DCSIMG
Innovation Center - Annual Report 2015 - DSM

Innovation Center

Table 1

x € million
2015
2014
     
Net sales
155
154
     
Organic sales growth (in %)
(11)
3
Operating profit plus depreciation and amortization (EBITDA)
(9)
(18)
Operating profit
(43)
(45)
Capital expenditure
34
27
Capital employed at 31 December
560
523
R&D expenditure
82
82
     
Workforce at 31 December (headcount)
556
675

DSM Innovation Center

The DSM Innovation Center has two main functions. In the first place, it serves as an enabler and accelerator of innovation power and speed in DSM’s core businesses as a center of excellence. In this role it also focuses on adjacent technologies for growth through its Corporate Research Program, which is steered by the Chief Technology Officer through the DSM Science & Technology Department, as well as through the DSM Venturing & Licensing activities. In its second function, DSM Innovation Center has a clear business development role, focusing on areas outside the current scope of the business groups. It identifies and invests in new and innovative growth options, initially through the DSM Business Incubator. Moreover, DSM Innovation Center is responsible for developing and extracting value from the company’s Emerging Business Areas (EBAs).

In 2015, strong sales development at DSM Advanced Surfaces and positive currency effects were offset by lower volumes at DSM Biomedical as a consequence of weak biomedical device markets driven by the health care reforms in the US. EBITDA showed an improvement driven by focused innovation activities, cost savings, currencies and license income from bio-succinic acid technology.

DSM filed more than 400 patents in 2015, in line with 2014. The company also continued its Excellence in Innovation program in order to maintain its leading position as an innovator and to improve its capabilities.

Emerging Business Areas

DSM’s EBAs provide strong long-term growth platforms in promising end-markets that are based on the company’s core competences in health, nutrition and materials. DSM has three EBAs:

  • DSM Biomedical;
  • DSM Bio-based Products & Services; and
  • DSM Advanced Surfaces.

Combined, the EBAs are already EBITDA positive, and DSM expects this contribution to continue to grow, bringing the Innovation Center to break-even overall in 2016.

DSM Biomedical

DSM Biomedical is a leading development partner, trusted by the medical industry to shape the future of biomaterials and regenerative medical devices that improve and brighten patients’ lives throughout the world. From its facilities in the US and the Netherlands, it provides medical device materials development and manufacturing to medical device companies. These products address key trends in medicine, from treating an aging population to caring for more active lifestyles − meeting the need for safer, less invasive procedures that are also more cost-effective.

By using its wide range of state-of-the-art capabilities, DSM is able to develop and produce innovative materials, as well as components, sub-assemblies and full medical devices for its customers. Its broad portfolio of biomedical materials, technologies and capabilities includes biomedical polyurethanes and polyethylenes, resorbable polymers, ceramics, collagens, extracellular matrices, silicone hydrogels, device coatings, and drug delivery platforms. These products are used in applications in some of the most attractive high-growth markets, including orthopedics, sports medicine, ophthalmology, general surgery and cardiology.

Whilst the global market for medical devices continues to grow, the healthcare sector as a whole is undergoing a period of unprecedented change. Spiraling healthcare costs are pressuring healthcare providers, who are consolidating and maturing their supply chains in response. Their key drivers when purchasing medical devices are clinical outcomes, healthcare economic outcomes and patient satisfaction. Traditional medical device companies are developing into overall solutions providers to hospitals and are focusing less on internal R&D, preferring to acquire novel innovations. These players are also further maturing their supply chains, choosing to work with a smaller number of stronger suppliers.

These dynamics present medical device suppliers, such as DSM Biomedical, with new prospects but also new uncertainties. These companies have an opportunity to capture the R&D gap that is becoming available in the market. However, pricing pressure is increasing and supply chains becoming more exclusive. Medical device suppliers need to forge stronger, long-term partnerships to continue to prosper.

During the year, DSM Biomedical initiated the first commercial activities in its in-house medical coating service plant following its launch in 2014. It also had an advanced new material qualify to be clinically tested by a market-leading customer in nephrology, expanding its business.

Progress was made in partnerships in new devices and clinical trials, as well as in the development of DSM Biomedical’s own proprietary medical device product concepts, such as an implantable drug delivery device for treatment of glaucoma.

The DSM-DuPont joint venture, Actamax, took further steps in bringing its novel sprayable adhesion barrier device to the US market for clinical testing.

The Dyneema Purity® portfolio of medical fibers was expanded with the introduction of colored variants; this can greatly aid recognition during complex surgical procedures. Dyneema Purity® Radiopaque fibers were featured on a leading Dutch business TV series about impactful innovations with considerable potential.

DSM Bio-based Products & Services 1

As the world moves increasingly towards alternatives for its dependencies on fossil resources and towards a more sustainable, bio-renewable economy, there are significant opportunities in advanced biofuels and in renewable building blocks such as bio-based succinic acid. DSM Bio-based Products & Services is pioneering advances in biomass conversion and seeks to demonstrate the commercial viability of sustainable, renewable technologies in collaboration with strategic partners in the value chain. The development and supply of high-value knowledge, ingredients and expertise in the field of bio-conversion technology are critical success factors. DSM’s strategy is to license its technology and expertise to bio-based entrepreneurs, enabling them to convert biomass in a commercially viable and sustainable way.

Cellulosic bio-ethanol (POET-DSM Advanced Biofuels)

The POET-DSM Advanced Biofuels joint venture inaugurated a commercial-scale production facility for cellulosic bio-ethanol, Project LIBERTY, in Emmetsburg (Iowa, USA) in 2014. It processes corn-crop residues through a bioconversion process using enzymatic hydrolysis followed by fermentation. The startup process for the plant is facing challenges, mainly in the pretreatment section of the plant, similar to other players in the industry. Small quantities of cellulosic ethanol have been produced to date. Up until year-end 2015, the joint venture partners had invested a total of €287 million (capital employed) in the project.

The US regulatory environment around advanced biofuels remains dynamic. California’s Low Carbon Fuel Standard provides an attractive market for cellulosic ethanol, and the Environmental Protection Agency (EPA) has increased the final renewable volume obligations for 2014-2016, although the levels are still below those called for by the original Renewable Fuels Standard (RFS) legislation.

Global support for and interest in cellulosic ethanol continues to develop as climate change targets are driving attention for the advantages it offers in terms of greenhouse-gas emissions. Climate change targets also provide an important framework for growth of the POET-DSM licensing business in emerging economies.

Bio-succinic acid (Reverdia)

The Reverdia joint venture between DSM and Roquette operates its Biosuccinium™ plant in Cassano (Italy), where it has been producing high-quality bio-succinic acid since 2012. Reverdia is recognized as the technology leader in this field and there is growing interest in licensing the Biosuccinium™ technology, with Bio-Amber signed as the first licensee in December 2015. Market traction increased during the year and both sales volumes and order sizes went up. In October, Reverdia announced a collaboration with Covestro (formerly Bayer MaterialScience), to develop thermoplastic polyurethanes based on Biosuccinium™ for use in multiple applications, notably footwear and consumer electronics. This combination of a value chain approach with in-house application development appears to be succeeding in engendering market pull for the category. The same approach is used in the polybutylene succinate (PBS, a bio-degradable polyester) segment, which predominantly focuses on renewable and bio-degradable packaging.

DSM Advanced Surfaces

DSM Advanced Surfaces aims to accelerate the uptake and effectiveness of solar energy by focusing on the development and commercialization of technologies and materials solutions that increase the efficiency of solar modules, reducing the cost of the energy produced.

During 2015, the EBA posted double-digit growth in sales and EBITDA as DSM continued to strengthen its position in anti-reflective coatings for the Solar PV (photovoltaic) panel market. It launched an engaging marketing strategy to support this with the promise ‘Same Sun. More Power™’. DSM Advanced Surfaces is known for its leading technological position and expertise, which has put the business in the position to develop specific, exclusive products for top-tier players in the market.

Validation is a crucial aspect of bringing advanced technology to market. The solar technology demonstration center in Pune (India) that opened in 2014 received many visitors during the year; DSM followed this up by signing a strategic partnership with the Chinese state testing organization CPVT and with the establishment of an outdoor test facility in Sittard-Geleen (Netherlands) in collaboration with Fraunhofer TechBridge. The company is evaluating possibilities in China to broaden the geographical and climate zones covered by its validation facilities.

In 2015, DSM Advanced Surfaces also took steps in preparation for further innovative solar solutions. Its light trapping technology has been made ready for validation under outdoor conditions and is expected to be brought to market during the course of 2016. As DSM looks to increase the proportion of renewable energy in its own mix of sources, it will investigate options to host solar parks utilizing the company’s yield-boosting technologies on its locations, like those already in operation in Pune, Sittard-Geleen and Belvidere (New Jersey, USA).

DSM Business Incubator

The DSM Business Incubator explores business opportunities in adjacent areas and future markets for DSM with a strong link to DSM’s technologies and competence base. Platforms are created within the scope of securing food, health and energy requirements of society, in close collaboration with industry partners and existing and potential customers. DSM’s Business Incubator has been instrumental in feeding the pipeline with opportunities that address customer needs.

In 2015, the DSM Business Incubator worked on a range of projects including plant-based proteins, energy storage and additive manufacture. Towards the end of the year, DSM and Syngenta established an R&D partnership to develop microbial-based agricultural solutions to protect crops from pests and diseases, combat resistance and enhance plant productivity and fertility.

DSM Venturing & Licensing

DSM Venturing invests in early to late stage innovative companies in areas strategically relevant to DSM’s current and future businesses. The portfolio consists of 25 investment companies and each year DSM Venturing reviews well over 500 new candidates. In 2015, DSM Venturing added promising new investments in several Nutrition start-ups including Blue Prairie Brands, Natreon and NutriLeads as well as in NovoPolymers, a promising start-up company with an innovative encapsulent concept for solar.

DSM Licensing consists of a group of Certified Licensing Professionals and offers professional licensing expertise across all DSM businesses for intellectual property-intensive deals, such as joint development agreements, technology acquisitions and sales as well as in-, out- and cross-licensing deals. DSM Licensing was involved in setting up several strategic partnerships for DSM, including the partnership with Syngenta to develop and commercialize biological solutions for agriculture.

Innovation Partnerships

Among DSM's many innovation partnerships in various domains, two in particular achieved notable successes during 2015. These innovation partnerships and others like them provide direct and indirect business opportunities as well as support DSM in building its corporate brand as well as individual product brands.

The first is a partnership with engineering students from the Nuon Solar Team, which has been on-going for a number of years. Last year, the team again won the World Solar Challenge, a long-distance race for solar powered cars. The winning 2015 vehicle featured resins from DSM as well as Dyneema® fabrics for structure and additional protection.

The second is a new innovation partnership formed in 2015 with professional cycling Team Giant-Alpecin. The team was supported with DSM’s Culturelle® Probiotics to support the riders’ immune system and general health. Moreover, the partners also collaborated closely in the development of special protective cycling shorts incorporating Dyneema® fibers. The shorts were introduced at the start of the Tour de France and proved to be very effective in reducing road rash during some of the crashes that occurred in this and later races. The innovation was recognized with a prestigious Eurobike Award.

Winning Together

At the start of 2015, DSM and professional cycling Team Giant-Alpecin entered into an innovation partnership aimed at giving the team and its athletes an edge in one of the toughest and most competitive team sports around – as well as ultimately benefiting cyclists of all levels the world over. Team Giant-Alpecin manager Iwan Spekenbrink looks back at the first year of the partnership.
Read more >

'Science can change the world'

In 2015, DSM launched a campaign to highlight the key role that science can and must play in tackling the challenges societies face. Titled 'Science can change the world', it highlights the efforts and perseverance of a number of independent scientists to develop innovative solutions. The campaign underlines the value of science with a societal purpose and aims to inspire and engage both scientists and the wider community. For more information and to join the discussion, visit the campaign website(www.sciencecanchangetheworld.org). In 2016, the second phase of the campaign will put Open innovation into practice and use the campaign platform community to identify promising initiatives with the potential to benefit from support from DSM in being scaled up.

Dr. Bart Knols has dedicated his life to eradicating malaria. He heads a team of more than 40 researchers who have developed a number of life-saving innovations, helping people in Tanzania and other malaria-affected areas live healthier lives − and sleep more peacefully.
1 DSM's interest in the net result is reported as part of Associates in 2015