Mar 14, 2003 By Geir Moulson Associated Press Writer 3 min read

BERLIN (AP) – Drug maker Bayer AG said Thursday net profit rose almost 10 percent last year as it sold off peripheral businesses, but still fell short of analysts expectations. The company also warned that the cost of lawsuits over a withdrawn anti-cholesterol drug could outstrip its insurance coverage.

Bayer’s 2002 net profit increased to 1.06 billion euros ($1.17 billion) from 965 million euros the year before. Analysts had predicted the company’s net profit would be 1.3 billion euros ($1.43 billion). Sales fell 2.2 percent to 29.6 billion euros ($32.6 billion) against the backdrop of a weak global economy.

Bayer is still suffering from uncertainty about the fallout from Lipobay, an anti-cholesterol treatment the company pulled in 2001 after it was linked to dozens of patient deaths.

Chief executive Werner Wenning said Leverkusen-based Bayer still cannot estimate accurately the potential costs from lawsuits related to the drug, marketed as Baycol in the United States.

He said 8,400 suits have now been filed against Bayer, most of them in the United States. Without admitting liability, the company so far has paid some $140 million to settle more than 500 suits, Wenning said.

“In the event plaintiffs substantially prevail despite existing defense arguments, it is possible that Bayer could incur charges in excess of its insurance coverage,” Wenning said.

The company has set aside no extra funds to cover the costs, and previously has said its product liability insurance will likely cover any damages.

“We continue to watch the situation closely and, as the litigation progresses, we will regularly reconsider the need to establish provisions,” Wenning said.

Economic weakness combined with the cost of restructuring and high one-time costs from last year’s acquisition of agrochemicals producer Aventis CropScience to depress the 2002 results, Wenning said.

However, Bayer said its program to divest peripheral businesses – launched following a string of setbacks that included the Lipobay withdrawal – was “a major factor” in the net profit rise.

While sales at the CropScience division rose, pharmaceutical sales fell by 23 percent to 3.7 billion euros ($4.1 billion), as sales of the anthrax treatment Cipro and hypertension drug Adalat dropped and the division struggled to recover from the Lipobay problem.

Bayer cautiously forecast an operating profit rise in 2003 as long as “the present economic situation does not radically deteriorate.”

Wenning said he expects a new impotence drug, Levitra, to generate sales of between 100 million and 150 million euros ($110 and 165 million) this year for his company and marketing partner GlaxoSmithKline.

Bayer hopes the drug, which was approved for sale across the European Union last week and is awaiting U.S. clearance, will win business from Pfizer’s lucrative Viagra treatment and eventually bring in up to 1 billion euros ($1.1 billion) annually.

Bayer shares dropped on the Frankfurt exchange following the earnings announcement, but recovered by mid-afternoon, trading up 0.1 percent at 10.56 euros ($11).