Pharmaceuticals division: The EUR 4.5 billion dream of Xarelto successor has been dashed in late-stage study
High hopes were pinned on 'Asundexian', Bayer's anticoagulant for patients with atrial fibrillation who have an increased risk of stroke. The drug was expected to generate annual sales of more than EUR 4.5 billion. It was specifically intended to replace the future loss of revenue from the anticoagulant 'Xarelto', whose European patent protection expires in 2026.
Last year, the hopeful drug failed to beat the placebo in two mid-sized trials involving patients after heart attacks and a specific type of stroke.1 . Now, the molecule has also failed in a Phase III trial. The Bayer team will analyze the data to understand why 'Asundexian' fell short of expectations.
"Although the results of this analysis do not support the continuation of the OCEANIC-AF trial, we will continue to investigate Asundexian in the OCEANIC-STROKE trial and are currently re-evaluating other indications in patients requiring antithrombotic treatment" said Dr. Christian Rommel, Member of the Board of Management of the Pharmaceuticals Division of Bayer AG and Global Head of Research and Development. 2 . After all, the hoped-for EUR 4.5 billion represents 10% of the forecasts made by CEO Bill Anderson for the entire financial year when he took office. 3 . Now, they have failed to materialize.

Agriculture division: US jury rejects glyphosate damages claim worth USD 1.56 billion
The good news for investors: The European Union will extend the approval of glyphosate by 10 years, even though its member states could not agree on the same active ingredient in Bayer AG's weedkiller 'Roundup'. This is based on safety assessments by the European Food Safety Authority and the European Chemicals Agency. However, new conditions and restrictions apply, including maximum use rates.
Food for thought: Glyphosate has been controversial since the WHO's cancer research agency concluded in 2015 that it was presumably carcinogenic to humans. Other agencies worldwide, including the US Environmental Protection Agency (EPA) and EU agencies, have classified it as non-carcinogenic.
These conclusions now face a brand new claim for damages of USD 1.56 billion from the US. The intriguing detail about the recent ruling is that this time, cancer is also listed as an injury. On November 19, 2023, according to Reuters 4 , a Missouri jury ordered Bayer to pay USD 1.56 billion (EUR 1.42 billion) to four plaintiffs alleging that Bayer's Roundup™ weedkiller caused injuries, including cancer.
The verdict could increase pressure on the German company to change its legal strategy. According to recent court documents, the US jury ruled that Bayer's Monsanto division was liable for negligence, design defect, and negligence by omission because the plaintiffs were not adequately warned of the potential dangers of using 'Roundup™'.
Plaintiffs Valorie Gunther of New York, Jimmy Draeger of Missouri and Daniel Anderson of California were awarded a combined USD 61.1 million in compensatory damages and USD 500 million each in punitive damages. All three were diagnosed with non-Hodgkin's lymphoma, which they attributed to the use of Roundup on their family property. Draeger's wife, Brenda, was awarded USD 100,000 for the alleged damages caused by her husband's illness. The fact that cases of cancer from handling the herbicide are increasing should at least give investors pause for thought.
Finances - Goodwill becomes a risk
In addition to the developments in the pharmaceutical business, Bayer is facing an additional challenge: goodwill. Goodwill of around EUR 39 billion was reported in the 2022 annual balance sheet. In July, the Company announced that it had to write off EUR 2.5 billion due to problems in the glyphosate business, resulting in a loss of EUR 2 billion in the second quarter. The quarterly figures from Q3/23 currently show goodwill of around EUR 33.87 billion compared to equity of EUR 33.56 billion 5
Goodwill 6 is used to more accurately represent the overall value of a company, especially when intangible assets play a significant role. It can be helpful in assessing a company's financial health and market position. Goodwill is calculated by taking the purchase price of a company and subtracting the difference between the estimated value of assets and liabilities. Companies must review the goodwill value in their financial reports at least once a year and record any impairment losses.
For this financial year, Bayer's high goodwill compared to equity remains a critical issue. In addition, the Company is now worth less on the stock market than its net debt. The net debt stands at EUR 38.1 billion compared to the EUR 32.77 billion market capitalization.
Interim conclusion:
CEO Bill Anderson needs more compelling arguments to show investors that a restructuring might be necessary. Separating the agriculture business is risky due to ongoing legal risks and the numerous claims for damages and lawsuits. Spinning off Pharma is no less risky with the failure of the Phase III trial. Therefore, Bayer's latest share price loss could mean the Company's various divisions remain together. As Anderson announced in the last quarterly results, the cost-cutting measures will be implemented at the organizational level.

"*In terms of this year's performance, we are not satisfied. Almost EUR 50 billion in sales but no positive cash flow is simply not acceptable*."
By the end of 2024, Bayer plans to significantly reduce its workforce by eliminating several layers of management. Anderson emphasizes that these will not be traditional cost-cutting layoffs. Instead, the role of small, self-managed teams that operate closer to customers and patients will be strengthened. "There are still 12 layers between me and our customers. That's just too much." If Anderson now draws the invisible sword of employer branding to force a cultural change, investors can expect change management to take 3 to 5 years until sustainable changes take effect. This is the typical duration for organizational transformation. 7 . However, investors might find solace in CEO Anderson's experience, as he successfully executed a similar transformation in his previous position with Roche. The result was a shift from an inflated bureaucratic structure to a more entrepreneurial organization. 8 .
The update is based on the initial report 04/2022.