Bayer Sinks to 10-year Low as Lawyer Sees More Suits - Bloomberg News - January 29, 2003

Bayer Sinks to 10-year Low as Lawyer Sees More Suits By: Hannah Warrington
Bloomberg News
January 29, 2003

LEVERKUSEN, GERMANY Shares of Bayer AG, Germanys largest drugmaker, fell to a 10-year low on concern that the number of lawsuits involving its withdrawn cholesterol treatment Baycol may double.

Chicago lawyer Kenneth Moll, who filed a class-action lawsuit on behalf of Baycol patients worldwide, predicted as many as 15,000 suits, HSBC Holdings Plc said in a report. Bayer said earlier this month it knew of 7,400 cases involving the drug, which has been linked to more than 100 deaths.

Bayer paid as much as $1.25 million to settle cases involving fatalities, Moll said, according to HSBC. Bayer withdrew its third-best-selling medicine in 2001 after it was linked to muscle-weakening and kidney failure. The withdrawal cut profit by more than 800 million euros ($870 million) that year, prompting Bayer to step up the search for a partner for its drug business.

“I’m not sure I’d like to get my fingers burned,” said Lorenzo Carcano, who helps manage 8 billion euros in European equities at Bankhaus Metzler in Frankfurt. When there are lawsuits in the U.S., there’s always a risk.

Shares Fall

Bayer shares fell 68 cents, or 4.1 percent, to 15.86 euros as of 3:25 p.m. in Frankfurt after trading as low as 15:30, their lowest price since 1993. The shares have fallen 56 percent in the last 12 months. The yield on Bayer’s 3 billion euros of 5.375 notes maturing in April 2007 rose to 4.17 percent, 104 basis points more than German government debt of similar maturity. Yesterday the spread, or risk premium, was 91 basis points above German government debt. A basis point is 0.01 percentage point.

Bayer may have to pay as much as $1.6 billion to settle all the lawsuits, HSBC said, while reiterating its buy rating on the company’s stock. Some analysts have estimated the settlements may cost Bayer $9 billion or more. Bayer said earlier this month that it has settled 400 lawsuits.

It’s difficult to estimate the costs, said Werner Braun, an analyst at Bankhaus Reuschel & Co., who rates Bayer neutral. It doesn’t make sense to simply multiply the average settlement by the number of cases.

Bayer spokeswoman Annette Josten declined to comment on the number of lawsuits or the size of settlements. Two calls to Moll’s office weren’t immediately returned.

French newspaper Les Echos reported Moll’s comments earlier, attributing them to HSBC.

No Reserves

Leverkusen, Germany-based Bayer hasn’t set aside reserves to cover possible payments as its insurance should cover costs, Chief Executive Werner Wenning has said.

Many of the recently filed lawsuits are simply copied from other complaints, Wenning told journalists in November. For example, a single firm has filed 2,500 virtually identical complaints, changing only the name and address of the plaintiffs. At that time, the company had received notice of 5,700 lawsuits.

In instances where Bayer has been able to evaluate lawsuits, Bayer has found that most plaintiffs are not claiming that they were hospitalized or suffered muscle weakening, Wenning said.

Our priority is to identify and address those cases where serious injury and/or deaths may have occurred, he said.

The company has said it’s not liable for the Baycol deaths because it warned doctors that muscle problems could result if Baycol was prescribed with second cholesterol drug, gemfibrozil.

Bayer says it withdrew Baycol when it realized the warning wasn’t being heeded.

The first class-action trial will be on June 6, Moll told HSBC. The trial process could take two or three years, he said.