FULL-line drug distribution hasn’t been a brilliant sector: health minister Nicola Roxon is on a rampage to cut subsidies, there’s been unsettling realignments and constant pressure from cheaper generic drugs as the branded ones come off patent.
Australian Pharmaceutical Industries hasn’t been a brilliant investment generally, but it can’t all be blamed on Canberra’s stance on thePharmaceutical Benefits Scheme and the community service obligation (CSO) scheme (which subsidises distributors for providing obscure drugs to remote chemists).
We’ve had the impression API wouldn’t still be around had it not been for the competition regulation problems inherent in a rival taking over the company (they’ve tried).
The happier side to the API yarn is that new management has made strides in restoring margins and honing the company’s business strategy, which straddles health and beauty retailing via its Priceline chain, drug wholesaling to captive chemists under its Soul Pattinson and Pharmacy Advice banners and wider distribution to other pharmacies.
API this morning reported a “stronger than expected” (company’s words) net profit of $18.6 million for the full-year to August 31. More importantly, it’s joined the capital raising conga line to raise $150m and restore the stretched balance sheet to the industry average.
API chief Stephen Roche denies the banks forced the company into the placement and the non-renounceable rights issue, which is being done at a 38 per cent discount (patient 25 per cent shareholder Washington H Soul Pattinson has agreed to participate).
“There was no breach of covenants in the last financial year,” he says.
Priceline has proved a desirable asset in tighter times: women, it seems, haven’t forsaken lippie and shampoo but if they can get it cheaper then they will shop around.
Roche says sales have been bolstered by the introduction of a loyalty program, Club Card. Three million customers have signed up compared to MyerCard’s 3.2 million — and Priceline doesn’t have the Jennifer Hawkins factor.
According to Roche, Club Card holders account for 40 per cent of retail revenue and spend an average 30 per cent more than other punters.
On the distribution side, margins are still inadequate but the company claims to have won profitable market share.
Roche is sanguine about the current negotiations between the Pharmacy Guild and government over a new five-year agreement which will re-set the terms of full-service drug distribution.
“My personal view is the government wishes the CSO to remain intact … I don’t see fundamental industry change.”
The government, he notes, has priorities other than taking on the renowned force of the pharmacy lobby.”
If Criterion were an existing API holder he would take up the rights. Finally, a turnaround is in the offing.
Source: www.theaustralian.news.com.au
