Morningstar | Bayer Loses Another Glyphosate Case, but Scientific Studies Still Support Its Product
A San Francisco jury found that Bayer's glyphosate product Roundup caused Edwin Hardeman's cancer and will decide on potential damages in the second phase of the case later in the year. However, we don't expect any major changes to our fair value estimate or moat rating based on the jury's decision. While we view the stock as undervalued, we also rate it with high uncertainty (the highest rating in the peer group of Big Pharma stocks). Our base projections include EUR 2 billion in legal costs related to the glyphosate litigation, which leads to our current fair value estimate. However, our bear case projects over EUR 13 billion in costs related to the litigation, which would support a fair value estimate of EUR 73 ($21 per ADR). While the recent ruling increases pressure against our stance that glyphosate products are not linked to cancer, we expect subsequent cases and appeals to be more favorable for Bayer.Based on the support by key regulatory agencies and the large amount of scientific studies showing no causal relationship between glyphosate and cancer, we expect Bayer will prevail in most legal cases facing it. With over 11,000 cases in front of Bayer and the initial jury verdicts (including the Johnson case in August 2018) going against Bayer, the legal challenges are concerning. However, scientific data from the Environmental Protection Agency, National Institutes of Health, European Chemicals Agency, and European Food Safety Authority all suggest there is no link from glyphosate to cancer, and we believe most plaintiffs will not be successful. We still model EUR 2 billion in legal costs for Bayer and expect this legal process to continue for several years. While the number of remaining cases is high, we believe most of them have low validity and are probably looking for any minor payment that might come with a potential class-action settlement. Six more trials are expected to start later in the year.
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