Sigma Pharmaceuticals year profit rises 27 pct

MELBOURNE, March 20 (Reuters) - Australian drugs firm Sigma Pharmaceuticals Ltd. reported a 27 percent rise in underlying annual profit, as expected, boosted by its takeover of Arrow, and reaffirmed its outlook for the year ahead.

Drugs manufacturer and distributor Sigma snared Arrow for its pipeline of generic drugs, a high margin business seen as a hot source of growth in the Australian market, where the government wants to curb growth in its spending on prescription drug subsidies.

It said it remained confident of achieving underlying profit growth of about 15 percent, excluding a one-off tax benefit and facilities closures tied to the takeover of Arrow.

The result and outlook were in line with expectations, and following a small run-up over the past two weeks Sigma's shares traded flat in a firmer market after the result.

"On fundamentals and given what's out there in the industry, it's pretty fully priced," said ABN AMRO Morgans analyst Scott Power.

Moves to cut subsidy spending have already hit Sigma and its rivals, Symbion Health Ltd. and Australian Pharmaceuticals Ltd. , and the government is considering cutting prices on generic medicines.

Sigma's underlying net profit rose to A$71.6 million ($52.3 million) for the year to Jan. 31, matching analysts' average forecast of around A$71.3 million, and slightly ahead of the company's own forecast in its takeover documents last October.

Including a one-off tax benefit from combining Sigma and Arrow, it reported a 79 percent jump in net profit to A$104.8 million.

With a two-month contribution from Arrow, Sigma's drug manufacturing sales rose 18 percent to A$381 million, while its earnings jumped 26 percent.

Sales from its pharmacy arm, which includes the Amcal and Guardian banners, rose 2.2 percent to A$1.9 billion, outpacing 0.4 percent growth in the government's subsidies available to wholesalers like Sigma, Symbion and API.

Its pharmacy earnings-to-sales margin rose to 2.7 percent, well ahead of rival Symbion's first-half pharmacy margin of 1.6 percent.

Sigma shares jumped 1.9 percent in early trade then slipped to trade flat at A$2.68.

However its shares have fallen about 15 percent so far this calendar year on concern that the government is going to cut the price of generic medicines. The health care index has risen 7 percent over the same period.

Sigma Managing Director Elmo de Alwis played down the concerns, saying the government had already achieved savings and would not want to do anything that might threaten the supply of affordable drugs.

"It is extremely unlikely that the government that has successfully followed a path of consulting the various stakeholders ... is going to depart from that and go into something that's a radical type of reform," he said.

He said the company would focus on growing sales and cutting costs in its pharmacy business in the face of regulatory headwinds.

"We certainly have no plans to sell off any part of the business," de Alwis told Reuters. ($1=A$1.37)

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