Walgreens Boots Alliance may sell its entire stake in doctor-staffed clinic operator VillageMD, which has already cost the drugstore giant billions of dollars.
“The company is currently evaluating a variety of options with respect to VillageMD in light of ongoing investments by the company in VillageMD’s businesses and VillageMD’s substantial ongoing and expected future cash requirements,” Walgreens said in a filing Wednesday with the U.S. Securities and Exchange Commission. “These options could include a sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities.”
Walgreens chief executive officer Tim Wentworth, who took over as the company’s top executive last October, told analysts in June the company would remain an investor and partner, but is working with VillageMD’s management “toward an endpoint.” Walgreens held a 53% ownership stake in VillageMD as of the end of June.
In a statement Wednesday night following the SEC disclosure, Walgreens said company executives “have been taking action to simplify and focus our business on our core foundation of retail pharmacy services.”
“As we prioritize creating value and enhancing our liquidity position, WBA has entered into an agreement with VillageMD that provides additional runway to continue active engagement with VillageMD’s stakeholders and other third parties to evaluate a variety of options that will position it for sustainable growth,” Walgreens said. “Grounded in our shared commitment to patient care, WBA is fully supportive of VillageMD as we work collaboratively with VillageMD leadership toward a solution with no changes to day-to-day operations for doctors or practice operations.”
It’s unclear given the financial losses at VillageMD how much Walgreens stake would even be worth if a buyer was found.
Walgreens invested more than $6 billion in VillageMD under former chief executive Roz Brewer to take a controlling stake, but the company has already scaled back dramatically on the expansion of doctor practices and clinics the company opened attached to Walgreens. In 2020, Walgreens said it planned to open 500 to 700 “Village Medical at Walgreens” physician-led primary care clinics in more than 30 U.S. markets over five years, with the “intent to build hundreds more thereafter.”
But Wentworth said earlier this year that Walgreens and partner VillageMD have slowed the number clinic openings in part because the operators haven’t been able to fill their so-called “patient panels,” which are a certain number of individual patients under the care of a specific provider.
Meanwhile, the decision to scale back to less than 90 Village Medical at Walgreens locations has put the business “is now on a clearer path to profitability as it continues to add lives and optimize its expense profile,” Walgreens said in its statement Wednesday evening.
Still, the investment hasn’t gone well. Walgreens total operating loss for the first nine months of fiscal 2024 has grown to $13.1 billion, reflecting “a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest.”
In Wednesday’s SEC filing,Walgreens said it entered into a forbearance agreement with VillageMD after the clinic operator defaulted on a $2.25 billion secured loan facility Walgreens had provided the company.
And last Friday, Walgreens and VillageMD “acknowledged the existence of defaults under the VillageMD Secured Loan,” the SEC filing disclosed but Walgreens said it has agreed “not to exercise remedies” against VillageMD.
VillageMD released a comment late Wednesday night confirming “a forbearance agreement,” which essentially allows borrowers to pause or reduce loan payments to avoid foreclosure.
“We are exploring many options with several investors and strategic parties,” VillageMD said in its statement. “Year over year, our business continues to improve and deliver better outcomes for our patients and reduce the cost of care by hundreds of millions of dollars.”
“While strategic adjustments like this are common for high-growth companies, we are confident our model results in positive outcomes for our patients, people and the communities we serve,” VillageMD said. “We continue to partner with Walgreens in lockstep and we will identify the best path forward – to continue to serve the patients and communities that need us – and we will be there for them.”
