs for the entire crop, so this would be seeds and traits, and crop protection, including both chemical and biological solutions, so a very comprehensive view of the overall market position here.

FieldView Platform Leads the Digital Transformation in Agriculture

One thing that I’d mentioned earlier that we are really, really excited about is what we would call the imminent digital transformation of agriculture. There is a tremendous opportunity in agriculture today to tap into all of the data that’s available around fields, around what’s happening on the farm today, to enable farmers, to help them take smarter decisions.

Now, it’s through the Climate Corporation, which was originally a subsidiary of Monsanto and now a subsidiary of Bayer through the acquisition. We have the leading digital ag platform in the industry, with over 50-60 million paid acres, very strong position, and the core product of the Climate Corporation is basically a platform called FieldView, which visualises what’s going on on the farm and, again, through multiple data layers, helps farmers take smarter decisions.

Opportunity for Digital Transformation and Tailored Solutions

This is something that we’re very, very excited about going forward, and one of the reasons for this is if you go back to the essence of the challenge that we’re talking about, where we said we need to basically increase productivity and do it in a more sustainable way, how to increase yield is basically a factor of more or less three elements. It’s related to genetics, to the environment and to the farming practices.

Now, we have, through the acquired products on the seeds and traits side, basically the best genetics in the industry. We have, thanks to our digital ag platform, a very deep and growing understanding of what’s happening on each and every field, so the environmental factors, also ability, for example, to predict weather at a much more granular level than was ever possible in the past. And then there are farming practices that we’ve classified as the, approximately, 40 big decisions that every farmer needs to take for every season that really make or break the harvest. And we’ve broken these down, and the more data that we collect around these farming practices and what are, actually, best practices, this all can feed into a learning loop, and we combine these three elements to enable us to enhance yield. And this, in essence, is what the Climate Corporation FieldView offering is all about.

There’s one example that you will hear a little bit more about later today, not actually specifically in this session, but there will be a press release released later today on the Seed Advisor from Climate Corporation. And this is actually about taking, again, our seeds genetics library, so the biggest seed genetic library available, and combining that with field-based performance data, so 100,000 – what we’ll be talking about later today – 100,000 acres of cornfields.
And what we’ve been able to do is, through machine learning, using artificial intelligence, develop an algorithm that will help farmers take a much smarter variety decision for a specific field, which, in the vast majority of cases, will yield in a significant yield advantage over a decision that they would take by themselves without the help of an algorithm. And this is, I think, a sign of the direction in which we are going. Here we’re offering an algorithm and a recommendation to farmers where we’re very confident that the result of that recommendation will lead to higher productivity and a combination of lower input costs for the specific farmer. So you’ll hear more about this later on when Climate Corporation releases a press release on their latest performance data, but this is something that we’re very excited about and, again, an example of where we’re going.

Increasing Our Sustainability Impact

One other point I would like to highlight, just moving forward, is a company like us, which is, at the end of the day, the leading company, now, in agriculture globally, we also need to make a very strong impact from a sustainability point of view, and this is a responsibility that we take very, very seriously. We’ve divided our efforts into two key areas where we really want to make a major impact. One is related to smallholder farmers, where we want to enable over 100 million smallholder farmers by 2030; another one is reduce to the ecological footprint of farming, where we believe it’s possible to advance a carbon-neutral future of agriculture.

And I think today, agriculture is often seen as part of the problem; in many parts of the world it’s considered part of the problem of, and resulting in or contributing to climate change. Whereas in actual fact, also through the innovation that we’ll be generating, we believe that agriculture can be part of the solution of climate change and, again, that we could advance a carbon neutral future.

So this is something that we will be gradually fleshing out throughout the year, as we combine the two companies, with more specific commitments that we will then be tracking regularly and also reporting back to you regularly. Right now, we just want to highlight this as something that we believe is very important and, directionally, that we want to work on further.

Living Up to Our Responsibility to Farmers, Consumers and Our Planet

And finally, before I hand over to Bob, again on the topic of responsibility I do believe we have a huge responsibility not only to our owners, which we talked about at Capital Markets Day, but actually, first and foremost, to our customers, our farmers, to consumers and to our planet. And it’s only with this more holistic understanding of what stakeholder management is all about that I believe that we can truly be successful.
We’re committed to being a highly collaborative company and collaboration, this is required both internally and externally to be successful. We’re committed to being a highly transparent company, and you will have seen some of our initiatives, also related to releasing safety data and publishing safety data of our crop protection products, way beyond anything that is required from a regulatory point of view, and we’re committed to being a highly inclusive company. We’re not only there for big farmers, we’re also there for medium-sized farmers, and we’ll certainly be there for small farmers as well going forward.

So this, in essence, just a short introduction about what our new company is about. But now, to give you a much stronger sense of the depth and breadth of innovation that we have at our fingertips I’ll hand over to Bob Reiter.


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World Class Innovation Platform

Bob Reiter, Head of R&D, Crop Science Division, Bayer AG

Capabilities

Thank you, Liam, and thanks for everyone on the call today. I want to, really, start by building on Liam’s earlier comments about the incredible combination of capabilities that we’ve brought together with the organization, and I’ll do a deeper dive with you on how I see, going forward, this incredible combination will unlock tremendous innovation for our farmer customers. And I think it’s, as we said previously, you know, assembling this incredible capability across the entire portfolio we have, and then bringing this together in terms of the capabilities and decision-making we have with our digital platform I think really unlocks tremendous value.

Convergence of Leading R&D Platforms

So, as you look at that platform, I, you know, think about it, really, as the three key components, beginning with our seeds and traits platform, where we, today, are using and have access to, really, the world’s leading germplasm library and the key crops that we operate, as a seed business, in.

We complement that seed platform with a tremendous portfolio in biotechnology and our tremendous reach with our biotechnology platform across over 350 million acres, and, in development, have an additional 20 new products in our pipeline. And we complement that incredible portfolio of seed and trait products with, really, first-class crop protection products and first-class capabilities, both in terms of the small molecule products that we developed to protect those products, in terms of insect control, disease control and weed control, but then also unlocking new value in terms of what can be done with biologicals. And we have great capabilities that we’ve assembled with biologicals, as Liam alluded to, and we also are leveraging partnerships to supplement that biological platform.

And then, as Liam also mentioned, you know, today, as we look at what we’re really trying to accomplish, we have these great products, but it’s really then about how do you best position the right combination of products on the right acre, and have growers making the very best decisions that are unique and tailored to each individual situation and condition for each individual grower? And this digital platform, with our FieldView platform, really, I think, anchors our ability to be able to unlock that value across the entire portfolio. And the other piece I think it does, and shouldn’t be underestimated, I think, in terms of its future impact on R&D decision-making, is it allows us to have access to real-time, what is happening on the customer acre. And that information then is a whole new source of data for us to leverage in our future decision-making on the R&D pipeline.

Breeding: Strong Yield Performance of Recent Deployment Classes

So, as I look at where we stand today, you know, we have a tremendous breeding engine and we’ve been investing, over the last two decades, in that breeding engine and bringing new technology to bear on the improvement of crops, particularly corn, soybean and cotton. And, as I look at the performance that we offer to our grower customers – you can see these are US figures in terms of our competitive advantage in those core crops in the US geography – and it’s built all around the fact that we continue to make investments that allow us to drive how we make breeding decisions and advance products in those portfolios.

And whether it’s the use of doubled-haploid technology and the advancements we’ve made in that technology, it’s in our decision-making using markers, or it’s the data and now the machine-learning capabilities that we’ve assembled that allow us to drive decisions in ways that really are quite unprecedented in terms of plant breeding and the development of products through plant breeding.

And we continue to drive those technologies and those capabilities, and we continue to use them to unlock additional value and create that genetic potential, which ultimately is the anchor for our customers in terms of what they can enjoy in terms of performance from our products.

Biotechnology: Supporting Farmers with New Solutions

Of course, those products are, in many cases, supplemented by the tremendous impact that biotechnology has had on protecting a lot of that yield potential for the grower customer, and then providing additional solutions in terms of how to control very problematic pests like weeds and insects.

And, as I look ahead, you know, we are now positioning ourselves in terms of next-generation products in the near term for both weed control, where we have our XtendFlex platform in soybeans, which will bring an additional mode of action for weed control into our Xtend platform for soybeans.

We are working diligently to obtain the final approvals to have a next generation product for corn rootworm control, which will now bring in a whole new mode of action through RNA interference technology and provide an unprecedented level of control for corn rootworm pests in the crop.

And then, as we’ve had tremendous success with our Intacta launch and use of Intacta has enjoyed tremendous penetration in South America, we’re following it on with additional modes of action and an additional insect spectrum control that allows us to further provide enhancement and innovation and value for growers in South America with our second-generation soy insect control product.

And finally, in cotton we’ll be introducing in the future a whole new class of insect protection, which is control of some sucking, piercing insects, particularly in this instance Lygus and Thrips, which is a whole new class of control that has not reached the market in the past. And I just highlight the importance of this kind of insect control, particularly it becomes more important because the great success of the Bt-based products have had in controlling the primary insect pests in cotton now make the secondary pests more important and more critical and of greater value to the grower, and so being able to identify additional proteins that control and be able to express them the right way to control these new sucking, piercing insect pests is a tremendous accomplishment by our biotechnology research efforts.

Short-Stature Corn Offers Transformational Shift in Production

One product I would like to highlight for you is a new product that we’re developing today, which we call short-stature corn. And the way I’d like to position this with you is I think this is a little bit like what was experienced with the green revolution in rice and wheat through Norman Borlaug, which is the foundational shift that it made in terms of how those crops were produced and how growers were able to unlock and enjoy additional productivity value. And I think short-stature corn, at its foundation, while it is simply a reduction in the overall stature of the crop, that fundamentally brings and unlocks some real solutions for the crop.

And the first and most obvious one is that as you shorten up the crop, what it does ultimately is it makes the crop far less susceptible to some of the key problems that the corn crop has, which is stalk and root lodging, and another one is green snap.

So the vulnerability to those problems is significantly reduced when you reduce the overall stature of the corn crop. And those problems can be very significant; you can have entire fields snap under the wrong conditions in the growing season, and the estimates on the stalk rot problem is that, you know, typically we can experience 5% to over 25% or 30% stalk lodging through the growing season, depending on the geography and the year that we’re growing that crop in. So those are substantial losses for the grower that can be mitigated by reducing the stature of the crop.

The other one is that this now creates an opportunity for growers to manage the crop differently because it allows access with equipment and can provide supplemental spray or fertility applications that could not be managed previously with the tall crop. Now the equipment can move through the field, and also you can reduce the cost or put in opportunities where, maybe, you could only have had application via aircraft.

And then, I think finally for me, I think it potentially sets the stage for a whole new platform in terms of the overall density that the corn crop can be grown at. And the reason that is key is I think it sets a precedent and a future platform for breeding to take advantage of a more dense crop and higher density, which ultimately will transfer into yield potential for the grower because we know that the primary delivery mechanism for corn yield is by adapting the crop to greater densities, so packing more plants into the field ultimately will translate into more grain. A shorter stature crop I think has the potential to be able to tolerate far higher densities that the traditional crop would.

So still much work to be done in terms of where and how much additional value will be created with each of these features that short-stature corn offers, but I think there’s a potential fit across a very broad set of acres for corn. And the potential value and what stalk lodging, versus green snap, versus plant density, versus nutrient application and fungicide application opportunities will vary by the acre, but I think there’s a play there for, really, the vast majority of acres of corn across the Americas and other parts of the world.

Crop Protection: Better Harvests, Smarter Use of Inputs

Of course, with all of that great genetic potential and some of the protection afforded by biotechnology there are still many challenges that the crop faces that, of course, our grower customers are looking for solutions for. And so having, really, the best-in-class discovery and development engine for traditional crop protection products continues to be incredibly important for us and is a great driver of additional innovation and value.

One of the things that I’ve certainly enjoyed learning about is how the whole small molecule discovery process has been changing and how we’ve been leveraging external innovation and new data types and new methods of identifying starting opportunities for our small molecule discovery effort. And what we’re starting to see is is how that’s allowing us to invent a smarter pipeline for discovery and also to allow us to identify those molecules which are likely to have potential problems later, and identify those earlier and fail fast, fail early.
One of the main challenges that small molecule discovery has, whether it’s in the pharmaceutical space or whether it’s in the agricultural space, is the risk of later identifying potential issues from an environmental or from a human safety perspective. And we’ve been doing work and been using new types of data sets that allow us to identify those potential risks earlier in the pipeline, and then focus our resources and our capabilities on those molecules that are going to have a far higher likelihood of overall success in terms of gaining approval for the market.

The second piece is that we’ve brought together really our tremendous capabilities at Bayer in terms of our efforts in biologicals, where we’ve been working both in terms of how you can use biologicals as a stand-alone or a supplement for crop protection. You can see where the team has made great strides in terms of being able to demonstrate how we can use candidate microbials for disease control. And then the other area that we’re exploring, and part of this is through the legacy partnership with Novozymes from Monsanto and the BioAg Alliance, which is also unlocking additional yield potential where microbials can be used and identified to provide enhancements in nutrient availability, which helps to grow the crop more effectively and, ultimately, translates into yield for our customers.

We clearly have a very, very significant effort in this space, we have access to a very, very large library of microbes and we have tremendous screening capabilities, and we’re continuing to explore how we can further harness biologicals as a tremendous supplement to the products that we have in terms of our seeds and traits and our crop protection molecules.

Driving the Largest R&D Pipeline in Ag

And then, just finally, to kind of wrap up, you know, I think we’ve brought together both a tremendous portfolio of products. We have over 75 projects across our portfolio that we’re advancing through the pipeline across those three platforms of seeds and traits, crop protection, and digital. We have a tremendous engine that is driving and delivering new seed products to our customers.

But ultimately, I think, as Liam alluded to, we have a great, great position to be in where we are now in a place of being able to not only provide a complete and holistic offering to our customers, but how do we then better unlock and tailor our solutions to our customers to unlock further value for them and create greater certainty in terms of their productivity by providing knowledge through our digital platform and also by combining our research platforms in ways where we can identify those positive interactions between our products that will serve our customers more completely.

So with that, I will turn it back over to Liam and he will close us out before we go to questions-and-answers.

Closing Remarks
Liam Condon, President of Crop Science Division, Bayer AG

Summary

Okay. Thanks a lot, Bob. So I hope from Bob’s comment, you got, again, a sense of our joint excitement at the depth and breadth of innovation that we have now within the combined new company. And at the end of the day, this goes back to our original vision when we said we were going to bring Bayer and Monsanto together. It was all about creating the innovation leader in the agricultural space and I believe we are that today. More importantly for us is, going forward, that we continue to be the innovation leader. And based on what you’ve heard today, I hope you got a bit more sense of how deep and how broad our technology platforms are and the variety of projects that we have ongoing.

This is, of course, really only an appetiser, we’re only at this now for a few months bringing the two companies together but there’s a tremendous amount of excitement on both sides now as we have the unified teams working on combined projects. And our goal is to constantly update you over time on our progress and basically give you more and more information. So today, I think you can see, as an appetiser and an entry point.

And with that, we will gladly answer any and all questions that you might have for us. So thank you again for your attention. I’m looking forward to your questions.

Cautionary Statements Regarding Forward-Looking Information
This news release contains forward-looking statements. A forward-looking statement is any statement that does not relate to historical facts and events, but rather reflects Bayer’s current beliefs, expectations and assumptions regarding the future. This applies, in particular, to statements in this presentation on revenue growth, including product introductions and peak sales potential, synergies, especially in relation to the acquisition and integration of Monsanto Company, portfolio adjustments, cost reduction, financial targets and earnings, cash flow generation, deleveraging and other similar statements relating to future performance, including with respect to the markets in which Bayer is active.
Although the forward-looking statements contained in this presentation are based upon what Bayer’s management believes are reasonable assumptions, they necessarily involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Forward-looking statements are not guarantees of future performance and undue reliance should not be placed on them. Bayer undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws.
For more information on factors that could cause actual results and future events to differ from those anticipated in forward looking statements, please refer to the factors discussed in Bayer’s public reports which are available on the Bayer website at https://www.investor.bayer.com/en/reports/annual-reports/overview/, including in the Annual Report 2017 under the caption “Report on Future Perspectives and on Opportunities and Risks”.

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