Bayer Responds: We've Delivered in Berkeley; Union Demands Unprecedented and Unreasonable

Bayer and its workers in Berkeley, California, are embroiled in protracted contract negotiations. Last week, we heard from Craig Merrilees, spokesman for the International Longshore & Warehouse Union (ILWU), which represents the workers. Bayer owes workers and the community more, said Merrilees, and worker patience with the company is “wearing thin," he said. What follows is Bayer’s official response to my questions, forwarded by Sreejit Mohan, director of Public Policy & Communications. —Paul Thomas, Senior Editor

P.T.: What is Bayer’s take on contract negotiations with workers in Berkeley? Why hasn’t an agreement been reached yet?

Bayer: We have not yet reached an agreement because the ILWU leadership has not taken our revised final offer to our employees for their vote. By any standard, what we have offered our employees is a fair and generous offer. It is important to note that the wages that we already pay in most union job classifications are already between 5 and 8 percent above the average California pharma wage rates for those classifications. Our revised final offer included:

• Guaranteed “above-market” annual wage increases of 3.1 percent for the length of the contract. For an employee making $59,904, this would provide an average of $19,000 in additional straight time earnings over the four-year period.

• A fixed and “below-market” health care contribution rate of 18 percent for the union’s Kaiser Health plan. This is the same contribution rate our union employees have had in place since 2005.

• The creation of a Labor Management Committee to discuss any and all issues related to the union members.

We can only question whether the union negotiating committee is working in the best interests of its members, our employees. The issues being raised by the ILWU with regard to job security are unprecedented and unreasonable. We feel our employees should have the opportunity to review this offer and vote on its ratification. We are eager to resolve our differences so that we can return to focusing on manufacturing a life-saving product that makes a difference in the lives of our patients.

P.T.: The union and workers maintain that job security is the key issue—how does worker security in Berkeley compare with that given employees at other Bayer sites? Is the union’s request for additional security for Berkeley workers reasonable given the tax subsidies granted by the community?

Bayer: First and foremost, it is absolutely critical to get the facts straight on the tax incentives that were offered to Bayer in 2009.

• In 2009, Bayer HealthCare was considering outsourcing a part of a new recombinant FVIII manufacturing process to a contract manufacturing organization (CMO). All manufacturing investments at Bayer above a certain threshold have to go through a competitive bidding process.

• State and local authorities offered incentives to help the Berkeley site compete against the CMO and keep the entire process and associated jobs in Berkeley. This win resulted in $100 million in new Bayer investments at the Berkeley site.

• Had our site not won this investment, we would have faced the eventual loss of hundreds of manufacturing jobs in Berkeley and the long-term prospects of the Berkeley plant could have been undermined.

• At the time of the investment, we were very clear with all of our stakeholders, including the ILWU, that the investment would not result in additional jobs.

• To date, Bayer has received $182,000 in sales tax credits, a fraction of the annual taxes that the company pays in the region (more than $23 million in 2010).

• You can review the 2009 press release here.

Although the union has attempted to tie the tax incentives we received in 2009 with our current negotiations, there is no connection. The expectation from local and state officials was that Bayer would make the investment in Berkeley and keep the jobs in Berkeley. We have delivered on that commitment. And in our current offer to the Union, we have not proposed to outsource any jobs.

The job security language that the ILWU leadership is proposing has never been part of our contract. It is unreasonable because it would severely handcuff Bayer's ability to maintain and grow this site in the years to come. In fact, no successful company—certainly not a global company operating in the U.S.—would agree to such language. This would have a significant impact on our ability to operate competitively and efficiently and respond to future dynamics in the market.

P.T.: What is Bayer’s position on those subsidies? In the company’s view, what did it commit to two years ago when it received them, and how has it fulfilled or exceeded this commitment?

Bayer: We are very grateful for the tax incentives that were promised in 2009. At the time, Bayer HealthCare was considering outsourcing a part of the new manufacturing process to an out-of-state contract manufacturing organization. These new incentives played a critical role in helping the Berkeley site compete against the CMO and secure over $100 million in new Bayer investments. By not outsourcing a critical part of the manufacturing process, we were able to save hundreds of jobs in Berkeley. We never made any commitments around job protection or staffing levels. We were also clear that the new investment would not result in additional jobs.

The fact that we are making this large-scale investment itself should stand testament to Bayer’s commitment to the Berkeley site. It is the largest investment being made by Bayer HealthCare anywhere in the world and it is also one of the largest capital investment projects in the region. The project added 242,000 construction contractor hours in 2010 alone.

P.T.: Does Bayer take issue with the union’s position that Bayer is not maintaining jobs in Berkeley? What can the company share about its near-term and long-term goals for the site (including job growth)?

Bayer: The $100 million investment that Bayer has made in Berkeley is the single-most important indicator of Bayer’s commitment to the Berkeley site. Our near-term goal is to successfully transition to the new manufacturing process and support the continued growth of Bayer’s hemophilia business. We are also doing everything we can to become more globally competitive so that over the long-term, we can attract new work and new products. That’s the only way we can have job security.

It is important to put things in an historical context as well. When we signed the Development Agreement with the City of Berkeley in 1992, we had anticipated the creation of 380 new jobs at the Berkeley site over 30 years. Bayer has nearly doubled that in the 20 years since the Development Agreement.

P.T.: Is there any connection between the closing of the Emeryville plant and the future of the Berkeley plant? Shifting production to contract manufacturers (as is the case in Emeryville) is a major trend within the drug industry today, so it would seem that Berkeley workers have just cause for concern.

Bayer: The decision to wind-down the Emeryville facility over a two-year period was driven by the increasing competition in the MS market and the lifecycle of the product manufactured at that facility. In contrast, Bayer is investing $100 million into the future of the Berkeley site. Is there any better evidence of a company’s commitment to a facility than a large-scale, multi-year capital project that introduces state-of-the-art technology? Furthermore, the Berkeley site is supporting Bayer’s hemophilia business which is on a growth trajectory for the next several years. We also have a very strong pipeline of hemophilia products. All of this should indicate to our employees that Berkeley continues to be a very important site for Bayer.

P.T.: The union says that “patience is wearing thin” with Bayer. Do you see this as a threat that jeopardizes negotiations and the stability of site operations?

Bayer: Although our current agreement with the ILWU expired on August 24, the employees continue to work without any interruption to our operations. Throughout this whole negotiations process, our employees have maintained their focus on the important work of getting life-saving product to our patients. We are proud of their ability to keep our patients’ needs their primary focus.

We are eager to resolve our differences with the ILWU leadership and achieve a mutually acceptable contract for our employees.

P.T.: Bayer has stated that it has a “robust contingency plan” in place in order to continue operations should negotiations fail. Does the company have a significant concern over the risks (to patients and to corporate finances) over a potential supply disruption of Kogenate?

Bayer: As the manufacturer of a life-saving pharmaceutical product that patients around the world depend upon, we have a moral obligation to do whatever is necessary to ensure the continuity of our operations and the safety of our employees, our site, our product and most importantly our patients.

We trust that our employees will remain unwavering in their commitment to providing safe and reliable supplies of product to the global hemophilia community. As a site, this is our most important priority.

While we are working earnestly to bring the negotiations to a close and to reach a mutually acceptable contract, we are poised to activate contingency plans if necessary.

P.T.: Local and state subsidies and tax incentives play a role in where all major manufacturers (especially in biotech) locate or expand facilities. Was this situation any different than situations regarding other facilities in other parts of the world? That is, has the Bay Area gone to extraordinary measures to accommodate Bayer, and do those measures deserve an extraordinary commitment in return?

Bayer: The incentives played a critical role in helping the Berkeley site compete against a contract manufacturing organization and secure over $100 million in new Bayer investments. The expectation was that Bayer would make the investment in Berkeley to save jobs in Berkeley. We have delivered on that commitment. By not outsourcing a critical part of the manufacturing process, we were able to save hundreds of jobs in Berkeley. Beyond our Bayer jobs, we are proud to support local suppliers and vendors. In addition to retaining the Bayer jobs, we were able to add 242,000 construction contractor hours in 2010 alone.

P.T.: What is Bayer’s general corporate policy in terms of its commitment to the communities in which its facilities reside? How does it balance local commitments with the need to make corporate decisions that are in the best interests of shareholders and stakeholders (including other communities) worldwide?

Bayer: Bayer is committed to the concept of sustainable development with economy, ecology and social commitment being given equal importance in all of our activities—globally and in every community in which we operate. In the Bay Area, Bayer has been recognized for going above and beyond to address some of the critical challenges that our local communities face. This is in great part due to the commitment and investment of our employees who give their time and their funds to support the communities where we operate. The 30 year Development Agreement with the City of Berkeley is an excellent example of our commitment. Over the last two decades, we have paid the city over $20 million to support community benefit initiatives ranging from internships for high school students to infrastructure improvements in the West Berkeley.

We are proud to have established an award-winning program called Biotech Partners that educates local students—particularly those who were at risk of not graduating from high school—for career-track jobs in biotechnology industry. The program has transformed the lives of hundreds of families in the Bay Area. This year, we announced a three-year $500,000 grant to fund a program at California State University East Bay (CSUEB) that would expand the Biotech Partners model to other communities in the Bay Area.

More details about our community impact can be found in our 2010 Community Impact Report.