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(Reuters) - Canadian pharmacy chain Jean Coutu Group Inc (PJCa.TO) reported a 10 percent increase in third-quarter profit on Thursday, driven by strong sales at Pro Doc, its generic drug manufacturing subsidiary.
Sales at Pro Doc rose 12 percent to C$41.4 million ($41.9 million) for the fiscal third quarter, ended December 1, and the unit's contribution to the parent company's operating income before amortization rose to C$16.1 million from C$15.4 million a year earlier.
Prescription sales growth at Jean Coutu and rivals such as Shoppers Drug Mart Corp SC.TO has been held back in recent years by a crackdown by provincial governments on generic drug prices and reimbursement rules. But Jean Coutu has said Pro Doc may help boost margins over the long term.
Shoppers Drug Mart has a similar private-label generic drug unit, but it has been hindered by a regulation in Ontario, its biggest market, that forbids drugstores from selling their own private-label drugs. The bulk of Jean Coutu's network of 405 pharmacies is in Quebec, which has no such rule.
Canada's top court is set to hear a challenge to the Ontario law, brought by Shoppers Drug and closely-held competitor Katz Group, in May.
Increasing use of generic drugs has exacerbated the impact of generic-drug reforms. Jean Coutu said 61.8 percent of its third-quarter prescriptions were for generics, up from 57.2 percent a year earlier.
The company said sales at established stores, a key measure for retailers, increased 2.6 percent in the quarter, and rose 2.0 percent for non-pharmacy, or "front-end," goods.
Net profit for the quarter rose to C$56.2 million, or 26 Canadian cents a share, from C$51.2 million, or 23 Canadian cents, a year earlier.
Analysts, on average, had been expecting 26 Canadian cents a share, according to Thomson Reuters I/B/E/S.
The Longueuil, Quebec-based company's revenue rose 2 percent to C$716.6 million, in line with analysts' average estimate of C$716.1 million.
Shares of Jean Coutu, down 4 percent over the last six months, closed at C$14.22 on the Toronto Stock Exchange on Wednesday.
($1 = $0.99 Canadian)
Reporting by Maneesha Tiwari in Bangalore and Allison Martell in Toronto; Editing by Sreejiraj Eluvangal and John Wallace