DBRS puts Shoppers debt under review

The DBRS bond rating agency Thursday placed the debt of Toronto-based Shoppers Drug Mart Corporation under review with negative implications.

That means the agency has increased concerns about how easily the pharmacy chain can repay its debts.

DBRS said in a release its move is based on the Ontario provincial government's recently announced changes to the Ontario Drug Benefit Program, which it said "are harsher than previously expected."

The move came the same day as shares in Canada's largest pharmacy retailers fell after the government's proposal to cut reimbursement rates on sales of generic drugs.

Shoppers was among the most actively traded stocks Thursday on the Toronto Stock Exchange, with its stock closing down $4.25, or 9.8 per cent, to $38.92. More than 14.6 million shares changed hands.

Shoppers is Ontario's largest drug retailing chain, with 600 pharmacies in the province. It had warned the previous day that the province's move would have dire consequences for it and other drug retailers.

Jean Coutu Group, which operates the largest chain of pharmacies in neighbouring Quebec, also saw its shares plummet. Its stock lost 59 cents, or six per cent, to $9.30 on volume of 1.4 million.

DBRS said it would assess the implications of the Ontario government's plan, with any potential modifications, once it is finalized and in place.

Other provinces might follow

Because Shoppers has a national operation, DBRS said it also remains concerned about the effect that Ontario's plan may have on other provinces "as they, in turn, put in place regulations to manage their health-care costs."

The Canadian Generic Pharmaceutical Association — which represents manufacturers — slammed the government's proposals.

In a release, it said it "is concerned that the deep price cuts announced yesterday by the Government of Ontario could undermine the future and current availability of low-cost generic prescription medicines, and the economic contribution of Ontario's generic pharmaceutical industry."

On Wednesday, Health Minister Deb Matthews said the province is proposing to cut the price of generic prescription drugs — and its reimbursement to pharmacists under public plans — from 50 per cent to 25 per cent of the cost of branded drugs.

It also wants to extend the same changes to private plans and to sales to uninsured customers by 2014. As well, it would ban an allowance that generic drug manufacturers make to shopkeepers to carry their particular brand.

The province said those allowance payments amounted to $750 million in 2009.

"I will not go so far as to call them kickbacks or rewards, but I can tell you there are people who would do that," Matthews said. "One thing is for sure: They're very, very large payments."