{"id":520622,"date":"2010-04-08T09:46:00","date_gmt":"2010-04-08T13:46:00","guid":{"rendered":"e2249889-c78b-43e3-9643-b1d7d4aa587b:420339"},"modified":"2010-04-08T09:46:00","modified_gmt":"2010-04-08T13:46:00","slug":"shoppers-drug-mart-shares-plunge-on-ontario-drug-changes","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/520622","title":{"rendered":"Shoppers Drug Mart shares plunge on Ontario drug changes"},"content":{"rendered":"

Shares of Shoppers Drug Mart Corp. fell roughly 14% in early trading
\non Thursday after the Ontario government published proposals to dramatically change<\/a>
\nhow pharmacists are compensated. The stock declined $6.17 to $36.78
\nshortly after trading began as analysts downgraded the stock and
\ntrimmed their earnings forecasts.<\/p>\n

Calling the adjustments to
\npharmacy reimbursement \u201cdraconian,\u201d Desjardins Securities analyst Keith
\nHowlett cut his rating on the stock to Sell from Hold and slashed his
\nprice target to $39 from $50.<\/p>\n

After nine months of discussions,
\nthe province says it wants to reduce reimbursement rates for generic
\ndrugs from 50% to 25% of the branded drug cost. It also wants to phase
\nin by 2014 the same generic drug costs for private third-party payers
\nand the uninsured, as well as eliminate professional allowances that
\nsee generic manufacturers pay pharmacists for stocking their generic
\nalternative.<\/p>\n

\u201cThe proposals are punitive to pharmacies in Ontario,\u201d Mr. Howlett told clients. \u201cLonger-term, this will spur consolidation.\u201d<\/p>\n

He
\nexplained that the proposals would eliminate any financial benefit to
\nOntario pharmacies from the shift of prescriptions from branded to
\ngeneric. In fact, remuneration for generics would be lower than for
\nbranded, which will result in the ongoing market share shift to generic
\ndrugs being a drag on earnings, rather than a driver of earnings as it
\nhas been in the past.<\/p>\n

If the proposals are implemented, the
\nanalyst said Shoppers\u2019 current and prospective earnings power will
\nlikely be reduced substantially. His preliminary assessment is that
\nannual earnings per share could fall by 40\u00a2 to 60\u00a2.
Shoppers plans to provide further analysis and information on its first quarter conference call on April 28.<\/p>\n

Mr. Howlett also said the tone of the government\u2019s press release<\/a> suggests negotiations with the industry have ended. <\/p>\n

UBS
\nanalyst Vishal Shreedhar believes the company will respond with reduced
\npharmacy services and hours in Ontario. He said Shoppers should be able
\nto manage the regulatory changes, but it will take time for investors
\nto see the full impact of the drug reforms on its profit and loss
\nstatement.<\/p>\n

The analyst\u2019s largest concern is a potential ricochet
\neffect as other provinces aim to mimic similar pricing terms as the
\nOntario government. He noted that Quebec and Newfoundland and Labrador
\nhave a most favoured nation provision which require that the price
\noffered to the provincial drug plans be equal to the lowest provincial
\ndrug prices in Canada.<\/p>\n

Mr. Shreedhar is surprised that the
\nOntario government aims to not allow private label generic drugs. He
\nleft his Buy rating and $49 price target unchanged. <\/p>\n

Raymond
\nJames analyst Kenric Tyghe noted that the changes to the Ontario Drug
\nBenefit Program were significantly more aggressive than widely
\nexpected. He cut his price target on Shoppers share to $45 from $50 and
\nreduced his rating to Market Perform from Outperform. The analyst also
\nrevised his EPS estimates to $2.52 (from $2.94) in 2010 and to $2.84
\n(from $3.24) in 2011.<\/p>\n

In light of upcoming patent expiration of
\nsome blockbuster drugs, which incentivizes provinces to reduce their
\nexpenditure on generic drugs, he said there is further opportunity for
\nthe federal government to intervene and require more consistent
\npolicies across Canada.<\/p>\n

\u201cWhat is particularly striking with
\nregard to the changes is the disparity between the measured approach
\nrecently adopted under Alberta\u2019s Conservative government and that of
\nOntario\u2019s Liberal government,\u201d Mr. Tyghe wrote in a note. <\/p>\n

Jonathan Ratner<\/a>
<\/p>\n","protected":false},"excerpt":{"rendered":"

Shares of Shoppers Drug Mart Corp. fell roughly 14% in early trading on Thursday after the Ontario government published proposals to dramatically change how pharmacists are compensated. The stock declined $6.17 to $36.78 shortly after trading began as analysts downgraded the stock and trimmed their earnings forecasts. Calling the adjustments to pharmacy reimbursement \u201cdraconian,\u201d Desjardins […]<\/p>\n","protected":false},"author":4059,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-520622","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/520622","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4059"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=520622"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/520622\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=520622"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=520622"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=520622"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}