SIP 1.55% $1.31 sigma pharmaceuticals limited

takeover target, page-9

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    SHARES in Sigma Pharmaceuticals tumbled by a record 17.7 per cent to $1.74 after the generic drugs manufacturer issued a profit downgrade.

    The record fall of 37.5c wiped out $358 million of the company's market value.

    The downgrade comes hardly two weeks after Sigma made a failed $1.085 billion takeover bid forSymbion Health's pharmacy and vitamins business.

    Sigma yesterday said full-year net profit would be flat - similar to last year's $104 million - after an earlier forecast of a 10-15 per cent rise.

    The company blamed the poor earnings forecast on lower than expected government rebates from the Community Service Obligation (CSO) to fund the distribution of generic drugs to regional and remote communities.

    Managing director Elmo de Alwis said he was "extremely disappointed" with his revised profit forecast and cited uncertainties relating to CSO rebates.

    "These are temporary issues facing the company. We now have to regain the confidence of the market," he said.

    "Sigma's full-year net profit after tax forecast now assumes there will be no resolution to the CSO issues during the year.

    "Sigma intends to continue to vigorously pursue its rights under the CSO as it strongly believes the current outcome is not consistent with the original stated aims of the scheme."

    Sigma also blamed lower sales and profits because of the expiry of several of its exclusive generic drug licences.

    This included cholesterol pills Simvar and Lipostat and the depression drug Xydep.

    The company said the market would become increasingly tougher with rival companies slashing back prices of generic drugs to gain bigger market share.

    Several analysts remained unimpressed. "Sigma was arrogant to make an aggressive bid for Symbion Health, given this profit downgrade," said one analyst. "Despite the company's problems, Elmo has been busy talking up the company, and the market believed him.

    "The chickens have now come home to roost. Elmo will have a credibility issue in the near future," another analyst said.

    Another said Sigma's business would come under more pressure in the next 12 months.

    Sigma also announced plans to lift its on-market share buyback from 5.5 per cent to 9.9 per cent. The buyback will start in two weeks.

    Mr de Alwis said the company was positioned for future growth. "We have no doubt that we would be able to grow the business," he said.
 
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