Walgreens may sell its entire stake in clinic operator VillageMD

Walgreens Boots Alliance could sell its entire stake in VillageMD, a doctor-staffed clinic, which has already cost the drugstore giant billions of dollars.

“The company is currently evaluating a variety of options relating to VillageMD in light of the company’s continued investments in VillageMD’s operations and VillageMD’s significant ongoing and expected future cash needs,” Walgreens said. in a filing Wednesday with the U.S. Securities and Exchange Commission. “These options could include a sale of all or a portion of the VillageMD businesses, potential restructuring options and other strategic opportunities.”

Walgreens CEO Tim Wentworth, who took over as the company’s top executive last October, told analysts in June that the company would remain an investor and partner but is “working toward an endpoint” with VillageMD management. Walgreens had a 53% ownership stake in VillageMD at the end of June.

In a statement Wednesday evening following the SEC’s disclosure, Walgreens said company leaders “have taken action to simplify our operations and focus on our core foundation of retail pharmacy services.”

“As we prioritize creating value and improving our liquidity position, WBA has entered into an agreement with VillageMD that provides additional opportunities to continue active engagement with VillageMD’s stakeholders and other third parties to deliver a variety of evaluate options that will position the company for sustainable growth,” Walgreens said. “Based on our shared commitment to patient care, WBA fully supports VillageMD as we work with VillageMD leadership on a solution without changes to physicians’ daily operations or practice operations.”

Given the financial losses at VillageMD, it’s unclear how much Walgreens stock would even be worth if a buyer were found.

Walgreens invested more than $6 billion in VillageMD under former CEO Roz Brewer take a controlling interest, but the company has already dramatically scaled back the expansion of doctors’ offices and clinics it opened next to Walgreens. In 2020, Walgreens said it planned to open 500 to 700 physician-led “Village Medical at Walgreens” primary care clinics in more than 30 U.S. markets over five years, with the “intention of opening hundreds more afterward” build’.

But Wentworth said earlier this year that Walgreens and partner VillageMD have slowed clinic openings in part because operators have failed to fill their so-called “patient panels,” a set number of individual patients under the care of a specific provider.

Meanwhile, the decision to scale back to fewer than 90 Village Medical at Walgreens locations has the company “now on a clearer path to profitability as it continues to add lives and optimize its cost profile,” it said Walgreens in its statement Wednesday evening.

Yet the investments have not gone well. Walgreen’s total operating loss for the first nine months of fiscal 2024 grew to $13.1 billion, due to “a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a charge of $5 .8 billion attributable to WBA, net of taxes and non-controlling interest.”

In Wednesday’s SEC filingWalgreens said it entered into a forbearance agreement with VillageMD after the clinic operator defaulted on a $2.25 billion guaranteed loan that Walgreens made to the company.

And last Friday, Walgreens and VillageMD “acknowledged the existence of defaults under the VillageMD Secured Loan,” the SEC filing revealed, but Walgreens said it had agreed “not to pursue any remedies” against VillageMD.

VillageMD issued a commentary late Wednesday evening confirming “a forbearance agreement,” which essentially allows borrowers to pause or reduce loan payments to avoid foreclosure.

“We are exploring many options with various investors and strategic parties,” VillageMD said in its statement. “Year after year, our company continues to improve and deliver better outcomes for our patients, while reducing healthcare costs by hundreds of millions of dollars.”

“While these types of strategic adjustments are common for fast-growing companies, we are confident that our model will deliver positive outcomes for our patients, people and the communities we serve,” VillageMD said. “We continue to work closely with Walgreens and we will identify the best path forward – to continue serving the patients and communities who need us – and we will be there for them.”