(Bloomberg) -- Bayer AG dropped the most in its history, losing about €7.6 billion ($8.3 billion) in market value, after suffering major courtroom and drug-development setbacks that raise pressure on its new leader to outline a turnaround plan.
Five years after the German conglomerate’s $63 billion takeover of Monsanto Co., the historic value destruction from that deal continues. There’s no end in sight to the litigation over Monsanto’s weedkiller Roundup after a shock jury verdict on Friday raised the risk that Bayer will have to tap all of, or perhaps even more than, the $16 billion set aside for related lawsuits.
Meanwhile, Bayer is now facing a separate crisis in its pharma division after halting the primary study of its most important experimental drug because of a lack of efficacy. The shares tumbled as much as 21% in Frankfurt trading, dragging Bayer’s market valuation down to about $37 billion, less than half of what it’s paid for Monsanto and earmarked for the resulting legal problems.
The events raise the stakes for Bill Anderson, who joined the company this spring and took over as chief executive officer in June, as he weighs a potential breakup of the pharma, agriculture and consumer health conglomerate.
Investors are hoping Anderson can navigate Bayer out of the thicket of challenges created by his predecessor, Werner Baumann, who orchestrated the Monsanto deal just weeks into his own tenure. Baumann faced heavy criticism from the start for his decision to buy the agriculture company due to concerns about its reputational problems. Many investors wanted Bayer to use those funds to beef up its pharma division instead.
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Now, the full stakes of Baumann’s bet are becoming apparent. The pharma division is dealing with patent expirations for blockbuster medicines Xarelto, a blood thinner, and Eylea, an eye medicine.
The German company said Sunday it had ended a late-stage test for the anti-thrombotic drug asundexian — a therapy billed as a potential blockbuster — due to a lack of efficacy. That’s raising questions about how Bayer’s pharma division will be able to generate growth in the years ahead.
“Asundexian was the pearl of Bayer’s pharma pipeline,” said Markus Manns, a portfolio manager at Union Investment and a shareholder. Bayer should have found a partner to share development costs and risks with, he said, adding: “Just like with the Monsanto deal, Bayer decided for the much more risky strategy.”
Bristol-Myers Squibb Co., which is developing a similar drug called milvexian, fell as much as 4.1% at the New York market open. Bristol’s treatment has fast-track designation from US regulators and is being developed in collaboration with Johnson & Johnson.
Bayer’s announcement came two days after its Monsanto unit was ordered by a Missouri jury to pay more than $1.5 billion to three former Roundup users who blamed their cancers on the controversial product in one of its largest trial losses over the herbicide.
Monsanto has been hit with a recent spate of jury verdicts finding Roundup contains carcinogens. The more than $1.5 billion verdict is one of the largest damage awards handed down against a US corporate defendant this year.
Bayer said it will appeal the verdicts and insists the product is safe. Two years ago, the company set aside as much as $16 billion to resolve more than 100,000 cases over Roundup’s health impact.
The conglomerate now faces a second wave of lawsuits. The legal risks could complicate Anderson’s efforts to spin off the agriculture division, if he opts for that path, Sebastian Bray, an analyst with Berenberg, said in an email.
Bayer is currently in another Roundup trial before a state court jury in Philadelphia involving a man who blames the weed killer for his cancer. The jury is still hearing evidence and closing arguments in the case aren’t expected until later this month or in early December, according to lawyers involved in the case.
Another case is scheduled to start in California in December, with at least three other cases slated to begin in Philadelphia in coming months.
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The experimental drug that failed, asundexian, was intended to help drive growth after current best-selling medicines Xarelto and Eylea lose their patent protections in coming years.
An independent panel found the treatment underperformed the standard of care when it came to preventing stroke and systemic embolism in patients with a form of abnormal heart rhythm called atrial fibrillation.
The indication represented about €4 billion of the estimated €5.5 billion in peak sales for the drug, Thibault Boutherin and colleagues at Morgan Stanley said in a note Monday. They called the study decision “a meaningful negative.”
Bayer will continue another study with asundexian for preventing strokes, though the market opportunity is smaller, the analysts noted. It will also need to decide whether to move forward with a test in elderly patients, they said.
--With assistance from Jef Feeley, James Cone, Jan-Patrick Barnert and Nacha Cattan.
(Updates with Bristol shares in ninth paragraph.)
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