Rite Aid slumps ~10% as JPMorgan cites debt woes in path to settle DOJ opioid suit

Rite Aid (NYSE:RAD) stock fell ~12% on Tuesday after JPMorgan noted that debt burden may hinder the company's flexibility to pay any potential fines emerging from a U.S. Department of Justice (DOJ) lawsuit, which alleged that the drug retailer deliberately filled unlawful prescriptions for opioid pain drugs, Bloomberg reported citing JPMorgan analyst

Analyst Lisa Gill said in a note that in many cases companies agree to a settlement by paying a fine, without admitting any wrongdoing, however the firm is unsure that the the Philadelphia-based company has that "luxury."

On Monday, the DOJ said that the U.S. has filed a complaint in intervention in a whistleblower lawsuit against Rite Aid alleging that the company knowingly filled unlawful prescriptions for controlled substances.

In addition to alleging claims under the False Claims Act (FCA), the complaint also alleges violations of the Controlled Substances Act (CSA) by the pharmacy chain.

"According to our complaint, Rite Aid’s pharmacists repeatedly filled prescriptions for controlled substances with obvious red flags, and Rite Aid intentionally deleted internal notes about suspicious prescribers. These practices opened the floodgates for millions of opioid pills and other controlled substances to flow illegally out of Rite Aid’s stores," said Associate Attorney General Vanita Gupta.

The U.S. complaint alleged that between May 2014 and June 2019, Rite Aid knowingly filled at least hundreds of thousands of unlawful prescriptions for controlled substances which lacked a legitimate medical purpose, were not for a medically accepted use or were not issued in the usual course of professional practice.

Analyst Gill noted that the firm does not think that Rite Aid has significant flexibility to pay a meaningful fine which would be a 'win' for the DOJ

According to Bloomberg, RAD holds $3.2B in long-term debt, less current maturities.