Sigma an easy pill to swallow

Sigma Pharmaceuticals is somewhat shielded from the present economic storm, but that doesn't mean its all smooth sailing for CEO Elmo de Alwis.

Sigma Pharmaceuticals is somewhat shielded from the present economic storm, but that doesn’t mean its all smooth sailing for CEO Elmo de Alwis.

SIGMA Pharmaceuticals is in an enviable position. While so many Australian manufacturers are on tenterhooks as the global financial crisis bites hard, this leading local manufacturer of prescription, over-the-counter and generic pharmaceutical products is doing a roaring trade.

In fact, turnover last year was an enviable $3.2bn, up 3.9% on the previous year. And these healthy numbers are only expected to keep on climbing.

The company’s growth is being bolstered by the country’s ageing and increasingly obese population, who contribute to a 4% growth in the pharmaceutical market a year.

But like all manufacturing industry CEOs, de Alwis occasionally has to make some tough decisions. He recently announced that the company’s Herron pharmaceutical factory in Tennyson, Queensland, will close its doors, winding down gradually over the next two years.

The 144 employees can transfer to the Melbourne manufacturing sites, or will be offered a redundancy.

The decision; while tough; will save Sigma around $3m a year and will also position the company for future growth.

“The property in Tennyson is landlocked. There’s no room for expansion there,” de Alwis said.

But Queensland’s loss is Victoria’s gain. Sigma has committed to a $70m upgrade in Melbourne as part of the relocation of the Tennyson manufacturing operations, signalling its intent to keep jobs in Australia.

“When you build a manufacturing plant of that magnitude you don’t expect to get a return on an investment for five to 10 years. This is a long term investment.”

Centralising manufacturing operations in Melbourne will also enable the business to increase output by around 10%, with organic growth and new projects in the pipeline.

“Quality assurance will be a lot higher at the new plant. Having all our manufacturing operations in one state gives us a better sense of control when it comes to replicating the same systems and procedures across the business.”

And while de Alwis is overseeing expansion in an economically tough market, he knows manufacturing is proving a tough line of work so many others.

“The Australian manufacturing industry faces a lot of changes. It’s sad to see so many jobs go overseas. But we’ve made a commitment to stay here. I know everyone says that but we will not let our jobs move offshore. We mean it.”

His comments are backed up by actions. Sri Lankan-born de Alwis is a strong advocate for Australian-made; turning his back on the usual luxury European car driven by CEOs in favour of an Australian-made vehicle.

“I could drive a Mercedes Benz, but I drive a Holden because I’m passionate about supporting Australia.

“I’ve been driving Australian-made cars for 30 years. I wouldn’t dare buy a car made overseas.

“I might not be making a difference to the state of the local automotive manufacturing industry, but if enough people do the same thing, then we can make a difference.”

His only wish is that the Federal Government would follow suit.

While Sigma Pharmaceuticals has a strong foothold in the Australian market, overseas competitors threaten to claim market share. He believes the government could show stronger support to local manufacturers by looking beyond price when stocking the public healthcare system with pharmaceuticals.

De Alwis points out that buying Australian saves on freight, results in a quicker turnaround, creates jobs and earns additional taxes for the government.

“The sole criteria for buying a product shouldn’t be price, because then you’re ignoring a whole lot of other factors.

“I just hope that when government is making a decision on which product to buy, they’re influenced by more than just price. The bottom line is if we didn’t have a viable manufacturing industry then we wouldn’t have the same quality of life in Australia.”

While a lot of the active ingredients used pharmaceuticals aren’t made in Australia, de Alwis says the company buys locally-manufactured codeine and bottle labels.

“We consciously buy Australian wherever possible,” de Alwis said.

At present, the 97-year-old manufacturer employs more than 2,000 people and exports around $50m (1.5%) of its products a year.

It counts Symbion and Australian Pharmaceutical Industries as its closest competitors and holds a healthy 32% share of the market.

Sigma is on a serious growth curve after a protracted period of acquisitions under his leadership. These days, Sigma counts household brand names like Amcal, Guardian and the Amcal Max brands in its increasingly powerful stable of brands. Herron, Chemist’s Own and weight management program Xndo have also joined the family.

And the buck stops with de Alwis. He started with Sigma Pharmaceuticals as a cost accountant more than three decades ago and has progressed through a number of commercial roles within the company. In 2001 he was appointed CEO and MD.

De Alwis took over a strong performing company, but his intimate knowledge of the financial engine room has helped him transform the operation into one of the top earning manufacturers in the country.

In fact, he has overseen a whopping ten-fold increase in profitability since he took over the reigns eight years ago.

Maybe it’s his willingness to go above and beyond that stands him in such good stead. When the company recently launched the Xndo weight management product, de Alwis decided to test the marketing claims by putting himself on the program – despite only weighing a healthy 79kg.

“I did it because I wanted to make sure the product was easy to incorporate into your life. I came down to 66kg within six months,” de Alwis said.”

And while he acknowledges his industry is somewhat shielded from economic woes, he does have his share of challenges.

Company earnings and opportunities are influenced by industry regulators such as the Therapeutic Goods Administration, Health & Safety and Customs, who can move the goalposts without warning.

“Import laws are always changing. And industry regulators determine which products are sold in Australia and what margins we make.”

Then there are the changes often made to the Pharmaceutical Benefits Scheme (PBS), which can also impact upon the life of this CEO.

“Minimising change to the PBS is important. Change causes a lot of people out there anxiety and we don’t want that when you’re talking about pharmaceuticals. And the country’s healthcare system is like an ecosystem.

“You can’t push it at one end and not expect there to be repercussions somewhere else within the system,” he said.