We are investigating whether Rite Aid Corporation (NYSE: RAD) (“Rite Aid”) has violated federal securities laws. If you suffered losses as a result of today’s sharp drop in the price of RAD, and have questions about your legal rights, please contact us using the form at the bottom of this page to discuss your options at no charge.
Why is there an investigation?
Elixir, is a fully owned subsidiary of Rite Aid that offers pharmacy benefit management (PBM) services, Medicare-approved prescription drug plans, mail and specialty pharmacy solutions, and prescription discount programs to millions of members nationwide.
On June 10, 2022, Rite Aid filed a letter with the Securities and Exchange Commission (“SEC”) from Rite Aid’s President and Chief Executive Officer, Heyward Donigan, stating among other things that “[o]ur Elixir account and sales teams are gaining momentum, and we are executing more efficiently by consolidating functions. And the market is noticing—we have added 34,000 individuals covered by Elixir’s PBM services since January 1, 2022, with many more in the pipeline. And we just won the renewal of our largest health plan client in a very competitive bidding process.”
Subsequently, on an earnings call held on June 23, 2022, Donigan advised analysts concerning Elixir that:
Now to turn to the PBM services business. Our strong network contracts, new rebate capabilities, innovative clinical services and expertise in government programs have enabled us to add 80,000 new lives for January 1, 2023 start date. These are more new lives than we sold last year. And additionally, the selling season is still in progress, and we’ve got close to 1 million lives remaining in the pipeline for January 1, 2023.
During the Q&A, an analyst asked:
The second question is you mentioned the 80,000 additional lives for Elixir that you’ve attained, and there’s still 1 million potentially that you’re going to be getting? I guess, what’s your degree of confidence in that additional potential million. What percent might be reasonable that you would attain of those? And then if there has been anything else in terms of losses of lives, I’m trying to think about next 2023, that calendar year, how Elixir is shaking out.
In response, Elixir’s Chief Operating Officer, Chris DuPaul, stated:
Thank you for the question. Just to clarify a bit, taking you down through the numbers. The 1 million lives that Heyward referenced are the lives that we still have active in our pipeline inside of our target markets. So those are — that’s a business that is up for bid right now for 1/1 ’23. So out of that 1 million, we expect to win a portion of those. Where we are right now in terms of our new life count for next year, I think in our last earnings call, we’ve talked about — we’ve set a goal to try and win 300,000 new lives.
At the time, we’ve had a pretty strong start to our selling season, particularly on the health plan side. As we’ve moved into more of the commercial book, that slowed a bit. As we’ve seen more clients sticking with incumbents. That said, we are still expecting to have the strongest selling season that we’ve had in several years at Elixir. And so we feel really good about where our life count is headed. Our retention rate is still expected to come in right around 95%. And we did retain our largest client, MCS, earlier in the year. So we’re feeling really good about where our lives are headed going into 1/1 ’23, and that’s sort of how we get there.
The Truth Emerges
On September 29, 2022, however, Rite Aid announced a $252.2 million charge for the impairment of goodwill related to the Elixir subsidiary, equal to approximately 2/3 of the company’s market cap.
On an earnings call held later in the day, when asked about the PBM business, Rite Aid’s Chief Financial Officer, Matt Schroeder, explained “clearly, from a pure lives standpoint, we would expect to be down, and that’s what drove the goodwill impairment that we took.”
When further asked about Elixir, Schroeder added, “The good will impairment for Elixir is really driven by a triggering event from a change in our estimate of lives for next year. And we’ve been open about the fact that we expect lives to go down. And so that is what drove the impairment on the goodwill for Elixir.”
On news of the impairment charge, RAD stock dropped over 28% by 3:00 P.M. Eastern on September 29, 2022.