Big Pharma finds strength in weak dollar

International sales for U.S.-based makers of drugs and medical devices are rising as dollar declines: analysts.

By Aaron Smith, CNNMoney.com staff writer

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.

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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. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.