Walgreens exploring sale of specialty pharmacy company Shields Health: media report

Walgreens is exploring a potential sale of its specialty pharmacy business Shields Health Solutions, just two-and-half years after it bought a majority stake in the business.

Bloomberg reported Tuesday that the pharmacy chain is working with advisers to assess the level of interest in a potential sale, citing people familiar with the matter.

The sale could be valued at more than $4 billion, according to the report. The specialty pharmacy company is expected to draw interest from private equity firms and healthcare companies.

No decision has been made so far and Walgreens could hold onto the business, according to Bloomberg.

In September 2021, Walgreens spent $970 million to increase its stake in the company to 71%. A year later, in 2022, the company bought the remaining stake in Shields Health for approximately $1.37 billion.

At the time, Roz Brewer, the former CEO of Walgreens Boots Alliance, said the acquisition would further Walgreens' "consumer-centric healthcare strategy" through Shields’ integrated model that "increases value to health systems, expands access to payer partners and supports improved outcomes and lower costs.”

Shields offers medications with unique handling, administration and monitoring requirements. Specialty drugs are used to treat complex or rare conditions such as cancer, hepatitis and transplants. Shields' provider network is comprised of more than 75 health systems across 47 states and more than 850 hospitals, according to its website. The company provides access to 3,300 unique medications across more than 45 specialty and rare disease states.

Walgreens is making moves to improve its financial performance after a massive growth spurt in which it acquired home healthcare business CareCentrix and VillageMD's acquisition of Summit Health-CityMD. Walgreens has closed 27 underperforming VillageMD clinics as part of a plan to close 60 clinics this year.

The company has shifted its focus toward primary care, post-acute care and home care. In 2021, Walgreens invested $5.2 billion in VillageMD, making it the majority owner with a 63% stake, up from 30% previously. 

The company's healthcare segment includes Shields Health along with primary care provider VillageMD; Summit Health/CityMD, a provider of primary, specialty and urgent care; CareCentrix, a post-acute and home care provider and Walgreens Health.

Earlier this month, Walgreens' stock fell roughly 10% after it announced it would slash its dividend nearly in half to free up capital to grow its business. 

Walgreens is on track with cost-cutting initiatives that aim to cut $1 billion in expenses this year, executives said during the company's fiscal first-quarter earnings. The company also wants to increase cash flow and free up capital to spend growing its pharmacy and healthcare businesses.

"My headline to you is that everything is on the table to deliver greater shareholder value," new CEO Tim Wentworth told analysts on the earnings call.

Walgreens reported fiscal first-quarter sales were up 10% to reach $36.7 billion, reflecting sales growth in the U.S. Retail Pharmacy and International segments, and sales contributions from the U.S. Healthcare segment. The company reported a loss of $67 million during the quarter.

The U.S. healthcare segment's sales grew 12% to reach $1.9 billion. The growth was led by VillageMD and Shields, which grew 27%, driven by recent contract wins and further expansion of existing partnerships, according to the company's Q1 earnings report.