Rounding up follow ups: Walgreens shareholder suit on pharmacy performance, Steward CEO no-shows Senate committee, Masimo-Politan proxy fight has court win for Politan–vote on for 19 September

Another shovelful topping Walgreens’ Mound of Misery. Filed in the US District Court for the Northern District of Illinois, this shareholder lawsuit points to the poor performance of Walgreens’ pharmacy division. The fault is assigned to Walgreens management, specifically CEO Tim Wentworth and CFO Manmohan Mahajan plus 10 other executives including chairman Stefano Pessina, in overstating the division’s performance between 12 October 2023 to 26 June 2024 . It charges that they “falsely and materially claimed confidence in the brand inflation, volume growth, cost execution, discipline, and overall contributions of [Walgreens’] pharmacy division”, leading to an overvaluation of Walgreens’ share price. In addition, Walgreens “veiled the reality: that (Walgreens’) pharmacy division was not actually equipped to adapt to ongoing hurdles within the industry”.

The shareholder is Mark Tobias, a shareholder since late 2022. Key to the suit is the 12 October 2023 earnings conference call that contained positive comments about the pharmacy operation made by Wentworth, new at that time to Walgreens, and Mahajan. Their tune changed by the 27 June 2024 conference call where they admitted that the pharmacy model was “not sustainable”. Walgreens’ share price on 12 October 2023 was $24.19.  As of 4pm New York time today, 13 September, Walgreens closed at $9.21.

From the Crains Chicago Business article, the lawsuit demands restitution and reforms:

  • Walgreens should be awarded damages and restitution from the individual defendants
  • The company and defendants take steps to reform and improve corporate governance and internal procedures
  • Those reforms may include
    • Strengthening the board’s supervision of operations
    • Permitting Walgreens shareholders to nominate at least five candidates for election to the board
    • Ensure the establishment of effective oversight of compliance with applicable laws, rules and regulations

The Crains article also includes a Scribd copy of the filing.  Also Healthcare Dive

Another very large Mound of Misery buried Steward Health…but CEO Ralph de la Torre doesn’t plan to comply with a Senate committee subpoena. His testimony before the Senate’s Health, Education, Labor and Pensions committee was scheduled for 12 September but last week on 4 September, his attorneys informed the committee that Dr. de la Torre would not appear. They cited the ongoing US Bankruptcy Court for the Southern District of Texas sale of Steward assets (Healthcare Dive update) and a court order that silences him from comment during the sale process. The committee, chaired by Senator Bernie Sanders, is also accused by the CEO’s attorneys of using the bankruptcy and de la Torre’s marine possessions (a $40 million yacht and $15 million fishing boat) and private jets as “a pseudo-criminal proceeding in which they use the time, not to gather facts, but to convict Dr. de la Torre in the eyes of public opinion.”

The committee plans to decide on 19 September among two options: whether Dr. de la Torre will be brought up on criminal contempt charges that would be referred to the District of Columbia US Attorney, or civil contempt which usually involves a fine and another subpoena to appear. Several Senators on the committee–Sanders, Elizabeth Warren, and Edward Markey–have called de la Torre’s no-show “outrageous”. Sanders has issued threats of de la Torre being held accountable for his greed, but exactly how much of this is for the press and what the committee will do is unclear.  More of concern to the CEO would be whether further lawsuits would attempt to ‘pierce the corporate veil’ and claw back his bank and personal assets–or hold him criminally liable. Healthcare Dive, AP

The ugly Masimo-Politan Capital proxy fight continues–with a win for Politan. The attempt by Masimo, a consumer audio company that branched out into professional healthcare and pulse oximetry products–and last year won a big patent infringement decision against Apple on pulse oximetryto further postpone a shareholder vote on giving control to activist shareholder Politan Capital ended in a loss yesterday. The US District Court, Central District of California denied Masimo’s request for a preliminary injunction to block Politan’s nominees for the Masimo board. Unless Masimo’s motion asking the same court to find Politan in contempt due to breaking the court’s sealing order on the decision, and the court grants a further delay, the shareholder vote will be held next Thursday 19 September. The likely outcome, according to Strata-gee which is covering this from the consumer audio perspective, is that shareholders will turn the board over to Politan by electing their representatives to the two open seats, booting CEO Joe Kiani–and total corporate chaos will ensue. Strata-gee has all the gory details. Background in TTA 8 August and prior.

Walgreens gives up on VillageMD, will sell to reduce stake below majority, closing underperforming stores, revising profit outlook– and in abandoning Boots sale, managing director James quits

Q3 results are in for Walgreens Boots Alliance (WBA) and it was largely a bummer, especially if you work for VillageMD. Their financials have taken a hit from crashing US consumer retail spending and the softening pharmacy business. Adjusted earnings per share (EPS) were $0.63, down 36.6% on a constant currency basis compared to Q3 last year. The full year guidance was lowered from Q2’s outlook of $3.20 to $3.35 EPS to $2.80 to $2.95, again citing US trends. Q3 sales were up 2.6% to $36.4 billion, up 2.5% versus last year. Release

Industry estimates are that fully one-quarter of Walgreens’ 8,700 US stores are being reviewed for performance and closure, based on industry estimates and Tim Wentworth’s remarks on the investor call last week. Healthcare Dive, FierceHealthcare

Mr. Market didn’t like the WBA news at all, dropping the share price from the call last week to today, closing at $11.58, its lowest level in years. Nine years ago, it traded just over $95 per share. Its consistently steady price and healthy dividend save the last couple of years gave it a broker nickname of a ‘widows and orphans’ stock.

The bad news for VillageMD is that it’s for sale. Walgreens plans to lower its ownership below a majority holding and not to grow that line of business, instead focusing on retail pharmacy. Lowering its ownership stake means it has to find a buyer or buyers for at least 14 points of its 63% share. And it’s been a money pit. It not only upped its share from about 30% to 63% in 2021 for $5.3 billion but subsidized the acquisition of Summit Health/CityMD by VillageMD in November 2022 for $8.9 billion ($3.5 billion from WBA). The rough calculation of $10 billion [TTA 28 Mar] spent under CEO Roz Brewer’s watch does make it a bit easier for CEO Tim Wentworth to slash away. 140 locations were closed by March with a total now estimated at 160.  

But where to find a buyer/investor? It won’t be Cigna. Last May, Cigna wrote off $1.8 billion of its 2022 $2.2 billion investment which gave it a ‘in the teens’ share [TTA 2 May]. WBA wrote it down as well; last quarter, a $12.4 billion non-cash impairment charge related to VillageMD goodwill netted a $5.8 billion writedown. It’s no moneymaker though its revenue this quarter grew 7%. An industry analyst estimated VillageMD’s 2023 losses at $800 million last April. Primary care is no longer a hot investment. Even mighty CVS is looking for a private equity investor in Oak Street Health, which implies that CVS doesn’t want to put more than the bare minimum into expanding OSH’s clinics [TTA 29 May].

This Editor’s own interesting take on an option. VillageMD’s new COO/president is a Centene ‘retiree’, Jim Miller. Previously, he had the same positions for two years at Magellan Health. He was there when it was acquired by Centene in 2022 and stayed on till retiring in April. Magellan’s holdings have largely been sold off since activist investor Politan stepped in [TTA 10 Apr]. Could it be that Miller may find investors to buy or spin it off and go private?

Shields Health not for sale and neither is Boots, which didn’t make the latter’s managing director happy. On the investor call, Wentworth also confirmed that specialty pharma operation Shields Health Solutions, bandied about as a sale candidate, will be retained. It grew 24% in Q3 versus year prior. Boots pharmacies in the UK will remain off the WBA selling block in another about-face. Right after last week’s investor call, Boots’ managing director Sebastian James announced his departure, effective in November (!) reportedly for a European eye surgery business. James had been with Boots as MD since 2018 and oversaw 13 consecutive quarters of market share growth including this one, with a 6% rise in UK comparable retail sales. It’s hard not to speculate that either James had lined up a buyer or he tired of the push me-pull you from management. Another factor that doesn’t inspire confidence. Morningstar UK

Wentworth continues to have a rough ride with some speculation as to why WBA continues to dig itself into a hole and when it will turn around.

Walgreens’ latest cuts affect 646 at Florida, Connecticut distribution centers

Walgreens closes two distribution centers to ‘streamline capacities to best support our stores’. Two large centers serving Walgreens retail stores, in Orlando, Florida and Dayville (Killingly), Connecticut, are closing permanently in May, with workers discharged on or before 17 May. Affected are 324 workers in Orlando and 322 workers in Dayville who according to Walgreens will receive severance, additional separation pay, on-site career fairs, and/or outplacement services. While workers in Orlando have a better employment situation locally with unemployment at 3%, Dayville, in northeastern Connecticut’s rural Windham County near the Rhode Island border, is up to 5%. WARN notices were filed in both states about 14 March. Crain’s Chicago Business, Becker’s 

Press accounts do not mention corresponding closures of Florida or New England Walgreens stores. The puzzle is that Florida, particularly central Florida, is a growing market with a permanent population as well as seasonal/tourism. Yet all 52 Village Medical co-located offices have closed in that state [TTA 22 Feb]. Reasons why range from too small co-locations unable to support full practices to lack of doctors and medical saturation.

Walgreens, after several quarters of losses, is cutting to the bone expenses, with layoffs, consolidations, and closures everywhere from their Illinois headquarters to VillageMD. Despite the $1 billion in cuts for 2024 announced last October, Mr. Market is not responding–Walgreens’ stock price continues its downward trend and has lost 15% sharply since January. The new CEO Tim Wentworth has already positioned Walgreens’ recovery as ‘not a 12-month turnaround story’. Walgreens, over the past three years, drilled a lot of holes. Some worked out well, such as Shields, but the $10 billion investment in VillageMD may be a dry hole.  In the strategic review he announced earlier this month, Boots may be on the block, not Shields, but there will be more and deeper cuts to come–if WBA’s closely held ownership agrees. Based on the distribution center closures, expect more closures of retail locations served by those centers to be announced. 

Breaking: Walgreens lays off 5% of corporate staff; chief medical officer, chief of staff for CEO to depart (updated)

The Walgreens shakeup and belt-tightening continues under new CEO Tim Wentworth–starting at the top. The first company memo that was leaked late Thursday 9 November to Bloomberg (paywalled) announced that Kevin Ban, MD, executive VP and chief medical officer, will depart tomorrow (10 Nov). He will be replaced by chief clinical officer Sashi Moodley, MD, not in the memo but according to Bloomberg‘s sources. Luke Sauter, chief of staff to the CEO, will also be leaving. No date was disclosed. In a separate memo, 5% or 267 of Walgreens’ corporate staff will be laid off across multiple departments at their Deerfield Illinois HQ, no notification or effective date disclosed. Bloomberg confirmed the departures with Walgreens, but no further details were provided. The cuts will not affect call centers, micro fulfillment centers, or stores.

Looking at LinkedIn, Dr. Ban joined Walgreens as CMO in January 2022 from Athenahealth. He replaced Patrick Carroll, MD, who left to take the CMO slot at Hims & Hers. Dr. Ban was promoted to global CMO of Walgreens Boots Alliance and added the EVP title in October 2022, a little over a year ago. Dr. Moodley joined in July 2021 from CareMore Health as WBA’s CCO for US Healthcare. Mr. Sauter, the chief of staff, is a long-time (15+ years) Walgreens executive in multiple positions, including VP of strategy and finance officer after multiple finance positions. He was named chief of staff to previous CEO Roz Brewer in July 2022.

It’s perhaps understandable in a cost-cutting situation that the functions of the CMO and CCO overlap to some degree, and the chief of staff to the CEO is an unusual position in today’s companies. It also demonstrates that Wentworth is willing to distribute at least some of the pain of trimming Walgreens staff and projects as part of the previously announced $1 billion cost reduction plan after a steep fiscal Q4 net loss of $180 million [TTA 18 Oct]. Crain’s Chicago Business is also paywalled but readable in part.

This is a developing story and will be updated with additional information when available.

Update: The 5% corporate layoff, which will affect the Deerfield office, is the second this year. There was a 10% reduction in Chicago and Deerfield in May. 393 were released in August at their manufacturing plant in Edwardsville, Illinois, in anticipation of its closing. Yahoo Finance/Chicago Tribune  On Reddit, commenters indicate that marketing and health & beauty departments were the hardest hit. There was also an employee town hall that wasn’t well received.

The Healthcare Dive article published today highlights the 45% drop in share price since January, particularly steep since August, and the struggle to attain profitability in their US Healthcare division, which includes Village MD. The October-announced $1 billion in cost reductions did not buoy stock as hoped, dropping further since then. Walgreens has not replaced the CFO who departed in July.

On Friday 10 November, Walgreens also sold a hefty share of Cencora common stock (the former Amerisource Bergen) in a combination of share repurchase at $250 million and variable prepaid forward transactions starting in Q4 2026 could potentially max out at $675 million. WBA continues to own about 15% of Cencora and remains on its board. Their release explains the financial pretzel, clearly designed to improve liquidity and cash management. 

Editor’s Note/Opinion 10/11: For an employer of this size, the layoffs represent an extreme downsizing that indicates several years of overhiring or wrong hiring in pursuit of corporate goals no longer in sight and strategic mistakes (like Theranos so long ago, but biting back with a $44 million settlement to Arizona patients). Some acquisitions may not be working out. Time will tell whether the majority buy-in of Village MD and financing its further acquisitions was smart or foolish, as already the office co-location scheme is being trimmed after little time in place [TTA 18 Oct]. As is true almost 100% of the time, hard times uncover the numerical and compensation bloat at the C-suite and senior level, and many strategic mistakes.

In short, leaving aside the Cencora stock sale to raise cash, drastic cuts like this usually leave an organization at many levels and the survivors staggering for some time. They have to be done with understanding, not blame, that most of those departing weren’t responsible for corporate strategic sins and, yes, mercy on those affected, beyond one line in a press release or a town hall. Circular firing squads don’t help recovery either.

Walgreens’ transformation continues: new CEO enters, CIO exits, launches Virtual Healthcare in 9 states

This week of HLTH has not been short of Big News from WBA, perhaps cleverly to ace out CVS, Amazon (facing retail monopoly charges from the FTC and 17 states), and Walmart. Regaining the lost momentum at Walgreens Boots Alliance will be a heavy lift.

Enter Tim Wentworth as CEO from retirement. Mr. Wentworth formerly helmed Express Scripts, coming on after that company’s acquisition of pharmacy benefits manager Medco. When Express Scripts was acquired by Cigna in 2018, he headed their health services area, now Evernorth, retiring from there at the end of 2021. He is exactly what executive chair Stefano Pessina (and the board) ordered–a younger executive (63) with CEO experience, energy, through-the-ranks background, and deep, deep experience in pharmacy management, payers, and healthcare. To CNBC on Tuesday, Mr. Wentworth said, “What made me decide to come back was a chance to lead this iconic brand and company at a time when it’s not in a steady state. It’s a massive platform…they touch almost 10 million people a day.” Plus undoubtedly an offer hard to refuse! He starts on 23 October. Walgreens replaced Roz Brewer, who departed 31 August [TTA 19 Sep], in record time. Her interim replacement, former pharma exec Ginger Graham, returns to her lead independent director spot on the WBA board. WBA release

Walgreens recently missed earnings estimates for its Q3 ending in May [TTA 28 June] with underperformance problems in retail consumer sales and urgent care CityMD. They have been selling peripheral businesses and investments, with plans to lay off 10% (500) of its workforce. It doesn’t help the bottom line that Walgreens last month settled a class action lawsuit about its long-ago Theranos clinics in Arizona for a tidy $44 million.

There’s trouble from the streets to the suites right now. Pharmacy workers walked out on 300 Walgreens locations this past Monday through Wednesday. Their big issues are short-staffing and overwork. Demands are, according to an organizer talking to the AP: to improve transparency about shifting hours and schedules; to set aside training hours for new team members; and to adjust tasks and expectations at each location based on staffing levels. They are also organizing for union representation. Walgreens isn’t alone in this–CVS has also faced pharmacy worker walkouts. Fortune  At the executive level, chief information officer Hsiao Wang left suddenly on 2 October after one year after a recent leave of absence. His departure was confirmed by Walgreens to industry publication PYMNTS. Neal Sample, a consultant and former CIO at Northwestern Mutual with experience at Express Scripts, will be stepping in on an interim basis. Retail Dive. This follows on Walgreens’ chief financial officer James Kehoe July departure after five years to join financial services firm FIS in August. Mr. Wentworth’s HR experience will come in handy on these issues.

On a positive note, WBA announced Monday at HLTH that its Walgreens Virtual Healthcare will start up in nine states later this month. Via their website, Virtual Healthcare will provide on-demand consults with providers on common medical conditions and for prescriptions. It will be available in California, Florida, Georgia, Illinois, Michigan, Nevada, North Carolina, Ohio, and Texas, which represent almost half of the US population as well as Walgreens’ pharmacy customer base. It will be primarily clinician chat-based, with synchronous video visits for select conditions. Conditions treated include seasonal allergies, COVID-19 or flu, erectile dysfunction, hair loss, birth control, and other common health needs. Cash only–$33 for chat with video visits $36 to $75, which puts it in line with Amazon Clinic’s cash charge of $35 and $75 respectively. Insurance may come in the future. WBA has had telehealth through VillageMD locations and has actually had tele-dermatology service since 2016. Walgreens’ move, though, is a little tardy given Amazon Clinic’s national rollout after privacy issues delayed it on 1 August [TTA 1 Aug] and CVS’ Virtual Primary Care nationally with Amwell a year ago [TTA 12 Aug 22]. Healthcare Dive