50c.ALAN KOHLER, PRESENTER: Well as Davern mentioned, these are...

50c.

ALAN KOHLER, PRESENTER: Well as Davern mentioned, these are very anxious times for Sigma Pharmaceutical investors who've seen their company locked up in a trading halt for more than a month and bracing for a crunch once the stock relists.

So what's gone wrong so with a company that so confidently hit the market for a $300 million capital raising just six months ago?

NEAL WOOLRICH, REPORTER: It was once a darling of the healthcare industry but now Sigma Pharmaceuticals appears decidedly sick and the prospect of a return to full health is looking grim.

JOHN HESTER, HEALTHCARE ANALYST, LINWAR SECURITIES: It's not good news for the industry, it's certainly not good news for Sigma.

So am I surprised by this sort of thing? I suppose to a certain extent yes but it was probably foreseeable, unfortunately.

NEAL WOOLRICH: Sigma shares went into a trading halt in late February and were suspended on the first of March pending an announcement about the company's full year earnings.

A fortnight later and with its shares still sidelined, Sigma warned that a second half dividend is now unlikely and flagged redundancy provisions and a write-down of its inventory value.

It also noted that its billion dollars in goodwill will have to be written down by a "material amount" because of increased market pressures, especially in generic medicine.

JOHN HESTER: So that leads me to expect that it should be at least a 5 to 10 per cent, possibly higher, so that would put the number at somewhere in excess of 50 million, possibly as high as 100 million.

NEAL WOOLRICH: As a result of those accounting changes, Sigma has been forced into discussions with its banks about its lending covenants.

Most of Sigma's goodwill comes from its $2 billion merger with Arrow Pharmaceuticals in 2005, a union that investors might now be ruing.

GEOFF WILSON, CHAIRMAN, WILSON ASSET MANAGEMENT: Unfortunately Sigma's shown that (a) they either paid too much or (b) they were incapable of running a generic business or both.

NEAL WOOLRICH: Investors have known for some time of the price war on generic medicines. The no-name drugs that are occupying more and more space on chemists' shelves. Even so, the extent of Sigma's problems has come as a shock to the market.

GEOFF WILSON: It's incredibly disappointing. If you looked at the announcements they made in September with the capital raising, in terms of the outlook statement, they clearly stated that everything was on track.

NEAL WOOLRICH: And the company's revelations this month seem a far cry from Elmo De Alwis' comments about the generic medicine market in September.

ELMO DE ALWIS, MANAGING DIRECTOR, SIGMA: Look, I think there are forces that work both ways.

The expansion of the market is certainly something that helps us to grow, discounting is something that is necessary to some extent to ensure that there is support for your brand, but it does detract from profit but overall, I guess when you put these two together we are confident that the business will grow in terms of profitability.

NEAL WOOLRICH: Some investors are frustrated they still can't trade Sigma shares a month after the stock was suspended.

Sigma last sold for 90 cents and is expected to plunge when it does return to the market. Wherever the shareprice does settle, it's likely to be a hefty discount to the $1.02 per share that investors paid during last year's $300 million capital raising.

That will put more pressure on the long-serving managing director Elmo De Alwis, chairman John Stocker and the head of the audit committee Linda Nicholls to keep their jobs.

GEOFF WILSON: Now I accept markets can change, it looks as though obviously the market's changed significantly over the last three months, but I don't know whether they can change that much and someone has to take responsibility whether it's the head of audit has to take responsibility, whether it's the chairman, whether it's the managing director.

'There has to be changes at the top'.

NEAL WOOLRICH: Australia's drug market is dominated by three players - Sigma, Mayne Pharma and Australian Pharmaceutical Industries.

Aside from the intense market competition all three have also been affected by regulatory change.

The Federal Government has cut a billion dollars a year from spending on the pharmaceutical benefits scheme and it's also introduced a pricing disclosure regime that's seen some products discounted by up to 60 per cent.

Now, some industry watchers are forecasting a fresh wave of consolidation.

JOHN HESTER, HEALTHCARE ANALYST, LINWAR SECURITIES: Could we go down to two? Possibly yes. There have been a number of catalysts over the years for consolidation however none of those have come through at this point but we're seeing today with the Sigma potential announcement that really consolidation is really long overdue in this industry.

For a full transcript go to the ABC website.