Facing Adversity, Bayer Ploughs on With Big Investments

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After a challenging 2020, and with more hurdles in sight, Bayer has been on an investment spree with a USD 2 billion acquisition of a San Diego-based biotech and manufacturing sites in Latin America and Norway.

 

Bayer had a challenging year in 2020. While the German giant argued in its annual report that it delivered a “robust” performance despite the pandemic, laying a foundation for future growth, it also revealed that its revenue fell, its stock plunged 31 percent, it was forced to settle costly litigation in the US, and warned of significant risks ahead.

Part of that foundation for future growth has been revealed in recent weeks after Bayer announced a USD 460 million investment to expand a plant in Finland and build a new production site in Costa Rica, both part of its goal to expand its production capabilities for contraceptives to low- and middle-income countries.

Another Latin American investment followed when the company revealed that it had allocated USD 150 million over the next three years to improve its manufacturing sites in Argentina. The objective, according to Bloomberg, is to “boost production in order to substitute imports, supply the local market and increase exports.”

The developments are in line with Bayer’s attitude towards spending in 2020, a year when its pharma division invested heavily in external innovation, closing more than 25 collaboration agreements and acquisitions.

In late October, Bayer announced the USD 2 billion acquisition of Vividion Therapeutics, a San Diego-based biotech. “Vividion’s technology is the most advanced in the industry, and it has demonstrated its ability to identify drug candidates that can target challenging proteins. Together with Bayer’s existing know-how, we will be able to develop first-in-class drug candidates, increasing the value of our pipeline,” said Stefan Oelrich, president of Bayer’s Pharmaceuticals Division.

 

Bumps on Monsanto Road

Although its Crop Science division continues to be the company’s top business – bringing in EUR 18,840 million in 2020 –, it is also its main headache. When Bayer bought Monsanto, the American agrochemical and agricultural biotech, three years ago for a whopping USD 63 billion in cash, it also acquired a legal battle that is expected to cost USD 9.6 billion.

“Today is a great day: for our customers – farmers around the world who we will be able to help secure and improve their harvests even better and for our shareholders, because this transaction has the potential to create significant value,” said CEO Werner Baumann when the closing of the deal was announced in June 2018.

Monsanto was making over USD 14 billion a year at the time, but two months after Baumann’s optimistic statement, a US jury awarded USD 289 million – later reduced – to a groundskeeper who claimed that one of Monsanto’s herbicides, Roundup, had given him cancer and that the company covered the danger. It was one of many legal proceedings and settlements.

The object of the lawsuits by plaintiffs, which escalated to 68,800 by February 2021, was glyphosate, the active ingredient in Roundup that was classified as a “probable carcinogen” by the World Health Organization in 2020.

“As you know, last year was also marked by efforts to resolve the glyphosate litigation in the United States. In June 2020, we reached an agreement in principle with plaintiffs, without admission of liability, to settle most of the claims known at that time. We continue to work on this. The total cost of the envisaged settlements of all outstanding claims is estimated at up to US$9.6 billion,” explained Bayer’s CEO in the latest annual report.

At the same time, Bayer’s annual report points to the glyphosate litigation as one of the causes of its “unsatisfactory stock performance in 2020,” explaining that the value of its stock declined sharply after the U.S. court overseeing the litigations “expressed doubts about the settlement proposed for glyphosate product liability lawsuits that may potentially be filed in the future.”

Nevertheless, Bayer “believes it has meritorious defenses and intends to defend the safety of glyphosate and our glyphosate-based formulations vigorously.”


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