Bayer AG CEO Werner Baumann says the company's strategy remains unchanged as it integrates Monsanto Co. into its business even as legal woes continue to plague the newly acquired company.
"The strong value creation profile we see for this combination remains fully intact," Baumann said in a Sept. 5 earnings call. "Let me clearly state that nothing has changed concerning our strategy, attractive synergy potential and longer-term growth in margin expectations for our combined crop science business," Baumann added, echoing his statement in an Aug. 23 conference call with investors.
Leverkusen, Germany-based Bayer revised its outlook for 2018 to take into account the $62.5 billion Monsanto acquisition, now anticipating core EPS to drop by a high single-digit percentage, or between €5.70 and €5.90.
The drug and chemical company's chief executive remained optimistic about the deal even after a U.S. federal court ruled against Monsanto in a long-running legal challenge over its signature product, the weed-killer Roundup, in August. Monsanto was ordered by a jury to pay $289 million to a California school groundskeeper who alleged that the herbicide, known as glyphosate, caused his non-Hodgkin lymphoma — a decision that Bayer vowed to appeal.
Bayer's stock price tumbled by over 10% following the decision.
Bayer responded by denying the charges in the federal lawsuit, calling the court's decision "inconsistent" with "the robust science-based conclusions of regulators and health authorities worldwide" regarding Roundup.
Over 8,000 similar lawsuits had been filed against Monsanto by the end of July, but Baumann previously said the "number is not indicative of the merits of the plaintiffs' cases."
Meanwhile, Baumann said no further case regarding glyphosate will be tried for the remainder of the year, adding that the court has vacated the Oct. 22, and Jan. 7, 2019, trial dates in the Missouri glyphosate litigation. Trials are scheduled to begin in February 2019, but they could also be vacated, Baumann added.
Shift in revenue streams
Bayer's $62.5 billion purchase of Monsanto effectively changed the company's revenue streams — with crop sciences now sharing the spotlight with the German company's pharmaceutical and consumer health businesses.
Prior to the Monsanto deal, crop sciences were in the shadow of pharmaceuticals, with Bayer's drug segment representing just under $20 billion of the company's business, according to data compiled by S&P Global Market Intelligence. Following the acquisition, Bayer's crop sciences segment had grown to represent $23.21 billion of its business — now the company's largest source of revenue.
Even with all eyes on Monsanto's integration, Bayer is still looking to license potentially profitable drugs similar to the company's deal with Loxo Oncology Inc. in 2017, Baumann said.
"If a Loxo opportunity came about, we would of course jump on it and we would certainly have the financial means to secure such an asset," Baumann said. Bayer, on Aug. 27, submitted an application seeking EU approval for Loxo's larotrectinib as a treatment for tumors harboring an abnormal gene fusion.
Bayer is also considering downsizing its drug research and development activities to gain financial room to buy rights to promising therapies, Reuters reported Sept. 4, citing a person familiar with the matter.
However, the CEO reiterated that Bayer's focus is on easing its debt burden following the company's largest acquisition to date. "We would have, if need be, a little bit of debt capacity, but clearly our focus is, first of all, on delevering," Baumann added.