BioScrip Revenues Slide - Analyst Blog

BioScrip Inc. (BIOS) reported fourth-quarter earnings of 99 cents per share, including the impact of items such as the reversal of deferred tax valuation allowance of $41.1 million, expenses of $1.8 million associated with the pending acquisition of Critical Homecare Solutions Inc. and $4.3 million of incentive compensation expense relating to the employee compensation program.

 

Excluding one-time items and including stock-based compensation expense, BioScrip reported fourth quarter earnings of 2 cents, well below the Zacks Consensus Estimate of 10 cents. The company reported earnings of 8 cents in the year-ago period. Revenues for the quarter declined 6.8% to $341.6 million.

 

Full year 2009 earnings came in at 39 cents, well above the year ago earnings of 22 cents. However, full year revenues declined 5.2% to $1.3 billion. While the specialty business contributed $1.1 billion to annual revenues, the traditional pharmacy services business posted revenues of $216.2 million.

 

The decline in revenues was mainly due to the elimination of the Medicare Competitive Acquisition Program (CAP), the termination of the United Health Group organ transplant and HIV/AIDS contracts and the impact of the industry-wide AWP settlement. This was partially offset by increased sales of higher margin infusion therapies and other specialty revenues.

 

We are pleased to see the company work on growing its higher margin infusion business. Management reported that BioScrip has infusion capabilities in 23 markets. During 2009, BioScrip also increased its sales force from 15 to 50 people. The expansion of the higher margin infusion business and the increased sales effort should help drive revenues.

 

Meanwhile, several therapeutic areas including iron overload, multiple sclerosis (MS), oncology and infusion therapies recorded double digit growth in 2009. The oral oncology business, which grew 43% in 2009, should continue witnessing strong growth going forward.

 

Gross profit improved to $157.8 million in 2009 mainly due to an improved product mix thanks to the elimination of lower margin business and improved supply chain programs.

 

BioScrip reiterated its previously issued financial guidance for 2010, which includes the impact of the Critical Homecare acquisition that is scheduled to close by April 1. Increased volume, access to high margin therapies and operating synergies are expected to boost revenues as well as gross margins of the combined company.

 

BioScrip expects to generate revenues in the range of $1.67 to $1.73 billion in 2010. The company expects 2010 gross profit in the range of $267 to $277 million. The acquisition is expected to be modestly accretive to earnings per share on a cash basis and slightly dilutive on a GAAP basis in 2010. The transaction is expected to be accretive on both cash and GAAP earnings per share basis from 2011.

 

BioScrip continued to make progress with its system implementation program, which it aims to complete by year end. The implementation of the new system should help reduce costs and improve operational efficiency especially where day-to-day management control is concerned.

 

We currently have a Neutral recommendation on BioScrip. The company’s strong presence in the specialty pharmacy market should help maintain growth. Moreover, the Critical Homecare acquisition should allow the company to become one of the largest home infusion providers in the US with a presence across several locations.

 

However, we remain concerned about the intense competition in the market. Additionally, the loss of the CAP and United Health contracts were setbacks for the company and further loss of major contracts would weigh heavily on the company’s performance.