Drug reforms bring profits down, Shoppers says

From the Toronto Star:
Profit at Canada’s largest drug store chain fell less than expected last quarter as Shoppers Drug Mart made gains in private label generic drug sales, cosmetics, healthy living products and non-prescription drugs.

Still, the retailer said Ontario’s drug reforms cut into its operating and profit margins during the first full quarter since the new rules came into effect.

The reforms saw the Ontario government cut the amount it pays for generic drugs in half and end professional allowance payments to pharmacists by drug manufacturers.

Shoppers Drug Mart, which fought the changes, said it expects to benefit in the long term from increasing consolidation in the pharmacy business.

The provincial drug reforms, which analysts estimate will cut $750 million from pharmacists’ budgets over three years, were expected to hit smaller independent stores hardest.

Shoppers has made few acquisitions so far because “we feel the price per square foot did not come down to the right level to justify the investment to buy and integrate small stores,” president and chief executive officer Jurgen Schreiber told analysts on a conference call Wednesday afternoon. “We are confident this will happen as the reforms kick in year after year.” ...more