Bayer AG shares jumped following a significant win for the German company in the long-running cancer litigation over its Roundup weedkiller.

A Philadelphia appeals court concluded on Thursday that federal regulations governing the pesticide’s warning label supersede Pennsylvania laws under which a Roundup user in the state claimed Bayer’s Monsanto unit should have warned them about cancer risks. 

The ruling from the three-judge panel suggests that one of the central claims against the company may fail in state court, where the majority of the current cases are.

Bayer shares surged as much as 10% in early German trading on Friday, the biggest intraday gain in five years. The stock had fallen about 49% in the past 12 months and more than 70% since Bayer completed the acquisition of agriculture company Monsanto in June 2018.

Over the last year, state court juries have hit Bayer with billions of dollars in damages over Monsanto’s mishandling of the product. The decision - if it holds up under further appeals - may make it easier for Bayer to overcome thousands of lawsuits accusing Monsanto of hiding Roundup’s health risks. 

Bayer has set aside as much as US$16 billion to resolve more than 100,000 cases over Roundup, which it acquired when it bought Monsanto for US$63 billion. The conglomerate now faces a second wave of suits over the weedkiller, many of which include failure-to-warn claims that have been the basis for many of the jury verdicts against the company.

In their decision, the US appeals court cited how federal regulation requires health warnings on pesticide labels to conform to those approved by the Environmental Protection Agency.

The ruling potentially sets up the case for review by the US Supreme Court. In February, another federal appeals court in Atlanta rejected the German company’s argument that federal law preempts, or trumps, state law on what warnings must be posted on pesticides.

The ruling creates a “split among the federal appellate courts and necessitates a review by the US Supreme Court,” a Bayer spokesman said in an email. Bayer insists that Roundup is safe. 

The next step could entail a more comprehensive review from the Philadelphia appeals court, which may take months and could push back trials scheduled in Pennsylvania, Holly Froum, an analyst at Bloomberg Intelligence, said in a note. That could reduce Bayer’s ultimate exposure in the overall litigation, potentially keeping settlement costs within the company’s US$16 billion outlay, Froum said.

Tom Kline, a Philadelphia lawyer who represented a man who claims Roundup exposure caused his non-Hodgkin’s lymphoma, didn’t immediately respond to an email seeking comment on the ruling.

In another Roundup case, a client of Kline was awarded more than US$2 billion by a Philadelphia jury. In June, however, that verdict was cut by 82% to US$400 million.

The case is Schaffner v Monsanto Corp, 22-3075, US Court of Appeals for the Third Circuit (Philadelphia).

  - Bloomberg