Everyone knew Bayer was taking a calculated risk in acquiring Monsanto for $63 billion (€55 billion) because of more than 5,000 pending lawsuits charging that its glyphosate-based pesticide Roundup causes cancer.
Nonetheless, investors reacted with shock to a California jury verdict awarding $289 million to a plaintiff claiming Roundup caused his non-Hodgkin’s lymphoma, the cancer of white blood cells. The share price fell nearly 14 percent Monday before recovering at close to €83.73, down €9.63 — or 10.3 percent. This slashed Bayer’s stock-market value by more than €10 billion.
Some analysts significantly reduced their price targets, while others said investors overreacted and the decline represented a buying opportunity. Large jury awards in the United States are often drastically reduced on appeal, or the cases are thrown out.
Uncertainty weighs on stock market
From day one, Monsanto claimed that numerous scientific studies have disproven the link between glyphosate and cancer, and Bayer accepted this argument in going ahead with an acquisition that made it the world’s largest producer of agricultural products. “The market made the mistake of facilely extrapolating a single decision to the totality of related cases,” said Markus Mann, a fund manager at Union Investment.
But uncertainty about the eventual outcome will weigh on the stock for years, other analysts said. Citi Research reduced its price target from €132 to €93. “The news over the weekend makes it virtually impossible to remain a buyer of Bayer shares,” analysts Peter Verdult and Andrew Baum said. On Tuesday, Bayer’s share price was tentatively up 1.4 percent in early morning trading.
The Citi analysts also noted Bayer’s numerous problems beyond the glyphosate liabilities. There have been issues with over-the-counter drugs in the US, as well as a weak drug pipeline. The US Food and Drug Administration recently found fault with Bayer’s production facilities in Germany and ordered the company to clean them up.
The bestselling Xarelto drug, used to treat strokes, faces patent expiration in three years and will be difficult to replace. Bayer was also forced to discontinue sales of the Essure sterilization device it acquired in 2013 with Conceptus Inc. after numerous lawsuits caused demand to collapse. Essure has some 17,000 lawsuits outstanding and anticoagulant Xarelto another 23,000.
JPMorgan analyst Richard Vosser, by contrast, thinks investor concerns about Bayer are exaggerated and that the sharp decline in the share price offers a buying opportunity.
Bayer defends Roundup
In the California case, school groundskeeper Dewayne Johnson claimed that years of using Roundup at work led to him developing non-Hodgkin’s lymphoma. The jury accepted his argument and awarded him $39 million in damages, and levied a further $250 million in punitive damages, saying that Bayer knew or should have known about the risks and properly warned consumers.
Bayer defended the weed killer Monday, noting it has been on the market since 1974, subject to many scientific tests and approved by numerous regulatory authorities. “All these findings, experiences and assessments affirm that glyphosate is safe and doesn’t cause non-Hodgkin’s lymphoma,” the Leverkusen-based firm said in a statement. “Bayer believes that the courts will rule that Monsanto and glyphosate are not responsible for Mr. Johnson’s disease as the case progresses.”
Roundup is important for Monsanto in large part because of its genetically-modified seeds which are resistant to the herbicide. Farmers who buy Monsanto seeds can apply the weed killer without fear of it damaging their crops.
The California case does not establish a precedent for other courts; however, as the first case to consider claims against Roundup, the verdict and the size of the damages award will have what US jurists call “persuasive value,” leading other judges and juries to orient their judgments against this benchmark.
Analyst Jonas Oxgaard at Bernstein thinks this initial verdict will be overturned on appeal. “Science is on Monsanto’s side and there is no jury in an appeals court,” he commented.
Siegfried Hofmann covers chemicals and pharmaceuticals for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: firstname.lastname@example.org