Pharma sales growth, new drug approvals and faster-than-expected asset sales may show the bright side of today’s Bayer. But mounting Roundup lawsuits are a darker story.
The number of plaintiffs claiming Bayer’s Roundup weedkiller caused cancer has snowballed to 42,700 as of Oct. 11, more than double the 18,400 reported in early July.
The reason? That increase is “clearly driven by a substantial surge in anti-Roundup advertising spending from the plaintiffs' side” following U.S. federal judge Vince Chhabria’s mediation order in May, CEO Werner Baumann said on a conference call with reporters Wednesday.
By Bayer’s estimate, based on publicly available data, the plaintiffs' side spent $50 million on TV ads in the third quarter alone, roughly twice as much as the entire first half of the year.
After a survey in August, Bernstein analysts had figured investors were expecting a $12 billion settlement, or $650,000 per plaintiff. But with the spike in plaintiff numbers—which will likely continue before any settlement is reached—the entire bill could rise.
“We continue to think that a settlement is the most likely and beneficial outcome for investors,” the Bernstein team said in a Wednesday note to clients.
Baumann declined to provide details on a mediation timeline or the settlement discussions themselves, citing confidentiality. But he stressed that “Bayer will only accept a mediation outcome that is financially reasonable” and one that can largely put an end to the entire topic, though he acknowledged an absolute “finality” might be a stretch.
While it’s cooperating in the mediation process, Bayer will still defend itself “vigorously” in all three outstanding appeals and any future trials, Baumann said, stressing once again that the number of lawsuits doesn’t speak to their merits or indicate the size of an eventual settlement.
Baumann and his executive team have been under pressure from investors since the $63 billion Monsanto acquisition turned into a huge legal burden, leading all the way to a rare no-confidence vote against management in April.
After kicking off a major restructuring late last year that involves asset selloffs and job cuts, Bayer’s business has shown some improvement. At the end of September, its free cash flow increased by 13.2% to €1.26 billion ($1.40 billion), as its net debt dropped 2.4% from the previous quarter to €37.86 billion ($42.08 billion).
Sales on the pharma side came in at €4.50 billion, about 2% above analyst expectations. Anticoagulant drug Xarelto jumped 9.1% year over year at unchanged exchange rates, to €1.03 billion, driven mainly by “strong growth” in China and Russia, Bayer said. However, that number narrowly missed analysts’ forecasts.
During Q3, the German company won an FDA nod for Nubeqa in non-metastatic castration-resistant prostate cancer, setting up a three-way battle against Johnson & Johnson’s Erleada and Pfizer and Astellas’ Xtandi. Vitrakvi, the “tumor agnostic” drug Bayer got from Loxo Oncology also nabbed an EU green light.
Bayer's overhaul is aimed at freeing up resources for R&D investments, and the company has made key progress in the castoff department. In August, it reached a deal to sell its animal health unit to Elanco for $7.6 billion, consisting of $5.3 billion in cash and $2.3 billion in Elanco stock. The transaction is expected to close in mid-2020.
Bayer also sold off its Coppertone suncare brand and Dr. Scholl’s foot care products in two separate deals for a combined $1.14 billion. Its remaining consumer health franchise delivered Q3 sales of €1.29 billion ($1.23 billion), about 2% below consensus.
Now, with Q3 groupwide sales of €9.83 billion ($10.93 billion), the German conglomerate has confirmed its full-year sales target of €43.5 billion, after stripping out those discontinued businesses and currency fluctuations.