We Don't Expect Regulator Approval for Proposed Chemist Warehouse Merger

There is no escaping Pharmaceutical Benefits Scheme, or PBS, price reform, which is challenging industry profitability and leading to subpar returns for Sigma. We estimate about 50% of Sigma’s revenue is reliant on PBS. Although government PBS spending is notionally uncapped, the overall quantum typically barely grows due to ongoing PBS price reform and the Australian government having significant negotiating power in allowing new drugs onto the PBS schedule. As such, we forecast typical industry revenue growth in line with population growth of 1.5%.