Walgreens' biggest healthcare bet is floundering as it shutters 160 primary-care clinics

• 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.

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.

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

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.

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.

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.

"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.