The opioid crisis, declared an epidemic by the U.S. Department of Health and Human Services in 2013, has wreaked havoc on numerous lives and industries. The rise in opioid prescription approvals, alongside illegal practices by opioid manufacturers and sellers, has led to a cascade of government lawsuits and massive settlements with major retailers and drug makers. In late 2022, Walmart, Walgreens, and CVS reached separate settlements with several states amounting to $5.7 billion by Walgreens, $5 billion by CVS, and $3.1 billion by Walmart, according to the California Department of Justice.
Rite Aid’s Struggles and Bankruptcy Filing
While many major pharmacy chains managed to settle, Rite Aid faced a different fate. In March 2023, the U.S. Department of Justice filed a complaint against Rite Aid, alleging the company knowingly filled unlawful prescriptions for controlled substances. Burdened by $3.3 billion in debt and the looming threat of a billion-dollar opioid settlement, Rite Aid filed for Chapter 11 bankruptcy protection on October 15, 2023.
The financial strain forced Rite Aid to shutter 351 of its 2,100 stores across the U.S., signaling a significant contraction for the once-dominant pharmacy chain.
Smaller Chains Also Impacted
Rite Aid is not alone in its financial distress. Smaller chains have also succumbed to the pressures of the market and the opioid crisis. Hazard, Kentucky-based Rx Discount Pharmacy filed for Chapter 11 bankruptcy on May 1, 2023, in the U.S. Bankruptcy Court for the Eastern District of Kentucky. Although the pharmacy chain did not specify the exact reasons for its filing, the economic and legal pressures affecting the industry provide a likely context.
Optio Rx Seeks Debt-for-Equity Exchange
Optio Rx, a larger chain based in Northbrook, Illinois, filed for Chapter 11 protection on June 7, 2024, in the U.S. Bankruptcy Court for the District of Delaware. The company, which operates four primary specialty pharmacy segments, aims to complete a debt-for-equity exchange in a restructuring support agreement with its secured lenders.
Optio Rx reported assets between $10 million to $50 million and liabilities between $100 million to $500 million. Despite operating 18 locations in seven states and employing 260 workers, the company has struggled with generating organic growth and boosting profitability. Over the past three years, Optio Rx’s EBITDA has plummeted from $16.1 million in 2021 to an anticipated $2 million in 2024.
Causes of Financial Distress
Optio Rx attributed its financial woes to several factors, including the discontinuation of profitable products, a failed new compounding strategy, increased costs from a new sales force, and the impact of former employees starting competing pharmacies. Additionally, the company’s substantial cash interest payment obligations under its prepetition loan documents—amounting to $16 million per year—proved unsustainable.
In an attempt to navigate these challenges, Optio Rx entered into a restructuring support agreement for a partial debt-for-equity swap with its first out and last out lenders. General unsecured creditors are expected to be paid in full, with 80% to 95% of claims paid on the effective date of the reorganization plan and the remainder paid on the one-year anniversary.
Looking Ahead
The pharmacy industry continues to grapple with the repercussions of the opioid crisis, impacting both major and minor players. Rite Aid’s bankruptcy filing and the financial distress of smaller chains like Rx Discount Pharmacy and Optio Rx highlight the ongoing challenges. As these companies navigate their restructurings, the industry watches closely, hoping for stabilization and recovery in a sector vital to public health.
