Walgreens is making progress renegotiating contracts with pharmacy benefit managers and selling its VillageMD stake, while continuing to trim down other parts of the business.
Walgreens' sale of its majority stake in primary and multispecialty care provider VillageMD is underway, and the company's "ultimate intent" to exit the investment remains unchanged, CEO Tim Wentworth said Friday on a first-quarter earnings call. He said executives are evaluating options for Summit Health-CityMD, which VillageMD acquired in early 2023.
Related: Walgreens execs still waiting for healthcare services payoff
"We've shown progress on our priorities over the past quarter, and while we have a lot of work ahead of us, this progress underpins our belief in delivering a successful turnaround," Wentworth said on Friday's call.
Walgreens' U.S. healthcare services strategy, including its relationship with VillageMD, has been a rollercoaster over the past couple of years. Walgreens laid out big plans to open hundreds of primary care clinics with VillageMD in multiple states, only to sharply reverse those plans by closing dozens of clinics in the first half of 2024. Last summer, the company expressed its intent to pull back from VillageMD, following a $6 billion hit on the investment earlier in the year.
Sales grew 12% to $2.17 billion in the first quarter in the U.S. healthcare segment — including 9% growth at VillageMD, despite operating fewer clinics. Specialty pharmacy company Shields Health Solutions was a bright spot for the healthcare segment with 30% sales growth.
Still, Walgreens has struggled to make U.S. healthcare a profitable part of its business. Operating losses exceeded $14 billion in fiscal 2024. In this latest quarter, the healthcare segment recorded a $325 million operating loss, compared with a $436 million loss a year ago.
Walgreens reported a net loss of $265 million, or 31 cents per diluted share, in the first quarter ended Nov. 30, compared with a $67 million net loss, or 8 cents per share, in the year-ago period.
Walgreens is pushing ahead with an aggressive turnaround plan to stabilize cash flow as it struggles with a challenging pharmacy environment and declining consumer retail demand. The company began a strategic review of operations last year and refocused efforts on its core pharmacy business. It is closing 1,200 stores over the next few years to cut costs, including roughly 500 stores in 2025, nearly 70 of which closed in the first quarter.
In December, reports surfaced that Walgreens was in talks to sell itself to private equity firm Sycamore Partners, but neither company has commented.
A key part of Walgreens' turnaround strategy is renegotiating contracts with pharmacy benefit managers. Wentworth told analysts the company has renegotiated all contracts up for renewal in 2025, about a third of its total contracts. He said Walgreens is working with PBMs to balance brand-name drugs and generics, carve out new categories for high-cost drugs such as GLP-1s and implement alternative payment models.
"Our goal is to serve as many patients and communities as possible, but this is dependent on being reimbursed fairly so that we can maintain our presence as a healthcare provider across the country," Wentworth said.
Wentworth said Walgreens wants to be a leader in drug procurement, but the company has work to do.
The company was slated to present at the 43rd annual J.P. Morgan Healthcare Conference in San Francisco next week but pulled out as of the latest agenda.
