Bayer Says Baycol Costs May Exceed Its Insurance
BERLIN (The New York Times / March 13, 2003) -- Bayer, the German chemicals
and pharmaceuticals giant, said today that its insurance coverage might
not be adequate to cover its potential liabilities in connection with
Baycol, a cholesterol-reducing drug the company withdrew in August 2001
after it was linked to more than 100 deaths. Bayer also reported a sharp
fall in profits for 2002.
The company's chief executive, Werner Wenning, said that there were
now 8,400 personal injury suits pending against Bayer over Baycol, and
that 500 more had been settled out of court at a cost to the company
of $150 million. A verdict is expected in the next few days in a Baycol
case in Corpus Christi, Tex., the first to go to trial.
"It is possible that Bayer could incur charges in excess of its
insurance coverage," Mr. Wenning said. "The uncertainty of
the outcome and the financial effects of the predominantly American litigation
makes it impossible to draw conclusions."
Mr. Wenning declined to give details about the company's insurance.
He said the company might have to set aside some earnings to cover the
uninsured costs, but that it was not yet possible to estimate how much
money would be needed.
The company, based in Leverkusen, said it was also being sued by a group
of American shareholders over the Baycol problem. The suit accuses Mr.
Wenning and a former chief executive, Manfred Schneider, of improperly
withholding and misrepresenting information about the drug.
Mr. Wenning defended Bayer's handling of Baycol and said the company
would vigorously contest the suit.
For 2002, Bayer reported a 46 percent drop in profits from operations,
to 989 million euros ($1.07 billion), reflecting rising raw material
costs and sagging demand, especially in its industrial chemicals division.
The results in the agricultural chemicals division were hurt by the costs
of integrating Aventis CropScience. The company's net income rose 10
percent for the year, to 1.1 billion euros ($1.2 billion), because of
gains on asset sales.
"It's not a good set of figures," said Andrew Benson, an analyst
for Schroder Salomon Smith Barney in London. "Hopefully continued
restructuring will bring improvement."
The company said it expected better operating results for 2003 and set
a goal of increasing its cash flow by 21 percent over the next three
years.
"The operating basis is weaker than expected," said Ulrich
Huwald of MM Warburg in Hamburg. "On the other hand, the outlook
isn't bad given this economic environment."
Bayer has much of its hopes for improved performance pinned on Levitra,
the anti-impotence drug that recently won approval in the European Union.
American regulators are expected to follow suit later this year. The
company expects that the drug can reach peak sales of more than 1 billion
euros ($1.1 billion) a year.
"The view is, it's a best-in-its-class product," Mr. Benson
said. "If it takes off and they can turn the company around, than
Bayer is worth more than its current price."
The company is still searching for a partner for its pharmaceutical
division, which is regarded in the industry as not quite big enough to
compete effectively on its own with giants like Merck and Roche. In the
meanwhile, it is striking individual deals, like its agreement to market
Levitra in partnership with GlaxoSmithKline.
But analysts said the most important question for the company now is
the Baycol litigation.
"The key is uncertainty," said Andreas Theisen of WestLB Panmure
in Düsseldorf. "Estimates of Bayer's liability costs now range
from $1 billion to $10 billion. We simply don't know how much the damages
will be."
Shares of Bayer rose 2.8 percent today, to 10.85 euros ($11.72). Shares
traded above 22 euros in January.
"The good news is, a huge amount of potential liability is already
in the current share price," Mr. Theisen said. "If you could
say for certain that the liability would be $5 billion, the share price
would already be higher." |
