16 Bachem Annual Report 2018

The world of peptides is multifacetedNowadays, peptides are used in a wide variety of applications. In addition to their use in clinical develop-ment and in medicinal products, peptides are also used in diagnostic and cosmetic products, as well as in basic research.

Customers in the field of basic research are primarily universities, institutes and research departments of pharmaceutical companies. The primary objective is speed and availability – the new idea of today should be implemented in the laboratory and theories checked tomorrow. With its catalog of products, Bachem is ideally positioned to achieve this goal. The online shop offers a sophisticated search function and displays availabilities. A substantial proportion of the more than 6 500 products is in stock and can be delivered within 1–2 days. Every year Bachem supplements its catalog with new, innovative products emerging from the latest areas of research.

If, despite this broad portfolio, a product is not included in the catalog, Bachem can offer this as a custom synthesis. Every year Bachem’s site in the UK produces more than thousand peptides by custom synthesis. Short delivery times and competitive prices are also important factors here. Many competitors exist in the field of non-GMP (GMP = Good Manufacturing Practice) custom synthesis, increasingly from Asia as well. Even universities now offer their own custom synthesis services. Bachem therefore focuses on technically sophisticated high-quality products such as diagnostic and cosmetic peptides. The ISO certification of Bachem’s site in the UK was a logical consequence of this focus. This service commitment is greatly valued: very close and trusting working relationships have been built over many years with numerous customers in the diagnostic and cosmetic sectors.

Peptides as active ingredients in drugs constitute the largest area of application at Bachem. As well as producing approved active pharmaceutical ingredients (API), Bachem also supports numerous new chemical entity (NCE) customers in their clinical development with products and services. These are primarily large and small pharmaceutical and biotech companies in the USA, Europe and Japan. In order to be able to serve the Japanese market even more effectively, Bachem set up

MARKETS & CUSTOMERS

Peptides are used worldwide in medical research. They contrib-ute immensely to the understanding of diseases and have proven to be effective in medicinal products. Today, peptides can be produced at low cost. Customers are primar-ily located in the U.S., Europe and Japan. Peptides are increas-ingly being produced and used in other regions.

17 Bachem Annual Report 2018

MARKETS & CUSTOMERS

a subsidiary in Tokyo in July 2018, enabling Japanese clients to be supported directly on site. This is crucially important in the NCE sector, which is demanding in both technical and regulatory terms. Bachem usually works closely with customers over many years in the hope of being able to bring a new drug to market at the end of the development phase. During this phase of intensive cooperation, many technical and regulatory obstacles have to be jointly overcome. In addition to technical and regulatory expertise, this particularly requires extensive experience in the development of new drug substances. Globally, only a small number of competitors meet these requirements, and the barriers for new market entrants are high.

Traditionally Bachem also manufactures generic APIs, i.e. drug substances whose patent protection has expired. Most of the customers in this sector are generics companies. Increasingly appearing on the scene are firms that work on new applications for such generics, for example innovative formulations or additional therapeu-tic areas. New dosage forms such as oral formulations offer additional growth potential as a result of the increased demand for materials. Here too, the products are extremely sophisticated and are often developed in partnership with a generics company. Bachem’s regula-tory expertise, reliability and extensive experience in this field is greatly valued by customers.

Bachem Group’s operating results in 2018The Bachem Group generated sales of CHF 282.5 million in 2018, an 8.0% increase in Swiss francs. Growth reached 36.8% in the Americas, whereas sales in Europe declined by 6.4%. In the USA, important NCE and generics projects developed very positively, particularly in the second half of the year. On the other hand, in Europe and Asia a number of project and delivery postponements on the customers’ side adversely affected sales, particularly during the first half of the year. Overall, growth was slightly lower than the previous year, which was mainly attributable to a weak first six months. Much of this deficit was made up in the second half of the year thanks to an outstanding order book.

PIONEERING PARTNER FOR PEPTIDES

BACHEM HAS BEEN A PIONEER IN THE FIELD OF PEPTIDES FOR MORE THAN 45 YEARS. IT HAS BUILT LONG-TERM CUSTOMER RELATION-SHIPS THAT ARE IMBUED WITH A STRONG SENSE OF TRUST. BACHEM IS RECEPTIVE TO INDIVIDUAL NEEDS AND IS A COMPE-TENT, RELIABLE PARTNER.

18 Bachem Annual Report 2018

MARKETS & CUSTOMERS

HEADQUARTERSAFFILIATES

SOUTHAMERICA

AFRICA

AUSTRALIA

ASIAEUROPENORTH

AMERICAUSA

SWITZERLAND

UK GERMANY

Bachem (UK) Ltd.

St. Helens, Great Britain

Bachem Holding AGBubendorf,Switzerland

Bachem Distribution

Services GmbH Weil am Rhein,

Germany

Bachem AGBubendorf,Switzerland

Bachem

Vista,USA

Americas, Inc.

Bachem

Torrance,USA

Americas, Inc.

Bachem SASuccursale

VionnazVionnaz,

Switzerland

Bachem Japan K.K.

Tokyo,Japan

Bachem sells peptides world-wide for use in research & de-velopment, cosmetics, diag-nostics, medicines and other application areas. As in previ-ous years, APIs for pharma-ceutical and biotechnology companies account for the bulk of Bachem Group sales. Geographically, the USA, Europe and Japan are still the most important markets.

Bachem addresses the world market through two regional segments of North America and Europe, based on sales recorded by the Group’s subsidiaries. Sales to customers in North and South America are reported under the North America segment. Sales to custom-ers in Europe, Asia and the rest of the world are grouped under the Europe segment. By region, Asia sales account for 12% of the consolidated total. Since the main market in Asia is Japan, Bachem also decided to set up its first local Asian presence in Tokyo. Other countries with growth potential are South Korea, Taiwan, Singapore and China. In China, obtaining regulatory approval continues to present the main obstacle to the achievement of significant commercial sales. However, recent changes in this area give cause for hope of an improvement in this situation.

19 Bachem Annual Report 2018

MARKETS & CUSTOMERS

SOUTHAMERICA

AFRICA

AUSTRALIA

ASIAEUROPENORTH

AMERICAUSA

SWITZERLAND

UK GERMANY

Bachem (UK) Ltd.

St. Helens, Great Britain

Bachem Holding AGBubendorf,Switzerland

Bachem Distribution

Services GmbH Weil am Rhein,

Germany

Bachem AGBubendorf,Switzerland

Bachem

Vista,USA

Americas, Inc.

Bachem

Torrance,USA

Americas, Inc.

Bachem SASuccursale

VionnazVionnaz,

Switzerland

Bachem Japan K.K.

Tokyo,Japan

BACHEM OPERATES SEVEN CENTERS OF EXCELLENCE IN SWITZERLAND, THE UK, GERMANY, THE US AND ASIA THAT ARE FOCUSED ON THE PRODUCTION OF ACTIVE PHARMACEU TICAL INGRE-DIENTS, CUSTOM SYNTHESIS PRODUCTS AND CATALOG PEPTIDES.

BACHEM HOLDING AGBubendorf, Switzerland

BACHEM AMERICAS, INC. Torrance, USA

BACHEM JAPAN K.K. Tokyo, Japan

BACHEM SASuccursale VionnazVionnaz, Switzerland

BACHEM (UK) LTD.St. Helens, Great Britain

BACHEM DISTRIBUTION SERVICES GMBH Weil am Rhein, Germany

BACHEM AGBubendorf, Switzerland

BACHEM AMERICAS, INC. Vista, USA

20 Bachem Annual Report 2018

MARKETS & CUSTOMERS

The research chemicals business decreased slightly compared to the previous year. Catalog sales were 9.0% lower than in 2017, primarily as a result of customer-related project and delivery delays in the bulk business. The custom synthesis business, too, was 13.2% lower, though this was primarily due to one-time effects in the previous year. Significant custom synthesis sales generated in 2017 were attributable to one-time factors connected with NCE development projects. Taking this into account, the custom synthesis business is develop-ing well, and the Bachem site in the UK was again operating at full capacity.

Growth in 2018 was mainly generated with APIs. While the generics business has remained stable compared to 2017, the NCEs have grown by 22.0%. Both new projects and the growth of existing projects have contributed to this great result.

After the very strong growth in 2016 and 2017, sales have consolidated in Asia and thus remained roughly at previous year’s level in 2018. The company will continue to focus on the demanding Asian market in 2019, since it promises great potential for growth in the medium and long term. The newly formed local presence in Japan is ideally positioned to exploit this potential to the full.

The prospects for 2019 are very good: In addition to a well filled order book, new NCE and generics projects in particular will contribute to future growth.

CUSTOMER SEGMENTATION

DIAGNOSTICS

3%

COSMETICS

1%OTHER

1%

DISTRIBUTORS

4%ACADEMIA

1%

PHARMA

55%BIOTECH

35%

55+35+3+4+1+1+1