EUR 850.00 For Business Accounts Only

Morningstar | Jury Awards Over $2B in Damages Against Bayer in Glyphosate Case, but Lower Costs Likely on Appeal

A jury in Northern California decided Bayer's glyphosate product caused cancer in two more people and awarded close to $2 billion in damages, but we are not changing our moat rating or fair value based on the ruling. We expect Bayer will appeal this case, with a much more favorable outcome likely. As the majority of the damages were punitive (relative to compensatory), we also expect subsequent decisions to significantly lower the amount of damages. We continue to view the stock as undervalued, but we also continue to rate the stock with a high uncertainty (the highest rating in the peer group of the 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. However, our bear case projects over EUR 13 billion in costs related to the litigation, which would support a fair value of EUR 73 ($21 for the ADR). The three rulings against Bayer over the past 12 months increase pressure against our base assumptions for future litigation costs, but we continue to 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. Based on the scientific data from the Environmental Protection Agency, or EPA; National Institutes of Health, or NIH; European Chemicals Agency; and European Food Safety Authority all saying there is no link from glyphosate to cancer, we believe most plaintiffs will not be successful. While the number of remaining cases is high (over 13,000), we believe most of them have low validity and are likely looking for any minor payment that might come with a potential class-action settlement.