SIGMA'S SHARE PRICE TAKES A BATTERING AS IT LAUNCHES LEGAL ACTION OVER SUPPLY DEAL
Written on the 25 May 2017 by Ben Hall
SIGMA Healthcare (ASX: SIG) has taken the MyChemist and Chemist Warehouse chains to court to demand they continue to buy its generic medicines.
More than 30 per cent of Sigma's share price was wiped off in trade on Wednesday with the company announcing to the market that the move could cost them between $5 million and $10 million a year.
MyChemist and Chemist Warehouse is owned by the Gance Group and is the largest pharmacy chain in Australia, and the legal action was taken after Sigma learned that it would move to another unnamed supplier.
In a statement to the ASX, Sigma says Gance Group had rejected offers of mediation and arbitration.
"Sigma maintains that under the existing agreement MyChemist and Chemist Warehouse is not entitled to acquire products from another wholesaler," the company says.
"While Sigma remains confident of its position, this action, combined with a continuation of the subdued start of the financial year, may mean that current year underlying EBIT could be up to 5 percent below FY 2016/17. Ongoing costs will also impact earnings."
It's understood that Gance Group is trying to secure a better deal through another supplier whose products are manufactured by Sandoz, which also makes products for Sigma.
Shares in Sigma Healthcare, which rebranded from Sigma Pharmaceuticals in May, have slumped a further 6.7 per cent on Thursday and were $0.76 at around midday AEST.
On May 16, the share price was $1.28, and it's dropped 40 per cent since then.
The company, which also owns pharmacy retail brands like Amcal, Chemist King and Guardian posted solid full year results to January 31 with online sales into China exceeding its own expectations.
Net profit was up by more than 5 per cent to $53.18m on the previous year and revenue surged 26 per cent to $4.4 billion.
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Author: Ben Hall