How the Weaker Euro Is Impacting Biotech Earnings
It is no secret that a strong dollar and a weak euro, and foreign currency environment, are acting to hurt U.S. corporate earnings. Many investors might think that biotech earnings growth is limitless because of what they can charge for their treatments. It turns out that even the hot biotech sector has to worry about U.S. dollar strength cutting into their earnings. Wells Fargo released a report Wednesday that considers the future of major biotech companies in relation to the weak euro. The firm noted that with the increasing global contribution to revenues of major biotech companies, they have ultimately become more susceptible to currency fluctuations.
Despite hedging, and considering significant currency moves over the past year, most major biotechs encountered a strong foreign exchange (FX) headwind and incorporated them into their 2015 guidance they provided early in the year. Even since this time there has been a meaningful currency shift.
Out of the companies within the Wells Fargo coverage universe, the firm expects the recent FX changes to have the greatest relative negative impact on Alexion Pharmaceuticals Inc. (NASDAQ: ALXN), due predominately to a high percentage of sales outside the United States, with Biogen Idec Inc. (NASDAQ: BIIB) potentially the least affected. Wells Fargo also noted that the bottom line impact for most companies is likely to be less than the top line impact, given natural hedges on the operational expenditures and potential tax benefits.
Alexion issued 2015 sales guidance of $2.55 billion to $2.60 billion in late January, when the EUR/USD rate was in the range of $1.15 to $1.18, a delta of 8% to 10% from the current rate. Alexion had 67% of its sales outside of the United States. This number is only expected to decrease slightly in 2015. Note that half of the non-U.S. sales are exposed while the other half is hedged. Wells Fargo expects a negative impact from the current currency shift by an additional $90 million beyond the last issued guidance. Alexion shares were down 0.6% at $182.94 in the second half of Wednesday’s trading session. The stock has a consensus analyst price target of $214.38 and a 52-week trading range of $136.37 to $203.30.
Biogen stated its 2015 sales guidance in the range of $11.062 billion to $11.256 billion on January 30, when the FX rate was at $1.13, a delta of 6% from the current rate. This biotech reported 31% of its sales outside of the U.S. Historically Biogen recorded an $11.6 million negative FX impact on revenues in 2014 and a $15.2 million negative impact in 2013, with the euro and yen primarily hedged. Biogen noted that it hedges 50% of its 2015 non-U.S. sales, while the other half remains exposed. Wells Fargo expects a $75 million impact on revenues. Shares of Biogen were down 1.9% at $418.15. The stock has a consensus price target of $421.58 and a 52-week trading range of $272.02 to $427.53.
BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) issued 2015 sales guidance between $840 million and $870 million on February 26 when the EUR/USD rate was $1.12, 5% off the current rate. Wells Fargo said in its report:
Recall, on the 4Q14 earnings call BMRN projected 2015 revenues would have been $885-915M based on 2014 FX rates (in which the average 2014 EUR/USD exchange rate was $1.33); however, the actual guidance based on FX headwinds early in 2015 was $840-$870M. By extrapolating the delta of recent guidance changes due to FX rate impact, we estimate every 10% FX delta results in $28M impact on revenues, so the additional 5% change would have a marginal $14M impact.
Biomarin shares were down 2% at $124.49. The consensus price target is $119.74, and the 52-week trading range is $55.04 to $127.90.
Celgene Corp. (NASDAQ: CELG) released its 2015 sales guidance in the range of $9.0 billion to $9.5 billion in late January, when the FX rate was $1.25 (the exact point in the month on which guidance was based has not been disclosed). The difference from that rate and the current rate could be as much as 15%. Celgene reported 42% of its sales were outside the United States in 2014, and this is expected to remain the same for 2015. Historically, Celgene reported a $12.3 million negative FX impact on revenues in 2014 and a $90.6 million negative impact in 2013. Celgene indicated that 30% of 2015 non-U.S. sales are exposed to FX fluctuations. Shares were down 0.6% at $120.27. The consensus analyst price target is $137.61. The 52-week trading range is $66.85 to $125.45.
Gilead Sciences Inc. (NASDAQ: GILD) issued 2015 sales guidance of $26 billion to $27 billion on February 4, when EUR/USD rate stood at $1.14, compared to a difference of 7% at the current rate of $1.06. Note that Gilead had 26% of its 2014 sales outside the United States, and the mix is expected to be similar for 2015. Historically, Gilead recorded a $39 million positive FX impact on revenues in 2014 and a $65 million negative impact in 2013, with the euro primarily hedged. Shares of Gilead were down 1.5% at $98.92. The stock has a consensus analyst price target of $119.08 and a 52-week trading range of $63.50 to $116.83.