Foreign exchange (FX) markets play an important in all industries reliant on global trade. For complex and diverse pharmaceutical supply chains, currencies are instrumental to operations and costs.
Understanding the role of FX risks and adopting strategies to mitigate them is essential for pharmaceutical companies and drug stores to maintain stability. Find out more below.
The role of FX in global pharmaceutical supply chains
Pharmacies depend on a truly global supply chain to procure medications and medical supplies. Active pharmaceutical ingredients (APIs) and store-ready products often cross multiple borders before reaching their final destination.
Payments for these products frequently involve currencies like the Euro, Japanese Yen, or Chinese Yuan, depending on where suppliers are located. Exchange rate volatility between the U.S. dollar and these currencies can have ripple effects, increasing the cost of imports and reducing margins for pharmacies.
As currencies fluctuate, the price a pharmacy pays for drugs may vary, sometimes unpredictably, making financial planning more complex.
Medicine costs and currency volatility
Currency volatility can directly impact the price of medications. For example, if the dollar weakens against a supplier’s currency, the cost of imported drugs rises. This is especially relevant for specialty medications, which often have high price tags to begin with.
Currency shifts can also affect generic drugs that are used more frequently because many raw ingredients are sourced internationally. Pharmacies face the dilemma of absorbing the increased costs or passing them on to patients. Either decision has consequences—one affects profitability, while the other affects accessibility.
The impact on people and patients
FX risks don’t just hit pharmacies; they trickle down to patients. Higher drug costs may force pharmacies to limit inventory, leading to potential shortages of critical medications.
Patients with chronic conditions who rely on regular prescriptions could see their expenses rise, making it harder to adhere to treatment plans. For uninsured or underinsured Americans, this volatility exacerbates existing healthcare affordability and accessibility challenges.
In extreme cases, currency-related disruptions in the supply chain could result in delays, leaving patients without essential medications when they need them most.
Strategies to mitigate FX risks for pharmaceutical companies
One effective strategy is forex hedging through financial instruments like forward contracts, which lock in exchange rates for future transactions. This can provide greater predictability for pharmacies and pharmaceutical companies to ensure financial forecasts are more accurate.
Diversifying suppliers across different countries and currencies can also reduce reliance on any single market. In addition, leveraging fintech to monitor currency trends and automate purchasing decisions should help manage risks in real-time.
If in doubt, it could be worth partnering with financial experts who specialize in FX to provide tailored advice and support.
The Editorial Team at Healthcare Business Today is made up of skilled healthcare writers and experts, led by our managing editor, Daniel Casciato, who has over 25 years of experience in healthcare writing. Since 1998, we have produced compelling and informative content for numerous publications, establishing ourselves as a trusted resource for health and wellness information. We offer readers access to fresh health, medicine, science, and technology developments and the latest in patient news, emphasizing how these developments affect our lives.
