Bayer Sets Aside $4.5 Bn More for Roundup Claims; Updates Litigation Plan
Bayer has set aside an additional $4.5 billion to address potential claims over its glyphosate-based herbicide, Roundup, and updated a plan for closing litigation. The company provided an update on its five-point plan to address future litigation risk following its decision in May (May 2021) to withdraw from the national class process for a class-action settlement. Bayer gained the product as part of its $63-billion acquisition of Monsanto, an agrochemical and seed company, in 2018.
The acquisition of Monsanto made the company’s crop-protection business the largest piece of Bayer, surpassing its pharmaceuticals business, which had been the company’s largest business. In 2020, the company’s crop-protection segment posted revenues of EUR 18.84 billion ($22.97 billion), its pharmaceuticals segment of EUR 16.74 billion ($20.41 billion) and its consumer health business of EUR 5.45 billion ($6.64 billion).
Past actions on Roundup litigation
Prior to now updating its five-point plan to address future litigation risk, the company had taken several actions. In June 2020, Bayer agreed to pay between $10.1 billion and $10.9 billion to resolve current and future product-liability litigation in the US over Roundup, which included a payment up to $1.25 billion to support a separate class agreement to address potential future litigation. In July 2020, Bayer withdrew the pending motion for a class-action settlement to enable it to more comprehensively address the questions raised by a federal district court judge presiding over the federal Roundup litigation. In May 2021, Bayer announced a series of actions that it planned to implement following the withdrawal of the motion for preliminary approval of the class-action settlement over Roundup.
Now planning for two litigation scenarios
The company says it is now in more control of important aspects of the risk-mitigation process and has sketched out two basic scenarios going forward to provide a path to closure of the litigation. The first scenario is based on obtaining a favorable decision by the US Supreme Court on a cross-cutting issue, such as federal preemption, which would effectively and largely end US Roundup litigation. The second scenario assumes that the US Supreme Court either declines to hear the Hardeman case (a federal appeals court decision that ruled in favor of a plaintiff, Edwin Hardeman, in Roundup litigation) or issues a ruling in favor of plaintiff, in which case the company would activate its own claims administration program.
“We want to provide comfort to our investors that the glyphosate litigation exposure should now be reasonably accounted for and leaves significant upside in the event of a favorable Supreme Court decision on the case,” said CEO Werner Baumann in a July 27, 2021 statement. “It is important for the company, our owners, and our customers that we move on and put the uncertainty and ambiguity related to the glyphosate litigation behind us. This clarity should also allow informed investors to direct their focus on operational performance, the quality of Bayer’s businesses and its intrinsic value.”
Bayer says it sees good chances for the first scenario and believes there are strong arguments for the US Supreme Court to accept the case and ultimately render a supporting verdict. However, Bayer says it is also prepared for the second scenario to manage anticipated claims, through settlement and litigation, to ultimately bring an end to the litigation. For this second scenario, the company posted an additional provision of a $4.5 billion (before tax and discounting) in the second quarter 2021 to reflect the company’s potential long-term exposure
US Supreme Court petition
The company says it will file its petition seeking US Supreme Court review of the Hardeman case in August (August 2021). If the US Supreme Court grants review, the company noted that the Court will likely render a final decision in 2022. Given this impending schedule, Bayer says it will be selective in its settlement approach in the coming months (as reported on July 29, 2021) and will not entertain any further settlement discussions when and if the US Supreme Court grants review.
In case of a negative Supreme Court outcome, Bayer says it would set up a professionally run claims’ administration program that will come with pre-determined compensation values whose amounts will be similar to the values for current inventory settlements, but net of plaintiffs’ lawyers’ commissions. The program would address eligible individuals directly, who used Roundup previously and develop non-Hodgkin lymphoma (NHL) over the next 15 years. This would cover any alleged NHL latency period although the company says that regulators consistently conclude that the large body of science does not support a causal relationship between NHL and glyphosate and despite substantially different scientific opinions on the latency.
Long-term risk-mitigation actions
As part of its five-point plan, the company will also take additional steps to close the litigation. These measures include that the company and its partners replacing glyphosate-based products in the US residential lawn and garden market with new formulations that rely on alternative active ingredients beginning in 2023, subject to review by the US Environmental Protection Agency (EPA) and state counterparts. The company says this move is being made exclusively to manage litigation risk and not because of any safety concerns.
Additionally, Bayer says it will engage in discussions with the EPA about Roundup labels with the goal of providing more information to users about the science as an additional element toward ensuring even more informed purchasing and application decisions. It will also set up a new website with scientific studies relevant to Roundup’s safety that will provide more transparency to purchasers about the products they use. The website is expected to be launched by the end of 2021.