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Executives

Alexander Rosar - Head of Investor Relations

Marijn E. Dekkers - Chairman of Management Board and Chief Executive Officer

Patrick W. Thomas - Chairman of Bayer Materialscience and Chief Executive of Bayer Materialscience AG

Wolfgang Plischke - Member of Management Board

Liam Condon - Chairman of the Board of Management and Chief Executive Officer

Werner Baumann - Chief Financial Officer and Member of Management Board

Analysts

Tim Race - Deutsche Bank AG, Research Division

Amy L. Walker - Morgan Stanley, Research Division

Jo Walton - Crédit Suisse AG, Research Division

Fabian Wenner - Kepler Cheuvreux, Research Division

Thomas Gilbert - UBS Investment Bank, Research Division

Richard Vosser - JP Morgan Chase & Co, Research Division

Sachin Jain - BofA Merrill Lynch, Research Division

Daniel Wendorff - Commerzbank AG, Research Division

Ronald Koehler - MainFirst Bank AG, Research Division

Damien Conover - Morningstar Inc., Research Division

Andrew S. Baum - Citigroup Inc, Research Division

Marietta Miemietz

Steve Chesney - Goldman Sachs Group Inc., Research Division

Bayer AG (OTCPK:BAYRY) Q3 2013 Earnings Call October 31, 2013 9:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Bayer's Investor and Analyst Conference Call on the Third Quarter 2013 Results. [Operator Instructions] I would now like to turn the conference over to Mr. Alexander Rosar, Head of Investor Relations of Bayer AG. Please go ahead, sir.

Alexander Rosar

Thank you, Cleo. Ladies and gentlemen, good afternoon and welcome, also on behalf of my colleagues, to our third quarter conference. With me on the call are Marijn Dekkers, our CEO; Werner Baumann, our CFO. And from the subgroups, we have HealthCare represented by Wolfgang Plischke, CropScience by Liam Condon and MaterialScience by Patrick Thomas.

Marijn will start off with a brief summary of the developments in the third quarter. As always, we have assumed that you have all received and reviewed our stockholders' newsletter, the briefing document and the presentation slides, so Marijn will focus his introduction on the main points.

Before handing over to Marijn, I'd also like to draw your attention to the Safe Harbor statement. Thank you.

Marijn?

Marijn E. Dekkers

Thank you, Alexander. Ladies and gentlemen, good afternoon. It's my pleasure to speak with you about our third quarter. We saw continued positive momentum driven by our Life Sciences businesses. MaterialScience performed on the prior year level but with a sequential improvement over the second year. Outstanding progress was achieved with the continuing rollout of our new Pharma products. In addition, we achieved important regulatory milestones with the FDA approval of Adempas, also known as riociguat; the positive CHMP opinion on Xofigo; as well as the European approvals for Stivarga and EYLEA for CRVO.

Based on our continued optimism in terms of our launch execution, we have now raised our 2013 new Pharma product sales target to more than EUR 1.4 billion.

Driven by the good business growth, earnings developed positively despite significant headwind from adverse currency movements.

Against this background and based on our expectations for the remainder of the year, we are maintaining our full year guidance for the group, although it's increasingly ambitious.

Let me now elaborate on some key figures for the third quarter. When talking about sales, I will speak about portfolio and currency-adjusted data. Group sales advanced by 6% to EUR 9.6 billion. HealthCare and CropScience both contributed to the increase while sales of MaterialScience came in at the prior year level.

Reported EBIT rose by 47% to EUR 1.2 billion, due in part to a drop in net special charges of EUR 99 million versus EUR 356 million in the prior year quarter. The special charges in Q3 were mainly related to expenses for restructuring and the integration of acquired businesses.

Adjusted EBITDA posted an increase of 8% against the prior year period of EUR 2.0 billion despite negative currency effects of around EUR 130 million in the third quarter.

Core earnings per share amounted to EUR 1.27, which is an increase of 9% over the prior year quarter.

Then from a regional perspective, 40% of total sales in the quarter were generated in the emerging economies where our sales grew by 9%. We delivered double-digit growth in Latin America, as well as in Eastern Europe, and also expanded our business in Africa and Middle East. Growth in emerging Asia was held back by the relatively weak performance against a very strong prior year quarter in our business in China. This was partly due to a slowdown of the growth rate in Pharma.

Gross cash flow in the third quarter moved ahead by 36% to EUR 1.4 billion, mainly as a result of the significant improvement in reported earnings. Net cash flow fell by 13% to EUR 1.7 billion because less working capital was released than in the prior year quarter. After investments of EUR 514 million, the operating free cash flow came in at EUR 1.2 billion.

Net financial debt declined from EUR 9.0 billion at the end of the second quarter to EUR 7.7 billion at the end of Q3, largely as a result of cash flows from operating activities.

So let's now move on to the performance of our subgroups, starting with HealthCare. Sales of the HealthCare subgroup increased by 7% in the third quarter to EUR 4.7 billion. We saw a very dynamic increase in sales of our Pharma segment, which moved ahead by 11% to EUR 2.8 billion. The strong growth was driven by our new products, Xarelto, EYLEA, Stivarga and Xofigo, which posted combined sales of EUR 407 million or around EUR 440 million if adjusted for currency effect. Strong growth was again achieved for Xarelto, especially in Japan, Germany and France. We have gained leadership among the new oral anticoagulants. Then sales of EYLEA grew strong as well, particularly in Japan, Germany and Australia. Our new cancer drug, Stivarga, made encouraging contributions to the sales development at Pharma. Xofigo posted sales of EUR 12 million in the third quarter, following the product's launch in the U.S. And based on this success, we are now targeting more than EUR 1.4 billion in new product sales for 2013.

The performance of our established Pharma products was mixed in the quarter. On the positive side, sales of Kogenate rose by 15%, largely due to phasing effects. Our cancer drug, Nexavar, recorded sales gains of 11%, particularly as a result of price increases in the U.S. But on the negative side, sales of Betaferon and YAZ continued to recede by 7% and 15%, respectively, due to increased competition. Sales of Avelox and Glucobay receded by 11% and 13%, respectively, partly due to weaker demand in Asia/Pacific.

Following the strong sales growth of our new products, adjusted EBITDA of Pharma showed an 8% improvement over the prior year period. The earnings increase was partially offset by higher sales and marketing expenses for these products, as well as negative currency effects. Currency effects diminished earnings at Pharma by approximately EUR 60 million in the quarter.

Now let's move on to our Consumer Health business, which improved revenue by 3% in the third quarter to EUR 1.9 billion. Sales in our Consumer Care division rose by 5%. Our skincare product, Bepanthen, registered strong growth in the emerging markets and in Western Europe. Sales of the dietary supplement, Supradyn, also developed well, particularly in Russia.

Sales of the Medical Care division were level with the prior year period. Sales of contrast agents and medical devices in the Radiology and Interventional business improved while the Diabetes Care business was hampered, above all, by reimbursement pressures and product decline.

Sales in Animal Health division rose by 1% with the launch of our Seresto flea and tick collar in the United States contributing to growth.

Adjusted EBITDA of Consumer Health showed a slight decline of 1% as a result of higher marketing expenses in the emerging markets. In addition, currency effects diminished earnings.

In summary, on HealthCare, the performance of HealthCare results in adjusted EBITDA of EUR 1.4 billion for the subgroup as a whole, which is an improvement of 5% over the prior year period. Currency movements lowered adjusted EBITDA by EUR 100 million.

Now let me elaborate on the Q3 performance of CropScience, which benefited from a favorable market environment. Sales in the CropScience subgroup increased by 12% to EUR 1.7 billion. The Crop Protection business posted sales growth of 14%. The largest increase in percentage terms was achieved for insecticides and fungicides. Herbicides grew only moderately as strong development in Latin America was partly offset by declines in our serial herbicides business in Europe. Sales of SeedGrowth remained at the prior year level.

We are particularly pleased with the performance of our new Crop Protection products. These new products, defined here as products launched since 2006, were up 35% nominally to almost EUR 250 million in the quarter and thus made a substantial contribution to the positive sales development.

The Seeds business came in at minus 30%, which was largely the result of reduced cotton and canola acreages in North America, which also led to higher product returns. However, business with vegetable seeds registered double-digit growth overall.

Sales of the Environmental Science business increased by 19% in the quarter with higher sales both in the consumer business and in products for professional users.

Adjusted EBITDA of CropScience moved ahead by 14% to EUR 224 million and this was especially due to higher volumes in Latin America, as well as to the overall gratifying business development.

So now let's move on to MaterialScience. Sales of MaterialScience grew by 1% in the third quarter to EUR 2.9 billion. This growth was a result of higher volumes in North America and Europe. Selling regions were slightly below the prior year quarter. Sales of the Polyurethane business unit rose by 4%, driven by higher volumes in all regions except for Latin America and Africa, Middle East. Selling prices were down overall against the prior year period.

Sales in the Polycarbonates business unit declined by 3%, mainly because of lower selling price. In addition, volume showed a year-on-year decline due to weaker demand.

Adjusted EBITDA of MaterialScience increased by 3% versus the prior year quarter to EUR 346 million. The earnings figure includes a EUR 17 million gain from a business disposal. The earnings improvement was supported by the slight rise in volumes and our comprehensive efficiency improvement measures, which contributed EUR 50 million in savings in the quarter. Adjusted EBITDA was, however, diminished by a drop in selling prices and increases in raw material prices.

In the first 9 months, our Life Science businesses, HealthCare and CropScience, recorded very encouraging growth, compensating for the market-related weakness of MaterialScience. We expect this development to continue in the fourth quarter. Operational earnings have increasingly been held back by currency effects during the course of the year.

The forecast for the full year is now based on the average exchange rates for the first 9 months of 2013. We are maintaining our guidance, although it is increasingly ambitious. For HealthCare, we reiterate our guidance of mid-single-digit organic sales growth and higher EBITDA before special items. Earnings growth in HealthCare is likely to be restrained by negative currency effects in the order of EUR 200 million to EUR 250 million. We also reaffirm our sales guidance for CropScience of high single-digit growth and are becoming more positive on earnings growth. We plan to raise EBITDA before special items by at least 10%. And then in MaterialScience, considering the weak business development in the first 9 months of 2013, we anticipate that full year sales will be level with the previous year on a currency and portfolio-adjusted basis. We expect EBITDA before special items to come in below the prior year figure. In the fourth quarter of 2013, we expect sales on a currency and portfolio-adjusted basis and EBITDA before special items to come in at the level of the prior year period.

For the group as a whole, we expect sales for the full year 2013 to increase by, currency and portfolio adjusted, 4% to 5% to EUR 40 billion. And we aim to increase EBITDA before special items by a mid-single-digit-percentage. And we aim to improve core earnings per share by a high single-digit percentage.

So ladies and gentlemen, this concludes my remarks, and we are now happy to take your questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Mr. Race.

Tim Race - Deutsche Bank AG, Research Division

This is Tim Race here from Deutsche Bank in London. Three questions, if I may. First of all, just for MaterialScience, relative to expectations by consensus, it was actually an okay quarter this quarter. Just -- do you think you've now sort of turned the corner, at least, in terms of the downgrades? And could you just expand on your cost-saving initiatives that you're making in MaterialScience and what you can really drive through that? And just, generally, does that reflect the reality that it's going to be very difficult to recover MaterialScience margin through market developments and that you're going to have to focus more and more on cost savings going forward? Then a question just on China in Pharmaceuticals. Relatively flattish performance. There's obviously big market impacts going on for other companies in this area. Just any comments that you can say about what you're seeing on the ground and when do you think the market's picking up again would be helpful. And then lastly, just a question on Xarelto U.S. royalties. It seems to be that you're receiving somewhere in the region of about 20% royalty on sales in the U.S. Obviously, it's a bit lumpy. We all know this escalates to about 30% eventually, but could you just help us understand when we might see this ramp-up? I mean, is it gradual or is it once J&J annualizes over EUR 1 billion, et cetera? Just a little bit of clarity there would be very helpful.

Marijn E. Dekkers

Okay. Thank you, Tim. We'll start with Patrick Thomas addressing the BMS question.

Patrick W. Thomas

Okay. Thank you, Tim. Yes, in the first part of your question, have we turned the corner? The first important thing look at is market growth. What we're seeing this year in terms of market growth for the full year on MDI is around about 6%, which is slightly below the long-term average. On TDI, we've gone up to 4% to 5%, which is relatively strong compared to historical average. On the PCS, I think we're in the process of turning the corner because after 6% growth last year, we started the first quarter sequentially minus 6%; second quarter, minus 1%; and then third quarter, plus 5%. So I expect to end up roughly at last year's levels at the end of this year. It's going to be roughly around a 0. So that's the important drivers for our major business units. In terms of the cost-saving initiative, we announced before that this program, which runs through 2015, is 150 basis points improvement and what we're recording here is the first 1/3 of that, which is being delivered through this year and that's what you see in the third quarter numbers. And as you say, cost improvement will be a key part of our agenda as we move through to 2015.

Marijn E. Dekkers

Okay. Thank you. The China pharma situation, Wolfgang?

Wolfgang Plischke

Thank you, Tim, for the question. In China, we have been more or less on last year's sales. But you have to understand that the comparable quarter in the last year was exceptionally high and closed around 34% currency adjusted. And therefore, you have to balance your assessment. Going forward through 2013, we expect low double-digit percentage growth at 24%. And in the midterm, we see continued growth in China. Xarelto, I understand your question, but we don't want to comment on the royalty rates.

Operator

The next question is from Mrs. Walker.

Amy L. Walker - Morgan Stanley, Research Division

It's Amy Walker from Morgan Stanley. I also have 3 questions, if I may, please. The first is I think I saw that there had recently been a change in the formulary position for Betaseron in the U.S. Is that correct? And do you expect that, that will have an accelerating effect on the decline in your share in that market, please? The second question, on CropScience. Can you remind us whether there is any significant structural difference in your margins between the herbicides, insecticides and fungicides products? Some of your competitors have claimed that fungicides are significantly higher margin than herbicides, for example. I just want to get a sense of whether that's something that's inherent in the type of product or if it's more about the average age of the portfolio and so can vary from company to company. And the last question, on MaterialScience. Can you just give us a sense, Patrick, of where you've ended up from an operating-wise perspective in each of Polyurethanes and Polycarbonates in the third quarter and how that compares to where you were at the end of the first half, please.

Marijn E. Dekkers

Okay. Wolfgang, Betaseron.

Wolfgang Plischke

Betaseron, you are right. It was published that we lost our formulary position in Express Script. You have also seen that during the last 9 months we lost about 9% of our sales, currency adjusted, and that's in line with our guidance we have given at the beginning of this year, and we see a continuation of this decline going forward.

Marijn E. Dekkers

And then, Liam, CropScience, structural differences and margin between the products.

Liam Condon

Yes. Thanks for your question, Amy. If you look at the overall portfolios across the entire industry, basically, herbicides, there hasn't been that much innovation in the last years. And, of course, where there's innovation there tends to be premium prices. So on average, you could say you could expect more higher margins on fungicides and insecticides simply because there's more innovation, more newer products with premium prices coming out there, just as a general overall statement.

Marijn E. Dekkers

Okay. And then, Patrick, MaterialScience earnings trends.

Patrick W. Thomas

Yes, Amy. The operating rates question, I'm going to answer in terms of what I see the industry or capacity moving to. So a the moment, MDI is around about 85% to 90%, probably closer to 90% than it was in the first half. TDI is up about 85% plus, which is good for TDI. That should be positive as we're seeing this recently strong 45% growth. And then on Polycarbonates, we're still sitting down to about 80% on capacity rates. There are some changes in the industry. We've seen one of our Japanese investors announce a closure of a relatively significant plant in Singapore, which we've taken off-line, and also the closure of the only Brazilian plant in Polycarbonates. So that should help improve the supply-demand balance in the Polycarbonate area.

Operator

The next question is from Mrs. Walton.

Jo Walton - Crédit Suisse AG, Research Division

Jo Walton from Crédit Suisse. Two questions, please. Firstly, you talk about your guidance being increasingly challenging. I wonder if you could just talk about what the key elements to that are. And in particular, what sort of impact at the EPS level, foreign exchange is likely to have contributed to it. And secondly, can you tell us a little bit about how you are getting on with price negotiations for EYLEA in Europe. You've talked about success in Germany, but can you tell us where else we should be looking for sales because there wasn't much of a sequential increase between the second and the third quarter. Presumably, Europe has really yet to kick in significantly for that product.

Marijn E. Dekkers

Okay, Werner Baumann will start.

Werner Baumann

Yes, Jo, on the increasingly challenging guidance, you will have read in some of our early comments that we had a few phasing issues, e.g., in Kogenate, which is a fairly margin-rich product. But at the same time, we do also see some further investments going into quarter 4, particularly behind our new product launches in Pharmaceuticals. That is the operational piece of the question. When it comes to foreign exchange and EPS, throughout the year, we are seeing increasingly negative effects of foreign exchange, which have been actually weighing on our results. And for quarter 3, it was an amount of EUR 133 million; and for quarter 4, it is another very, very significant amount. So that overall, if you look at the total company, the exchange effect is somewhere in the area between EUR 200 million and EUR 250 million we expect for the full year. So if you're going to translate that into an EPS proxy, it would be somewhere in the area of probably EUR 0.20, yes. It's difficult to do it that way, but at as a proxy, it would be almost EUR 0.20.

Marijn E. Dekkers

Okay. And then EYLEA, the price negotiation in Europe, Wolfgang.

Wolfgang Plischke

Yes. Thanks, Jo, for the question. Germany, you mentioned, just as a remark here, we are reaching 29% market share in Germany and also EYLEA. And you have to consider that, in Germany, this market is composed by a couple of indications. Therefore, the 29% actually, if you just look at that AMD, is a much bigger market share in Germany. So showing some real success there. We are going forward in other areas, other European markets with the price negotiations but this takes naturally time. It's much more complicated. We are also negotiating, and that's probably the biggest part, with authorities in France. And as you know, that's one of the biggest markets for this indication, but it's too early to say we have finalized this. But in due time, you will hear probably more about this.

Operator

The next question is from Mr. Wenner.

Fabian Wenner - Kepler Cheuvreux, Research Division

It's Fabian Wenner from Kepler Cheuvreux. I have all pharma questions, please. Kogenate, first of all, you mentioned phasing effects. When I look at the organic growth rates in this year, I can't see that phasing effect really. And the 15% in Q3 looks a little bit like channel stuffing. Can you just reconfirm that that's not the case? And then with regards to Stivarga, we've seen the third quarter with about EUR 35 million of sales in the U.S. I just wonder what's happening there and why that is not moving up? Do you see the third line setting basically saturated? Are you catching any patients in the second line setting? And then lastly on Adempas, just with regards to the sales reps you're going to use there, do you -- are you hiring or have you hired incremental reps? Or are you sufficiently equipped with the Ventavis ones?

Marijn E. Dekkers

Wolfgang?

Wolfgang Plischke

Okay. Kogenate, yes, we had a good quarter for Kogenate. If you look at the full year, FX-adjusted sales were 9%, as you can see. But it's really a phasing effect throughout the year and we will stick to our guidance here given for Kogenate. Stivarga in the United States, yes, it's, let's say, coming now into a more intense phase in our launch in the United States throughout the last 2 quarters. We have benefited from many patients who have been in need for this new pharmaceutical. Now we are working our way through, getting more oncologists familiar with the product. This will also get more experience in the next couple of months. So we are confident that we will be successful in the United States. In addition, as you know, we have launched the product recently in August in Europe and we have launched it recently in Japan. And we are quite satisfied with the early performance we can see for Stivarga in Europe and in Japan. Adempas, yes, recent launch in Canada, but that's just a launch for the private sector so far, as you know. And the launch in the United States, actually, in the United States, we have hired specialists for this market and for this indication who have had experience, a high percentage of this population of sales rep in this specific market. So I believe we will have a very competitive marketing and sales organization for Adempas in the United States.

Operator

The next question is from Mr. Gilbert.

Thomas Gilbert - UBS Investment Bank, Research Division

UBS in Zürich. On CropScience, can you just -- I'm just trying to dissect the segment and the regional comments. Obviously, for CropScience, North America and Europe for CropScience showed stagnant to declining results whereas then at the segment level, you show very strong Environmental Science, which I guess is a North American and European business. Can you just flesh out again where in the 3 segments, Seed, Crop Protection, Environmental Science, the business retracted and whether that's more of a backwards-looking issue or reflecting sort of more caution in the supply chain because of falling crop prices in the Northern Hemisphere? That's the first question. The second question, coming back to Amy's question. The strong growth in fungicides and the strong growth in Latin America probably belong together. Is that one new product launch driving this? Or is this a broad -- is this a category phenomenon? Or is this 1 specific product rollout that is winning you obviously so much share down there in Latin America? And then the third question is an awkward one for Patrick. Patrick, forgive me, but can you make a weather comment on the third quarter result in terms of whether more favorable weather has favored the construction-related business especially in Europe? If you can talk around the European performance of MaterialScience, that would be good.

Marijn E. Dekkers

Okay. So let's start with the person who we never ask for a weather forecast and that is Liam Condon of CropScience with the regional accounts.

Liam Condon

Okay. I'll try and dissect it a little bit. A big, let's say, a big reason for the overall performance is, of course, our Crop Protection business is doing very strongly with 14% growth. And this is basically in all regions with the exception of Europe in quarter 3. And in Europe, we have some phasing issues. We will -- we expect that this will be, let's say, back to normal in quarter 4. So no structural issue are there. But basically, in all other regions, we have very strong growth, specifically for herbicides. When I talk about Crop Protection, I mean the biggest part of the market. So on -- overall, with the Seeds business, the big hit that we take is in North America. And this is entirely due to the acreage declines in canola and in cotton. And in all other regions, we grow seeds particularly with soybean and rice, but this is from a very small base. And a significantly larger base, the vegetable seeds business is doing very well basically across all regions. So this is -- we're now in double-digit growth territory, again, after weak year last year. And in Environmental Science, it's -- we are back on track, I would say, across all regions, strong professional and in consumer. But basically, let's say, it's come back across-the-board. So overall, the biggest growth driver for us, just to summarize again, is Crop Protection. And across-the-board, very strong growth driven by fungicides, insecticides. And the only weakness, real weakness, has been herbicide area and that has been specifically related to Europe, which again, we don't think is structural. We think it's more a phasing issue, just to summarize it.

Marijn E. Dekkers

And then, Patrick, the weather for building and construction?

Patrick W. Thomas

This is the first time I get the weather question. I'm feeling quite intrigued by that. Weather in construction in Europe is always an issue. And certainly in the first half year some of the bad weather has reduced amount of polyurethanes in construction. And that has picked up in the third quarter. There's no doubt with that. The other industry that has picked up, which is not so weather dependent but it does tend to follow construction, is the furniture industry in Europe, and that's heavily driven by TDI. But it's not really in Western Europe. Most of that growth is in Eastern Europe, Africa and the Middle East. Western Europe is relatively flat on furniture. And then just for completion, on Polycarbonates in Europe, the main drivers being automotive, but mainly exports of automotives from Europe. And that's probably the picture of Europe that's best.

Thomas Gilbert - UBS Investment Bank, Research Division

Can I just follow up on the fungicide in Latin America, whether there's 1 specific product or there's a category of phenomenon in Latin America?

Liam Condon

It is a category phenomenon. I mean, we are seeing exceptional growth, just to give you an example, in Brazil. It's 35% growth that we're seeing in currency-adjusted growth for fungicides. And this is basically driven by the soybean market, which is the same story for us with the insecticides due to high pest intensity. And there, we're even seeing 60% growth in Brazil for our products. So it's heavily soybean crop-related.

Operator

Your next question is from Mr. Vosser.

Richard Vosser - JP Morgan Chase & Co, Research Division

It's Richard Vosser from JPMorgan. A few Pharma ones and Crop one, please. So just on Xofigo, obviously, a very good second quarter of the launch -- or the third quarter. Just wondered if you would give us an update on the site licensing in the U.S. to give us some perspective there. And also whether you could comment on whether any patients have finished their treatments in Xofigo now? Second question on EYLEA, just wondering whether you're saying -- seeing any sales in other indications other than AMD at the moment? And whether you could comment on how you would expect the market to change when you get the DME approved -- or rather, on your label next year? And then on to the CropScience question. Obviously, I think we are looking at margin expansion year-on-year based on your guidance, maybe around 25% for the year. So I'm just thinking about the long-term guidance for margins and just wondering what sort of incremental spend we should be thinking of for 2014 to take that margin back down to 24%

Marijn E. Dekkers

Okay. Xofigo, Wolfgang?

Wolfgang Plischke

Yes. I can -- Richard, I can give you some feedback on the patients-ready sites. We have 626 now, so we have good coverage. In respect to patients treated finishing the treatment, I'm not aware of this. I cannot give you an answer. EYLEA used in other indications beyond, we are not aware of this. No knowledge about this. Obviously, your question about DME, yes, it will be a positive situation for us. You know that we have indicated that we've -- we'll do a submission in DME in the last quarter in Europe. And if you look at another indication, CNV, we will do a filing at the end of 2013, too, which was, I believe, we're already communicating. But in that, for sure, is quite a favorable situation for us [indiscernible], even our market opportunities.

Marijn E. Dekkers

Okay. And then the margins in CropScience, Liam?

Liam Condon

Yes, so last year, 24.4%, and we are expecting this year that it will be somewhat above that. We are being helped, however, this year on the bottom line with the currency. So we don't see next year, in our guide going forward, we don't see any fundamental changes in our spending patterns and any changes in margin. My guess is that they will be explained through currency fluctuations and not through fundamentals of spending or income.

Operator

Your next question is from Mr. Jain.

Sachin Jain - BofA Merrill Lynch, Research Division

I think that's me, Sachin Jain, Bank of America. Three product questions, if I may. First is Xarelto, at ACS. It's been refiled in the U.S. Can you give us any color on what was contained in that refiling and your level of confidence have ever [indiscernible] with PDUFA, given you've already had 2 Complete Response Letters. Secondly, on hemophilia, the long-acting Factor VIII. If the data that's due early next year is positive, would you be ready to launch in '15 from a manufacturing perspective. The reason for the question is the manufacturing delays at both Nova and Biogen have suffered. And how do you assess your time lag with that long-acting relative to where Biogen now sits? And then the final question is just a follow-up on Xofigo. If I heard you right, you have 626 patient rate. I think initial target had been 600. So how do we think about where that target -- initial target of 600 now goes to? And then a related question, you obviously spent 3 to 6 months thinking about logistics as a key hurdle to adoption. It doesn't seem like that is the case. So what do you now see as a key hurdle to Xofigo sales progression?

Marijn E. Dekkers

Wolfgang?

Wolfgang Plischke

Thanks for the question. ACS in United States, so you mentioned it, there's a PDUFA date of February next year. This is in the hands of our good partner, J&J. We are all confident that we will get the approval as we have gotten it in Europe. Kogenate, we communicated already that we will get the first data at the beginning of 2014. The filing, we will not assume to do in 2014 because we will need some time to finalize the trial, to put the data together and to prepare our manufacturing processes to be able to launch the product then after the approval. Xofigo, 600, yes. We are at 626 now. There are still opportunities for us to extend this number by -- I cannot give you the exact one. Probably by 100 or 200 additional size. But what I can say is we are on track with our plans we have set ourselves for Xofigo. The sales, we have reported are also in line with our expectations and we are working our way through in the next couple of months and we are confident that this will -- this product will grow step-by-step in the next quarters.

Operator

The next question is from Mr. Wendorff.

Daniel Wendorff - Commerzbank AG, Research Division

Daniel Wendorff from Commerzbank. One question on Pharma -- actually, 2 questions in Pharma, one financial, one product-related one, and also one margin question on Pharma. And starting off with a follow-up question on EYLEA. Could you potentially quantify the negative currency impact on the direct sales in Q3? And could you update us on the market penetration or the market share the drug has, in particular, Japan, Australia and Germany. As you mentioned in your briefing documents that these are the most important countries for the drug right now. And then also on Pharma, the operating cash flow development was quite weak compared to Q3 last year. Could you potentially comment on why that was? And lastly, on the Pharma EBITDA margin, the adjusted EBITDA margin, which has held up quite strongly during the course of this year. Should we expect really a downfall for Q4 in anticipation of the increased launch costs? Or is the level we've seen over the first 3 quarters a good proxy model for the fourth quarter?

Marijn E. Dekkers

Okay. So EYLEA, Wolfgang, can you quantify the negative foreign exchange effects in the third quarter?

Wolfgang Plischke

Thanks for the question again. The foreign exchange effect is more or are less not -- makes no sense here because we had no sales in 2000 and [indiscernible]. That's just what we had with the currencies we have currently. On the level of market performance, let me check, I haven't seen the data. I just want to repeat, Germany, 29%. And again, I say it's higher if you look at the overall market we are comparing to. Then in Australia, we are at about 43% and this is fluctuating in the given months a little bit. One month we are 46%, 47% and 43% and then going up again. But steadily, at about 45% or even 50%. And in Japan, at the end of September, we had a market share of 48%. Then the question about the EBIT margin.

Werner Baumann

Yes, I can certainly answer that. And also when we look at both margin and probably also your cash flow question, we have given guidance for the HealthCare margin for the full year, and additional detail we will give now for the specific quarter. We have already made a comment that certainly in quarter 4, and specifically also in Pharma, we have a few things that will weigh on the Pharma results, one being the further negative currency impacts as we have seen in quarter 3 already; and second, some of the further launch and R&D investments behind our new products. Coming now to the point of the net cash flow development, from an operating perspective, HealthCare overall is doing actually very, very well in terms of operating working capital management. So that is not the reason. It's actually more of a technicality we are seeing in the net cash flow development. And that is that the amount we reserved in 2012 for the YAZ/Yasmin litigation, settlements and also defense costs has started to now become out flux of liquidity out of the company and that is what you've seen in the net cash flow development. So nothing to do with any operating deterioration or anything of that sort.

Operator

The next question is from Mr. Koehler.

Ronald Koehler - MainFirst Bank AG, Research Division

It's Ronald Koehler from MainFirst, and I have 3 questions. The first question is on the guidance. Your guidance is now based on average currency rate of the first 9 months. We know, obviously, that currently the rate of are much more, unfortunately -- or the year is much stronger now than it is on the average of the first 9 months. If we would take today's currency rate as a protection for the fourth quarter, would that then threaten your guidance or would it be only marginal impact? That's the first question. The second question I have on your HealthCare R&D budget, I think you had given the guidance of around EUR 2.1 billion for the full year previously, which implies around EUR 600 million in the fourth quarter. Is that still the right number? Or should we now look for a higher number as you accelerate some of your projects here? And the third question is on Consumer Health. When I look at the regional development, actually, I see Europe strongest and Asia/Pacific weak-ish and also North America weak-ish whereas, obviously, let's say, GDP was just something different. Is that -- how is the development right now in North American, Asia/Pacific from a consumer perspective? Or are these very specific things, which you drags you down in sales in Consumer Health?

Marijn E. Dekkers

Okay. So, Werner Baumann will take the first question on the currency rate.

Werner Baumann

Yes, Ronald, I mean, as I mentioned before, we have seen progressive burdening of our earnings dynamics by currency. I mean, for the first half year, it was roughly EUR 40 million. In quarter 3 alone, it was EUR 133 million. And now if you look at the average versus the quarter 3 end rate, [indiscernible] for the remainder of the year. In, let's say, order of magnitude, you could assume that, that would have a negative impact somewhere in the area of, call it, mid-single -- mid-double digits in euro on the bottom line.

Ronald Koehler - MainFirst Bank AG, Research Division

Mid-double digits?

Werner Baumann

Yes, so there...

Ronald Koehler - MainFirst Bank AG, Research Division

So EUR 50 million.

Werner Baumann

Plus/minus -- EUR 50 million, plus/minus.

Ronald Koehler - MainFirst Bank AG, Research Division

Okay. Because I thought EUR 130 million in Q3, it might be even something similar in Q4 at current rates. That would be then overshooting. Okay.

Marijn E. Dekkers

Okay. Then the R&D question for HealthCare?

Wolfgang Plischke

R&D, no, there's no change of our guidance. But you have to understand that in the fourth quarter, as every year, it's just normal that our R&D expenses are higher than in the previous quarters, and that will also be the same in 2013.

Marijn E. Dekkers

Consumer Health?

Wolfgang Plischke

Consumer Health, if you look at our overall performance for Consumer Health, you have seen that currency adjusted in Western Europe, we have been up 3.6%; in emerging economies, about 11.6%; in the U.S., we have a tougher time, minus 3.9%. But you have to see that's a very mixed picture across our Consumer Health businesses. If you look at our Consumer Care business, we are especially strong in this quarter, like in the previous quarter, in Brazil and in Russia, as you mentioned here, where we have been up by 32% in Russia and in Brazil up by 43%. If you look at our Medical Care business, then we have a tougher time in the United States because of the reimbursement pressure we have on our Diabetes Care business. But we have also a tough time in our Radiology business because we have a declining market there actually because we have lesser utilization of the radiology units and therefore also less utilization of our products. And if you look at Animal Health, we had quite a good performance in the United States for Seresto, our new flea and tick collar in the United States. But on the other hand, we have also seen some entry of generic competition for atrial. So also a mixed picture there for our Consumer Health.

Operator

The next question is from Mr. Conover.

Damien Conover - Morningstar Inc., Research Division

This is Damien Conover calling in for Morningstar. Just a couple of questions on the Pharma division. Just wondering how you might characterize the competitive positioning of Kogenate as you look into 2014 with a new a competitor coming to the market with potentially a better dosing profile? And then secondly, just a question on the 5 products that are being accelerated into Phase III development by 2015. It looks like there's a heavier emphasis on product development in the cardiovascular space. I just want to see how you characterize the risk/award of those 2 products, in particular, 94-8862 just because of some of notable failures in that therapeutic indication.

Marijn E. Dekkers

Okay. Wolfgang, Kogenate?

Wolfgang Plischke

Kogenate, you are referring to the competitive situation we will face in the upcoming years, new competitors coming and you are probably referring to the first long-acting product of Biogen. And there, I'd just repeat what we said many times before. What they are offering is an extension of the treatment period to 3, 3.5 days and that's not really exciting. You will only make a difference to this market if you can extend this to 5, 6 or 7 days. And the trials we are making are designed, if the product works at the end, to demonstrate this. Your question about the new pipeline assets that we have and we have especially presented at the last management meeting. Yes, your observation is right. There are a couple of cardiology projects between them, which is just, in part, a phasing issue. You have all the time with your development portfolio. But it also demonstrates, besides the strengths we have demonstrated in oncology now, that one of our other strengths is cardiology. That also behind Xarelto, we have really interesting development projects coming up. The MR antagonist, you are mentioning BAY 94-8862, we see this as a very interesting product, an indication where new therapies are needed. We are fully aware that other attempts have failed to pass them. But we believe that the profile of our compound is suited to really show differentiation when we have performed successful trials in the future, and therefore, we will take this better to move this product forward.

Operator

The next question is from Mr. Chesney.

I will proceed to the next question. It comes from the line of Mr. Baum.

Andrew S. Baum - Citigroup Inc, Research Division

It's Andrew Baum from Citi. Just one question. Could you just update us what you're seeing in terms of competitive impact in the U.S. from ELIQUIS and what are your expectations of the impact following the inclusion in Medicare Part B, as well as what you're seeing as an impact to the B2C advertising within the various channels?

Marijn E. Dekkers

Wolfgang?

Wolfgang Plischke

Yes, thanks for the question about Xarelto in the United States. Just a few data about the performance of Xarelto currently in the United States. If you look at the overall market share, we are currently at about 28% market share in the United States. And if you look at, especially the new prescription among cardiologists, our compound, Xarelto, is at a market share of about 38%. So we are keeping this on a very, very high level since quite some time. It's true that apixaban, ELIQUIS, is doing better there in this special segment of the business, having reached about 20%. But if you look at the overall market share, they are still at about 4% in the United States. And if I go to the other markets, Germany, 3%; U.K., 1%; Japan, 1%, where we have now jumped from 9% to 24% after we got the possibility to prescribe the product for more than 2 weeks. For sure, our competitor will do what they can for the product in the United States. It's obviously a main asset of them, but we are very confident in the future success and the competences and skills of our good corporation partner, Johnson & Johnson, that we can succeed with Xarelto in the United States in the future.

Operator

The next question is from Mrs. Miemietz.

Marietta Miemietz

Marietta Miemietz from Primavenue. Just following up on the question on how robust your guidance is. You said earlier that your guidance is based on 9 months foreign exchange rates but that if current exchange rates were to hold for the rest of the year, the incremental negative impact will only be about EUR 50 million on the bottom line. So did I understand this correctly, that basically unless there is a marked further deterioration in exchange rates, you should be able to make your guidance irrespective of foreign exchange rate movements? And what issues, besides foreign exchange, could realistically jeopardize your guidance? Are there any items that stand out? I mean, for example, if we had a massive negative development in raw material prices for BMS for the rest of the year, would that potentially be something that could jeopardize your guidance? And then I was just wondering when you set targets for divisional management, how do you actually factor in currency? Do the managers actually have to make their targets in euros irrespective of foreign exchange rate movements, which I think some of your peers actually do? Or do you set the targets in local currency and then adjust them as the currency moves?

Werner Baumann

Yes, so thanks for the question. Let me first come to the guidance [indiscernible] its impact. The guidance has been qualified in so far that it has been given on the average 9 months. If we see further deterioration, that makes us achieving our guidance -- of course it makes it a little bit more difficult and more ambitious. And that is exactly how we have framed it. It doesn't mean that we wouldn't make it, but it's certainly somewhat harder because whatever currency takes away has to be made up by further curbing on expenses and investments in the fourth quarter, which can be done to a certain extent, but certainly not to an extent that it would actually damage our business going forward. That wouldn't make any sense. In terms of other things, which might put our guidance into jeopardy, it's either less sales or more costs against it in different areas. One is that being in a cyclical business that we also have, let's say, significant feedstock positions, which drive earnings up or down. Volatility around our main feedstocks in MaterialScience is, of course, something which is to be watched. Our full year guidance is based on -- if you look at it as a proxy for raw oil, it's based on $106 per barrel. It's not exactly translatable into the derivatives. But, let's say, further cost increases would, again, everything being equal, make it somewhat harder to achieve our guidance. Likewise, in other areas, but again based on what we have been looking at in terms of year-to-year performance and the remainder of the year, we believe that we can certainly reach our guided metrics we have given. And the only part is that the more negatives we see, the harder it's going to be and then we'll see how it fares towards the end of the year. Now coming to the question on how we incentivize and whether management has to deliver on local currencies or foreign exchange, when we start the year, our operational target, and of course, our guidance are always based on a set of currency assumptions. And that's what we start with. Positive and negative deviations will be absorbed in the business. So we don't adjust our incentivization for positive and negative currency fluctuations. Whatever the margin or absolute euro objectives are is what we are shooting for besides other objectives such as across growth performance versus competitors and so on, yes?

Operator

The next question is from the line of Mr. Chesney.

Steve Chesney - Goldman Sachs Group Inc., Research Division

Steve Chesney from Goldman Sachs. Just a quick question on HealthCare, back to China. You said it was roughly flat year-on-year. I was wondering if you could just quantify the growth you were seeing individually for Pharma and the consumer subsegments? And then, additionally, how the growth dynamics evolved from July and then into August and September. And then a question on crop prices, seem to be moving ahead more than they were in first half. To what extent do you believe you can maintain this level of pricing as we head into the North American season in 2014?

Marijn E. Dekkers

Okay. Wolfgang, China.

Wolfgang Plischke

Yes, thanks for the question. I just want to repeat we are more or less in line with last quarter compared to a very, very high third quarter of last year. And we don't split it according to the businesses.

Marijn E. Dekkers

And not according to the sequence of the months.

Wolfgang Plischke

And the sequence of the months.

Marijn E. Dekkers

Yes. Liam?

Liam Condon

Yes, we've been very pleased with our pricing so far this year. Usually it dips a bit in the fourth quarter because we're strongly dependent on Latin America. But we were also seeing so far this year actually quite good price development also in Latin America, and specifically, in Brazil. From what we can see of the markets, so far, going into 2014, we expect to continue to be able to take good price in the market. It might not be as high as the current level, but, for sure, will be a positive price development going into the new year.

Operator

Mr. Rosar, there are no further questions at this time. Please continue with any other points you wish to raise.

Alexander Rosar

Yes. Ladies and gentlemen, also on behalf of my colleagues, I'd like to thank you for being with us, your questions. And we wish to see you soon again, and we are now saying goodbye.

Operator

Ladies and gentlemen, this concludes the Third Quarter 2013 Results Investor and Analyst Conference Call of Bayer AG. Thank you for participating. You may now disconnect.

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