By Eli Greenblat
A DECISION by global pharmaceuticals company Pfizer to sell drugs to pharmacies, rather than use Australian wholesalers, has sent the share price of the country's leading wholesalers plummeting.
Pfizer's direct-to-market approach will place further pressure on wholesalers such as Sigma Pharmaceuticals and Australian Pharmaceutical Industries, which are also expected to lose hundreds of millions of dollars in sales from recent changes to the Pharmaceutical Benefits Scheme.
Shares in Sigma Pharmaceuticals fell nearly 20 per cent yesterday and Australian Pharmaceutical Industries was down as much as 10 per cent when Pfizer unveiled its radical distribution model.
Pfizer, which sells the cholesterol-lowering drug Lipitor - the world's biggest-selling drug - as well as Viagra, Celebrex and a range of other popular pharmaceuticals, will sell directly from next month.
The move is to shield Pfizer's portfolio of branded drugs as they lose their patent protection, triggering massive competition from cheaper generic versions.
Lipitor comes off patent next year, with others to follow in the next three to five years. Going direct to pharmacies allows Pfizer to ensure its branded drugs get the attention of buyers.
If other drug companies follow Pfizer's lead, it could decimate Australia's wholesale pharmaceutical sector.
Sigma said its annual wholesale revenue would fall by 10 to 15 per cent. Sigma reported first-half revenue of $1.62 billion for 2010-11, with its wholesale operations now forming the bulk of its business following the $900 million sale of its drugs business this year.
Sigma chief executive Mark Hooper said the company was still assessing the impact on earnings but he said this change, combined with PBS changes that will cut government contributions, meant Sigma would need to tighten its customer trading terms.
Sigma shares ended down 8.5¢, or 17.35 per cent, at 40.5¢.
API will also be hit. The company said its revenue could fall by 10 to 15 per cent. API's wholesale and retail pharmacy operations had revenue of $2.8 billion last year, out of total group revenue of $3.7 billion. Nearly 80 per cent of the pharmacy unit's revenue comes from wholesale sales.
''There is no doubt there are other consequences to both their [Pfizer's] decision and PBS reforms at large that we will have to take and then pass on to our customers,'' said API chief executive Stephen Roche.
API shares closed down 5¢, or 9.9 per cent, at 45.5¢.
Both wholesalers were tipped to be among the biggest losers from the federal government plan to slice $1.9 billion from its pharmaceuticals budget between 2010 and 2015 by bringing down the cost of drugs and pushing ahead with mandatory price disclosure.
Pfizer Australia managing director John Latham confirmed the decision was a result of Pfizer seeking to meet challenges such as PBS changes and the patent expiry of Pfizer medicines.