What’s Next in Court for Bayer Crop-Chemical Claims
(Bloomberg) -- Many Bayer AG investors didn’t realize just how much litigation risk they were getting when the German company spent $66 billion in June to acquire Monsanto Co., the giant U.S. seed and herbicide maker. On Aug. 13, Bayer shares plunged as much as 18 percent -- the most since 2001 -- after a San Francisco jury awarded $289 million to a groundskeeper who said he contracted cancer from Monsanto’s blockbuster weedkiller, Roundup. While Bayer is seeking a mistrial, more than 8,000 additional plaintiffs are making similar claims. And with fresh lawsuits 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. The lawsuits were filed after glyphosate was declared a probable human carcinogen in 2015 by the International Agency for Research on Cancer, an arm of the World Health Organization. However, like other regulators around the world, the U.S. Environmental Protection Agency last year said glyphosate isn’t likely to be carcinogenic to humans at current exposure levels. Monsanto developed Roundup in the 1970s, and then created a multi-billion-dollar business around seeds that it genetically modified to resist the chemical.
2. Why was the San Francisco case 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. But the Aug. 10 verdict -- a jury awarded $289 million in damages to a onetime groundskeeper who is dying of cancer -- put a spotlight on the potential risk of litigation sparked by Roundup and other crop chemicals. The share decline on Aug. 13, the first trading day after the verdict, erased $11 billion of Bayer’s market value. A state judge in Oakland is overseeing hundreds of similar Roundup claims, and California courts allow expedited trials for dying patients, meaning some could face a jury sooner rather than later. Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co., estimates 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 for limiting its exposure?
Bayer said the Johnson jury ignored scientific research that shows no link between Roundup and cancer in humans. The company is seeking a mistrial in California state court and may appeal the verdict if necessary. Bayer has pledged to mount a more robust defense at the next Roundup trial scheduled Oct. 22 in St. Louis, Missouri. The company also is concentrating on getting wins in federal court in San Francisco, where more than 400 cases have been combined and the company may stand a better chance of success. U.S. District Judge Vince Chhabria expressed skepticism about the evidence linking Roundup to cancer, and is likely to be rigorous in filtering information that can be presented to juries. The judge is acting as a gatekeeper for Roundup trials under a multi-district litigation program, which could result in bellwether rulings that strengthen the company’s defense and limit prospects for other plaintiffs.
4. Where are the next trials happening?
At least one more trial is scheduled for early 2019 in St. Louis, where Monsanto was headquartered for 117 years and Bayer now runs its North American crop-science business. Bayer can’t count on a hometown advantage. The circuit court for the city of St. Louis has produced some of the largest plaintiffs’ verdicts in U.S. product-defect claims, including a $4.7 billion jury award in July in an ovarian cancer case involving Johnson & Johnson’s iconic baby powder. Plaintiffs lawyers had been flocking to the city court, seeking favorable juries and quick trial dates, but were thwarted last year by a U.S. Supreme Court decision that limited combining lawsuits in state courts by non-residents. That decision, in a case involving Bristol-Myers Squibb, led to reversals of two large 2016 J&J ovarian cancer verdicts and slowed or thwarted multiple other lawsuits. Bayer, as a local defendant, has little chance of blocking the trials given recent Missouri court decisions.
5. How big are Bayer’s other Monsanto-related risks?
While Bayer expects glyphosate to remain the world’s biggest herbicide for years, some weeds are growing resistant to the chemical. 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. Last year, an Arkansas farmer was shot and killed by his neighbor in a dispute over dicamba damage. So far, 181 growers in at least eight states (Arkansas, Illinois, Kansas, Mississippi, Missouri, Nebraska, South Dakota, Tennessee) have sued Monsanto over its dicamba product, known as Roundup Ready Xtend Crop System. The farmers are demanding compensation for soybeans, cotton, fruit trees and vegetable crops damaged by dicamba spraying, and they are seeking class-action status that could represent thousands of claims.
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. Bayer says it expects the EPA to renew its dicamba-based product, XtendiMax with VaporGrip, before the 2019 growing season. This year, U.S. farmers are spraying 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 or the EPA 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.
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