European Drug, Chemical Shares Fall as Dollar Drops [and this is good for PFE!]
Bloomberg News
October 8, 1998, 2:49 a.m. ET
Zurich, Oct. 8 (Bloomberg) - Glaxo Wellcome Plc and other
European drug and chemicals shares fell as the dollar plunged,
amid concern that companies already hit by slowing economies in
Asia will suffer further from exchange-rate movements.
Glaxo Wellcome, the world's no. 2 drugmaker, dropped 104
pence to 1,514p. Switzerland's Clariant AG, the world's largest
specialty-chemicals maker, fell 25 Swiss francs to 590 francs.
Rival Ciba Specialty Chemicals AG dropped 2 francs to 104.75
francs.
Shares slid throughout the region as major currencies
including the German mark and the Swiss franc soared against the
dollar. A falling dollar cuts the value of European companies'
revenue from the U.S., the world's biggest economy, and may
aggravate chemicals and drugs makers' problems, analysts said.
''We'll have to revise down earnings estimates across the
board,'' said Beat Alpiger, an analyst at Bank Julius Baer & Co.
AG in Zurich. ''For this year, the impact will be limited, but
the outlook for next year has certainly changed.''
U.S. drugmakers that have extensive sales overseas, such as
Pfizer Inc. and Johnson & Johnson, could be helped by the
dollar's fall, because it will make their products cheaper in
foreign markets. ''The strong dollar has hurt them for the past
three years now,'' said Carl Seiden, an analyst with J. P.
Morgan.
Indeed, Abbott Laboratories, which relies on exports for
about a third of its sales of pharmaceuticals and nutritional
products, said the dollar's strength against other currencies
eroded sales about 3.3 percent during the third quarter. Abbott
reported third quarter earnings today.
Still, drugmakers have hedged against much of their currency
risk, and the decline in the dollar might not boost earnings in
1999, Seiden said.
For example, Amgen, the world's largest biotech company,
said the dollar's recent weakening will have little impact on
earnings. While Amgen sells its blockbuster cancer drug Neupogen
in Europe, where stronger currencies could increase sales, it
also faces higher sales and distribution expenses, which serve as
a ''natural hedge'' against fluctuations in currency levels.
The company also uses traditional currency hedges, though it
declined to discuss details.
''Our bottom line is fairly well hedged,'' said Kurt
Gustafson, Amgen's assistant treasurer.
''The dollar's strengthening all year has hurt top line
growth, but not the bottom line,'' he said. ''Now that it's
weakening, it will help top line growth, but not hurt the bottom
line.''
Shares of U.S. drugmakers dropped today as U.S. markets
fell. The S&P Drug Index fell 135.5 to 5,053.04, while the Dow
Jones Industrial Average fell 173.5 to 7,568.
European Currencies Strengthen
This year, the Swiss franc has risen 12.94 percent against
the dollar and the German mark has gained 11.72 percent. Seven of
the ten strongest performers against the dollar this year are
European currencies.
In Germany, BASF AG fell 4.5 percent to 57.01 marks, and
Hoechst AG fell as much as 3.8 percent to 61.00 marks.
Belgian chemicals maker Solvay SA slid 125 Belgian francs,
or 5.3 percent, to 2,240 francs, while Swedish drugmaker Astra AB
fell 7 kronor, or 5.6 percent, to 119 kronor. In France,
drugmaker Sanofi SA fell 58 French francs, or 7.1 percent, to 760
francs.
European exports to the U.S. become more expensive as
currencies in Europe appreciate. That adds to pressure European
companies are feeling because of declines in the value of Asian
currencies, which made Asian exports more competitive relative to
goods from Europe.
''Some Asian countries seem to be on an export offensive,''
said Hans-Dietrich Winkhaus, chief executive of Henkel KGaA,
Germany's fourth-largest chemicals and consumer-products company
at a press conference in Berlin. That's added to the export-
dependent industry's woes.
The German chemicals group said exports to Asia fell 8
percent in the first half of 1998, while chemicals imports from
that region rose 19.5 percent. ''The German chemicals industry
situation has fallen dramatically in the current year,'' said
Winkhaus said.
World Drug Sales
Drug sales in Germany and several other European countries
are also expected to decline in 1998, while climbing in other
European countries, the U.S. and Canada, according to IMS Health,
which tracks drug sales.
Overall, the U.S. and Canada are expected to account for
about 42 percent of the overall $308 billion world drug market in
1998, up from 38 percent in 1997, according to IMS Health. The
group said recently it expects European sales to make up about 28
percent of that market and Japan to make up about 13 percent in
1998.
U.S. companies are well positioned, analysts said. That's
because they already have a strong base in the growing U.S.
market and should see their revenue increase if foreign
currencies get stronger.
''The whole industry would benefit,'' said James Keeney, an
analyst at ABN Amro.
U.S. companies such as Pfizer, the world's sixth-biggest
drugmaker and maker of blockbuster impotence drug Viagra, and
Johnson & Johnson, which ranks No. 5 among world drugmakers, may
benefit the most from a weak dollar, analysts said. Both do
nearly have their sales outside the U.S., they said.
''This is one of the best times'' for U.S. drugmakers, said
David Saks, an analyst at Gruntal & Co. ''I'm very bullish, I'm
buying.''
--Theresa Waldrop in Zurich (41-1) 224 4111 and Kristin Jensen in |
