It's fair to say that shareholders of Australian Pharmaceutical Industries Ltd (ASX: API) haven't had a great week. In fact, with no news out of the company this month many might be wondering why the value of their holdings has dropped by 8% this week alone.
Well as reported yesterday, the owner and operator of well-known pharmacy brands Priceline, Soul Pattinson, and Pharmacist Advice may be about to have increased competition in the market.
As well as announcing huge profits, Ramsay Health Care Limited (ASX: RHC) advised that it is in the process of establishing strategically located community pharmacies throughout Australia, concentrating initially on ones within close proximity to its hospitals.
Ramsay's management believes it will allow the private hospital operator to provide extended services to patients including participation in the provision of care to the chronically ill.
Although Ramsay has 200 hospital pharmacy dispensaries already operating across its global hospital portfolio, this move is being seen as the next driver of growth for the company. Unfortunately it may come at the expense of Australian Pharmaceutical Industries and Chemist King operator Sigma Pharmaceutical Limited (ASX: SIP).
Of the two companies I feel it is Australian Pharmaceutical Industries that may suffer most. Its Soul Pattinson and Pharmacist Advice brands are likely to go head to head with Ramsay Pharmacy in the local community pharmacy market. Considering Ramsay's exceptional management team and its strong track record, I would not bet against them on this move.
It is still of course early days and there's a long way to go until we see new Ramsay Pharmacy stores popping up across Australia. But it would be prudent for shareholders of Australian Pharmaceutical Industries to keep a close eye on developments.
I wouldn't personally suggest rushing to sell your shares now. In fact, considering the sell off leaves them trading at just 17x estimated full year earnings, I wouldn't be surprised to see bargain hunters snap up its shares in the coming days.
