Re: Rite Aid, Facing Slumping Sales and Opioid Suits, Files for Bankruptcy

On 10/16/23 16:37, Leroy N. Soetoro wrote:
> https://www.nytimes.com/2023/10/15/business/rite-aid-bankruptcy.html
> 
> The pharmacy chain, one of the country’s largest, faces more than a 
> thousand lawsuits that say it filled illegal prescriptions for 
> painkillers.
> 

after they sold off all the sellable assets


> Rite Aid, one of the largest pharmacy chains in the United States, filed 
> for bankruptcy on Sunday, weighed down by billions of dollars in debt, 
> declining sales and more than a thousand federal, state and local lawsuits 
> claiming it filled thousands of illegal prescriptions for painkillers.
> 
> The company filed for Chapter 11 bankruptcy protection in New Jersey. Its 
> largest creditors include the pharmaceutical company McKesson Corporation 
> and the insurer Humana Health. The pharmacy has raised $3.45 billion to 
> fund its operations while it is in bankruptcy, during which it expects to 
> continue to operate its stores and serve its customers.
> 
> The company also appointed a new chief executive, Jeffrey Stein, to lead 
> its restructuring. Mr. Stein is the founder of Stein Advisors, a financial 
> advisory firm that focuses on fixing troubled companies. Elizabeth Burr 
> had been serving as Rite Aid’s temporary chief executive since January.
> 
> Rite Aid is one of many drugstore chains dealing with lawsuits stemming 
> from the deadly abuse of opioids in the United States. In March, the 
> Justice Department filed a complaint against Rite Aid and its various 
> subsidiaries asserting that the company filled prescriptions for excessive 
> quantities of opioids “that had obvious, and often multiple, red flags 
> indicating misuse.”
> 
> The company has denied these claims.
> 
> Rite Aid, which has more than 45,000 employees, has struggled in recent 
> years to compete against larger peers like CVS and Walgreens Boots 
> Alliance, as well as Amazon. Deteriorating sales left the company with 
> less money to invest in its businesses, and more difficultly in paying 
> back its debt. As of June, according to company filings, it had $3.3 
> billion in debt, not counting the pending opioid litigation.
> 
> Rite Aid’s stock has fallen nearly 80 percent since the start of the year.
> 
> That array of problems has created “just kind of the perfect storm,” said 
> Sarah Foss, the global head of legal and restructuring at the financial 
> services company Debtwire. “I think Chapter 11 is really the only option 
> for somebody like a Rite Aid to get all of this settled. On a basic level, 
> what bankruptcy does is it allows you to settle it all in one forum.”
> 
> Rite Aid has closed several stores in recent months and has been preparing 
> to close hundreds more. The shrinking of the company has made it even 
> harder to compete.
> 
> “Because they closed so many stores, if you happen to need something, you 
> might not necessarily have a Rite Aid next to you, so you’re going to go 
> to a competitor,” said Chedly Louis, a vice president at Moody’s Investors 
> Service, who follows Rite Aid. “So that’s another reason why you’ve got 
> weakness.”
> 
> Mr. Stein, the company’s new head, said his focus would be to steer the 
> company through the bankruptcy process, when it will be able to trim debt, 
> close some stores and deal with the opioid litigation. Mr. Stein said he 
> hoped to help the chain “reach its full potential as a modern neighborhood 
> pharmacy.”
> 
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> The bankruptcy filing is a dramatic fall for what was once the biggest 
> drugstore chain in the United States. In 1998, Rite Aid’s market value was 
> nearly $13 billion. It closed on Friday with a market value of less $40 
> million.
> 
> “The company has not been well managed for a very long time,” said David 
> Silverman, a retail analyst at Fitch Ratings. “They have been stuck in the 
> perpetual inability to improve their fortune.”
> 
> Rite Aid said on Sunday that it was working on a potential deal to sell 
> Elixir, the pharmacy benefit manager it bought for $2 billion in 2015, to 
> MedImpact. Any deal would be subject to approval by a bankruptcy judge.
> 
> Pharmacy benefit management companies, often referred to as P.B.M.s in the 
> industry, act as intermediaries on behalf of employers and health 
> insurance plans, performing services like negotiating discounts on drugs.
> 
> Elixir has been a challenge for Rite Aid, because its smaller scale has 
> put it at a disadvantage when negotiating for larger contracts that could 
> generate more cash. CVS Caremark, Cigna’s Express Scripts and UnitedHealth 
> Group’s OptumRx are the three biggest pharmacy benefit managers, 
> processing about 80 percent of all prescription claims in the United 
> States.
> 
> “It would have been different if they would have been able to grow that 
> business, grow that P.B.M.,” Ms. Louis said.
> 
> In recent years, Rite Aid has been shuttering stores to keep pace with 
> declining sales. It now has about 2,000 locations in 17 states. CVS 
> Pharmacy, on the other hand, has more than 9,500 stores and Walgreens 
> around 8,700.
> 
> Rite Aid shrank its store base significantly after a failed merger with 
> Walgreens in 2017. The Federal Trade Commission had antitrust concerns 
> about combining two of the country’s largest drugstore chains. When the 
> merger fell through, Rite Aid agreed to sell to Walgreens more than 2,000 
> stores — around 48 percent — along with three distribution centers for 
> $5.18 billion. At the time, Rite Aid said it would be left with its best 
> performing locations, and John Standley, who was the chief executive, said 
> the sale of those assets was an “important strategic transformation” for 
> the company.
> 
> Mr. Silverman of Fitch said that Rite Aid “generated quite a bit of cash” 
> from the sale and used it to pay down debt. But, he added, “from a 
> competitor standpoint, now they’re even smaller.”
> 
> Rite Aid later tried to merge with the grocery chain Albertsons, but the 
> deal was called off in 2018 after it lost support from Rite Aid’s 
> shareholders.
> 
> During the pandemic, Rite Aid initially benefited from a sales boom as 
> people stocked up on hand sanitizers and cleaning and beauty products. It 
> sped up technological offerings, opened smaller-format stores aimed at 
> addressing pharmacy needs and said it was focusing on winning over more 
> millennial and Generation X customers. Rite Aid saw its earnings rise and 
> losses narrow.
> 
> But as the pandemic wore on, customers started consolidating their trips 
> to drugstores, cutting into Rite Aid’s opportunities to capture impulse 
> purchases. Social distancing protocols led to a less severe cold and flu 
> season during the first winter of the pandemic, resulting in a big drop in 
> the company’s cough, cold and flu business.
> 
> “We just didn’t realize how evaporated that business actually would be,” 
> Heyward Donigan, Rite Aid’s chief executive at the time, said in an 
> interview on CNBC in 2021.
> 
> As earnings eroded, the debt load became heavier. “It’s all about the cash 
> flow,” Ms. Louis at Moody’s said.
> 
> In June, Rite Aid reported revenue of $5.7 billion for its most recent 
> quarter, down from $6 billion a year earlier, driven partly by continued 
> challenges in selling merchandise like food, beauty items and household 
> goods. Consumers are increasingly turning to Amazon, the corner store and 
> elsewhere to buy those goods.
> 
> The company began in 1962 as Thrif D Discount Center in Scranton, Pa. The 
> chain changed its name to Rite Aid in 1968 and became a publicly traded 
> company that year. Its founder and chief executive, Alex Grass, helped 
> expand the company and its stores quickly over the next decade, expanding 
> west to Michigan, Ohio and along the Gulf Coast and West Coast. For a 
> time, Rite Aid was the nation’s largest drugstore chain and the largest 
> within New York City.
> 
> In the late 1990s and early 2000s, Rite Aid was embroiled in a securities 
> and accounting fraud case. Former Rite Aid executives — including Martin 
> Grass, the son of Rite Aid’s founder and a onetime chief executive — were 
> indicted as part of a securities and accounting fraud that regulators said 
> led to a $1.6 billion restatement of earnings, the largest ever at the 
> time. The company was forced to restate its earnings in 2000.
> 
> Elizabeth Burr, the current Rite Aid chief executive, took over after Ms. 
> Donigan abruptly left in January after four years in the role.
> 
> Pharmaceutical manufacturers have also filed for bankruptcy amid 
> litigation fights over their role in the opioid crisis. In August, the 
> opioid manufacturer Mallinckrodt Pharmaceuticals filed for bankruptcy for 
> a second time in three years. Last year, it had promised to pay $1.7 
> billion, but after making one payment and missing a second one this June, 
> it devised a plan with its creditors to cancel a majority of the $1.25 
> billion that the company still owed under the original settlement 
> agreement. In exchange, Mallinckrodt paid $250 million ahead of its second 
> bankruptcy.
> 
>