Shoppers Drug Mart Corporation Responds to Ontario Government Announcement Regarding Drug Reform

TORONTO, Apr 7, 2010 (Canada NewsWire via COMTEX) —-

Source: Shopper’s Drugmart

Shoppers Drug Mart Corporation (TSX: SC) today responded to the Ontario Liberal Government’s announcement with respect to plans for further drug reform in the province.

As part of the announcements, the Ontario Liberal Government indicated that generic prescription drug prices for patients under the Ontario Drug Benefit Program would be reduced from the current level of 50% of the equivalent brand name price for multi-source generic prescription drug products to 25% of the equivalent brand name price. The announcement also indicated that planned reductions in generic prescription drug pricing would also be extended to the private sector over a multi-year period.

The Company is in the process of reviewing these announced changes to assess their impact on its sales and profitability. At this time, it is too early to draw specific conclusions. Part of the Company’s review of these announced changes will include the further development and subsequent implementation of contingency plans for its own business and service model in order to ensure that it can continue to generate a fair and adequate return to fulfill its obligations to all stakeholders, including its Associate-owners, employees and shareholders. As a result of today’s announced changes to the Ontario drug system, the Company will also be undertaking a review of its longer-term strategic priorities and initiatives. As well, the Company will also be reviewing its previously issued expectations for comparable prescription sales growth in fiscal 2010, which did not fully contemplate the extent of the announced changes to the Ontario drug system. The Company will report its First Quarter Financial Results on April 28, 2010 and it is expected that further information will be provided at that time.

The Company is strongly opposed to the changes announced today and believes that they will have a direct negative impact on pharmacy services and patient care in the Province of Ontario. The plan indicates an unreasonably low rate of reimbursement compared to what was proposed by community pharmacy, suggests that the Ontario Liberal Government will further interfere in the commercial relationships between generic manufacturers and pharmacies, and that this government will play an increased role in the regulation of private sector drug benefit programs – programs which it does not fund or pay for.

Discussions regarding changes to the Ontario Drug Benefit Program have been underway for more than nine months. During the course of these discussions, community pharmacy provided the Ministry of Health & Long-Term Care with numerous proposals that would save the government money, enhance pharmacy services and improve efficiencies, provide greater patient access and at the same time, ensure the long-term economic viability of community pharmacy and the Ontario Drug Benefit Program.

Key tenants of these proposals included:

– Price reductions on new and existing multisource generic molecules
for the Ontario Drug Benefit Program which would have delivered, on
average, more than $300 million in gross annual savings, or gross
savings of $1.3 billion over four years;

– No change to prices for generic prescription drug products in the
private sector;

– A modest increase in dispensing fees – necessary to ensure the
viability of pharmacies and the continued provision of critical
services in our communities – in order to begin to address the direct
funding shortfall given that the Ontario Drug Benefit Program already
has, at $7.00, the lowest reimbursement level for dispensing fees in

– Expanding the levels and types of services available through
pharmacists – improving patient access and creating significant value
for Ontarians;

– Allowing generic drug manufacturers and pharmacy retailers to
negotiate supply agreements in accordance with ordinary commercial
terms, eliminating the concept of professional allowances; and

– Enhancing drug utilization management programs by implementing such
measures as therapeutic substitution and increased generic
prescription utilization initiatives at the retail pharmacy level –
which could deliver additional annual savings in excess of $400

The Ontario Drug Benefit Program already benefits from some of the lowest generic drug pricing in the country and the Province pays the lowest dispensing fee in Canada. The $300 million in annual savings from the community pharmacy proposal would be in addition to those savings already being realized through drug system reform introduced in 2006 via Bill 102, which reduced the price of generic prescription medications in Ontario by more than 20%. Additionally, with a large number of branded molecules scheduled to go off patent in the coming years, it is estimated that the Ontario Drug Benefit Program is in line to save a further $2.3 billion between 2010 – 2014.

With an aging population and close to five million Canadians without a family doctor, the Company believes that now is the time to be investing in community pharmacy. Instead, these announced cuts will require all pharmacies, including the more than 600 Shoppers Drug Mart pharmacies in Ontario employing more than 25,000 people, to review their operating, investing and professional practice models to ensure the long-term sustainability of their businesses. Furthermore, given that there is no government funding at all for most of the additional services pharmacies provide to patients, such as educational clinics, compliance packaging, blood pressure and glucose monitoring, telephone counselling and prescription delivery to seniors’ homes, it is expected that these cuts will negatively impact the health and well-being of patients and customers as it is inevitable that pharmacies will have to make reductions to their current service offerings.

Contrary to the McGuinty Liberal Government’s stated objective in its most recent budget of creating a foundation for jobs and growth, these cuts will potentially cause a reduction in resources and will stifle investment and growth within Ontario’s pharmacy sector. And while the Ontario Liberal Government has for years stated that it will provide additional funding and reinvest Ontario Drug Benefit Program savings in enhanced pharmacy programs and services, the reality is that it has delivered only one pharmacy professional service and associated compensation model to the citizens of Ontario since 2006.

In response to today’s announcement from the Ontario Liberal Government, Jürgen Schreiber, President and CEO of Shoppers Drug Mart Corporation stated: “It is unfortunate that the McGuinty Liberal Government has taken such a narrow and short-term view in introducing measures to reform Ontario’s drug system. In announcing these changes, while ignoring the reform proposals brought forward by community pharmacy, this government is putting at risk the long-term sustainability of community pharmacy in the Province of Ontario. Despite claims to the contrary from this government, there is little evidence to suggest that payers are willing to invest in enhanced pharmacy services and programs. These announced reductions in drug pricing and pharmacy reimbursement, on the heels of significant cuts just four years ago, will only serve to further commoditize healthcare and the practice of community pharmacy at a time when Ontarians need it most. These announced changes reinforce our view that in the long-term, the successful players in retail pharmacy will be those with size, scale and an ability to leverage operating efficiencies. Shoppers Drug Mart, with the largest integrated pharmacy network in the country and the leading market share, will be challenged in the short-term to adjust to the changes announced today, but remains well-positioned for the long-term.”

About Shoppers Drug Mart Corporation

Shoppers Drug Mart Corporation is one of the most recognized and trusted names in Canadian retailing. The Company is the licensor of full-service retail drug stores operating under the name Shoppers Drug Mart (Pharmaprix in Qu?bec). With more than 1,170 Shoppers Drug Mart and Pharmaprix stores operating in prime locations in each province and two territories, the Company is one of the most convenient retailers in Canada. The Company also licenses or owns more than 49 medical clinic pharmacies operating under the name Shoppers Simply Pharmacy (Pharmaprix Simplement Sant? in Qu?bec) and six luxury beauty destinations operating as Murale. As well, the Company also owns and operates 64 Shoppers Home Health Care stores, making it the largest Canadian retailer of home health care products and services. In addition to its retail store network, the Company owns Shoppers Drug Mart Specialty Health Network Inc., a provider of specialty drug distribution, pharmacy and comprehensive patient support services, and MediSystem Technologies Inc., a provider of pharmaceutical products and services to long-term care facilities in Ontario and Alberta.

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Forward-looking Information and Statements

This news release contains forward-looking information and statements which constitute “forward-looking information” under Canadian securities law and which may be material, regarding, among other things, the Company’s beliefs, plans, objectives, estimates, intentions and expectations. Forward-looking information and statements are typically identified by words such as “anticipate”, “believe”, “expect”, “estimate”, “forecast”, “goal”, “intend”, “plan”, “will”, “may”, “should”, “could” and similar expressions. Specific forward-looking information in this news release includes, but is not limited to, statements with respect to the Company’s operating and financial results, its capital expenditure plans, the ability to execute on its future operating, financing and investing strategies and the impact on the Company’s financial results of the potential changes to the Ontario drug system.

The forward-looking information and statements contained herein are based on certain factors and assumptions, certain of which appear proximate to the applicable forward-looking information and statements contained herein. Inherent in the forward-looking information and statements are known and unknown risks, uncertainties and other factors beyond the Company’s ability to control or predict, which give rise to the possibility that the Company’s predictions, forecasts, expectations or conclusions will not prove to be accurate, that its assumptions may not be correct and that the Company’s plans, objectives and statements will not be achieved. Actual results or developments may differ materially from those contemplated by the forward-looking information and statements.

The material risk factors that could cause actual results to differ materially from the forward-looking information and statements contained herein include, without limitation: the risk of adverse changes to laws and regulations relating to prescription drugs and their sale, including pharmacy reimbursement programs and the availability of manufacturer allowances, or changes to such laws and regulations that increase compliance costs; the risk of adverse changes in economic and financial conditions in Canada and globally; the risk of increased competition from other retailers; the risk of an inability of the Company to manage growth and maintain its profitability; the risk of exposure to fluctuations in interest rates; the risk of material adverse changes in foreign currency exchange rates; the risk of an inability to attract and retain pharmacists and key employees; the risk of an inability of the Company’s information technology systems to support the requirements of the Company’s business; the risk of changes to estimated contributions of the Company in respect of its pension plans or post-employment benefit plans which may adversely impact the Company’s financial performance; the risk of changes to the relationships of the Company with third-party service providers; the risk that the Company will not be able to lease or obtain suitable store locations on economically favourable terms; the risk of adverse changes to the Company’s results of operations due to seasonal fluctuations; risks associated with alternative arrangements for sourcing generic drug products, including intellectual property and product liability risks; the risk that new, or changes to current, federal and provincial laws, rules and regulations, including environmental and privacy laws, rules and regulations, may adversely impact the Company’s business and operations; the risk that violations of law, breaches of Company policies or unethical behaviour may adversely impact the Company’s financial performance; property and casualty risks; the risk of injuries at the workplace or health issues; the risk that changes in tax law, or changes in the way that tax law is expected to be interpreted, may adversely impact the Company’s business and operations; the risk that new, or changes to existing, accounting pronouncements may adversely impact the Company; the risks associated with the performance of the Associate-owned store network; and the risk of damage to the reputation of brands promoted by the Company, or to the reputation of any supplier or manufacturer of these brands.

This is not an exhaustive list of the factors that may affect any of the Company’s forward-looking information and statements. Investors and others should carefully consider these and other risk factors and not place undue reliance on the forward-looking information and statements. Further information regarding these and other risk factors is included in the Company’s public filings with provincial securities regulatory authorities including, without limitation, the sections entitled “Risks and Risk Management” and “Risks Associated with Financial Instruments” in the Company’s Management’s Discussion and Analysis for the 52 week period ended January 2, 2010. The forward-looking information and statements contained in this news release represent the Company’s views only as of the date of this release. Forward-looking information and statements contained in this news release about prospective results of operations, financial position or cash flows that are based upon assumptions about future economic conditions and courses of action are presented for the purpose of assisting the Company’s shareholders in understanding management’s current views regarding those future outcomes and may not be appropriate for other purposes. While the Company anticipates that subsequent events and developments may cause the Company’s views to change, the Company does not undertake to update any forward-looking information and statements, except to the extent required by applicable securities laws.

Keywords: drugs, pricing, costs, pharmacy