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Shoppers results squeezed by new generic drug laws

Stepped up sales of non-prescriptions ranging from milk to lipstick helped ease the pain of new generic drug laws, which cut into Shoppers Drug Mart Corp.’s first-quarter financial results.

Shoppers (SC-T) said on Wednesday that its first-quarter profit slipped to $118 million or 54 cents a share from $122 million or 56 cents a share a year earlier. Excluding a gain on the sale-leaseback transaction, profit in last year’s quarter was $114 million or 52 cents a share. Sales rose 2.7 percent to $2.35 billion.

Sales were hurt by a 0.4 percent decline in sales of prescriptions—to $1.15-billion—because of a reduction in generic prescription sales following new laws in Ontario, British Columbia, Alberta and Quebec, even while overall use of cheaper generic drugs were up in the period.

Generic drugs made up 56.6 percent of prescriptions dispensed in the first quarter, compared with 53.2 percent a year earlier.

But Shoppers reported healthy sales of non-prescriptions, which increased 6 percent to $1.2 billion in the quarter as the company focused more on products such as cosmetics, food and consumer goods.

“This is a particularly solid result considering that we are in the midst of working through a difficult period of transition as we adjust our business and service model in response to government reform initiatives and the resultant funding and reimbursement pressures on our pharmacy business,” David Williams, interim chief executive officer, said of the first-quarter results.

The company started to search for a permanent CEO earlier this year after Jurgen Schreiber unexpectedly stepped down just as the company was having to adapt to profit-bruising generic law reforms.

Shoppers’ board of directors declared a dividend of 25 cents a common share, payable July 15, 2011 to shareholders of record as of the close of business on June 30.

It also shuffled the roles of members of its board of directors, among other moves naming Holger Kluge to succeed Mr. Williams as non-executive chair of the board, effective May.

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