Many Bayer AG investors didn’t realize just how much litigation risk they were getting when the German company spent $63 billion in June 2018 to acquire Monsanto Co., the giant U.S. seed and herbicide maker. Since then, two adverse verdicts concerning Monsanto’s blockbuster weedkiller, Roundup, have rocked Bayer’s shares, which were down 38 percent as of March 20. With more than 11,000 Roundup cases still pending, along with a flood of lawsuits over waterways contaminated with PCBs and fresh cases emerging over another Monsanto herbicide, Dicamba, investors are left to ponder the final cost of Bayer’s increased legal exposure.
1. Why is Roundup such a big target for litigation?
It contains the weed-killing chemical glyphosate, which has become widely used by commercial farmers and home gardeners. Over more than four decades, about 3.5 billion pounds of glyphosate was sprayed in the U.S. Glyphosate was declared a probable human carcinogen in 2015 by the International Agency for Research on Cancer, an arm of the World Health Organization, which prompted the lawsuits. However, like other regulators around the world, the U.S. Environmental Protection Agency said in 2017 that glyphosate isn’t likely to be carcinogenic to humans at current exposure levels. Monsanto developed Roundup in the 1970s, and then created a multibillion-dollar business around seeds that it genetically modified to resist the chemical.
2. Why is the Roundup litigation so alarming to investors?
When Bayer sought to acquire Monsanto, much of the attention was focused on the regulatory obstacles of combining global makers of crop chemicals. The outlook changed in August 2018 when a San Francisco jury awarded $289 million to a groundskeeper, Dewayne Johnson, who blamed Roundup for his cancer. (Bayer has since won a ruling cutting that award to $78.6 million.) In the second case, a jury on March 19 found that a man’s decades-long use of Roundup on his property caused his non-Hodgkin’s lymphoma; liability and damages are still to be determined in the final phase of the trial. Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co., has estimated Bayer may face $5 billion in legal costs and plaintiff payouts as a result of its Monsanto acquisition, which would rank among the biggest ever by a company facing damage claims made by private individuals.
3. What’s Bayer’s strategy?
Bayer vowed after the Johnson verdict to step up its defense, emphasizing scientific research that shows no link between Roundup and cancer in humans. Even as it pursues an appeal to set aside that verdict, the company is concentrating on getting wins in federal court in San Francisco, where cases on behalf of more than 9,000 plaintiffs have been collected and the company may stand a better chance of success. The second trial was heard in that city by a judge who had expressed skepticism about the link between Roundup and cancer and was structured in a way that excluded some of the most damning material against Roundup. Bayer’s loss in the case may show flaws in its strategy.
4. Where are the next trials happening?
A trial is set for March in state court in Oakland, California; another in San Francisco federal court in May; and at least one this summer in St. Louis, where Monsanto was headquartered for 117 years and Bayer now runs its North American crop-science business. Plaintiff lawyers have flocked to the circuit court for the city of St. Louis, which has produced some of the largest verdicts in U.S. product-defect claims. While the U.S. Supreme Court in 2017 made it harder to combine lawsuits in state courts by non-residents, Bayer, as a local defendant, has little chance of blocking the Monsanto trials in St. Louis given recent Missouri court decisions.
5. How big are Bayer’s other Monsanto-related risks?
Some weeds are growing resistant to glyphosate. That’s led to development of genetically modified seeds that can be used in conjunction with another weedkiller, Dicamba. However, Dicamba can vaporize after application and drift onto nearby fields of non-resistant crops. Scores of growers across the Midwest have sued Monsanto over alleged damage to soybeans, cotton, fruit trees and vegetable crops from spraying of its Dicamba product, known as Roundup Ready Xtend Crop System. In 2018, U.S. farmers sprayed Dicamba on about 50 million acres of soybean and cotton crops. Of that, about 1 million acres of soybeans were damaged by the herbicide. Should litigation further restrict Dicamba and related products, Bayer could lose $1 billion in annual sales from a business that is key to expanding the agrochemical businesses it acquired from Monsanto.
6. What’s Bayer doing about Dicamba?
Before the takeover, Monsanto developed new formulations that it said would keep the weedkiller on the plants where it’s been applied, preventing drift onto untreated crops. In October, Bayer won EPA renewal of the registration for its Dicamba-based product, XtendiMax with VaporGrip, albeit with restrictions on the chemical’s use.
7. What is Bayer’s problem with PCBs?
PCBs -- chemical compounds used in transformers, paints, sealants and multiple other products -- were prized for their fire-resistant properties, particularly by defense contractors. Production was banned in the U.S. in 1979 over environmental concerns. Pending lawsuits claim Monsanto knew that PCBs were toxic to humans and wildlife and could cause contamination far into the future, but hid the risk and continued to make the product. Plaintiffs include the states of Washington, Oregon and Ohio as well as the cities of San Diego, Portland and Seattle. Monsanto has countered that it never discharged PCBs into any waterways and isn’t responsible for dumping by third parties, and that the cities and states waited too long to sue. But several judges have rejected Monsanto’s motions to dismiss. Monsanto spent $280 million in 2016 to settle lawsuits claiming personal injuries caused by PCB exposure.
--With assistance from Lydia Mulvany and Jef Feeley.
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