Walgreens stock tumbled Tuesday after the Department of Justice filed a lawsuit saying the retail pharmacy violated federal law by filling controlled substance prescriptions.
The lawsuit claims Walgreens Boots Alliance filled "millions" of unlawful prescriptions in violation of the Controlled Substances Act, and then sought reimbursement from federal health programs, violating the False Claims Act. The DOJ said pharmacists ignored "red flags" that the prescriptions weren't valid and that pharmacies filled prescriptions too quickly to confirm their validity.
The suit seeks up to $80,850 in civil penalties per invalid prescription, J.P. Morgan analyst Carla Casella said in a report to clients.
"While opioids remain a red flag for WBA and its pharmacy peers, it is not likely a near-term risk," she said. "We believe it will take several years for cases to go to trial or to settle."
Walgreens Stock Sinks In Early Trading
But on today's stock market, Walgreens stock skidded 9.2% to close at 11.37. That reversed a recent sprint for Walgreens, which saw shares rocket more than 40% from Jan. 8 to Jan. 17.
Walgreens countered the DOJ lawsuit, saying there are now protocols for reporting suspicious prescribers, arguing that pharmacists shouldn't have to second guess doctors who have been approved by the Drug Enforcement Administration.
"We are asking the court to clarify the responsibilities of pharmacies and pharmacists and to protect against the government's attempt to enforce arbitrary 'rules' that do not appear in any law or regulation and never went through any official rule-making process," Walgreens said. "We will not stand by and allow the government to put our pharmacists in a no-win situation, trying to comply with 'rules' that simply do not exist."
J.P. Morgan's Casella kept her neutral rating on Walgreens credit. But the investment bank has an overweight rating on Walgreens equity.
Walmart, Rite Aid, CVS Also Targeted
She noted this is just the most recent move pitting the DOJ against a retail pharmacy. The agency filed similar lawsuits against Walmart, Rite Aid and CVS from 2020 to 2024. Still, she was surprised to see a headline Friday tying Walgreens to opioids. The company has already agreed to pay $7 billion in a large settlement that wraps most of the lawsuits related to its role in the opioid crisis.
"We had assumed that WBA had addressed the majority of its opioid risks," she said. "What is clear now is that while it has addressed the majority of state cases, it has not addressed the DOJ claims."
Rite Aid owned 5.3% of the opioid prescriptions market at the time it settled for $410 million. Using that as a model, implies Walgreens could be on the hook for $1.3 billion, given its 17% market share.
Follow Allison Gatlin on X/Twitter at @IBD_AGatlin.
