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Jean Coutu Inc. CEO and founder Jean Coutu, left, and his son and president Francois (Paul Chiasson/The Canadian Press)
Jean Coutu Inc. CEO and founder Jean Coutu, left, and his son and president Francois (Paul Chiasson/The Canadian Press)

Ontario drug law may affect expansion: Jean Coutu Add to ...

Jean Coutu Group (PJC) Inc.'s eventual expansion into Ontario could be affected by the province's plan to cap generic drug prices, the head of the Quebec-based pharmacy chain said Wednesday.

"If it makes things more difficult, we may delay our investment, but we haven't evaluated that yet," chief executive officer François Coutu said in an interview.

For now, the chain is focused on strengthening its network in Quebec and hasn't decided about expansion beyond its base, he said.

Meanwhile, Mr. Coutu said he's very concerned about impending changes in Ontario and expects there will be some impact on lowering prices in Quebec.

But he hopes the Quebec government will take what he called a "balanced" approach that recognizes the province's unique model and sees pharmacies as "positive partners" in the system.

"The government certainly does not intend to make war with the pharmacists as it happened in Ontario," he said.

While provincial policy requires manufacturers to offer Quebecers the lowest drug prices in Canada, Jean Coutu believes the health minister has the discretion to delay the application of any reductions of prices or professional allowances paid to pharmacists.

"We believe in Quebec the minister cannot cherry pick and take only the price reduction without looking at the other components of that reform," chief financial officer André Belzile told analysts during a conference call.

Irene Nattel of RBC Capital Markets said the revenues of Jean Coutu's generic drug subsidiary, Pro Doc, could be at risk if Quebec adopts Ontario's price reduction.

Pro Doc, which currently only supplies Quebec pharmacies, reported sales of $29.9-million, up from $14.1-million a year ago.

Jean Coutu said it has eliminated losses associated with its ill-fated attempt to crack the U.S. market and returned to profitability in its fourth quarter and 2010 fiscal year.

Net income for the fourth quarter was $42.8-million, or 18 cents per share, as revenue increased by $30-million from a year earlier to $637-million.

The profit was slightly ahead of analyst estimates compiled by Thomson Reuters but the top line growth fell short of expectations, which was for $654.7-million in revenue.

In the year-earlier period, Jean Coutu's quarterly revenue was $607.2-million. It also had a net loss of $733.6-million or $3.11 per share due to writedowns of its investments in Rite-Aid, a major but struggling U.S. pharmacy chain.

Excluding the impact of Rite-Aid, Jean Coutu would have had net income of $42.9-million, or 18 cents per share, in the most recent quarter, up from $38.5-million, or 16 cents per share, a year earlier.

On this basis, Jean Coutu's profit was ahead of analyst estimates of $41.6-million.

For the full 2010 financial, Jean Coutu's profit was $112.6-million, or 48 cents per share, including the impact of Rite-Aid, and $162.7-million, or 69 cents per share, excluding Rite-Aid, with $2.54-billion in revenue.

For fiscal 2009, the company lost $1.19-billion, or $4.92 a share, due to the Rite-Aid effect, or had a profit of $142.6-million (59 cents per share) if that's excluded with $2.37-billion in revenue.

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