Sigma Healthcare shares have plunged to a seven-year low after the company announced it had lost its contract to supply the Chemist Warehouse discount chemist chain from mid-2019.

Sigma shares plunged 40 per cent to 48.75 cents on Monday after the company said it could not reach an agreement on an extension of its contract with the My Chemist/Chemist Warehouse Group.

The company also announced a cut to its earnings guidance, saying 2018/19 underlying earnings will be $75 million for the current year, down from $90 million, and falling to $40 million and $50 million.

Sigma chief executive Mark Hooper said the company made it clear at the start of the negotiations that it would only enter into a new contract if it made commercial sense.

‘We are not prepared to risk significant shareholder funds without adequate and sustainable returns,’ he said in a statement on Monday.

Chemist Warehouse has awarded the contract to provide pharmaceutical products to more than 400 Chemist Warehouse and My Chemist stores across Australia to Sigma rival EBOS Group.

The parties have agreed to a five-year supply agreement, effective from July 1 2019, with the potential for a three-year extension.

EBOS – which has a dual listing in Australia and New Zealand – expects to generate about $1 billion in revenue in the first year of the new contract.

Mr Hooper blamed Sigma’s earnings downgrade on ongoing soft market conditions and recent price changes under the Pharmaceutical Benefits Scheme – the federal government-funded drug subsidies scheme.

EBOS shares were up 4.7 per cent, to $17.65 in a slightly lower Australian share market.