U.S. markets closed

Edited Transcript of BAYN.DE earnings conference call or presentation 27-Feb-20 1:00pm GMT

Q4 2019 Bayer AG Earnings Call

Leverkusen Mar 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Bayer AG earnings conference call or presentation Thursday, February 27, 2020 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Liam Condon

Bayer Aktiengesellschaft - Member of Management Board

* O. Maier

Bayer Aktiengesellschaft - Head of IR

* Stefan Oelrich

Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management

* Werner Baumann

Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO

* Wolfgang U. Nickl

Bayer Aktiengesellschaft - CFO & Member of Management Board

================================================================================

Conference Call Participants

================================================================================

* Emmanuel Douglas Papadakis

Barclays Bank PLC, Research Division - MD & Head of European Pharmaceuticals Research

* Jo Walton

Crédit Suisse AG, Research Division - MD

* Michael Leuchten

UBS Investment Bank, Research Division - Co-Head of Pharmaceuticals Research of Equity Research

* Peter Verdult

Citigroup Inc, Research Division - Director

* Richard Vosser

JP Morgan Chase & Co, Research Division - Senior Analyst

* Sachin Jain

BofA Merrill Lynch, Research Division - MD

* Tony Jones

Redburn (Europe) Limited, Research Division - Partner of Chemicals Research

* Vincent Stephen Andrews

Morgan Stanley, Research Division - MD

* Wimal Kapadia

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by. Welcome to the Bayer's investor and analyst conference call on the full year and fourth quarter 2019 results. (Operator Instructions)

I would now like to turn the conference over to Mr. Oliver Maier, Head of Investor Relations of Bayer AG. Please go ahead.

--------------------------------------------------------------------------------

O. Maier, Bayer Aktiengesellschaft - Head of IR [2]

--------------------------------------------------------------------------------

Great. Thank you, Haley. Good afternoon, and thanks, everybody, for joining us today. I'd like to welcome all of you to our full year and fourth quarter 2019 conference call.

With me on the call today are Werner Baumann, our CEO; and Wolfgang Nickl, our CFO. And the businesses are represented by the responsible Management Board members. So for pharma, we have Stefan Oelrich. For Consumer Health, we have Heiko Schipper. And for Crop Science, we have Liam Condon.

Werner will begin today's call with an overview of the key developments and performance of the divisions, and Wolfgang will then cover the financials for the full year and the fourth quarter as well as the outlook and some key focus areas before we open up for the Q&A session. As always, I'd like to start the call today by drawing your attention to the cautionary language that is included in our safe harbor statement as well as in all the material that we've distributed today.

And with that, I hand it over to you, Werner. The floor is yours.

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [3]

--------------------------------------------------------------------------------

All right. And thanks, Oliver, and good afternoon to everybody on the call. It's my pleasure to welcome you to our conference call today.

So first, I'm pleased to say that we have delivered on our 2019 financial targets despite a very challenging environment characterized by trade disputes and the extreme weather conditions that significantly affected our Crop Science business. Sales overall grew by 3.5% to EUR 43.5 billion, and EBITDA before special items increased by 28% to EUR 11.5 billion. Our core EPS reached EUR 6.40, up 14% versus prior year. Finally, our free cash flow reached EUR 4.2 billion, above our guidance of EUR 3 billion to EUR 4 billion that we had mentioned last year.

Based on this performance, we have agreed to a dividend payment that is going to be suggested of EUR 2.80 per share for the fiscal year 2019. This would result in a dividend yield of approximately 3.8% and a payout ratio of just about 44% based on our core EPS of EUR 6.40. We have not only achieved our financial objectives but also executed diligently with our announced efficiency and structural measures, completed the planned portfolio changes and defined ambitious sustainability goals to further boost our efforts in this area.

Now let me share some details with you. In Crop Science, I'd highlight the solid operational performance in a challenging market environment while continuing to successfully integrate and actually substantially accelerate our synergy realization. Meanwhile, our Pharmaceuticals business has continued its strong sales and profit growth and has intensified its focus on pipeline progress. Driven by a strong quarter 4, Consumer Health overachieved its sales growth target and is on track with its plan that we announced at the end of 2018.

Concerning our proposed efficiency and structural measures, we have realized around 30% of the expected annual contributions of EUR 2.6 billion at the end of 2019 and did that 1 year ahead of plan.

And lastly, I'm very pleased to mention that we have delivered on all announced portfolio measures ahead of time with very attractive selling prices. We have already closed the sale of Currenta, Coppertone, Dr. Scholl's and our prescription dermatology business. The investment of -- the divestment of Animal Health was signed in August last year, and we expect the closing of this transaction to happen in the middle of 2020.

Let me now briefly update you on the glyphosate litigation. The number of served lawsuits increased from 42,700 in quarter 3 2019 to now 48,600 by February 6, 2020. As indicated also in previous quarter, an increase in the number of lawsuits does not change our conviction on the safety profile of glyphosates, which was recently reaffirmed by the Environmental Protection Agency in the U.S. and is by no means a reflection of the merits of litigation. In the meantime, the appeals in the first 3 cases are underway. In parallel, we continue to constructively engage in the mediation process while, at the same time, being prepared for potentially litigating further cases in 2020.

With regards to the mediation and also as previously stated, we would only consider a settlement if it is financially reasonable and will bring reasonable closure to the overall litigation. I do hope that you understand that I cannot be more specific with regards to the mediation process as we, as an involved party, agreed to maintain strict confidentiality

Let me now turn to the performance of our businesses, starting with Crop Science. Following a very challenging second quarter with heavy spring rains, flooding in the Midwestern United States and the outbreak of the African swine fever in Asia, we reported an improvement in both sales and EBITDA before special items for fiscal 2019, thanks in large part to the acceleration of synergies from the ongoing integration of the acquired business. Our reported currency and portfolio-adjusted sales were up by 1%, driven by positive developments in Latin America and here particularly in Brazil. While we have seen a good performance of Corn Seed & Traits as well as Insecticides and Fungicides, the market environment in soybeans has been challenging.

From an earnings perspective, Crop Science increased its EBITDA before special items by 81% to EUR 4.8 billion. This strong improvement was driven primarily by the acquisition and acceleration of cost synergies from the integration. Regarding the cost synergy realization, we progressed substantially better than expected and realized more than EUR 300 million of cumulative cost synergies by year-end, more -- EUR 100 million more than originally expected for 2019. While this does not change the overall targeted cost synergies of approximately EUR 870 million by 2022, we are pleased to see that acceleration.

Beyond these financial achievements for the year, we also made significant progress in our Crop Science R&D pipeline as we shared in our recent Crop Science R&D pipeline update. We continue to have the most productive pipeline in the industry. In 2019, we delivered 55 key product and formulation advancements and commercialized more than 450 new hybrids and varieties across corn, soybeans, cotton and vegetables for our grower customers. We anticipate nearly EUR 30 billion in non-risk-adjusted peak sales for the products we are developing, with approximately 45% of these peak sales being incremental to our existing business base.

Now let's look at pharma. Sales of Pharmaceuticals rose by 6% to EUR 18 billion in 2019. Our best-selling products, Xarelto and Eylea have continued their strong performance. And from a regional perspective, our business growth in China was very robust, to say the least, at 25%. Overall, Xarelto grew by 13%, driven by higher volumes in China, Russia and Europe. And our licensing revenues in the U.S. also exceeded the level of prior year.

Eylea also improved significantly with growth of 16%, mainly from volume increases. The business developed particularly well in the EMEA region, primarily in the U.K. and Germany and also in Japan. As a result of the sales growth, our EBITDA before special items increased by 7% to EUR 6 billion for pharma. If we adjust for last year's income of around EUR 190 million from our Xarelto development collaboration with Johnson & Johnson, EBITDA before special items increased by 10%.

We also saw some encouraging product development in 2019, and let me start with Vitrakvi. The European Commission has granted marketing authorization in the European Union for our precision oncology treatment, Vitrakvi. The drug is indicated for the treatment of adult and pediatric patients with solid tumors that display an NTRK gene fusion who have a disease that is locally advanced, metastatic or where surgical resection is likely to result in severe morbidity and to have no satisfactory treatment options left.

In addition, FDA has approved darolutamide under the brand name Nubeqa. While darolutamide was the third androgen receptor antagonist that came to market for the treatment of non-metastatic castration-resistant prostate cancer, it was the first drug in this setting to demonstrate significant benefit in overall survival with the shortest follow-up time to establish such benefits. At the same time, the product showed a differentiated, actually very favorable safety profile.

Moreover, we have seen good pipeline progress with regards to our chronic heart failure product, vericiguat, which met the primary endpoint of the Phase III trial. As a reminder, we forecast peak sales potential for that product of around EUR 0.5 billion. Lastly, the FDA also approved Xarelto for the prevention of venous thromboembolism or blood clots in acutely ill medical patients at risk for thromboembolic complications who are not at risk of high bleeding.

On the investment side, we acquired the remaining stake in Bluerock Therapeutics, a privately held U.S. biotech company focused on developing engineered cell therapies in the fields of neurology, cardiology and immunology using a proprietary induced pluripotent stem cell platform.

Moreover, Leaps by Bayer signed an up to USD 250 million investment in stem cell-based cancer therapies through Century Therapeutics. Century's foundational technology is built on induced pluripotent stem cells that have unlimited self-renewing capacity. Both investments mark a major milestone on our path towards building of a position in cell therapy.

Let's move to Consumer Health next to close out the divisional updates. The division returned to peer-like sales growth of 2.6% in 2019, driven by a strong fourth quarter. That was actually above our target of 1% growth for the year. The good news is that this performance is broad-based. We experienced a growing dynamic over the year in all regions and have seen growth across all of our categories.

On the earnings side, efficiency gains compensated for missing earnings contributions from the divested businesses and led to an EBITDA before special items on prior year level. Overall, Consumer Health is well on track and highly committed to continue that successful plan in 2020 and beyond.

On Chart 9, we summarized our net sales footprint by division and region. This is relatively well balanced as a whole from a geographic perspective. For the group, North America and EMEA are accounting for about 65% of our 2019 revenue and being split nearly equally. Latin America accounts for 15% and Asia Pacific for around 20% of our revenue.

If you look at it by division, as presented on the slide, Crop Science has a very strong weight in the Americas, so both in South and North America, while Pharmaceuticals provides balance with its heavier contribution to our group sales in Asia Pacific and the EMEA region. Pharmaceuticals has a strong foothold in China, but the presence in the U.S. is below peers. Meanwhile, Consumer Health is very strong in North America which accounts for more than 40% of global Consumer Health sales. That's why achieving a sustainable performance in North America is also of such importance for the Consumer Health business.

Now before I hand over to Wolfgang, I'd like to share my perspectives on our 2030 sustainability development objectives, which we introduced in December of last year. Bayer has been driving science and innovation for more than a century and has always cared about sustainability. In recent years, our focus has been on transforming our portfolio in health and agriculture to meet the challenges of 21st century.

As a part of the focus, we are committed to delivering the following by 2030 in close alignment with the United Nations sustainability -- sustainable development goals. As leaders in each of our respective businesses, our intent is to set the bar for sustainability, and therefore, we have established ambitious goals for ourselves.

First, in agriculture, we are committed to enabling about 100 million smallholder farmers in low- and middle-income countries by 2030. These efforts are expected to increase local food supply and reduce poverty in rural communities. With innovative products and new business models, we want to give them better choices, improve their livelihoods and provide them with solutions to grow crops more sustainably, increasing their yields and their incomes.

Second, through our leadership in women's health care, our goal is to provide 100 million women in low- and middle-income countries access to modern contraception by 2030. In doing so, we want to improve women's health and economic status, which has the potential to increase gender equality. At the same time, we want to increase the availability and affordability of our products for all. Therefore, we plan to adapt our pricing policy towards local purchasing power and strengthen our patient access programs.

Third, as a leading consumer health company, we plan to expand access to everyday health for about 100 million people in underserved communities around the world by 2030. Our world-renowned household brands support this ambition. We plan to increase the availability and affordability of our trusted high-quality brands around the world and support self-care education initiatives that form the basis for shaping behavioral change.

Finally, climate change is the single largest threat for sustainable development according to the United Nations. It is also a risk for our business. Without great action, global temperatures will rise by significantly more than 2 degrees Celsius and threaten communities and the environment. At Bayer, we aim to reduce greenhouse gas emissions within our business and also along our value chain, in line with the requirements of the Paris agreement, by making our own operations carbon-neutral by 2030 and working with our suppliers. The investments in these programs are in line with our 2022 financial targets, and we will update you on a regular basis on the progress we are making with regards to our objectives.

And with that, let me now hand it over to you, Wolfgang.

--------------------------------------------------------------------------------

Wolfgang U. Nickl, Bayer Aktiengesellschaft - CFO & Member of Management Board [4]

--------------------------------------------------------------------------------

Thank you, Werner. Ladies and gentlemen, also a warm welcome from my end. I will now walk you through some additional financial details for Q4 and the full year 2019, followed by a discussion of our outlook for fiscal 2020.

Let's start with Q4 2019. We had a strong finish to the year. Sales increased, currency and portfolio adjusted, by 3% to EUR 10.8 billion. And EBITDA before special items came in at EUR 2.5 billion, up 26% year-on-year. Crop Science division showed a very strong increase in EBITDA before special items of 61% (sic) [81%] mainly driven by year-on-year onetime effects and progress on synergy realization. Our group EBITDA margin improved by more than 400 basis points to 23.1%.

Foreign exchange effect had a positive year-on-year impact on both sales and EBITDA of EUR 135 million and EUR 49 million, respectively. Core earnings per share were up 23% year-on-year to EUR 1.29. Finally, compared to the prior year, free cash flow increased by 24% from EUR 1.4 billion to EUR 1.7 billion, driven by an overall positive operating performance.

As already mentioned by Werner, we achieved all financial targets in 2019 despite the numerous challenges we faced. That is a great result in our mind. Sales increased, currency and portfolio adjusted, by 3.5% and EBITDA before special items improved by 28%. Core earnings per share were up 14%, which was less than the growth of EBITDA before special items. This is explained by increased debt financing cost and a higher number of shares following the equity measures financing the acquisition of Monsanto.

Our free cash flow reached EUR 4.2 billion and was above our guidance of EUR 3 billion to EUR 4 billion. Compared to prior year, the operating cash flow even increased despite the acquisition-related year-over-year distortion, where the negative cash flow from the first half of the year of the acquired business were not yet part of our 2018 numbers. Therefore, the 9% decline of overall free cash flow versus last year is entirely explained by 12 months of acquisition financing costs versus only about 6 months in 2018.

On the next chart, we show the bridge from core EPS to reported EPS from continued and discontinued operations. Start on the left with the EUR 6.40 core EPS from continued operations. The next column describing an adjustment of minus EUR 3.64 per share is mainly comprised of acquisition-related amortization of intangible assets as well as impairment losses in connection with the divestment of our Dr. Scholl's foot care portfolio while 2/3 of the impact came from the acquisition of Monsanto. EBITDA-relevant special items had a negative impact of almost EUR 2, mainly related to restructuring and acquisition/integration costs. A positive special item in the financial results of EUR 0.21 resulted mainly from the revaluation of our original stake in Bluerock Therapeutics, which is now, after the acquisition, fully consolidated. Previously, it was accounted for as equity.

The next column shows the offsetting tax effects on the sum of the items I just explained, bringing us to the EPS from continuing operations of EUR 2.46. Finally, there is an impact from discontinued operations of EUR 1.71. This is mainly triggered by a gain related to the sale of our 60% stake in Currenta, leading to an EPS from continued and discontinued operations of EUR 4.17 for the full year 2019. This is an increase of more than 130% versus 2018.

As Werner said, we are very pleased that we have delivered on the portfolio measures which we announced in November of 2018. They are ahead of schedule, and we achieved very attractive valuations. As you can see from this chart, we have closed all transactions with the exception of Animal Health. The closing of Animal Health is still expected for mid-2020. And 70% of the agreed value of $7.6 billion is due in cash at closing and 30% is in stock, subject to a collar and a holding period.

Let's move next to our balance sheet. Our net financial debt balance declined by around EUR 1.6 billion year-on-year despite an increase of around EUR 900 million from lease liabilities, mainly stemming from the adoption of IFRS 16. You will recall that with this accounting change, our operating lease contracts are now reported as right-of-use assets with their respective lease liability. The decline depicted in the bonds column is mainly from the redemption of U.S. bonds in the amount of USD 2.5 billion.

In November 2019, we successfully placed a total of EUR 1.75 billion in hybrid bond in 2 tranches. We used the proceeds to repurchase 1 hybrid bond in the same volume, which had first call right in the middle of the current year. As a reminder, almost 60% of our financial debt is denominated in U.S. dollars. As a result, every percentage point appreciation of the U.S. dollar against the euro increases our net financial debt by about EUR 200 million and vice versa.

Now I'd like to turn your attention to our guidance for 2020, which assumes, as usual, constant currencies. We expect Bayer group sales to be in the range of EUR 44 billion to EUR 45 billion, an increase of 3% to 4% on a currency- and portfolio-adjusted basis. We anticipate the EBITDA margin before special items to increase from 26.4% to around 28% in 2020.

Core EPS is expected to be in the range of EUR 7 to EUR 7.20, an increase of between 9% and 13% compared to the prior year. A major contributor to this increase in profitability is the continued execution of our efficiency programs that we announced at our Capital Markets Day in December of 2018. As Werner mentioned, we have achieved approximately 30% of the gross savings already in 2019, and we are now targeting a phasing of 50% by the end of 2020. Before I move on to the cash flow, I would like to also reiterate the currency sensitivities in our P&L. A 1% swing of our currency basket versus the euro has an impact of approximately EUR 350 million on our top line and roughly EUR 100 million on EBITDA.

Now free cash flow. Free cash flow is expected to grow by almost 20% to around EUR 5 billion, driven by increased profitability and working capital management. For net financial debt, we forecast a reduction of more than 20% to about EUR 27 billion. This reflects a strong free cash flow and the expected proceeds from the Animal Health divestiture as well as the payout of our suggested dividend for 2019 of about EUR 2.8 billion. Let me emphasize this forecast of net financial debt does not include any potential payment of legal settlements.

I would also like to add that our outlook does not yet include any effects that may result from the outbreak of the coronavirus. In the past few weeks, we have focused on humanitarian aid for the people in China. We've donated important medicines, and our local colleagues have helped ensure that the donation has reached doctors and hospitals. It is encouraging to see how some of our products support the fight against the virus. We will be able to better estimate overall potential effects for the year on our business after the end of the first quarter, and we'll, of course, provide an update of -- to the investment community.

Take a look at our guidance by division mix. We expect all of our businesses to deliver currency- and portfolio-adjusted sales growth ranging from 2% to 3% for Consumer Health, 3% to 4% for pharma and around 4% for Crop Science. We also expect a further improvement of the EBITDA margins before special items and at constant currencies for all of our divisions.

Please note that we have adjusted our cost allocation from enabling functions to the divisions as of January 1, 2020. We have significantly simplified our allocation schemes and aligned them to our structural changes and new steering logic. The costs for the enabling functions are now allocated to the P&Ls of the divisions either directly or using only a few allocation keys that are standardized across the group. These changes have an impact on previously reported segment earnings but are overall neutral for the group. Accordingly, we have rebased 2019's divisional EBITDA before special item margins already for our 2020 guidance, as you can see in the 2 columns in the middle of this chart.

Before we start the Q&A, let's have a look at our focus areas for 2020. First and foremost, we are committed to delivering again on our operational targets, as we just shared. Second, as a leader in Crop Science, we expect to grow stronger than our markets and to further increase our margin. Third, we expect to further deliver sales and margin growth in Pharmaceuticals. In addition, we plan to strengthen our internal pipeline and intensify external sourcing of innovation. Fourth, we will strive for a further improvement of the operational performance of our Consumer Health business. Fifth, we expect to continue to deliver on our targets for the Bayer 2022 program, both related to synergy realizations and efficiency improvements. Lastly, we anticipate the successful closing of the sale of our Animal Health business by the middle of this year.

Thanks for your time today, and we are looking forward to sharing our progress on these focus areas in the year ahead. With that, I hand the call back to you, Oliver, to start the Q&A for us.

--------------------------------------------------------------------------------

O. Maier, Bayer Aktiengesellschaft - Head of IR [5]

--------------------------------------------------------------------------------

Thank you, Wolfgang. Thanks, Werner, for the overview.

(Operator Instructions) So Haley, you may open up the lines for questions, please.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from the line of Mr. Verdult.

--------------------------------------------------------------------------------

Peter Verdult, Citigroup Inc, Research Division - Director [2]

--------------------------------------------------------------------------------

Pete Verdult, Citi. Two questions, please. First, for Liam, just putting weather aside, could you give us maybe a state of the union address going into the important North American planting season, just the pushes and pulls that you're thinking about or we should be thinking about?

And then, secondly, Stefan, I realize you don't disclose these numbers, but would be interested to hear how the new launches in pharma are doing, Vitrakvi and Nubeqa. Are you able to give any sort of sales figures for Q4 or 2019? And then just talk from a pharma perspective, in China, how Xarelto is doing, the impact you're seeing from VBP. We're hearing from some of your peers that before corona hit, the volume uplift you were seeing, despite the price increase, was higher than expected. So anything you're willing to share, going a bit deeper on your pharma business in China?

--------------------------------------------------------------------------------

Liam Condon, Bayer Aktiengesellschaft - Member of Management Board [3]

--------------------------------------------------------------------------------

Okay. Thanks a lot, Pete. Appreciate the question. So state of the union, crop going into the year, how do we see things? From the 4% nominal sales growth that we forecast, this translates into about EUR 800 million in sales. And let's try and frame here a little bit where that is coming from because that helps explain how we see the season evolving. So the biggest part of that growth is coming from a rebound in the U.S. So we're expecting anything between 10 million and 12 million additional acres versus previous year from acres that ultimately weren't planted because of the bad weather last year. We're reckoning this can be about 3 million to 5 million acres in corn and maybe 5 million to 7 million acres in soybeans. What that ratio actually is completely depends on weather and trade conditions as we get closer into the season. That rebound will probably account for about EUR 500 million to EUR 600 million in additional sales for us.

Then, we have growth from new products. The growth from new products is coming from -- basically from all regions, particularly fungicides like Fox Xpro in Latin America. Insecticides, there are new insecticides, Vayego and Sivanto. And corn as well will be a major growth driver for us. This will probably be in the ballpark of about EUR 400 million additional sales. And then we have sales synergies factored in, which are particularly relevant in the countries that we had identified as highest priority from an integration point of view, which is basically North and Latin America. It's U.S., it's Brazil, it's Canada, Mexico and Argentina. And this will be an additional about EUR 200 million.

Now that gets you up to EUR 1.2 billion. The difference to the EUR 800 million is, of course, we have headwinds with us. And that's -- there's always a multitude of headwinds, but in general, one of the clearer ones is, of course, the transitional sales agreement that we have with BASF. That was last year about EUR 250 million. The previous year, it was EUR 290 million for just less than half a year, so basically half, then went up to EUR 250 million last year. And this will halve again, but of course, then year-on-year, that's a headwind for us.

We have the loss of some crop protection products in EMEA, which will hit us. We have a low single-digit price decline in soybeans in the U.S., which we factored in and a couple of other issues. And that gets us overall net-net then to the approximately EUR 800 million sales that we are forecasting. I hope that's clear.

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [4]

--------------------------------------------------------------------------------

Stefan?

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [5]

--------------------------------------------------------------------------------

Yes. Pete, so on your questions around Nubeqa and Vitrakvi, maybe to start with, yes, you're right, we're not disclosing detailed numbers. But maybe I can give you some more color nonetheless. So let's start with Nubeqa.

As you know, we had approval in July, which was ahead of the PDUFA date. And so far, our start is really in line with expectations. You may see a few numbers so far in your market research data because most of our patients are enrolled in our programs that offer a 2-month free trial program for eligible patients, and the majority of our physicians and patients really have taken advantage of this program. Nonetheless, we're really tracking, in our view, quite nicely.

And the reason for that, we think, is very convincing data that we've presented with Nubeqa. One of the really remarkable things, we feel, is that while we were the third in the class, so third androgen receptor antagonist to come to market, we were the first one to actually demonstrate overall survival in the follow-up, which we believe is a really very strong indicator for the efficacy of our drug. This is not just reflected in the market research that we're making qualitatively, but it also finds itself back in access. I'm happy to report that we currently now have an overall coverage of 92% of lives across the board in the U.S. And what is particularly interesting is that we both have about 83% of commercial lives and almost 100% of Medicare Part D lives, which is really significant. So with that on top of it, Nubeqa is the only agent that does not require a step-through to access the products for both United -- Part D and also on commercial plans. So really very strong start, we believe, into Nubeqa.

When it comes to the Vitrakvi, making good progress there, too. I mean we have broad adoption for whatever you can call broad in a product that has a very, very small eligible population. And we continue to look for patients literally as we progress. But there, again, we just recently published new data in the Lancet here on efficacy of Vitrakvi, which is extremely convincing, with an overall response rate of about 80% in all subjects; with very, very strong response in pediatric patients, more than 90% response rate here; and median PFS, 28 months; and median overall survival of 44 months, so -- 44.4 to be precise. So really, all of that would be very consistent and favorable safety profile that we're also seeing through -- come through in all of the qualitative research that we're having on this product.

So at both, I think, making good progress. I think we will give you a little bit more, including some numbers, middle of this year. And hopefully, we all meet in Berlin, and so stay tuned until then. But you will see now gradually also in the market research that some of these programs that are on free programs are going to come through now in the market research numbers, too. So that will give you also a better feel for where this is going on Nubeqa at least.

And then you were asking and you....

--------------------------------------------------------------------------------

Peter Verdult, Citigroup Inc, Research Division - Director [6]

--------------------------------------------------------------------------------

On China.

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [7]

--------------------------------------------------------------------------------

Yes. On China, you were asking of 2 things, Xarelto and VBP. So Xarelto is not part of VBP, just to make clear of that. So Xarelto, we've had an outstanding 2019 in Xarelto. We don't disclose country numbers normally, but I can tell you that we're extremely pleased with both volume expansion but also overall value expansion for Xarelto in China. Xarelto alone in China last year was about EUR 150 million increase.

And I don't know, Pete, you had a question on VBP. Can you repeat that one, please?

--------------------------------------------------------------------------------

Peter Verdult, Citigroup Inc, Research Division - Director [8]

--------------------------------------------------------------------------------

No, just asking -- some of your competitors who have also been hit by VBP were actually saying that before corona struck, they were pleasantly surprised by the volume uplift they were seeing despite the price decrease. Were you -- have you -- before corona arrived, did you see something similar with your portfolio like Glucobay and others that were affected?

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [9]

--------------------------------------------------------------------------------

Yes. Glucobay was not part of VBP until then, so I can't tell you.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

The next question comes from the line of Mr. Kapadia.

--------------------------------------------------------------------------------

Wimal Kapadia, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

Wimal Kapadia from Bernstein. Can I just follow up on VBP? So what exactly is baked into your 2020 assumptions for Glucophage and AVELOX VBP in China? So when do you expect this to kick in given the current situation with the virus? And can you help us quantify the impact at least within your expectations for 2020?

And then my second question is just on the 2 key pipeline assets. For vericiguat, how do you think physicians will think about the new mechanism of action given cardiologists are typically quite a conservative group? And how do you envisage where the product will be used, as an add-on to Entresto or as an alternative option? And then just very briefly on finerenone. What is your view of the SGLT2 class as a threat in DKD patients?

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [12]

--------------------------------------------------------------------------------

So thanks for the question, Wimal. Let me start with VBP. So we have built VBP into our guidance for the year, and that includes both Glucobay -- not Glucophage, I'm sorry. I wish I had Glucophage, but I only have Glucobay. Those 2 on top would even be better -- and also for AVELOX. So in terms of when this will hit, we're expecting this to be effective as of second quarter. It's anybody's guess right now with what's happening with corona. If that leads to a delay -- right now, we do not assume that, that leads to a delay.

And in terms of cardiology assets and our late-stage pipeline, so vericiguat. First of all, let me, again, express how excited we are that we could communicate positive top line data on our VICTORIA pivotal trial for vericiguat. We will be presenting detailed information at the upcoming ACC. So I guess that's where also you will get some qualitative input of where physicians see this.

We have studied in quite a frail and difficult population with worsening heart failure here in HFrEF patients. And I think this will -- but we will see how this will be placed in guidelines. In our study population, we have a mix of patients, both with -- treated with Entresto, but also with other baseline treatments. So I don't see any limitation to just being this therapy on top of Entresto, but certainly also a valid option on top of Entresto. But stay tuned for our ACC presentation, where we're going to go into much more detail.

And on finerenone, so we're always happy when others present good data because that's good news for patients. I think finerenone will offer -- just as SGLT2, offer a good option for patients with impaired renal function. It's a very different mechanism of action. So -- and I think we're not necessarily going to go after the same patient type. Also there -- in our background therapy of our studies, we have certainly something in the order of a typical market share for SGLT2s in our finerenone study population. So we will have anyway a background therapy that will both compare finerenone efficacy on top of SGLT2 as well as without SGLT2 as background therapy. But there, again, we'll have to see that -- hopefully, we'll have that for the second half of the year when we can give you much more detail on that.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

The next question comes from Mr. Papadakis.

--------------------------------------------------------------------------------

Emmanuel Douglas Papadakis, Barclays Bank PLC, Research Division - MD & Head of European Pharmaceuticals Research [14]

--------------------------------------------------------------------------------

It's Emmanuel Papadakis from Barclays. Maybe one, I guess, broader strategic question perhaps for Werner. We've obviously had a significant change at the top of Supervisory Board. You've also announced some interesting changes around cost allocation for divisions. Should we interpret anything from either of those in terms of willingness to reflect upon a broader strategic outlook for the group divisional structure? And any willingness to reassess those over the coming years?

The second question for Stefan. I think you said you'd be in a position by the time of the Q4 results to give us an update on Xarelto U.S. IP situation and settlement progress. So perhaps you could just let us know the latest there.

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [15]

--------------------------------------------------------------------------------

Yes. Emmanuel, thanks for your questions. On the first one, we have a strategy that was communicated and that we continue to execute against, I think, fairly diligently if you look at what we did in line with strategy execution in 2019. The fact that Mr. Wenning is going to step down as the Chairman of the Board effective at the AGM was communicated yesterday, and I think he also explained why he is going to step down. And that's very much driven by the fact that he had stayed on actually 1 year longer than he wanted originally. He was already beyond the recommended maximum age for the Supervisory Board members. And with that, I think everything that I can say to it is said with it, which was already communicated yesterday.

The cost reallocation is -- does not have any bearing in terms of, let's say, strategic relevance. It was an adjustment that we made in alignment of changed value flows as we have now fully integrated Crop Science and we have changed a few other things. And that is what that is about. So it is a technical effect in order to more appropriately show the business performance, and at the same time, there's a good deal of simplification of our value flows that has led to these adjustments.

So -- and with that, I hand it over to Stefan.

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [16]

--------------------------------------------------------------------------------

Emmanuel, I guess you're referring to the 218 once-daily use patent for Xarelto in the U.S., which expires in February 2034, which had been challenged by Mylan and others. Mylan, as the first filer here, is the relevant party for us or most relevant. We have entered into a settlement agreement pursuant, which Mylan has been granted access to a license under the relevant patents to market a generic version of 10 milligrams, 15 milligrams or 20 milligrams of Xarelto tablets beginning in 2027. So while that shortens our patent life from '34 to '27, it gives us exclusivity beyond the expiry of the chemical entity patent.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question comes from Ms. Walton.

--------------------------------------------------------------------------------

Jo Walton, Crédit Suisse AG, Research Division - MD [18]

--------------------------------------------------------------------------------

It's Jo Walton from Crédit Suisse. I've got 2 questions, please. On Nubeqa, I wonder if we could push you further as to what share of new patients you think you are able to achieve. It's interesting that you say that there are all these patients and they're taking their 2 months free, and we're not seeing it in the prescription level. But we're not seeing, overall, any reduction in the level of prescriptions out there, so either there are many more patients coming forward for treatment to allow for this sort of uplift or maybe it isn't as great as we might think. So I wonder if we could just push you a little further on the adoption for Nubeqa.

And on the crop side of things, you've obviously been very successful in getting cost savings coming through, and you're going to get more cost savings or accelerate your cost savings. I wonder if we can push you on the level of reinvestment and how much of that you think you'll be able to bring down to margin gain in 2 or 3 years' time.

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [19]

--------------------------------------------------------------------------------

So Jo, no, I'm afraid you can't push me much further. So we're -- I stand by what I said earlier, and we're very happy with what we see.

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [20]

--------------------------------------------------------------------------------

Liam?

--------------------------------------------------------------------------------

Liam Condon, Bayer Aktiengesellschaft - Member of Management Board [21]

--------------------------------------------------------------------------------

Yes. Thanks. So possibly, unlike some of our competitors, when we talk about synergies, we talk about net EBITDA-relevant synergies, so this should all be falling to the bottom line. So we have originally a target of 25% of cumulative synergies. For last year, we actually achieved over 40%. And this year, we're tracking towards over 70%. And again, this is a big part of what is helping us beyond the sales growth to get to the margin numbers, and this is what's keeping us on track to achieve our midterm guidance of around about north or north of 30% EBITDA.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

The next question comes from Mr. Andrews.

--------------------------------------------------------------------------------

Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [23]

--------------------------------------------------------------------------------

Vincent Andrews from Morgan Stanley. Liam, I wondered if I could just ask you. As we think about the impact of coronavirus, I can think of 2 things that might happen here. One, I don't know what type of intermediates in your crop chem business you're getting from there, but we also know that a lot of glyphosate comes out of China. So are you seeing anything in terms of glyphosate exports or plant capacity of production? And likewise, any concerns you have about your raw material cost for 2020?

--------------------------------------------------------------------------------

Liam Condon, Bayer Aktiengesellschaft - Member of Management Board [24]

--------------------------------------------------------------------------------

Yes. Thanks, Vincent. So right now, we are not seeing any impact. Glyphosate pricing actually coming out of China is still relatively low. You would intuitively kind of expect with supply shocks that the price should be increasing. We have still to see that happen. So we're not necessarily noticing an impact on the supply side yet. And it's just a question -- will that come or not? We don't know, but we're not noticing anything in our supply chain right now.

On raw materials, we did have a negative impact on COGS coming out of China because of the increases in intermediates last year because of the cleanup initiatives from within China. This year, we actually expect to have a positive COGS development, and this is purely due to our cost synergies. So we will have some counter effects, but net-net, we should be seeing a positive COGS development, again, because of our cost synergy progress we're making.

--------------------------------------------------------------------------------

Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [25]

--------------------------------------------------------------------------------

Okay. And then if I could just ask you on the U.S. seed season. We're well acquainted now with the issues with the soybean price competition, but maybe just help us understand how you're keeping that contained just within the soybean part of the order book. And why is it not leaking or how are you keeping it from leaking into the corn or the cotton side of your order book?

--------------------------------------------------------------------------------

Liam Condon, Bayer Aktiengesellschaft - Member of Management Board [26]

--------------------------------------------------------------------------------

Well, I think it's just -- it's a very different demand-supply situation overall. I mean in soybeans, we still have the situation that demand has been, to a degree, somewhat suppressed by both the combination of African swine fever in China suppressing demand there and the U.S.-China trade conflict, which is -- on paper, has been partially, let's say, settled in for phase 1, but practically, nobody knows what impact that's really going to have. So there's a demand situation there that's, let's say, suppressed. And then you have, on the supply side, a very competitive situation. So I think this is just natural competition that then pricing in such an environment is weaker.

On the corn side, we have pretty robust demand. Particularly, if you look at the stock-to-use ratios, overall demand/supply looks good. And from a competitive situation, with the portfolio that we have, we're in a much better situation than relative to soybeans. And with that, we can achieve pricing uplift in the corn side.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

The next question comes from Mr. Jain.

--------------------------------------------------------------------------------

Sachin Jain, BofA Merrill Lynch, Research Division - MD [28]

--------------------------------------------------------------------------------

It's Sachin Jain from Bank of America. A few questions, please. Firstly, I wonder if you could just clarify some of the media comments around balance sheet and need to raise funds around a potential settlement. Is that just risk language in the annual report? Or is there anything else to that?

Secondly, Werner, if I could just ask you on the glyphosate settlement. Some of the commentary on the post-3Q roadshow was you had a window of opportunity to settle given the delayed court cases. Given those are starting back up in the middle of the year, when do you think that settlement window closes?

And then the third one was a clarification for Stefan on the Xarelto settlement. Was that '27 just Mylan? Or have all parties agreed to that '27 date? Or are you still outstanding? And just to check, there's no such opportunity for extension in Europe?

--------------------------------------------------------------------------------

Wolfgang U. Nickl, Bayer Aktiengesellschaft - CFO & Member of Management Board [29]

--------------------------------------------------------------------------------

Okay. Okay, Sachin. I'd start with the comment on the financing, which I think you alluded to it already. It was taken very, very quickly out of the risk factors, which, as you know, have bit of a safe harbor/disclaimer function in the annual report. As you know, we have very ambitious but solid free cash flow targets for the next 3 years, and we're executing on that. We said we're going to get our dividends, our delevering done and can invest in some modest bolt-on acquisitions.

As you heard us previously talking, not only from a time perspective but also from a value perspective, we have been doing extremely well on the divestments. We're closing Animal Health middle of the year. That's at least the plan, with 70% of the proceeds coming in cash and the rest, shortly thereafter, in equity that we can translate into cash. So you should not assume that there's any equity measures. If there is any timing imbalances, you may see a bridge loan, but there is no things that you should read into this. Werner?

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [30]

--------------------------------------------------------------------------------

So Sachin, on your other question on glyphosate and the settlement window, we saw some of these comments as well. I don't recall that we spoke about a specific window. What we've said is that we've qualified the type of solution we need as one that is financially reasonable and acceptable, if I may say so, and at the same time, that it brings a reasonable closure to the overall litigation. And we think that, that is also the right way to take on the negotiations.

Time is not necessarily helpful in setting a kind of date by which we want to be done. We are driven by finding the best solution for the company and to shareholders in these discussions. And with that, it's going to take as long as it's going to take until we get there, and then we'll hopefully be able to communicate something that is within the frame of what I described before.

--------------------------------------------------------------------------------

Sachin Jain, BofA Merrill Lynch, Research Division - MD [31]

--------------------------------------------------------------------------------

And on Xarelto?

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [32]

--------------------------------------------------------------------------------

Thanks, Sachin. On Xarelto, so you're absolutely right, there are a few other parties here to the table. We're working very diligently at getting all of them aligned to the same date, and we're really making good progress with that. I can't say more than that. And as to your question about the patent in Europe, the equivalent patent in Europe expires January '26 but was revoked originally by the European patent office in first instance against what we appealed.

--------------------------------------------------------------------------------

Sachin Jain, BofA Merrill Lynch, Research Division - MD [33]

--------------------------------------------------------------------------------

Sorry, just to clarify, that European revoke appeal is still ongoing or has it been closed?

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [34]

--------------------------------------------------------------------------------

Well, it's still on appeal, but anyway, it would expire in January '26.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

The next question comes from Mr. Vosser.

--------------------------------------------------------------------------------

Richard Vosser, JP Morgan Chase & Co, Research Division - Senior Analyst [36]

--------------------------------------------------------------------------------

It's Richard Vosser from JPMorgan. First question, Werner, I think in the prepared remarks, you highlighted the limited exposure of pharma in the U.S. And maybe you could just touch -- you and Stefan could touch maybe on your thoughts on enhancing your position for the pharma business in the U.S. and what sort of time frame you might think about that.

And then just 2 outlook questions for the key products in pharma. Just thinking about the outlook for Eylea. How do you see that into 2020 given maybe an aggressive launch from Novartis of their product, Beovu? And secondly, just obviously, a very successful year for Xarelto in 2019. Can you further accelerate -- as I understand it, the uptake in PAD, CAD has been relatively slow. So can that boost sales in 2020 or boost the growth profile of Xarelto in 2020?

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [37]

--------------------------------------------------------------------------------

Okay. Thanks, Richard. So Stefan is going to take all 3 questions.

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [38]

--------------------------------------------------------------------------------

Thank you. So for the U.S., well, we're in the lucky position now to have extended rights, when it comes, obviously, to finerenone, which will allow us to establish a position, should we choose to do so, in the U.S. in that segment. We also have the right to co-promote across the world, as does Merck, vericiguat in the countries we choose to promote it. So that would potentially give us 2 very competitive products in the bag, if we wanted to, at a very, let's say, close timing one from the other and could help us establish presence in the U.S.

And then secondly, we will continue with our oncology franchise, which we believe gives us significant room for establishing a much broader footprint there in the U.S. overall. Add to that our already strong position in women's health care and in hemophilia that we enjoy in the U.S., and I think it makes us much more competitive in that geography. And that comes at a good time as the Chinese dominance is probably going to be a little less going forward.

And then as to your -- outlook on Eylea, so we've -- we will have -- similar as in last year, we're going to be in the upper teens for Eylea this year. Sorry?

--------------------------------------------------------------------------------

Wolfgang U. Nickl, Bayer Aktiengesellschaft - CFO & Member of Management Board [39]

--------------------------------------------------------------------------------

Xarelto?

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [40]

--------------------------------------------------------------------------------

No, no, the question was Eylea.

--------------------------------------------------------------------------------

Wolfgang U. Nickl, Bayer Aktiengesellschaft - CFO & Member of Management Board [41]

--------------------------------------------------------------------------------

Yes. But for this year, forecast, high single digit.

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [42]

--------------------------------------------------------------------------------

Sorry, high single. Did I say teens? I meant high single digits. Please forgive me.

As for Beovu, we'll have to see, okay? So for now, we feel that we actually have the stronger profile clinically, and we have a much stronger position in the market. I mean their launch in the U.S. is ongoing. They're making a lot of noise, but there's also some noise that is not so good for them. So we'll see where that ends.

In CAD/PAD, Richard, we've discussed that before. Obviously, we're not super happy with how this has started. I think one thing that comes in and probably very positively for us this year, we will have the VOYAGER data presenting also at ACC that gives us a chance to add additional data for CAD/PAD patients. We'll have to see if we can make the patient profile even a little bit more clear following the publication and the presentation of the VOYAGER data at ACC. And we remain hopeful that, that should further boost already very good sales development of Xarelto for the coming years.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

The next question comes from Mr. Jones.

--------------------------------------------------------------------------------

Tony Jones, Redburn (Europe) Limited, Research Division - Partner of Chemicals Research [44]

--------------------------------------------------------------------------------

I've got 2 left. One on -- I wanted to circle back again on this soybean price pressure. So the competitive headwinds, could you talk a little bit about whether this is broad-based across all germplasm and traits, coming more from the digital channel? We know there's one aggressive digital guy out there. Or is it a little bit more brand-specific and somehow relates to the ramp-up of Enlist?

And then my second question is more on the Roundup cases. So this quarter, the number of cases highlighted was -- increased less than we expected. I know it's probably a difficult one to forecast, but maybe based on your sort of internal counsel, how should we be thinking about the development of that number over the next couple of quarters? Is it about to sort of plateau or volatility should resume and we're seeing another big jump up in the next couple of quarters?

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [45]

--------------------------------------------------------------------------------

Liam?

--------------------------------------------------------------------------------

Liam Condon, Bayer Aktiengesellschaft - Member of Management Board [46]

--------------------------------------------------------------------------------

Thanks, Tony. So on soybean prices, I think this is both broad-based and brand specific. We don't see this coming from a digital channel. That's not really a relevant impact. It's rather to do, again, with the overall demand/supply situation. Again, with relatively suppressed demand and a relatively high supply, I think it's a natural reaction in the market.

There is, as you know, one specific more regional seed company on a competitive platform that is discounting quite heavily. That's not a direction that we are following, but that does have an impact on overall pricing in the market. So we see it across the board, but driven by -- more by some of the regional players as opposed to, for example, a digital player.

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [47]

--------------------------------------------------------------------------------

Yes. Tony, let me add to what Liam just mentioned and talk about the Roundup and the glyphosate litigation question. We can only report on the current status of filed cases. We know that there's speculation out there how many unfiled cases there might be. We cannot put any color on that. So the only thing I can tell you is that the development of the cases as we've seen also last year depends on quite a number of factors; one of them, certainly excessive one, being the promotional activity of the plaintiff side.

That obviously has come down quite a bit. That's the reason why we've seen a lower buildup compared to where we were in terms of dynamics in the last year. So we had just about 6,000 additional cases from quarter 3 to full year now as of February 6, and we simply have to take it from there.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

The next question comes from the line of Mr. Leuchten.

--------------------------------------------------------------------------------

Michael Leuchten, UBS Investment Bank, Research Division - Co-Head of Pharmaceuticals Research of Equity Research [49]

--------------------------------------------------------------------------------

It's Michael Leuchten from UBS. Two questions, please; one for Stefan. The pharma margin target of 33% for 2020, sequentially, looking at that over 2019, it doesn't seem overly ambitious. Just wondering if you could talk about the pushes and pulls.

And Wolfgang, you did refer to working capital management as a significant driver of free cash flow generation in 2020. It didn't strike me that you were sort of heavy on working capital cycle. Just wondering if you could elaborate on that a little bit more.

--------------------------------------------------------------------------------

Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [50]

--------------------------------------------------------------------------------

Okay. Stefan?

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [51]

--------------------------------------------------------------------------------

So for -- Michael, thanks for the question. For 2020, when we look at the business and some of the major factors on a like-for-like comparison with China VBP and some of the costs that we will have to use for launch preparation for vericiguat and finerenone plus the Nubeqa, Vitrakvi getting off the ground and some change in cost allocations that we're having, we believe that this is actually -- that's an ambitious target as it may sound, so we're fine with that. And I hope that answers your question.

--------------------------------------------------------------------------------

Wolfgang U. Nickl, Bayer Aktiengesellschaft - CFO & Member of Management Board [52]

--------------------------------------------------------------------------------

Michael, from my end, working capital is coming more and more important for us. Free cash flow is top of mind. I can tell you that, with this year, we're starting to bring free cash flow across the board or at least in the incentive systems. And there are always pockets also in our business where we have optimization opportunities when we go business by business. In total, if you just take our receivables and then take our inventory, you're at EUR 23 billion. And we're convinced that there are significant opportunities in there, and we will seize them.

--------------------------------------------------------------------------------

Stefan Oelrich, Bayer Aktiengesellschaft - President of Pharmaceuticals Division & Member of the Board of Management [53]

--------------------------------------------------------------------------------

Michael, maybe one thing -- Stefan here -- that I wanted to add, that the -- just the cost allocation change gives us a pro forma impact of EBITDA margin of minus 0.7 percentage points. So this is a -- I think it's important to reflect that in your model.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

In the interest of time, we have to stop the Q&A session. I hand back to Mr. Maier for any closing comments.

--------------------------------------------------------------------------------

O. Maier, Bayer Aktiengesellschaft - Head of IR [55]

--------------------------------------------------------------------------------

Great. Thank you, Haley. Thank you very much, everybody. Thanks to all of you for your time and attention today, greatly appreciate. And this closes our call for today. Thank you very much.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes the full year and fourth quarter 2019 results investor and analyst conference call of Bayer AG. Thank you for participating. You may now disconnect.