Rochester Drug Cooperative declares bankruptcy in aftermath of opioid prosecution

Struggling to stay solvent after its prosecution for opioid distribution, Rochester Drug Cooperative Thursday filed for bankruptcy protection.

The company, one of the nation's largest distributors of pharmaceutical supplies, hopes to solidify its finances and find a buyer for the business, which opened in Rochester in 1905 and is now based in Gates.

Last year, Rochester Drug Cooperative, or RDC, admitted in an agreement with federal prosecutors that it helped propel the opioid epidemic with lax monitoring and its knowing distribution of dangerous medications to pharmacies that were illicitly selling the drugs.

RDC agreed to pay a $20 million fine, and strengthen its monitoring, but the subsequent costs and the growing legal fees — RDC is a defendant in multiple opioid-related lawsuits — have strangled the company's finances. Earlier this year, it stopped selling opioids and announced it might have to shut down its distribution facilities in Gates and New Jersey.

RDC still owes the federal government $10 million, and defaulted on a $2 million payment last month, according to records and statements in a bankruptcy court hearing Thursday.

"RDC has cut costs and tried to sell portions of its assets," the company said in a news release Thursday announcing its plans to seek bankruptcy protection. "These measures have not produced the required amount of relief."

RDC spokesman Jeff Eller said in a statement that since December the company has not been able to afford to buy "sufficient inventory to meet customer demand."

"The reduced sales have resulted in a lower amount of accounts receivable," Eller said in the statement. "The result is further reduced liquidity. This declining liquidity has severely impacted RDC's ability to operate its business."

First distributor prosecution

RDC is a cooperative of pharmacies, mostly across the Northeast, with the pharmacies serving as ownership. During the past decade, RDC became the nation's sixth largest distributor of pharmaceuticals and health care products, serving more than 1,300 pharmacies.

Last year, RDC became the first pharmaceutical distributor in the country to be criminally accused of a role in flooding the streets with dangerous prescription medications.

Its former chief executive officer, Laurence Doud III, is facing criminal charges of narcotics trafficking. He is the first opioid distribution company officer to be criminally charged with narcotics trafficking.

William Pietruszewski, RDC's former compliance officer, has pleaded guilty to a narcotics conspiracy, defrauding the government, and failure to report suspicious pharmacy orders.

The agreement the company last year struck with federal authorities was an effort to keep RDC afloat. But, instead, the aftermath of the prosecution, and a separate civil agreement with federal authorities, created strains.

Similarly, the growing legal costs from lawsuits against RDC have been their own burden.

"As noted before, RDC has been under significant financial stress," Eller said in the statement. "The ability to stabilize business has been hampered by the ongoing litigation the company currently faces in several state and federal courts and by a declining ability to borrow working capital."

RDC's insurer recently declined to cover the company's legal costs with the lawsuits —under the policy RDC would be covered for up to $6 million — but a federal judge ordered that some of the costs must, for now, be covered as RDC's lawsuit against the insurer is decided.

The financial struggles

During the height of the opioid epidemic, RDC's finances grew — with revenues of around $700 million in 2013 to more than $2 billion three years later. 

In 2019 the revenue, after some drop, was almost $1.5 billion, but the annual revenue "is projected to decline approximately $790 million for the current fiscal year ending on March 30, 2020," according to an affidavit from RDC interim executive director John Kinney.

In the affidavit, Kinney states that:

• The company's assets are valued at about $70 million.

• As well as the $10 million owed the federal government, RDC owes another $32.3 million to secured creditors — the first to be paid in a bankruptcy —  and another $71.8 million to unsecured creditors.

• The company has until March 31 to sell off all of its remaining opioid medications. Any remaining will be destroyed.

• The company has a broker trying to sell its New Jersey facility and is "engaging a broker to market the Rochester facility."

Contact Gary Craig at gcraig@gannett.com or at 585-258-2479. Follow him on Twitter at gcraig1. This coverage is only possible with support from readers. Sign up today for a digital subscription.