BERLIN – Bayer shares fell more than 12 percent in early trading Wednesday after the German chemicals and pharmaceuticals giant faced another legal setback in its fight against accusations that its recently-acquired Roundup weedkillers cause cancer.
The decision by a San Francisco jury a day earlier that exposure to Roundup was a “substantial factor” in triggering a man’s cancer showed how Bayer’s $63 billion acquisition of US agriculture giant Monsanto Co. – a deal designed to change Bayer’s fading fortunes – had now become the company’s biggest potential liability.
Many investors and analysts warned that Bayer’s image could suffer after it announced the tie-up in 2016. Monsanto had faced negative coverage, especially in Europe, surrounding its genetically modified crops and its weedkillers based on the glyphosate chemical. Bayer also had to fight hard to gets its deal through the finish line, with regulators forcing the company to shed more assets than initially planned.
With the number of lawsuits against Bayer mounting and its first major defeat in court in August, Bayer is increasingly struggling to justify a deal that turned the inventor of aspirin into the world’s largest maker of seeds and pesticides.
Wednesday’s drop extends a monthslong downward spiral in the share price that began after the August verdict that held Bayer responsible for a groundskeeper’s non-Hodgkin lymphoma.
Since that first decision, which came just months after Bayer closed the Monsanto acquisition, shares have lost some 35 percent of their value. Bayer has appealed the first verdict and has pledged to fight further cases robustly.
But efforts by the company to lift investor sentiment – including a broad restructuring plan to cut costs and improve profits across businesses – have done little to improve sentiment with investors and analysts still struggling to put a figure on Bayer’s worst-case Roundup exposure.
The latest jury verdict hits particularly hard because the company had pointed to this second trial as providing a better frame for its argument that scientific evidence proved that Roundup was safe. Bayer argues that some 800 studies and regulatory decisions across the globe assert that glyphosate is safe and not carcinogenic.
This particular case isn’t quite over yet. US District Judge Vince Chhabria agreed to split the evidence into two phases, with the first phase focusing solely on whether Roundup and its active ingredient, glyphosate, are carcinogenic.
Now that jurors have found that Roundup exposure was a “substantial factor” in causing the cancer of California resident Edwin Hardeman, the trial will move into the second phase, where jurors will hear allegations that Monsanto knew about the risks associated with its product and failed to adequately warn the public about it. Jurors will then have to decide whether Bayer acted negligently and determine whether to inflict punitive damages.
“This now appears to be a damage limitation exercise,” said Bernstein Research analyst Gunther Zechmann after the latest verdict. “With regards to success in phase two, we fear the worst.”
Bayer said Tuesday that it was disappointed with the jury’s decision but that it continued “to believe firmly that the science confirmed that glyphosate-based herbicides did not cause cancer” and that the second phase of the trial “will show that Monsanto’s conduct has been appropriate.”
The case is just the second to go to court of a total of 11,200 suits by farmers, home gardeners and landscapers who claim the herbicide containing the active ingredient glyphosate causes cancer.
Analysts and investors warn that it will take at least a handful of verdicts to get a clearer sense of how big a burden the litigation could become for Bayer. Currently, Bayer’s share price is pricing in roughly between 5 billion and 10 billion euros in potential liabilities from the litigation, according to Commerzbank analyst Daniel Wendorff, assuming that cases are overwhelmingly decided against Bayer.
“The shares will likely remain depressed until there is evidence of Bayer prevailing in one or more of the six cases to go to trial in 2019,” said Peter Verdult from Citi.
Bayer also has warned that the legal battle was just beginning. After the Hardeman trial, a third case of an elderly couple that claims to have developed cancer after they were both exposed to Roundup, is set to go to trial in Oakland in late March. Other cases in California and St. Louis, Missouri will follow later this year.
“In theory, Bayer could continue to litigate for the next five years,” said Verdult.