Cheaper medicines squeezing suppliers

Sigma Pharmaceuticals says it is getting harder to make profits from distributing medicines as the government pushes to make products cheaper.

Sigma Pharmaceuticals says it is getting harder to make profits from distributing medicines. (AAP)

Drugs distributor and pharmacy supplier Sigma Pharmaceuticals says the federal government's push to provide cheaper medicines has public benefits, but distributors are finding it harder to make a profit.

Chief executive Mark Hooper says the drug distribution industry needs to be sustainable in the long term to ensure consumers get timely and effective access to medicines.

"Whilst cheaper medicines are good for the government, patients, communities and our health system, a continuation of the current remuneration operating framework is not sustainable longer term," he told shareholders at Sigma's annual general meeting.

"As it stands now, less than 10 per cent of medicines are profitable to distribute, and this cannot be sustained longer term.

"What we are seeking is a model that de-links wholesaler remuneration from the structural decline in the price of medicines that is being driven by government policy."

The independent Pharmacy Remuneration Regulation Review panel is currently examining the pharmaceutical supply chain, including the role of manufacturers, wholesalers and pharmacies, Mr Hooper said.

The meeting was also told Sigma still expects to lift annual underlying earnings by at least five per cent, even though industry sales in the first quarter of its 2017/18 fiscal year have been more subdued than many anticipated.

"This appears to be in part driven by a general market softening in sales of OTC (over-the-counter) products in particular," Mr Hooper said.

Sigma also said its third party logistics business and national hospital pharmacy expansion were gaining traction, and should contribute more to bottom line growth in the second half of the fiscal year and into the following year.

Mr Hooper said a generally softer start would make this year more challenging.

"Nonetheless, we will maintain our focus on delivering growth of at least five per cent in underlying EBIT (earnings before interest and tax) for the full year," he said.

"We do, however, expect it to be weighted towards the second half as we begin to see returns from some of our investments."

Sigma's underlying earnings in the year ended January 31 rose 12 per cent to $100.6 million.

Shares in Sigma were up 0.75 cents at $1.2975 at 1250 AEST.