Retail pharmacy chain Rite Aid filed for bankruptcy protection Sunday in an effort to address lawsuits over its alleged role in the opioid epidemic and a debt load rising to nearly $4 billion.
In a statement on its Chapter 11 bankruptcy filing, the company said it received $3.5 billion in financing and debt reduction agreements from lenders to support business operations throughout the financial restructuring process. The restructuring plan will "significantly reduce the company’s debt, increase its financial flexibility and enable it to execute on key initiatives," Rite Aid executives said.
Rite Aid also announced the appointment of Jeffrey Stein as CEO, chief restructuring officer and a member of the company’s board of directors. The company said Stein is an "experienced corporate leader and executive director with significant expertise in supporting companies that are driving meaningful business transformations and undergoing financial restructurings."
Rite Aid also will continue to close underperforming stores and sell off some of its businesses. The company entered an agreement to sell its Elixir Solutions business to MedImpact Healthcare Systems, an independent pharmacy benefit solutions company. MedImpact will serve as the “stalking horse bidder” in a court-supervised sale process under Section 363 of the U.S. Bankruptcy Code, Rite Aid said.
Rite Aid had a total debt of $8.6 billion as of June 3, according to a filing with the U.S. Bankruptcy Court for the District of New Jersey, Yahoo! Finance reported.
The company employs more than 6,100 pharmacists and operates more than 2,100 retail pharmacy locations across 17 states.
The company lost $307 million between March and May this year, according to its latest financial report (PDF) filed with the U.S. Securities and Exchange Commission, and it lost about three-quarters of a billion dollars between March 2022 and March 2023. Over the past six years, Rite Aid has tallied nearly $3 billion in losses.
According to the financial report, the company had $135.5 million in cash on hand and $3.3 billion in long-term debt.
Rite Aid expects to report a significant increase in net loss for the quarter that ended in early September, it reported.
The drugstore chain also is a defendant in several lawsuits concerning its role in filling opioid prescriptions. In 2017, more than 1,000 opioid-related cases were consolidated in the U.S. District Court for the Northern District of Ohio. In March 2013, the Justice Department brought its own complaint, alleging violations of the False Claims Act and the Controlled Substances Act, The Washington Post reported.
Retail pharmacies are under pressure as demand for COVID-19 vaccines and testing wanes and consumers have more options for healthcare services from retailers like Walmart and Amazon.
A year ago, Rite Aid inked a partnership with Google Cloud for a multiyear technology partnership that will help ramp up the pharmacy chain's digital and data capabilities. Three years ago, the company unveiled its new concept stores as it overhauled its brand to keep up with competitors like CVS Health and Walgreens.
The "Stores of the Future" model aimed to be "spa-like destinations," the company said in its announcement. Millennial and Generation X women are a key demographic Rite Aid is targeting with the revamp, it said at the time.
So, what will Rite Aid look like when it reemerges from restructuring? The company faces the same challenges as its larger competitors, CVS and Walgreens, with increased competition for healthcare consumers and slowing store sales.
"It is very difficult for traditional retail pharmacies to stand still in the current environment. You need to determine if you want to shift towards an online model, become a payer, or become a provider," said Ash Shehata, principal, national sector leader, Healthcare and Life Sciences at advisory firm KPMG.
"For many retail pharmacies finding success right now, they have become a combination of all three. We are in a digital world. Previously, the aspiration for these pharmacies was to be on every block throughout a community. Now, many are questioning whether that is meaningful when we get our groceries and essentials delivered right to our door," Shehata said.
There are key trends forcing a substantial revolution of the healthcare sector, he noted. Retailers are aligning with payers either through acquisitions or strategic partnerships. "This is an area of pressure and opportunity," he said. CVS bought insurer Aetna in 2018 as part of a vertical merger.
Retailers also are moving towards the healthcare side to provide healthcare services through a combination of telemedicine and health clinics. Walgreens' VillageMD subsidiary recently bought Summit Health/CityMD to expand further into primary, specialty and urgent care. Walgreens also acquired CareCentrix, a post-acute and home care provider and specialty pharmacy Shields Health. CVS, for its part, recently snapped up Oak Street Health for $10.6 billion to get a slice of the primary care market.
"We've also seen an overall age of pharmacy benefits across the domain. Meaning the rise of the PBM. PBMs are becoming a larger force. And as a result, there are more concerns around transparency issues and the challenges around retail pharmacy and prescribing," Shehata said.