Australia | Sep 08 2006
By Rudi Filapek-Vandyck
The selection by the Office of the Minister of Health and Ageing of the initial participants for the Community Services Obligation (CSO) Funding Pool has resulted in two new participants being added to the incumbent three providers and this is a clear negative for the three current providers; Australian Pharmaceutical Industries (API), Sigma (SIP) and Symbion (SYB).
Securities analyst don’t seem to be too fussed about it as yet as the impact from the pool entrance by DHL Exel and, on a state based level in Victoria and South Australia, Friendly Society Medical Association is expected to remain benign in the short term. Apart from this, increased competition was something that had already been accounted for, even by the boards of the listed companies involved.
Deutsche Bank analysts wanted to be 100% certain about this and took the effort in asking the three incumbent distributors again post the announcement and the answer remains yes, API, Sigma and Symbion had all already taken into account this would happen when giving their respective earnings guidances for the coming year.
One interesting comment caught our eye in the latest Deutsche Bank report on the matter. The analysts believe, on the basis of what industry contacts tell them, that Sigma is likely to be the strongest defender of its current market share, suggesting the other two will feel a larger impact from any DHL Excel successes over the next few years.
“Industry contacts have consistently indicated that the relatively aggressive approach being taken by the revitalised Sigma sales force is paying dividends in terms of market share” , Deutsche Bank analysts reported on Friday. On the flipside is that they also heard the aggressive Sigma approach has caused some discontent amongst certain pharmacy groups.
It’s probably a case of one cannot please everyone when a market is at stake. Or is this merely a scenario of win some, lose some? Deutsche reports Sigma has signed up a group of pharmacists based in Canberra recently. Another reason why Sigma seems better placed vis-à-vis the new competitors is because of its fast growing share of the generics market, the analysts believe, and that is thanks to their acquisition of Arrow last year.
One can only conclude Sigma management has been prescient in its deal pickings. No wonder thus it is the only one out of the three that is rated Buy at Deutsche. The FN Arena database shows, however, this is not a view shared by the other experts in the market as the shares are rated seven times Neutral and only Credit Suisse also has a positive Outperform rating on the shares.