Analysts Tell Bayer to Shape up, or Split
With the number of Roundup-related cases rising and the share price still flat at best – a recent communication aimed at pacifying shareholders fizzled – analysts at Bernstein have written to Bayer CEO Werner Baumann, urging him to improve the group’s communications strategy and/or separate its pharma and agriculture units.
Hiving off chemicals and low-end plastics into Lanxess and engineering plastics into Covestro to create a pure life science player as repeatedly urged by analysts, including Bernsteins’, in the past apparently is not enough to satisfy investors, the bank argues, though it acknowledges that the gripes have mainly to do with how the German group’s management is handling the Roundup litigation.
In their letter, analysts Wimal Kapadia and Gunther Zechmann suggest that Bayer should “start with the simple things (communication) and keep going.” This would mean settling the officially acknowledged 13,400 Roundup lawsuits – which have taken a $33 billion chunk out of the share price – as well as addressing the pharma patent cliff and, finally, splitting up.
“We struggle to see major synergies between the two divisions,” the letter continues. “While both are ‘research’ focused, we suspect the overlap and tech transfer are minimal and provides no competitive advantage to peers.”
In particular, the pair said they believe Bayer has made “too little effort to inform shareholders about the standalone performance progress of Monsanto and the Leverkusen player’s own pre-merger crop science business.”
As regards pharma, trade journals note that Kapadia in the past has warned of the patent cliff for two of Bayer’s blockbuster drugs, the anticoagulant Xarelto and the age-related macula degeneration treatment Eylea, just before their protection expires.
The two drugs could make up about 70% of Bayer’s pharma earnings in 2023, Kapadia says, adding that despite the lack of strength in the group’s late-stage pipeline, “investors do not sense urgency” from management.
At Bayer’s annual general meeting in April, 55.5% of shareholders voted not to discharge Baumann and the managing board of their responsibilities. Though under German law the votes did not carry any legal consequences, the disapproval rate was the highest ever at a German DAX-listed agm.
