Bayer's $80M Roundup verdict raises odds of a multibillion-dollar settlement: analyst

Bayer took a big hit in the first U.S. federal trial that claims its Roundup weedkiller causes cancer, potentially pushing the German company to settle the thousands of cases remaining.

A U.S. jury in San Francisco found Bayer liable for plaintiff Edwin Hardeman’s non-Hodgkin lymphoma and awarded him $80 million in damages. Even if a judge slashes that award, as analysts expect, Bayer faces billions in liability, continued criticism for its pricey Monsanto merger and questions about its ability to continue investing in its important pharma business.

The size of the award came as a bit of a surprise, compared with the some $19 million the plaintiff was asking. But as Bernstein analyst Gunther Zechmann wrote in a Thursday note to clients, the court is likely to cut the amount. The punitive part of the damages—$75 million—came in 15 times that of the compensatory award, well above the single-digit ratio that would usually get past a judge.

The verdict marks a second loss for Bayer in the Roundup litigation. In the first case, a California state jury awarded plaintiff Dewayne Johnson $289 million in damages, which was later reduced to $78 million by the judge. Zechmann noted the Johnson case’s final compensation ratio was 1 to 1, which would suggest $5 million in punitive damages and $10 million total in the Hardeman case if the federal judge follows suit.

Bayer, in a Wednesday statement, said it is disappointed with the jury’s decision and will appeal, maintaining that “the weight of over four decades of extensive science and the conclusions of regulators worldwide” support the safety of Roundup.

Bayer said it will challenge how the U.S. District Judge Vince Chhabria allowed some of Hardeman’s expert scientific testimonies even though he called them “shaky.”

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As the three judges at the 9th U.S. Circuit Court of Appeal “will rule on the same basis to decide whether the law was applied correctly in the trial court, rather than re-run the entire trial,” Zechmann predicted a significant reduction in punitive damages would be the most likely outcome on appeal.

Still, Bayer lost. As Zechmann sees it, the ruling “incentivizes Bayer to settle rather than continuing with what could be a very long drawn out process.” Bayer’s stock in Frankfurt dipped Thursday to a level that, according to Zechmann, prices in a settlement of about $20 billion for more than 11,200 U.S. Roundup cases.

The Hardeman suit is the first of three bellwether cases, whose jury trials could set the tone for others waiting in the wings, even though each case will be heard based on its own factual and legal backgrounds.

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If the current level of damages extends to other trials, the costly process might impair Bayer’s ability to replenish its pharma pipeline and pay down debt incurred when taking in Monsanto—along with the Roundup legal risks—for $63 billion.

The German drugmaker has already dialed down its 2019 expectations of its star medicines Xarelto and Eylea because of stepped-up competition. It’s also looking for savings from a gigantic restructuring that will cast off its animal health business and two consumer health product lines. While Bayer is scheduled to reveal its exact plans for the animal health unit, sources previously told Bloomberg that the company is looking at a sale that could potentially bring in €8 billion.