Sigma Healthcare chief Mark Hooper has addressed the Chemist Warehouse supply agreement and the issue of exclusive direct distribution

Speaking at Sigma Healthcare’s Annual General Meeting, Mr Hooper said that while Health Minister Greg Hunt’s engagement with the industry is positive, the sector needs action on exclusive direct distribution and the wholesaler funding model.

“Firstly, and critically, is the issue of exclusive direct distribution,” he said. “Essentially, certain manufacturers have cherry picked the most profitable products for exclusive distribution direct to pharmacy, leaving the unprofitable products to CSO wholesalers to deliver, which we are obliged to do.

“In a cross subsidised system such as this, allowing the more profitable products to be selectively removed from the system cannot be sustained.

“Pharmacy can only access these products from one distributor so there is no competition, and having only one distributor introduces a single point of failure in the event of out of stock or other issues with a distributor.

“This is the reverse of normal disruption – it is the equivalent of telling consumers you can only use Telstra for your mobile phone service.

“The second issue we seek resolution on is the wholesaler funding model. Wholesalers are paid a percentage margin on the value of the PBS products we distribute. With Government policy continuing to drive down the value of PBS products, this has substantial implications for wholesalers.

“We continue to consult with Government to de-link wholesalers from ongoing price decline. What we seek is consistent with the action the Government has already implemented in support of the Guild, by de-linking pharmacist remuneration from this declining PBS revenue.”

Despite financial results that did not meet Sigma Healthcare’s expectations, the company remains “confident in its strategy, direction and expectations,” Mr Hooper said.

“Clearly, our results were impacted by a number of factors that meant the results we delivered for the year did not match our expectations,” Mr Hooper said.

Sigma Healthcare’s revenue was down 5.4% to 4.13 billion, which Mr Hooper said was “largely driven by softer sales of Hepatitis C medication,” as the medication has high value but low margin.

He said that adjusting for this, revenue was “largely flat” for the year, which was “relatively good” considering that trading conditions in retail generally are challenging; and due to “the loss of a significant customer group during the year”.

Reported NPAT for the year was up 3.5% to $55.4 million, but after adjusting for once-off items, the underlying NPAT was down 10.5%, to $59.9 million. Again, this result was due to a number of factors including the decline in the Hepatitis C medicines and general cost increases.

The Underlying Return on Invested Capital for the year was 16.6%, and the current investment cycle is expected to see the ROCI slowly decline.

Mr Hooper also addressed the issue of Chemist Warehouse.

“One of the more public issues we confronted during the year was the supply agreement with Chemist Warehouse, on which we reached negotiated settlement during the year to enable both parties to navigate a way forward,” he said.

“The current agreement is due to run until mid-2019, and we expect to hold discussions with the Chemist Warehouse team over the course of this year.”

Mr Hooper said the team is “making good headway” in actively growing brand membership, and that its brands are winning customer hearts, with the Guardian brand taking out the Canstar Blue award in pharmacy, closely followed by Amcal.

“We have continued to invest in programs, products, services and data to provide pharmacists with a unique, strong and compelling offer. Our focus is very much about the customer, making the pharmacist more accessible to service customer needs.”

He outlined successes such as the launch of Sigma Connect, the CarePro patient portal system and the Amcal/Guardian sleep apnoea program, and said the hospital pharmacy business is gaining momentum, with Sigma Hospitals successful in wining new business during the year.