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.

Product-related litigation

Yasmin™ / YAZ™: As of January 25, 2016, the number of claimants in the pending lawsuits and claims in the United States totaled about 2,300 (excluding claims already settled). Claimants allege that users 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 proceeding for common pre-trial management.

A few State Attorney Generals in the United States are investigating an alleged off-label promotion of Yasmin™ and YAZ™ as well as an 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 25, 2016, 13 lawsuits seeking class action certification had been served upon Bayer in Canada. In one of these lawsuits a class has been certified. Two motions for certification of a class action are pending in Israel.

As of January 25, 2016, Bayer had reached agreements, without admission of liability, to settle approximately 10,300 claims for venous clot injuries (deep vein thrombosis or pulmonary embolism) for a total amount of about US$2.04 billion and approximately 7,200 claims for gallbladder injuries for a total amount of about US$21.5 million in the United States. Bayer will continue to consider the option of settling venous clot injury claims after a case-specific analysis of medical records. At present, about 300 such claims are under review.

In August 2015, Bayer reached an agreement to settle, without admission of liability, lawsuits and claims in which plaintiffs allege an arterial thromboembolic injury (primarily strokes and heart attacks) for a total maximum aggregate amount of US$56.9 million. Bayer may withdraw from the settlement if fewer than 97.5% of those who are eligible, and / or fewer than 96% of those who are eligible and allege death or catastrophic injuries, choose to participate. As of January 25, 2016, about 1,200 of the 2,300 above-mentioned claimants alleged arterial thromboembolic injuries.

In August 2015, the U.S. multidistrict and state coordinating courts overseeing the litigation issued case management orders governing all cases before them (regardless of alleged injury), imposing much stricter threshold requirements for litigating the remaining unsettled cases and for filing of new cases. Failing compliance with these requirements, such cases will be dismissed.

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.

Mirena™: As of January 25, 2016, lawsuits from approximately 3,500 users of Mirena™, a levonorgestrel-releasing intrauterine system providing long-term contraception, had been served upon Bayer in the United States (excluding lawsuits no longer pending). 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 Mirena™, including perforation of the uterus, ectopic pregnancy, or idiopathic intracranial hypertension, and seek compensatory and punitive damages. Plaintiffs claim, inter alia, that Mirena™ 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 25, 2016, five lawsuits relating to Mirena™ seeking class action certification 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.

Xarelto™: As of January 25, 2016, in the United States, lawsuits from approximately 4,300 recipients of Xarelto™, an oral anticoagulant for the treatment and prevention of blood clots, had been served upon Bayer. Plaintiffs allege personal injuries from the use of Xarelto™, including cerebral, gastrointestinal or other bleeding and death, and seek compensatory and punitive damages. They claim, amongst other things, that Xarelto™ is defective and that Bayer knew or should have known of the risks associated with the use of Xarelto™ 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 January 25, 2016, eight lawsuits relating to Xarelto™ seeking class action certification 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.

In connection with the above proceedings concerning Yasmin™ / YAZ™, Mirena™ and Xarelto™, 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

Phillips’ Colon Health / Department of Justice: In 2014, the United States Department of Justice, representing the United States Federal Trade Commission (FTC), filed a motion in a New Jersey federal court contending that Bayer did not have the requisite support for claims made with respect to Phillips’ Colon Health probiotics. The motion sought to hold Bayer in contempt of a prior consent order that required Bayer to have competent and reliable scientific evidence to substantiate dietary supplement claims. In September 2015, the New Jersey federal court ruled that the United States failed to satisfy its burden of proving that Bayer failed to possess competent and reliable scientific evidence. Thus, the court found that Bayer did not violate the consent order. The decision is final.

Patent disputes

Beyaz™ / Safyral™: Beyaz™ and Safyral™ are Bayer’s oral contraceptives containing folate. In September 2015, a U.S. federal court ruled in favor of Bayer regarding both the validity of its patent and the infringement thereof by Watson Laboratories, Inc. Watson had filed Abbreviated New Drug Applications with a Paragraph IV certification (“ANDA IV”) seeking approval of generic versions of both Beyaz™ and Safyral™ in the United States. Watson appealed the decision. In May and October 2015, Bayer filed two suits against Lupin Ltd. and Lupin Pharmaceuticals, Inc. (together “Lupin”) in U.S. federal court for infringement of the same patent. In April and September 2015, Bayer had received two notices of an ANDA IV by Lupin seeking approval to market generic versions of Safyral™ and Beyaz™ in the United States.

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. Bayer manufactures Betaseron™ and distributes the product in the United States. 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 July 2015, a U.S. federal court found that Bayer’s patent relating to Finacea™ topical gel is valid and infringed by Glenmark Generics Ltd. Glenmark had filed an ANDA IV seeking approval of a generic version of Finacea™ in the United States, and Glenmark appealed the US federal court decision.

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.

Nexavar™: In January and December 2015, Bayer filed patent infringement lawsuits in a U.S. federal court against Mylan Pharmaceuticals Inc. and Mylan Inc. (together “Mylan”). In December 2014 and in November 2015, Bayer had received notices of ANDA IV applications pursuant to which Mylan seeks approval of a generic version of Bayer´s cancer drug Nexavar™ in the United States.

Staxyn™: Staxyn™ is a Bayer product for erectile dysfunction treatment. It is an orodispersible (orally disintegrating) formulation of Levitra™. Both drug products contain the same active ingredient, which is protected in the United States by two patents expiring in 2018. In 2012, Bayer received notice of an ANDA IV application 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. Bayer filed a patent infringement suit in a U.S. federal court against Watson Laboratories, Inc. In April 2015, the court ruled that both of Bayer’s compound patents are valid and infringed. Watson may appeal.

Xarelto™: In October 2015, Bayer and Janssen Pharmaceuticals, Inc. filed a patent infringement suit in a U.S. federal court against Aurobindo Pharma Limited, Aurobindo Pharma USA, Inc. (together “Aurobindo”), Breckenridge Pharmaceutical Inc. (“Breckenridge”), Micro Labs Ltd., Micro Labs USA Inc. (together “Micro Labs”), Mylan Pharmaceuticals Inc., Mylan Inc. (together “Mylan”), Prinston Pharmaceutical Inc. (“Prinston”), Sigmapharm Laboratories, LLC (“Sigmapharm”), Torrent Pharmaceuticals, Limited and Torrent Pharma Inc. (together “Torrent”). In September 2015, Bayer had received notices of an ANDA IV application by Aurobindo, Breckenridge, Micro Labs, Mylan, Prinston, Sigmapharm and Torrent, each seeking approval to market a generic version of Xarelto™, an oral anticoagulant for the treatment and prevention of blood clots, in the United States. In January 2016, Bayer received another notice of such an ANDA IV application by InvaGen Pharmaceuticals, Inc. (“InvaGen”). In February 2016, Bayer and Janssen Pharmaceuticals, Inc. filed a patent infringement suit against InvaGen in the same U.S. federal court.

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

Further legal proceedings

Trasylol™ / Avelox™: A qui tam complaint relating to marketing practices for Trasylol™ (aprotinin) and Avelox™ (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.

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.

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.

Tax proceedings

Stamp taxes in Greece: In 2014, a Greek administrative court of first instance dismissed Bayer’s lawsuit 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 two additional court proceeding of first instance before the same court, Bayer has filed lawsuits against the assessment of stamp taxes and contingent penalties in an amount of approximately €90 million and a further amount of approximately €16 million. Bayer believes it has meritorious arguments to support its legal position and intends to defend itself vigorously.