The long-expected filing was the company’s “only sensible option,” said Neil Saunders, managing director of GlobalData. It “simply isn’t a viable entity,” he wrote in an email.
Court filings list about $8.6 billion in total debt as of June and total assets of $7.6 billion. It also posted a net loss of $306.7 million in its most recent quarter, nearly three times the $110.1 million recorded in the year-ago period.
It’s also facing a wave of lawsuits alleging it knowingly skirted legal requirements and oversupplied painkillers. In the United States, prescription opioids have claimed more than 300,000 lives since 2000.
In 2017, more than 1,000 opioid-related cases were consolidated in U.S. District Court for the Northern District of Ohio. In March, the Justice Department filed a complaint alleging the drugstore chain and its employees ignored “obvious red flags,” and filled hundreds of thousands of prescriptions for controlled substances, including opioids, that were “medically unnecessary.” It also alleged Rite Aid intentionally deleted internal notes written by its pharmacists about suspicious prescribers.
The company has called the government claims “hyperbolic” in court documents and is asking a judge to dismiss the suit.
The consolidated opioid cases will be handled under the supervision of the bankruptcy court moving forward, Rite Aid said. It was not immediately clear Monday whether the bankruptcy case would affect the upward of $30 million opioid settlement Rite Aid reached in 2022 with the West Virginia attorney general’s office. Other retailers with pharmacy operations have settled the lawsuits that were consolidated in federal court in Cleveland. Walgreens and CVS reached settlements of $10 billion with multiple states and Kroger agreed to pay $1.2 billion.
Rite Aid has closed dozens of stores in the past two years. It’s unclear how many of the remaining 2,100 locations or 45,000-member workforce will stay. Jeffrey S. Stein, who was appointed chief executive as part of the restructuring, said the bankruptcy process allows it to accelerate efforts to reduce its real estate footprint.
“The important actions we are taking today will enable us to move ahead as a stronger company,” he said in a statement Sunday.
But it runs the risk of pharmacy deserts in some areas, Saunders said, “unless other chains step in to acquire store assets.”
The company was founded in 1962 by Alex Grass as a single drugstore known as the Thrift D Discount Center in Scranton, Pa. After years of acquisitions and new store openings in five states, Grass changed the name to Rite Aid in 1968 and took the company public. The chain first hit $1 billion in sales in 1983 and enjoyed decades of prolific growth.
But in 2002, the Securities and Exchange Commission filed accounting fraud charges against several former senior executives, including the founder’s son and the company’s former chief executive Martin Grass. In the late 1990s, executives overstated the company’s income, failed to report certain transactions and enriched themselves at the expense of shareholders. Grass was sentenced to eight years in federal prison.
Rite Aid also has struggled to keep up with Walgreens and CVS, which have benefited from pharmacy and health-insurer acquisitions and mergers. Meanwhile, retail giants like Amazon and Walmart have beefed up their pharmacy and medical treatment offerings, and offer more competitive pricing in store aisles on household essentials like toothpaste and body wash. (Amazon founder Jeff Bezos owns The Washington Post, and the newspaper’s interim CEO, Patty Stonesifer, sits on Amazon’s board.)
The company saw some lift during the pandemic, benefiting from coronavirus vaccine rollouts. But inflation has also taken a toll. Consumers have pulled back on discretionary spending, leading front-of-store sales at Rite Aid to decline by 4.4 percent in the latest quarter.
“An increased focus on price in the market does not play to Rite Aid’s strengths and the continued expansion of value-focused players like Dollar General into rural areas is giving people more scope to buy essentials elsewhere,” Saunders said.
Rite Aid stock fell 16.8 percent Monday, closing at 65 cents; shares have lost 80 percent of their value since January.
As part of its bankruptcy proceedings, Rite Aid is looking to sell Elixir Solutions, a pharmacy benefits and services company it acquired in 2015 for about $2 billion, to pharmacy benefits manager MedImpact.
Rite Aid joins a list of companies that have declared bankruptcy while facing a wave of lawsuits over allegations they helped fuel the opioid crisis. Cities and states have accused pharmacies of failing to flag or stop suspicious orders of addictive prescription painkillers — pills that were sold on the streets, resulting in an addiction crisis and record numbers of U.S. overdose deaths.
Drugmaker Purdue Pharma, which is widely seen as having jump-started the opioid crisis with the introduction and marketing of the painkiller OxyContin in the mid-1990s, filed for bankruptcy in 2019.
Last week, a bankruptcy court approved a restructuring plan for drugmaker Mallinckrodt, a deal that cut $1 billion it owed as part of an earlier opioid settlement agreement with states. The Ireland-based company, entering its second bankruptcy in less than two years, had originally agreed to pay $1.7 billion. Another drugmaker, Endo International, agreed to pay nearly $600 million to states as part of opioid litigation but is facing government opposition to its bankruptcy sale.
Joseph Rice, one of the lead attorneys representing states in the multidistrict litigation, said the bankruptcy process could help limit potential payouts of claims against Rite Aid, as attorneys begin the complicated task of hashing how much the company’s creditors will eventually get.
“Certainly, this is an attempt to both avoid facing the realities of their conduct in the opioid case as well as dealing with their economic issues that have developed over the last 10-plus years,” he said.
Nationally, companies have agreed to more than $50 billion in settlements to help “abate” the opioid crisis, paying for overdose reversal medication, education campaigns and money to help pay for treatment programs, among other uses.
“The bankruptcy process does not favor the injured parties as much as it favors the financial world,” Rice said.
