Won-dollar rate lowest in 6mths... industry mixed

exchange rate enters the KRW 1,300 range for the first time in over 6 months

Concerns over mutual tariffs with the US lowers exchange rate by 6% compared to last month

Decrease in API imports and overseas clinical trial costs... Pharmaceutical industry expects “improved cost structure”

Companies with high export ratios see a decline in asset value... Samsung Biologics loses KRW 91.6 billion if the exchange rate falls by 10%

With the won-dollar exchange rate falling below KRW 1,400, pharmaceutical and biotech companies are experiencing a mix of anticipation and concern.

 

If the prolonged high exchange rate returns to previous levels, API imports and overseas clinical trial costs are expected to decrease, leading to an improvement in the cost structure.

 

On the other hand, some predict that the asset value of pharmaceutical and biotech companies with a high proportion of drug exports will decline.

 

Won-dollar exchange rate falls below KRW 1,400...

 

Will the burden of API purchases and overseas clinical trials decrease?

 

According to industry sources on the 22nd, the won-dollar exchange rate closed at KRW 1,392.60 on the 21st, down KRW 5.40 from the previous trading day.

 

This is a 6.1% (KRW 90.30) decrease from the KRW 1,482.90 on the 10th of last month when concerns over the U.S.’s mutual tariffs were at their peak.

 

The won-dollar exchange rate has remained high for a long time since entering the KRW 1,300 range in March 2023.

 

It rose further to over KRW 1,350 from the middle of last year and broke through KRW 1,400 after the martial law crisis at the end of last year.

 

With mutual tariffs by the US adding to the concern, the exchange rate soared to exceed KRW 1,480 at the beginning of last month.

 

However, the won-dollar exchange rate has been falling this month amid expectations that trade tensions between the US and China will ease.

 

In particular, the exchange rate has remained in the KRW 1,300 range for 4 consecutive trading days since the 16th, raising expectations that the prolonged high exchange rate trend will return to normal levels.

 

KRW to USD exchange rate

The pharmaceutical industry is hopeful that the decline in the won-dollar exchange rate will continue, leading to an improvement in the cost structure.

 

Over the past 2 years, the rise in the won-dollar exchange rate has had a negative impact on the cost structure of domestic pharmaceutical and biotechnology companies.

 

Due to their high dependence on imported APIs, the exchange rate increase directly led to higher manufacturing costs.

 

Additionally, since these companies purchase APIs from China and India, with a high import dependency, they were significantly affected by the rise in the won-dollar exchange rate.

 

As of 2023, the self-sufficiency rate for domestically produced APIs for pharmaceuticals stands at 25.4%.

 

Among these, imports of APIs from China account for 30.5% of the total, while those from India make up 15.2%.

 

Together, these two countries account for nearly 50% of the total API imports.

 

Although manufacturing costs rose due to the increase in the won-dollar exchange rate, unlike other consumer goods, the price of finished drugs cannot be arbitrarily set by companies.

 

As a result, the deterioration of the cost structure in the pharmaceutical industry has become more pronounced over the past 2 years.

 

Additionally, the burden of clinical trial costs conducted overseas has steadily increased during the prolonged high exchange rate environment.

 

Most clinical trials targeting the US and European markets are conducted locally.

 

When the won-dollar exchange rate rises, global clinical trial costs also increase accordingly.

 

In this situation, there are expectations that a decline in the won-dollar exchange rate will reduce the cost of importing APIs and the burden of global clinical trials, ultimately improving cost burdens.

 

In the long term, improvements in the cost structure are expected to contribute positively to performance recovery.

 

Asset value decline is inevitable for companies with high export ratios...

 

Samsung Biologics to lose KRW 91.6 billion if exchange rate falls by 10% However, companies with high export ratios, such as Samsung Biologics and Celltrion, are expected to see their asset values decline due to the decline in the won-dollar exchange rate.

 

These companies earn a large amount of assets in dollars overseas, so when the exchange rate rises, their asset values increase.

 

Conversely, when the exchange rate falls, their asset values decline.

 

Samsung Biologics had an overseas sales ratio of 96.5% in the first quarter.

 

Of the KRW 1.2983 trillion in sales rendered in the first quarter, KRW 1.2528 trillion came from overseas.

 

As the proportion of overseas sales is high, its performance is expected to be greatly affected by fluctuations in the exchange rate.

 

Samsung Biologics explained in its quarterly report that a 10% increase or decrease in the won-dollar exchange rate would result in a KRW 91.6 billion increase or decrease in pre-tax income.

 

Considering how the current won-dollar exchange rate has fallen by 1.5% compared to the average exchange rate (KRW 1,452.66) at the time of the quarterly report, the recent decline in the exchange rate is estimated to have reduced asset value by approximately KRW 14 billion.

 

Samsung Biologics has seen an increase in cash and cash equivalents over the past 2 years due to the impact of high exchange rates.

 

The figures were KRW 12.2 billion in 2023 and KRW 41.6 billion last year.

 

This was due to the average won-dollar exchange rate rising from KRW 1,291.95 in 2022 to KRW 1,307.90 in 2023 and KRW 1,363.09 in 2024.

 

The same goes for Celltrion and SK Biopharm.

 

Given their high proportion of overseas sales, they are relatively more affected by fluctuations in the exchange rate.

 

Celltrion saw its cash and cash equivalents increase by KRW 52.4 billion last year due to exchange rate changes.

 

The company explains that, assuming all other variables remain constant, an 8% change in the won-dollar exchange rate would result in a KRW 33.8 billion increase or decrease in pre-tax profit.

 

For SK Biopharm, the change in cash and cash equivalents due to exchange rate fluctuations last year amounted to KRW 3.6 billion.

 

Based on the exchange rate at the end of last year, a 10% change in the exchange rate would result in an increase or decrease of KRW 14.1 billion in the company's pre-tax profit.

 

It is expected that the fluctuation in pre-tax profit due to exchange rate changes will widen further this year if sales of Xcopri increase in the United States.