Bayer's Turnaround Hinges on Stroke Drug and Legal Clarity

Bank of America’s recent upgrade of Bayer to a “Buy” rating, coupled with a sharp increase in its price target, has reignited investor interest in the pharmaceutical giant. The brokerage’s bullish stance hinges on two critical catalysts: the potential success of an experimental stroke drug, asundexian, and favorable resolutions to multi-billion-dollar legal battles tied to its controversial products. Here’s why Bayer’s stock could surge—and why risks remain.

The Drug Pipeline: A Stroke of Hope

At the heart of BofA’s optimism is asundexian, an oral Factor XIa inhibitor targeting secondary stroke prevention in patients with atherosclerosis. The drug is currently in a Phase III trial, with results expected by Q4 2025. BofA analysts project peak annual sales of €3 billion—a stark contrast to the market’s conservative estimate of €150 million—assuming regulatory approval.

The trial’s design offers structural advantages over a prior failed study in atrial fibrillation. By focusing on atherosclerosis patients and comparing asundexian to standard antiplatelet therapy (rather than anticoagulants), the hurdle for demonstrating efficacy is lower. Subgroup data from earlier trials also suggest a net clinical benefit, even as bleeding risks remain a concern. A successful outcome could add €6 billion to Bayer’s net present value (NPV)—roughly 30% upside to its current valuation.

Legal Battles: The Sword of Damocles Lifts

Bayer’s legal overhang has been a major drag on its stock, which has fallen 70% since mid-2022. Two cases loom large:
1. Glyphosate Litigation: Linked to Bayer’s Roundup herbicide, this class-action nightmare has cost the company billions. A U.S. Supreme Court decision on federal preemption (expected by late 2025 or early 2026) could resolve whether state-level failure-to-warn claims are invalid. A favorable ruling would allow reversal of a €6 billion provision, erasing 25% of Bayer’s valuation drag.
2. PCB Litigation: The Erickson case in Washington State, expected to conclude by early 2026, could eliminate €5 billion in liabilities tied to polychlorinated biphenyls (PCBs).

BofA analysts estimate a >50% chance the Supreme Court reviews the glyphosate case, with a 60–70% likelihood of a favorable outcome if accepted. If both cases resolve positively, Bayer’s NPV could rise by €11 billion, or 75%, over 12–18 months.

Valuation: A Stock Trading at a Discount

Bayer’s stock trades at a forward P/E of 4.8x for 2026—a deep discount to peers like Roche (15x) or Novartis (12x)—and boasts a free cash flow yield exceeding 20% in later years. The brokerage argues this reflects an overcorrection for litigation risks that are now stabilizing.

Additionally, Bayer’s limited exposure to U.S. pharmaceutical tariffs and debt reduction (net financial debt fell to €32.6 billion in 2024) add to its appeal. BofA’s revised price target of €30 (up from €27) implies 51% upside from current levels, assuming base-case scenarios.

Risks: Trials and Tribulations

The upgrade is not without pitfalls.
- Asundexian’s trial failure: If the Phase III results disappoint, Bayer’s NPV could drop by €6 billion, erasing the drug’s potential upside.
- Legal setbacks: A Supreme Court rejection of federal preemption or an adverse PCB ruling would reignite liability concerns.
- Operational headwinds: Patent cliffs in its Pharma division (e.g., Xarelto) and ongoing PCB lawsuits in other states could weigh on growth.

Conclusion: A High-Reward, High-Risk Bet

Bank of America’s “Buy” rating on Bayer is a high-conviction call on two binary events: asundexian’s trial and the Supreme Court’s glyphosate decision. If both succeed, the stock could soar 75%+ over 12–18 months, unlocking €11 billion in NPV. Even in a middling scenario—where the drug achieves 20% sales upside and legal provisions drop by €3 billion—Bayer’s NPV gains could still hit €4 billion, supporting a 30%+ return.

However, investors must weigh these potential rewards against execution risks. The Phase III trial’s design offers hope, but subgroup data is not a guarantee of success. Meanwhile, legal outcomes remain uncertain, with the Supreme Court’s timeline and state-level litigation dynamics adding layers of complexity.

For those willing to bet on Bayer’s turnaround, the math is compelling: a stock trading at 4.8x forward P/E and offering a 20%+ free cash flow yield suggests a margin of safety. But this is not a “set-it-and-forget-it” investment—it’s a high-stakes gamble on two critical catalysts that could reshape the company’s future.

In short, Bayer’s stock is a story stock, and its success depends on whether the company can deliver on its experimental drug and navigate its way out of legal quicksand. The next six months will be pivotal.