BioScrip Reaffirmed at Neutral - Analyst Blog

We maintain our Neutral recommendation on BioScrip Inc. (BIOS) following its tepid third-quarter fiscal 2010 results. Earnings for the quarter trailed both the Zacks Consensus Estimate and the year-ago earnings. Profit plummeted 66% year over year, hit by higher costs and tax.

On a positive note, revenues grew at a healthy double-digit rate, driven by the synergies from the acquisition of Critical Homecare Solutions (“CHS”), a leading provider of infusion therapy products and services. However, organic (excluding the impact of acquisitions) revenue growth was disappointing.

BioScrip witnessed softer patient reorder patterns and pricing pressure in some parts of its business, impacting the gross margin for the quarter. Consequent to the disappointing performance in the quarter, the company withdrew its full-year fiscal 2010 guidance and decided to review its business and cost structure. BioScrip is expected to provide its fiscal 2011 guidance in January next year.

New York-based BioScrip is a specialty pharmacy services provider and pharmacy benefit manager (“PBM”). It distributes specialty pharmaceuticals and provides condition-specific clinical management programs tailored to individuals suffering from HIV/AIDS, cancer, immune deficiencies, hepatitis C, rheumatoid arthritis, multiple sclerosis and organ transplants.

BioScrip's strong presence in the infusion and home health market should help sustain growth. The company is relatively well diversified across several key disease areas including immunology, multiple sclerosis, and oncology. Moreover, BioScrip has favorable managed care relationships on a national basis.

BioScrip's effort to expand its higher margin infusion business, both in existing and new markets, should not only drive revenues, but may also help improve margins and bottom line moving forward. We view the company's acquisition of CHS as a smart strategic move, helping it to expand its footprint in the infusion market.

However, BioScrip faces stiff competition in the pharmaceutical healthcare services industry from players like CVS Caremark (CVS), Medco Health Solutions, Walgreen (WAG) and AmerisourceBergen (ABC) as well as many smaller organizations that operate on a local or regional basis. Increased competition has led to lower pricing and increased rebate sharing, thereby pressurizing margins.

Moreover, BioScrip has been affected lately by the reimbursement rate changes by certain payors, which has impacted its profit and margins in the third quarter. We are also wary about the company's highly leveraged balance sheet.

 
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