Bayer dials up Roundup settlement price—and takes a $11B write-down—as pharma fails to pick up slack

Amid a "challenging" third-quarter due to the pandemic, Bayer has taken a huge €9.3 billion write-down for its languishing agriculture business. (Bayer)

After a U.S. federal judge snubbed an original Roundup settlement over the amount set aside for future lawsuits, Bayer is close to coming to new terms. But the price will likely be higher.

Bayer is “far enough along in the negotiations to know” that it will need an additional $750 million on top of the original $1.25 billion to resolve any future Roundup lawsuits, the company said Tuesday, while acknowledging the process is taking longer than expected.

And news of the increased legal bill came as Bayer’s business is still reeling from the COVID-19 pandemic. Its pharma unit, while showing signs of recovery, saw sales down 1.8% year over year after adjusting for currency and portfolio changes, to €4.23 billion ($4.95 billion).

Previously, Bayer agreed to pay as much as $10.9 billion to settle all current and future claims that the Roundup weedkiller causes cancer. But a federal judge raised doubts about the portion allocated for future claims and sent Bayer and the plaintiffs back to the drawing board.

“Although this delay could be negative for the stock price, the suggestion of a new proposal for future litigants could give investors confidence on finality of these cases,” Bernstein analysts said in an investor’s note Tuesday.

As for existing lawsuits, Bayer’s agreements now cover about 88,500 of about 125,000 total claims filed or unfiled. But the company said the total number is not finalized “given uncertainties about eligibility and participation,” suggesting resistance from some plaintiffs.

CEO Werner Baumann declined to provide details about the new proposal during a call with reporters Tuesday.

RELATED: Bayer reworks part of Roundup settlement after judge proves reluctant to approve it

The Roundup headache stemmed from Bayer’s $63 billion acquisition of Monsanto, and it already had investors questioning Baumann’s rationale for the transaction. The combined crop business’ lackluster performance doesn't help.

In the third quarter, Bayer’s agricultural sales dropped 11.6% year over year after adjustment for portfolio and foreign currency changes, to €3.03 billion ($3.55 billion), with North America hit the hardest. Bayer took a hefty write-off of €9.3 billion ($10.9 billion) for the unit.

By comparison, Johnson & Johnson-partnered oral anticoagulant Xarelto and Regeneron-shared eye drug Eylea—two of Bayer's top drugs—both brought in sales ahead of expectations because of strong demand from China.

Xarelto brought in €1.13 billion during the three months, up 9.4% over the same period last year, and topped analyst estimates by 3.8%. Ophthalmology has been the hardest-hit therapeutic area during the pandemic across the pharma industry, but macular degeneration injection Eylea continued to show resilience. In the third quarter, the drug edged up 2.2% in currency-adjusted sales to 

€638 million, 3.9% ahead of expectations.

The birth control device Mirena suffered miserably in the second quarter as women avoided elective procedures during the pandemic. In the third quarter, it beat analyst expectations and bounced back with sales of €289 million. 

Elsewhere in Bayer’s pharma unit, colorectal cancer drugs Stivarga and Nexavar posted sales of €116 million and €148 million, respectively. That amounted to a 17.5% sales gain for Stivarga, adjusted for FX—a bit short of analyst forecasts—but a 14.1% slump for Nexavar.

Meanwhile, the hemophilia franchise—including Kogenate and newer launch Jivi—took a 5.4% hit to €208 million. And radiotherapy Xofigo, birth control pill Yaz, and interferon drug Betaseron all declined, too.

Consumer health was the only sector where Bayer recorded a sales increase. The unit grew 6.2% at stable foreign exchange rates to €1.21 billion ($1.41 billion), with nutritionals contributing the most. Bayer attributed the growth to people taking better care of themselves during the COVID-19 pandemic.

All told, Bayer’s group sales checked in at €8.51 billion in the third quarter, down 5.1% year over year at constant currencies and 6% behind Wall Street expectations.

RELATED: Beleaguered Bayer adds $1.8B to cost-cutting goal amid COVID-19 slowdowns

While labeling the third quarter as “challenging” because of COVID-19, Baumann maintained that the company is “operating in the right fields of business.” The pandemic has triggered new interest in healthcare, and it has shone a spotlight on nutrition because it's expected to exacerbate world hunger, Baumann said. With its drug and agriculture businesses, Bayer is “better positioned than almost any other company to harness the long-term innovation potential of the biorevolution in health and agriculture,” he said.

The stress is on “long-term,” though. In the near term, Bayer recently lowered its 2020 sales outlook to between €43 billion and €44 billion and has said it wouldn’t be able to pull off a revenue increase in 2021.

To help turn things around, Bayer in September unveiled a new cost-cutting scheme, adding €1.5 billion to its original goal of €2.6 billion in annual savings. That latter goal was first disclosed as part of a business overhaul launched in late 2018.

During Tuesday’s call, Baumann once again declined to outline where the ax will fall. The company expects to reach 60% of the €2.6 billion goal by year-end, according to chief financial officer Wolfgang Nickl.