October 5, 2010 / 11:46 AM / in 7 years

UPDATE 2-Jean Coutu profit in line, awaits drug reform

* Q2 EPS C$0.18 vs est. C$0.18

* Rev C$622.0 mln vs est. C$648.9 mln

* Quebec drug reform decision expected within weeks (Adds details, comments from conference call, analysts)

By Solarina Ho

TORONTO, Oct 5 (Reuters) - Pharmacy chain Jean Coutu Group (PJCa.TO) reported a higher quarterly profit on Tuesday, in line with analyst estimates, and said it was awaiting Quebec’s upcoming decision on generic drug pricing.

A decision by the province, which was originally expected during the summer, is now expected “within the next weeks or so”, Chief Executive Francois Coutu said during a conference call with analysts.

Quebec is expected to announce pricing reforms similar to a plan introduced by neighboring Ontario in April, as part of a provincial effort to trim healthcare costs.

Ontario slashed the price of generic drugs to 25 percent of branded equivalents and eliminated the rebates pharmacies received from drugmakers.

“It looks like the (Quebec) government is taking the avenue of negotiating with all the parties in good faith,” Coutu told analysts during the call.

“(It is) trying to make sort of a business deal, a long-term business deal, that will benefit the government, the public, and hopefully not take the industry into a difficult situation,” he said.

The Montreal-based company, which opened three stores during the quarter and expanded or renovated six others, said the industry could see some repositioning once details of the Quebec legislation are unveiled.

Coutu said the industry was currently stable, but noted it was possible some independent pharmacies could decide to sell their business, noting: “If they see that there is a threat to this, they may be decided to seek out other opportunities.”

Jean Coutu, which operates 378 drug stores in Canada -- mostly in Quebec -- said changes in generic drug prices should not change its strategy for Pro Doc Ltd, the generic drug manufacturer it owns. It said it plans to add to its inventory of products in the near future.

THIRD QUARTER CHALLENGE

For its second quarter, ended Aug. 26, the company earned C$42.6 million, or 18 Canadian cents a share, compared with C$14.9 million, or 7 Canadian cents a share, a year earlier.

Revenue rose 2 percent to C$622.0 million.

Pharmacy same-store sales, or sales at stores open at least a year, rose by 2.2 percent, while same-store front-end sales edged up 0.2 percent. Retail sales grew 1.9 percent.

Pro Doc continued to be a main driver behind improvements in the company’s gross margin rate, Coutu said.

“It was an in-line quarter and we didn’t get any resolution on the generic drug legislation in Quebec, so it’ll largely remain wait-and-see until then,” said Candice Williams, an analyst with Canaccord Genuity.

Shares of Jean Coutu, which have gained about 8 percent in the past three months, were up 0.7 percent at C$8.94 on the Toronto Stock Exchange early Tuesday afternoon.

$1=$1.02 Canadian Additional reporting by Ashutosh Joshi and Renju Jose in Bangalore; editing by Rob Wilson

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