(Adds Sigma response, background on deal and industry)
Jan 23 (Reuters) - Australian Pharmaceutical Industries Ltd (API) API.AX said on Wednesday it was expected to start due diligence on its A$727 million ($518.6 million) offer for pharmacy operator Sigma Healthcare Ltd SIG.AX soon.
API Chairman Mark Smith reaffirmed the drug distributor's intention to proceed with the takeover bid, citing "significant benefits" the companies would receive as slowing revenue and compressed margins have hit the wholesaling sector.
"We anticipate signing a non-disclosure agreement shortly that will then allow a due diligence process to commence," Smith said in a statement.
Melbourne-based Sigma confirmed the talks, in an emailed statement to Reuters, and said due diligence will begin once the non-disclosure deal is signed.
In early December, API offered 0.31 API share and A$0.23 in cash for each share of Sigma. API said it already owns nearly 13 percent of the pharmacy operator.
There has been a flurry of interest in the country's healthcare sector, which has coincided with a difficult stretch for health stocks that have been battered by concerns about tightening government subsidies and soft consumer spending.
Shares of Sigma shed 3.4 percent on Wednesday, while API closed 1.7 percent lower in a subdued market.
($1 = 1.4019 Australian dollars)