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Healthcare


WALGREENS' BIGGEST HEALTHCARE BET IS FLOUNDERING AS IT SHUTTERS 160 PRIMARY-CARE
CLINICS

Shelby Livingston
Mar 28, 2024, 6:42 PM MEZ
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Angle down icon An icon in the shape of an angle pointing down. Walgreens has a
majority stake in VillageMD, which is shuttering clinics. VillageMD
This story is available exclusively to Business Insider subscribers. Become an
Insider and start reading now. Have an account? Log in.
 * Walgreens' bet on VillageMD continues to flounder. 
 * It's exiting 160 VillageMD primary-care clinics, up from the previously
   planned 60.
 * Some analysts are wondering if the giant will exit healthcare to focus on its
   pharmacy roots.

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Walgreens' biggest healthcare bet continues to fizzle.

The pharmacy giant said Thursday that VillageMD has closed 140 locations and
plans to shutter another 20. Originally, Walgreens said it planned to exit 60
locations.

Walgreens also acknowledged that it wildly overpaid when it took a majority
stake in VillageMD. The company said Thursday, when it announced quarterly
financial results, that it wrote down the value of the primary-care business,
recognizing a $5.8 billion non-cash impairment charge related to its investment.

This story is available exclusively to Business Insider subscribers. Become an
Insider and start reading now. Have an account? Log in.

Walgreens reported a net loss of $5.9 billion in the three months ending
February 29.

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Walgreens has been rethinking its business strategy under new leadership.
Express Scripts veteran Tim Wentworth took over as CEO in October 2023 after Roz
Brewer stepped down. Mary Langowski, former Solera Health chief, joined
Walgreens this month as its new head of healthcare, replacing John Driscoll.

Related stories



The additional closures are a sign that "problems are worse than they've been
letting on in the core Village platform," Jack Slevin, an analyst at investment
firm Jefferies, told Business Insider.


BILLIONS DOWN THE DRAIN

Walgreens has pumped billions into VillageMD, which was once meant to be a key
piece of the pharmacy chain's future as a healthcare services company.

The company spent $5.2 billion in 2021 to take its stake in the Chicago-based
clinic operator from 30% to 63%. At the time, it said it would roll out at least
600 clinics by 2025 and 1,000 by 2027. Walgreens also put another $3.5 billion
behind VillageMD's acquisition of specialty care and urgent care company Summit
Health-City MD.

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But VillageMD has bled money. Walgreens' healthcare business reported an
operating loss of $1.7 billion in 2023, and VillageMD makes up the bulk of that
business. Some equity analysts suspect the clinics have had a hard time
attracting patients.

The move to close so many clinics has some analysts questioning whether
Walgreens plans to ditch its healthcare bets altogether.

"We wonder if WBA ultimately pursues a "Back to Basics" strategy— exiting some
of its non-core businesses to focus on traditional pharmacy," BofA Securities
analyst Allen Lutz wrote in a March 26 report.

In January, some media outlets reported that Walgreens was exploring a sale of
Shields Health Solutions, another business within the healthcare segment. But
selling VillageMD would be a complicated undertaking, Slevin said. The health
insurer Cigna also owns a piece of VillageMD.

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"I don't necessarily think that anything from selling one of the assets in US
Healthcare to effectively offloading all of them is off the table going
forward," Slevin said.

A Walgreens spokesperson said VillageMD has exited or plans to exit Florida,
Indiana, Chicago, Massachusetts, Rhode Island, and Nevada.

"Clinic consolidations, closures, and exits are part of VillageMD's broader
plans to optimize its footprint and prioritize growth in high-opportunity
markets where it can best serve patients across the full care continuum and
prove its best model of care. VillageMD's actions to accelerate profitability
are driving improvement and will provide VillageMD a platform for future
growth," the spokesperson said.

VillageMD did not respond to a question about how many employees would be
affected by the closures.

Read next




WATCH: GEN Z IS RECEPTIVE TO HEALTH INFORMATION, ESPECIALLY IN THE SOCIAL
CHANNELS WHERE THEY LIVE, SAYS HALEON'S CMO


Walgreens Primary Care
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