Germany's Bayer AG said on Wednesday it was impossible to forecast the outcome of litigation over its recalled cholesterol drug Baycol, and it might consider provisions for liabilities analysts fear could total billions of euros.

The news sent its already battered stock down a further 12 percent, to the lowest level in more than decade.

"Proceedings are at an early stage," Chief Executive Werner Wenning told an investors' conference in Frankfurt.

"It's impossible to predict the outcome of any litigation, particularly in the United States," he said, adding: "We will address the question of provisions appropriately in the future."

Bayer has said in the recent past that insurance is enough to cover for any liabilities arising from Baycol.

Shares in the German drugs and chemicals group have collapsed this week on fears it could face damages claims of up to 10 billion euros ($10.76 billion) if negligence is proved, more than the company's market capitalization.

The stock has lost more than a fifth of its value since the start of the week, and at 1216 GMT shares were 9.3 percent lower at 11.17 euros.

Bayer's six percent bond due April 2012 was bid at 236.8 basis points over benchmark government bonds by 1225 GMT, more than 28 basis points wider on the day. The bond's price fell 1.9 points, to 98.68 percent of face value.

NERVOUS MARKETS

Analysts said the Bayer chief executive's comments underlined the uncertainty over Baycol.

"Wenning's comments show the company's in the same situation as we are... it's impossible to predict the Baycol outcome," said James Knight, Merrill Lynch analyst in London.

"People are very nervous. They've seen what's happened with the tobacco companies and with asbestos litigation," said a bond trader in London.

Bayer recalled Baycol, also called Lipobay outside the United States, in August 2001 after it was linked with more than 50 deaths worldwide. The number of deaths linked to the drug has since risen to more than 100.

Recent press reports have suggested that management knew of the risks of Baycol as much as four years before recalling the drug, and analysts say that if a cover-up is proved, it could render insurance cover null and void.

Bayer said in a statement shortly before Wenning's address that it had kept U.S. regulators fully informed of safety information on Baycol, including adverse event reports, and that documents released by plaintiffs had been taken out of context.

Analysts said the share fall was somewhat overdone.

"Nobody knows the actual impact but I think the share fall is an over-reaction," said Gerd Schubert, fund manager at Deka. "The market seems to assume a payment of about seven billion euros, or more than 10 billion euros pre-tax, which appears to be an absolutely worst-case scenario," said Andreas Theisen, analyst at WestLB Panmure.

A Baycol court case at Corpus Christi in Texas is expected to last for two weeks, and its outcome could provide cues for further share reaction.

"We don't expect clarity on Baycol for at least two weeks -- the stock will at best stay neutral," Knight said.

VIGOROUS DEFENSE

A serious-faced Wenning prefaced a routine presentation to the conference with the statement on Baycol, the subject of a controversy that has intensified over the past few days.

"We continue to believe firmly that the company acted responsibly, properly and appropriately in the case of Baycol," he said.

"We will defend ourselves vigorously in all cases where there is no connection between Lipobay and the health problems which are the subject of the case," he said.

A lawyer for Bayer told a telephone newsconference on Tuesday he believed the majority of the 7,800 cases Bayer faces over Baycol do not involve people who had experienced adverse side effects.

Bayer said late on Tuesday it had settled 450 cases out of court for $125 million.

Wenning also used the occasion to try and put to rest speculation that the departure of board member Werner Spinner earlier this week was connected to the Baycol issue.

"Mr. Spinner's departure was for purely private reasons. There is no justification for any further speculation," he said.

PHARMA PARTNER

Baycol was once the mainstay of the German company's pharma business, which it is now trying to spin off. Analysts fear that if the Baycol problem grows, it could distract Bayer from its quest for a partnership.

But Wenning maintained Bayer was working "at full steam" to find a pharmaceutical partner.

"Establishment of a partnership has the highest priority. We've been working hard to find a solution," he said.

Wenning said the company had achieved its target of reducing net debt to below the 10 billion euro mark in 2002, and that debt reduction would continue to be a focus area.