Financial Statements

32. Legal Risks

As a global company with a diverse business portfolio, the Bayer Group is exposed to numerous legal risks, particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments and environmental matters. The outcome of any current or future proceedings cannot normally be predicted. It is therefore possible that legal or regulatory judgments or future settlements could give rise to expenses that are not covered, or not fully covered, by insurers’ compensation payments and could significantly affect our revenues and earnings.

Legal proceedings currently considered to involve material risks are outlined below. The legal proceedings referred to do not represent an exhaustive list.

HealthCare:

Product-related litigation

YasminTM/yazTM: As of January 31, 2015, the number of claimants in the pending lawsuits and claims in the United States totaled about 5,000 (excluding claims already settled). Claimants allege that they have suffered personal injuries, some of them fatal, from the use of Bayer’s drospirenone-containing oral contraceptive products such as YasminTM and/or yazTM or from the use of OcellaTM and/or GianviTM, generic versions of YasminTM and yazTM, respectively, marketed by Barr Laboratories, Inc. in the United States. Claimants seek compensatory and punitive damages, claiming, in particular, that Bayer knew, or should have known, of the alleged risks and should be held liable for having failed to disclose them or adequately warn users. All cases pending in u.s. federal courts have been consolidated in a multidistrict litigation proceeding for common pre-trial management.

A few State Attorney Generals in the u.s. are investigating the alleged off-label promotion of YasminTM and yazTM as well as the alleged failure to warn about an alleged increased risk of developing blood clots in violation of consumer protection statutes. One Attorney General has filed an action against Bayer.

As of January 31, 2015, 13 class actions had been served upon Bayer in Canada and two in Israel.

As of January 31, 2015, Bayer had reached agreements, without admission of liability, to settle approximately 9,500 claims in the u.s. for venous clot injuries (deep vein thrombosis or pulmonary embolism) for a total amount of about us$1.9 billion. Bayer will continue to consider the option of settling such claims after a case-specific analysis of medical records. At present, about 2,000 such claims are under review.

Bayer has also settled, without admission of liability, approximately 7,200 claims for gallbladder injuries in the u.s. for a total amount of about us$21.5 million. As of January 31, 2015, only a few claims for such injuries remained pending.

Additional lawsuits are anticipated. Bayer believes that it has meritorious defenses and will continue to defend itself vigorously against all claims that are not considered for settlement. Bayer has taken appropriate accounting measures for anticipated defense costs and for agreed and anticipated future settlements based on the information currently available and based on the number of pending and estimated future claims alleging venous clot injuries.

MirenaTM: As of January 31, 2015, lawsuits of approximately 3,000 users of MirenaTM, a levonorgestrel-releasing intrauterine system providing long-term contraception, had been served upon Bayer in the u.s. Most of the cases pending in u.s. federal courts have been consolidated in a multidistrict litigation proceeding for common pre-trial management. Additional lawsuits are anticipated. Plaintiffs allege personal injuries resulting from the use of MirenaTM, including perforation of the uterus, ectopic pregnancy, or idiopathic intracranial hypertension, and seek compensatory and punitive damages. Plaintiffs claim, inter alia, that MirenaTM is defective and that Bayer knew or should have known of the risks associated with it and failed to adequately warn its users. As of January 31, 2015, four class actions relating to MirenaTM had been served upon Bayer in Canada. Bayer believes it has meritorious defenses and intends to defend itself vigorously. Based on the information currently available, Bayer has taken appropriate accounting measures for anticipated defense costs.

XareltoTM: As of January 31, 2015, lawsuits of approximately 200 recipients of XareltoTM, an oral anticoagulant for the treatment and prevention of blood clots, had been served upon Bayer in the u.s. Plaintiffs allege personal injuries from the use of XareltoTM, including cerebral, gastrointestinal or other bleeding and death, and seek compensatory and punitive damages. They claim, amongst other things, that XareltoTM is defective and that Bayer knew or should have known of the risks associated with the use of XareltoTM and failed to adequately warn its users. Additional lawsuits are anticipated. Cases pending in u.s. federal courts have been consolidated in a multidistrict litigation for common pre-trial management. As of February 8, 2015, one class action relating to XareltoTM was filed in Canada. Bayer believes it has meritorious defenses and intends to defend itself vigorously. Based on the information currently available, Bayer has taken appropriate accounting measures for anticipated defense costs.

In connection with the above proceedings concerning YasminTM/yazTM, MirenaTM and XareltoTM, Bayer is insured against product liability risks to the extent customary in the industry. However, the accounting measures taken with regard to the Yasmin TM/yazTM claims exceed the available insurance coverage.

Competition law proceedings

Phillips’ Colon Health/Department of Justice: In September 2014, the United States Department of Justice, representing the United States Federal Trade Commission, filed a motion in New Jersey federal court alleging that Bayer is making unsubstantiated claims about Phillips’ Colon Health, a probiotic product, and thereby violating a 2007 consent decree requiring it to have competent and reliable scientific evidence to substantiate claims made about its dietary supplements. The suit seeks relief in the form of monetary damages and an order mandating Bayer to cease from making unsubstantiated claims. In December 2014, the parties attended a court-ordered mediation, which did not resolve the matter. Discovery continues. Bayer believes it has meritorious defenses and intends to defend itself vigorously.

Patent disputes

BeyazTM/SafyralTM: In 2013, Bayer received two notices from Watson Laboratories, Inc. that Watson has filed Abbreviated New Drug Applications with a Paragraph iv certification (“anda iv”) seeking approval of generic versions of both BeyazTM and SafyralTM, Bayer’s oral contraceptives containing folate, in the United States. In response, Bayer filed two suits against Watson in u.s. federal court for infringement of the same patent. The lawsuits were consolidated.

BetaferonTM/BetaseronTM: In 2010, Bayer filed a complaint against Biogen Idec ma Inc. in u.s. federal court seeking a declaration by the court that a patent issued to Biogen in 2009 is invalid and not infringed by Bayer’s production and distribution of BetaseronTM, Bayer’s drug product for the treatment of multiple sclerosis. Biogen is alleging patent infringement by Bayer through Bayer’s production and distribution of BetaseronTM and ExtaviaTM and has sued Bayer accordingly. Bayer manufactures BetaseronTM and distributes the product in the United States. ExtaviaTM is also a drug product for the treatment of multiple sclerosis; it is manufactured by Bayer, but distributed in the United States by Novartis Pharmaceuticals Corporation, another defendant in the lawsuit.

FinaceaTM: In 2013, Bayer filed a patent infringement suit in a u.s. federal court against Glenmark Generics Ltd. Earlier that year, Bayer had received a notice from Glenmark that Glenmark had filed an anda iv seeking approval of a generic version of Bayer’s FinaceaTM topical gel in the United States.

Damoctocog alfa pegol (bay 94-9027, long-acting rFVIII): In 2013, Bayer filed a lawsuit against Nektar Therapeutics in the district court of Munich, Germany. In this proceeding, Bayer claims rights to certain European patent applications based on a past collaboration between Bayer and Nektar in the field of hemophilia. The European patent applications with the title “Polymer-factor viii moiety conjugates” are part of a patent family registered in the name of Nektar comprising further patent applications and patents in other countries including the United States. However, Bayer believes that the patent family does not include any valid patent claim relevant for Bayer’s drug candidate bay 94-9027 for the treatment of hemophilia a.

NexavarTM: In January 2015, Bayer filed a patent infringement suit in a u.s. federal court against Mylan Pharmaceuticals Inc. and Mylan Inc. (together “Mylan”). In December 2014, Bayer had received notice of an anda iv pursuant to which Mylan seeks approval of a generic version of the cancer drug NexavarTM in the United States.

StaxynTM: In 2012, Bayer filed a patent infringement suit in a u.s. federal court against Watson Laboratories, Inc. In 2013, Bayer filed a similar suit against Par Pharmaceutical, Inc. and Par Pharmaceutical Companies, Inc. (together “Par Pharmaceutical”). Earlier in 2012, Bayer had received notice of an anda iv pursuant to which Watson seeks approval to market a generic version of Bayer’s erectile dysfunction treatment StaxynTM prior to patent expiration in the United States. Earlier in 2013, Bayer had received a similar notice from Par Pharmaceutical. In 2014, Par Pharmaceutical amended its anda iv to no longer seek market approval prior to patent expiration whereupon the suit against Par Pharmaceutical was dismissed without prejudice. StaxynTM is an orodispersible (orally disintegrating) formulation of LevitraTM. Both drug products contain the same active ingredient, which is protected in the u.s. by two patents expiring in 2018.

Bayer believes it has meritorious defenses in the above patent disputes and intends to defend itself vigorously.

Further legal proceedings

TrasylolTM/AveloxTM: A qui tam complaint relating to marketing practices for TrasylolTM (aprotinin) and AveloxTM (moxifloxacin) filed by a former Bayer employee is pending in the United States District Court in New Jersey. The u.s. government has declined to intervene at the present time.

Bayer Pharma AG former shareholder litigation: In 2008, the squeeze-out of the former minority shareholders of Bayer Pharma AG (formerly named Bayer Schering Pharma AG), Berlin, Germany, became effective. As usual in such cases, several shareholders have initiated special court proceedings to review the adequacy of the compensation payments made by Bayer for the transfer of the shares in the squeeze-out. In another court proceeding initiated by former minority shareholders of Bayer Pharma AG (formerly Bayer Schering Pharma AG) to review the adequacy of compensation payments made by Bayer in connection with the 2006 domination and profit and loss transfer agreement, the District Court (Landgericht) of Berlin decided in 2013 that the compensation paid by Bayer at the time should be increased by about 40%. Bayer disagrees with this decision and has appealed. Appropriate accounting measures have been taken for this proceeding as well as for the parallel proceeding relating to the squeeze-out of the former minority shareholders.

Newark Bay Environmental Matters: In the United States, Bayer is one of numerous parties involved in a series of claims brought by federal and state environmental protection agencies. The claims arise from operations by entities which historically were conducted near Newark Bay or surrounding bodies of water, or which allegedly discharged hazardous waste into these waterways or onto nearby land. Bayer and the other potentially responsible parties are being asked to remediate and contribute to the payment of past and future remediation or restoration costs and damages.

In the Lower Passaic River matter, a group of more than sixty companies including Bayer is investigating contaminated sediments in the riverbed under the supervision of the United States Environmental Protection Agency (epa) and other governmental authorities. Future remediation will involve some form of dredging, the nature and scope of which are not yet defined, and potentially other tasks. The cost of the investigation and the remediation work may be substantial if the final remedy involves extensive dredging and disposal of impacted sediments. In the Newark Bay matter, an unaffiliated party is currently conducting an investigation of sediments in Newark Bay under epa supervision. The investigation is in a preliminary stage. Bayer has contributed to certain investigation costs in the past and may incur costs for future investigation and remediation activities in Newark Bay.

Bayer has also been notified by governmental authorities acting as natural resource trustees that it may have liability for natural resource damages arising from the contamination of the Lower Passaic River, Newark Bay and surrounding water bodies. Bayer is currently unable to determine the extent of its liability.

CropScience:

Asbestos: A further risk may arise from asbestos litigation in the United States. In many cases, the plaintiffs allege that Bayer and co-defendants employed third parties on their sites in past decades without providing them with sufficient warnings or protection against the known dangers of asbestos. Additionally, a Bayer affiliate in the United States is the legal successor to companies that sold asbestos products until 1976. Union Carbide has agreed to indemnify Bayer for this liability. Bayer believes it has meritorious defenses and intends to defend itself vigorously.

MaterialScience:

Partial exemption from the surcharge under the Renewable Energy Act: Under the German Renewable Energy Act (Erneuerbare-Energien-Gesetz) of 2012 (“eeg 2012”), all consumers of electricity normally have to pay a surcharge which is used to promote the development of renewable energies in Germany (“eeg surcharge”). Some energy-intensive companies are partially exempted from this surcharge. In 2013, the European Commission had launched a formal investigation into such partial exemptions. The investigation was closed in November 2014, and the European Commission approved in principle this German state aid regulation on renewable energies (eeg 2012). Remaining claims for further payments against which Bayer has appealed are in the low one-digit million euro range. Bayer believes the risks remaining in this matter are no longer material.

Tax proceedings

Stamp taxes in Greece: In February 2014, a Greek administrative court of first instance dismissed Bayer’s appeal against the assessment of stamp taxes and contingent penalties in the total amount of approximately €23 million on certain intra-Group loans to a Greek subsidiary. Bayer is convinced that the decision is wrong and has appealed. In a second court proceeding of first instance before the same court, Bayer has appealed against the assessment of stamp taxes and contingent penalties in a total amount of approximately €90 million. In addition, at the end of 2014 Bayer received new assessments of stamp tax and contingent penalties in a total amount of approximately €16 million which were appealed on administrative level. Bayer believes it has meritorious arguments to support its legal position and intends to defend itself vigorously.

Last updated: February 26, 2015  Copyright © Bayer AG
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