http://www.financialpost.com/story.html?id=2777670
Summary
On Thursday, April 8, 2010, the shares of Shoppers Drug Mart Corp. plummeted significantly, from $43.17 on Wednesday down 9.8% to close at $38.92 on Thursday. The dramatic fall in share price was due to the proposals published by the Ontario government, which stated that the province says it plans to reduce reimbursement rates for generic drugs from 50% to 25% of the branded drug cost. Shoppers CEO Jurgen Schreiber believes that these changes will negatively impact the success of the company in the future because the government is ignoring the reform proposals from the community pharmacy, and therefore risking the long-term sustainability of community pharmacy in the Province of Ontario. However, the changes appear to only have a temporary negative effect, as Mr. Schreiber states that Shoppers Drug Mart, with its leading market share, will adjust to the changes announced and reveal the successful players in retail pharmacy to be those with size, scale, and leverage efficiencies.
Connection
In Chapter 15, we learned about the different perspectives that a company would be judged from. For example, when the announcement for pharmacy reforms came out on Thursday, outsiders such as investors would judge the profitability of Shoppers Drug Mart based on its recent news. At the moment, several investors are considering to sell their shares of the company because for the short-term, the trend seems to follow the falling of share prices. Looking at the financial ratios of Shoppers Drug Mart, their financial position seems to have improved from 2009 as compared to 2008, as their current ratio increased from 1.62 to 1.29. Since the current ratio measures a business’s ability to pay its debts, a higher ratio indicates a company has a better change of paying off its debt because they contain a much greater proportion of assets than liabilities. However, the inventory turnover has risen since 2008, as the ratio decreased from 4.79 down to 4.77. This indicates that it takes longer for the company to deplete its inventory and the company would end up with excess inventory.
Reflection
As a result of the pharmacy reforms, Shoppers Drug Mart will have to reduce its pharmacy services and patient care in the province. With the imposed lower generic prescription drugs prices, the Ontario government hopes to maintain or lower its health care costs. Due to the announcement outbreak on Thursday, it is difficult for the financial ratios of Shoppers Drug Mart to reflect these changes until April 28, when the financial report for the first quarter of 2010 will be released. Reports showed that some pharmacies refused to fill prescriptions for their patients for one hour on Wednesday, which I find irresponsible for the pharmacies because they are holding the patients hostage for something they cannot control. After the store warned that they will cut back on staff and opening hours, I think some patients may begin to turn away from Shoppers Drug Mart and instead turn to smaller unaffected pharmacies. However, it seems likely that Shoppers Drug Mart will be capable of returning back to its original share price in the long term, after the changes in pharmacy reforms have been settled.
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A pharmacy in a position with a surplus of medication can be a very bad situation. A surplus of medication does not only mean that a pharmacy will lose out on money due to the expiration and depreciation of stock. It also means that the pharmacy must find a way to dispose of the large quantity of stock because medicine is listed as an environmental hazard as it can get into the soil and water supply. Now the pharmacy has to discard its bulk of merchandise thus losing money, and on top of that, create additional expenditures by disposing of its commodities safely in an ecologically friendly way.
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