Financial Statements

32. Legal risks

Bayer HealthCare

Bayer CropScience

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 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

Magnevist™: As of February 12, 2013, there were approximately 40 lawsuits pending and served upon Bayer in the United States involving the gadolinium-based contrast agent Magnevist™. Three other manufacturers of gadolinium-based contrast agents in the United States also have been named party to the same or similar lawsuits.

In the lawsuits, plaintiffs allege that patients developed nephrogenic systemic fibrosis (NSF) as a result of the use of Magnevist™ during medical imaging procedures. NSF is a rare, severe condition that can be debilitating and in some cases fatal. Plaintiffs seek compensatory and punitive damages under various theories, including strict liability and negligence and/or breach of warranty, claiming, among other things, that the product is defective and unreasonably dangerous and that Bayer knew, or should have known, of the risks associated with Magnevist™ and failed to disclose them or adequately warn its users.

All cases pending in federal courts have been consolidated in a multidistrict litigation (MDL) proceeding for common pre-trial management. As of February 12, 2013, Bayer had reached agreements, without admission of liability, with approximately 300 plaintiffs in the United States to settle their claims. Bayer will continue to consider the option of settling individual lawsuits on a case-by-case basis. However, Bayer believes 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.

Trasylol™ (aprotinin) is a drug approved for use in managing bleeding in patients undergoing coronary artery bypass graft surgery. As of February 12, 2013, there were approximately 25 lawsuits pending in the United States and served upon Bayer on behalf of persons alleging, in particular, personal injuries, including renal failure and death, and economic loss from the use of Trasylol™. Bayer also has been served with three class actions in Canada. Plaintiffs seek compensatory and punitive damages, claiming, among other things, that Bayer knew, or should have known, of these risks and should be held liable for having failed to disclose them or adequately warn users of Trasylol™. All cases pending in U.S. federal courts have been consolidated in a multidistrict litigation (MDL) proceeding for common pre-trial management. A qui tam complaint relating to marketing practices for Trasylol™ and Avelox™ 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.

As of February 12, 2013, Bayer had reached agreements, without admission of liability, with approximately 1,100 plaintiffs in the United States to settle their claims. Bayer will continue to consider the option of settling individual lawsuits on a case-by-case basis. However, Bayer believes 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.

Yasmin™/YAZ™: As of February 12, 2013, the number of lawsuits pending in the United States and served upon Bayer was about 10,000. In addition, about 1,200 asserted claims were pending that have not been filed in court. The number of claimants in the pending lawsuits and claims totaled about 13,600 (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 Yasmin™ and/or YAZ™ or from the use of Ocella™ and/or Gianvi™, generic versions of Yasmin™ and YAZ™, 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 (MDL) proceeding for common pre-trial management. In Canada, 13 class actions have been served upon Bayer as of February 12, 2013.

In 2011 the MDL court stayed the first case set for trial and ordered the parties to participate in a mediation process. As of February 12, 2013, Bayer had reached agreements, without admission of liability, to settle the claims of approximately 4,800 claimants in the U.S. for a total amount of about US$1 billion. Bayer is only settling claims in the U.S. for venous clot injuries (deep vein thrombosis or pulmonary embolism) after a case-specific analysis of medical records on a rolling basis. Such injuries are alleged by about 3,200 of the pending unsettled claimants. Bayer will continue to consider the option of settling individual lawsuits in the U.S. on a case-by-case basis.

The United States Attorney for the Eastern District of New York is conducting an investigation regarding alleged off-label promotion of YAZ™ and Yasmin™. Bayer is cooperating with this investigation.

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. The estimates used in accounting for the entire Yasmin™/YAZ™ complex at interim reporting dates during 2012 were revised for the annual financial statements. Further disclosures, in particular concerning the related measures adopted, are not made pursuant to IAS 37.92.

In connection with the above matters concerning Magnevist™, Trasylol™ and Yasmin™/YAZ™, Bayer is insured against product liability risks to the extent customary in the industry. However, the accounting measures taken with regard to the Yasmin™/YAZ™ claims exceed the available insurance coverage.

Competition law proceedings

Cipro™: Since the year 2000, multiple class action lawsuits against Bayer involving Cipro™, a medication used in the treatment of infectious diseases, have been pending in the United States. The plaintiffs sued Bayer and other defendants, alleging that a settlement to end patent litigation reached in 1997 between Bayer and Barr Laboratories, Inc. violated antitrust regulations. All actions filed in federal courts have been dismissed. The dismissals have been affirmed by two federal Courts of Appeals and the United States Supreme Court denied plaintiff’s petitions for certiorari twice. The federal litigation has thus ended.

Further cases are pending before various state courts. The dismissal of a class action pending in state court which was brought by indirect purchasers from California has been affirmed by the California Court of Appeal. The California Supreme Court has accepted this case for review. The case has been stayed pending the outcome of a U.S. Supreme Court decision in another case to which Bayer is not a party. Bayer believes that it has meritorious defenses and intends to defend itself vigorously.

Patent disputes

Yasmin™: In 2005, Bayer filed suit against Barr Pharmaceuticals, Inc. and Barr Laboratories, Inc. in U.S. federal court alleging patent infringement by Barr for the intended generic version of Bayer’s Yasmin™ oral contraceptive product in the United States. In 2008, the U.S. federal court invalidated Bayer’s ’531 patent for Yasmin™. The U.S. Court of Appeals for the Federal Circuit affirmed this decision and, in 2010, the U.S. Supreme Court rejected Bayer’s petition for review.

In 2008, Bayer and Barr Laboratories, Inc. signed a supply and licensing agreement for the supply of a generic version of Yasmin™ which Barr markets solely in the United States under the Ocella™ brand. Barr pays Bayer a fixed percentage of the revenues from the product sold by Barr.

In 2008 Bayer received two and in 2010 another three notices of an Abbreviated New Drug Application with a Paragraph IV certification (an “ANDA IV”) pursuant to which Watson Laboratories Inc., Sandoz Inc., Lupin Ltd., Famy Care Ltd. and Sun Pharma Global FZE each seek approval to market a generic version of Bayer’s oral contraceptive Yasmin™ in the United States. Bayer has filed suit against Watson, Sandoz and Lupin in U.S. federal court alleging patent infringement for the intended generic version of Yasmin™. In reply, Watson and Sandoz have filed counterclaims alleging, among other things, the invalidity of various Bayer patents. In 2010, the U.S. federal court dismissed Bayer’s infringement claims against Watson, Sandoz and Lupin. In April 2012, the U.S. Court of Appeals for the Federal Circuit affirmed these judgments. Bayer did not seek a review of the decision. The dismissal of Bayer’s infringement claims is now final. In June 2012, Watson Pharmaceuticals, Inc., Watson Laboratories Inc. and Watson Pharma, Inc. filed a complaint against Bayer in a U.S. state court in New York. Watson seeks compensatory and punitive damages claiming malicious prosecution, tortious interference and unjust enrichment by Bayer in connection with the patent infringement proceedings. The case is now pending before a U.S. federal court.

YAZ™: In 2007 and 2008 Bayer received notices from Barr Laboratories, Inc., Watson Laboratories Inc. and Sandoz Inc., and in 2010 Bayer received notices from Lupin Ltd. and Sun Pharma Global FZE, that each company has filed an ANDA IV seeking approval of a generic version of Bayer’s YAZ™ oral contraceptive in the United States. Bayer further received such notices from Famy Care and Pharmaceutics International Inc. in 2011 and 2012. Bayer has filed patent infringement suits against Watson, Sandoz, Lupin, Sun Pharma Global and Famy Care in U.S. federal court claiming that certain of Bayer’s patents have been infringed. Bayer may take legal action against Pharmaceutics International at a later point of time. In the proceedings against Watson, Sandoz and Lupin, the U.S. federal court ruled in March 2012 that Bayer’s patents are valid and enforceable. The defendants have also infringed Bayer´s patents as was conceded by them earlier in the proceedings. Watson, Sandoz and Lupin have appealed. In the proceedings against Watson and Sandoz, the U.S. federal court further ordered in February 2013 that the effective date of approval of Watson’s and Sandoz’s YAZ™ ANDA IVs be postponed until patent expiration in June 2014. Watson and Sandoz requested stay of the order and have appealed. Bayer will vigorously pursue its claims for relief.

In 2008 Bayer and Barr agreed on a licensing and supply agreement allowing Barr to market Gianvi™, a generic version of YAZ™, in the United States and Bayer has supplied Barr with the product for Gianvi™ since 2010.

Beyaz™: In January 2012, Bayer received a notice from Watson Laboratories Inc. that Watson has filed an ANDA IV seeking approval of a generic version of Bayer’s Beyaz™ oral contraceptive in the United States. Bayer filed a patent infringement suit against Watson in U.S. federal court. In September 2012 the U.S. federal court dismissed the lawsuit without prejudice. The U.S. Food and Drug Administration (FDA) had determined that Watson’s ANDA was not substantially complete. Consequently Watson’s notice to Bayer was of no legal effect.

Yasmin™/Yasminelle™/YAZ™: In 2011 a board of appeal of the European Patent Office revoked a formulation patent (“micronization”) for Yasmin™, Yasminelle™ and YAZ™. Bayer’s petition for review of the decision by the Enlarged Board of Appeal of the European Patent Office was rejected in November 2012. In 2004, Hexal Pharmaforschung GmbH filed an opposition against Bayer’s patent. An opposition division of the European Patent Office rejected the opposition in 2006. The latest ruling follows an appeal by Hexal of the 2006 decision. In 2011, the European Patent Office revoked the other formulation patent (“dissolution”) for Yasmin™, Yasminelle™ and YAZ™. Bayer has appealed. The appeal has suspensive effect.

Betaferon™/Betaseron™: 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 Betaseron™, Bayer’s drug product for the treatment of multiple sclerosis. Biogen is alleging patent infringement by Bayer through Bayer’s production and distribution of Betaseron™ and Extavia™ and has sued Bayer accordingly. Betaseron™ is manufactured and distributed in the United States by Bayer. Extavia™ 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.

Finacea™: In January 2013, Bayer received a notice from Glenmark Generics Ltd. that Glenmark has filed an ANDA IV seeking approval of a generic version of Bayer’s Finacea™ topical gel in the United States. Bayer is reviewing the information in Glenmark’s letter.

Staxyn™: In April 2012, Bayer filed a patent infringement suit in a U.S. federal court against Watson Laboratories, Inc. In March 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 Staxyn™ prior to patent expiration in the United States. Staxyn™ is an orodispersible (orally disintegrating) formulation of Levitra™. 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

Wholesale prices in the U.S.: Bayer and a number of pharmaceutical companies in the United States are defendants in pending lawsuits in which plaintiffs, including states, are alleging manipulation in the reporting of wholesale prices and/or best prices for their prescription pharmaceutical products. The plaintiffs seek damages, including disgorgement of profits and punitive damages. Bayer believes it has meritorious defenses and intends to defend itself vigorously. In appropriate cases Bayer has agreed to settlements and will continue to consider this option in the future.

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. The adequacy of the compensation and the guaranteed dividend paid by Bayer in connection with the Bayer Pharma AG profit and loss transfer agreement made in 2006 is also being reviewed by the courts.

Kogenate™FS: A dispute with Recoly NV and its affiliate Zilip Pharma BV relates to the termination by Bayer of the KG-Lip project (longer acting Factor VIII using Recoly’s liposome technology). Bayer was seeking a declaratory judgment by an arbitration panel that it has exerted best commercial efforts to develop the product and that it is not contractually bound to pay a termination fee or to continue to develop the product. Recoly counterclaimed for damages. In a recent final ruling, the panel decided the matter fully in favor of Bayer.

Compliance investigation: Bayer voluntarily advised the United States government of an internal investigation conducted into compliance by a former operating unit of one of its U.S. subsidiaries with the United States Foreign Corrupt Practices Act. In November 2012, the U.S. Department of Justice, based upon its own investigation and the information made available by Bayer, closed its inquiry into this matter without taking further action.

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. These matters are at an early stage.

CropScience:

Proceedings involving genetically modified rice: As of February 12, 2013, Bayer was aware of a total of approximately 80 lawsuits, involving about 1,200 plaintiffs, pending in U.S. federal and state courts against several Bayer Group companies in connection with genetically modified rice in the United States. A large percentage of these cases will be dismissed upon completion of the settlement with rice growers, discussed below. Plaintiffs allege that they have suffered economic losses after traces of genetically modified rice were identified in samples of conventional long-grain rice grown in the U.S. In development of the genetically modified rice (“LL RICE”), field testing was conducted in the United States in cooperation with third parties from 1998 to 2001. The genetically modified rice was never commercialized. The USDA and the FDA have stated that the genetically modified rice does not present a health risk and is safe for use in food and feed and for the environment.

From 2009 to 2011 Bayer tried seven cases in front of U.S. juries. All trials resulted in compensatory damage awards against Bayer. In three state court trials in Arkansas, the juries also awarded punitive damages, including a US$125 million punitive damages verdict in favor of Riceland Foods, Inc., a large U.S. rice mill. Bayer has agreed to a settlement with Riceland Foods. Thus all of these cases have now been settled.

In 2011, without acknowledging liability, Bayer reached settlement agreements with U.S. long-grain rice growers. More than 94% of all of the eligible rice acreage will participate in the settlement. Bayer has now paid more than US$694 million to rice growers under the settlement. Additional payments will be made in the coming months once all claims have been verified until the full US$750 million agreed to under the settlement has been paid. The settlement program was open to all U.S. farmers who had been growing long-grain rice during the period 2006 through 2010.

Without acknowledging liability, Bayer also settled the claims filed by 25 primarily non-grower entities – including European rice importers, U.S. rice exporters, U.S. rice mills or rice dryers, rice seed sellers and several farmers outside of the US$750 million master settlement – at a total settlement value of about US$270 million. This amount also includes settlement of all the cases that went to trial.

16 cases remain pending in the U.S. with business entities that are not a part of the settlement program. The company is hopeful that many of these cases can also be settled. However, Bayer intends to continue to defend itself vigorously in all cases in which reasonable resolutions are not possible.

One of the remaining cases was brought by BASF to recover damages allegedly resulting from the contamination of its Clearfield 131 rice variety with LL RICE. In that case Bayer has filed a claim against BASF alleging that BASF was negligent in its handling of Clearfield 131 and that its negligence contributed to the damages allegedly suffered by rice growers, rice mills and others in this litigation. Bayer seeks reimbursement from BASF for a portion of the amount that Bayer has paid in settlements in this litigation. This case is set for trial in September 2013.

Bayer has established appropriate provisions for the settlement program as well as for legal and defense costs.

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.

Last updated: February 28, 2013  Copyright © Bayer AG
http://www.annualreport2012.bayer.com