21 March 2019
Today the Australasian Centre for Corporate Responsibility (ACCR) released a report on decent work and investment risk in the pharmaceutical wholesaling sector: Social-Risk and Decent Work in the Healthcare Sector: Pharmaceutical Wholesaling and Distribution.
The report identifies links between workforce issues and operational performance in the pharmaceutical wholesaling sector, focusing on two ASX 200 companies: Sigma Healthcare and Australian Pharmaceutical Industries (API). Together, these two companies represent over 60% of the market for prescription drugs in Australia.
It finds that an experienced workforce, with secure working conditions, is crucial to meeting the complex regulatory requirements that govern the handling of prescription drugs, and particularly, drugs of dependence. This should raise questions for investors about the increasing use of labour-hire in the sector. The loss of an experienced and well-trained workforce, and the undermining of working conditions, may incur significant financial, regulatory, and reputational risks for companies and their shareholders.
ACCR will use this report to brief investors in upcoming weeks, ahead of Sigma’s AGM in May 2019.
The majority of these companies’ revenue is due to their distribution of prescription drugs through the Community Service Obligation (CSO) Funding Pool. CSO compliance is stringent, and requires companies to meet a number of standards, including for personnel and stock-handling. As this report shows, a well-trained and experienced workforce is required to properly meet these standards. Non-compliance with the CSO or TGA code could see companies lose their license to distribute PBS and other prescription medicines.
Dr Katie Hepworth, ACCR’s Director of Workers’ Rights, said:
“Decent work is crucial to operational performance in the pharmaceutical wholesaling sector. Increasing insecurity of employment and the undermining of wages and conditions has impacts value creation, and increases regulatory, reputational and procurement risks.
“Investors should be concerned about reports that Sigma has not transferred existing staff members to it’s new distribution centre (DC), instead staffing the DC almost exclusively with a labour-hire workforce. It is unclear whether the new workforce will have sufficient experience to manage stringent regulatory requirements and complex complex supply chain processes to properly manage prescription drugs and other product lines.
“ACCR is particularly concerned about the risks that stem from inexperienced staff being given access to drugs of dependence and managing the complex supply chain processes to properly secure these drugs.
“Sigma recently announced that they would not accept the merger offer by rival API, and would instead look to offset the loss of their contract with Chemist Warehouse by restructuring their operations. This restructuring must seek to maintain an experienced workforce, if it is to mitigate and avoid the potential financial, regulatory and reputational risks identified in this report.
“ACCR remains concerned about reliance on third party audits and whistleblower hotlines to identify regulatory breaches. The evidence is clear, only an organised workforce supported by active trade union engagement can have proper and sufficient oversight of daily operations, and identify problems before they become critical breaches.”