Bayer shares dropped by 12% after a second US jury ruled that glyphosate-based Roundup weed killer causes cancer. The size of damages Bayer will have to pay to the harmed person will be determined in the next phase of the trial that starts on Wednesday.
Why is it important?
Last year the German pharmaceutical giant took over the US company Monsanto, America’s leading producer of genetically engineered crops. The latter has a product called ‘Roundup’, which contains glyphosate. Since the acquisition, Bayer has to deal with multiple lawsuits related to the damage inflicted by this herbicide. According to CEO Werner Baumann, the company faced 11,200 cases in the United States in February. This story sounds like a warning for firms that buy assets overseas and a reminder that the US has a thriving court culture.
Bayer’s stock is 40% cheaper than it was before the deal with Monsanto. Unless the company convinces courts that its product is safe, the amount of damages payouts can become truly enormous. The word “cancer” can sow a lot of fear in people’s minds. The situation may be dangerous for the company and turn into a substantial concern for investors.
The stock formed a big bearish gap on the daily chart. December lows at 58.50 are now in sight on the downside. If that level is lost as well, a bigger selloff will take Bayer to the levels that weren’t seen since the summer of 2012. Bear in mind that as the trial continues, there will be more news concerning the stock.
This stock can be traded as a CFD at Markets.com.