So far, Bayer CEO Werner Baumann’s strategy has been something like this: get a settlement with the American glyphosate plaintiffs as quickly as possible, then exploit the strengths of the agricultural business and strengthen it again with the high cash flow from this division invest in the pharmaceutical business, where patent protection for important blockbusters will soon expire. But since last week it has been clear: This bet on the future will not work. Ironically, the agricultural sector, which anyway has to cope with at least 11 billion euros for the comparison in the USA, is no longer running as hoped for a short time ago. Bayer is writing off a “mid to high single-digit billion amount” because the goals in agriculture cannot be achieved.
Whether this slump is actually due solely to the consequences of the Corona crisis, as the company claims, can be left open. The only important thing is that the chance that Bayer will ever see the money to buy Monsanto again tends towards zero. No wonder that the already weak share price fell again by over ten percent.
Now all the issues are back on the table that Bayer has wanted to keep out of the public debate for months: Does the company have to split off one of its three pillars (pharmaceuticals, non-prescription drugs and agriculture) in order to survive? Is there any chance of selling Monsanto again after a settlement? Does Bayer need more capital to meet the challenges? And is Werner Baumann the right man to bring the group out of the permanent crisis?
Bayer is hoping for the pharmaceutical division
A business like that should definitely not work. And the additional austerity program that has now been decided will not bring Bayer back on its feet. Even if the comparison in the US finally goes over the ramp, there is no return to normality. But there is still a problem in court because there are no regulations for future lawsuits. Many experts on the subject doubt that the $ 1.25 billion that has already been budgeted will even come close to being sufficient. But even if they should be enough, the subject of glyphosate is still not settled worldwide. The ban on weed killers is still not off the table in many countries, especially in the EU.
After the agricultural debacle, all hopes now rest on the pharmaceutical sector for the next year. It should grow again after sales have stagnated in the current year and earnings have slumped massively. That will give Bayer a respite if it comes to that. But the pharmaceutical business is facing tough challenges in the medium and long term – and it is not yet clear how Bayer intends to overcome them. From 2024, the patent protection for the blockbuster Xarelto will expire in the most important markets. And so far, no other drug has been discovered in the research pipeline that could offset such high sales as Xarelto has previously delivered.
Bayer has therefore been looking for drugs from the laboratories of other manufacturers that could be included in its own sales. So far, however, this is nothing more than a hope value – just as there is generally still a lot of hope in the weak price of Bayer shares. Things could get a lot worse. That is why the group urgently needs other options than have previously been found in Leverkusen.
Bernd Ziesemer is a capital columnist. The business journalist was editor-in-chief of the Handelsblatt from 2002 to 2010. He was then managing director of the corporate publishing division of the Hoffmann und Campe publishing house until 2014. Ziesemer’s column appears regularly on Personal-Financial.com. You can follow him on Twitter here.