Bayer A.G.'s (BAYZF) CEO Werner Baumann on Q4 2016 Results - Earnings Call Transcript

| About: Bayer A.G. (BAYZF)

Bayer A.G. (OTCPK:BAYZF) Q4 2016 Earnings Conference Call February 22, 2017 8:00 AM ET

Executives

Jürgen Beunink - Head of Investor Relations

Werner Baumann - Chief Executive Officer

Johannes Dietsch - Chief Financial Officer

Erica Mann - Consumer Health

Dieter Weinand - Member of the Board of Management

Liam Condon - Crop Science

Analysts

Sachin Jain - Bank of America Merrill Lynch

Peter Verdult - Citigroup

Jeffrey Holford - Jefferies International Ltd.

Florent Cespedes - Societe Generale

Tim Race - Deutsche Bank

Michael Leuchten - UBS

Christian Faitz - Kepler Cheuvreux

Jeremy Redenius - Bernstein Research

Jo Walton - Credit Suisse

Richard Vosser - JPMorgan Cazenove

Tony Jones - Redburn

Luisa Hector - Exane BNP Paribas

Vincent Meunier - Morgan Stanley

Damien Conover - Morningstar

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Bayer’s Investor and Analyst Conference Call on the Full-Year and Fourth 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. Jürgen Beunink, Head of Investor Relations at Bayer AG. Please go ahead, sir.

Jürgen Beunink

Thank you, Emma. Ladies and gentlemen good afternoon and welcome also on behalf of my colleagues to our quarter four conference call. Today, we would like to review our 2016 figures with you and to discuss our 2017 outlook.

With me on the call are Werner Baumann, our CEO; and Johannes Dietsch, our CFO. Pharma is represented by Dieter Weinand; Consumer Health by Erica Mann; and Crop Science as well as Animal Health by Liam Condon. Then I will start off with an overview of the highlights in 2016, give a brief summary of the developments in the fourth quarter and then elaborate on the outlook for 2017. We assume you’ve all received and reviewed our annual report, the briefing document, and the presentation slides, so Werner will focus his presentation on the main points.

Before handing over to Werner, I’d like to draw your attention to the Safe Harbor statement. Thank you. Werner?

Werner Baumann

Thank you, Jürgen. Also on behalf of my colleagues good afternoon ladies and gentleman. It’s my pleasure to welcome you to our conference call. 2016 was another record year for Bayer. We performed well in our markets, delivered growth and again higher margins.

Pharma achieved substantial sales and earnings increases, Consumer Health grew with competition, and Crop Science was successful in a difficult market environment. Strategically, the year was characterized by the agreed acquisition of Monsanto. With this move, we plan to further strengthen Bayer as a life science company and create substantial value for our stakeholders.

In 2016, we also achieved major innovations milestones. As we have gained greater visibility on the profile for a number of assets, we released an aggregate peak sales potential for selected pharma pipeline assets of, at least, €6 billion.

For our five key growth products at pharma, we raised the estimate of the combined annual peak sales potential from previously, at least, €7.5 billion to now more than €10 billion. Our mid-term aspirations as presented in September emphasized the attractive growth and margin potential for all our Life Science businesses as our financial outlook for 2017 projects further growth and higher earnings.

Against this background, we are proposing a dividend of €2.70 per share for fiscal 2016, this represents an 8% increase over the prior year. The resulting payout ratio of 37% of core EPS lies within our targeted 30% to 40% dividend payout range.

Let me now briefly review some of our key figures outlining the performance in Q4. Group sales increased organically by 5% over the prior year to €11.8 billion, driven by all business segments except Crop Science. Reported EBIT declined by 14% to €789 million, mainly due to higher special charges versus the prior year quarter.

Adjusted EBITDA of €2.2 billion was 14% above the previous year predominantly driven by the business expansion at pharma and Covestro. Currencies added around €85 million in the quarter. Core earnings per share in Q4 advanced by 10% to €1.19.

Moving to the next slide, let’s take a look at some key fourth quarter figures for the individual businesses. Now when referring to sales growth, please note that this is portfolio and currency adjusted data. Pharma sales grew 7% with our key growth products driving this performance. Following the strong business development, EBITDA before special items increased by 12% to €1.2 billion.

Consumer Health sales advanced by 4% versus the prior year with growth in all regions. EBITDA before special items declined by 3% to €372 million, following higher cost of goods, as well as higher marketing costs mainly supporting the newly acquired brands. In an ongoing weak market environment, especially Latin America, Crop Science sales receded by 2% to €2.4 billion. While Crop Protection had to register a slight decline, seeds grew a remarkable 10%, mostly driven by strong development in soybean.

EBITDA before special items at Crop Science increased slightly by 1% to €351 million, helped by positive currency effect of about €80 million, but diminished by lower selling prices and higher investment in R&D.

In Animal Health, sales advanced 3% compared to the prior year period, thanks to Covestro, which performed again strongly. EBITDA before special items diminished by 7%, mainly due to higher marketing cost. Covestro added €3 billion to group sales and €373 million of adjusted EIBTDA to the group performance.

The operating cash flow from continuing operations improved notably by 39% to approximately €2.7 billion, as a result of a sharp decrease in additional cash tied up in working capital. Capital expenditures came in at around €970 million. As we changed our value management system from CFROI to ROCE, we no longer report for our cash flow.

Net financial debt at the end of the quarter stood at €11.8 billion, a decrease of €4 billion from the end of Q3 as a result of strong cash inflows from operating activities and the proceeds from the issuance of the mandatory convertible notes in November.

Let me now better briefly review some of our key figures for the full-year 2016 and compare them against our original guidance. Sales grow organically by 3% to €46.8 billion. Nominal sales were all baked by negative currency impact of around €0.9 billion.

We over delivered on our earnings promise with adjusted EBITDA rising 10%. And we exceeded our mid single-digit percentage increase guidance on core EPS by achieving more than 7% growth in 2016, or 8% growth if adjusted for the mandatory convertible notes issued in November. This success was particularly driven by the strong performance of pharma and from earnings contribution from Covestro. In delivering core EPS, Covestro’s contribution accounts for €0.71 per share.

In 2016, we incurred €1.1 billion of special charges on EBIT level. These mainly comprised around €560 million for in payment losses on intangible assets, including €391 million for a short charges of roughly €240 million in connection with efficiency improvement programs and a €100 million in cost for the integration of acquired businesses. Further special charges of €94 million were related to provisions for the funds cost, while €86 million were connected to the agreed acquisition of Monsanto.

Let me elaborate on the operational highlights in some more detail beginning with pharma. Driven by the continued success of our key growth products, pharma sales advanced the remarkable 9% significantly above market growth of about 6% in 2016. Collectively, our key growth products generated €5.4 billion in sales, up 29% versus prior year.

So ready to end 2016 with €2.9 billion in sales, mostly driven by volume increases in Europe and Japan. According to IMS, Xarelto has become a top 10 pharma brands globally and is now the biggest cardiovascular brand worldwide.

As announced at the beginning of this month, our Phase III compass study in patients with coronary or peripheral artery disease shows overwhelming efficacy admitted its primary endpoint ahead of time. The study was stopped early following a planned interim analysis conducted by the independent data monitoring committee.

The complete data analysis from this study is expected to presented at an upcoming medical meeting in 2017 and thus as much as you, we can’t wait for it, yes, so we’re excited. With Eylea, we generated sales of €1.6 billion in 2016, an increase of 33% over the prior year, in particular, Europe, Canada and Japan showed a successful business development.

Xofigo ended the year with €331 million in sales, up 29% mainly driven by very solid business expansion in the U.S. and Europe. Stivarga finished the year with €275 million in sales. Intensified competition in the U.S. has big global top line development with a global minus 12% significantly below prior year level.

We aim for growth again in 2017, driven by the new indication of second-line liver cancer, which we filed in the major jurisdictions at the end of 2016. Adempas sales attributable to Bayer amounted to €254 million in 2016.

So in light of the very positive business development, adjusted EBITDA of Pharma showed a substantial 14% improvement over the period year period to over €5.2 billion, despite negative currency effects of around €65 million and the disproportionately high investment in research and development.

In line with expected growth profile of our main competitors, Consumer Health increased sales by 4% in the year, driven by strong growth in Latin America and Asia Pacific, whereas North American business came in on prior year level. In the region Europe, Middle East and Africa, we achieved a slight increase in sales. Further progress was achieved in continuously developing our top brands. On an annual basis, Aspirin sales including Pharma were up 5% achieving €1 billion in annual sales for the first time.

Following a line extension, Elevit saw a growth of 2% with Canesten generated an improvement of 9%, mainly driven by sales development in France, Germany and Russia. Our Claritin business, however, declined by 3% in 2016. The successful launch of the product line extension ClariSpray in the U.S. could not compensate the sales decline in Asia Pacific, mainly driven by intensified competition and price controls in Japan.

Despite positive top line development and constant adjusted EBITDA of Consumer Health showed a 3% decline over the prior year period to €1.4 billion. Higher cost of goods sold and negative currency effect of roughly €65 million weighed on earnings developments. These were partly compensated by the positive development of sales and cost synergies.

In 2016 sales of our Crop Science business came in on prior year level despite the persistently weak market environment. As we recorded a solid 4% growth in both our Fungicides and SeedGrowth business, Herbicides and Insecticides had to face top line regressions. Especially Insecticides down 13%, suffered from low pest pressure and the weak market environment in Brazil.

Our Seeds business on the other hand delivered 8% growth over the prior year with gratifying increases in especially soybeans and vegetables. From a regional perspective, Crop Science developed well in Europe, Asia Pacific and North America, but had to face a decline of 7% in Latin America due to unfavorable weather conditions and high inventories of crop protection products in Brazil.

Adjusted EBITDA of Crop Science came in on prior year level at around €2.4 billion. The positive currency impact of about €140 million mostly regarding some hedging losses booked in 2015, and higher selling prices were offset by lower volumes, higher R&D expenses and higher write-downs on inventories and receivables.

In 2016 sales of our Animal Health business advanced by 5% to €1.5 billion. This exceptional development followed increased demand, in particular in North America and Asia Pacific. Seresto, our flea and tick collar for ducks continued its successful growth path, thanks to higher demand in the U.S. and Europe.

Sales of our Advantage product family remains on prior year level. Adjusted EBITDA of Animal Health came in on prior year level at around €350 million. The positive impact on our sales expansion was absorbed by higher marketing and selling expenses, as well as higher cost of goods sold and the negative currency effect of around €10 million. In summary, and despite some operational, as well as strategic challenges, we had a successful 2016 for our Life Science businesses.

On the next slide, I’d like to give you an overview on our outlook on 2017. Our guidance for 2017 is based on December 31, 2016 exchange rates, including a euro-U.S. dollar rate of US$1.05. That stated, we plan to grow our Life Science sales organically by a mid single digit percentage to approximately €37 billion and to improve EBITDA before special items by a mid-to-high single digit percentage.

In our Group guidance, including Covestro, we’ve assumed an increase in Covestro sales and an adjusted EBITDA for Covestro on or above prior year level. Consequently, we expect to report Group sales to increase to €49 million in 2017. This corresponds to a currency and portfolio adjusted growth in the low-to-mid single digit percentage range.

Group EBITDA before special items is expected to improve in the mid single digit percentage range. Full year core earnings per share is anticipated to also improve by a mid single digit percentage. It includes our 64% stake in Covestro and a higher number of shares as a result of the issuance of the mandatory convertible notes.

We expect special items in the EBITDA of around €0.5 billion. We are guiding for financial result of minus €1.4 billion for fiscal 2017, which includes Group’s financing cost in the context of the Monsanto transaction. The effective tax rate is expected to come in at about 23%.

So now, let’s look at the outlook for our divisions. We expect sales to exceed €17 billion at Pharmaceuticals, this corresponds to a mid single digit percentage increase on a currency and portfolio adjusted basis. For Xarelto and Eylea, we expect the currency adjusted growth rate in the mid teens percentage each. We plan to raise combined sales for our key growth products, so Xarelto, Eylea, Xofigo, Stivarga and Adempas to more than €6 billion. We expect a high single digit percentage increase in EBITDA before special items, together with a margin improvement.

In the Consumer Health division we expect sales to come in at more than €6 billion. This corresponds to a low-to-mid single digit percentage increase on a currency and portfolio adjusted basis, in line with expected market growth. EBITDA before special items is anticipated to improve by a low-to-mid single digit percentage.

At Crop Science, we expect sales to come in at more than €10 billion. This corresponds to a low single digit percentage in increase on a currency and portfolio adjusted basis. We plan to keep EBITDA before special items on prior year level.

At Animal Health, we expect sales to advance in the low-to-mid single digit percentage range and EBITDA before special items to increase by a high single digit percentage.

During 2017 we will continue to invest in organic growth. We plan to increase research and development expenditures to €4.8 billion, with the largest proportion invested in our Pharma division followed by Crop Science.

In addition to R&D, we are continuing to build new production capacity for our products. Fixed asset investments are planned at around €2.5 billion and investments in intangible assets was around €400 million.

Before opening the line for Q&A, let me finalize with an update on the next step for the agreed Monsanto acquisition. We are making good progress in obtaining antitrust approvals for the transaction. We have already applied for clearance from some two-thirds of around 30 authorities. Bayer and Monsanto are working closely with the authorities. We are currently responding to a second request from the U.S. Department of Justice.

In mergers of this magnitude, this is not unusual for the authorities to conduct a second more in-depth discovery procedure, we had been expecting us to happen. We have also submitted an application to CFIUS, The Committee on Foreign Investment in the United States for approval of the acquisition. In Europe, we are currently preparing our submission. As the European Commission has requested further documents in advance, we now intend to file the submission in the second of 2017.

As our businesses are highly complementary in terms of both product and geographical focus, we remain confident that we will be granted all of the necessary clearances. We are aware that certain overlaps exists in the combined product portfolio, so we will be collaborating these authorities in this regard in order to find appropriate solutions. This process is still at an early-stage, nonetheless, we are making all appropriate preparations to facilitate successful completion of the acquisition and the integration of the two companies.

We made good progress with the financing of the Monsanto transaction in quarters four through the successful placement for €4 billion mandatory convertible notes. Further take-out financing is planned to be based on senior and hybrid debt, as well as new equity by a rights issue with description rights. However, so if we identify options to further optimize financing structures, instruments and also the timing of financing steps in the context of this transaction, we will consider these. Overall, we remain confident of closing the transaction before the end of 2017.

So ladies and gentlemen, this concludes my remarks and we’re now happy to take your questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen at this time we’ll begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Mr. Jain. Please state your name company name followed by your question.

Sachin Jain

Hi, it’s Sachin Jain from Bank of America. Three questions please. Firstly, on your last comment first, on optimizing financing options. Could you give a little bit more color what you mean? And do you still expect the equity component to be €19 billion as you’ve previously highlighted or do you know think that’s going to be smaller?

Secondly on Consumer Health full year 2017 clearly flagging no margin leverage in continued investment in the brands that you acquired. Could you give a little bit color as to how much time do you think it will take to turn those brands? Where you are with the original synergy target? And then just touch on the weakness in both Dr. Scholl’s and Coppertone in the U.S.?

And then final question on the Xarelto Compass headline release, headline release comments on safety being in line with the existing profile. Could you clarify what that means particularly in the bleed profile, given that with Xarelto we’ve seen excess bleed risk in ACS, but a similarly bleed profile to encountering the AS setting, so which of the two is it comparable to? Thank you very much.

Werner Baumann

Okay. Thanks Sachin for the question. So the first question on the financing timing and equity check is going to be answered by Johannes Dietsch followed by Erica who is going to take your question on Consumer Health, broad portfolio of Scholl’s and Coppertone and then last but not least Dieter Weinand on compass.

Johannes Dietsch

Good afternoon Sachin, thank you for the question. We have a plan to finance the Monsanto acquisition with US$19 billion in equity, this plan is unchanged. And we’re now concentrating the win, the equity piece on the rights issue. And the rights issue as anticipated before, this will create a major cornerstone of the remaining equity piece to be done.

And we also remain inline with what you said before that we want to do the equity first to probably enter the bond markets. And with really having new timing, we thought to clear that if we go for a large or very large rights issue, we need to have a certainty on the deal to close in order to do that issue.

So we concentrate on the rights issue and equity, but we want to keep options available if we can optimize such into timing. This also goes with the bond piece here, we want to keep our option base to ensure in various currencies and maybe in Euro or Sterling or other currencies [Technical Difficulty] into U.S. dollars.

Werner Baumann

And thank you Johannes. Erica?

Erica Mann

Yes, thank you. When you look at 2017, this is very much a consolidation year for us. We continue to invest behind brands like Coppertone and Dr. Scholl’s which you’ve asked more specifically about. You know that it does take that three to five years to really build these brands. We already started to see some early signs on Coppertone some of the new products that we’ve introduced that for the season. And on Dr. Scholl’s, the high competitor activity that took the category into grooming, it’s now being reset and restaged into mobility and health and that should start showing some improvement, but probably in the back end of this year.

Werner Baumann

Okay. Thank you Erica. So Dieter on compass.

Dieter Weinand

Sachin, thank you for the question. Obviously we’re extremely excited about the fact that not only were we able to demonstrate superior on the primary end point of maize. We were able to do so it earlier than previously anticipated. And as you can imagine that being the largest of our life cycle management indications that we are looking at approximately the size of the SPAF indication, our currently largest indication significantly derisks our life cycle management program that we have in place.

And as you know, we’re also making our data, publishing our data for GEMINI and EINSTEIN CHOICE at March ACC, so we’re making some good progress on our life cycle management. Since owing to the magnitude of the effect that we have seen in the primary endpoint made and the confirmation of the existing safety profile, it is now – we will offer rivaroxaban to the study participants in an open label extension, because otherwise that would probably not be ethical for us to continue the study.

So I think those facts speak for themselves. And there’s no other competitor currently active in that same space. So I couldn’t be more excited about this. But I hope after we are understanding that at this point, we just got the top line data and I cannot elaborate on any more details at this point, but we will aim to make the data available at an upcoming medical meeting as soon as we can.

Sachin Jain

Thank you, Dieter.

Dieter Weinand

Okay. Thank you.

Operator

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

Peter Verdult

Yes, good afternoon. It’s Pete Verdult here from Citi. Three questions, Dieter on Xarelto, Liam on Crop, and Johannes on financing flexibility. Dieter, if you think about the ongoing geographic expansion increasing penetration of the NOACs in the current indications, it seems that equity itself easily support your €5 billion-plus peak sales target for Xarelto.

So I realize you’re not going to talk about the COMPASS data until we see it at ESC. But could you just remind us, or at least help us quantify what you believe the incremental revenue opportunity is if you are successful in expanding the Xarelto label with the current trials ongoing?

Secondly, for Liam, I’m hoping you could whip out your crystal ball once again and give us an update on your thoughts about the ag cycle and confidence that we might see a turn at the end of this year?

And lastly, Johannes, on financing flexibility, is it right to think that a key gating factor to the timing of your Covestro disposal will be gaining regulatory approval for Monsanto in the U.S. and Europe? Thank you.

Werner Baumann

Okay. Thank you, Peter. So, Dieter is going to start with your question on regional expansion and the perspective on the €5 billion-plus.

Dieter Weinand

So, Peter, we – I couldn’t agree more with you. We always anticipated that the more data we accumulate not only from our life cycle management program, but also from the very vast real life evidence programs that we have ongoing on our recently published that that geographic expansion will continue and that we will see a continued erosion of warfarin or VKA occurring.

It was also our aim to differentiate Xarelto from other compounds via a significantly larger life cycle management program, demonstrating utility of Xarelto in different indications and areas of use to the benefit of patients. We have included – we always had included, obviously risk adjusted these life cycle management programs in our aspirational peak sales guidance. And you can imagine that at this point where we just have gotten the top line data.

We’re not prepared to regard, give us sometime to analyze the full data set and see what it means. But we’re highly confident that this represents COMPASS and the other indications that we’re pursuing represent a significant opportunity in and by themselves, but more importantly or equally importantly it will continue to differentiate Xarelto as the clear market leader and put us in a competitive position with more indications and uses than any other NOAC.

Werner Baumann

Thanks, Peter. So, Liam on the ag cycle?

Liam Condon

Yes. So, Peter, thanks for the question. I’ll give you our perspective looking into our crystal ball, at least. I think it’s important to highlight always with the ag cycle that this is really a supply-driven cycle and demand is increasing relatively constantly due to population increase, dietary changes, and climate change various areas of megatrend where the cyclicality comes in is, whenever there are supply peaks or troughs. And what we basically had in the last few years is an oversupply due to bumper harvests.

And right now going forward, there are, I would say, early indicators that the trough has has been reached and that there is hope for a slow return to growth. Those early indicators are the ones that we look at just give you perspective on that are the key stock to use ratios, so stock to use ratios of corn, soy, and wheat. And for the first time in a few years, it started increasing and it’s now stabilized with the exception of weaker corn and soy have clearly stabilized.

And the second key indicator for us is also for us the future commodity prices and looking up where we are today and the future commodity prices going forward on the CBOT, and they are trending upwards for corn and maintain – staying above $10 a bushel for soy, which is a price where farmers can have a good profitability. So also here they’re at the stable if not trending upward.

And the third early indicator for us is the area of seed growth. So this is a portfolio that we have them for protecting seeds against insects and against disease. And this is an area, where farmers will only make the investment in protecting their seed, if they’re pretty confident that they’re going to get a return on that investment.

So it kind of says a lot about farmer sentiment. If farmers are willing to invest in seed growth, we saw solid growth in all year last year in seed growth and that’s first comes the seed growth plant that take a while to grow and then later on comes crop protection. But clearly, in the fourth quarter, it was a strong pickup here as well.

So for us that’s a few early indicators. And ultimately, what things depend on now is the quality of the harvest in the southern hemisphere, which is ongoing, which will influence planting decisions in the northern hemisphere and ultimately result then in the overall outlook for the year going forward. But for us, there’s enough early indicators to indicate that the bottom has been reached and that there’s a perspective for a slow return to growth from later this year.

Werner Baumann

Okay. Thanks, Liam. So, Peter, I’m going to take the last question of yours. What we put out there as part of our year-end communication is a clarifying statement in terms of our take off financing, but absent any, let’s say, actual news that we share with you. What is important I think for everybody on the call to understand is that, we stand by our earlier communication that we would only continue to further move with our take out financing with substantially more visibility and or opportunities that might present themselves that would actually solidify our financing.

You should actually not be concerned about one of the earlier questions that Sachin had on the $19 billion. That is a number we have said, we are certainly not thinking about increasing it. But we’re looking at further optimization opportunities as we move forward.

That can mean a lot of things depending on also on how the other deals are moving forward, there’s a bit of news today that supposedly Dow and DuPont clearance in Europe is imminent. Let’s see how that goes, because there would certainly be a strong signal also for our combination. But again, that’s basically right now that’s market talk that was released today and we remain very, very confident the way we are approaching on the merger.

Peter Verdult

Thank you.

Werner Baumann

So on Covestro, so Peter, I missed, I’m sorry.

Dieter Weinand

Peter, you had mentioned that our timing of Covestro whether this has been connected to the horizontal financing that has nothing to do with the horizontal financing. The horizontal financing has been put in place last year obviously credit line and since by itself and the timing of the Covestro remaining stake proposal is independent from the Monsanto acquisition.

Operator

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

Jeffrey Holford

Hi, it’s Jeff Holford here from Jefferies. So I think just to clarify last point on the financing flexibility that you have, just clarify that this is only really being aimed at potentially reducing the debt component, you have no intention of doing anything that would change the size of the rights issue. And then just fine light on compass. I wonder if you just might give us some sort of numerical or market figure that you’re thinking about for the potential of Xarelto in the syndication? Thank you.

Werner Baumann

Good. On the first question, maybe just to clarify what I said earlier, Jeff. We have communicated the debt equity ratios with a number on the equity portion that amounted to US$19 billion. What I said earlier is that you can certainly be sure there’s not going to be more. Other than that, we are maintaining or retaining some flexibility in optimizing our financing structure. What it’s going to be? When it’s going to be? How we’re going to do that, we’ll communicate in due time, but there is absolutely nothing we could share it with you, absent any further news on how we progress at this point in time. Second question on compass is, Dieter.

Dieter Weinand

Jeff, thank you for the question. What I can tell you is that the latest estimates for this past diagnosed patients, roughly 25 million patients worldwide. And when we look at the peripheral and the coronary artery disease, patient population will study in compass being the patient that is at high risk for late events that is approximately 30 million diagnosed patients. The total PAD and the CAD published is larger 50 million, but only the hybrid patient population is 30 million that compares SPAF 25 million for significant opportunity.

Jeffrey Holford

Thank you.

Operator

The next question comes from the line of Mr. Cespedes, please state your name, company name followed by your question.

Florent Cespedes

Good afternoon gentlemen. Florent Cespedes from Societe Generale. Three somewhat related questions. First on emerging markets, could you give us some color on the performance of the emerging market in Q4 and to link China, the growth in China because we’ve got to see some pressure on your tail portfolio and pricing notably, so if we can put some color on that front would be great.

And second question on the hemophilia markets. Could you elaborate a bit on your strategic, on this market we saw a portfolio of products given the fact that some competitors have reported at least headline results.

And maybe a last very short one on Xarelto and compass, is it a fair assumption to believe that the results, the detailed results maybe presented at the ESC Congress at the end of this summer? Thank you.

Werner Baumann

Okay Florent, thanks for the questions. Dieter is going to take them.

Dieter Weinand

Okay. So I’ll start with the emerging markets for Pharma, in the latest quarter we grew our currency adjusted at 6.1%. And for the year we grew 11.3% so continued good growth U.S. about – China specifically, we continue to grow well above the market in China with 10.1% for the year and 7.7% in the fourth quarter. So we’ve continued good growth in the emerging markets.

And with our hemophilia portfolio. So let me start with that we’ve launched recently Kovaltry, our longer-acting product to compete with these newer or more recently launched longer-acting product such as Eloctate. We’re off to a good start, the launch meets our expectations and we look forward to continued contribution from Kovaltry to our Kogenate franchise.

As we mentioned before, we’re also and obviously looking at the market of ultra power and once weekly product, the Recombinant Factor VIII, we’re still planning to filing in mid-2017 and I think that will really be a consolidate, we’ll be positioned very well to compete in that market as we believe Factor VIII replacement therapy continue to be a main stay into the treatment of hemophilia.

Alluding to other products such as H110 potentially and I would say that initially four year turn was the data that came into optimism, that optimism with more data coming in terms of realism in IF and we have continued to say, let’s wait for the data to come and then we’ll see what really fits. So we believe with our near and mid-term pipeline this Kovaltry and the octocog alfa, we’re well positioned to compete. And as you know, we also have earlier in our development with different components to compete with the newer technologies, so I think we are well positioned.

And with regard to conference data publication, I cannot predict that, we just got the data. Please allow and understand that we need to analyze the data fully and we will try to get it out there as soon as we can.

Florent Cespedes

Thank very much.

Operator

Your next question comes from the line of Mr. Race. Please go ahead.

Tim Race

Hello, it’s Tim Race here from Deutsche Bank. So two questions, first on the [Technical Difficulty]. You’ve obviously had discussions according to press reports with the current President. Just wondered you made assurances to him in terms of investment in R&D, jobs in the U.S. etcetera. I’d be interested in a little bit more clarification on what’s been sort of indicated and also if there is anything that changes your synergy assumptions in the transaction?

And then the second question on the Consumer Health business. You mentioned that this is a consolidation year, just basically what confidence can you give that this is actually a year where we – I mean, still in 2017 that this is – you’ll be able to outgrow the market in the future and if not why not given your scale? Thank you.

Werner Baumann

All right, thanks Tim. So you are not the first to ask how the meeting with – at the time President Elect Trump went? So here is the answer. It was a really, really good meeting and it was very much about – it was educational in nature, because President Trump was interested in understanding what the combinations would do in terms of driving innovation and of course high quality employment in the U.S., and what will it do for American farmers, but also beyond you know farmers in other jurisdictions. But clearly his main interest was what was it going to do for the U.S.?

So Hugh Grant and I had an opportunity to explain the logic and the hugely attractive value propositions we see in our ability to drive with, let’s say, highly complementary competencies, faster better solutions that will provide farmers with the option actually to – you can get to, let’s say, better yields, better harvests and with that better farm economics on one side. And on the other side, we essentially confirmed what we had said from the Get Go when we first announced that we have come to an agreement on September 14th. And these are the points that were mentioned.

Number one, the global seeds and biotechnology headquarters of the combined organization is going to sit in St. Louis and that is what we said all along not to please anybody, because it makes good business sense that we have the expertise and the best expertise in the combined operation, so that was number one.

Secondly, the combined company’s North American Crop headquarters is going to sit at St. Louis.

Third, as you would expect from the growing and prospering business, over the next six years, the combined pro forma R&D spend will be around $16 billion, that’s roughly half of that amount being spent in the U.S. Then what we said is that the combined entity will –Bayer will have more employees in the U.S. compared to where we are today after the completion of the integration.

And last but not least, without quantifying it, we said that subsequent to the finishing of the integration work, the combined Crop business will create 1,000s of high quality jobs in the U.S. predominantly then of course in the R&D area. As we move forward this growing our business, the significant strength we are going to have as the, let’s say, as an innovation engine. And it was totally in line with what we’ve said all along. So there was actually no attempt by President Trump to get anything out of us, because I told you earlier that it was very much an educational and actually a very, very construction and good discussion.

So Erica on Consumer Health.

Erica Mann

So to that question Tim, we maintain our mid-term aspirations for 2018 with the following mission. We continue to invest behind the growth opportunities that exist and also making progress in the turnaround efforts behind this Dr. Scholl’s and particularly we’re seeing some early good results on Coppertone.

We have also implemented a number of organizational changes that allow us to concentrate our investment better than before on individual brands, growth trends and in specific countries. On top of that we have revamped our innovation process and I just would like to remind you that our brands on average take to 120 years old. And what we do is create perpetual value.

We have a long history of building successful brands. I’ll give you the example of Rush where we’ve taken a lead and more than doubled sales and over Falcon, we have more than increased sales fourfold. So it is a journey, we have started that journey and I’m confident that over this time period we will get to where we need to be.

Werner Baumann

Thank you, Erica.

Tim Race

Thank you.

Werner Baumann

Thanks Tim.

Operator

The next question comes from the line of Mr. Leuchten. Please state your name, company name followed by your question.

Michael Leuchten

Thank you, it’s Michael Leuchten from UBS. Three questions please. One, going back to Liam, just if you could help us contextualize your EBITDA guidance for the year, given the early positive signs on the X cycle that you’re seeing if you could sort of contract and compare those two.

Second question on the regulatory filing please, in December you said you would file in Europe in Q1, you are now saying Q2, just wondering what that slip represents? And then thirdly, on your unfunded pension liabilities, the marked reduction at the end of the year versus Q3, what does that mean for you in terms of your debt capacity if anything? Thank you.

Werner Baumann

Okay, thanks Michael. Questions one and two will be answered by Liam and then Johannes Dietsch is going to shed some light on our pension liability position at the end of the year.

Liam Condon

Yep. Thanks Michael. So maybe just a bit of perspective around the EBITDA. If you look back over the last six years, throughout, let’s say the last cycle, the up and down, we basically managed to deliver between 23% and 26% EBITDA, so that’s never gone below 23% in the last six years. And I think if you think of the cyclical business, there is not many businesses that can achieve that kind of an EBITDA in a down cycle. So just to give it a bit of perspective.

There are some technical elements that I would just highlight relative to 2017 and then just make a more general statement going forward. And so 2017, our guidance is to hold margins and again we lead businesses at relatively high level and of course it can go higher as the cycle hits up. We are forecasting slower in terms of growth and so if their forecast is wrong and under the fact they are referring to growth and we would also feel better margins would of course pick up faster, but this is just based on the visibility we have today.

And technically there is a portfolio element in here and we divested our Consumer business in 2016 and we have a transitional service agreement with the company SDM that we sold the products to and we give them basically the products at cost. So we have a €60 million sales impact that we booked for a zero EBITDA so that’s margin dilutive in 2017 for us. And we have an increase in R&D costs with our commitments to innovation and we had a positive impact with 2016 from some non-recurring effect and this is particularly related to index sales in Brazil, which is basically about €40 million which is basically local currency hedging.

And so if there are some elements that we need to cycle against to hold margin and we believe that would be a solid performance to hold margin given the overall situation and but of course if the market picks up faster than we expect and we can expect the better margin as well, that’s just a try and give you are better perspective on the overall [ph].

Werner Baumann

Okay, thanks Liam. Johannes?

Johannes Dietsch

A state regulatory filings – so in a regulatory EU and we are well advanced in our discussions with European Commission. We’ve been discussing with European Commission since last year and very, very extensive, very, very constructive discussion and we’ve got an additional – we had been planning to file in March. We’ve got an additional request for more data and which is not unusual given the complexity and size of this deal. And it will take us a few more weeks to put that together so that will push back the filing somewhat, and but it doesn’t change the end date because as you know the filing process in Europe involves very extensive preparation.

And so that the authorities can then thereafter come to conclusions more speedily, so it takes an extensive amount of preparation that doesn’t mean that the end goal is pushed out and this is somewhat different than in the U.S. DoJ.

And where you filed earlier in the discussion continues as you go along. So we don’t see this influencing our closing date and we still are confident that we can achieve all approvals by – at year end.

Werner Baumann

Okay. Thank you Liam. Johannes on pensions.

Johannes Dietsch

Yes, pension I mean, it is a lot – you’re right, w saw a dramatic decrease in our net pension liabilities, actually the gross pension obligation, DBO came down by €2.7 billion in the first quarter and the net pension liability by €3.4 billion because of good asset returns and some pension contributions. However, we need to compare this level now through the end of 2015 and compared to the end of 2015 we still have some increase in our net pension obligations. And then our discussions with the rating agencies we used actually the pension obligations from the end of 2015. So no additional debt capacity at this point.

Michael Leuchten

Thank you.

Operator

You next question comes from the line of Mr. Faitz, please state your name company name followed by your question.

Christian Faitz

Yes, Christian Faitz, Kepler Cheuvreux, thanks for taking a couple of questions mostly on Adempas [ph]. First of all, is it possible for you to give any indication on where we are in the CFIUS process for the Monsanto deal?

Second, looking at the available datas of par, it seems that in 2016 you lost some market share in insecticides against one of your bigger competitors. Can you confirm this. And if so elucidate why. On the positive side, you seem to have gained some market share in fungicides, again, can you elucidate why you gained market share.

And a final question on Covestro, you made it quite clear. Also in the past that the Covestro disposal discussion is independent of the Monsanto deal financing, yet can you update us on your current thinking regarding the timing of the Covestro disposal? Thanks.

Werner Baumann

Okay, thanks Christian. I’ll take your questions one and four and then Liam is going to address your questions on insecticides and fungicides. As we mentioned earlier, we have filed for CFIUS review and approval. We have said all along that you know given the fact that we are combining two western companies actually both with long US history.

As having been around for 150 years in the U.S., there is no obvious issues in our product portfolio that would pose a threat to national security in the U.S. Our assumption is that the CFIUS approval will be granted. But there is no more perspective other than from a process perspective as confirming that we have filed and we are waiting for the results of the review.

Secondly on Covestro, I can confirm what we said all along. One, the disposal of our remaining position is completely independent of the Monsanto transaction. And secondly, as we’ve said early on already, I would bring you back to what we mentioned at this time of the initial IPO that we’re going to dispose off the remaining stake in the mid-term, yes, and that’s where we still are and nothing more to be said here.

Christian Faitz

Thanks.

Werner Baumann

Okay.

Liam Condon

Okay. I’ll take the question on insecticides and fungicides. So to give you a better flavor around what’s happening with insecticide and the background for our decline here is two-folds and one is related to the U.S., one is related to Brazil. In the U.S. we lost the registration for Belt, one of our insecticides. And have it taken off the market, so that’s basically the reason and why we have a decline in insecticide sales – significant decline in insecticide sales in the U.S. And the second area is related to Brazil, where as you know, there has been a very strong penetration of Intacta and from Monsanto combined with low pressure, and that has led to a situation that there are quite high or very high insecticide stocks, general stocks in the market right now.

So we’ve taken a very conscious decision not to further overheat that situation and rather focus on the sell-out and consumption as opposed to sell-in. And so that’s why you will see – you’re not seeing a selling into the market with insecticide in Brazil. We think this is more prudent thing to do, given the overall market situation.

And on the fungicides side, we’ve had a good growth and this is particularly driven by Brazil and also here this is related to our portfolio particularly for treatment of soybean rust and which is I think well acknowledged in the market as a leading pad portfolio. And with that has giving us – has given us, say, good growth in a relatively weak market environment.

Christian Faitz

Okay, very helpful. Thank you very much, gentlemen.

Werner Baumann

Thanks, Liam.

Operator

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

Jeremy Redenius

Hi, it’s Jeremy Redenius from Bernstein. Thanks for taking the questions. I’ve got three. First on, your U.S. filing for the Monsanto deal. Can you talk about how the regulators are are looking to define the market in this case? I’m wondering if there’s any indication if they’re planning to include seeds and chemicals in the same market definition, or are they be looking at simply seed company, or seed overlaps by crop and chemical overlaps in the businesses?

Secondly, the Kogenate and Kovaltry sales were flat in the quarter. Should we expect to see the trend going forward, or could we expect growth from here, or would you more likely expect declines>

And then thirdly, and just if you could talk about potential risks the business might be facing from the border tax that’s being contemplated in the U.S. and I’m trying to work out kind of my business where you might be most exposed there in some order of magnitude of hat exposure? Thanks so much.

Werner Baumann

Okay, thanks, Jeremy. The first question on U.S. filing and how market definitions are being looked at is going to be answered by Liam followed by Dieter on Kogenate Kovaltry and then also Helixate, which is part of the mix here for 2017 and last but not least, I know who’s going to shed some light on our perspective on the U.S. border tax.

Liam Condon

Yes. So, thanks, Jeremy. Please allow me to be very general in this part, because of course, we don’t want to preempt any discussion whatsoever with the DOJ. We’re in the second phase of our negotiation process now with DOJ. Overall, I think the fair recognition that the seeds and the Crop Protection go-to-market models are very different in the U.S. and seed is often through – can be directed to the farmer and often through seed specific companies.

Crop Protection is usually to distributors, and this is a very unique markets set up, when the products are sold, how they are sold is very different for market. So I think that there’s a recognition of that within the DOJ and a good understanding of how these markets function.

So we won’t go into any further details. We don’t preempt how the DOJ is going to define these markets. But we’re pretty confident that the DOJ has very good understanding about how uniquely different these market are.

Werner Baumann

Thanks, Liam. Dieter?

Dieter Weinand

Yes. So I would say with Kogenate and Kovaltry, the growth of the Kogenate family of this Kovaltry is expected to be compensated by declining order from CSL in expectation of the information of our supply agreement for Helixate with CSL by the end of 2017. So that is the explanation relative to our outlook at going forward this year.

Werner Baumann

Thanks, Dieter. So and Johannes on the cross-border tax?

Johannes Dietsch

Yes. So far on the center there is a tax reform proposal, which aims particularly at supporting business with strong substance in the U.S. And under this proposal, the tax rate will be lower maybe 20%, which is, of course, beneficial for everyone doing business in the U.S. And And the proposal also promotes exports in the way of only imports being subject to tax while exports are maybe exempted from the tax.

In addition, we see also proposals that interest rates expenses might not be tax-deductible anymore in the US. So overall it will promote business in the U.S. with strong substance in the U.S., and there will be positive and not positive effects on Bayer’s tax provisions overall. In a nutshell based on what you can see from today, we are moderately optimistic that the tax reform will especially lowering the official tax rate down to 20% will be ultimately beneficial for Bayer. [Multiple Speakers]

Jeremy Redenius

Sorry, thank you for that. More specifically on the potential border tax, is there much of a, let’s say, for example, shipment of products in Crop Science active ingredients from outside of the U.S. into the U.S. for reformulation? Is that something that you would get caught up in?

Johannes Dietsch

Well, we have our production sites in the U.S., we have also a number of products, which are exclusively produced in the U.S. like our Kogenate from the Berkeley factory. And it’s too early to say if you want to shift investments now and also redefine our supply chain, overall, we still believe that it’s a good thing to have an international trade and international separation of labor not a benefit to all parties involved. Therefore, it’s too early to say whether we would change our position we have right now with a strong substance in the U.S. and also production in the U.S.

Jeremy Redenius

Okay. Thank you very much for those.

Werner Baumann

Thank you.

Operator

The next question comes from the line of Jo Walton. Please state your name, company name followed by your question.

Jo Walton

Jo Walton of Credit Suisse, a few pharmaceutical questions, please. In 2016, you increased your R&D as a percentage of sales by about 1 percentage point. Do you feel that you’ve now reached the right level of R&D as a percent of sales, or will 2017 also see a disproportionate increase in R&D investments? And at what level do you think that should stabilize?

Secondly, if we’re looking at expanding materially the indication for Xarelto, do you think that will have any price implications, particularly in the European market, where when you come along and say that you think you can treat twice as many people as far as, I mean, why the regulators tend to say well, they’re not case we’ll have half the price?

But I wonder finally, if you could tell us about the penetration of Eylea and how much of last is now penetrated into the DME market. So that we can get some sense of the longer-term sustainable growth for that franchise? Thank you.

Werner Baumann

Thank you, Jo. So Dieter is going to take your three questions now.

Dieter Weinand

Okay. So I will start with R&D. Our R&D investment is really based on the pipeline requirements that we have. And we strictly prioritize as we mentioned before and those assets have the greatest potential value to address unmet medical need and provide value to society in addressing the burden of the disease. And we have substantially, as you noted, increased our R&D investment and we have seen a results of that in some of the pipeline, not all of the pipelines, some of the pipelines we’ve highlighted with those fixed products that we have highlighted recently for which we have great insights with different confidence.

And we will – again, this year increase our investment in R&D a bit based on the pipeline that we have and the progress that we are making. And thus bound by a ratio per se, but I think we’re going to be at the 70% ratio, which I think is a reasonable ratio to be up. But I’m not – I would say, our spin R&D is really guided by the niche to support our pipeline for sustainable success.

And the pricing implication of Xarelto. I cannot comment specific price implications of Xarelto in particular in the European markets. But there, as you know, their pricing is really regulated in most countries, and as such relatively stable as a matter of fact. And I don’t anticipate any negative surprises there are other than what one would normally see in regulated markets like in Japan. And the – it is still dependent on the substantial expansion potential that compass holds.

And penetration of Eylea. So Eylea is now a share – market share overall of roughly 33% to 72%, 72% is the highest in Japan and look at the split a little bit in Japan, you’re probably 54% of wet AMD and 18% in DME and then RVR and CMD are smaller. So there is significant opportunity to continue to grow in Japan also with DME. While in Germany, the split is slightly different, we have still 53% in wet DME and wet AMD and DME is about 35% already.

So it really depends on where you – what you look, but I think there is significant growth potential remaining in expanding our share in wet AMD while enhancing the diagnosis and treatment of DME. So we believe we will see continued momentum with Eylea and substantial growth opportunity.

Werner Baumann

Okay, thank you Dieter.

Operator

The next question comes from the line of Mr. Vosser. Please state your name company name followed by your question.

Richard Vosser

Hi, it’s Richard Vosser from JPMorgan, thanks for taking my questions. Firstly, just going back to the COMPASS data, perhaps you could comment on the data and the benefits and risks seen in relation to the proxy from the ATLAS Phase II trial where this dose was tested on top of Aspirin.

Secondly on that one, how quickly can you share the data with regulators and bring it to the market. And thirdly, on the COMMANDER trial, could you talk about when the interim analysis of being on that trail and have you passed the last interim there, so that we should expect only the final date in 2018 or could that be earlier as well?

Second question or second group question is just on the bridge financing cost, you highlighted that they are in the net financial costs for the year. The guidance – just, if you could give us a flavor of that, is that around sort of €200 million for the year or is that too high?

And then final question just on Crop Science, just an early view of how the Northern Hemisphere season is shaping up? I know we’re early, but just some of your thoughts there would be great. Thank you very much.

Werner Baumann

Okay. Thanks Richard. So the first three questions are going to be answered by Dieter, fourth by Johannes on bridge financing and total amount that is baked into our 2017 financials and guidance, and then last but not least, Liam on the early perspective on the season in the Northern Hemisphere.

Dieter Weinand

All right. Unfortunately I cannot really elaborate on any further data on the COMPASS trial. We really have to wait until we make the data available, unfortunately, please understand that is – you know I’m as excited as you are and I would love to get the data out there, but we really have to wait until the full data is in.

And the filing date, we are aiming to get this obviously filed as soon as possible and hope to file some time in the second-half of this year, the COMPASS trial for is the CT indication. And the timing of the interim analysis of COMMANDER would be a speculation, I really cannot speculate on that as well. So please understand that I cannot do that. Thank you so much.

Werner Baumann

Okay, thanks Dieter. Johannes?

Johannes Dietsch

Yes bridge financing cost we had seen some cost in the magnitude of €50 million in Q4 2016 and the amount €230 million for the year 2017. So we put into the financial results, however, Richard this will be classified as special items and will not impact the core EPS.

Werner Baumann

Okay. Thanks Johannes. And now the crystal ball.

Liam Condon

Yes. So. Thanks Richard. Same crystal ball, I mean it is just simply too early to call and the Northern Hemisphere and clearly what’s going to happen is, in the Northern Hemisphere that everybody will be looking at what the outlook this has now on the Southern Hemisphere. And then they will take their planting, make their planting choices going forward.

And overall, I think it’s still fair to say that the grower economics remain tight in North America and also in Western Europe, we believe the pace of growth will lag behind the overall global development. And we want to see growth coming more from Latin America because farmer economics are more favorable and there will be this larger planting acreage anticipated for corn and soybean.

And I remember last year was impacted by drought in Brazil as well, so we think Latin America would rather be a driver going forward this year and this continued high siding demand from China and Asia-Pacific as I mentioned earlier and Easter Europe will also – and we would consider it growing further. So we don’t see the Northern Hemisphere as a major growth driver this year and rather an upturn there, rather coming in more from 2018.

Werner Baumann

Thanks, Liam.

Operator

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

Tony Jones

Good afternoon, Tony Jones, Redburn London. I’ve got three questions. And firstly on raw materials, looking back, the gross margin at Bayer has improved a lot, up about 500 basis points since 2013, 2014. I appreciate a lot of that’s come from Pharma growth and mix, but in some of the chemical assets may be cheap cost has flattered the gross margin. Are you able to split out even roughly what proportion of that margin expansion has come from growth and mix, things like Xarelto versus price costs?

And then secondly, maybe a second question actually I had for you is on CapEx. So you’ve given guidance for this year and it looks like Covestro makes up around €0.5 billion if not €2.5 billion. Just thinking about beyond that period, do we just simply excludes that so we can save down CapEx.

And then finally a question for Dieter on Pharma and the margin improvement. Is this purely predicated on volume leverage or is this something else, something relating to the costs? Thank you.

Werner Baumann

Okay, thanks Tony. So questions one and two will be answered by Johannes and then the last question is going to be taken by Dieter.

Johannes Dietsch

Well, actually when we look at the raw material costs and energies, we have to look into Covestro, which is fully consolidated and Covestro substantially benefitted last year from lower raw material cost, although there had already been some price concessions and overall pricing were down for the year in Covestro we had a significant expansion of margin here and that explains mostly the effect on raw materials, because Covestro is so dominant in this aspect.

And once we will deconsolidate Covestro, once we are not having the maturity and we make sure we do not anything of Covestro anymore, we will take out all the numbers from Covestro from our financial statements and with that then also the CapEx number for the overall Group will decrease by roughly the €0.5 billion you mentioned that’s likely correct, okay.

Werner Baumann

Okay.

Tony Jones

Thank you.

Werner Baumann

So Dieter.

Dieter Weinand

Yes, so the margin expansion is influenced by a couple of things, obviously we have benefited from continued volume performance, great momentum that we have achieved, but we also as we have previously discussed embarked on a program to substantially focus our efforts and resources and those things that have the greatest opportunity and are associated with that. With that we have kept our commercial expenses, our marketing and sales expenses flat and taken some of the gains that we have made a reinvestment in R&D and some of that has been reflected in the margin expansion that we are seeing. So we continue to be very prudent as to how we allocate our resources in the effort that we had already announced that we would try to focus and streamline our expense base.

Werner Baumann

Yes, thanks Dieter. Tony if you allow us, let me answer a couple of sentences to the question of what the 500 basis points margin expansion since 2013 has been driven by. If you look at it in the grand scheme of things and adjusting it back of the envelop, without a lot of details, I would assume that 2013, 2014 year part of as a base line for the Materials business, 200 basis points of the improvement of the company overall directionally, 170 to 200 I would guess come from material, because we essentially – they have a flattish top line and significant earnings and expansion driven by what Johannes said earlier, which is raw materials and energies that have significantly helped the case.

And the rest is actually coming out of the portfolio, part of it is also mix, because pharma has been growing so dynamically this has been and continues to be our highest margin business on top of the pharma margin expansion in it by itself. Portfolio, if anything very, very minor, if you look at the overall company EBITDA margin, that’s actually minimal. And the only ones if we look at for the last few years was diabetes care and then the environmental science the consumer business, which taken together are about 3% of top line of the company, so not a major impact.

Tony Jones

Great, great there. Thank you very much.

Werner Baumann

Okay.

Operator

The next question comes from the line of Ms. Hector. Please state your name, company name followed by your question.

Luisa Hector

Thank you. It’s Luisa Hector from Exane. Could you remind us to what extent you have hedged the currency risk in connection with Monsanto? And also on Monsanto, could you just add any color, I noticed in the annual report the date of 14 of June 2018 at which point the deal could be terminated if you have not received the regulatory approvals. So can you put any color around that, does that mean you had actual rejections, is it certain rules in certain regions?

And then finally, on the Covestro stake, could you comment on the potential U.S. tax advantages or disadvantages in terms of timing on the disposal of that stake, and I believe end of August is a key date? Thank you.

Werner Baumann

Okay, thanks, Luisa. So questions one and three are going to be answered by Johannes Dietsch and I will thereafter talk about the 14 of June 2018.

Johannes Dietsch

Yes. Thank you, Luisa. First of all turning to risk, we have to pay the purchase price in U.S. dollar and the debt piece will be financed in U.S. dollar even if we go with Eurobonds you solve it in U.S. dollar. And therefore, we don’t have a currency risk on the debt piece.

On the equity piece, it’s different, because we’re raising equity with BIG share here in Europe and this will be done in euro terms. And here we’re exposed and negatively exposed if we have an increase in the dollar rate against the euro portion.

And so here we are looking at US$19 billion, which translated into €17 billion at the time of announcements last September. And we anticipated, of course, a currency risk and had some hitches in place already with more than 50% of the exposure with the level of €1.11 or better.

Werner Baumann

So second first or Covestro. Should I take Covestro first?

Werner Baumann

Yes, yes.

Johannes Dietsch

Okay. And then let me do Covestro. Sale of Covestro sale has been done here in Germany. And this sale will be tax free mostly, it’s not the 5% tax free here and we have no restrictions from the tax point of view at all.

Werner Baumann

Okay. So now let me take your question on the June 14, 2018. The merger agreement stipulates that should this transaction not be consummated for anti-trust reasons. We have to pay Monsanto US$2 billion that statement holds true today, tomorrow and all the way up and until June 2018.

Our perspective is that, this is quite sometime out, we believe that we’re going to be good for a final closing of the deals by the end of 2017, should we hit this out of dates? The question is what is going to happen then? There are different scenarios you could kind of come up with number one is, the deal falls apart against the payment of €2 billion, because it would then actually be for anti-trust reasons.

We don’t see any other reason, yes, that would materialize by then, or alternatively if both parties continue to be highly interested, it could also reach into a renegotiation and extension or an extension, yes, whatever it might be. This is a hypothetical case to the best of our assessments. But that’s actually how you would have to look at the different options that would be out there.

Operator

The next question comes from line of Mr. Meunier. Please state your name, company name followed by your question.

Vincent Meunier

Hello, thank you for taking my questions. Vincent Meunier from Morgan Stanley. So the first question is on the consumer unit. Thank you for the confirmation of you 2018 aspirational EBITDA target of 25%. But I would like to better understand the drivers for that margin improvement expected in the near-term. You were talking about the Merck synergies, also increased investments to support Coppertone and Scholl’s and new product introductions in the U.S., particularly on the latter, can you please give more details on your targets for 2017 and 2018 and the impact on margins of course?

The second question is on anetumab in the pipeline. Can you update on the publication timing for the ovarian cancer and the mesothelioma indication? And also, can you confirm that you still target a launch in 2019? Thank you.

Werner Baumann

Okay, thanks, Vincent. Before we go into the Consumer Health questions on margin, margin profile, what’s going to contribute up and onto 2018 and the new product development, we want to come back to the question of the tax position and whether it’s going to be an effect that we’re going to have in terms of. tax reverse, it’s not tax free.

So as Johannes mentioned earlier, in Germany, because we are holding Covestro as shareholding in Germany, it’s tax free, by and large tax free very, very low tax quota. And then depending on the jurisdiction we are, we would have to look at tax effects that we have with parts of deconsolidation, yes, but no further color, including the U.S. at this point in time that would actually then come with the communication of, I guess, at the time of deconsolidation what that would be.

So let me now come to Consumer Health followed by anetumab on ovarian and mesothelioma.

Erica Mann

As I mentioned before…

Werner Baumann

Yes, Consumer Health – consumer first.

Erica Mann

Okay. As I mentioned before the focus is really on the growth opportunities that exist in the marketplace. And in particular, if you talk about the innovation, this year we don’t get into the exact details of the entities that we roll out, but I can tell you that, we’re planning on 19 new products to go out in this year and we have over 18 products in our pipelines for further developments. So that’s a real key focus.

As you know, consumers depend highly on these brands being fresh and relevant and that is a key focus for us. In addition, as I mentioned before, we continue to focus on Scholl’s and Coppertone and ensuring that all the issues in these specific categories are addressed.

Vincent Meunier

Can I have a follow-up question on this. I mean, you talked about financing flexibility during the presentation. And we know that right now in the consumer industry, there is consolidation. So is it fair to assume that if necessary and if opportunities can be presented to you, you can do something and further increase the size of the business unit?

Werner Baumann

Vincent, this is a very good question. And I want to come back to what we said during our September meet management that first, second and the third priority right now is to make the acquisitions that we made in 2014. So the Merck OTC business and Dihon productive, Erica and her team are well underway doing this. It will be very, very distracting to put another acquisition of let’s say significance on top of it, because it automatically leads to distraction rather than the focus we need in order to drive the performance of the brands we have and hold in our hands.

It is also not really necessary to look at something at Consumer, because we do have actually by all accounts critical mass. Our business is one of the three core leading businesses in the industry. So that you have three out there; Sanofi, Boehringer, GSK, Novartis and us that’s essentially the same market share. So in terms of relative size and punching way to all of us are at the equal footing. And if you take a part on one or the other that might come up here nothing is right now, but might come up in the next, let’s say, immediate future, nothing is going to happen to our competitiveness. So then let’s come to anetumab.

Dieter Weinand

All right. So as you know that I’ve been very excited about anetumab and the much more rapid completion of the enrollment in the mesothelioma trial that gives me confidence that the obvious physician must be seeing something to speed up the enrollment so much faster.

And now when you know we have initiated a multi-indication of basket trial in six different tumor types will include certain non-small cell lung cancer, triple negative breast cancer, gastric cancer, thymic cancer, pancreatic cancer, and cholangiocarcinoma, and these trials, as you know, we have to wait for some, first you have to see a signal.

The initiation for these trials is now underway. And based on the signals where we may see some of that signals in the timeframe of 2018 that would allow us to make some decisions on where to expand rapidly moving into a Phase II trial setting with registrational intent..

So I would say, we have to wait until we see these signals that will probably be in the 2018 timeframe before we can make further decisions on those. You asked about the confirmation of the 2019 trial. And I’m assuming that is the mesothelioma trial, the filing. My sense is, you’re asking, because we continue enrollment so much faster than previously anticipated.

This is an event-driven trial and we have to wait for the events to come in now and that will dictate our filing timeline. So for now, our timeline is unchanged for the first launch in 2019 should that change, we would update that, but we have to wait for the event.

Werner Baumann

Very good. Thanks, Dieter.

Vincent Meunier

Thank you.

Operator

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

Damien Conover

Great, thanks. This is Damien Conover with Morningstar. I just had a follow-up question on the COMPASS study and the addressable patient population, you had talked about 30 million potential patients there. I just wanted to see within that group how many of them are using aspirin versus Plavix, because I believe Plavix has outperformed aspirin in the PAD setting, but I wasn’t sure if you had any market share expectations there.

I was really trying to get at generic Plavix pricing versus Xarelto, where you are going to be positioned there when you have a different drug that wasn’t used as a comparator in the COMPASS study.

And then just one second question, just on the pricing power of drugs in the United States, that’s been an important topic. And while your drugs are sold disproportionately outside the U.S., the overall pricing for the quarter looked to be roughly flat, suggesting that pricing was holding up relatively strongly in the U.S., I was wondering if you could confirm that? Thank you.

Werner Baumann

Okay. Thanks, Damien. So, Dieter?

Dieter Weinand

So let me try to address that first question you asked in a different way. There’s no long-term use data of antiplatelet agent other than Aspirin. And the – although the dual antiplatelet therapy compared with Asprin alone further reduce the risk of major cardiovascular risk by 15% to 20% if you are going to CURE and PEGASUS studies in patients with the recent ACS that is the difference. And the benefit of the long-term dual antiplatelet therapy beyond 12 to 18 months in patients such as those with the stable coronary or cerebral peripheral artery disease or in those with high risk of an atherothrombotic vascular event has not been demonstrated.

So it’s very important the patients we’ve looked up and dual antiplatelet therapy has not been demonstrated. That is why there is a significantly remaining high unmet medical need. And so if the guidelines ACC and ESC only actually go for only indicate Asprin in that setting. I don’t have a breakdown of patients on Asprin versus Plavix. And I think you would be well served waiting for the full data set to come out to then look at what it really means.

And pricing in the U.S. fast you’ve mentioned yourself we are relatively underrepresented in the U.S. 20% something of our revenue coming there. We have found that our pricing has been relatively stable. We manage it well. So there’s nothing usual that we would have to highlight at this point.

Werner Baumann

Thanks, Dieter.

Damien Conover

Thank you.

Operator

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

Jürgen Beunink

Thanks, Emma. 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. We hope to see many of you at our upcoming Management Conference in London, and now we’d say, we’d like to say goodbye.

Operator

Ladies and gentlemen, this concludes the full-year and fourth quarter 2016 results investor and analyst conference call of Bayer AG. Thanks for participating. You may now disconnect.

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