Pharmaceutical manufacturer, wholesaler and retailer Sigma was spanked in early ASX trade today following the release of disappointing results.

Sigma has been an absolute dog investment, at one stage this morning down to $1.25 from a 52 week high of $3.03. While SIP shares fell almost 60%, the ASX health index has risen around 45%.

Sigma has roots as a wholesaler and smallish manufacturer, and was owned by pharmacists. Its register was opened with listing in 1999. At that time, the company was highly dependent on wholesaling, so they took the decision to expand manufacturing, acquiring Herron and Arrow. Manufacturing now contributes 70% of profit. However, in their attempt to move away from wholesaling, believing it to be too dependent on the whims of the federal government’s pharmaceutical benefits scheme, they have moved into the price and discount sensitive generic sector. Sigma’s road toward stable profitability has hit the potholes that go with heavy discounts of up to 70% on some lines.

Sigma competitors API and Symbion have also experienced difficult times recently with missing millions, sudden departures at the top and uncertainty around ownership.

This whole pharmaceutical sector is in turmoil. The federal government is well aware that the bill for prescription pharmaceuticals has potential for explosive growth in the next two or three decades as the health of baby boomers fades. They are keen to do anything to keep a lid on it.

While both major parties state that they support the current community based pharmacies, there will come a time when the inefficiencies of the sector will become an issue.

The internal turmoil in the sector is playing into the hands of Coles and Woolworths who are sitting in the wings waiting for the opportunity to offer the government a way forward. We can look forward to having our prescriptions filled by a Pharmacist employed by Coles or Woolworths.

Disclosures: My company Orex has recruited managers for Bunnings, Myer and recently for a Coles company. My wife owns Coles shares.

Rob Lake publishes Brandish – a newsletter about retail intelligence.