How Brexit Is Affecting UK’s Drug Companies, Including GlaxoSmithKline, Gilead and AstraZeneca PLC
June 27, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Last Friday’s “Brexit” vote for Britain to leave the European Union (EU) left global stock markets staggering, although for the most part pharma stocks remained mostly stable. If there’s anything the markets and investors don’t like, it’s uncertainty, and the Brexit vote leaves a great deal of uncertainty, although it’s clear that people will still need medicines. Also, in the long run, the companies’ financial strength should have a stabilizing effect during the changeover. Here’s a look at how three big UK drug companies, GlaxoSmithKline , AstraZeneca and Gilead are handling the shakeup.
Bidnessetc notes, “Many pharmaceutical companies earn majority of their sales and profits from outside of the UK so that they remain insulated from future economic uncertainties in the country. The US is the biggest market for prescription drugs in the world, with Asia emerging as one of the largest. Many of the UK-drugmakers, including GSK, have earnings in dollars, which means that with the fall of pound sterling in relation to the dollar, direct translation of their earnings into sterling would be favorable.”
It goes on to note that GSK, with earnings in dollars, would likely benefit from the fall of pound sterling in relation to the dollar. In a Friday statement, GSK said that Brexit “creates uncertainty and potentially complexity for us in the future,” but that its global business impact will be minor.
AstraZeneca also reports in dollars and the majority of its overseas earnings are in currencies that are improving versus sterling.
Bidnessetc writes, “One more important consequence of this effect may be that many of the large to mid-cap stocks in the UK may now appear cheaper for overseas investors, especially those in the US and Japan. These stocks will also subsequently become easier to acquire, which opens up a great opportunity for Pfizer Inc., the largest US drugmaker that has previously been linked to GSK in reports and has made public attempts to buy out AstraZeneca for as much as $110 billion last year.”
Joshua Schimmer, an analyst with Piper Jaffray, falls on the pessimist side, suggesting that the EU may take a “hard line” with Britain because of the Brexit vote. Biotech companies that would be most likely be affected, he wrote in a research note, include Alexion , BioMarin and Gilead. He also noted, according to Bidnessetc, “that shipping products in Europe may become more complicated and it is unclear if the resulting GDP changes can trigger bigger cuts in Medicare payments to biotech and pharma companies through Independent Payment Advisory Board—a 15-member panel to be appointed by the president with the authority to propose payment cuts through Medicare.”
There are also concerns about UK-based pharma companies and their relationships with the London-based European Medicines Agency (EMA). It will potentially need to relocate to somewhere in the EU, and the UK will likely have to create its own domestic regulatory agency. Bidnessetc notes, “Although it is possible for Britain to take part in the EMA system if it continues to be part of European Economic Area, many of those who voted for its exit will not support the option. Either medicines will take longer to get approved in the confusion that follows or British patients may be sidelined in their access to new drugs in favor of the larger EU market.”
GlaxoSmithKline traded for $42.56 on June 23 and are currently trading for $40.
AstraZeneca traded on June 23 for $29.29 and are currently trading for $27.74.
Gilead traded for $83.37 on June 23 and are currently trading for $79.23.
All things considered, those drops probably aren’t too bad, given that the global stock market lost up to $2 trillion in value in a single day, with the S&P 500 losing around $657 million in only a few hours after the Brexit vote.