☀️☕️ Baying for Bayer: Unveiling the Weight of Monsanto's Legacy

📝 Focus

• Baying for Bayer

📊 In the Markets

• Eli Lilly gets weight-loss approval

• Ping An rescuing Country Garden… and China?

• Downround Roundup

📖 MoneyFitt Explains

🎓️ Market Cap

📝 Focus

Baying for Bayer

Bayer’s new CEO is considering restructuring by potentially carving out its crop science division or (like peers Johnson & Johnson, Sanofi and GSK/Pfizer) consumer health unit from its core pharmaceuticals business, to reverse its underperformance. 

The company’s $63.5 billion acquisition of American agrochemical giant Monsanto increased debt massively and opened the company up to legal liabilities related to its weed killer Roundup, the most widely used herbicide in the world. Roundup has been linked to cancer and may affect neurotransmitters in the brain. 

Bayer's market cap 🎓 is now $43bn, with its shares down almost 60% since buying Monsanto. It has been facing pressure from numerous activist investors to restructure the 160-year old German conglomerate.

..... ▷ Bayer acquired Monsanto in June 2018 for $63.5 billion, primarily in cash, with a small amount of Bayer stock as part of the consideration, about a 44% premium to the undisturbed price. 

It was highly controversial at the time due to Monsanto's long history of environmental and health controversies, particularly surrounding its widely-used herbicide Roundup. 

As of October 2023, Bayer is facing over 40,000 Roundup-related lawsuits, and the company has already paid out over $10 billion in settlements.

Bayer has denied the allegations that Roundup causes cancer and other health problems, but the company has already lost several high-profile trials related to Roundup and has set aside $12 billion to cover potential further liabilities, which may not be enough. 

..... ▷ Roundup, the most widely used herbicide in the world, contains glyphosate, which has been linked to a range of health hazards, including non-Hodgkin's lymphoma, cancer of the kidney and liver damage. 

The World Health Organization’s cancer arm classified glyphosate as “probably carcinogenic to humans” in 2015. 

Glyphosate's widespread use in agriculture, driven by partnerships with seed companies, has raised concerns about its impact on human health and the environment. 

Seed companies, such as Monsanto, played a significant role in promoting the use of glyphosate-based herbicides as they often control the patents for genetically modified crops that are resistant to glyphosate, therefore creating a dependency on the herbicide for farmers. 

This dependency has led to increased glyphosate use, which has contributed to the herbicide's dominance in the agricultural industry.

While Roundup is still widely used, the global landscape of its regulation is changing. Countries are increasingly recognising the potential risks of glyphosate and taking steps to mitigate its use

..... ▷ Before Roundup, Monsanto manufactured the dioxin Agent Orange, a toxic herbicide that caused serious health issues after use during the Vietnam War (the British established a precedent for warfare with herbicides in Malaya), and DDT, a pesticide with devastating environmental effects. And the company allegedly engaged in character attacks on scientists and journalists who raised concerns about the safety of Roundup,

And prior to the Monsanto acquisition, Bayer was best known for its pharmaceutical products, including aspirin, which it invented, and its over-the-counter pain reliever Aleve and antihistamine Claritin.

But in a far darker chapter, Bayer was one of the constituent companies of IG Farben, which manufactured Zyklon B, the cyanide-based pesticide fumigant which was used in the poison gas chambers of the Nazi concentration camps in World War 2.

IG Farben also used slave labour in its factories, including concentration camp inmates supplying the Nazi war effort with a variety of products, including chemicals for making explosives, synthetic rubber and pesticides. 

It was dissolved back into its constituents after the IG Farben Trials at Nuremberg after the war, with successor companies being Agfa, BASF, Bayer and Sanofi (then Hoechst.)

Law Geek Corner: The IG Farben Trial was the sixth of the twelve Subsequent Nuremberg Trials after the conclusion of the main Nuremberg Trials, which focused on the major war criminals. 

It was a landmark event in the history of international law. It was the first time that a corporation was put on trial for war crimes and crimes against humanity. The trial also established the principle that corporations can be held accountable for the actions of their employees.

📚 What We’re Reading

📊 In the Markets

On Wednesday, the S&P 500 and Nasdaq managed small gains, extending their recent winning streaks to 8 and 9 days, respectively. 

A rally in 10-year Treasuries pushed the yield below 4.5%, with traders looking for clues about a possible recession and signs of the end of the rate-hike cycle, though comments from central bank officials created uncertainty. Meanwhile, Fed Chair Jerome Powell remained silent on monetary policy but will speak again on Thursday. 

Ping An rescuing Country Garden… and China?

Ping An Insurance Group has been told by Chinese authorities to acquire a controlling stake in Country Garden, the nation's largest private property developer, according to Reuters, citing five different sources. Though strenuously denied by the company, Reuters remains adamant.

Ping An is reportedly seen as a natural choice because it is, like Country Garden, based in Guangdong and has been a major Country Garden shareholder in the past.

Country Garden, which has missed debt payment deadlines and is deemed in default on offshore bonds, faces severe liquidity issues, with total liabilities in June of $190 billion and 3,000 projects under development across the country. 

..... ▷ This potential takeover could serve as a template for resolving financial troubles among developers, indicating a broader government intervention in China's property sector. 

Ping An's involvement could help alleviate the developer's financial strain and prevent potential spillover risks in the broader economy, but it raises the question of which the next firm to get press-ganged into national service will be.

Eli Lilly gets weight-loss approval

Shares in Eli Lilly climbed 3.2% following the entirely expected FDA approval for the use of its Type-2 diabetes drug tirzepatide (sold as Mounjaro) for obesity, under a weird new name “Zepbound.” 

This brings its gains this year to 69%, a move that has made it by far the world’s largest drugmaker by market value.

..... ▷ Clinical trials showed that Zepbound yielded more than a 20% average weight loss on higher doses over 72 weeks, a better result than seen with other approved medicines.

It has been cleared for use with obese and overweight people with at least one weight-related health condition, such as high blood pressure or heart disease. 

..... ▷ Mounjaro / Zepbound are part of a massive new class of drugs used for both weight loss and diabetes, such as Novo Nordisk’s Ozempic and Wegovy products. 

There are even early signs of effective use in treating Alzheimer’s, dubbed by some as “Type-3 Diabetes,” and certain types of kidney failure in patients with diabetes.

Downround Roundup - ARM and CART

..... ▷ Arm, the semiconductor tech company, posted strong post-IPO earnings that exceeded sales expectations and reported a doubling of its lucrative licensing business in the past year. 

Revenue from royalties (chipmakers building Arm-compatible chips) declined by 5%, while licensing sales (more complete chip designs) increased by 106%, indicating the potential for increased technology sales to current customers. 

However, Arm's shares dropped almost 7% in extended trading to bring it about back to its $51 IPO price as guidance for the current quarter came in slightly lighter than expected. 

At a current market value of $52.5bn, it is about 13% lower than its pre-IPO “internal” valuation of $64bn.

..... ▷ Fellow recent IPO delivery firm Instacart beat expectations in its first post-IPO results with Q3 revenue up 14% year-over-year, though it also reported a $2 billion net loss, primarily due to stock-based compensation costs tied to its September IPO. 

CEO Fidji Simo warned of macroeconomic "headwinds" affecting short-term growth, linked to the post-pandemic slowdown and rising interest rates. A $500 million share buy-back caused a brief pop in after-hours trading before settling little changed. 

The stock is about 9% below its IPO price with a market value of $7.5bn, over 80% lower than its pre-IPO peak valuation of $39bn in March 2021, (which obviously excludes the $660 million raised in the 2023 IPO.)