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

Christinne Muschi/The Globe and Mail

Quebec pharmacy chain Jean Coutu says impending changes to pharmacy rules in the province will hurt its financial results and confuse patients.

The province is reportedly eliminating the 15 per cent cap on professional allowances paid to individual pharmacists by generic drug manufacturers.

The move, which still needs to be ratified by the government, is designed to soften the blow of a $177-million-a-year cutback in fees from the province, equivalent to about $100,000 per pharmacy.

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Jean Coutu told shareholders Tuesday that the change will hurt its Pro Doc generic drug subsidiary and overall financial results. However, the company refuses to disclose the potential hit until details of a deal between the government and the association representing pharmacist owners are disclosed.

Since the use of cheaper generic drugs has reached 69 per cent of all prescriptions sold, Pro Doc has been a growing driver of the company's profits.

Chief executive Francois Coutu says its too soon to say if the steady growth since 2008 will end as pharmacists try to negotiate the best deal they can get.

"At Pro Doc, we will try to be competitive, hoping that people will remain loyal," he told reporters after the annual meeting.

Irene Nattel of RBC Capital Markets estimates that each one per cent rise in professional allowances will cut earnings by one cent per share.

Company chairman and company founder Jean Coutu said he believes the changes will create confusion for patients.

Even though all generics are essentially the same, he said it's going to be difficult for pharmacists to explain they are switching the pill because it's more profitable for them.

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"When people are sick they are very suspicious about the things they are given. That's very normal," he said.

A 20 per cent cap was introduced in 2008 to offset the declining price of generic drugs paid by the government. Generic drug prices gradually fell from 54 per cent of the original drug formula to 25 per cent, and 18 per cent for high volume formulations.

Professional allowances vary by province. In Ontario, professional allowances aren't permitted, but the province allowed pharmacists to raise dispensing fees by $1 per prescription.

Meanwhile, the Jean Coutu Group reported Tuesday that its first-quarter net profit decreased 6.5 per cent to $50.6 million. The change was due to a $4.7-million tax provision resulting from a recent judgment by Quebec's highest court (about what). Jean Coutu said it's seeking permission to appeal at the Supreme Court of Canada.

Jean Coutu said revenue for the 13 weeks ended May 30 was up 3.5 per cent from a year earlier, rising to $712.4 million from $668.6 million. Same-store sales growth was 4.4 per cent.

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