Chronically ill - Bayer shares hit a new 17-year low.

The downward spiral continues. Is there an antidote in sight? Is this a good time to buy?

Although Bayer's Crop Science division is dedicated to soil cultivation, you can also fertilize wonderfully with a digestive product. Bayer shares are nothing else for long investors. To quote Jeff Goldblum in Jurassic Park: It's a big pile of shit.

Dire news from two sectors sent Bayer's stocks on a steep decline on Monday. The agrochemical and pharmaceutical company not only suffered a new blow in the Glyphosate dispute in the USA but, even more shockingly, analysts report the termination of the clinical trial with the hopeful candidate Asundexian.

Shares plummeted to as low as 32.60 euros later in the morning, reaching the lowest point since the summer of 2006. The decrease was 17.5 percent at 34.22 euros, making Bayer the weakest performer in the 40-company DAX index for the year 2023, with a 29 percent decline, following Siemens Energy. The DAX index itself had increased by just over 14 percent.

Over the weekend, it was revealed that Bayer was ordered by a US jury in one of its outstanding Glyphosate cases to pay more than 1.5 billion US dollars. Then, on Monday night, Bayer announced the premature termination of the Phase III study with Asundexian. This drug was previously considered a successor hope for the medication Xarelto. The study compared Asundexian to Apixaban in patients with atrial fibrillation and stroke risk, ultimately revealing an inferior efficacy.

"The company is in an extremely precarious situation," noted Jürgen Molnar, a capital market strategist at RoboMarkets. "On the one hand, potential sources of revenue are disappearing, and on the other hand, there are new potential costs." Therefore, Molnar expects this combination to continue to weigh on the stock price in the coming weeks.

Both events are a financial setback for Bayer and signify a further loss of trust, according to DZ-Bank analyst Peter Spengler. However, he anticipates that the damages in the Glyphosate dispute, as in the past, will be "drastically" reduced. Some sums have been reduced by more than 90 percent, he recalled. Meanwhile, he estimates the damage from Asundexian to be around one to two euros per share.

"The announcement of the study termination is an absolute surprise," wrote Emily Field, an analyst at the British Barclays Bank. The hope for Asundexian's success was the reason she upgraded Bayer in April 2022. Since that hope has now been shattered, she sees significant challenges for Bayer's pharmaceutical business.

Accordingly, she downgraded the stock to "Equal-weight" and slashed her target price from 65 to 40 euros. A deeper valuation is now appropriate, she argues, citing uncertainties for the future path after the patent expirations of Xarelto and Eylea.

Other experts expressed similar sentiments. JPMorgan analyst Richard Vosser called it a "heavy blow" since Asundexian was supposed to compensate for revenue losses in Xarelto and Eylea. The challenges for the new CEO, Bill Anderson, would thus be even greater, wrote Jefferies analyst Charlie Bentley. The pipeline is weak, and investments are necessary, while Bayer is simultaneously burdened by high debt and ongoing legal disputes related to Glyphosate.

My Take

Would I buy Bayer shares at the current price? A big fat NO. Irrespective of the fact that I'm not a particularly big DAX fan anyway, I don't think Bayer is a particularly attractive stock in the micro-analysis either. The package of future uncertainties in court, in drug development and the cost structure at the so-called industrial location Germany seems too heavy.

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