Rite Aid sought Chapter 11 bankruptcy protection on Sunday, succumbing to a challenging pharmaceutical environment intensified by mounting pressures from more dominant chains and costly legal disputes tied to alleged unlawful opioid prescription filling.
This bankruptcy declaration didn’t come as a surprise to any who followed Rite Aid’s journey. Retail pharmacy giants, CVS and Walgreens, though experiencing similar quandaries, are holding steady amid the crisis by shutting down select stores as the likes of Amazon and big-box retail chains like Walmart, Target and Costco emerge as preferred, consumer-friendly alternatives to nationwide pharmacies.
Rite Aid, however, ensnared in a graver financial tangle than its peers and competitors, struggled to stay afloat amid the persisting industry turbulence. Last Thursday, the company informally explained to the US Securities and Exchange Commission that it was exploring strategic alternatives—an indicator of impending bankruptcy.
The announcement also stated a significant spike in its losses expected for the last quarter. Given it lost nearly three-quarters of a billion dollars between March 2022 and March 2023 and an additional $307 million from March to May this year showed the severity of its predicament. In the past six years, Rite Aid has incurred nearly $3 billion in losses.
In its last submitted financial report in early June, Rite Aid revealed its precarious position, having just $135.5 million in cash and $3.3 billion in long-term debt—a debt burden exceeding the company’s asset value by about $1 billion. Financing this debt has proved costly amidst rising interest rates.
Neil Saunders, the managing director of GlobalData, noted that it was just a matter of time before Rite Aid had to seek bankruptcy protection, given the chain’s financial woes of the past six years.
To navigate the bankruptcy proceedings, the company has secured $3.5 billion in financing and debt reduction contracts from lenders. The retailer plans to accelerate its pace of store closures and divest some of its businesses, including prescription benefit provider Elixir Solutions. This bankruptcy process may also offer a chance to resolve the company’s legal disputes at a significantly lowered cost.
With the implementation of the bankruptcy plan, Rite Aid has appointed a new CEO, Jeff Stein, to head the restructuring process and also serve as a board member. Providing assurance of the company’s survival, Stein stated the company’s intention to fortify its financial footing, elevate its transformation initiatives and expedite the execution of its turnaround strategy.
On the legal front, Rite Aid’s struggle with its increasing debt was worsened by legal controversies around its alleged unethical practices of fulfilling unlawful opioid prescriptions. The Department of Justice launched a lawsuit against Rite Aid in March, accusing the company of flagrantly violating the False Claims Act and Controlled Substances Act.
Attorney General Merrick Garland announced that the Department of Justice would utilize every legal tool to hold Rite Aid accountable for its contributing role in the opioid crisis. Walgreens, CVS, and other larger retail pharmacies settled similar lawsuits in the recent past, managing to survive the financial hits ensued by large settlements made to multiple government agencies.
Following the CDC’s information that drug overdoses resulted in over half a million deaths in the United States between 1999 and 2020, Rite Aid, the third-largest standalone pharmacy chain and seventh overall including the big box chains, with over 2,200 stores in 17 states, really felt the impact.
The company declined a potential $17 billion lifeline in 2015 when Walgreens proposed to acquire the chain. Federal antitrust regulators worried that the deal would reduce competition in the drugstore market, shot down the arrangement. Eventually, a downsized $4.4 billion agreement saw Walgreens taking fewer Rite Aid locations under its wing in 2017. This allowed Rite Aid to continue, albeit on a smaller scale than its key competitors.
