Rite Aid is filling its own prescription for corporate financial health and is leveraging bankruptcy protection to restructure billions in long-term debt.
The drugstore chain is reportedly looking to file for protection from creditors under Chapter 11 of federal bankruptcy law in the coming weeks. The effort would be designed in large part to enable it to manage legal battles over its opioid-prescription practices.
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The Philadelphia company isn’t commenting on the matter, but reportedly will soon file under Chapter 11 to restructure a $3.3 billion debt load. This would provide breathing room as it addresses allegations that it oversupplied prescription painkillers. The bankruptcy strategy was first reported in The Wall Street Journal.
The Chapter 11 move comes at a time when Rite Aid revenues have been falling.
On June 29 the company reported first-quarter revenue of $5.65 billion compared to $6 billion in the year-earlier quarter. The company cited a membership reduction in its prescription drug plan and a decline in commercial clients as the primary reasons for the revenue drop.
Currently, the company is contesting more than a thousand lawsuits that are expected to be handled in an Ohio court. And it faces more legal challenges in multiple state courts over its role in prescribing opioid treatments, which allegedly have contributed to a national painkiller drug epidemic.
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The U.S. Justice Department has also filed a civil suit against Rite Aid, accusing the company of dispensing controlled substances in violation of the False Claims Act and the Controlled Substances Act, the agency stated in a March 2023 press release.
“We allege that Rite Aid filled hundreds of thousands of prescriptions that did not meet legal requirements,” U.S. Associate Attorney General Vanita Gupta said.
“According to our complaint, Rite Aid’s pharmacists repeatedly filled prescriptions for controlled substances with obvious red flags, and Rite Aid intentionally deleted internal notes about suspicious prescribers. These practices opened the floodgates for millions of opioid pills and other controlled substances to flow illegally out of Rite Aid’s stores.”
Rite Aid has denied the Justice Department allegations and is seeking to have the lawsuit dismissed.
Meantime, a Chapter 11 scenario would likely halt those proceedings and give the company time to address its legal troubles from a stronger financial position.
At last check Rite Aid shares were trading near 80 cents each. That's off 76% since they ended 2022 at $3.34.
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