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. 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. I would now like to turn the conference over to Mr.
Olivier Mayer, Head of Investor Relations for Bayer AG. Please go ahead.
Great. Thank you, Haley. Good afternoon, and thanks everybody for joining us today. I'd like to welcome all of you for our full year and 4th 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 Uhrich for Consumer Health, we have Heiko Hepper 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 Q4 as well as the outlook on some key focus areas before we open up for the Q and 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, Bernard. The floor is yours.
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 percent to €43,500,000,000 and EBITDA before special items increased by 28% to 11,500,000,000 Our core EPS reached €6.40 up 14% versus prior year.
Finally, our free cash flow reached €4,200,000,000 above our guidance of the €3,000,000,000 to €4,000,000,000 that we had mentioned last year. Based on this performance, we have agreed to a dividend payment that is going to be suggested of €2.80 per share for the fiscal year 2019. This would result in a dividend yield of approximately 3.8 percent and a payout ratio of just about 44% based on our core EPS of the €6.40 We have not only achieved our financial objectives, but also executed diligently with our announced efficiency and structural measures, completed the plant 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 €2,600,000,000 at the end of 2019, and with 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, Doctor.
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 numbers lawsuits does not change our conviction on the safety profile of glyphosate, 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 three 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 are seeing a good performance of corn, seed and 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 €4,800,000,000 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 300,000,000 of cumulative synergies by year end, more than EUR 100,000,000 more than originally expected for 2019. While this does not change the overall targeted cost synergies of approximately EUR 870,000,000 by 2022, We are pleased to see that acceleration. Beyond these financial achievements for the year, we also made significant industry. In 2019, we delivered 55 key product and formulation 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 €30,000,000,000 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 18,000,000,000 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 UK and Germany and also in Japan. As a result of the sales growth, our EBITDA before special items increased by 7% to EUR 6,000,000,000 for pharma. If we adjust for last year's income of around EUR 190,000,000 from our Xarelto development collaboration with Johnson and Johnson, EBITDA before special items increased by 10%. We also saw some encouraging product developments in 2019. And let me start with Vitrakvi.
The European Commission has granted marketing authorization in the European Union for physician oncology treatment with TRK. 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 who have no satisfactory treatment options left. In addition, FDA has approved darolutamide under the brand name Nuveca. While darolutamide was the 3rd androgen receptor antagonist that came to market for the treatment of non metastatic castration resistant prostate cancer, It was the 1st 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, parisegualt, which met the primary endpoint of the Phase 3 trial. As a reminder, we forecast peak sales potential for that product of around €500,000,000 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 heart 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 Papier signed an up to $250,000,000 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 milestones on our path towards the 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 Q4. 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 beyond. On Chart 9, we summarize 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 we 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, while 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 2,030 sustainability development objectives, which we introduced in December of last year.
PR 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 that focus, we are committed to delivering the following by 2,030 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. 1st, in agriculture, we are committed to enabling about 100,000,000 smallholder farmers in low and middle income countries by 2,030.
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. 2nd, through our leadership in women's health care, our goal is to provide 100,000,000 women in low- and middle income countries access to modern contraception by 2,030. In doing so, we want to improve women's health and economic status, which has the potential to increasing 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 for about 100,000,000 people for about 100,000,000 people in underserved communities around the world by 2,030. 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 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 to our business.
Without greater 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 2,030 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 it, let me now hand it over to you, Wolfgang.
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 of the year.
Sales increased currency and portfolio adjusted by 3 percent to €10,800,000,000 and EBITDA before special items came in at €2,500,000,000 up 26 percent year on year. Our Crop Science division showed a very strong increase in EBITDA before special items of 61%, mainly driven by year on year onetime effects and progress in synergy realization. Our group EBITDA margin improved by more than 400 basis points to 23.1%. Foreign exchange effects had a positive year on year impact on both sales and EBITDA of €135,000,000 49,000,000 respectively. Core earnings per share were up 23% year on year to €1.29 Finally, compared to the prior year, free cash flow increased by 24% from €1,400,000,000 to €1,700,000,000 driven by an overall positive operating performance.
As already mentioned by Werner, we achieved all financial targets in 2019 despite the numerous challenges we face. That is a great result in our mind. Sales increased currency and portfolio adjusted by 3.5 percent 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 €4,200,000,000 and was above our guidance of €3,000,000,000 to €4,000,000,000 Compared to prior year, the operating cash flow even increased despite the acquisition related year over year distortion, where the negative cash flows 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 cost 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 €0.06.40 core EPS from continued operations. The next column describing an adjustment of minus €3.64 The share is mainly comprised of acquisition related amortization of intangible assets as well as impairment losses in connection with the divestment of our Doctor.
Scholl's Foot Care portfolio. About twothree of the impact came from the acquisition of Monsanto. EBITDA relevant special items had a negative impact of almost €2, mainly related to restructuring and acquisitionintegration costs. A positive special item in the financial results of €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 at Equity.
The next column shows the offsetting tax effects on some 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 €1.71 This is mainly triggered by a gain related to the sale of our 60% stake in Coranda, leading to an EPS from continued and discontinued operations €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-twenty 20, and 70% of the agreed value of $7,600,000,000 is due in cash at closing and 30% is due in stock subject to a collar and the holding period. Let's move next to our balance sheet. Our net financial debt balance declined by around EUR 1,600,000,000 year on year despite an increase of around EUR 900,000,000 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 a respective lease liability. The decline depicted in the bonds column is mainly from the redemption of U.
S. Bonds in the amount of $2,500,000,000 In November 2019, we successfully placed a total of EUR 1,750,000,000 in hybrid bonds in 2 tranches. We used the proceeds to repurchase 1 hybrid bond in the same volume, which had its first toll 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 €200,000,000 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 €44,000,000,000 to €45,000,000,000 an increase of 3 percent to 4% on a currency and portfolio adjusted basis. We anticipate the EBITDA margin before special items to increase from 26.4 percent to around 28% in 2020. Core EPS is expected to be in the range of €7 to €7.20 an increase of between 9% 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 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 and L. The 1% swing of our currency basket versus the euro has an impact of approximately EUR 350,000,000 on our top line and roughly EUR 100,000,000 on EBITDA. Now free cash flow. Free cash flow is expected to grow by almost 20% to around EUR 5,000,000,000 driven by increased working capital management. For net financial debt, we forecast a reduction of more than 20% to about €27,000,000,000 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 2,800,000,000 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 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 to ensure that the donations have 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 Q1.
And we'll, of course, provide an update of to the investment community. Take a look at our guidance by division next. 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 and 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 all overall neutral for the group. Accordingly, we have rebased 20 19's divisional EBITDA before special item margins already for our 2020 guidance, as you can see in the two columns in the middle of this chart. Before we start the Q and A, let's have a look at our focus areas for 2020.
1st and foremost, we are committed to delivering again on our operational targets, as we just shared. 2nd, as a leader in crop science, we expect to grow stronger than our markets and to further increase our margin. 3rd, we expect to further deliver sales and margin growth in Pharmaceuticals. In addition, we plan to strengthen our internal pipeline and intensify the external sourcing of innovation. 4th, we will strive for a further improvement of the operational performance of our Consumer Health business.
And 5th, we expect to continue to deliver on our targets for the BIOP 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, Oliver, I hand the call back to you, Oliver, to start the Q and A for us.
Thanks, Wolfgang.
Thanks, Werner, for the overview. Before we begin, I would remind everybody to keep your questions 2 per person, so that we are able to take questions from as many participants as possible in the time allotted, which is approximately 35 minutes. So Haley, you may open up the lines for questions,
The first question comes from the line of Mr. Vidot. Please state your name, company name followed by your question.
Thank you. Pete Bedell, Sydney. Two questions, please. First for Liam, just putting weather aside, could you give us a mini 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 with TRACV and Nubeka.
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 Xarelso is doing, the impact you're seeing from VPP. 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 farm business in China?
Okay. Thanks a lot, Pete. I 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 €800,000,000 in sales.
And let me try and frame for you 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 10,000,000 12,000,000 additional acres versus previous year from acres that ultimately weren't planted because of the bad weather last year. And we're reckoning this can be about 3000000 to 5000000 acres in corn and maybe 5000000 to 7000000 acres in soybeans.
What that ratio actually is completely depends on weather and trade conditions as you get closer into the season. That rebound will probably account for about $500,000,000 to $600,000,000 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 FOXEXPRO in Latin America, insecticides, there are new insect Diego, Cervanto and corn as well will be a major growth driver for us. This will probably be in the ballpark of about $400,000,000 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 $200,000,000 Now that gets you up to $1,200,000,000 The difference to the $800,000,000 is, of course, we have headwinds with us, and 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 $250,000,000 The previous year, it was $290,000,000 for just less than half a year. So basically, half then went down to $250,000,000 last year, and this will half again. But of course, then year on year, we that's a headwind for us. We had 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 $800,000,000 sales that we are forecasting. I hope that's clear enough.
Very helpful. Thank you.
Stefan?
Yes. Hi, Pete. So on your questions around Nubeka and Vitrakvi, maybe to start with, yes, you're right. We're not disclosing in detail numbers, but maybe I can give you some more color nonetheless. So let's start with Nubeka.
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 2 month free trial program for eligible patients. And the majority of our physicians and patients really have taken advantage of this program that 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 3rd in the class, so 3rd androgen receptor antagonists 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, Nubeka is the only agent does not require a step through to access the product for both United in Part D and also on commercial plans. So really very strong start, we believe, into Nubeqa. When it comes to Vetraki, we're 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 VITRACV, 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 the median PFS, 28 month and median overall survival, 44 months. So 44.4 to be precise. So really all of that with the 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 both, I think, making good progress.
I think we will give you a little bit more, including on some numbers, middle of this year, when 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 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 may 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 twenty 19. And 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 150,000,000 increase.
And I don't know, Pete, you had a question on VBP. Can you repeat that one, please?
No. I was 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. Have you before corona arrived, did you see something similar with your portfolio like Gluco Bay and others that were affected?
Yes. GlucoBay was not part of VVT until then. So I can't tell you.
Thank you.
The next question comes from the line of Mr.
Capadia. Wilmar Kapadia from Bernstein. Can I just follow-up on VBP? So what exactly is baked into your 2020 assumptions for glucophage and avallox VBP in China? So when do you expect this to kick in given the current situation with the virus?
Can you help us quantify the impact at least within your expectations for 2020? Then my second question is just on the 2 key pipeline assets. That's a very cigarette. 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?
Has it add on to Entresto or as an alternative option? And then just very briefly on funarone, what is your view of the SGLT2 class as a threat in CKD patients? Thank you.
Sure.
So thanks for the question, Limal. Let me start with VBP. So we have built a VBP into our guidance for the year. And that includes both Glucobate not Glucophage. I'm sorry, I wish I had Glucophage, but I only have Glucobase.
So those 2 on top would even be better and also for Avolox. 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, we right now, we do not assume that, that leads to a delay. And in terms of cardiology assets in our late stage pipeline, so variciguat, 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 variciguat.
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 these in half RAF patients. And I think this will and but we will see how this will be placed in guidelines. In our studied population, we have a mix of patients, both with pretreated 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 SGLT2s 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 typical market share for SGLT2s in our funarone study population. So we will have anyway a background therapy that will both compare funarone 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.
Great. Thank you very much.
The next question comes from Mr. Papadakis. Please state your name, company name followed by your question.
It's Emmanuel Papadakis from Barclays. Thanks for taking the questions. Maybe one, I guess, broader strategic question perhaps for Werner. We've obviously had a significant change on top of the 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 the broader outlook for the group divisional structure and any willingness to reassess those over the coming years? The second question Stefan, I think you said you'd be in a position by the time, the Q4 results to give us an update on the Xarelto U. S. IP situation and settlement progress. So perhaps you could just let us know the latest there.
Thank you very much.
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. Benning is going to step down as a Chairman of the Board, effective 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 has stayed on actually 1 year longer than he wanted originally. He is already beyond the recommended maximum age for the Supervisory Board members. And with that, I think everything that I can say to it is set 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 your changed value flows as we have now fully integrated crop signs 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. 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.
Thank you.
The next question comes from Mr. Lund. Please state your name, company name followed by your question.
Hello. It's Jo Walton from Credit Suisse. I've got two questions, please. On Nubeka, 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 month 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 Nubeka. And on a 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?
Thank you.
So hi, Joe. 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. So Liam? Yes, thanks.
So possibly unlike some of our competitors, when
we talk about synergies, we talk about net EBITDA relevant synergies. And 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.
Thank you. The next question comes from Mr. Andrews. Please state your name, company name followed
Vincent Andrews from Morgan Stanley. Liam, I wonder if I could just ask you, as we think about the impact of coronavirus, I can think of 2 things that might happen here. 1, I don't know what type of intermediates in your krotchem 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 costs for 2020?
Yes. Thanks, Vincent. So right now, we are not seeing any impact. Glycosylate 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.
And 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 noting is it anything in our on COGS coming out of China because of the increases and intermediates last year because of the cleanup initiative 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 positive COGS development, again, because of our cost synergy progress we're making. 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 the order book?
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, but then pricing is in such an environment is weaker. On the corn side, we have pretty robust demand, particularly if you look at the stop 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.
Thanks very much.
Sure.
The next question comes from Mr. Jain. Please state your name, company name followed by your question.
Hi, 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 a potential settlement. Is that just risk language in the annual report or is there anything else that? Secondly, I wonder if I could just ask you on life of the settlement.
Some of the commentary on the post 3Q roadshow was you had a window of a window 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 7 date? Are you still outstanding?
And just to check, there's no such
Sachin, I'll 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 a bit of a safe harbordisclaimer 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 can get our dividends, our delevering done and can invest in some modest hold 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 is 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.
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 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 it, it's going to take as long as it's going to take until we get there, yes. And then we'll hopefully be able to communicate something that is within the frame of what I described before.
And on Xarelto, can
you interrupt?
Yes. So 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.
Sorry, just to clarify that European revoke appeal is still ongoing or is it being closed?
Well, it's still on appeal. But anyway, it would expire in January 26. Okay. Thank you.
The next question comes from Mr. Vosser. Please state your name, company name followed by your question.
Hi, it's Richard Vosser from JPMorgan. Thanks for taking my questions. 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 of 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 Novantis of their product Bayerview? 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? Thanks very much.
Okay. Thanks, Richard. So Stefan is going to take all three questions.
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, very sigmoid 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 healthcare 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, we've we will have similar as in last year, we're going to be in the upper teens for Hylia this year sorry. No, no, the question was Eylea.
Yes, but for this year. High single digit. High single digit. Sorry, high single did I
say teens? I
meant The dreaming about earnings and
Yes, high single digits, please forgive me. As for Beoview, 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. They I mean, their launch in the U. S.
Is ongoing. They're making a lot of noise, but there's also some noise that's not so good for them. So we'll see where that ends. And 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 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 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 on already very good sales development of Xarelto for the coming years. Thank
you. Thanks very much.
The next question comes from Mr. Jones. Please state your name, company name followed by your question.
Thanks very much everybody. I've got 2 left. 1 on I wanted to circle back again on this soy bean 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'll see another big jump up in the next couple of quarters?
Thank you very much.
Yes. 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. 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.
Yes. Toni, 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 a decisive one being the promotion 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.
Thank you. Appreciate it.
Thank you. Haley, we have time for 2 or 3 more questions, so that should be the last person to ask.
The next question comes from the line of Mr. Leuchten. Please state your name, company name followed by your question.
Thanks very much. 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 doesn't seem overly ambitious.
Just wondering if you could talk about the purchase in Pulse. 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. Thank
you. 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 preparations for variciguet and finarone plus the Nubekka Vitrak getting off the ground and some change in cost allocations that we're having. We believe that this is actually not so unambitious target as it may sound. So we're fine with that. And I hope that answers your question.
Michael, from my end, working capital is becoming more and more important for Free cash flow is top of mind. I can tell you that with this year, we're starting to put 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, and we go business by business. In total, you just take our receivables and then take our inventory, you're at €23,000,000,000 and we are convinced that there are significant opportunities in there, and we will seize them.
Michael, maybe one thing, Stefan, that I wanted to add that the just the cost allocation change gives us a pro form a 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. Very clear. Thank you.
In the interest of time, we have to stop the Q and A session. I hand back to Mr. Meyer for any closing comments. Great.
Thank you, Heli. Thank you very much, everybody. Thanks to all of you for your time and the attention to take. Greatly appreciate and disclose our call for today. Thank you very much.
Ladies and gentlemen, this concludes the full year and 4th