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Sale signs at Jean Coutu store in Longueuil, Quebec, May 2, 2012. (Christinne Muschi For The Globe and Mail)
Sale signs at Jean Coutu store in Longueuil, Quebec, May 2, 2012. (Christinne Muschi For The Globe and Mail)

Jean Coutu sees gains from generic drug move Add to ...

Jean Coutu Group Inc.’s move into generic-drug manufacturing five years ago is turning out to be just the asset the company needed to offset falling prescription sales.

The Longueuil, Que.-based drugstore chain posted an increase in adjusted profit for the latest quarter, thanks in part to double-digit gains in sales and operating income at its generic-drug division, Pro Doc Ltd.

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Coutu, Shoppers Drug Mart Corp. and other drugstore companies have taken a hit in recent years from provincial generic-drug reform aimed at reducing the cost of generic drugs as well as rebates from generic-drug makers.

Pro Doc’s sales in the second quarter rose 14 per cent to $38.3-million. The unit’s contribution to income before amortization jumped 25.2 per cent to $15.4-million.

Coutu acquired Pro Doc – a small generic drug manufacturer based in Laval, Que. – in 2007, and senior executives said at the time there was plenty of future growth potential thanks to a raft of brand-name drug patents set to expire in the coming years.

Canaccord Genuity analyst Derek Dley said Coutu and other drugstore chains face a growing challenge from declining generic-drug pricing as well as increased generic-drug penetration.

They are also being squeezed at the front-end of the store by an increasingly crowded discount-retail space, he said.

Pro Doc is showing every sign of being a huge help in offsetting those trends, he said.

“Pro Doc has been a sound strategic move for Coutu and they’ve executed well on it,” Mr. Dley said in an interview.

“There are a lot of brands coming off patent and that’s going to grow [the generic] pipeline.”

Mr. Dley said Q2 results were pretty well in line with expectations, although front-end sales were a little weaker than he had anticipated at a 1.6 per cent increase.

Second-quarter profit reached $50-million or 23 cents per share, compared with $44.6-million or 19 cents a year earlier; that’s excluding proceeds of $22-million related to the sale of shares in U.S. pharmacy chain Rite Aid.

Revenue rose to $658.7-million from $635.2-million in the year-earlier fiscal period.

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