UPDATE 4-Jean Coutu profit rises on gains at generic drug maker

* Adjusted earnings C$0.23 vs C$0. 19 a year earlier

* Generics unit sales rise 14 percent

* Same-store sales up 2.6 percent

(Adds market reaction) By Allison Martell

TORONTO, Oct 10 (Reuters) - Canadian pharmacy chain JeanCoutu Group Inc reported a rise in adjusted quarterlyearnings on Wednesday as its generic drug manufacturingsubsidiary, Pro Doc, posted a double-digit gain in sales andoperating income.

Prescription sales growth at Longueuil, Quebec-based JeanCoutu and rivals such as Shoppers Drug Mart Corp havebeen hurt in recent years by a provincial crackdown on genericdrug prices and reimbursement rules. But Jean Coutu has said ProDoc should help boost margins over the long term.

Pro Doc's sales rose 14.0 percent to C$38.3 million ($39.2million) in its second quarter, ended Sept. 1, and the unit'scontribution to operating income before amortization rose 25.2percent to C$15.4 million.

"I think Pro Doc was a key strategy for them ahead of thegeneric drug legislation changes, and it's definitely beenbeneficial for the company," Canaccord Genuity analyst DerekDley said, adding that the quarter was broadly in line with hisexpectations.

Ontario bans drugstores from selling their own private-labelgeneric drugs. Canada's top court has agreed to hear a challengeto the ban by Shoppers Drug Mart.

Jean Coutu said 61.0 percent of prescriptions were forgenerics during its second quarter, up from 57.2 percent in thesame quarter last year.

Sales at established stores, a key measure for retailers,increased 2.6 percent overall in the quarter, and 1.6 percentfor non-pharmacy, or "front-end" goods.

Dley said the same-store pharmacy sales growth was a bitstronger than he had forecast, while front-end sales growth atestablished stores was weaker than he had expected.

"It's a pretty competitive environment out there, so youknow, I'm not surprised to see it come in a little bit lower,but it's definitely a little bit weaker than I was expecting,"he said.

Excluding a gain related to Jean Coutu's stake in U.S.drugstore chain Rite Aid Corp and other items, earningsrose to C$50.0 million, or 23 Canadian cents a share, comparedwith C$44.6 million, or 19 Canadian cents, a year earlier.

Jean Coutu is Rite Aid's biggest shareholder, the legacy ofthe Canadian company's 2004 purchase of the Brooks and Eckerddrugstore chain. In 2007, Jean Coutu sold the U.S. business toRite Aid for cash and stock. In April, it sold nearly onequarter of its stake.

On an unadjusted basis, net profit fell to C$51.2 million,or 23 Canadian cents a share, from C$66.4 million, or 29Canadian cents. Revenue rose to C$658.7 million from C$635.2million.

Analysts, on average, expected earnings of 22 Canadian centsa share on revenue of C$653.7 million.

Shares edged up 0.2 percent to C$14.56 in early trading onthe Toronto Stock Exchange on Wednesday.

($1=$0.98 Canadian)

(Reporting by Allison Martell; Editing by Leslie Adler; JeffreyBenkoe and; Peter Galloway)

((allison.martell@thomsonreuters.com)(+1 416 941 8196)(ReutersMessaging: allison.martell.thomsonreuters.com@reuters.net))