By Laura Kusisto, Ruth Bender and Jacob Bunge
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 13, 2020).
Bayer AG faces an extraordinary challenge as it tries to settle
tens of thousands of claims that its Roundup weedkiller causes
cancer: The product remains on the shelves, making it almost
impossible to put the litigation to rest forever.
Experts have said Bayer is in an unusual position compared with
other companies that have faced multibillion-dollar lawsuits over
their products. To end mass-tort litigation, other companies
generally have discontinued or altered their products or added
warning labels -- all of which are problematic for the German
pharmaceutical and agricultural company.
"If you're still putting out a product that people claim injures
them, I don't know how they can insulate themselves from future
liability," said Carl Tobias, a University of Richmond law
professor who studies product-liability cases. "I think they're in
a bind."
Bayer is moving closer to a settlement potentially totaling $10
billion, people familiar with the matter said, making it one of the
most complex and costly corporate litigation cases ever. Many
investors are demanding clarity and expect Bayer to deliver at
least a partial solution before the company's next annual
shareholder meeting in late April.
But Bayer's case is tricky because regulators including the U.S.
Environmental Protection Agency have said that glyphosate, the main
chemical ingredient in Roundup, doesn't cause cancer. The agency
said last year that manufacturers like Bayer can't put cancer
warnings on glyphosate-based herbicides like Roundup, and that
states can't require such labels. The company also can't alter the
product to remove glyphosate -- which plaintiffs claim poses a
cancer risk -- because it is the herbicide's main weedkilling
chemical.
Bayer has fought to defend Roundup in both consumer and
agricultural markets, including investing tens of millions of
dollars in additional consumer marketing, and points to support
from the EPA and other regulatory authorities to back up its
decision to keep it on the market.
The product, which remains popular, is a significant source of
revenue from Bayer's $63 billion acquisition of biotech seed giant
Monsanto Co., the maker of Roundup, in June 2018. Experts said
discontinuing the weedkiller could be seen as an admission that it
is dangerous, potentially giving plaintiff attorneys ammunition in
future litigation.
"Why would you pull a product off that you and the EPA and all
your public statements have said is perfectly fine for the market?"
said Tom Claps, an analyst with Susquehanna Financial Group. "What
type of message is that sending?"
Bayer Chief Executive Werner Baumann has said any settlement
framework must come "relatively close" to guaranteeing Bayer won't
face a future wave of lawsuits. People familiar with Bayer
management's thinking said the company would take its time to reach
such a settlement, even if it angers investors seeking clarity
before the annual meeting.
The settlement talks come after Bayer lost its first three
trials with juries awarding some $2.4 billion to plaintiffs --
later reduced by judges to about $190.5 million. Bayer has
appealed, but those processes could take years to play out.
"The trials have gone so spectacularly bad for Bayer that they
don't want to go in front of another jury," said Adam Zimmerman, a
law professor at Loyola Law School, Los Angeles.
Experts said they couldn't identify another company that has
settled yet persisted in selling a product unaltered and without a
warning label. Johnson & Johnson has continued selling its
talcum powders while defending itself against some 17,000 lawsuits
alleging they cause ovarian cancer or mesothelioma, and that
J&J failed to properly warn consumers of this purported risk.
The company will face similar questions if it decides to settle the
cases.
Roundup remains on many hardware store shelves, creating a vast
pool of home gardeners who could claim it caused their cancer.
Pulling Roundup from the consumer market would cost Bayer about
$200 million in annual sales, Bernstein analysts have
estimated.
Roundup accounts for about 5% of Bayer's total sales, the
company has estimated -- sold mostly to farmers, who have stuck by
Roundup despite the cancer litigation.
The Roundup dilemma led investors last year to reject a
confidence vote in Mr. Baumann, whom some blamed for the legal
problems that followed Bayer's Monsanto acquisition.
Bayer lost about a third of its market value as the first jury
verdicts rolled in.
The shares have bounced back since the company and plaintiff
attorneys began settlement talks last summer and have agreed along
the way to postpone trials. If talks were to collapse and trials
resume, Bayer's share price could get stuck in another rout,
analysts said.
Of the $10 billion under consideration in settlement talks, $8
billion would be used to pay current plaintiffs and $2 billion
would be set aside as a fund for future claims, according to people
familiar with the matter.
That would exceed recent big-ticket payouts such as Merck &
Co. Inc.'s nearly $5 billion settlement over its painkiller Vioxx
and Takeda Pharmaceutical Co. Ltd.'s roughly $2.4 billion
settlement over allegations its diabetes drug caused bladder
cancer.
Many analysts said a settlement in that range would still be a
positive outcome for Bayer. But even then, it is difficult to
guarantee such a figure wouldn't eventually surpass $10 billion,
academics and lawyers said.
They said the settlement under discussion couldn't bar future
plaintiffs from attempting to sue if they deem the payouts from the
$2 billion fund insufficient or if it runs out, potentially
exposing Bayer to future liability.
Even if it decided to stop selling Roundup, partially or
entirely, plaintiffs could theoretically still sue a few years from
now, experts said. Non-Hodgkin lymphoma, the type of cancer
plaintiffs say glyphosate causes, can take years to develop.
Experts said certain measures could help discourage future
litigants. As part of the settlement, plaintiff attorneys could
agree not to advertise and recruit future litigants. The federal
judge overseeing the settlement could order that any future
litigants each produce their own expert report linking their cancer
to Roundup when filing a case. That would be a hurdle for attorneys
who file large numbers of cases at once, costing several thousand
dollars per expert report.
Bayer could also eventually win its appeals, giving it an upper
hand that would discourage future plaintiffs from suing -- or even
wipe out remaining lawsuits, if a higher court rules that the
company can't warn about a cancer risk that regulators have
determined doesn't exist.
"There is a way to get more peace," Mr. Zimmerman said. "I just
don't know if it will be global peace."
Write to Laura Kusisto at laura.kusisto@wsj.com, Ruth Bender at
Ruth.Bender@wsj.com and Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
February 13, 2020 02:47 ET (07:47 GMT)
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