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Supreme Court to hear appeal of Ontario generic drug rules

The Supreme Court of Canada in Ottawa.

Sean Kilpatrick/THE CANADIAN PRESS

Shoppers Drug Mart Corp. will take its battle with the Ontario government over generic drug sales to the Supreme Court of Canada, opening up the possibility that the province's pharmacies may once again substitute brand-name drugs with their own private-label generic equivalents.

The top court said Thursday it will hear a pair of appeals from pharmacies including Shoppers, Rexall owner Katz Group Canada Ltd., private-label drug supplier Sanis Health Inc. and other stakeholders, after a 2011 Ontario Court of Appeal decision restored regulations that bar private-label drug sales in the province.

Pharmacies often depend on so-called "professional allowances" from generic drug manufacturers to boost revenues, which used to bring Ontario pharmacies up to $750-million in annual revenue. In 2010, faced with loss of these rebates in Ontario, some Shoppers pharmacies reduced their hours and added delivery fees – moves that hurt consumers – as they adjusted to the reduced income.

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The Ontario government has long tried to lower drug costs for both itself and consumers. The province put an end to professional allowances in 2010 and fixed the price of generic drugs at a maximum of 25 per cent of their brand-name equivalents. (In April, the government further lowered the price for the top 10 generic drugs to 20 per cent of brand-name costs.)

This prompted Shoppers and Katz to launch their own private-label generic drugs to compensate for their reduced income.

Aidan Hollis, a University of Calgary economics professor and generic-drug expert, questioned whether a ban on rebates is necessary. "The purpose was to get lower prices," Prof. Hollis said in an interview. "Has there been a demonstrated reduction in prices? I think the evidence is that there is none."

Shoppers and Katz pharmacies got the go-ahead from the Ontario Superior Court to launch their private-label drug lines in February, 2011. The provincial government appealed that ruling and won in December. In its decision, the Ontario Court of Appeal described the lower court's analysis as both "misplaced and too narrow."

In a press release, Shoppers said the company is "pleased with the outcome" of its appeal to the Supreme Court, but representatives declined further comment Thursday.

Ontario Health Minister Deb Matthews was not available for an interview but e-mailed a statement saying that the government "will always stand on the side of Ontario taxpayers and patients."

"We continue to believe that private-label arrangements do not benefit taxpayers or patients and they are not consistent with our drug reforms," Ms. Matthews wrote.

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The Supreme Court did not indicate when it will hear the pharmacies' appeal.

Madam Justice Andromache Karakatsanis, who was appointed to the Supreme Court in October 2011, co-authored the Ontario appeal court decision against Shoppers and its co-respondents and therefore may recuse herself from the upcoming top court proceedings.

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