The leaders of the Bayer group are trying to divert attention: far from the numerous lawsuits against the American subsidiary Monsanto, from the thousand-fold conflict over the active principle glyphosate. Towards the projects which are supposed to move Bayer forward, to which we will come back proudly in a few years. But it is not that easy.
This dichotomy also shapes the half-yearly report presented by the Leverkusen-based company today: on the one hand, Bayer announces a takeover of one billion euros in the hope of all new drugs in the future. On the other hand, the group reports a loss of 2.3 billion euros for the past quarter.
Not only, but most importantly, are to blame for the legal risks Bayer took when it bought Monsanto three years ago to become the world’s largest agrochemicals company. Since then, tens of thousands of lawsuits have been filed alleging that glyphosate-based weedkillers are responsible for cancer. Bayer rejects the connection, but after several judgments the group has returned billions in settlement payments to plaintiffs.
Last week, Bayer used two scenarios to explain how to minimize future legal risks. It depends on how the Supreme Court – the highest court in the United States – handles the Edwin Hardeman case. A court had awarded the retiree a good twenty million euros in damages in second instance. Bayer wants to take this case to the Supreme Court and expects a decision “probably” in 2022.
Bayer has sold more in recent months – and consistently earned less
If the court ruled in the best interests of the group, then that could “largely end” the glyphosate dispute, hence the hope in Leverkusen; we see “good chances” for that. If, on the other hand, the Supreme Court does not negotiate the case or judge in favor of the plaintiff, Bayer is also likely to reach settlements in the future. They are also “prepared” for this, and the company has set aside an additional 3.5 billion euros as a precaution. This is the main reason for the quarterly loss.
However, Bayer also shows light and shade in real business. The good news from a business point of view is that the group has sold more in recent months than in the same period last year and at higher prices. Bayer reports a higher demand for active ingredients against weeds and fungal infestations as well as for soybeans and corn. The pharmaceutical business is also growing after a year ago – at the start of the corona pandemic – many operations that were not absolutely necessary were postponed and therefore less drugs were needed.
But this is the bad news for shareholders: even if we exclude special effects and depreciation, the group has a profit before interest and taxes lower by 10% than in the same period of the previous year. Bayer is referring here to several factors: unfavorable exchange rates, for example, more expensive raw materials and increased transportation costs. And because the products are selling well, the company turns over more money for bonus payments. On Thursday, Bayer temporarily lost 6% of its market value.
Blockbusters are the bestsellers, in cinema and in the pharmaceutical industry
CEO Werner Baumann tries to be optimistic, however. “We expect positive and sustained sales momentum for all of our activities,” said the 58-year-old, who has been at the top for five years. Baumann relies mainly on the pharmaceutical business: Bayer has successfully developed and introduced drugs, “some of which have blockbuster potential”. Blockbusters aren’t just what moviegoers call their bestsellers, but the pharmaceutical industry as well. Baumann refers, for example, to a kidney drug that was recently approved in the United States or to a clinical study of Parkinson’s cell therapy that has started.
Open detailed view
Werner Baumann wants to stay at the top of the board until 2024, after which the Bayer boss wants to largely retire from business. The native of Krefeld announced it a few months ago.
(Photo: Sascha Steinbach / dpa)
In the hope of further medical advances, Leverkusen now wishes to take over Vividion Therapeutics. The California-based company is researching new ingredients that are active against cancer and diseases such as irritable bowel syndrome. Bayer will initially pay the equivalent of 1.3 billion euros to the company, and depending on its success, around 400 million euros could be added at a later date. The group wants to complete the takeover this quarter, but Vividion is expected to “operate largely independently” thereafter.
After the acquisition, Bayer will be able to “develop first-class drug candidates”, says Stefan Oelrich, member of the board of directors, “and thus increase the value of our portfolio”. This is a value of hope that was not easy to convey to investors on Thursday.