abn amro research note Stock (ticker): Genepharm (GAA)/ Sigma...

abn amro research note Stock (ticker): Genepharm (GAA)/ Sigma (SIP)
Market Cap: A$139m/A$2.148bn
Recommendation: Buy/Hold
Share price: A$1.00/A$2.53
Price target: A$1.32/A$2.77
Up/(down) to target: 32%/9.4%


Subject: SIP/GAA - generic drugs - AFR comments - no changes to positive views on generic drug sector

Key Points

* Comments in the AFR (page 19) on generic drugs and the government's continuing desire to take costs from the PBS. The headline reads "PBS reforms help pharma fight generics" and the key point of the article is that the government wants to drive down the amount it pays for generic medicine and on the other hand increase generic drug use by making them the default prescribing option for doctors.

* Our overriding view is that companies with a generic drug sales force on the ground interfacing with pharmacist will benefit from the increasing use of generic drugs. Negotiations with the government on a pricing mechanism have been going on for some time. The current mechanisms in the PBS, is that when a generic drug first enters the market there is a 12.5% price drop. Variations to this mechanism noted in the AFR refers to potentially a 12.5% price coming into effect when the patent expires. This earlier price cut may potentially benefit the owner of the branded drug, who can release what is known as an "authorised generic".

* According to our industry sources the government will need to tread carefully in making any further changes to the PBS. The 4th Pharmacy Guild Agreement which was announced last December had contained a number of cost saving measures which went some way to helping to achieve the Governments objectives. The AFR article also noted that further reforms to the PBS is being met with strong opposition from drug firms, pharmacists and doctors.