Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

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Dennis
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Dennis »

if the average Canadian had to pay a market price for pharmaceuticals, she would be crying bloody murder.
How do you determine "market price"? Is the "market price" not whatever the buyer is willing to pay? Does not the seller have the option of not making the sale?
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Michael D »

Dennis wrote:
if the average Canadian had to pay a market price for pharmaceuticals, she would be crying bloody murder.
How do you determine "market price"? Is the "market price" not whatever the buyer is willing to pay? Does not the seller have the option of not making the sale?
If the generic is 'market price' (the cheapest), and all pharmacies have access to these prices, then the competitive pressure will be on the dispensing fees.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by adrian2 »

Michael D wrote:If the generic is 'market price' (the cheapest), and all pharmacies have access to these prices, then the competitive pressure will be on the dispensing fees.
Being the penny-pincher who has skin in this game, until recently I've thought that the dispensing fee is the only difference between the price ultimately paid at different pharmacies (Shoppers, Walmart, Loblaws). That seemed to be true until I've discovered Costco pharmacy, where not only the dispensing fee is less than half the competitors', but the pill price itself is also significantly cheaper.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by FinEcon »

Dennis wrote: How do you determine "market price"? Is the "market price" not whatever the buyer is willing to pay? Does not the seller have the option of not making the sale?
The market price is what the marginal buyer is willing to pay and the marginal seller is willing to accept. Does not the seller have the option of not making the sale? In a free market, that is a necessary condition. Keep in mind the buyer has the option not to buy.
Michael D wrote: If the generic is 'market price' (the cheapest), and all pharmacies have access to these prices, then the competitive pressure will be on the dispensing fees.
As yourself: how likely is it, in a free market, each participant would obtain the same purchase price with a given manufacturer taking into account differences of scale? ie how could Joe One Horse pharmacy get the same price as a much larger agent such as WalMart, SC, Rexall, etc. This will only happen with very direct government intervention. Costs aren't the same, why should prices be the same? Larger players have buying power and they achieve other efficiencies of scale.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Dennis »

Larger players have buying power and they achieve other efficiencies of scale.
Precisely, IOW, the province, as the largest buyer of drugs in the country, effectively sets the "market price".
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Norbert Schlenker »

Dennis, I'd like to hear your opinion on, e.g. Cargill having the only grain elevator in a 50 mile radius.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by FinEcon »

Dennis wrote:
Larger players have buying power and they achieve other efficiencies of scale.
Precisely, IOW, the province, as the largest buyer of drugs in the country, effectively sets the "market price".
What you describe is the current situation which is not a free market nor is it competitive behaviour. In market competition, no single agent sets the price. The province is not the marginal buyer, it is the coercive buyer. The bottom line here: in this industry, government meddling is severely distorting price signals at many places in the chain which inevitably hurts consumers. Try as it may, government will not be successful, in the long run, to skirt the true economics of this or any other industry, in isolation. The true question then becomes who is subsidizing whom? Steal a pharmacists wallet, give the spoils to an auto worker perhaps? :shock:
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Dennis »

The province in merely using it's buying power to get the best price. It is not the only buyer (although the new legislation effectively gives all purchasers of generics in the province a maximum price). There are a great many residents with employer provided insurance as well as those with none. If non of the generic drug manufacturers agree to the new price then the province would have to reconsider it's policy but it would seem there is lots of competition making the new, 25% pricing viable and therefore it becomes the "market price".

The province is doing what any buyer should be doing, that is, forcing it's suppliers to accept the lowest payment possible. There is nothing "coercive" or "meddling" in this. It is simply good business and as a taxpayer, I for one would expect nothing else from a competent government.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Nemo2 »

Dennis wrote: The province is doing what any buyer should be doing, that is, forcing it's suppliers to accept the lowest payment possible. There is nothing "coercive" or "meddling" in this.
Even if they do send a guy named 'Vinnie Bananas' around periodically to ensure complete cooperation.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by WishingWealth »

And right now, QC may enjoy some 'collaterals'.
They have a contract with the generics producers that says they (QC) will pay the lowest price being paid in CA.

Now the generics producers tried to strike some secret deals with ON but we all know how these work.
A secret is something you tell only to one person... at a time.

And they got caught; according to what some reports say.

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Hammerer »

If non of the generic drug manufacturers agree to the new price then the province would have to reconsider it's policy but it would seem there is lots of competition making the new, 25% pricing viable and therefore it becomes the "market price".
Are you referring to the two generic drug makers that supply about 80%+ of the market? Canadian telecommunications anyone?
One of the generics companies had one of its factory shut down for a while some months ago, and pharmacies are still dealing with the consequences.
Precisely, IOW, the province, as the largest buyer of drugs in the country, effectively sets the "market price".

If Ontario purchases 1/2 the drugs in Ontario (just to pick a number), and Ontario is 1/3 of Canada, that means that Ontario buys 1/6th of the drugs. How does that make them the market price setter? Does the largest shareholder that owns 16.6% of a stock set the market price? Does the civil service, the largest employer in Canada (think), set the market rate for wages/earnings? Plenty of confounders here, ceteris paribus doesn't apply!
WishingWealth wrote:And right now, QC may enjoy some 'collaterals'.
They have a contract with the generics producers that says they (QC) will pay the lowest price being paid in CA.

Now the generics producers tried to strike some secret deals with ON but we all know how these work.
A secret is something you tell only to one person... at a time.

And they got caught; according to what some reports say.

WW
You are actually referring to the brand name "research-based" drug companies, not the generics. The Ontario government was in the rebate game too, essentially to mess with other provinces (and drug plans) that blindly adopted and paid list price for anything the Ontario government decided was economically worthwhile to start paying for (at whatever rate it actually paid).
We knew it was happening all along, but not the guts of the agreements. Ontario's Privacy Commissioner is forcing some of that to come out, enough for Quebec to finally perk up their ears to what's going on.

I think Ontario isn't realizing the collateral damage: The Canadian generic drug industry is headquartered in Ontario, and actually does most of its manufacturing in Ontario too. Now that the cat's out of the bag, they stand to lose quite a bit of inflow of funds/taxes/employment from the rest of Canada (and recycled from within Ontario) as the other provinces adopt the same practices.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by WishingWealth »

Thanks for correction.

(Must check for a memory pill - generic or not.)

WW
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Peculiar_Investor »

Shoppers has a revenue problem
Canadian Generally Accepted Accounting Principles (GAAP) lack guidance on how to account for sales linked to a loyalty program, however. This has allowed Shoppers to take a revenue-boosting approach, according to analyst Kathleen Wong at Veritas Investment Research Corp., who published a report earlier this year.
The article singles out Shoppers, but does mention
Ms. Wong’s suspicion is that what Shoppers is doing is not unique, and “it's very possible that other Canadian retailers are using the same method.”
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by DavidR »

That's interesting, P_I. I was wondering how they handled the Optimum points.

Canadian GAAP is very 'convenient' sometimes. In my cynical moments I describe it as vague enough that you can do whatever you like and (the best part) you can often get away without disclosing it.

Revenue recognition has come a long way in Canada in the last 5 - 10 years, but there is still a distance to go (sigh).
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by FinEcon »

http://business.financialpost.com/2010/ ... -shoppers/
Departure of Ontario’s generic drug czar bad for Shoppers?

The departure of Helen Stevenson as Ontario’s Assistant Deputy Minister of Health and Long-Term Care, could mean the end to the bitter fight with pharmacies over the cost of generic drugs.....
Kinda reminds me of Red Ed Clark, unabashed pinko while in Government then goes to the private sector and is an unabashed proponent of free markets. Only time will tell if Ms Stevenson does the same trick. Anyhow, this can't be anything but an opportunity for impending regs to get better for pharmacists, and more importantly, SC.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Hammerer »

From http://www.theglobeandmail.com/life/hea ... le1582141/
"Since the longstanding, secretive practice was exposed earlier this year by Globe and Mail columnist Adam Radwanski, there has been much political fallout but not nearly enough public outcry."
Good for him, but the story was on Canlii months before he exposed it! And the whole aspect of an "expensive" drug being listed on the formulary persuant to pricing agreements isn't new. Why else would Ontario list a $30 drug when the $12 one works just as well, intuitively, it was known this system existed years ago.

The ugly part of it is that prescribers may intuitively assume if .gov pays for it, it must represent a good value (a healthy dose of marketing the gov's coverage of this whiz-bang new product no doubt helps). The result is that the 3rd-party payors and cash payors get hosed. As do other provinces that blindly follow Ontario's formulary, and Quebec, who is supposed to get the best deal in Canada persuant to their agreement to have all of the brand name drug manufacturers do their "R&D" there.

The government took the government's point of view to an extreme, to the detriment of other provinces, its largely own generic drug industry and even its own people (and its own drug plans for its own employees!).
"Before the new rules take effect, there will likely be another hike in the dispensing fee, and the big pharmacy chains such as Shopper’s Drug Mart and Rexall will get the right to manufacture their own generic drugs, which could be a cash cow."
Long live rebates in another form! (maybe).

Now they'll get to subcontract production to Incumbent Generic Co via Incumbent Pharmacy Manufacturing Co at 0%-25% of the brand name price, and then sell it to the stores (and ultimately consumers/payors) at 25% of the brand name price.

To some extent, this puts more pricing power in the name of the pharmacies, since they can change manufacturers without "changing" people between different generics depending on what kind of deal they get.

Another nail in the coffin for the independent, unless they're also able to pull off the same subcontracting arrangement (errr, manufacture their own). It's all just a bottle label and a stamp on the tablet anyway, it couldn't be that hard for Incumbent Generic Co to replace their tablet punches with completely generic ones. Even if they can, in no way will they get the same deals that the big players can squeeze out. Survival may not be too likely, unless the professional services side of things can pick up, but the government (for whatever reasons), really really really doesn't like to pay for those (and pharmacists have been proposing models for years and years).

Expect things to be more Rogers/Bell/Telus-esque (before the new competitors came out) with dinosaur players that don't overly compete against eachother within 5 years. I'm sure the government will love negotiating with them!
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Taggart »

I still own this one, but starting to think about taking a tax loss and then buying it back again after more than a month. Haven't decided yet though. The way it keeps going down and down, the more interesting this stock becomes. It's now at it's lowest stock price in over five years, and that includes the market debacle of 2009.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

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Taggart wrote:I still own this one, but starting to think about taking a tax loss and then buying it back again after more than a month. Haven't decided yet though. The way it keeps going down and down, the more interesting this stock becomes. It's now at it's lowest stock price in over five years, and that includes the market debacle of 2009.
After doing a quick comparison of (SC) with Jean Coutu (PJC.a) and Walgreen (WAG), I'm having second thoughts regarding the above.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by adrian2 »

FWIW, SC is in the same short list of stocks that I was negative for quite some time. Top of the list was Ebay (my first ever short), then RIMM.

No intention to short it, but neither to buy it. Among retailers, I own Loblaws and Walmart. In the health care sector, I have MRK, PFE and CML Healthcare. I was looking at LLY earlier, but have closed the option trade at a small profit and for now I'll stand pat.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by kcowan »

From Canaccord newsletter today:
On Friday, The British Columbia Ministry of Health Services announced changes to the province's generic pricing scheme. The changes are relatively benign in comparison with Ontario's recent drastic measures, and we believe they will be well received by pharmacy operators within the province. In regards to Shoppers, assuming a roughly 20% market share in BC, back of the envelope math suggests its share of the anticipated health care savings is roughly $40 million annually by 2012 if rebate percentages are static. This could equate to a roughly 3% hit to EBITDA, or a $0.14 drag on EPS.
They are maintaining their hold rating for now until they can further interpret the effects.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by scampbell »

And Scotia is more optimistic this morning:
-The B.C. Ministry of Health Services announced on Friday a series of changes to its drug system that will see lowered generic prices across the province, as expected.
The changes will be phased in over three years with generics reaching a 35% price ceiling by 2012. Dispense fees rise immediately and by 2012 will reach $10.50.
A 1% increase in the mark-up serves as another offset. Importantly, there will be no rebate restrictions. The changes in aggregate address the need to control costs
yet ensure continued good access and a fair and reasonable remuneration for pharmacy services
-We rate SC 1-Sector Outperform. This reflects in part our view that the drug reforms taking place in Canada are set to provide Shoppers with an
unprecedented opportunity to garner substantial Rx volume and share as a result of serious industry consolidation, especially in Canada's largest Rx market of Ontario
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Scotia wrote:our view that the drug reforms taking place in Canada are set to provide Shoppers with an unprecedented opportunity to garner substantial Rx volume and share as a result of serious industry consolidation, especially in Canada's largest Rx market of Ontario
:roll: SC has announced their displeasure with the Ontario changes will result in pharmacy closures, IIRC about 10% of them, while OTOH Loblaws has announced the expansion of their in-store pharmacies. How is this leading to a substantial increase in Shoppers' Ontario market share? :roll:
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by brad911 »

A gain due to the closure of many independent pharmacies as they will likely be unable to compete without their previous revenue stream. Adjusted market share vs. larger competitors would likely decrease if one could figure out those numbers.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by FinEcon »

brad911 wrote:A gain due to the closure of many independent pharmacies as they will likely be unable to compete without their previous revenue stream. Adjusted market share vs. larger competitors would likely decrease if one could figure out those numbers.
Agreed but I think this was pretty much a given from the outset of the Ontario debacle if it were to go through as initially stated. Currently, the industry is just laid out that way.

Very recently, I've gone long SC, which had been on my watch list for so long I thought it would eventually just die there. I've always liked the industry, the business model and this particular firm despite the CEO's recent monstrous PR fumble on the ON file. With the dust settling a bit and the ON problems not extending (any time soon) to AB, QC, and BC, I figure the worst is over for now. Could be right, could be wrong but, IMO, this is the first time SC has been even remotely reasonable in terms of a conservative valuation in years. I think it's a great franchise, great business model, with stable long term economics.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lat

Post by Peculiar_Investor »

Another cost cutting move, Shoppers pulls support from pharmacists’ group - The Globe and Mail
The Globe and Mail wrote:Mr. Schreiber is now turning his guns on the Ontario Pharmacists’ Association, one of the key groups that joined him in opposing the government reforms. About two weeks ago, Shoppers notified the association that the retailer would no longer cover the $500 annual membership fee for its 1,300 or so pharmacists who are members of the OPA. The Shoppers pharmacists are free to maintain their memberships, but they will have to pay the fees themselves.
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