German pharma giant Bayer prepares for painful restructuring

In an effort to get pharmaceuticals giant Bayer back on track, company CEO Bill Anderson, who has been in office for nine months, wants to restructure the group's organization.

For many employees, this will mean looking for new jobs. Bayer employs more than 100,000 people worldwide, including around 22,000 in Germany.

The company announced job cuts on Wednesday without giving further details, although as things stand, there will be no compulsory redundancies until the end of 2026. However, according to the Frankfurter Allgemeine newspaper, employees whose positions have been eliminated and have not left the company, could be dismissed after that.

What is clear is that the cuts will mainly affect management positions. Anderson had already announced last November that 12 layers of management between himself and customers were "simply too much." He also wants to eliminate bureaucracy, streamline structures and speed up decision-making processes.

Marc Tüngler from Deutsche Schutzvereinigung Wertpapierbesitz (DSW), Germany's leading association for private investors, believes that such an overhaul will be a significant challenge.

"The path could not be more painful and strenuous," says Tüngler. "But perhaps this is the only path Bayer has left — to change internally and externally."

Bayer: From a flagship company to a problem case

For a long time, the flagship operation was one of the most valuable German companies in the German share index.

However, recent developments have cast a pall on its image. Although Bayer is still the largest company in the German pharmaceutical industry, it's no longer flourishing, which is reflected in its share price. Anyone who bought Bayer shares in 2015 now only has a quarter of the value in their portfolio they had at the time.

In the 2022 financial year, Bayer recorded a profit of €4.15 billion ($4.5 billion) on annual sales of around €50.7 billion — around half of that was down to the agriculture sector. However, that sector is the one now causing the problems. In the third quarter of 2023, Bayer posted a loss of €4.6 billion, primarily attributed to the agriculture division.

The company is made up of three divisions: the agricultural sector, pharmaceuticals (prescription products) and consumer health (non-prescription health care products).

Monsanto: The poison pill

Things took a turn for the worse when Bayer swallowed the US company Monsanto in 2018.

Monsanto was known as the "evil company," says Tüngler.

Other interested parties, such as BASF, turned down the opportunity at the time, citing foreseeable problems caused by the weedkiller glyphosate, which generated profits for Monsanto — and is suspected of causing cancer.

Nevertheless, Bayer took the plunge, hoping to strengthen its own agricultural sector. At around €59 billion, it was the largest foreign acquisition by a German company at the time.

While the Monsanto move helped increase Bayer's overall sales volume, the company has since been weighed down by a mountain of debt and the expensive legal disputes that it accrued as a result of the takeover.

Billions in damages

Less than five months after the EU Commission approved the Monsanto deal, a US court ordered Monsanto to pay almost $290 million (€266 million) in damages to Dewayne Johnson, a former janitor who developed cancer after years of using glyphosate.

Although the sum was reduced to $78 million in a later ruling, the wave of lawsuits continued.

In 2020, Bayer embarked on a multibillion-dollar program to settle most of the lawsuits. So far, Bayer has paid around $9.5 billion in settlements. At the end of 2022, the company's reserves set aside for future settlements amounted to $6.4 billion.

"The big question is whether the provisions are sufficient or whether even more billions need to be set aside," says Tüngler. "You can see from the number of claims that this will not be enough."

Bayer has won some lawsuits and reached more than 100,000 settlements. But there are always new plaintiffs. This is because "lawyers in the United States are courting plaintiffs and the more settlements there are, the more attractive it is for lawyers to bring in new clients," says Tüngler.

Glyphosate: Does it cause cancer?

The jury is still out on how harmful glyphosate is.

While the World Health Organization's cancer research agency IARC rated glyphosate as "probably carcinogenic" in 2015, the EU recently extended its approval of the weedkiller for a further 10 years. The US Environmental Protection Agency (EPA) also says glyphosate is not carcinogenic.

Another Monsanto-related headache for Bayer concerns products containing the chemical compounds polychlorinated biphenyls (PCB), which are also highly carcinogenic and have been banned in the United States since 1979. Monsanto produced PCBs, used in floor-cleaning products and paint, until 1977.

A US jury recently ordered Monsanto to pay $857 million in connection with products containing PCBs.

Bayer's pharmaceuticals division suffers setback

On top of that, Bayer's pharmaceuticals division suffered a severe setback at the end of November. Bayer had been counting on Asundexian, its new drug to prevent blood clots, to generate sales worth more than €5 billion, more than any of its other drugs.

This was important because the patents of the anticoagulant Xarelto and the ophthalmic drug Eylea are gradually expiring worldwide. Both account for some 40% of Bayer's total pharmaceutical sales.

In a further setback, a study with Asundexian has now been stopped prematurely due to a lack of efficacy. While the product is still expected to generate sales as of 2026, Bayer's Chief Pharmaceutical Officer Stefan Oelrich had to temper expectations, telling investors that "it will certainly be less than €5 billion."

Bayer's mountain of debt

In addition to the lawsuits, the Monsanto deal has left Bayer with a huge mountain of debt. At the end of September 2023, net financial debt was over €38 billion, exceeding Bayer's value on the stock market, which is currently around €32 billion.

The toxic mix of high debt and low stock market valuation has triggered debates about the possible merits of breaking up the group. Investors argue that the individual divisions are worth more than the company as a whole and that the proceeds from the sale of parts of the company could be used to reduce debt.

However, Marc Tüngler fears that any potential proceeds could be seized upon as an opportunity by lawyers in the US to file even more lawsuits.

Bayer plans to announce further details on the group's restructuring and an outlook for 2024 in March.

This piece was translated from German.

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