NEW YORK — Rite Aid filed for Chapter 11 bankruptcy protection on Sunday, falling victim to a miserable drugstore environment that was exacerbated by its second-place finish to larger chains and costly litigation over allegedly issuing illegal opioid prescriptions.
The bankruptcy came as no surprise. Larger competitors CVS and Walgreens also face many of the same problems. They, too, are closing stores as Amazon and large chains like Walmart, Target and Costco serve as more customer-friendly alternatives to national pharmacy chains.
But Rite Aid is in much worse financial shape than its competitors and unable to weather the storm that has hit the industry.
On Thursday, the company filed a notice with the U.S. Securities and Exchange Commission saying it was unable to file its latest quarterly financial report because it was looking for “strategic alternatives,” which Wall Street said was “bankruptcy consideration.” ” means.
In it, the company said it expected its losses to widen significantly last quarter, which is saying something considering it lost about three-quarters of a billion dollars between March 2022 and March 2023 – and between March and May this one Another $307 million a year. Over the past six years, Rite Aid has posted losses of nearly $3 billion.
As of early June, the last time the company filed a financial report, Rite Aid had just $135.5 million in cash – and $3.3 billion in long-term debt, reducing the value of the company’s assets by nearly $1 billion US dollars. With interest rates rising, financing this debt wasn’t cheap.
“It was always a matter of when, not if, Rite Aid would file for bankruptcy,” Neil Saunders, chief executive of GlobalData, said in a note to investors. “The company has been deeply in the red for six years.”
A plan to stay afloat
The company said in a statement it had secured $3.5 billion in financing and debt reduction arrangements from lenders to keep the company afloat during bankruptcy.
The company said it would accelerate the pace of store closures and sell some of its businesses, including prescription services provider Elixir Solutions. Bankruptcy could also help resolve the company’s legal disputes at a significantly lower cost.
As part of the bankruptcy plan, Rite Aid named a new CEO, Jeff Stein, who will also serve as head of restructuring and as a board member. Stein said in the statement the company plans to remain in business.
“With the support of our lenders, we look forward to strengthening our financial foundation, advancing our transformation initiatives and accelerating the execution of our turnaround strategy,” he said. “In doing so, we will be even better able to provide the healthcare products and services our customers and their families rely on – now and in the future.”
Rite Aid has had an interim CEO since January 2023.
Fighting Opioid Lawsuits
Rite Aid’s losing battle against mounting debt has been compounded by legal problems stemming from allegations that it wrote illegal opioid prescriptions to customers.
The Justice Department filed a lawsuit against the company in March, alleging it knowingly processed “unlawful prescriptions for controlled substances.” This is a violation of the False Claims Act and the Controlled Substances Act. The government accused Rite Aid of overlooking “obvious warning signs” when issuing prescriptions for addictive painkillers.
When the U.S. Department of Justice filed its lawsuit, Attorney General Merrick Garland said the department would “use every tool at our disposal to hold Rite Aid accountable for its contribution to the opioid epidemic.”
Walgreens, CVS and others have settled similar lawsuits in recent years but remain in better financial shape and have largely been able to absorb the tens of billions of dollars they owed various government agencies in settlements.
According to the U.S. Centers for Disease Control and Prevention, more than half a million people died from drug overdoses in the United States between 1999 and 2020.
Rite Aid is by far the third-largest national stand-alone pharmacy chain in the United States – and the seventh-largest pharmacy overall when large pharmacy chains are taken into account. It has more than 2,200 stores in 17 states.
When Walgreens offered to buy the chain in 2015, it was offered a $17 billion lifeline. However, the deal was heavily scrutinized by U.S. regulators amid concerns that the merger would violate federal antitrust laws and limit competition in the drugstore market.
Ultimately, the companies agreed to a smaller deal worth $4.4 billion in 2017 in which Walgreens purchased nearly 2,000 Rite Aid locations, leaving Rite Aid less relevant and unable to compete with the size of its operations to keep up with larger competitors.
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