Killer ruling

Bayer feels the pain of Monsanto takeover after US Roundup ruling

main 0204930363 imago ZUMA Press – Monsanto Bayer roundup ruling verdict glyphosate herbicide weedkiller California
Haunting. Source: imago / ZUMA Press

Germany’s biggest drugmaker suffered defeat in a US court, highlighting the risks of its $63-billion Monsanto takeover concluded in June. A California judge let stand a verdict, in which a jury decided in favor of school groundskeeper Dewayne Johnson, who claimed the weedkiller Roundup caused his cancer.

The decision spooked investors: Bayer’s shares dropped 10 percent on Tuesday and briefly traded at its lowest point in almost six years. Some analysts said the slump was an overreaction, as the California case is an isolated instance for now. Analysts at Bernstein Research consider it a minor negative for Bayer.

Bayer became the world’s biggest producer of the herbicide glyphosate, the crucial ingredient of Roundup, after buying Monsanto. The Leverkusen-based company faces 8,700 more lawsuits from people who claim Roundup made them ill.

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The legal setback, which Bayer will appeal, follows other disappointing developments in the US after the German company bought up American drug companies. It puts the spotlight on CEO Werner Baumann, who spearheaded the Monsanto takeover after he became head of the company in May 2016. He already faces disgruntled shareholders after €20 billion ($23 billion) of Bayer’s market value evaporated since the start of the year.

Acting with malice?

Bayer, which was founded in 1863 and invented Aspirin in 1888, has been trying to allay concerns about the legal liability it took over with its acquisition of Monsanto. Glyphosate accounted for around a fourth of Monsanto’s sales when it was still a separate company, although the US business also made considerable additional revenue by selling crop seeds that were genetically modified to withstand the herbicide.

The German company has repeatedly cited scientific evidence, which suggests glyphosate is a safe product. The herbicide has been in use for more than four decades and is the world’s widely used weedkiller.

San Francisco Superior Court Judge Suzanne Ramos Bolanos lowered the punitive damages awarded to Dewayne Johnson from $250 million to $78.5 million, but she did not throw out the jury verdict that the company acted with malice. She also did not order a new trial after a tentative ruling in September suggested she was leaning in that direction. Monday’s decision forces Bayer to take the much more expensive route to the California Court of Appeals.

Dewayne Johnson claimed years of using Roundup resulted in his terminal diagnosis of non-Hodgkins lymphoma cancer. It was a study from the World Health Organization two years ago suggesting glyphosate may cause cancer that unleashed a global controversy over the herbicide. Other studies failed to establish a link. The US Agricultural Health Study published this year, the biggest so far, found no link between the correct use of glyphosate-based weedkillers and non-Hodgkins lymphoma.

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More problems to boot

Roundup isn’t Bayer’s only problem. In addition to the problems in agricultural chemicals, the German conglomerate has issues in its two other main sectors, pharmaceuticals and consumer health.

Dwindling sales are squeezing margins in its business Consumer Health, which mainly sells nonprescription drugs such as skin care products and vitamins. Products acquired in 2014 from Merck & Co are performing especially poorly. Many of the US products have been neglected for years and now entail high marketing expenses.

Bayer’s drugs business, called Pharmaceuticals, is doing better overall but top sellers are fading and analysts question whether the company has a strong enough pipeline of new drugs. Furthermore, the company faces litigation over the Essure birth control implant it acquired in the US five years ago. Bayer has taken the product from the market after users complained it gravely affected their health.

Siegfried Hofmann covers the chemicals and pharmaceutical industries for Handelsblatt. Darrell Delamaide and Gilbert Kreijger adapted this story into English for Handelsblatt Global. To contact the author: Hofmann@handelsblatt.com.

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