Jean Coutu warns that profits could be hit from proposed generic drug changes

MONTREAL – Quebec pharmacy leader Jean Coutu posted improved third-quarter profits on Thursday but warned that could change in the future if the provincial government continues to look for savings by tinkering with the drug distribution system.

Chief executive Francois Coutu described the relationship between the industry and the province as “unpredictable,” making it difficult to fully anticipate the impact on its operations.

Specifically, the company criticized the province’s proposal to suspend for at least three years the 15 per cent cap on fees paid to pharmacist owners by generic drug manufacturers like Jean Coutu’s Pro Doc subsidiary.

Details on the level of fees to be paid haven’t been determined, but Jean Coutu said it would remain competitive with rival drug makers.

After the three years, the level of fees paid would be determined by negotiations between pharmacists and generic suppliers.

The province also has legislation pending that would introduce tendering to decide which companies become exclusive suppliers of certain generic drugs in the province.

In the face of the proposed changes, Coutu said the company is looking to become more efficient even though it is already lean.

Its new distribution centre and headquarters nearing completion on the outskirts of Montreal is under budget and expected to begin driving cost savings in the coming few years, he said.

“We want to prepare for the future as well as being more efficient knowing that, probably, margins decrease in the future,” he said during a conference call in which he reminded that government that the current system already works well.

“They should probably be worried about other things in the health field than the distribution of pharmaceuticals, which is done very well in this province,” he told analysts.

Coutu hasn’t given up hope that public hearings that begin next month will prompt the government to modify its plans.

Jean Coutu’s (TSX:PJC.A) net profit grew 3.2 per cent to $57.8 million in the quarter ended Nov. 28 as sales rose to $749.2 million.

Pro Doc earned $23.4 million as generic drugs accounted for almost 70 per cent of prescriptions sold.

Meanwhile, the company said lower drug pricing caused same-store prescription sales to decrease 1.6 per cent while other sales grew 2.4 per cent.