Jean Coutu upbeat about generic drugs

Brand names to lose price protection

Jean Coutu expects that next week’s elimination of price protection for dozens of brand-name drugs in Quebec will boost its growing generic drug company and help offset future government cuts.

The provincial government announced in its November budget the elimination of safeguards implemented in 1994 that protect brand-name drug producers from generic alternatives for 15 years.

As a result, the government now will reimburse only the lower generic rate for 62 previously protected molecules in a move it estimates will save $160 million per year. The most popular drugs include cholesterol medication Crestor, anti-depressant Celexa, blood-clot preventer Plavix, Seroquel for bipolar disorder and blood pressure medication Diovan.

“The cancellation of the 15-year program is definitely beneficial to the generic industry,” CEO François Coutu said Thursday during a conference call to discuss thirdquarter results.

The Montreal-area company says its net profit increased by nearly nine per cent to $56.2 million, largely due to the continued growth in sales for its generic drug company Pro Doc.

The percentage of generic drugs dispensed in its stores increased three percentage points in the year to 61 per cent as Pro Doc’s net sales grew to $41.4 million from $37.4 million a year earlier.

Overall revenues grew to $716.6 million from $700.1 million a year earlier, despite a further reduction last April in the amount the province pays for generic drugs.

Same-store prescription drug sales increased 2.7 per cent despite generic price cuts and the negative effect on revenues of lower-price generic sales. Sales of nonprescription drugs in stores open at least a year grew two per cent.

Meanwhile, the British Columbia government’s decision to reduce drug prices is expected to continue to put pressure on Quebec to further lower prices to make good on its policy of having the lowest fees in Canada.

Jean Coutu said in July that Quebec’s new policy on generic drugs would hurt its results since generic drugs account for 20 per cent of the dollar value of its drug sales and 40 per cent of sales based on volume.

In 2011, Quebec reduced how much pharmacists can receive in professional allowances from generic drugmakers to 16.5 per cent of the drug’s price, down from 20 per cent. The allowances fell to 15 per cent in April.

“I don’t blame governments for negotiating better pricing because the volumes are going up quite steadily, so that’s why I think it’s an equilibrium that is good for everybody,” Coutu said of the elimination of the 15-year rule.

The government also negotiated a six per cent increase in dispensing fees phased in over five years, retroactive to 2010.

The volume of prescriptions isn’t huge, but it is helpful to Pro Doc, chief financial officer André Belzile said.

“The volume is not going to grow Pro Doc by 20 per cent next quarter, but this will have a positive impact,” he added.

Pro Doc has increased its sales as several blockbuster drugs such as Lipitor and Crestor have come off patent protection. While a few more brand-name drugs will lose their protection this year, Coutu acknowledged that the pipeline is not as good as it has been over the last two years.

Jean Coutu earned 26 cents per share for the period ended Dec. 1, up from 23 cents per share a year ago when net profits were $51.2 million.