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Jean Coutu sees gains from generic drug move

Sale signs at Jean Coutu store in Longueuil, Quebec, May 2, 2012.

Christinne Muschi/The Globe and Mail

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.

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.

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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."

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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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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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