Bayer's (BAYZF) CEO Werner Baumann on Q2 2016 Results - Earnings Call Transcript

| About: Bayer A.G. (BAYZF)

Bayer A.G. (OTCPK:BAYZF) Q2 2016 Earnings Conference Call July 27, 2016 8:00 AM ET

Executives

Juergen Beunink - IR

Werner Baumann - CEO

Johannes Dietsch - CFO

Dieter Weinand - Head, Pharmaceuticals Division

Erica Mann, Head - Consumer Health Division

Liam Condon, Head - Crop Science Division

Analysts

Tim Race - Deutsche Bank

Florent Cespedes - Societe Generale

Richard Vosser - JP Morgan

Tony Jones - Redburn

Vincent Meunier - Morgan Stanley

Luisa Hector - Exane BNP Paribas

Peter Verdult - Citi

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Bayer's investor and analyst conference call on the second quarter 2016 results. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to Mr. Juergen Beunink, Investor Relations of Bayer AG. Please go ahead, sir.

Juergen Beunink

Thank you. Ladies and gentlemen, good afternoon and welcome to our conference call, also on behalf of my colleagues. Today, we'd like to review our second quarter figures with you. With me on the call are Werner Baumann, our CEO; and Johannes Dietsch, our CFO. Pharma is to be presented by Dieter Weinand; Consumer Health by Erica Mann; and Crop Science as well as Animal Health by Liam Condon. Werner will start off with a brief summary of the developments in the second quarter.

We assume you've all received and reviewed our interim report, the briefing document and the presentation slides, so we'll just focus on the main points. Before handing over to Werner, I'd like to draw your attention to the Safe Harbor statement and the additional information. Thank you. Werner?

Werner Baumann

So, thank you, Juergen, and welcome to everybody, and thanks for making the time and good afternoon. So, it’s my pleasure to welcome you to our Q2 conference call, to share our business performance with you today. During the second quarter, we grew our business and nicely improved earnings on group level. Pharmaceuticals continues the strong growth trend. Consumer Health rate sales and our Crop Science business held steady despite a continuously difficult market environment.

Also in Q2, we made our all-cash offer to acquire all of the issued and outstanding shares of common stock of Monsanto. We signed an agreement with SBM Development for the sale of the Consumer business of our environmental science unit at Crop Science. Looking at our Pharma pipeline, initial results from a phase 3 trial showed that Regorafenib significantly improves overall survival in patients with unresectable liver cancer. We plan to submit this data for marketing authorization still due in 2016. Based on our operational achievements in Q2 and our expectations for the remainder of the year, we are increasing our guidance for 2016.

Now, let me briefly cover some key figures of the underlying Q2 performance. Please note when mentioning changes in sales, I'm referring to portfolio and currency-adjusted data unless otherwise stated. Group sales advanced by 2% to EUR11.8 billion, primarily driven by all Pharmaceuticals and Consumer Health businesses. Reported EBIT climbed significantly by 17% to EUR2.1 billion, also as a result of lower special items. Earnings were diminished by special charges of EUR104 million, mainly related to efficiency improvement measures, the integration of the acquired consumer care businesses and the reorganization of the Bayer Group.

Adjusted EBITDA for the Group posted a gratifying increase of 6% to EUR3.1 billion, mostly driven by a significant earnings improvement at Pharma. This excellent development on group level was achieved despite negative currency effects of around EUR90 million, as well as the synergies from the Covestro IPO and the divestiture of our Diabetes Care business. Core earnings per share from continuing operations amounted to EUR2.07, an increase of 4% over the prior year period. As a result of the improvement in EBITDA, gross cash flow increased by 9% in the quarter to EUR2.4 billion. Although more funds were tied up in working capital versus prior year, net cash flow improved slightly by 1% to almost EUR2 billion.

With capital expenditures of around EUR600 million, the operating free cash flow came in at roughly EUR1.4 billion. Net financial debt, at the end of the quarter, stood at EUR17.8 billion, an increase of EUR1.5 billion from the end of quarter one. Cash inflows from operating activities could not fully cover dividend payments in the second quarter.

I will now share the Q2 performance of our Life Science segments in more detail with you. Pharma sales advanced 8% to EUR4.1 billion in the quarter across all regions. This growth was mainly driven by our launched products Xarelto, Eylea, Xofigo, Stivarga and Adempas, which posted combined sales of more than EUR1.3 billion in the quarter, up 29%. Xarelto posted growth of 30%, with volume increases in Europe and Japan contributing. Eylea again showed impressive growth, up 41% versus the prior-year quarter. This is mainly due to growth in Europe, Canada, and Japan.

Xofigo, which advanced 27% and Adempas up 45% in the quarter also made positive contributions to the overall sales performance. In contrast, sales of Stivarga declined by 25%, due to intensified competition in the US. In the prior-year quarter, product sales had benefited from a reversal of a rebate provision in France.

Performance of our established product portfolio was mixed in the quarter. Sales of Kogenate declined by 6%, primarily due to fluctuations in volumes orders. Sales of the Mirena family came in at almost prior-year levels despite volume declines in the US. The sales decline of 9% for Betaferon resulted among others from a weaker business development in Europe.

Following the strong sales growth, adjusted EBITDA of Pharma showed a substantial 13% improvement over the prior-year period to nearly EUR1.4 billion. The division performed excellently despite high investments in R&D, as well as negative currency effects of around EUR40 million in the quarter.

Now let us move to our consumer health business. Sales were up 4% at EUR1.6 billion, driven by advances in all regions except North America. Despite a weak allergy season in the US, our top brand Claritin registered sales growth of 11%. This was primarily driven by business in China and the launch of ClariSpray nasal formulation in the US. Aspirin sales including the business reported under pharma grew at 13%. Bepanthen sales advanced an impressive 21% especially in Europe resulting from intensified marketing activities in Russia and line extensions in France. Canesten benefited from strong volume increases across all regions posting a 19% increase in sales. However, sales of Aleve declined by 5% in light of the deteriorating economic situation in Brazil and increased competition in the US. Sales of Coppertone came in slightly below prior-year level. Sales increases in China could not compensate the primarily weather-related shortfall in the US. Adjusted EBITDA declined by 9% to EUR328 million. The earnings contribution from the good business performance and cost synergies were not sufficient to offset the higher selling expenses as well as allocation effects. In addition, negative currency effects of around EUR25 million had to be applauded.

Let me now elaborate on the Q2 performance of our crop science business. Overall crop science had up well in a challenging market environment in the quarter. Sales were 0.4% to EUR2.5 billion. In Europe, sales of crop science came in at 1% above the prior-year quarter. While seed growth, insecticides and herbicides posted double-digit percentage growth, fungicides declined considerably. In North America, we had to record a 3% decline on the back of the weak seeds business due to seasonal effects. By contrast, we registered very pleasing growth at fungicides. In Asia-Pacific, we advanced sales by 8% due to the strong performance in China and Australia. Lastly, in the Latin America, Africa and Middle East region, sales came in at prior-year levels. Adjusted EBITDA at crop science was at EUR663 million, an 8% drop compared to the prior-year period. The positive effect of higher selling prices and lower marketing and selling expenses could only partially compensate higher crops slightly lower volume as well as a negative currency impact of around EUR10 million.

Lastly, our animal health business posted sales that increased by 4% to EUR426 million. The business benefited from increased demand in our regions. Seresto, our new flea and tick collar for dogs continued its successful growth path supported by higher demand in the US and Europe. However, our Advantage product family had to post sales decline of 4% on the back of increased competition. Adjusted EBITDA declined to almost 17% to EUR100 million due to especially seasonal shifts in selling costs and negative currency effect of around EUR5 million. So based on our performance in the second quarter, and our expectations for the remainder of the year, we are adjusting our guidance for 2016. We are now planning group sales of EUR46 billion to EUR47 billion. This continues to correspond to lower single digit percentage increase on a currency and portfolio adjusted basis. We now plan to increase adjusted EBITDA by high single digit percentage. Full-year core EPS from continuing operations which include our remaining stake of Covestro, is anticipated to improve by mid to high single digit percentage.

The 2016 guidance change is also reflected in the individual life science division. For Pharma, we now expect the sales increase in the high-single digit percentage range and plan to increase adjusted EBITDA in the low teens percentage range. We aim to improve the EBITDA margin before special items. Given the strong dynamic in the first six months of the year, we now plan to grow the sales of our recently launched pharmaceutical products toward EUR5.5 billion in 2016. We expect the biggest contributions from Xarelto and Eylea with growth of toward 30% for Xarelto and at least 30% for Eylea. For consumer health, we now expect sales to increase in the low to mid single digit range and adjusted EBITDA to come at prior-year levels. In light of the challenging market conditions at crop science, we now expect to remain at prior-year level with our sales. Adjusted EBITDA is now forecasted to decline in the low single digit percentage range. Our guidance for animal health remains unchanged.

We are still planning sales and adjusted EBITDA to increase by low to mid single digit percentage each. We continue to expect our life sciences sales to grow organically by a mid-single digit percentage to approximately EUR35 billion and are now planning to improve adjusted EBITDA in the mid-to-high single digit range. So ladies and gentlemen to wrap it up, overall we are pleased with Bayer’s operative and strategic progress in the first half of 2016. We continue our strategic focus for all our life sciences businesses; we will provide you with a strategy update at our mid-management conference. My colleagues and I hope to see many of you in person on September 20. Before opening the Q&A session let me also make a remark regarding our proposed acquisition of Monsanto. As you know, we have engaged in discussions with Monsanto concerning our offer. However, we do not have anything further to say at this time about the proposed transaction beyond what has already been published. And we appreciate your understanding.

That concludes my remarks and we will now be happy to take your questions. Many thanks.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] First question comes from the line of Tim Race, please state your name, company name followed by your question.

Tim Race

Hi there, it’s Tim Race here from Deutsche Bank. So a few questions if I may. First of all I know you don't want to comment further on Monsanto but if I just may ask what level of information you have received so from Monsanto that allows you to raise your bid and what level of information you're hoping to get from Monsanto before you can potentially pencil in another bid. And if you could just conform whether you're still in active discussions with Monsanto as it stands? Then some questions just on natural business, if you could just discuss Eylea and Xarelto, just discussing the market share that you have in various different segments in your regions and also how penetrated you are in these different products so far and how much growth is still to come on the products? Then just one last question on Covestro, what's holding you back at the moment from divesting the stake, is it just market timing and waiting for the market to get better or are there other considerations we need to take into account such as tax or something like that could you help explain that? Thank you.

Werner Baumann

So thanks Tim, very quickly on your first question on Monsanto, as we already communicated we increased our bid from 122 to 125 on the basis of additional information received. I hope you understand and appreciate that we cannot get further - into father details at this point in time. Both companies also communicated a few weeks ago that they were looking forward to going back into private discussions and with that, also seize all public communication from that point on and that's where we are. So let me know hand over to Dieter who is going to answer your questions on Xarelto and Eylea regarding market share and penetration before Johannes Dietsch is going to address your question on Covestro.

Dieter Weinand

Hello Tim, let me start by saying we have - we continue to be pleased with our performance of Xarelto, we have maintained a leadership position in Xarelto overall, achieving and maintaining our 33% or above 33% market share with Xarelto. As we have previously discussed, we adjusted our targeting, we adjusted our messaging, we have become more effective in the way we address our customer base and that has been reflected in the performance first, as I mentioned already before in Japan, where NBRx share has continued to do well and we are in close range with apixaban and continue to be there.

And you asked about market shares, if you look at IMS market shares in major regions, you will see that in LatAm, we have almost 44% share according to IMS in sales. In Canada, 28%, 29%, in Europe, around 26%, in Asia Pacific, 35%. In Japan, total market share in sales is over 31% and I mentioned already that NBRx is doing very well. Brazil, we have over 55%, almost 56% share. So all in all, we have great momentum and the result only reflected ex-US, but we’re also very pleased with the results reported by J&J and we are quite optimistic with our continued performance regarding Xarelto.

Eylea, as was mentioned already by Werner, we grew 41%. It is a fantastic performance with Eylea, with all regions contributing, especially Europe, Canada and Japan. All major markets have a market share over 40% and some smaller markets with some 35% or so, in the 30% range, but significantly growing. We have already achieved 70% market share in Japan and that is driven by continued expansion in the wet AMD market segment as well as recent launches of flu indications [indiscernible] if recent launches continue with expansion in wet AMD give us significant optimism for continued substantial growth going forward. So I hope I addressed your question.

Tim Race

Very comprehensively, thank you.

Werner Baumann

So, Johannes.

Johannes Dietsch

Thank you, Tim. Regarding the Covestro, after having contributing 5% of our stock into the Bayer pension trends in April, we are currently not announcing any further plans. Of course, we are evaluating our options and we remain committed to our guidance that midterm, we want to have a complete separation on Covestro. And currently, of course, any transaction and absence of major maturities in the second half here and given the strong cash flow, which we expect in the second half, there is of course no need to highlight further cash, which currently is not able to be invested.

Tim Race

Understood, thank you.

Operator

Next question comes from the line of Florent Cespedes. Please state your name, company name, followed by your question.

Florent Cespedes

Good afternoon, gentlemen. Florent Cespedes from Societe Generale. A few quick questions. First, on consumer, could we have more color on why the performance is a bit softer than expected and could we also have an update on your cost and sales synergies.

Second question, quick on emerging markets, could we have more color on the performance in emerging markets, in China in particular?

And then the last one on the pipeline, could we have a quick update on Molidustat, on your plans behind this product. Are you still looking for a partner and could you confirm that on Copanlisib, you should report some results in the coming weeks or month? Thank you very much.

Werner Baumann

Very good. Thanks Florent for your question. On consumer, Erica is going to take the two questions on performance and synergies. On emerging markets, just for question, is that related to consumer or is it related to the entire business?

Florent Cespedes

I would say for the entire business and a quick focus on some as well of course.

Werner Baumann

Okay. Then, through the following, Erica is going to also answer emerging markets performance for her business before we then hand it over to Dieter who is going to comment on emerging markets for Pharma and the two pipeline assets, Molidustat and Copanlisib you mentioned. So Erica?

Erica Mann

So regarding quarter two performance, obviously, the results on bottom line was clearly disappointing and it was largely impacted by a weaker cough and cold and allergy season in the United States as well as a soft start to the summer season. This was also coupled with negative currency impact of around 7% as well as increased allocation. Now, it’s important to remember that quarter two and also quarter three traditionally requires higher investments to support these traditional seasonal brands and on top of that, we had a number of launches in quarter two, the most significant of those being ClariSpray and the [indiscernible].

With regards to the integration and synergies, the integration has now successfully been completed. We are ahead of target on cost synergies. We are also doing well in Europe, but as I said, we have significant headwinds with regards to the United States and are expecting some macroeconomic conditions. Coming to your question on emerging markets, we are still facing dispositions in Russia and Brazil more specifically. We have noted some recovery in Russia, but Brazil is currently in a heavy disdain.

Werner Baumann

So, Dieter.

Dieter Weinand

So, let me briefly update you on Molidustat. As we mentioned before, we are currently evaluating all our options with regards to Molidustat development. The environment has significantly changed, the external environment requiring large outcomes trials. We have not completed our process. We want to exercise due diligence in doing so, and we therefore don't have a more specific update.

On Copanlisib specifically, as you know, we have completed the Phase II clinical trial. We are currently analyzing the data. It is obviously an open label and we want to make sure that we are disciplined and not peaking at the data and once the data has been completed, it should be a little bit later this year, we will take decisions based on the data going forward.

With regards to the emerging markets performance overall, we grew the emerging markets 12.5%, we’re very pleased with our performance. As you know, in particular in China, the Pharma market, there have been some related changes implemented in terms of reimbursement and so forth. So the IMS revised their growth substantially through market growth, lower looking forward in particular in May this year, they lowered the growth projection to roughly 6.8%. If you look at a currency adjusted basis, we are good market in China, with roughly 10%. So, we are very pleased with our progression in China. We have not yet experienced the, what we have previously anticipated significant price impact. We have actually done very well thus far and China remains a significant growth market for us going forward.

If you specifically refer to Russia, it remains a challenging situation. We continue to monitor the situation. On a currency adjusted basis, we grew over 22%, driven primarily by Xarelto, so excellent performance from an operational perspective and long-term, we have to monitor the current situations and see how to manage.

Werner Baumann

Okay: thank you, Dieter.

Florent Cespedes

Thank you very much.

Operator

Next question comes from the line of Vosser. Please state your name, company name, followed by your question.

Richard Vosser

Hi, it's Richard Vosser from JP Morgan. A few questions please. Could I just follow up in terms of Xarelto and Eylea, I think you had guidance for 20% growth for Xarelto and at least 20% for Eylea, I presume those have been upgraded, but if you could give us how you see those growing this year, that would be useful.

Then on to crop science, could you talk about your expectations for the length of the weakness in the crop protection market or the crop science market. Is this now you're thinking that this continues into 2017, given continued low commodity prices. And then secondly, are there any concerns over stock in the inventory hitting either the second half or impact in 2017. And then finally perhaps on the second half, in particular for crop science perhaps you could talk about the demand in Latin America and how that’s impacting your expectations for the second half? Thanks very much.

Werner Baumann

Okay, thanks Richard for the question. So first on Xarelto, market share growth for both Xarelto and Eylea and the upgraded expectation may be also including the peak sales potential for 2015 for all new products that is what Dieter is going to comment on now.

Dieter Weinand

So we are upgraded obviously our guidance for Xarelto toward 30% growth this year reflecting our continued momentum and optimism we have going forward. In Eylea we told you earlier, Werner told you earlier at least 30% based on the great momentum that we have experienced and significant remaining growth potential in newly launched products. So the outlook for all our new products looks actually quite favorable.

Werner Baumann

Alright, so now let’s switch then to crop science and Liam first on the lines of the crops stocking levels 2016, ‘17 and then what’s the expectation for Latin America.

Liam Condon

Thanks a lot Richard, of course right now it's very hard to make a call for the remainder of this year particularly next year because most important thing right now is the harvest in the northern hemisphere particularly now in North America but let me try and give you a bit of flavor how we are looking at the market. Overall, we’re expecting a very subdued market for the reminder of the year. Reasons behind that are I think if you look at kind of the biggest crop corn, if the weather is so good so far North America is looking quite good and if the weather continues as it is right now there could be another strong harvest which would result again in relatively strong supply of corn onto the market. Argentina has been coming onto the market, the global market for corn again this year due to removal of export taxes. So corn overall and I think is going down a bit on the commodity prices and there is not much impetus unless there is a change in the outlook for northern hemisphere from a harvest point of view. So we will only know that later in the year and I guess in September when we meet for the mid-management that will be good point in time to talk about the outlook because then we will know what the harvest has been in the northern hemisphere and we will know what planting conditions are right in the southern hemisphere.

And specifically in LatAm and Brazil, the outlook is actually from a farming point of view farm demand point of view is actually good, the growers especially if you look at soya beans and demand has been relatively strong continually strong from Asia and commodity prices have been growing in the right direction and stock to use ratio has been declining. And so overall there the outlook is relatively good plus the depreciation of the real and the farmers are making good money. The whole problem in Brazil is really related to the overall economic crisis, there is a lack of liquidity in the market, there is a lack of access to credit and this is what is holding back the entire market in Brazil. And quite honestly we don't see any change here, and a quick change until the overall economic climate improves in Brazil. So this is just holding back the entire market. And one additional specific item in Brazil is channel inventories particularly for pesticides is also an issue, we've been pretty diligent in managing our own inventory but for sure lower pest pressure and [indiscernible] pressure this is also for sure partly due to penetration of the active soybean into the market. So, given that outlook for Brazil being the biggest market in the LatAm for the reminder of the year, it's hard to imagine that it would be soon return to growth and we rather think it will be a slow return to growth in 2017. I would say we are in a better position than at the mid-management in September to give a more qualified statement during that.

Werner Baumann

Alright thank you Liam.

Operator

Next question comes from the line of Mr. Jones. Please state your name, company name followed by your question.

Tony Jones

Good afternoon, Tony Jones at Redburn, I've got two. Sort of following on from the last question actually on the crop size performance. If I benchmark by volumes compared to your peers, the performance has actually been pretty good in a very tough environment, so I wanted to ask could you talk about what you think the main differentiators are. And then also is there anything that’s non-recurring in the operating results in the first half. And then secondly, sorry to go back to this but on Monsanto, I get the industrial logic for the deal but from a capital allocation point of view from a buyer point of view, could you talk a little bit about how you savor this versus a transaction in healthcare? Thank you.

Werner Baumann

Yes, thanks Tony for your question. So the first one on crop science and what do we do differently and bio performance has to be differentially quite good, Liam is going to comment and I'm going to answer the question on Monsanto.

Liam Condon

Thanks a lot for the question. So I think I'm - I mean we’ve spoken quite a bit about this in the past, our overall strategy is very much focused on innovation on the one side, and commercial excellence on the other, so simply the portfolio that we have and which we've always had a relatively strong portfolio but we haven't always been unsuccessful commercially in the market and we paid a lot of attention to that over the past two years as we get closer to our customers and adjust our products also more to our key customers’ needs. So I think this is a combination of portfolio and crop production portfolio and more niche seeds portfolio and we would like to bigger in seeds with the areas we are in and we’re very successful, we have a market, we lead the market in each area that we are in whether its canola or cotton and even rice and based on this experience we want to build out further our seeds profile. So that combination innovation portfolio on the one side and a much stronger emphasis on commercial excellence on the other side. I think that's the key differentiator for us right now. From a results point of view, first half of the year and looking at first half and going into the second half, I mean non-recurring I think there is nothing special to highlight there, there is no major differences in first versus second half from our expectation.

Werner Baumann

Thanks Liam. So on Monsanto, there is very, very sound logic and rational therefore looking at a significant capital deployment into the acquisition Monsanto versus something different either in consumer or pharma, but I would suggest it would actually be a longer explanation, you have to get the full picture that you follow with you Tony in a separate call.

Operator

Next question comes from the line of Mr. Meunier, please state your name, company name followed by your question.

Vincent Meunier

Hello, Vincent Meunier from Morgan Stanley. The first question is on the launch products in the context of first 29% growth would you update your target for the long-term. And the second question is in consumer, would you consider divestments to refocus on the top products and do you expect launch in mid-range in the mid-term and what will be the driver for that. And maybe lastly in crops, do you see any risk for Europe to turn in the red like in North America?

Werner Baumann

Thanks for the question, first of all on the launch product, Dieter is going to take your question also in terms of long-term perspective. Before I answer consumer health and then Liam is going to take your question on crops.

Dieter Weinand

As you know Werner had mentioned that for this year, we have guided towards the EUR5.5 billion range and we are not in a position today to update the long-term guidance.

Werner Baumann

Yeah. And just let me take on to that also, what our plan is and I mentioned it briefly is that we would love to update you on the longer term view of all our businesses in the upcoming mid-management on September 20 and that's where we would also, I think very comprehensively, address your question on consumer health. We are not looking at any product divestitures at this point in time. We, of course, continue to actively monitor and manage our entire portfolio, but there is nothing that I’ve highlighted at this point in time that we are actively looking at in our OTC portfolio.

Secondly, on margin leverage, where we are today is where we are today with our mid-term aspirations that are out there. Those are quite stated I have to say, while there is not going to be any anticipated fundamental change going forward, also subject here that you attend our mid-management on the 20th of September, because then you will see the entire picture. So with that, let me hand it over to Liam.

Liam Condon

Yeah. Thanks a lot for the question. So I’m less concerned about Europe going forward, or Europe turning bad or similar situation as North America. Europe is of course less export-oriented and with that, to a degree, less dependent then on commodity prices. What actually happened in the first half of the year is a very weak Western European business and due to weather, it just simply rained too much and this really hurt the fungicide business and that part of the business has then gone for the season, you can’t catch up that later in the year at the high margin business and where we were actually very strong in Europe this year was in Eastern Europe with strong volumes, also strong price increases and but there are of course, we have no volatile currencies and those tend to have more volatile currencies in those regions. So there is a part that we do have those price increases as well. So overall, Europe for us, is actually okay and we would have just preferred to have a somewhat different balance between Western and Eastern Europe, and but again, given the lower attendance on export, we don't see the same vulnerability as in the Americas.

Werner Baumann

Alright, thank you, Liam.

Vincent Meunier

Thanks.

Operator

Next question comes from the line of Luisa Hector. Please state your name, company name, followed by your question.

Luisa Hector

Hello, thank you. It’s Luisa Hector from Exane BNP Paribas. I wondered if I could touch upon the Pharma margin in a bit more detail and touch on the sentiment, the strength in the second quarter, whether there were particular cost lines or royalty lines that were helping you? And then specifically on R&D, is there any change to your guidance for the full year and is that helping for example Pharma, the upgrade to your guidance for the full year, given some of the pipeline updates that you've had during the course of the first-half? Thank you.

Werner Baumann

Okay. Luisa, thanks for the questions and Dieter is going to address the margin and R&D.

Dieter Weinand

As far as you know, we had previously expressed our desire to continuously work on enhancing our margin and in line with that interest, as you also know, Werner spoke a little bit earlier about the Pharma margin increased guidance for the remainder of the year and in line with that guidance, we remain optimistic for the remainder of the year with our margin that we are working on. You asked for some specifics, we have obviously, as previously mentioned, also significantly enhanced the rigor with which we deploy our resources, particularly the commercial area in marketing and sales and that has allowed us to continuously increase our investment in our future, meaning in research and development and innovation in our pipeline and now it's bearing the fruits. We have a really full pipeline now and hopefully at mid-management, we can discuss that a little bit. We are very optimistic with the investment we have made in that pipeline. And at the same time, enhance our margin. So we are balancing investment in our future with enhancing our margin and we continue to be optimistic going forward.

Werner Baumann

Thank you, Dieter.

Operator

Next question comes from the line of Mr. Verdult. Please state your name, company name, followed by your question.

Peter Verdult

Thank you. It’s Peter Verdult here from Citi. Three questions, strategy, crop and hemophilia. So Werner, I totally understand you're not commenting on Monsanto, so my question is on how the board is strategically thinking about the long-term outlook at Pharma and I’m trying to tell you Dieter’s recent comments about having a full pipeline with the setbacks that you announced in Q1. So the simple question is, do you believe the pipeline that is down today that Bayer has, will you be able to sustain what you believe you can sustain revenue growth post the Xarelto patent expiry?

And then secondly on crop for Liam, could you just provide an update on the capacity expansion timelines for glufosinate, how you think about that glufosinate dynamic longer term and the latest on the HPPD DDI collaboration with Syngenta.

And then lastly for Dieter on hemophilia, you mentioned the Helixate order volumes, but wondering if you could just characterize a little more the dynamics that you are seeing in the saturate market given Kogenate, Kovaltry and other recent competitor launches? Thanks.

Werner Baumann

Yes. Thanks, Peter for your questions and again, let me give you the headlines on strategy Pharma and how the board is looking at Pharma before we then also would update you in more detail in the mid-management. I can fully subscribe to and share Dieter’s optimism, we have a very strong business, it runs well operationally. I think quarter two has been a testimony to it, also the update of the guidance and the upgrade of the guidance for the reminder of the year. We see this business continue to grow for the next years to come. Xarelto, patent expiration is something that I think is being looked at differently depending on who you talk to in terms of how close it is.

We do think that there is quite a bit of runway in terms of our pipeline development and the focus we have put behind our pipeline and the increased investment before we see any significant impact in the Xarelto patent expirations. You have to simply think about Xarelto going off patent in the US as well as the largest market. On August 28, 2024 after the US PTO has granted its patent expiration and on top of that, if you had the pediatric expansion, it reaches into 2025. So this is about nine years from now, we also we are sometimes getting about the fact that people are getting very, very concerned about the closeness of the patent. So our perspective is, at quite some time and quite some order that flow down the line here and that really happens.

So with that, let me turn it over to Liam on Glufosinate-ammonium before Dieter takes your question on Helixate.

Liam Condon

Yes. Thanks a lot. So, as you know, we’re in the process of doubling our manufacturing capacity for Glufosinate-ammonium and this has been a program that's been going on now for a couple of years. So we’re kind of constantly expanding every year. We have more capacity coming to market, and the last part is project, last part of the expansion program is projected for startup in 2017 and we basically then expect to be fully untapped from 2018 coming into the market and as you know, there is considerable demand out there for additional herbicides, particularly given the issues around Glufosinate resistance and so plenty of demand and we wish we could produce faster, but unfortunately this is the fastest we can go.

Related to our collaboration also with Syngenta, so we were probably the only company to be developing interest in developing new herbicides. There, we always remained in herbicide research and this program is overall so far on track and when exactly it will make it to market, we honestly are not quite sure, but it will be within the next, we expect 2 to 3 years.

Werner Baumann

All right. Thank you, Liam. And now Dieter on Helixate?

Dieter Weinand

The fluctuation order patent is nothing unusual. If you go back and look at our quarters and history, there is always a fluctuation with order pattern where you get tender size in certain countries or regions or you have a delivery pattern to our distributor. So this business not an unusual fluctuation you see year-to-date we are up 3.4% and that is in line with what we wanted to see this as just a quarter calendar fluctuation, so there is nothing unusual.

Peter Verdult

Just to be clear, I was putting the Helixate order volume issue to one side, I wanted you to comment on just some of the more other dynamics that you're seeing with the recent competitive launches and what you're seeing with Kogenate and Kovaltry. So just to be I wanted - I was - I’m relaxed about the order volume fluctuation, I just want to get a bit of insight from you as to what you’re seeing in terms of the dynamics of the market?

Dieter Weinand

Dynamic in the market has not really changed much, it is a very low switch market as you know, I think the expectation when first Helixate came into market was significantly higher than what the actual performance was, we have seen it go into the US at a slow steady incline taking most –kind of taking most of [indiscernible] being the market leader of course and the newer longer acting products which Kovaltry would complete in the two to three times dosing on a similar successful but slow switch market and that dynamic hasn't changed significantly and we are now in a position to compete with Kovaltry in that market as we roll of the launches and continue to roll out launches of Kovaltry. So nothing really significant has changed in that market as we can see it.

Operator

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

Juergen Beunink

Thank you. Also on behalf of my colleagues I'd like to thank you for being with us on the call and thank you for your questions. Now we would like to say goodbye.

Operator

Ladies and gentlemen this concludes the second quarter 2016 result investor and analyst conference call of Bayer AG thanks for participating, you may now disconnect.

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