Get ready for the battle over generic drugs, part deux.
Generic pharmaceutical manufacturers and drugstore chains operating in Quebec are bracing for a fight after the province's Health Minister confirmed recently that he will follow Ontario's lead and slash the price of generic drugs.
The move in Ontario triggered a nasty set-to earlier this year between the government and industry players and retailers, which warned that the reforms - aimed at reducing health care costs - would force cutbacks in capital spending and result in store closings and the scaling back of retail hours.
Now, the issue is heating up in Quebec.
Quebec Health Minister Yves Bolduc said the province's regulations call for it to pay for the lowest generic drug prices available in Canada, and Ontario's decision to slash the price of generic drugs to 25 per cent of branded equivalents means it will implement a similar cutback.
On Tuesday, generic drug executives slammed Quebec's decision, calling it "draconian." They said it was rushed through without consultation and did not match the offsets in Ontario, such as establishing limits on distribution costs that the manufacturers must assume.
And analysts warned that Quebec's biggest drugstore chain, Jean Coutu could be negatively affected by the reform.
"We would expect there would be a re-assessment of investment projects" in the generic drug manufacturing sector in the province, said Yves Dupré, head of the Quebec division of the Canadian Generic Pharmaceutical Association.
Mario Deschamps, president and chief operating officer of Pharmascience Inc., a Canadian-owned generics company, said 100 jobs have already been cut as a direct result of the reform in Ontario and that a review of jobs and investments in Quebec will have to be undertaken as well.
Pharmascience has 1,300 employees across Canada.
In a research note yesterday, TD Securities analyst Michael Van Aelst said he's lowering his fiscal 2011 and fiscal 2012 earnings per share estimates for Jean Coutu to 71 cents and 74 cents - respectively - from 76 and 84 cents, based on his assessment of the impact of the Quebec reform.
He stressed that Quebec will likely sit down this fall with the pharmaceutical companies and drugstore chains to discuss the details of the reform, including any potential offsets.
A spokeswoman at Longueuil, Que.-based Jean Coutu said the company cannot comment on the reform ahead of the release of first-quarter results and the annual meeting next Tuesday.
Jeffrey Graham, a life sciences lawyer with Borden Ladner Gervais LLP, said the reform is a delicate balancing act for Quebec, which faces mounting health care costs in the context of a high deficit and aging population.
"The government of Quebec has a significant challenge reconciling competing public policy objectives in making changes to pricing policies on pharmaceutical products, whether branded or generic," he said.
Karine Rivard, a spokeswoman for the Quebec Health Minister, said the government had a legal obligation to state that it would proceed with lower generic drug prices, given the provincial regulation requiring it to do so.
She added that Mr. Bolduc "remains open to discussing the details of the price reduction."