Will generic drug policy hit Shoppers?

Here's a timely article regarding the new generic rebate restrictions (Bill 102) in Ontario. I think these changes will hurt the bottom line in all types of pharacies in Ontario, from the small independent to the biggest chain. There is no doubt that it could affect Shoppers stock price. However, I'm pretty sure that they will ultimately land on their feet as a business since they have a lot of non-prescription items to profit from.

My biggest concern about Bill 102 is that it's going to devastate smaller, service-oriented, clinical pharmacies that heavily rely on prescription sales. They can't run the pharmacy department at a break-even or loss leader pass and reap their profits selling cosmetics or groceries. We've seen the independent pharmacy pretty much disappear in the United States. Bill 102 could make the Ontario pharmacy scene very American-looking: nothing but big chains and grocery stores with almost no independents. If these boutique pharmacies disappear, so will some of the unique professional services they offer. That lack of choice won't be good for either the average Ontarian or the pharmacists that serve them.

From the Globe and Mail:
There is mounting concern that Shoppers Drug Mart Corp. will be hurt by generic drug pricing changes in Ontario, home to more than half of the retailer's stores.

Analyst Keith Howlett at Desjardins Securities said Monday he can't see how the legislative reforms, which reduce the price the province will pay for generic drugs, “cannot have an impact on the largest retail pharmacy chain in the province.”

The drug policy could slice as much as $38.3-million a year off of Shoppers' profit in Ontario, or $75,000 a store, he estimated in a report. (That is earnings before interest, taxes, depreciation and amortization.) Shoppers has 511 pharmacies in Ontario and almost 1,000 across the country.

Mr. Howlett's concerns add to earlier ones raised by at least one other retail analyst, as well as pharmacists and other groups, about the impact of the new law. It came into force in October although parts of it have been phased in over the past few months — and some provisions took effect as recently as April 1. ...more