Big Pharma finds strength in weak dollar

NEW YORK (CNNMoney.com) -- U.S.-based health care companies have been enjoying a nice sales lift from the weak dollar, which is expected to snowball on the continued weakness of the American currency, analysts say.

For the biggest U.S.-based pharmaceutical companies, import sales in the third quarter saw the biggest increase in years, as the declining dollar made prices more attractive in overseas markets, said Barbara Ryan, analyst for Deutsche Bank North America.

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The pharma industry enjoyed a sales spurt of 3 to 5 percent in the third quarter because of the "currency tailwind," compared to 2 to 4 percent during the previous four quarters, said Ryan. The lift from the weak dollar contributes to an overall third-quarter sales increase of 9 percent for the sector, said Ryan.

"As large multinationals, the U.S. based drug companies derive 40 to 60 percent of their earnings outside the United States, a large percent of which is concentrated in Europe and Japan, where the dollar has been its weakness," wrote Ryan in a published note to investors.

Drugmaker Schering-Plough (Charts, Fortune 500) is expected to be the top beneficiary of the exchange rate, followed by Wyeth (Charts, Fortune 500), Eli Lilly & Co. (Charts, Fortune 500) and Bristol-Myers Squibb (Charts, Fortune 500), said the analyst. Of these companies, Schering of Kenilworth, N.J., saw the greatest chunk of its sales - 69 percent - come from the international market in the third quarter. So it stands to reap the most benefit.

The U.S. Dollar Index, which compares the dollar to a half-dozen other currencies including the euro and the yen, is down about 6.5 percent so far this year. This exchange rate has also provided a boon to U.S.-based medical device makers, and that's expected to continue, said Tao Levy, also a Deutsche Bank analyst.

Levy projected that Minneapolis-based Medtronic (Charts, Fortune 500) garnered a 2.7 percent sales increase for the third quarter because of the favorable exchange, contributing to an estimated 5.6 percent increase in overall sales. He expects the weak dollar to add 2.4 percent to Johnson & Johnson (Charts, Fortune 500) sales. This is primarily from sales in Japan, where the yen gained 6 percent in value during the third quarter, and in Europe, where the euro gained 4.2 percent, said Levy in a published note.

Levy said he expected this "tailwind" to continue over the next four or five quarters, though the gains would gradually diminish over time.

The third quarter ended on Sept. 30 for most companies, but drugmakers and medical device makes have not yet reported their results.

The analysts quoted in this story do not own stock in the companies mentioned here, but Deutsche Bank does seek business with them.