The drug company wedding between Sigma and API has been called off.

API has endured an annus horribilis with poor performance, money vanishing and departing CEO and CFO. Sigma came along offering $2.20, was sent away, came back suggesting $2.50, was allowed to do some due diligence, saw the most recent results, reduced the offer back to $2.20 and was sent packing again.

But this is a sector in a state of flux and it would be unwise to believe that it will now go quiet. Pharmacy at the wholesale and retail levels is inefficient and the Federal government is said to be keen to see some rationalisation.

Robert Cooke, CEO of rival pharmaceutical wholesaler Symbion Health (nee Mayne nee Faulding) has been watching as Sigma and API did their mating dance and only a fortnight ago Sybion’s board said they had not ruled out making an offer.

In the wings we have the grocers desperate for a piece of the prescription medicine pie, particularly as it will undergo exponential growth as baby boomers enter the life stage during which pharmaceuticals will start to become a food group.

The company that can squeeze the greatest value from API is most likely to pay the highest price. Sigma is already in the wholesale pharmaceutical business. It would gain some consolidation efficiencies and an enlarged market share. Ditto Symbion. But Woolworths or Coles? Should one of them acquire API it would win the foothold it so desperately wants in retail pharmacy. This one is far from over and may explain why some investors see a potential annus mirabilis in the share price.

Peter Fray

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