Bayer's Strategic Turnaround and Legal Challenges: A Calculated Bet for Long-Term Growth?

Bayer AG, the German multinational conglomerate, has long been a bellwether for the intersection of pharmaceutical innovation and agribusiness. In 2025, the company faces a pivotal juncture: its Pharmaceuticals division is surging with blockbuster drug launches and margin expansion, while its Crop Science division is implementing aggressive cost-cutting and innovation strategies. However, these positives are shadowed by the lingering specter of glyphosate litigation, which has drained billions in provisions. For investors, the question is whether Bayer's strategic reforms and pharmaceutical momentum can outweigh its legal liabilities to justify renewed confidence.

Pharmaceuticals: A Engine of Growth

Bayer's Pharmaceuticals division has emerged as a key driver of the company's 2025 earnings, fueled by a combination of blockbuster drug launches, a robust R&D pipeline, and disciplined cost management. In the first half of 2025, the division reported currency- and portfolio-adjusted sales growth of 0% to +3%, far exceeding its previous forecast of -4% to -1%. EBITDA margins before special items are now projected at 24%–26%, up from 23%–26% earlier in the year.

The division's performance is anchored by Kerendia and Nubeqa, two drugs that have defied expectations. Kerendia, a nonsteroidal mineralocorticoid receptor blocker, saw sales jump 86.6% in Q3 2025 to €161 million, driven by expanded FDA approval for heart failure with mildly reduced ejection fraction (HFmrEF). Nubeqa, a prostate cancer therapy, surged 77.5% in the same period, reflecting rapid adoption in oncology. Together, these drugs offset the decline of Xarelto, Bayer's once-dominant anticoagulant, which fell 31.2% due to generic competition.

The division's Dynamic Shared Ownership (DSO) operating model has also delivered €500 million in 2024 cost savings, with €800 million expected in 2025 and a target of €2 billion by 2026. This margin discipline, combined with pricing power on products like Eylea 8mg and Beyonttra (a next-gen oral anticoagulant launching in 2025), has bolstered profitability. Analysts project double-digit EBITDA growth through 2026, assuming continued execution on R&D and operational efficiency.

Crop Science: A Reform-Driven Turnaround

Bayer's Crop Science division, once a cash cow, has struggled with regulatory headwinds and overcapacity in the agrochemical market. In Q1 2025, sales fell 3.3% (Fx & portfolio adjusted) to €7.58 billion, and EBITDA before special items dropped 10.2% to €2.56 billion, pressured by label vacatur for dicamba-based products and Movento™ registration expiration in Europe.

To address these challenges, the division has embarked on a five-year strategic overhaul. Key initiatives include: 1. Portfolio streamlining: Discontinuing non-core products and focusing on high-margin innovations like Preceon™ Smart Corn System and Vyconic™ soybeans, which offer herbicide tolerance and regenerative agriculture benefits. 2. Production optimization: Reallocating R&D and manufacturing activities in Germany by 2028 to reduce costs and enhance competitiveness. 3. Regulatory resilience: Investing in biologicals and digital tools to align with global sustainability trends.

The division aims for above-market growth and an EBITDA margin of mid-20s by 2029, with free operating cash flow exceeding €3 billion. While 2025 results remain mixed, the long-term trajectory hinges on successful execution of these reforms and the launch of next-gen crop traits.

Legal Risks: A Persistent Drag

Despite these positives, Bayer's glyphosate litigation remains a critical overhang. The company has provisioned €1.7 billion for Roundup™ claims, including a €1.2 billion additional provision for the Anderson case and PCB exposure lawsuits. While settlements have reduced unresolved claims to 61,000 of 192,000, the litigation's financial impact is far from resolved.

The legal costs are already material: special EBITDA items for 2025 are now projected at -€3.5 billion to -€2.5 billion, up from -€1.5 billion to -€0.5 billion earlier in the year. This volatility raises questions about whether Bayer can maintain its Pharmaceuticals-driven earnings growth without further dilution from legal liabilities.

Calculated Bet: Weighing Risks and Rewards

For investors, the calculus hinges on three factors: 1. Pharmaceuticals' durability: Can Bayer sustain its margin expansion and R&D pipeline momentum, particularly as Xarelto's patent cliff approaches in 2027? 2. Crop Science's turnaround: Will the division's cost-cutting and innovation efforts translate into mid-20s EBITDA margins by 2029? 3. Litigation management: Can Bayer cap glyphosate-related costs through settlements, legal challenges, or regulatory changes?

The answer appears cautiously optimistic. The Pharmaceuticals division's blockbuster growth and €2 billion DSO savings target by 2026 provide a strong buffer against legal costs. Meanwhile, Crop Science's focus on regenerative agriculture and digital tools aligns with long-term industry trends, offering growth potential if executed effectively.

However, the litigation risk is non-trivial. If glyphosate liabilities escalate beyond current provisions, they could erode the gains from Pharmaceuticals and Crop Science. Investors should monitor Bayer's quarterly litigation updates and legal strategy adjustments, such as its recent challenge of the Anderson verdict.

Investment Outlook

Bayer's strategic reforms in Pharmaceuticals and Crop Science present a compelling case for long-term growth, but the path is not without risks. For investors with a five-year horizon, the company's pharmaceutical momentum and agribusiness innovation justify a high-conviction position, provided the legal liabilities remain contained.

Key triggers to watch: - Regulatory approvals for Elinzanetant (menopause drug) and Beyonttra (anticoagulant). - Crop Science's ability to meet its 2029 EBITDA targets. - Resolution of glyphosate litigation and its financial impact.

If Bayer continues to execute its operational and R&D priorities while managing legal costs, its stock could outperform the broader healthcare and agribusiness sectors. However, a risk-averse investor may prefer to wait for clearer resolution of litigation uncertainties before committing capital.

In the end, Bayer's 2025 story is one of strategic reinvention—a calculated bet that its pharmaceutical and agribusiness engines can outpace the shadows of its past. For those willing to navigate the legal risks, the potential rewards are substantial.