UK pharma makers with US customers benefit from stronger dollar

The British pound has fallen steadily against the US dollar over the past year, which has caused many businesses to face inflationary pressures and related difficulties. Despite this, there is also a silver lining for UK companies exporting to countries like the US and others whose currencies are strengthening against the pound.

Figure 1 shows the equivalent of one US dollar in British Pounds, Canadian Dollars and Euros on the 15th of each month for the past year. Over the past year, the value of the US dollar has fluctuated against the currencies of other developed countries, but overall the value of the dollar has strengthened significantly against the other three currencies.

The pound fell to an all-time low against the dollar on September 26, 2022, in reaction to former British Chancellor Kwasi Kwarteng’s £45 billion tax cut package, as a dollar was equivalent to £0.92. Since the 1970s, there has been a steady depreciation of the pound against the US dollar, which was due to higher inflation in the UK than in the US, requiring a lower exchange rate to even out price levels between countries. However, the pound’s recent declines are linked to a problematic perception of the British currency and investor dismay at the former British Prime Minister’s “Trussonomics” approach, which promotes the widely discredited economic approach. The pound rallied after current UK Chancellor Jeremy Hunt essentially reversed unfunded tax cuts on October 17, but is still below the value of the dollar compared to the start of the year. Rishi Sunak became Britain’s Prime Minister on October 25, 2022. It remains to be seen whether Sunak and Hunt will pursue more fiscally responsible policies to which markets will respond favorably and potentially boost the value of the pound, although early indications suggest that taxes will rise to meet the national deficit.

The value of the euro against the US dollar also fell in 2022, mainly due to the sharp rise in inflation caused by the rise in energy prices associated with the Russian-Ukrainian war and the weak rise in interest rate against the dollar. Since April 2022, the Chinese yuan has also fallen against the dollar, due to the tightening of Covid-19 controls. The United States, which has its own abundant oil and gas reserves, is relatively insulated against supply problems caused by the conflict.

British, European and Canadian companies that export a lot to the United States benefit from the depreciation of the currency. On November 2, 2022, GSK (Cambridge, UK) reported strong third-quarter 2022 sales of £7.8 billion ($9 million). Its financial report indicated a favorable currency effect, which mainly reflected the weakening of the British pound against the US dollar, partially offset by the strengthening of the British pound against the Japanese yen. Contracts paid in US dollars are favorable to UK businesses in the current climate. Other UK drugmakers exporting to the US are also seeing favorable conversion effects; for example, pharmaceutical and consumer healthcare company Haleon PLC (Brentford, UK) reported in its interim results for the six months ended June 30, 2022, that a favorable exchange rate added £112 million ($136 million) to total revenue, primarily due to the strengthening of the US dollar against the British pound. Other UK-based international manufacturing players include companies like Abzena Ltd (Cambridge, UK), AstraZeneca (Cambridge, UK) and Almac Group Ltd (Craigavon, UK). Almac is involved in the manufacture of 35 known drugs (innovator and/or biosimilars) that are marketed in the United States, according to GlobalData’s Drugs by Manufacturer database.

For US manufacturers who export a significant proportion to the UK, European and Canadian markets, the appreciation of the US dollar is detrimental to overall sales figures. Thermo Fisher Scientific (Waltham, MA, USA) announced a 14% increase in revenue in the third quarter of 2022 on October 27, 2022, but also said that currency translation reduced revenue by 5%. US companies in this situation could see a decline in product demand from customers looking for lower-cost alternatives; however, canceled contracts are unlikely as supply chains are long-term for the pharmaceutical industry, with changes to supply chains requiring high costs and a long implementation period.

A US dollar could have been worth €0.86 to €1.03, CA$1.24 to CA$1.38 or £0.73 to £0.89, depending on the exact time and date it was sold. traded within the last year. While these may seem like small differences, when multinational CMOS companies earn multimillion-dollar revenues or acquire large-scale overseas businesses or facilities, these fluctuations can produce a big difference in profitability or business expenses. For this reason, exchange rates play a major role in management decision-making, as they will impact the price of the asset and the financing available for the operation; companies use financial instruments such as currency swaps and forward contracts to hedge the risks incurred.

Figure 2 shows the equivalent of one US dollar in British Pounds, Canadian Dollars and Euros on June 15 of each year for the past decade. During the period from 2012 to 2022, although there have been fluctuations, in general the value of the US dollar is significantly higher than it was ten years ago, indicating that these trends are long-lasting. and are not necessarily linked to short-term events. Currency exchange rates are influenced by a range of factors, including interest rates, inflation, economic growth and geopolitical events. A stronger national currency generally tends to mean good economic growth and higher interest rates. Political events can produce severe and unusual fluctuations in exchange rates within minutes of their occurrence.

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