Drugs wholesaler and pharmacy support services provider Sigma Pharmaceuticals says it has greatly improved its business but still faces significant challenges.
Sigma on Wednesday booked an improved first half net profit of $26.7 million on the back of better like-for-like sales and lower interest costs.
Sales rose as Sigma lured the Pharmacy Alliance Group away from competing wholesaler API, and on growth in the federal government’s Pharmaceutical Benefits Scheme (PBS), which subsidises the cost of medicines to the public.
The result for the six months to July 31, 2011 compares to a net loss of $211.09 million for the prior corresponding period. The prior corresponding period’s net loss has been adjusted.
“While there has been some clear improvement in Sigma’s business performance there are a number of potential challenges on the horizon,” Sigma chief executive Mark Hooper said in a market briefing.
He said the first challenge was further reform of the PBS as the federal government seeks to curb healthcare spending.
From April 1, 2012, prices of around 180 generic medicines listed on the PBS, or about one third of the value of the PBS, are set to drop by an average of 23 per cent, which will reduce the amount of money going to drug wholesalers such as Sigma.
Consequently, Mr Hooper said, Sigma and other wholesalers may have to reduce the discounts that they make available to pharmacists.
Another challenge is the potential for more drug makers such as Pfizer to change their supply arrangements to an exclusive model, where wholesalers are bypassed.
Mr Hooper said Sigma and other wholesalers were lobbying for a regulatory change to ensure that all PBS-listed medicines were available through qualified wholesalers.
Mr Hooper said Sigma was now in much better shape to deal with these challenges, with a strong balance sheet and no debt.
On Wednesday, shares in Sigma rose six cents, or 11.54 per cent, to 58 cents, the highest since March 26, 2010.
Mr Hooper said Sigma was putting extra resources into its retail support business for pharmacists operating under Sigma’s Amcal, Amcal Max and Guardian banners.
He said the number of stores under the various banners had fallen by about 25 stores over the last six months.
“That’s not so much because we have lost stores, but we have pro-actively gone out and said to people that unless you are supporting us (Sigma)as a wholesaler, we will not allow you to be in the brand (banner),” Mr Hooper said.
Sigma’s reported first half sales fell 2.4 per cent to $1.37 billion as a result of losing its business in distributing products on behalf of global pharmaceutical giant Pfizer, which represented 15 per cent of Sigma’s revenue.
The reported sales figure also included a contribution from the manufacturing business sold to Aspen that was not included in the prior corresponding period.
