New owner plans to take the pharmacy company private as it continues to shutter retail locations
Last year, Walgreens announced plans to close a large number of its stores “due to financial difficulties and ongoing environmental pressures,” according to Becker’s Hospital Review. Dark Daily has covered the struggles facing all of the major pharmacy companies in many ebriefs over the past few years.
Now, in another sign of the financial woes facing retail pharmacy chains, Walgreens Boots Alliance (WBA) announced in March that it had agreed to be acquired by private equity firm Sycamore Partners. As part of the $10 billion deal, Sycamore will take WBA private, according to a company press release.
The sale is valued at up to $23.7 billion when debt is included. The company’s brands include Walgreens and Duane Reade in the US, and Boots in the UK.
The deal follows WBA’s plans to close approximately 1,200 US retail locations over the next 30 months. The pharmacy company announced the plan last October as it reported an $8.6 billion net loss for the 2024 fiscal year.
“You have a business that is shrinking, and then you layer on losses and cash burn, all of that was the perfect recipe for what we are seeing today,” Jefferies research analyst Brian Tanquilut told Reuters following the March announcement.
WBA said the deal is expected to close in Q4 of calendar year 2025, pending approval by regulators and its shareholders. The agreement includes a “go-shop” provision that allows the company to consider other proposals.
“Given the size and number of moving parts involved—a potential split of the US business, Boots, and Health—we don’t expect a competing bid to come over the top,” Leerink Partners analyst Michael Cherny told Reuters.
“Sycamore will provide us with the expertise and experience of a partner with a strong track record of successful retail turnarounds,” said Walgreens Boots Alliance CEO Tim Wentworth (above) in a press release. “We believe this agreement provides shareholders premium cash value, with the ability to benefit from additional value creation going forward from monetization of the VillageMD businesses.” (Photo copyright: Walgreens Boot Alliance.)
Long Way Down for Walgreens Boots Alliance
The purchase price of this sale demonstrates how far WBA has fallen since its formation in 2014, when Walgreen Co. completed a merger with Alliance Boots GmbH, a large retail group headquartered in Switzerland.
At its peak in April 2015, WBA had a market valuation of more than $100 billion, according to financial reports.
Analysts have pointed to industrywide challenges that have also affected rivals CVS and Rite Aid, according to reports in The New York Times and the Associated Press (AP). These include rising operating costs, declining reimbursement for prescription drugs, and stiff competition from discount retailers such as Amazon and Walmart.
“We are at a point where the current pharmacy model is not sustainable, and the challenges in our operating environment require we approach the market differently,” said WBA CEO Tim Wentworth during a June 2024 call with analysts, the AP reported.
News Outlets Report Questionable Moves Over the Years
Reuters, however, pointed to questionable moves by Stefano Pessina, the former executive chairman of Alliance Boots who became CEO of WBA following completion of the merger in 2014. Pessina is also WBA’s largest shareholder, Reuters noted.
In October 2015, WBA offered $9.5 billion to acquire US pharmacy chain Rite Aid. But the company eventually backed away from the deal as regulators raised antitrust concerns, CNBC reported. Instead, in 2017, WBA paid $4.375 billion to acquire nearly 2,000 of Rite Aid’s 4,600 US retail locations.
“But that store footprint proved too big and soon after the acquisition, Walgreens started to close locations,” Reuters reported.
Billions Spent on Retail Clinic Plans
In July 2020, WBA announced a $1 billion deal with VillageMD to open as many as 700 primary care clinics at Walgreens locations. That deal gave WBA a 30% ownership stake in the provider.
Nine months later, Pessina stepped down as CEO to become executive chairman of the board. Taking his place was former Starbucks chief operating officer Roz Brewer. Under her watch, WBA spent an additional $5.2 billion to take a majority stake in VillageMD, which provides primary care services.
That deal has become a “cash drain,” on WBA, Reuters reported. CNBC noted that other retailers have also faced headwinds in their efforts to provide primary care services. Walmart said it would close its in-store health clinics, and CVS also shuttered dozens of clinics in New England and Southern California.
In March 2024, Wentworth revealed a turnaround plan that included $1 billion in cost cuts and closure of 160 VillageMD clinics, according to Fierce Healthcare. At the time, the company had already closed hundreds of stores in the US and UK, AP reported.
Wentworth followed that plan with October’s announcement to shutter an additional 1,200 retail locations.
Mizuho Bank analyst Ann Hynes told Reuters that, as a private company, WBA will be better positioned to deal with its challenges because it won’t have to answer to shareholders.
One likely move is a divestment of the company’s stake in VillageMD, Reuters reported. And the Boots portion of WBA’s business is a likely spinoff candidate, analysts told the news outlet.
Plans by several national retail pharmacy chains to expand primary care services and even some clinical laboratory test offerings may be delayed because of financial woes
Times are tough for the nation’s retail pharmacy chains. Rite Aid Corporation, headquartered in Philadelphia, closed 25 stores this year and has now filed for bankruptcy. In a press release, the retail pharmacy company announced it has “initiated a voluntary-court supervised process under Chapter 11 of the US Bankruptcy Code,” and that it plans to “significantly reduce the company’s debt” and “resolve litigation claims in an equitable manner.”
Rite Aid may eventually close 400 to 500 of its 2,100 stores, Forbes reported.
Meanwhile, other retail pharmacy chains are struggling as well. CVS Health, headquartered in Woonsocket, Rhode Island, and Walgreens Boots Alliance of Deerfield, Illinois, are each closing hundreds of stores, according to the Daily Mail.
They are each experiencing problems with labor costs, theft, being disintermediated for prescriptions by pharmacy benefit managers (PBMs), and probably building too many stores in most markets.
This is a significant development, in the sense that Walgreens, CVS, and Walmart are each working to open and operate primary care clinics in their stores. This is a way to offset the loss of filling prescriptions, which has migrated to PBMs. Primary care clinics are important to the revenue of local clinical laboratories, but retail pharmacy chains do not yet operate enough primary care clinics in their retail pharmacies to be a major influence on the lab testing marketplace.
“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,” said Jeffrey Stein (above), Rite Aid’s CEO/Chief Restructuring Officer, in a press release. Clinical laboratory leaders may want to closely monitor the activities of the retail pharmacies in their areas. (Photo copyright: Rite Aid.)
Multiple Pharmacy Companies at Financial Risk
Rite Aid Corporation (NYSE: RAD) confirmed it continues to operate its retail and online platforms and has received from lenders $3.45 billion in financing to support the company through the bankruptcy process.
However, according to the Associated Press (AP), Rite Aid has experienced “annual losses for several years” and “faces financial risk from lawsuits over opioid prescriptions,” adding that the company reported total debts of $8.6 billion.
Additionally, the US Department of Justice (DOJ) filed a complaint “alleging that Rite Aid knowingly filled unlawful prescriptions for controlled substances,” explained a DOJ press release.
Rite Aid is not the only retail pharmacy brand dealing with unwelcome developments. Fortune reported last year that Walgreens and CVS paid a combined $10 billion to 12 states for “involvement in the opioid epidemic.”
Walgreens intends to close 150 US and 300 United Kingdom locations, its former Chief Financial Officer James Kehoe shared in a third quarter 2023 earnings call transcribed by Motley Fool.
And in a news release, CVS announced plans to close 900 stores between 2022 and 2024.
Pharmacy Companies’ Investment in Primary Care
Though they are experiencing difficulties on the retail side, Walgreens and CVS have significantly invested in primary care.
In that same ebrief, we reported on CVS’ acquisition of Oak Street Health, a Chicago-based primary care company, for $10.6 billion. CVS plans to have more than 300 healthcare centers by 2026.
“We looked at our business, and we said, ‘We’re seeing an aging population.’ We know people don’t have access to primary care. We know that value-based care is where it’s going. We know that there’s been a renaissance in home (care). So that’s kind of how we approached our acquisitions,” Karen Lynch, CVS Chief Executive Officer told Fortune.
Other Challenges to Retail Pharmacies
It could be that these major pharmacy chains are hoping entry into primary care will offset the loss of sales from prescriptions that have migrated to PBM organizations.
In addition to reimbursement challenges, retail pharmacies are reportedly experiencing:
High labor costs,
Competition from online, bricks-and-mortar, and grocery businesses, and
Effects from the work-at-home trend, among other struggles.
“I think there’s a number of challenges which are coming to a head. One, you have ongoing reimbursement pressure. The reimbursement level for drugs continues to decrease, so profit margin on the core part of the business is under pressure,” Rodey Wing, a partner in the health and retail practices of global strategy and management consulting firm Kearney, told Drug Store News.
Additionally, the pharmacy’s drug sales need to be high enough to retain pharmacists, who are difficult to recruit in a post-pandemic market, Drug Store News explained.
And in the retail space where products are displayed, some pharmacies struggle to compete with Amazon on convenience and with “dollar” stores on price. And with more people working from home, retail pharmacies are seeing less foot traffic, Drug Store News noted.
Retail pharmacy companies also have competition from pharmacies conveniently situated in grocery and big-box stores, Forbes reported. These include:
Walmart, for its part, reduced operating hours of pharmacies at more than 4,500 sites, Daily Mail reported.
Thus, medical laboratory leaders would be wise to keep an eye on market changes in their local retail pharmacies. Some locations are equipped with clinical laboratory services and a closure could give local labs an opportunity to reach out to patients and physicians who need access to a new testing provider.
Expect there to be more clinical laboratory testing at pharmacies as retail pharmacy chains expand their primary care offerings
Walgreens Boots Alliance (NASDAQ:WBA) of Deerfield, Illinois, continues to expand its primary care footprint with VillageMD’s latest acquisition of Starling Physicians, a multi-specialty physicians group with 30 locations in Connecticut, according to a VillageMD news release. Walgreens is the majority owner of VillageMD, which now has more than 700 medical centers, Healthcare Dive noted.
This deal continues the trend of corporations acquiring physician practices. Already, the majority of physicians are employees, not partners in a private practice physician group. Under corporate ownership, these physician groups often decide to change their clinical laboratory providers. For that reason, managers and pathologists at local medical laboratories will want to explore how they might provide daily lab testing services to the corporate owners of these primary care clinics.
The Hartford Business Journal called VillageMD’s acquisition of Starling Physicians—which is subject to a state investigation for possible certificate-of-need requirement—one of Connecticut’s “more high-profile healthcare merger and acquisition deals in Connecticut in recent years.”
The Starling Physicians group acquisition comes just a few months after
VillageMD paid $8.9 billion for Summit Health-CityMD of Berkeley Heights, New Jersey, with primary care services in the Northeast and Oregon. Walgreens invested $3.5 billion in that transaction, a Summit Health news release noted.
These acquisitions by Walgreens/VillageMD provide opportunities for local clinical laboratories to serve the physicians in these practices, though the operations may have a different patient flow and work process than traditional family practice clinics located in medical offices around community hospitals.
“Starling shares our vision of being a physician-led model and they provide care in a compassionate and exceptional way to all the patients they serve. By integrating primary care with specialty care, we are able to optimize access to high-quality care for our patients,” said Tim Barry (above), CEO and Chair of VillageMD in the news release. “This is a natural extension of our growth in the Northeast, including our recent acquisition of Summit Health-CityMD. Together, we are transforming the way healthcare is delivered in the United States.” Clinical laboratories in these areas will want to develop a strategy for serving the physicians practicing at these non-traditional locations. (Photo copyright: The Business Journals.)
Primary Care at Retail Locations a Growing Trend
Dark Daily and its sister publication The Dark Report have reported extensively on the growing trend by pharmacy chains and other retail superstores to add primary care services to their footprint.
In “By 2027, Walgreens Wants 1,000 Primary Care Clinics,” The Dark Report covered how Walgreens had disclosed that it would spend $5.2 billion to acquire a 63% interest to become the majority owner of VillageMD. Fierce Healthcare reported that “[Walgreens] planned to open at least 600 Village Medical at Walgreens primary-care practices across the country by 2025 and 1,000 by 2027.”
VillageMD is a primary care provider with same-day appointments, telehealth virtual visits, in-home care, and clinical laboratory diagnostic testing such as blood tests and urinalysis. Many VillageMD practices are located in buildings next door to Walgreens sites throughout the United States. (Photo copyright: Walgreens.)
Other Retailers Investing in Primary Care
Other retailers have recently taken deeper dives into healthcare as well.
According to Forbes, “The acquisition comes amid a flurry of acquisitions across the US for doctor practices, which are being purchased at an unprecedented pace by large retailers like Walgreens Boots Alliance, CVS Health, Amazon, and Walmart. Meanwhile, medical care providers owned by health insurers like UnitedHealth Group’s Optum and Cigna’s Evernorth are also in the doctor practice bidding war.”
And in February, CVS announced plans to acquire for $10.6 billion Oak Street Health, a Chicago-based primary care company with 169 medical centers across 21 states that plans to have more than 300 centers by 2026.
Do Clinical Laboratories Want Retail Customers?
The question of whether clinical laboratories should pursue retail customers is at this point academic. Consumer demand is driving the change and labs that don’t keep up may be left behind.
“The trend of putting full-service primary care clinics in retail pharmacies is a significant development for the clinical laboratory industry,” wrote Robert Michel, Editor-in-Chief of Dark Daily and The Dark Report. “These clinics will need clinical lab tests and can be expected to shift patients away from traditional medical clinic sites for two reasons—lower price and convenience—since this new generation of primary care clinics will be located around the corner from where people live and work.”
Thus, healthcare system laboratories or large reference labs may want to reach out to Walgreens, CVS, Amazon, and Walmart for test referrals. These and other large retailers are investing heavily in the belief that consumers will continue to seek convenience in their healthcare.
By partnering with drug manufacturers to connect customers with clinical trials, the retail pharmacy chain believes this new venture will be the company’s “next growth engine.”
Walgreens is launching a business to connect customers with clinical drug trials, a venture that adds another offering to the retail pharmacy giants’ growing menu of healthcare services. This new venture might also mean additional test orders for clinical laboratories and pathology groups in areas that serve Walgreens customers.
Now, Walgreens is attempting to further redefine the patient experience by partnering with pharmaceutical companies to find participants for clinical trials, a business that could result in more Americans from underrepresented racial and ethnic populations enrolling in drug-development trials. With 9,021 retail pharmacies in all 50 states, it is well-positioned to know which of its customers would be candidates for different clinical trials.
“Walgreens’ trusted community presence across the nation, combined with our enterprise-wide data and health capabilities, enables us to pioneer a comprehensive solution that makes health options, including clinical trials, more accessible, convenient and equitable,” said Ramita Tandon, Walgreens’ Chief Clinical Trials Officer, in a press release.
Ramita Tandon, Walgreens’ Chief Clinical Trials Officer, believes Walgreens can play a role in solving the issues of diversity and declining enrollment in clinical trials. “Through the launch of our clinical trials services, we can provide another offering for patients with complex or chronic conditions in their care journey, while helping sponsors advance treatment options for the diverse communities we serve,” she said in a press release. (Photo copyright: Walgreens.)
Serving the Socially Vulnerable
In an interview with Fierce Healthcare, Tandon described the clinical trials business as Walgreens’ “next growth engine” of consumer-centric healthcare solutions.
According to the company press release, “Walgreens is addressing access barriers through a compliant, validated and secure decentralized clinical trial platform built on a rigorous compliance and regulatory framework to ensure patient privacy and security. This approach leverages owned and partner digital and physical assets, including select Health Corner and Village Medical at Walgreens locations, to directly engage patients at home, virtually or in-person.”
Walgreens notes that more than half of its roughly 9,000 U.S.-based stores are in “socially vulnerable areas.”
According to the Washington Examiner, a US Food and Drug Administration (FDA) study revealed that 75% of patients who participate in clinical trials are white, while just 11% are Hispanic and fewer than 10% are Asian or black. In addition, participation in clinical trials has been declining, with 80% of trials failing to attract enough participants on time.
Tandon maintains that making the process of participating in clinical trials easier is another key to increasing diversity and participation in clinical trials.
“During the clinical trial journey, we know it’s a burden for patients to visit sites. We also know that 78% of patient-consumers in the US live within five miles of a Walgreens,” she told PharmaVoice. “If a patient can complete much of the up-front clinical trial requirements at a local Walgreens, or conduct some of the visits digitally, it would make the whole clinical trial experience that much more positive and, maybe, encourage the patient to participate in new clinical trials going forward.”
Walgreens also plans to use its treasure-trove of customer data to find potential patients for its trials business.
“Understanding this detail of customer preference and segmentation can be quite useful particularly in clinical trials, for example, to create better protocols,” Tandon told PharmaVoice. “We are sitting on so much information, but we can, and need to, do a better job of using these insights in a real-world setting, which can be translated to pharma R/D or brand management organizations. We’re all about patient-centric drug development.”
FDA Seeks Diversity in Clinical Trails
Walgreens is in discussions with several drug manufacturers as it looks to launch this new venture.
“We are working very closely with them to understand their business needs and create the solution that’s going to be sort of bespoke to their specific trial needs,” Tandon told Fierce Healthcare. “Our goal is to move that needle and start to see a larger number of US patients participating and highly diverse participants that are coming into clinical trials.”
In April, an FDA press release announced new draft guidance aimed at “developing plans to enroll more participants from underrepresented racial and ethnic populations in the US into clinical trials.”
“Despite having a disproportionate burden for certain diseases, racial and ethnic minorities are frequently underrepresented in biomedical research,” the FDA stated. “Clinical trials provide a crucial base of evidence for evaluating whether a medical product is safe and effective; therefore, enrollment in clinical trials should reflect the diversity of the population that is ultimately going to use the treatment.”
Disintermediation of Retail Pharmacies
“Walgreens has a significant opportunity to create an interconnected healthcare ecosystem where we can use the physical assets of Walgreens and connect with patients and consumers at a local level to better support healthcare and healthcare equality,” Tandon said in PharmaVoice.
This is the latest example of a billion-dollar retail pharmacy chain diversifying away from simply filling prescriptions. Two types of competitors are driving the disintermediation of retail pharmacies because they end up directing patients away from the pharmacy:
Amazon.com acquired PillPack and now sends, via mail, prescriptions to patients’ homes.
Pharmacy benefit management (PBM) companies with a business model that encourage patients to get 90 days of prescriptions at once, mailed to their home.
In both cases, retail pharmacies lose access to patients. This is what is motivating several national pharmacy chains to offer primary care within their retail pharmacies (where following an office visit with a general practitioner, the patient simply crosses the store to the pharmacy to fill his/her prescription), as well as the clinical trial matching business.
As retail pharmacy chains become an increasingly disruptive force in healthcare, clinical laboratory managers and pathologists should be preparing new strategies to meet the testing needs of a changing primary care delivery model, which likely will include lab testing being offered in nontraditional medical locations.
Walmart may be the largest, but it is not the only retailer offering clinical laboratory testing and primary care services at conveniently-located retail stores
Earlier this month in “How Walmart Plans to Take Over Health Care,” CNBC asked, “Is Walmart the future of healthcare?” Good question. In the midst of the COVID-19 pandemic, Walmart (NYSE:WMT) managed to open six Walmart Health locations in Georgia and Arkansas. In addition, the giant retailer announced plans to open more primary care clinics at Walmart Supercenters in Chicago and Florida.
Clinical laboratory managers who struggle to keep revenues flowing should take notice. These retail clinics may not have their own medical laboratories, but their primary care physicians will be generating lab specimens.
And because Walmart offers medical laboratory tests at these locations, with so many people opting to visit health clinics installed within retail stores, independent clinical labs could see a noticeable drop in business as Walmart Health expands its network across the US.
Therefore, clinical labs near Walmart Health locations would be wise to develop strategies and services toward becoming a lab test provider to these retail clinics.
Walmart Health Eyes Florida Primary Care Market
“The past few months in particular have exposed the vulnerabilities of our healthcare system and left many without access to adequate health resources,” said Lori Flees, Senior Vice President and Chief Operating Officer, Walmart US Health and Wellness, in a blog post. “We know our customers need us more than ever, which is why we’re announcing an expansion of Walmart Health.
“We’re planning to open seven Walmart Health locations in the Jacksonville [Florida] market in 2021, with at least one opening in early 2021, and we’re beginning conversations in the Orlando and Tampa markets. Our new health centers will be in communities in need of affordable, accessible preventive care, which we will help deliver through Walmart Health,” Flees wrote.
Walmart could be operating 22 Walmart Health locations like that shown above in Georgia, Florida, Arkansas, and Illinois by the end of 2021, Fierce Healthcare reported. This means Walmart Health may double its locations by the end of this year. Clinical laboratories near these locations may want to reach out and offer lab testing services to these retail clinics. Notice that, in the picture of the exterior of a Walmart Health clinic, “Labs” is a service that is prominently displayed as one of the important clinical services offered at that site. (Photo copyright: Walmart.)
Can Clinical Laboratories Compete or Collaborate with Walmart?
A news release announcing the opening of the Walmart Health Centers in Chicago stated that Walmart Health partners with “local, on-the-ground health providers to deliver primary care, labs, x-ray and diagnostics, counseling, dental, and hearing services all in one facility at transparent pricing regardless of a patient’s insurance status.”
However, clinical laboratories wanting to be a testing provider to Walmart Health may have to keep their costs of tests and services down in order to be competitive.
Walmart Health’s “Summary Price List” provides a complete list of medical laboratory tests and services offered at the retail clinics.
Other Primary Care Disruptors
Walmart is not the only retailer offering primary care services amid the COVID-19 pandemic.
Walgreens Boots Alliance (NASDAQ:WBA) partnered with VillageMD, a provider of primary care services, to open 500-700 “Village Medical at Walgreens” primary care clinics “in more than 30 US markets in the next five years, with the intent to build hundreds more thereafter,” according to a news release.
By end of summer 2021, 40 “Village Medical at Walgreens” primary care sites (above) are expected to open in Texas, Arizona, and Florida, according to a January 2021 news release. Walgreens is investing $1 billion over three years in the clinics, which will be situated near its stores. “Through these conveniently located clinics at our neighborhood stores, we will uniquely integrate the pharmacist as a critical member of VillageMD’s multi-disciplinary care team to provide patients with personalized and coordinated care,” said Stefano Pessina, Walgreens Executive Vice Chairman and CEO, in the news release. (Photo copyright: Walgreens Boots Alliance.)
Clinical laboratory managers and pathologists will want to be on the alert for opportunities to forge relationships with Walmart Health, Walgreens, and CVS Health to capture new primary care-related testing business coming out of these non-traditional healthcare providers.
