February 18, 2011 / 10:02 PM / in 7 years

Ontario to appeal ruling on private-label drugs

<p>A pedestrian walks past a Shoppers Drug Mart in Ottawa November 10, 2010.Chris Wattie</p>

TORONTO (Reuters) - The government of Ontario plans to appeal a recent Canadian court ruling that gave a thumbs-up to plans by pharmacy chains to make and sell their own private-label generic drugs.

The move comes months after the government acted to bring down the prices of generic drugs in the province, hurting companies such as Shoppers Drug Mart and privately held Katz Group, owner of the Rexall and PharmaPlus chains.

Making their own private-label drugs could help drugstore chains save what they might otherwise have to pay drugmakers and help offset some of the weakness they're seeing in their profits.

The province did not detail on Friday why it was challenging the court ruling but appeared to be concerned that savings from lower generic drug prices would not be passed along to consumers.

"Private labeling does not benefit Ontarians and that's why, today, I am continuing to stand on the side of Ontario taxpayers and patients," Ontario Health Minister Deb Matthews said in an emailed statement on Friday.

"I know it's the right thing to do," she added.

Last April, Ontario moved to trim its annual C$800 million tab for drugs covered under its benefit program and reduce prices consumers pay for generic drugs. It also banned pharmacies from selling generic drugs under their own private labels. That portion of the plan was struck down by the Ontario Superior Court of Justice on February 4.

Shoppers and Katz have the most at stake. The other major Canadian drugstore player, Jean Coutu Group Inc, entered the generic drugmaking business three years ago.

"While we are disappointed with the government's decision. We will continue to pursue our legal options," Shoppers spokeswoman Lisa Gibson said.

Katz spokeswoman Michelle Lee said: "As the government has not accepted the decision of the divisional court, we'll need to see and understand the legal basis under which they intend to appeal."

After the Ontario government took steps last year to cut prices of generic drugs in the province, Canada's biggest retail market, the government of the neighboring province of Quebec followed suit. Key players in Quebec include Jean Coutu and Shoppers-owned Pharmaprix.

The drugstore chains are looking for ways to offset losses caused by government reform efforts, and making their own generic drugs would be one way. Other moves such as cost-savings may not do enough to make up for the shortfall.

In an interview with Reuters on Thursday, Jean Coutu Chief Executive Francois Coutu said the company expects the lower prices resulting from the reforms to drive sales volumes and eventually benefit drugstores.

Shares of Shoppers were down 1.5 percent at C$40.00 on the Toronto Stock Exchange on Friday. Jean Coutu was up 1.4 percent at C$10.10.

($1=$0.99 Canadian)

Reporting by S. John Tilak; editing by Rob Wilson and Peter Galloway

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