Loblaw, Metro brace for generic drug plan im­pact

The Prince George Citizen - - Money - Alek­san­dra SA­GAN

Phar­macy own­ers are brac­ing for “an in­dus­try-wide im­pact” from lower generic drug prices com­ing in April, the CEO of Metro Inc., which has a deal to buy Que­bec’s largest phar­macy chain, said Tues­day.

The pan-Cana­dian Phar­ma­ceu­ti­cal Al­liance - which rep­re­sents the pro­vin­cial, ter­ri­to­rial and fed­eral gov­ern­ments, and the Cana­dian Generic Phar­ma­ceu­ti­cal As­so­ci­a­tion - an­nounced Mon­day that they have reached an agree­ment that will see the prices of nearly 70 com­monly pre­scribed generic drugs dis­counted by up to 90 per cent of their brand name equiv­a­lents.

“There will be an im­pact on sales as prices go down,” said Metro chief ex­ec­u­tive Eric La Fleche Tues­day af­ter the com­pany’s an­nual gen­eral meet­ing.

“It’s an in­dus­try wide-im­pact,” he said, not­ing the ef­fect on his com­pany will be much smaller as its pres­ence in On­tario is smaller than Que­bec, where a sim­i­lar agree­ment was reached last year.

The com­pany op­er­ates 74 drug­stores in On­tario and 184 in Que­bec. Its phar­ma­ceu­ti­cal net­work will grow fur­ther af­ter its pur­chase of phar­macy chain Jean Coutu Group Inc., which is ex­pected to close this spring.

“We’re con­cerned by any im­pact,” La Fleche said.

The com­pany’s shares were rel­a­tively un­changed af­ter mar­kets closed, down 0.3 per cent to $40.75, on the same day the Mon­treal-based re­tailer an­nounced a nearly 11 per cent boost to its quar­terly div­i­dend af­ter prof­its surged in the first quar­ter.

Mean­while, Loblaw, which owns the Shop­pers Drug Mart chain, saw its stock down­graded once de­tails of the drug re­form emerged. Its shares fell more than three per cent Tues­day.

Des­jardins Group low­ered its tar­get price for the gro­cery- and-phar­macy re­tailer to $76 per share, from $84, and cut its rec­om­men­da­tion to hold.

“Loblaw has ex­pe­ri­enced a con­flu­ence of head­winds,” wrote Keith Howlett, an an­a­lyst with Des­jardins Cap­i­tal Mar­kets in a note Tues­day. He pointed to a $190 mil­lion im­pact due to ris­ing min­i­mum wage, some­where be­tween $75 mil­lion and $150 mil­lion in ini­tial costs to address its par­tic­i­pa­tion in an al­leged in­dus­try-wide bread price-fix­ing scan­dal, and the im­pact of drug re­form.

Des­jardins es­ti­mates drug re­form will add $220 mil­lion in costs for Loblaw.

The sever­ity of the re­duc­tion in generic drug prices an­nounced ear­lier this week is at the high end of the range that the in­dus­try ex­pected, wrote Irene Nat­tel, an an­a­lyst with RBC Do­min­ion Se­cu­ri­ties Inc. She dropped her tar­get price to $84, from $87.

Loblaw shares shed 3.16 per cent to $67.03 af­ter reach­ing a daily low of $65.98 Tues­day on the Toronto Stock Ex­change.

The com­pany had started to im­ple­ment mea­sures to mit­i­gate the im­pend­ing drug re­form, but un­til Mon­day the de­tails of the plan were un­clear, said Nat­tel, point­ing out the ben­e­fit of re­mov­ing that un­cer­tainty.

Loblaw de­clined to com­ment, but man­age­ment has pre­vi­ously noted the pos­si­ble im­pact of generic drug pric­ing changes.

Loblaw ex­pected ad­di­tional health-care re­form to sig­nif­i­cantly im­pact its phar­macy busi­ness, Richard Dufresne, Loblaw’s then-chief fi­nan­cial of­fi­cer, said dur­ing the com­pany’s third-quar­ter con­fer­ence call in Novem­ber.

No sin­gle ini­tia­tive will off­set “the sig­nif­i­cant in­dus­try head­winds,” he said, but the com­pany has made progress to mit­i­gate them.

“But, de­pend­ing on how health-care re­form plays out, we ex­pect we have not cov­ered all of it.”


Eric La Fleche, pres­i­dent and CEO of Metro, waits for the start of the gro­cery and phar­macy chain’s 2012 an­nual meet­ing in Mon­treal. La Fleche said Metro is brac­ing for the im­pact when prices of generic drugs drops.

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