After Billions In Losses, Walgreens Doesn’t Want To Own VillageMD

Walgreens Boots Alliance is trying to scale back its funding within the doctor-staffed clinic operator VillageMD after billions of {dollars} in losses and the necessity to give attention to extra worthwhile ventures to show across the drugstore chain.

Walgreens chief government officer Tim Wentworth, who took over as the corporate’s high government final October, advised analysts final week the corporate would stay an investor and accomplice, however is working with VillageMD’s administration “towards an endpoint.”

VillageMD runs 89 Village Medical at Walgreens clinics hooked up to drugstores. VillageMD additionally contains CityMD, a supplier of pressing care facilities and Summit Well being, a multispecialty medical group.

Walgreens held a 53% possession stake in VillageMD as of final Thursday, however that’s on the verge of adjusting.

“We consider in the way forward for these companies and intend to stay an investor and accomplice, however as a part of our persistent give attention to worth creation for WBA, we’re collaborating with management towards an endpoint to quickly unlock liquidity and improve optionality and place them for extra progress,” Wentworth advised analysts and buyers on the corporate’s fiscal third quarter earnings name.

Walgreens wouldn’t elaborate on how the corporate plans to “unlock liquidity” or how the corporate would exit its majority stake in VillageMD. It’s additionally unclear given the monetary losses at VillageMD how a lot Walgreens stake would even be price.

Walgreens invested greater than $6 billion in VillageMD beneath former chief government Roz Brewer to take a controlling stake, however the firm has already scaled again dramatically on the growth of physician practices and clinics the corporate opened hooked up to Walgreens. In 2020, Walgreens stated it deliberate to open 500 to 700 “Village Medical at Walgreens” physician-led major care clinics in additional than 30 U.S. markets over 5 years, with the “intent to construct tons of extra thereafter.”

The funding hasn’t gone effectively. Walgreens whole working loss for the primary 9 months of fiscal 2024 has grown to $13.1 billion, reflecting “a $12.4 billion non-cash impairment cost associated to VillageMD goodwill, which resulted in a $5.8 billion cost attributable to WBA, internet of tax and non-controlling curiosity.”

Executives at VillageMD had no remark when reached Monday.

Wentworth stated earlier this 12 months that Walgreens and accomplice VillageMD have slowed the quantity clinic openings partially as a result of the operators haven’t been in a position to fill their so-called “affected person panels,” that are a sure variety of particular person sufferers beneath the care of a particular supplier.

However the determination to reduce to lower than 90 Village Medical at Walgreens areas in the present day has put the enterprise “on a clearer path to profitability because it continues so as to add lives and optimize its value construction,” Wentworth stated final week.

Walgreens determination to cut back its stake in VillageMD comes as rival retailers are starting disclose a blended bag of monetary outcomes from their efforts to supply major care providers.

Walmart, for instance, is closing its Walmart Well being facilities and final week introduced plans to promote its digital care enterprise to the healthcare know-how firm, Cloth. Walmart in April stated it doesn’t see a sustainable enterprise mannequin in major care.

In the meantime, Amazon has been working to develop its doctor-staffed clinics beneath the Amazon One Medical model and final week folded its Amazon Clinic telehealth enterprise into Amazon One Medical. Monetary phrases weren’t disclosed by Amazon nor Walmart on both of these strikes.

And CVS Well being, which for years has operated greater than 1,000 MinuteClinics staffed by nurse practitioners, spent greater than $10 billion final 12 months buying Oak Avenue Well being, a supplier of major care providers to seniors insured by Medicare. Whereas CVS has dedicated to increasing the Oak Avenue mannequin throughout the nation, there was hypothesis CVS can be in search of a accomplice to assist fund future growth of the clinics.

Thus, retailers together with Walgreens are anticipated to stay concerned in major care in a method or one other.

“Because it pertains to VillageMD and that mannequin, we like that mannequin,” Wentworth advised analysts final week. “That is why we have stated we might proceed to have some funding and take part of their progress.”

In Walgreens fiscal third quarter, the U.S. Healthcare section, which incorporates VillageMD had third quarter gross sales of $2.1 billion, a rise of seven.6 % in comparison with the year-ago quarter, led by VillageMD and the specialty pharmacy Shields Well being Options, which reported progress of greater than 20% within the quarter.

Many of the progress from VillageMD comes from its $8.9 billion acquisition of Summit Well being, which operates major care, specialty and pressing care in additional than 20 U.S. markets. “VillageMD grew 7 %, reflecting further lives in threat and fee-for-service,” Walgreens stated.

Walgreens newly employed head of healthcare providers, who brings a background that features engaged on varied major care fashions together with profitable ones at CVS, says Walgreens will proceed to hunt partnership with out spending big sums.

“We’ll be a accomplice to VillageMD in an ongoing manner,” Mary Langowski, Walgreens executive vice president and president of the corporate’s US healthcare section advised analysts final week. “We’ll proceed to be an investor, however what we’re actually trying to do is put money into capital-light providers to be a broader accomplice throughout the business. With a spread of suppliers and with a spread of payers in addition to a spread of pharmaceutical producers.”