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Two years after announcing its acquisition of the Rexall pharmacy chain, drug distribution giant McKesson Corp. is shrinking its retail footprint in Canada.

As the company navigates a complex drug market, which includes falling generic drug prices in the wake of increased government and insurance scrutiny, Rexall will shutter 40 stores in Ontario and Western Canada – almost 10 per cent of its total, according to a memo sent to employees.

The decision comes as drug distribution channels rapidly evolve. In the United States, Amazon.com Inc. is threatening to disrupt the pharmacy market in much the same way it has shaken up traditional retailing. As a result, the market has seen a wave of partnerships and mergers between pharmacy chains, health insurers and distributors.

Drug manufacturers are also struggling – particularly those that make generics. In Canada, Apotex Inc., founded by the late Barry Sherman, is currently restructuring, a plan that includes shrinking its global footprint, laying off employees and finding more efficiencies at its plants.

As of 2016, average generic drug prices in Canada had declined to half of what they were a decade ago, according to the Patented Medicine Prices Review Board.

A smaller Rexall chain is likely to be only one pillar of a broader McKesson strategy to respond to the fast-changing landscape. More details are expected in the coming weeks, but the company made it clear to employees that the changes are part of a bigger vision that includes optimizing its distribution channels and determining the best value for its retail assets. Although Rexall is closing some locations, it will likely serve the communities using other stores nearby or through online channels.

McKesson made a splash in Canada’s pharmacy market in 2012 when it announced the acquisition of multiple units of Katz Group in a deal worth $920-million. Most notably, the deal involved Drug Trading Co. Ltd., which had a marketing and purchasing arm for a network of more than 850 independent pharmacies that primarily operated under the I.D.A. and Guardian brands.

At the time, Katz Group chairman Daryl Katz said the deal allowed him to sell off non-core assets in order to focus on corporate-owned Rexall and Pharma Plus stores.

However, McKesson made even more noise in 2016 when it acquired Rexall for $3-billion. McKesson had long been a drug supplier to Rexall’s corporate-owned stores and decided to buy those locations outright because Mr. Katz was willing to sell.

McKesson’s Canadian roots lie in pharmacy deliveries. It used to be known as Medis Health and Pharmaceutical Services and focused on wholesale drugs and distribution. McKesson bought the firm in 1991 and changed the name to that of its U.S. parent a decade later.

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