Canada's top court upholds Ontario ban on private-label drugs


* Decision is blow to pharmacies like Shoppers Drug Mart

* Ban had been brought in to try to lower prices

* Ontario ban could be imitated by other provinces

By Randall Palmer

OTTAWA, Nov 22 (Reuters) - The Supreme Court of Canada dealta blow to pharmacy chains on Friday when it upheld the provinceof Ontario's ban on drugstores' sales of their own private-labelgeneric prescription drugs.

Pharmacy companies saw the private-label drugs as a way toreduce the impact of Ontario regulations designed to lower thecost of generic drugs. A lower court ruled that the store branddrugs circumvent bans on professional allowances and rebates.

The Ontario rules have weighed on the earnings of thedrugstore chains, including Shoppers Drug Mart Corp, aprincipal appellant in this case. Shoppers' share price edgedlower after Friday's ruling, down 7 Canadian cents at C$59.04.

In the 7-0 decision, Justice Rosalie Abella noted thatCanada spends more on prescription drugs per capita than almostany other industrialized country and she highlighted "Ontario'stotemic struggle to control generic drug prices."

She pointed out the proportion of government health careexpenses that went for drugs had risen to 15.9 percent in 2010from 9.5 percent in 1985.

The provincial ban on a pharmacy chain's buying from its ownsubsidiary aims to overcome anticompetitive behavior, or toprevent prices that are unnaturally high.

"Each time the government has introduced new measures,market participants have changed their business practices toobviate the restrictions and keep prices high," Abella wrote.

The ruling only applies directly to Ontario, the biggestmarket in Canada. But it could inspire similar bans in otherprovinces, which have already followed Ontario's lead in cuttingprices for generic drugs.

Abella referred to a 2007 Ontario government study thatfound that some of the leading generic drugs were three timesmore expensive in Ontario than in France, Germany and Britain,five times more costly than in the United States and 22 timesmore expensive than in New Zealand.

Shoppers Drug Mart had its own Sanis private-label brand.Sanis did not make the drugs itself but bought them fromthird-party fabricators.

Its major competitor in Ontario, the Katz Group, had alsochallenged the Ontario rules, and the Supreme Court ruled on theappeals by Katz and Shoppers in one judgment.

Katz operates the Pharma Plus and Rexall pharmacies inOntario, and, like Shoppers, had taken steps to set up its ownprivate-label manufacturer.

The two companies had argued that the Ontario regulationsdid not meet the purpose set out in the provincial legislationthat governs them, but Abella said no.

"The 2010 private label regulations were ... part of theregulatory pursuit of lower prices for generic drugs and are, asa result, consistent with the statutory purpose," she declared.

The decision does not affect drugstores' ability to sellown-brand over-the-counter generic products like ibuprofen andvitamins.

Shoppers' Quebec-based rival Le Groupe Jean Coutu Group PJCInc sells its own Pro Doc generic drugs in Quebec, butthe chain has relatively few outlets in Ontario.

The name of the decision, combined from the Katz andShoppers cases, is Katz Group Canada v Ontario (Health andLong-Term Care), 2013 SCC 64.

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