Health Check: Despite headwinds, Australia’s third force in pharmacy finds prescription for growth

EBOS Group affirms current-year earnings expectations
Cannabis stocks report mixed quarterly revenue and earnings trends
Atomo Diagnostics gets federal backing for syphilis home test

As the competition regulator mulls the proposed $8.8 billion of Sigma with Chemist Warehouse to form Australia’s biggest chemist group by a long shot, lower-key rival EBOS Group (ASX:EBO) is weathering the winds of change in the sector.

At the trans-Tasman group’s AGM in Auckland today, CEO John Cullity said underlying earnings had grown 7.5% in the September quarter, as adjusted for a lost $2 billion wholesale supply contract to supply Chemist Warehouse.

EBOS owns the Terry White Chemmart chain, which recently opened its 600th store, and the Symbion drug distribution arm.

Its side businesses includes pet food, hospital medications and medical technology.

Overall, EBOS posted revenue of NZ$13 billion for the year to June 30 2024, up 7.8%, with underlying earnings before interest tax deprecation and amortisation (ebitda) of NZ$624.3 million, up 7.4%.

The Australian chemist business contributed NZ$7.8 billion of this revenue, up 6.8%, with gross operating revenue (revenue less operating costs and inventory) of $677.8 million (up 8.7%).

“In light of the changed dynamics in the Australian community pharmacy industry, we are targeting $300 million in new pharmacy revenues,” Cullity says.

The company this morning reiterated current year expectations of ebitda of $575 million to $600 million. Cullity reports “solid progress” in finding NZ$25 million to NZ$50 million of cost savings over the next two years.

While this year’s earnings are expected to be modestly lower, EBOS has withstood the expected headwinds from the federal government’s decision to allow pharmacists to dispense 60 days’ supply of prescription medicine, rather than the previous 30 days.

The measure went ahead a year ago, despite stiff opposition from the powerful Pharmacists Guild.

In the case of EBOS, the impact was “broadly offset” by increased government funding for the Community Service Obligation (CSO) funding pool, which subsidises the wholesale distribution of medicines so that they are accessible to everyone from Derby to Dubbo.

Discussions are afoot with the government on the first Pharmacy Wholesaler Agreement – a side deal with the industry alongside the long-running CSO scheme.

“We remain confident that the upcoming agreement will fully reflect the value our Symbion wholesale business provides in supplying essential medicines to the Australian community,” Cullity says.

Meanwhile the Australian Competition and Consumer Commission was due to adjudicate on the proposed Sigma-Chemist Warehouse union tomorrow, but has deferred a decision pending industry feedback on concessions proffered by the merger partners.

As with the Pharmacy Guild, EBOS opposes the union as not being in the best interest of consumers.

EBO shares were 1% higher at $33.35.

Pot pourri of cannabis numbers points to mixed fortunes

The latest duo of quarterly reports from the pot sector continue the theme of solid production growth and demand, but accompanied by margin pressure and elusive profitability.

Following a corporate “reset”, the indebted Cann Group (ASX:CAN) reported September quarter receipts of $3.33 million, down 36% year on year but 9% higher than the June quarter.

So take your pick.

Cann’s Mildura facility produced one tonne of the green stuff, 90% higher than in the June quarter, “which sets the (current) quarter up nicely from a sales perspective”.

The company produced 4.4 tonnes in the 2023-34 year – double the previous tally – and says it’s on target for current year output of 5.5 tonne from its state-of-the art but underused plant.

The company wants to get to 10 tonnes of annual output, with positive cash flow achievable at around eight tonnes.

Cann had net cash outflows of $3.55 million, a 34% improvement on the June quarter.

Cann has also extended the closing date of its current rights raising from tomorrow to next Thursday. The company seeks to raise $6.75 million by way of a one-for-three raising at 4 cents, with one option for every three shares subscribed for.

Cann was the first ASX pot stock to obtain a cannabis manufacturing licence, in 2017.

ECS Botanics (ASX:ECS) reported revenue of $5 million, 22% higher year on year and 11% better than the June quarter, “driven by business-to-consumer sales and exports.”

The company has been emphasising the business-to-consumer channels, that is, prescribing doctors rather than wholesale channels. That’s no surprise given the rapid rate of medical cannabis telehealth prescription growth – too much growth given the sector has raised the regulator’s ire.

And don’t think that the prescription status of medical cannabis obviates the scope for creative marketing.

ECS describes its Mango Passion dried flower range – 24% THC content – as having “soothing earth aromas with notes of deep forest freshness intermingled with a subtle zest”.

Cann Group shares were 2.5% higher at 4.1 cents and ECS shares shed 5.5% to 1.7 cents.

The pox is back, but Atomo is on the job

Syphilis is seen as an old-fashioned disease, but the bacterial sexually-transmitted infection is making an unwanted comeback.

According to the World Health Organisation, eight million people acquitted syphilis in 2022, while the local Kirby Institute reckons syphilis diagnoses in Australia have tripled over the last decade.

“The syphilis epidemic in Australia is past a tipping point … we must act now,” intones Australia’s chief medical officer, Professor Paul Kelly.

Atomo Diagnostics (ASX:AT1) is doing its bit by developing a rapid test for both professional use and at-home self-testing.

The program has won a $2.44 million grant from the federal government’s Cooperative Research Centres Projects.

“The grant award follows many months of collaboration between Atomo and the Burnet Institute on an easy-to-use solution that addresses this important unmet clinical need,” Atomo says.

The finger print test combines Atomos hardware – a Pascal cassette – and a syphilis antibody assay developed by the Burnet Institute.

Atomo says: “this pioneering rapid test solution will represent a first for the global market, with existing rapid syphilis tests only detecting antibodies present in both active infections and prior treated infections, and with no rapid syphilis test currently approved for self-test use in Australia.”

Available in UK pharmacies, Atomo’s HIV assay currently is the only home-use test for the disease.

Syphilis is hard to detect and can cause severe long term health effects – blindness, brain damage and bone deformities – if left untreated.

Atomo shares gained 4.5% to 2.3 cents.