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Pedestrians walk past a Jean Coutu pharmacy in Montreal. (RYAN REMIORZ/THE CANADIAN PRESS)
Pedestrians walk past a Jean Coutu pharmacy in Montreal. (RYAN REMIORZ/THE CANADIAN PRESS)

Jean Coutu profit climbs 53% Add to ...

Lower generic drug prices continued to squeeze Jean Coutu's results in the second quarter even though its profit soared on the sale of a portion of its stake in U.S. pharmacy chain Rite-Aid.

Quebec's largest pharmacy network said net profit rose to $66.4-million from $43.4-million a year earlier in the three months ended Aug. 27.

The increase is largely from Jean Coutu's sale of about one-tenth of its sizable stake in Rite-Aid for $22-million, or a gain of 10 cents per share.

On a per share basis, quarterly earnings were 29 cents from 18 cents in the comparable period a year ago. Stripping out the gain from the Rite-Aid shares sale, earnings were 19 cents per share, in line with analyst expectations, according to Thomson Reuters.

Jean Coutu, which remains Rite-Aid's largest shareholder, has said it continues to view Rite-Aid as a long-term investment despite plans to dispense with part of its stake in the chain.

Like others in the pharmacy industry, Jean Coutu has been hit by new government rules in Ontario and Quebec that lowered prescription drug prices.

Quarterly revenues increased to $635.2-million from $625.6-million a year ago. Same-store sales, a barometer for growth in the retail sector, were up 1.2 per cent.

But prescription same-store sales were up only 0.8 per cent as it took a 2.3 per cent hit from increasing sales of lower priced generics and a 3.6 per cent impact from new government rules which reduced generic prices.

Non-prescription drugs or front-end sales increased by two per cent.

Sales volumes of its generic drug company Pro Doc continue to increase as new molecules are added, but at a slower pace than before the introduction of generic drug reform.

However, revenues decreased to $24.9-million from $39.2-million a year ago, reflecting the negative impact of generic price reductions.

“Despite the price reductions of generic drugs, we have posted a significant growth of our operational results, which demonstrates the success of the implementation of our business plan,” president and CEO Francois Coutu said during a conference call.

Quebec reduced how much pharmacists can receive in professional allowances from generic drug makers to 16.5 per cent of the drug's price, down from 20 per cent. The allowances fall to 15 per cent in April 2012.

Distribution fees from the drug manufacturers will be modestly reduced and the price of generic drugs will also be reduced to 25 per cent of the equivalent branded prescriptions, beginning in April 2012, from the current 50 per cent.

However administration fees have been increased, partially offsetting the elimination of rebates offered by generic drug manufacturers.

The impact on Quebec pharmacists won't be as dire as those in Ontario where all allowances will end in 2013.

Irene Nattel of RBC Capital Markets said Jean Coutu recorded solid operating results despite a “slight headline miss” in the quarter.

“Although headline earnings per share fell short of forecast due to the negative impact of generic price reductions, franchise operations delivered a solid quarter,” she wrote in a report.

The Jean Coutu Group operates a network of 394 franchised drugstores in Quebec, New Brunswick and Ontario and employs more than 19,000 people.

On the Toronto Stock Exchange, its shares fell 52 cents, or 4.37 per cent, at $11.37 in morning trading.

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