UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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OR
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PERIODIC REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number: 0-28740
BioScrip, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
(State of
incorporation)
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05-0489664
(I.R.S. Employer
Identification No.)
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100 Clearbrook Road, Elmsford NY
(Address of principal
executive offices)
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10523
(Zip Code)
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Registrants
telephone number, including area code:
914-460-1600
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to section 12(g) of the Act:
Common Stock, $.0001 par value
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act Yes
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No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer
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(Do not check if a smaller
reporting company)
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Smaller reporting
company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
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No
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The aggregate market value of the registrants Common Stock
held by non-affiliates of the registrant as of June 30,
2007, the last business day of the registrants most
recently completed second fiscal quarter, was approximately
$106,291,944 based on the closing price of the Common Stock on
the Nasdaq Global Market on such date.
On February 29, 2008 there were outstanding
38,324,341 shares of the registrants Common Stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for
its 2008 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the close of the registrants
fiscal year are incorporated by reference into Part III of
this Annual Report.
TABLE OF
CONTENTS
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Page
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Number
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PART I
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Item 1.
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Business
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1
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Item 1A.
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Risk Factors
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16
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Item 1B.
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Unresolved Staff Comments
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Item 2.
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Properties
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Item 3.
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Legal Proceedings
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Item 4.
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Submission of Matters to a Vote of Security Holders
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PART II
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Item 5.
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Market for Registrants Common Equity and Related
Stockholder Matters
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Item 6.
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Selected Consolidated Financial Data
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Item 7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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36
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Item 8.
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Financial Statements and Supplementary Data
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37
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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65
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Item 9A.
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Controls and Procedures
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65
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Item 9B.
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Other Information
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68
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PART III
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Item 10.
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Directors and Executive Officers of the Registrant
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68
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Item 11.
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Executive Compensation
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68
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
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68
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Item 13.
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Certain Relationships and Related Transactions
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68
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Item 14.
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Principal Accountant Fees and Services
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68
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules and Reports on Form 8-K
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69
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SIGNATURES
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72
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SCHEDULE II
Valuation Allowance and
Qualifying Accounts
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73
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EXHIBIT INDEX
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74
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PART I
This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Forward-looking statements relate to expectations,
beliefs, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not
historical facts or that necessarily depend upon future events.
In some cases, you can identify forward-looking statements by
terms such as may, will,
should, could, would,
expect, plan, anticipate,
believe, estimate, project,
predict, potential, and similar
expressions. Specifically, this Annual Report contains, among
others, forward-looking statements about:
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our expectations regarding financial condition or results of
operations for periods after December 31, 2007;
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our future sources of, and needs for, liquidity and capital
resources;
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our expectations regarding general economic and business
conditions;
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our critical accounting policies;
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our expectations regarding the size and growth of the market for
our products and services;
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our business strategies and our ability to grow our business;
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the implementation or interpretation of current or future
regulations and legislation, particularly governmental oversight
of our business; and
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our ability to maintain contracts and relationships with our
customers;
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The forward-looking statements contained in this Annual Report
reflect our current views about future events, are based on
assumptions, and are subject to known and unknown risks and
uncertainties. Many important factors could cause actual results
or achievements to differ materially from any future results or
achievements expressed in or implied by our forward-looking
statements. Many of the factors that will determine future
events or achievements are beyond our ability to control or
predict. Certain of these are important factors that could cause
actual results or achievements to differ materially from the
results or achievements reflected in our forward-looking
statements.
The forward-looking statements contained in this Annual Report
reflect our views and assumptions only as of the date this
Annual Report is signed. The reader should not place undue
reliance on forward-looking statements. Except as required by
law, we assume no responsibility for updating any
forward-looking statements.
We qualify all of our forward-looking statements by these
cautionary statements. In addition, with respect to all of our
forward-looking statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
Overview
We are a specialty pharmaceutical healthcare organization that
partners with patients, physicians, healthcare payors and
pharmaceutical manufacturers to provide access to medications
and management solutions to optimize outcomes for chronic and
other complex healthcare conditions.
Our specialty pharmaceutical services (Specialty
Services) include the comprehensive support, dispensing
and distribution, patient care management, data reporting as
well as a range of other complex management services for certain
medications. These medications include orals, injectables and
infusibles used to treat patients living with chronic health
conditions and are provided in various capacities to patients,
physicians, healthcare payors and pharmaceutical manufacturers.
Our pharmacy benefit management (PBM) services
include pharmacy network management, claims processing, benefit
design, drug utilization review, formulary management and
traditional mail order pharmacy fulfillment. These services are
reported under two operating segments: (i) Specialty
Services; and (ii) PBM and Traditional Mail Services
(collectively, PBM Services).
Specialty Services and PBM Services revenues are derived from
our relationships with healthcare payors including managed care
organizations, government-funded
and/or
operated programs, pharmaceutical
1
manufacturers, patients and physicians as well as a variety of
third party payors, including third party administrators
(TPAs) and self-funded employer groups (collectively
Plan Sponsors).
Our Specialty Services are marketed
and/or
sold
primarily to healthcare payors, pharmaceutical manufacturers,
physicians, and patients, and target certain specialty
medications that are used to treat patients living with chronic
health conditions. These services include the distribution of
biotech and other high cost injectable, oral and infusible
prescription medications and the provision of therapy management
services.
Our PBM Services are marketed to healthcare payors including
employer groups and TPAs and are designed to promote a broad
range of cost-effective, clinically appropriate pharmacy benefit
management services through our national PBM retail network and
our own mail service distribution facility. We also administer
prescription discount card programs on behalf of commercial Plan
Sponsors, most typically TPAs. Under such programs we derive
revenue on a per claim basis from the dispensing network
pharmacy.
Over the past several years our strategic growth has been
focused on building our Specialty Services. Consequently,
Specialty Services revenues have grown to more than 80% of our
total revenue.
Specialty
Services
Our Specialty Services business offers a comprehensive
integrated healthcare service model providing: (i) local
distribution through our community pharmacies, where we dispense
medications to patients at the point of sale or through
delivery; (ii) specialty mail distribution through
contracts with health plans and manufacturers to dispense and
ship medications directly to a patient or to the patients
physicians office for administration; and
(iii) infusion services through our infusion pharmacies for
patients requiring infused medications in the home or in a
physicians office or in one of our own ambulatory infusion
sites. Our patients typically have prescription drug coverage
through commercial insurance, Medicare, Medicaid or other
governmental programs, and we are reimbursed on behalf of the
healthcare payor by pharmacy benefit managers or the Plan
Sponsor directly. Our Specialty Services programs are designed
to optimize the therapeutic outcomes for patients while
achieving Plan Sponsors
and/or
pharmaceutical manufacturers program goals. These goals
include appropriate utilization of therapies, improved patient
compliance and adherence rates, reduced expenditures through
discounted drug rates and utilization reporting. Our software
and data management tools permit Plan Sponsors, pharmaceutical
manufacturers and physicians to: (i) access utilization
data to manage better healthcare outcomes; and (ii) measure
cost, utilization, prescribing and other pharmacy trends.
We own and operate 40 specialty pharmacies comprised of
community pharmacies, located in major metropolitan areas across
the United States; mail order pharmacies; and infusion
pharmacies. While all of our locations are full-service
pharmacies that carry both traditional and specialty medications
and are able to treat people with a variety of diseases and
medical conditions, we primarily focus on serving patient
populations with chronic health conditions, including:
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Cancer
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Crohns Disease
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Hemophilia
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Hepatitis C
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HIV/AIDS
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Immune Deficiency
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Iron Overload
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Multiple Sclerosis
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Organ Transplant
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Psoriasis
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Rheumatoid Arthritis
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We are the sole vendor for the Centers for Medicare and Medicaid
Services (CMS) Competitive Acquisition Program
(CAP) for certain Medicare Part B drugs and
biologicals which commenced July 1, 2006. CAP is a
voluntary program that offers physicians the option of obtaining
many of their Medicare Part B drugs and biologicals from us
by writing a prescription and transmitting it to us. That
process eliminates the need for buying the medications and
billing CMS for drug reimbursement, which, prior to the
existence of CAP, was the principal process for physicians to
obtain medication to treat Medicare beneficiaries with
Part B drugs and biologicals. CAP benefits physicians by
reducing or eliminating the financial risks associated with
carrying high-cost drug inventories and reducing the
administrative burdens of physicians. Our CAP contract runs on
an exclusive basis through December 31, 2008, and is being
competitively bid for the potential addition of new vendors by
CMS beginning 2009 and beyond. We have submitted our bid to
participate in CAP for periods after 2008. While we have no
reason to believe that we will not be selected as a CAP
provider, no assurances can be given at this time. However,
management believes that our failure to be named as a CAP
provider, whether or not on an exclusive basis after 2008, will
not have a materially adverse affect on our business, operations
or financial position or results of operations.
In July we announced that we were awarded an agreement with
United Healthcare (the UHC Agreement) and
(UHC), to serve as one of two national specialty
pharmacy providers of HIV/AIDS and Solid Organ Transplant drugs
and services to patients insured by United Healthcare and its
participating affiliates. This agreement became effective on
August 1, 2007, with the initial term of the agreement
running through December 31, 2008. We have no reason to
believe that the UHC Agreement with UHC will not continue beyond
the end of 2008. At this time we have received no assurances it
will. The failure of the UHC Agreement to continue beyond 2008
could have a material and adverse affect on our business,
operations and financial position and results of operations in
2009.
Medication
Dispensing and Distribution
We carry a full range of prescription medications and are able
to dispense nearly all prescription medications for acute and
chronic diseases and conditions. As a specialty pharmacy
provider our mail and community pharmacy locations also carry
hard to find and hard to handle medications that are typically
more expensive than medications carried by ordinary
or traditional pharmacies and as such, are generally not carried
or stocked.
Special shipping and handling techniques in compliance with a
manufacturers specific shipping and handling requirements
are employed, including refrigeration and shipping with dry-ice
packs. We provide the drug product along with supplies and
equipment needed for administration. We bill these medications
directly to the physician or bill the patients insurance
plan, removing some of the administrative burden placed upon the
physicians office.
Our pharmacies also deliver medications to physicians
offices for in-office administration. The majority of our
business is patient-specific dispensing, whereby we receive a
prescription for a medication and bill the appropriate party or
parties for reimbursement of the drug, which may include
healthcare payors, manufacturers
and/or
the
patient. In some instances we deliver wholesale drugs directly
to qualified healthcare professionals or institutions including
physicians.
Billing
and Coordination of Benefits
Our pharmacies offer comprehensive billing, patient
reimbursement and coordination of benefits (COB)
services under both the pharmacy and medical benefits. Our
pharmacy locations are contracted with nearly all Federal and
state governmental benefit programs including Medicare,
Medicaid, and state benefit programs such as AIDS Drug
Assistance Programs (ADAPs) and other Ryan
White-funded programs. In addition, our pharmacies participate
in most of the pharmacy benefit management networks; as well as
with managed care organizations directly.
Our comprehensive COB services help patients with multiple
sources of insurance
and/or
government assistance by handling complex insurance billing and
reimbursement challenges which, if not performed properly, can
lead to non-compliance with the prescribed drug therapy and
prescription refills. Many of our patients take advantage of
this service while they await reimbursement from secondary or
other payors. Retail pharmacies do not typically provide COB
services; we believe providing this service is a major
differentiator from our competitors. We
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offer comprehensive assistance to patients to identify financial
programs and obtain funding for patients who are unable to
afford their out-of-pocket expenditures, including co-payments.
We work with a variety of assistance organizations and
pharmaceutical manufacturers to obtain this type of funding on
the patients behalf. Co-payments and coinsurance payments
are diligently pursued for collection unless approved financial
hardship exemptions are in effect.
Specialty
Therapy Management
We design and administer clinical programs to maximize the
benefits of pharmaceutical utilization as a tool in achieving
pharmaceutical therapy goals for certain targeted disease
states. Our programs focus on preventing high-risk adverse
events through the appropriate use of pharmaceuticals while
eliminating unnecessary or duplicate therapies. Key components
of these programs include healthcare provider training,
integration of care between pharmacy and medical health
disciplines, monitoring of patient compliance, measurement of
care process and quality, and providing feedback for continuous
improvement in achieving therapy goals. The goal of these
services is to improve patient outcomes and lower overall
healthcare costs.
In 2007,
bioscripcare
tm
patient care programs were designed to address the changing
nature of pharmaceutical care. The complexity of therapy has
increased greatly resulting in the need for improved patient
therapy management. Interactions with nurses and physicians have
been reduced primarily to scheduled
follow-up
appointments leaving days, weeks and potentially months for
patients to navigate their therapy regimen on their own. The
added complexity combined with reduced
follow-up
has created a void in the healthcare delivery process.
Improvements in therapy have not necessarily resulted in the
significant improvement of health outcomes. Compliance continues
to be the most significant determinant in health outcomes.
In addition to therapy complexity and healthcare delivery,
changes in the Specialty Pharmacy environment changes have
impacted care delivery. The acquisition of Specialty Pharmacies
by large PBMs has resulted in considerable inconsistency among
the programs available today. Consequently, patient care and
compliance has deteriorated resulting in unmet patient needs.
bioscripcare
tm
patient care programs address these unmet needs by providing the
optimal structure of patient care through consistent assessment
and intervention, ongoing education management and adherence and
persistence management resulting in improved patient healthcare
delivery. Also, as part of our normal business operations for
refill management, we initiate monthly telephonic interactions
with patients. During the course of these calls, important
demographic, therapy and compliance data are gathered. Modifying
the existing refill call process by including additional
scripted survey questions specific to targeted disease states
results in a significantly more robust data gathering process
that lead to important health outcome measures.
Our programs are medically sound, incorporating Healthcare
Effectiveness Data and Information Set and National Committee
for Quality Assurance measures and are DMAA: The Care Continuum
Alliance focused. Measurement, analysis, as well as improvement
and repetition are key components of our regular program
reviews. Our programs remain dynamic through our focus on
continual improvement. Some of the components of the programs
are described below:
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Professional Intervention
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Most of the diseases and conditions we support require complex,
multi-drug regimens for treatment, many of which have potential
adverse side effects and drug interactions. Our pharmacists
review prescriptions presented for a patient against that
patients medical history, his or her past and current
medication usage, and clinical references known to us to insure
the therapy selected is clinically appropriate. If our
pharmacists find a potential or actual problem, they contact the
prescriber or patient to discuss that patients case and
alternative medications.
Our pharmacists and clinical staff stay informed about new
medications and changing treatment protocols which are utilized
in our target diseases and conditions. We regularly send
information on new medications to local prescribers to alert
them, and recommend those patients that may be candidates for a
change in therapy. Because most healthcare providers have
limited time to keep abreast of the rapid pace of change in
medicine, we believe that they may benefit from these services.
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Due to the complexity of the regimens associated with the
medications we dispense and the need to educate patients on the
importance of compliance and proper dosing and administration,
we make great efforts to help our patients and caregivers
understand how their regimen may affect their health status and
lifestyle. We routinely consult with each patient when they
receive their first prescription from us. We consult on, among
other things, what each medication is for, how it works, and
what adverse side effects are most likely to occur, as well as
potential interactions between or among multiple medications.
Our goal is to fully inform each patient because failure to do
so could result in missed doses, delayed starts, and loss of
other healthcare treatment options in some cases. We also
provide patients with information concerning how medications
might influence their lifestyle and give them recommendations on
how to fit drug therapies into alternative schedules and travel
plans.
Many of the specialty medications we dispense are given by
injection. We teach patients how to prepare their medications
for administration, how to inject themselves, and how to deal
with any site reactions that may occur. We often have the
patient administer their first dose in the pharmacy so they feel
comfortable with taking the medication(s) when they get home.
Our pharmacists are available by telephone in case a patient has
questions and generally
follow-up
with the patient as needed.
Our pharmacies also provide patients and their family members,
as well as physicians, with a broad range of written educational
materials. We create some of those materials and receive others
from pharmaceutical manufacturers and not-for-profit
organizations. We promote local and national disease-related
events, including cancer and other disease-related awareness
programs such as World AIDS Day. Most of our locations offer
patient support groups for people living with HIV/AIDS where
they discuss new therapies, lifestyle tips and options to
improve medication adherence.
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Adherence and Persistence Management
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Adherence is defined as taking medications on a
timely basis, as and when prescribed for example,
twice daily. Persistence is defined as taking a
regimen of medications for the length of time prescribed. People
with the diseases and conditions we treat often struggle with
both of these self-management issues, since their medications
are often difficult to take and require months or years of use.
Since adherence and persistence are keys to achieving the
optimal results for which a medication is prescribed, our
pharmacists take a very active role in promoting and managing
them. We stress the importance of adherence and persistence
during our initial teaching sessions and with each medication
refill. We provide refill reminders, either by phone call,
e-mail
or
text message to alert people when a prescription refill is due
or to take their daily Rx regimen. We routinely
follow-up
with people who do not show up for their refills and alert
physicians and other healthcare providers when the patient
cannot be located. We reinforce these activities with
nurse-based adherence management and therapy optimization
programs for select conditions that carry a higher risk of
complications or treatment failures. We believe that these
services and programs allow us to achieve adherence rates
markedly above the industrys averages.
PBM
Services
We offer TPAs and other Plan Sponsors a broad range of PBM
Services designed to ensure the cost-effective delivery of
clinically appropriate pharmacy benefits. PBM Services available
to our customers include the following:
Formulary
and Benefit Design
We work closely with our Plan Sponsors to offer formularies and
benefit plan designs to meet their specific program
requirements. Formulary design assists in controlling program
costs to the extent consistent with accepted medical and
pharmacy practices and applicable law, primarily through three
principal techniques: (i) tiered copay or percentage
coinsurance designs, which provide lower copays for formulary
preferred medications and higher copays for non-preferred
medications, or charge a percentage of the prescription price to
the member at different percentages based on the preferred or
non-preferred status of a drug; (ii) generic substitution,
which involves the
5
selection of a generic drug as a cost-effective alternative to
its bio-equivalent brand name drug;
and/or
(iii) therapeutic interchange, which involves the selection
of a lower cost brand name drug as an alternative to a higher
priced brand name drug within a therapeutic class. Formulary
rebates on brand name drugs are negotiated with drug
manufacturers based on the drugs preferred status and are
typically shared with Plan Sponsors. We do not manage a rebate
program on our own. Rather, our rebates are managed and
administered by a third party vendor.
Many commercial Plan Sponsors do not restrict coverage to a
specific list of pharmaceuticals and are said to have no
formulary or an open formulary that generally covers
all FDA-approved drugs except certain classes of excluded
pharmaceuticals, such as certain vitamins and cosmetics,
experimental, investigative or over-the-counter drugs. However,
as a result of rising pharmacy program costs, both public and
private health plans have become increasingly receptive to
controlling pharmacy costs by creating formularies which steer
members to the lowest cost drug available with appropriate
efficacy within a given therapeutic class, other than in cases
of medical necessity or other pre-established prior
authorization guidelines. Once a Plan Sponsor decides to utilize
a restricted or closed formulary, we
actively involve our clinical staff with a Plan Sponsors
Pharmacy and Therapeutics Committee (P&T
Committee) to assist with the design of clinically
appropriate formularies in order to control pharmacy costs.
Typically, the P&T Committee consists of a Plan
Sponsors physicians, pharmacists and others, including
independent healthcare professionals. The ultimate composition
and approval of the formulary resides with the Plan Sponsor.
The primary method for assuring formulary compliance on behalf
of a Plan Sponsor is by managing pharmacy reimbursement to
ensure that non-formulary drugs are not dispensed, or dispensed
with higher co-payments, subject to certain limited exceptions,
to a Plan Sponsor enrollee (Member). Benefit design
and formulary parameters are managed through a point-of-sale
(POS) electronic claims processing system through
which real-time electronic edits control plan restrictions and
real-time electronic messages are transmitted to pharmacists to
ensure compliance with specified benefit design and formulary
parameters before services are rendered and prescriptions are
dispensed. Over utilization of medication is monitored and
managed through quantity limitations based upon nationally
recognized standards. Step protocols, which are procedures
requiring that preferred therapies be tried and shown
ineffective before more expensive therapies are covered, are
also established in collaboration with the relevant P&T
Committee to control improper utilization of certain high-risk
or high-cost medications.
Clinical
Services
Formularies typically identify a limited number of drugs for
preferred status within each therapeutic class to be the
preferred drug agent in order to treat most medical conditions
appropriately. Provision is also made for coverage of
non-formulary or non-preferred drugs, other than certain
excluded products, when documented to be clinically appropriate
for a particular Member. Since non-formulary drugs are rejected
for coverage by the real-time POS system, we employ procedures
to override restrictions on non-formulary medications for a
particular Plan Participant and period of treatment. Similarly,
restrictions on the use of certain high-risk or high-cost
non-preferred formulary or non-formulary drugs may be overridden
through prior authorization or medical necessity procedures.
Non-formulary overrides and prior authorizations are processed
on the basis of documented, clinically supported medical
information and typically are settled within 48 hours of
request with complete information. Requests for, and appeals of
denials of coverage in those cases are handled by our staff of
trained pharmacists, pharmacy techs and board certified
pharmacotherapy specialists, subject to the Plan Sponsors
ultimate authority over all such requests, determinations and
appeals. Further, in the case of a medical emergency, as
determined by the dispensing network pharmacist, we will
authorize, without prior approval, short-term supplies of all
medication, unless specifically excluded by a Plan Sponsor.
Drug
Usage Evaluation
Drug usage is evaluated on a concurrent, prospective
and/or
retrospective basis utilizing the real-time POS system and
proprietary information systems for multiple drug interactions,
duplication of therapy, step therapy protocol enforcement,
minimum/maximum dose range edits, compliance with prescribed
utilization levels and early refill notification. In addition,
we maintain a drug utilization review program in which select
medication therapies are reviewed and data is collected,
analyzed and reported for management applications.
6
Pharmacy
Data Services
Our proprietary software and data management tools permit Plan
Sponsors and drug manufacturers to access key industry measures,
pre-analyzed, updated daily and delivered through secure
internet-based access. Plan Sponsors often monitor these key
measures associated with their membership to review the
effectiveness and success of our PBM programs. Pre-analyzed
information includes formulary management, generic substitution,
and cost savings analysis. In addition we also build custom PBM
reporting systems to support specific customer projects.
Disease
Management
We design and administer programs to maximize the benefits of
pharmaceutical utilization as a tool in achieving therapy goals
for certain targeted diseases. Programs focus on preventing
high-risk events, through appropriate use of pharmaceuticals,
while eliminating unnecessary or duplicate therapies. Key
components of these programs include healthcare provider
training, integration of care between medical and pharmacy
disciplines, monitoring of patient compliance, and providing
feedback for continuous improvement in achieving therapy goals.
As described more fully above under Specialty
Services, many of these same tools are used in delivering
specialty pharmaceutical services and products.
Pharmacy
Dispensing Facility
We believe that pharmacy benefit program costs may also be
reduced through the distribution of pharmaceutical products
directly to Plan Sponsors members by the use of mail
service programs implemented at our own proprietary pharmacy
dispensing facilities. We provide mail services from facilities
in Columbus, OH, Roslyn Heights, NY, and San Francisco, CA.
Mail service is typically provided to Members who receive
maintenance medications. The use of mail service affords Plan
Sponsors the ability to reduce cost as compared to the often
more costly retail distribution of prescription products because
of the lower reimbursement associated with mail service
distribution.
Discount
Prescription Card Programs
In addition to managed pharmacy benefit services described
above, we administer numerous cash card or discount card
programs on behalf of TPAs and to a lesser extent other Plan
Sponsors. Those cards may be stand-alone pharmacy
discount programs or bundled with other healthcare or other
discount arrangements.
Under those discount programs, individuals who present a
discount card at one of our participating network pharmacies or
who order medications through one of our mail order pharmacies
are entitled to receive a percentage discount off the retail or
cash price for a prescription medication. As the
administrator of these discount card programs, we manage the
programs eligibility through our real-time electronic
claims adjudication system. There is typically no formulary
associated with these programs as they are unmanaged from a cost
perspective.
Sales and
Marketing
Our sales and marketing efforts are focused on payors,
manufacturers, patients and physicians, and are driven by
dedicated units comprised of Managed Markets, Pharmaceutical
Relations, and Physician Sales teams. Contracts with healthcare
payors including managed care organizations, are an integral
component for sales success. Additionally, contracting with
pharmaceutical manufacturers for distribution and management
services for newly approved
and/or
marketed specialty medications continue to contribute to our
revenue. In 2007 we introduced
bioscripcare
tm
and
m.d.star
tm
,
two new specialty services to the market, both of which are
designed to help clients manage drug expenditures and improve
patient adherence to therapy.
m.d.star
tm
is a program that provides management of physician-administered
injected and infused therapies purchased by physicians and
billed to payors for reimbursement, generally through major
medical benefits. Our
m.d.star
tm
program addresses market needs by allowing Plan Sponsors plans
to manage drug costs covered under their major medical benefits
without large scale system, process, network or benefit design
changes. We believe that these and similar programs will
contribute additional revenue growth in 2008 and beyond.
7
Information
Technology
We have decided to invest in our Information Technology
(IT) infrastructure in 2007, 2008 and 2009. We have
selected a new pharmacy dispensing, clinical management and
accounts receivable management system, and in 2007 began efforts
to migrate our diverse systems into a consolidated architecture.
Our IT investment in 2007 focused on standardization of
architecture, improvement of processes, and pre-requisites for
an enterprise system. We believe that the new system will yield
additional efficiencies and increase controls when dispensing or
transferring prescriptions and provide improved data reporting
and management. This new system will enhance our opportunities
to partner with pharmaceutical companies, physicians, and payors.
The PBM Services business utilizes a proprietary system that
offers precise benefit implementation and execution. Member
coverage verification, formulary compliance, claims approvals,
member co-pay and pharmacy reimbursement are adjudicated in
real-time through that proprietary system. The systems
flexibility allows for numerous plan design options.
Through 2008 and 2009, we intend to make substantial IT systems
investments to: (i) streamline our business processes;
(ii) improve our data reporting and management
capabilities; and (iii) improve internal controls.
Loss of
Major Customers
During 2005 excelleRx was acquired by Omnicare and subsequently,
excelleRx transitioned its PBM business to Omnicare over the
first three quarters of 2007. Revenue from excelleRx for the
years ended December 31, 2007, 2006 and 2005 was
$15.0 million, $29.7 million and $21.7 million,
respectively.
On December 21, 2005, Centene Corporation announced the
acquisition of its own pharmacy benefits management business and
transitioned its business to its own PBM during calendar 2006.
Revenue from Centene Corporation for the years ended
December 31, 2006 and 2005 was $47.1 million and
$133.1 million, respectively.
Mergers
and Acquisitions
On March 1, 2006 we acquired all of the issued and
outstanding stock of Intravenous Therapy Services, Inc.
(Infusion West), a specialty home infusion company
located in Burbank, California. The addition of Infusion West
enhanced our ability to service infusion patients on both the
East and West coasts and compliments our strategic objective of
expanding our infusion operations nationally. Infusion West was
purchased for approximately $13.1 million in cash, plus a
potential earn-out payment contingent on achieving certain
future performance benchmarks. The earn-out period has passed
and all amounts were settled in 2007.
On October 7, 2005 we acquired all of the issued and
outstanding stock of JPD, Inc. d/b/a Northland Medical Pharmacy
(Northland), a community-based retail specialty
pharmacy located in Columbus, Ohio. Northland has a history of
servicing individuals that may benefit from a number of
specialty pharmacy therapies that we offer and is complementary
to our community pharmacies. Northland was purchased for
$12.0 million in cash, plus a potential earn-out payment
contingent on achieving certain future performance benchmarks.
The contingent performance benchmarks were not met. (See
Item 3 in Legal Proceedings).
On March 12, 2005 we acquired all of the issued and
outstanding stock of Chronimed Inc.(Chronimed) in a
stock-for-stock transaction valued at $105.3 million
pursuant to which each share of Chronimed common stock was
exchanged for 1.12 shares of our common stock.
Competition
We face substantial competition within the pharmaceutical
healthcare services industry and the past year has seen even
more consolidation among PBMs, specialty pharmacy providers and
pharmaceutical wholesalers. We expect to see this trend continue
in the coming year and it is uncertain what effect, if any,
these consolidations will have on us or the industry as a whole.
The industry also includes a number of large, well-capitalized
companies with nationwide operations and capabilities in the
Specialty Services and PBM Services arenas, such as CVS
Caremark, Express Scripts, Medco Health Solutions, MedImpact
Healthcare Systems, National Medical Health Card Systems, and
WellPoint Pharmacy Management, as well as many smaller
organizations that typically operate on a local or
8
regional basis. In the Specialty Services segment, we compete
with several national and regional specialty pharmaceutical
distribution companies that have substantial financial resources
and which also provide products and services to the chronically
ill such as CVS Caremark, Express Scripts and Medco Health
Solutions.
Some of our Specialty Services competitors are under common
control with, or are owned by, pharmaceutical wholesalers and
distributors or retail pharmacy chains and may be better
positioned with respect to the cost-effective distribution of
pharmaceuticals. Some of our primary competitors, such as US
BioServices, owned by AmeriSource Bergen Corporation, and
McKesson Specialty Pharmacy, owned by McKesson HBOC Corporation,
have a substantially larger market share in many of our
specialty disease therapies than our existing market share.
Moreover, some of our competitors may have secured long-term
supply or distribution arrangements for prescription
pharmaceuticals necessary to treat certain chronic disease
states on price terms substantially more favorable than the
terms currently available to us. As a result of such
advantageous pricing, we may be less price competitive than some
of these competitors with respect to certain pharmaceutical
products. However we do not believe that we compete strictly on
the selling price of particular products in either business
segment; rather, we offer customers the opportunity to lower
overall pharmaceutical and medical costs through therapy
management while receiving high quality care.
Financial
Information about Segments
The following table presents revenue and income from operations
by segment. Operating segment financial information is provided
in Note 3 of Notes to Consolidated Financial Statements.
The 2006 information below includes Infusion West beginning
March 1, 2006. The 2005 information below includes
Chronimed beginning March 12, 2005 and Northland beginning
October 7, 2005. (See Note 4 of Notes to Consolidated
Financial Statements.)
Segment
Financial Information
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services
|
|
$
|
974,201
|
|
|
$
|
866,622
|
|
|
$
|
688,512
|
|
PBM Services
|
|
|
223,531
|
|
|
|
285,318
|
|
|
|
384,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,197,732
|
|
|
$
|
1,151,940
|
|
|
$
|
1,072,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services(2)
|
|
$
|
(2,397
|
)
|
|
$
|
(19,591
|
)
|
|
$
|
(16,942
|
)
|
PBM Services(3)
|
|
|
11,248
|
|
|
|
3,350
|
|
|
|
(12,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,851
|
|
|
$
|
(16,241
|
)
|
|
$
|
(29,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Certain prior period amounts have been reclassified to conform
to the current year presentation. Such reclassifications had no
material effect on the Companys previously reported
consolidated financial position, results of operations or cash
flows.
|
|
(2)
|
|
The year ended December 31, 2005 includes a
$7.1 million charge to reflect an increase in the allowance
for doubtful accounts receivable created by lower than expected
collections during the Chronimed merger integration period and
$6.5 million of goodwill and intangible impairment and
$4.6 million of merger expenses associated with the
acquisition of Chronimed all in the Specialty Services segment.
(see Note 4 of Notes to Consolidated Financial Statements).
|
|
(3)
|
|
The year ended December 31, 2005 includes
$18.6 million of goodwill impairment in the PBM Services
segment.
|
9
Government
Regulation
As a participant in the healthcare industry our operations and
relationships are subject to Federal and state laws and
regulations and enforcement by Federal and state governmental
agencies. Various Federal and state laws and regulations govern
the purchase, dispensing or distribution, and management of
prescription drugs and related services we provide and may
affect us. We believe that we are in substantial compliance with
all legal requirements material to our operations.
We conduct ongoing educational programs to inform employees
regarding compliance with relevant laws and regulations and
maintain a formal reporting procedure to disclose possible
violations of law to the Office of Inspector General
(OIG) within the U.S. Department of Health and
Human Services.
Among the various Federal and state laws and regulations which
may govern or impact our current and planned operations are the
following:
Mail Service Pharmacy Regulation.
Many of the
states into which we deliver pharmaceuticals have laws and
regulations that require out-of-state mail service pharmacies to
register with, or be licensed by, the boards of pharmacy or
similar regulatory bodies in those states. These states
generally permit the dispensing pharmacy to follow the laws of
the state within which the dispensing pharmacy is located.
However, various state Medicaid programs have enacted laws
and/or
adopted rules or regulations directed at restricting or
prohibiting the operation of out-of-state pharmacies by, among
other things, requiring compliance with all laws of the states
into which the out-of-state pharmacy dispenses medications,
whether or not those laws conflict with the laws of the state in
which the pharmacy is located, or requiring the
pharmacist-in-charge
to be licensed in that state. To the extent that such laws or
regulations are found to be applicable to our operations, we
comply with them. To the extent that any of the foregoing laws
or regulations prohibit or restrict the operation of mail
service pharmacies and are found to be applicable to us, they
could have an adverse effect on our prescription mail service
operations. A number of state Medicaid programs prohibit the
participation in those states by out-of-state retail or mail
service pharmacies, whether in-state or out-of-state.
There are other statutes and regulations which may also affect
our mail service operations. The Federal Trade Commission
requires mail order sellers of goods generally to engage in
truthful advertising, to stock a reasonable supply of the
products to be sold, to fill mail orders within 30 days,
and to provide clients with refunds when appropriate.
Licensure Laws.
Many states have licensure or
registration laws governing certain types of ancillary
healthcare organizations, including preferred provider
organizations, TPAs, discount cash card prescription drug
programs and companies that provide utilization review services.
The scope of these laws differs significantly from state to
state, and the application of such laws to the activities of
pharmacy benefit managers often is unclear. We have registered
under such laws in those states in which we have concluded that
such registration or licensure is required.
We dispense prescription drugs pursuant to orders received
through our BioScrip.com web site, as well as other affiliated
private label web sites. Accordingly, we may be subject to laws
affecting on-line pharmacies. Several states have proposed laws
to regulate on-line pharmacies and require on-line pharmacies to
obtain state pharmacy licenses. Additionally, Federal regulation
by the United States Food and Drug Administration (the
FDA), or another Federal agency, of on-line
pharmacies that dispense prescription drugs has been proposed.
To the extent that such state or Federal regulation could apply
to our operations, certain of our operations could be adversely
affected by such licensure legislation. Management does not
believe that the adoption of any of these internet related laws
would have a material adverse effect on our business or
operations.
Other Laws Affecting Pharmacy Operations.
We
are subject to state and Federal statutes and regulations
governing the operation of pharmacies, repackaging of drug
products, wholesale distribution, dispensing of controlled
substances, medical waste disposal, and clinical trials. Federal
statutes and regulations govern the labeling, packaging,
advertising and adulteration of prescription drugs and the
dispensing of controlled substances. Federal controlled
substance laws require us to register our pharmacies and
repackaging facilities with the
10
United States Drug Enforcement Administration and to comply
with security, recordkeeping, inventory control and labeling
standards in order to dispense controlled substances.
State controlled substance laws require registration and
compliance with state pharmacy licensure, registration or permit
standards promulgated by the states pharmacy licensing
authority. Such standards often address the qualification of an
applicants personnel, the adequacy of its prescription
fulfillment and inventory control practices and the adequacy of
its facilities. In general, pharmacy licenses are renewed
annually. Pharmacists and pharmacy technicians employed at each
of our dispensing locations must also satisfy applicable state
licensing requirements.
FDA Regulation.
The FDA generally has
authority to regulate drug promotional information and materials
that are disseminated by a drug manufacturer or by other persons
on behalf of a drug manufacturer. In January 1998, the FDA
issued Draft Guidance regarding its intent to regulate certain
drug promotion and switching activities of pharmaceutical
manufacturers that control, directly or indirectly, a PBM. The
FDA effectively withdrew the Draft Guidance and has indicated
that it would not issue new draft guidance. However, there can
be no assurance that the FDA will not assert jurisdiction over
certain aspects of our PBM business, including the internet sale
of prescription drugs.
Network Access Legislation.
A majority of
states now have some form of legislation affecting our ability
to limit access to a pharmacy provider network or remove network
providers from our PBM pharmacy network. Subject to various
geographic, managed care or other exceptions, such legislation
(any willing provider legislation) may require us or
our clients to admit any retail pharmacy willing to meet the
Plans price and other terms for network participation, or
may prohibit the removal of a provider from a network except in
compliance with certain procedures (due process
legislation) or may prohibit days supply limitations or
co-payment differentials between mail and retail pharmacy
providers. Many states with any willing provider statutes also
permit a Member suspected of substance abuse or who otherwise
needs oversight by a pharmacist to be locked into
one particular pharmacy for the purchase of his or her
prescription medicine. Many states have exceptions to the
applicability of these statutes for managed care arrangements or
other government benefit programs. As a dispensing pharmacy,
however, such legislation benefits us, by ensuring us access to
all networks in those states. Additionally, as a specialty
provider, these willing provider regulations enable us to
participate in other PBMs networks, restricting their
ability to lock BioScrip pharmacies out of their networks.
Legislation Imposing Plan Design
Mandates.
Some states have enacted legislation
that prohibits Plan Sponsors from implementing certain
restrictions on design features, and many states have introduced
legislation to regulate various aspects of managed care plans
including legislation that prohibits or restricts therapeutic
substitution, requires coverage of all drugs approved by the
FDA, or prohibits denial of coverage for non-FDA approved uses.
For example, some states provide that Members may not be
required to use network providers, but that they must instead be
provided with benefits even if they choose to use
non-network
providers (freedom of choice legislation), or
provide that a Member may sue his or her health plan if care is
denied. Some states have enacted, and other states have
introduced, legislation regarding plan design mandates. Some
states mandate coverage of certain benefits or conditions. Such
legislation does not generally apply to our business, but it may
apply to certain of our customers (generally, HMOs and health
insurers). If any such legislation were to become widespread and
broad in scope, it could have the effect of limiting the
economic benefits achievable through pharmacy benefit
management. To the extent that such legislation is applicable
and is not preempted by the Employee Retirement Income Security
Act of 1974, as amended (ERISA) (as to plans
governed by ERISA), certain of our operations could be adversely
affected.
The Federal government, as well as a number of states, have
re-enacted legislation purporting to prohibit health plans from
requiring or offering Members financial incentives for use of
mail order pharmacies.
Anti-Kickback Laws.
Subject to certain
statutory and regulatory exceptions (including exceptions
relating to certain managed care, discount, bona fide employment
arrangements, group purchasing and personal services
arrangements), Federal law prohibits the payment or receipt of
remuneration to induce, arrange for or recommend the purchase of
healthcare items or services paid for in whole or in part by
Medicare, Medicaid or certain other state healthcare programs
(including Medicaid programs and Medicaid waiver programs)
funded in whole or in part under the Social Security Act.
Certain state laws may extend the prohibition to items or
services that are paid for by private insurance and self-pay
patients. Management carefully considers the importance of such
anti-kickback
11
laws when structuring our operations, and believes that we are
in compliance therewith. Violation of the Federal anti-kickback
statute could subject us to criminal
and/or
civil
penalties, including suspension or exclusion from Medicare and
Medicaid programs or state-funded programs in the case of state
enforcement.
The Federal anti-kickback law has been interpreted broadly by
courts, the OIG and administrative bodies. Because of the broad
scope of those statutes, Federal regulations establish certain
safe harbors from liability. Safe harbors exist for certain
properly reported discounts received from vendors, certain
investment interests held by a person or entity, and certain
properly disclosed payments made by vendors to group purchasing
organizations, as well as for other transactions or
relationships. Nonetheless, a practice that does not fall within
a safe harbor is not necessarily unlawful, but may be subject to
scrutiny and challenge. In the absence of an applicable
exception or safe harbor, a violation of the statute may occur
even if only one purpose of a payment arrangement is to induce
patient referrals or purchases. Among the practices that have
been identified by the OIG as potentially improper under the
statute are certain product conversion or
switching programs in which benefits are given by
drug manufacturers to pharmacists or physicians for changing a
prescription (or recommending or requesting such a change) from
one drug to another. Anti-kickback laws have been cited as a
partial basis, along with state consumer protection laws
discussed below, for investigations and multi-state settlements
relating to financial incentives provided by drug manufacturers
to retail pharmacies in connection with such programs.
Certain governmental entities have commenced investigations of
PBM companies and other companies having dealings with the PBM
industry and have identified issues concerning selection of drug
formularies, therapeutic substitution programs and discounts or
rebates from prescription drug manufacturers and whether best
pricing requirements are being complied with. Additionally, at
least one state has filed a lawsuit concerning similar issues
against a health plan. To date, we have not been the subject of
any such suit or action. We have received from time to time
subpoenas or been requested to produce documents in response to
various inquiries. There can be no assurance that we will not
receive subpoenas or be requested to produce documents in
pending investigations or litigation from time to time in the
future.
Governmental entities have also commenced investigations against
specialty pharmaceutical distribution companies having dealings
with pharmaceutical manufacturers concerning retail distribution
and sales and marketing practices of certain products and
therapies. There can be no assurance that we will not receive
subpoenas or be requested to produce documents in pending
investigations or litigation from time to time. As well, we may
be the target or subject of one or more such investigations or
named parties in corresponding actions.
We believe that we are in compliance with the legal requirements
imposed by the anti-remuneration laws and regulations, and we
believe that there are material and substantial differences
between drug switching programs that have been challenged under
these laws and the generic substitution and therapeutic
interchange practices and formulary management programs offered
by us to our Plan Sponsors, since no remuneration or other
incentives are provided to patients, pharmacists or others.
However, there can be no assurance that we will not be subject
to scrutiny or challenge under such laws or regulations, or that
any such challenge would not have a material adverse effect on
us.
On April 18, 2003, the OIG released Compliance Program
Guidance for Pharmaceutical Manufacturers (the
Guidance) which is designed to provide voluntary,
nonbinding guidance in devising effective compliance programs to
assist companies that develop, manufacture, market and sell
pharmaceutical products or biological products in devising
effective compliance programs. The Guidance provides the
OIGs view of the fundamental elements of pharmaceutical
manufacturers compliance programs and principles that
should be considered when creating and implementing an effective
compliance program, or as a benchmark for companies with
existing compliance programs. We currently maintain a compliance
program that includes the key compliance program elements
described in the Guidance. We believe that the fundamental
elements of our compliance program are consistent with the
principles, policies and intent of the Guidance.
The Stark Laws.
The Federal law known as
Stark II became effective in 1995 and was a
significant expansion of an earlier Federal physician
self-referral law commonly known as Stark I.
Stark II prohibits physicians from referring Medicare or
Medicaid patients for designated health services to
an entity with which the physician, or an immediate family
member of the physician, has a financial relationship. Possible
penalties for violation of the Stark laws include denial of
payment, refund of amounts collected in violation of the
statute, civil monetary penalties and program exclusion. The
Stark laws contain certain exceptions for physician financial
arrangements.
12
Management carefully considers the importance of Stark II
in structuring our sales and marketing arrangements and our
operations and believes that we are in compliance therewith.
Violation of the Stark II laws could subject us to civil
and/or
criminal penalties, including suspension or exclusion from
Medicare and Medicaid programs or state-funded programs in the
case of state enforcement.
On September 5, 2007, CMS concluded its rulemaking and
interpretation of the Stark law by publishing Phase
III regulations. Most of the new regulations became
effective on December 4, 2007. Other than providing
additional guidance for complying with the Stark law, these new
regulations do not currently, and will not in the near future,
impact our operations.
State Self-Referral Laws.
We are subject to
state statutes and regulations that prohibit payments for the
referral of patients and referrals by physicians to healthcare
providers with whom the physicians have a financial
relationship. Some state statutes and regulations apply to
services reimbursed by governmental as well as private payors.
Violation of these laws may result in prohibition of payment for
services rendered, loss of pharmacy or health provider licenses,
fines and criminal penalties. The laws and exceptions or safe
harbors may vary from the Federal Stark laws and vary
significantly from state to state. The laws are often vague, and
in many cases, have not been widely interpreted by courts or
regulatory agencies; however, we believe we are in compliance
with such laws.
Statutes Prohibiting False Claims and Fraudulent Billing
Activities.
A range of Federal civil and criminal
laws target false claims and fraudulent billing activities. One
of the most significant is the Federal False Claims Act (the
False Claims Act), which imposes civil penalties for
knowingly making or causing to be made false claims in order to
secure a reimbursement from government-sponsored programs, such
as Medicare and Medicaid. Investigations or actions commenced
under the False Claims Act may be brought either by the
government or by private individuals on behalf of the
government, through a whistleblower or qui
tam action. The False Claims Act authorizes the payment of
a portion of any recovery to the individual bringing suit. Such
actions are initially required to be filed under seal pending
their review by the Department of Justice. If the government
intervenes in the lawsuit and prevails, the whistleblower (or
plaintiff filing the initial complaint) may share with the
Federal Government in any settlement or judgment. If the
government does not intervene in the lawsuit, the whistleblower
plaintiff may pursue the action independently. The False Claims
Act generally provides for the imposition of civil penalties and
for treble damages, resulting in the possibility of substantial
financial penalties for small billing errors that are replicated
in a large number of claims, as each individual claim could be
deemed to be a separate violation of the False Claims Act.
Criminal provisions that are similar to the False Claims Act
provide that if a corporation is convicted of presenting a claim
or making a statement that it knows to be false, fictitious or
fraudulent to any Federal agency it may be fined substantially
similar to those imposed on individuals.
Some states also have enacted statutes similar to the False
Claims Act which may include criminal penalties, substantial
fines, and treble damages. In recent years, Federal and state
governments have launched several initiatives aimed at
uncovering practices that violate false claims or fraudulent
billing laws. Under Section 1909 of the Social Security
Act, which became effective January 1, 2007, if a state
false claim act meets certain requirements as determined by the
Office of the Inspector General in consultation with the
U.S. Attorney General the state is entitled to an increase
of ten percentage points in its share of any amounts recovered
under a state action brought under such a law. Some of the
larger states in terms of population that have had the OIG
review such laws include: California, Florida, Illinois,
Indiana, Massachusetts, Michigan, Nevada, Tennessee and Texas.
We operate in all nine of these states and submit claims for
Medicaid reimbursement to the respective state Medicaid
agencies. This legislation has lead to increased auditing
activities by state healthcare regulators. As such, we have been
the subject of increased audits. While we believe that we are in
compliance with Medicaid and Medicare billing rules and
requirements, there can be no assurance that regulators would
agree with the methodology employed by us in billing for our
products and services. While we believe that we are in material
and substantial compliance with the billing rules and
requirements of Medicaid and Medicare, a material disagreement
between us and these governmental agencies on the manner in
which we provide products or services could have a material
adverse effect on our business and operations, our financial
position and our results of operations.
Reimbursement.
Approximately 24% of our
revenues are derived directly from Medicare, Medicaid or other
government-sponsored healthcare programs subject to the Federal
anti-kickback laws
and/or
the
Stark laws. Also, we indirectly provide benefits to managed care
entities that provide services to beneficiaries of Medicare,
Medicaid
13
and other government-sponsored healthcare programs. Should there
be material changes to Federal or state reimbursement
methodologies, regulations or policies, our reimbursements from
government-sponsored healthcare programs could be adversely
affected. In addition, certain state Medicaid programs only
allow for reimbursement to pharmacies residing in the state or
in a border state. While we believe that we can service our
current Medicaid patients through existing pharmacies, there can
be no assurance that additional states will not enact in-state
dispensing requirements for their Medicaid programs. To the
extent such requirements are enacted, certain therapeutic
pharmaceutical reimbursements could be adversely affected.
Legislation and Other Matters Affecting Drug
Prices.
Some states have adopted legislation
providing that a pharmacy participating in the state Medicaid
program must give the state the best price that the pharmacy
makes available to any third party plan (most favored
nation legislation). Such legislation may adversely affect
our ability to negotiate discounts in the future from network
pharmacies. At least one state has enacted unitary
pricing legislation, which mandates that all wholesale
purchasers of drugs within the state be given access to the same
discounts and incentives. Such legislation has not yet been
enacted in the states where our mail service pharmacies are
located. Such legislation, if enacted in other states, could
adversely affect our ability to negotiate discounts on our
purchase of prescription drugs to be dispensed by the mail
service pharmacies.
In 2006, First DataBank, a leading provider of electronic drug
information to the healthcare industry, entered into a proposed
settlement to address certain practices regarding the
establishment of the benchmark Average Wholesale Price
(AWP) for medications. While the court recently
denied without prejudice final approval of the proposed
settlement, if the proposed settlement, or one including similar
provisions, is ultimately approved, it may have industry-wide
impact on prescription pricing. We generally utilize Medi-Span
for determining AWP; in 2007, Medi-Span entered into a proposed
settlement agreement similar to that agreed to by First
DataBank. We are paid by many Health Plans and PBMs as a mail
order and specialty pharmacy using AWP as reported by First
DataBank. Most of our provider and payor agreements contain
provisions that allow us to manage the impact of this proposed
settlement, if ratified as is or modified by the parties or the
court. At this time we are unable to determine whether changes
to AWP pricing methodology or the First DataBank and Medi-Span
AWP settlements would have a material adverse effect on us or
our business, operations, financial condition or prospects.
Confidentiality, Privacy and HIPAA.
Most of
our activities involve the receipt, use and disclosure of
confidential medical, pharmacy or other health-related
information concerning individual Members, including the
disclosure of the confidential information to the Members
health benefit plan. In addition, we use aggregated and blinded
(anonymous) data for research and analysis purposes.
On April 14, 2003 the final regulations issued by United
States Department of Health and Human Services
(HHS), regarding the privacy of individually
identifiable health information (the Privacy
Regulations) pursuant to the Health Insurance Portability
and Accountability Act of 1996 (HIPAA) took effect.
The Privacy Regulations are designed to protect the medical
information of a healthcare patient or health plan enrollee that
could be used to identify the individual. We refer to this
information as protected health information (PHI).
The Privacy Regulations apply directly to certain entities known
as covered entities, which include Plan Sponsors and
most healthcare providers. In addition, the Privacy Regulations
require covered entities to enter into contracts requiring their
business associates to agree to certain restrictions
regarding the use and disclosure of PHI. The Privacy Regulations
apply to PHI maintained in any format, including both electronic
and paper records, and impose extensive restrictions on the way
in which covered entities (and indirectly their business
associates) may use and disclose PHI. In addition, the Privacy
Regulations also give patients significant rights to understand
and control how their PHI is used and disclosed. Often, use and
disclosure of PHI must be limited to the minimum amount
necessary to achieve the purpose of the use or disclosure.
Certain of our businesses are covered entities directly subject
to the Privacy Regulations, and other of our businesses are
business associates of covered entities, such as
Plan Sponsors.
Since October 16, 2003 we have been subject to compliance
with the rules governing transaction standards and code sets
issued by HHS pursuant to HIPAA (the Transactions
Standards). The Transactions Standards establish uniform
standards to be utilized by covered entities in the electronic
transmission of health information in connection with certain
common healthcare financing transactions, such as healthcare
claims. Under the new Transactions Standards, any party
transmitting or receiving health transactions electronically
must send and receive
14
data in a single format, rather than the large number of
different data formats currently used. The Transactions
Standards apply to us in connection with submitting and
processing healthcare claims. The Transactions Standards also
applies to many of our payors and to our relationships with
those payors.
In addition, in February 2003, HHS issued final regulations
governing the security of PHI pursuant to HIPAA (the
Security Standards). The Security Standards impose
substantial requirements on covered entities and their business
associates regarding the storage, utilization of, access to and
transmission of PHI.
The requirements imposed by the Privacy Regulations, the
Transactions Standards, and the Security Standards are extensive
and have required substantial cost and effort to assess and
implement. We have taken and will continue to take steps that we
believe are reasonable to ensure that our policies and
procedures are in compliance with the Privacy Regulations, the
Transactions Standards and the Security Standards. The
requirements imposed by HIPAA have increased our burden and
costs of regulatory compliance (including our health improvement
programs and other information-based products), altered our
reporting to Plan Sponsors and reduced the amount of information
we can use or disclose if Members do not authorize such uses or
disclosures.
Consumer Protection Laws.
Most states have
consumer protection laws that have been the basis for
investigations and multi-state settlements relating to financial
incentives provided by drug manufacturers to pharmacies in
connection with drug switching programs. No assurance can be
given that we will not be subject to scrutiny or challenge under
one or more of these laws.
Disease Management Services Regulation.
All
states regulate the practice of medicine. To our knowledge, no
PBM has been found to be engaging in the practice of medicine by
reason of its disease management services. However, there can be
no assurance that a Federal or state regulatory authority will
not assert that such services constitute the practice of
medicine, thereby subjecting such services to Federal and state
laws and regulations applicable to the practice of medicine.
Comprehensive PBM Regulation.
Although no
state has passed legislation regulating PBM activities in a
comprehensive manner, such legislation has been introduced in
the past in several states. Since we do not derive significant
PBM revenues from business in any particular state, such
legislation, if currently enacted in a state, would not have a
material adverse impact on our operations.
Antitrust Laws.
Numerous lawsuits have been
filed throughout the United States by retail pharmacies against
drug manufacturers challenging certain brand drug pricing
practices under various state and Federal antitrust laws. A
settlement in one such suit would require defendant drug
manufacturers to provide the same types of discounts on
pharmaceuticals to retail pharmacies and buying groups as are
provided to managed care entities to the extent that their
respective abilities to affect market share are comparable, a
practice which, if generally followed in the industry, could
increase competition from pharmacy chains and buying groups and
reduce or eliminate the availability to us of certain discounts,
rebates and fees currently received in connection with our drug
purchasing and formulary administration programs. In addition,
to the extent that we, or an associated business, appear to have
actual or potential market power in a relevant market, business
arrangements and practices may be subject to heightened scrutiny
from an anti-competitive perspective and possible challenge by
state or Federal regulators or private parties.
While management believes that we are in substantial compliance
with all of the existing laws and regulations stated above, such
laws and regulations are subject to rapid change and often are
uncertain in their application. As controversies continue to
arise in the healthcare industry, Federal and state regulation
and enforcement priorities in this area may increase, the impact
of which cannot be predicted. There can be no assurance that we
will not be subject to scrutiny or challenge under one or more
of these laws or that any such challenge would not be
successful. Any such challenge, whether or not successful, could
have a material adverse effect upon our business and results of
operations.
Employees
At February 22, 2008, we had 874 full-time,
30 part-time and 228 per diem employees, including 193
licensed pharmacists. Per diem employees are defined as those
available on an as-needed basis. None of our employees are
represented by any union and, in our opinion, relations with our
employees are satisfactory.
15
Available
Information
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any
reports, statements and other information filed by us at the
SECs Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call (800) SEC-0330 for
further information on the Public Reference Room. The SEC
maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers
that file electronically with the SEC. Our filings are also
available to the public at the web site maintained by the SEC,
http://www.sec.gov.
We make available, free of charge, through our web site at
www.bioscrip.com
, our reports on
Forms 10-K,
10-Q,
and
8-K,
and
amendments to those reports, as soon as reasonably practicable
after they are filed with or furnished to the SEC.
We have adopted a code of business conduct and ethics for our
Company, including our directors, officers and employees. Our
Code of Conduct policy, our corporate governance guidelines and
the charters of the audit, compensation and nominating and
corporate governance committees of our board of directors are
available on our website at
www.bioscrip.com.
Competition
in the pharmaceutical healthcare services industry could reduce
profit margins.
The pharmaceutical healthcare services industry is very
competitive. Our competitors include large and well-established
companies that may have greater financial, marketing and
technological resources than we do.
The specialty pharmacy industry is highly competitive. Some of
our competitors are under common control with, or ownership by,
pharmaceutical wholesalers and distributors, pharmacy benefit
managers or retail pharmacy chains and may be better positioned
with respect to the cost-effective distribution of
pharmaceuticals. In addition, some of our competitors may have
secured long-term supply or distribution arrangements for
prescription pharmaceuticals necessary to treat certain chronic
disease states on price terms substantially more favorable than
the terms currently available to us. As a result of such
advantageous pricing, we may be less price competitive than some
of these competitors with respect to certain pharmaceutical
products. Our competitive position could also be adversely
affected by any inability to obtain access to new biotech
pharmaceutical products.
Over the last several years competition in the marketplace has
caused many PBMs, including us, to reduce the prices charged to
clients for core services and share a larger portion of the
formulary fees and rebates received from pharmaceutical
manufacturers with clients. This combination of lower pricing
and increased rebate sharing, as well as increased demand for
enhanced service offerings and higher service levels, have put
pressure on operating margins. In addition, some of our larger
competitors may offer services and pricing terms that we may not
be able to offer. This competition may make it more difficult to
maintain existing customers and attract new customers and may
cause us to face the risk of declining reimbursement levels
without achieving corresponding reductions in costs of revenues.
Competition may also come from other sources in the future. As a
result, we may not continue to remain competitive in the PBM
marketplace, and competition could have an adverse effect on our
business and financial results.
Changes
in industry pricing benchmarks could adversely affect our
financial performance.
Contracts in the prescription drug industry, including our
contracts with our retail pharmacy networks and our PBM and
Specialty pharmacy clients, generally use certain published
benchmarks to establish pricing for prescription medications.
These benchmarks include AWP, wholesale acquisition cost and
average manufacturer price. Most of our contracts utilize the
AWP benchmark.
In 2006, First DataBank, a leading provider of electronic drug
information to the healthcare industry, entered into a proposed
settlement to address certain practices regarding the
establishment of the benchmark AWP for medications. While the
court recently denied without prejudice final approval of the
proposed settlement, if the proposed settlement, or one
including similar provisions, is ultimately approved, it may
have industry-wide impact on prescription pricing. We generally
utilize Medi-Span for determining AWP; in 2007, Medi-Span
entered into a
16
proposed settlement agreement similar to that agreed to by First
DataBank. We are paid by many Health Plans and PBMs as a mail
order and specialty pharmacy using AWP as reported by First
DataBank. Most of our provider and payor agreements contain
provisions that allow us to manage the impact of this proposed
settlement if ratified as is or modified by the parties or the
court. At this time we are unable to determine whether changes
to AWP pricing methodology or the First DataBank and Medi-Span
AWP settlements would have a material adverse effect on us or
our financial condition or prospects.
Most of our provider and payor agreements contain provisions
that allow us to manage the impact of this proposed settlement,
if ratified as is or modified by the parties or the court.
However, we can give no assurance that the short or long-term
impact of changes to industry pricing benchmarks will not have a
material adverse effect on our financial performance, results of
operations and financial condition in future periods.
Client
demands for enhanced service levels or possible loss or
unfavorable modification of contracts with clients or providers
could pressure margins.
As our clients face the continued rapid growth in prescription
drug costs, they may demand additional services and enhanced
service levels to help mitigate the increase in spending. We
operate in a very competitive environment, and we may not be
able to increase our fees to compensate for these increased
services, which could put pressure on our margins.
Our contracts with clients generally do not have terms longer
than three years and, in some cases, may be terminated by the
client on relatively short notice. Our clients generally seek
bids from other PBM or specialty providers in advance of the
expiration of their contracts. If several of these clients elect
not to extend their relationship with us, and we are not
successful in generating sales to replace the lost business, our
future business and operating results could be materially
adversely affected. In addition, we believe the managed care
industry is undergoing substantial consolidation, and another
party that is not our client could acquire some of our managed
care clients. In such case, the likelihood such client would
renew its contract with us could be reduced.
More than 58,000 retail pharmacies, which represent more than
98% of all United States retail pharmacies, participate in our
PBM pharmacy network. The top ten retail pharmacy chains
represent approximately 48% of the total number of stores and
over 60% of prescriptions filled in our network. Our contracts
with retail pharmacies, which are non-exclusive, are generally
terminable on relatively short notice. If one or more of the top
pharmacy chains elects to terminate its relationship with us,
our members access to retail pharmacies and our business
could be materially adversely affected. In addition, many large
pharmacy chains either own PBMs today, or could attempt to
acquire a PBM in the future. Ownership of PBMs by retail
pharmacy chains could have material adverse effects on our
relationships with such pharmacy chains and on our consolidated
results of operations, consolidated financial position
and/or
consolidated cash flow from operations.
Pending
and future litigation could subject us to significant monetary
damages and/or require us to change our business
practices.
We are subject to risks relating to litigation and other
proceedings in connection with our operations, including the
dispensing of pharmaceutical products by our mail service and
community pharmacies. A list of the more material proceedings
pending against us is included under Part I, Item 3,
Legal Proceedings. While we believe that these suits
are without merit and intend to contest them vigorously, we can
give no assurance that an adverse outcome in one or more of
these suits would not have a material adverse effect on our
consolidated results of operations, consolidated financial
position
and/or
consolidated cash flow from operations, or would not require us
to make material changes to our business practices. We are
presently responding to several subpoenas and requests for
information from governmental agencies. We confirmed that
BioScrip is not a target or a potential subject of those
investigations and requests. We cannot predict with certainty
what the outcome of any of the foregoing might be. In addition
to potential monetary liability arising from these suits and
proceedings, we are incurring costs in the defense of the suits
and in providing documents to government agencies. Certain of
the costs are covered by our insurance, but certain other costs
are not insured. Such costs have become material to our
financial performances and we can give no assurance that such
costs will not increase in the future.
17
We may
be subject to liability claims for damages and other expenses
that are not covered by insurance.
A successful product or professional liability claim in excess
of our insurance coverage could harm our financial condition and
results of operations. Various aspects of our business may
subject us to litigation and liability for damages, including
the performance of PBM Services and the operation of our
pharmacies. A successful professional liability claim in excess
of our insurance coverage could harm our financial condition and
results of operations. For example, a prescription drug
dispensing error could result in a patient receiving the wrong
or incorrect amount of medication, leading to personal injury or
death. Our business, financial condition and results of
operations could suffer if we pay damages or defense costs in
connection with a claim that is outside the scope of any
applicable contractual indemnity or insurance coverage.
Existing
and new government legislative and regulatory action could
adversely affect our business and financial
results.
As a participant in the pharmaceutical healthcare services
industry, our operations are subject to complex and evolving
Federal and state laws and regulations and enforcement by
Federal and state governmental agencies. These laws and
regulations are described in detail at Part I, Item 1,
Business Government Regulation. While we
believe we are operating our business in substantial compliance
with all existing legal requirements material to the operation
of our business, different interpretations and enforcement
policies of these laws and regulations could subject our current
practices to allegations of impropriety or illegality, or could
require us to make significant changes to our operations. In
addition, if we fail to comply with existing or future
applicable laws and regulations, we could suffer civil or
criminal penalties, including our ability to participate in
Federal and state healthcare programs. In addition, we cannot
predict the impact of future legislation and regulatory changes
on our business or assure that we will be able to obtain or
maintain the regulatory approvals required to operate our
business.
In addition, under the Deficit Reduction Act of 2006, additional
Federal government matching of state Medicaid funding was
provided for states that commit resources to additional auditing
of Medicaid and Medicare fraud. This initiative has led to
increased auditing activities by state healthcare regulators. As
such, we have been the subject of increased audits by these
state regulators. While we believe that we are in compliance
with Medicaid and Medicare billing rules and requirements, there
can be no assurance that regulators disagree with the
methodology employed by us in billing for our products and
services. While we believe that we are in material and
substantial compliance with the billing rules and requirements
of Medicaid and Medicare, a material disagreement between us and
these governmental agencies on the manner in which we provide
products or services could have a material adverse effect on our
business, operations, financial position and results of
operations.
Loss
of relationships with one or more pharmaceutical manufacturers
and changes in payments made by pharmaceutical manufacturers
could adversely affect our business and financial
results.
We have contractual relationships with pharmaceutical
manufacturers that provide discounts on drugs dispensed from our
mail service and community pharmacies, and pay service fees for
other programs and services that we provide. Our business and
financial results could be adversely affected if: (i) we
were to lose relationships with one or more key pharmaceutical
manufacturers; (ii) discounts decline due to changes in
utilization of specified pharmaceutical products by health Plan
Sponsors and other clients; (iii) legal restrictions are
imposed on the ability of pharmaceutical manufacturers to offer
rebates, administrative fees or other discounts or to purchase
our programs or services; or (iv) pharmaceutical
manufacturers choose not to offer rebates, administrative fees
or other discounts or to purchase our programs or services.
Failure
to develop new products, services and delivery channels may
adversely affect our business.
We operate in a highly competitive environment. We develop new
products and services from time to time to assist our clients in
managing the pharmacy benefit. If we are unsuccessful in
developing innovative products and services, our ability to
attract new clients and retain existing clients may suffer.
Technology is also an important component of our business, as we
continue to utilize new and better channels to communicate and
interact with our clients, members and business partners. If our
competitors are more
18
successful than us in employing this technology, our ability to
attract new clients, retain existing clients and operate
efficiently may suffer.
The
success of our business depends on maintaining a well-secured
business and technology infrastructure.
We are dependent on our infrastructure, including our
information systems, for many aspects of our business
operations. A fundamental requirement for our business is the
secure storage and transmission of personal health information
and other confidential data. Our business and operations may be
harmed if we do not maintain our business processes and
information systems, and the integrity of our confidential
information. Although we have developed systems and processes
that are designed to protect information against security
breaches, failure to protect such information or mitigate any
such breaches may adversely affect our operating results.
Malfunctions in our business processes, breaches of our
information systems or the failure to maintain effective and
up-to-date information systems could disrupt our business
operations, result in customer and member disputes, damage our
reputation, expose us to risk of loss or litigation, result in
regulatory violations, increase administrative expenses or lead
to other adverse consequences.
The use of personal health information in our business is
regulated at Federal, state and local levels. These laws and
rules change frequently and developments often require
adjustments or modifications to our technology infrastructure.
Noncompliance with these regulations could harm our business,
financial condition and results of operations.
Problems
in the implementation and conversion of our new pharmacy system
could result in additional expense.
The Company has committed significant resources in a new
pharmacy dispensing, clinical management and accounts receivable
management system designed to streamline our business processes,
provide improved data reporting, data management, scalability
and cash posting and billing and collections. Delays in the
implementation of this system could result in higher operating
costs, additional charges for system design changes or delays in
the execution of our strategic plan due to our inability to
scale our current operating systems.
Our
failure to maintain controls and processes over billing and
collecting could have a significant negative impact on our
results of operations and financial condition.
The collection of accounts receivable is a significant challenge
and requires constant focus and involvement by management and
ongoing enhancements to information systems and billing center
operating procedures. If we are unable to properly bill and
collect our accounts receivable, our results could be materially
and adversely affected. While management believes that controls
and processes are satisfactory there can be no assurance that
accounts receivable collectibility will remain at current levels.
Efforts
to reduce healthcare costs and alter health care financing
practices could adversely affect our business.
During the past several years, the U.S. healthcare industry
has been subject to an increase in governmental regulation at
both the Federal and state levels. Certain proposals have been
made at the Federal and state government levels in an effort to
control healthcare costs, including lowering reimbursement
and/or
proposing to lower reimbursement under Medicaid and Medicare
programs. These proposals include single payor
government funded healthcare and price controls on prescription
drugs. If these or similar efforts are successful our business
and operations could be materially adversely affected. In
addition, changing political, economic and regulatory influences
may affect healthcare financing and reimbursement practices. If
the current healthcare financing and reimbursement system
changes significantly, our business could be materially
adversely affected. Congress periodically considers proposals to
reform the U.S. healthcare system. These proposals may
increase government involvement in healthcare and regulation of
PBM services, or otherwise change the way our clients do
business. Health Plan Sponsors may react to these proposals and
the uncertainty surrounding them by reducing or delaying
purchases of cost control mechanisms and related services that
we provide. We cannot predict what effect, if any,
19
these proposals may have on our business. Other legislative or
market-driven changes in the healthcare system that we cannot
anticipate could also materially adversely affect our
consolidated results of operations, consolidated financial
position
and/or
consolidated cash flow from operations.
Prescription
volumes may decline, and our net revenues and profitability may
be negatively impacted, when products are withdrawn from the
market or when increased safety risk profiles of specific drugs
result in utilization decreases.
We process significant volumes of pharmacy claims for brand-name
and generic drugs from our mail service and community pharmacies
and through our network of retail pharmacies. These volumes are
the basis for our net revenues and profitability. When products
are withdrawn by manufacturers, or when increased safety risk
profiles of specific drugs or classes of drugs result in
utilization decreases, physicians may cease writing or reduce
the numbers of prescriptions written for these drugs.
Additionally, negative media reports regarding drugs with higher
safety risk profiles may result in reduced consumer demand for
such drugs. In cases where there are no acceptable prescription
drug equivalents or alternatives for these prescription drugs,
our prescription volumes, net revenues, profitability and cash
flows may decline.
The
loss of a relationship with one or more Plan Sponsors could
negatively impact our business.
Where we do not have preferred or exclusive arrangements with
Plan Sponsors, our contracts for reimbursement with Plan
Sponsors are often on a perpetual or evergreen
basis. These evergreen contracts are subject to termination by a
Plan Sponsor upon 30, 60 or 90 days notice. Depending on
the significance of the Plan Sponsor or Plan Sponsors in the
aggregate as a percentage of revenue, one or more terminations
could have a material and adverse effect on our results of
operations and financial performance. We are unaware of any
intention by a Plan Sponsor to terminate or not renew an
agreement with us.
Network
lock-outs by health insurers could adversely affect our
financial results.
Many Plan Sponsors and PBMs continue to create exclusive
specialty networks which limit a members access to a mail
service facility or network of preferred pharmacies. To the
extent our pharmacies are excluded from these networks, we are
unable to dispense medications to those members and bill for
prescriptions to those members insurance carriers. If these
specialty networks continue to expand and we are locked out from
dispensing specialty medications to members of exclusive
networks, our revenues, financial condition and results of
operations could be adversely affected.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
20
Our executive offices are located in Elmsford, New York, and our
business offices are located in Eden Prairie, Minnesota. Our
mail operations are located in Columbus, Ohio,
San Francisco, California, and Roslyn Heights, New York.
Our pharmacies are located in major metropolitan locations
across the United States. We currently lease all of our
properties from third parties under various lease terms expiring
over periods extending to 2018. Property locations are as
follows:
|
|
|
|
|
Corporate Offices
|
|
Community and Infusion Pharmacies(2)
|
|
Elmsford, NY
|
|
California
|
|
Minnesota
|
Eden Prairie, MN
|
|
Burbank (Infusion)
|
|
Minneapolis
|
|
|
Palm Springs
|
|
Missouri
|
|
|
San Diego
|
|
Kansas City
|
|
|
San Francisco
|
|
St. Louis
|
Mail Operations
|
|
Sherman Oaks
|
|
Nevada
|
Columbus, OH(1)
|
|
West Hollywood
|
|
Las Vegas
|
San Francisco, CA(2)
|
|
District of Columbia
|
|
New Jersey
|
Roslyn Heights, NY(2)
|
|
Washington D. C.
|
|
Morris Plains (Infusion)
|
|
|
Florida
|
|
New York
|
|
|
Ft. Lauderdale
|
|
Hawthorne
|
|
|
Miami Beach
|
|
Bronx
|
|
|
Orlando
|
|
New York
|
|
|
Pompano (Infusion)
|
|
Ohio
|
|
|
St. Petersburg
|
|
Columbus
|
|
|
Tampa
|
|
Pennsylvania
|
|
|
West Palm Beach
|
|
Philadelphia
|
|
|
Georgia
|
|
West Chester (Infusion)
|
|
|
Atlanta
|
|
Tennessee
|
|
|
Indiana
|
|
Memphis
|
|
|
Indianapolis (two locations)
|
|
Texas
|
|
|
Illinois
|
|
Dallas (two locations)
|
|
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Chicago
|
|
Houston
|
|
|
Maryland
|
|
Washington
|
|
|
Baltimore
|
|
Seattle
|
|
|
Massachusetts
|
|
Wisconsin
|
|
|
Boston
|
|
Milwaukee
|
|
|
|
(1)
|
|
Facility houses operations for both Specialty and PBM Services
|
|
(2)
|
|
Facility houses operations for Specialty Services.
|
|
|
Item 3.
|
Legal
Proceedings
|
On February 14, 2005, a complaint was filed in the Alabama
Circuit Court for Barbour County, captioned
Eufaula Drugs,
Inc. v. ScriptSolutions
[sic], one of approximately
fourteen substantially identical complaints commenced in Alabama
courts against various unrelated pharmacy benefit management
companies. On April 8, 2005, the plaintiff filed an amended
complaint substituting our BioScrip PBM Services f/k/a
ScripSolutions (PBM Services) subsidiary as the
defendant, alleging breach of contract and related tort and
equitable claims on behalf of a putative nationwide class of
pharmacies alleging insufficient reimbursement for prescriptions
dispensed, principally on the theory that PBM Services was
obligated to update its prescription pricing files on a daily
rather than weekly basis. The complaint seeks unspecified money
damages and injunctive relief. PBM Services
21
sought unsuccessfully to remove the action to Federal court. On
February 5, 2007, the court denied PBM Services
motion to dismiss the action for lack of jurisdiction and
failure to state a claim, and on February 16, 2007, PBM
Services answered the complaint denying the material
allegations. The parties are now engaged in discovery into the
question of class certification only. We intend to deny the
allegations and intend to defend vigorously against the action.
While we are confident in our position, we do not believe that
an adverse ruling in this matter would have a material adverse
effect on our business, operations, financial position or
results of operations.
The U.S. Attorneys Office in Boston and the
Department of Justice informed us that our subsidiary, Chronimed
Holdings, Inc. d/b/a StatScript Pharmacy (StatScript), was
named as a defendant in a
qui tam
law suit filed by a
whistleblower against Serono, Inc., and several other defendants
in the Federal district court for the District of Massachusetts
alleging claims under the Federal False Claims Act. In May 2007,
the complaint was served on us and other defendants by the
relators because the Federal government and various state
governments on behalf of which the relators alleged claims
declined to intervene to prosecute the claims and the Federal
government decided not to pursue earlier conversations it had
initiated into possible settlement of the claims alleged in the
relators complaint. The action is captioned
United
States ex rel. Driscoll, et al. v. Serono, Inc., et al.,
Civil Action
No. 00-11680GAO
(D. Mass.). The complaint alleges that we and other defendant
pharmacy companies violated the Federal False Claims Act and
various states false claims-like acts by receiving from
Serono but not reporting in unspecified Medicare and Medicaid
reimbursement claims alleged discounts on certain purchases of
Seronos product, Serostim. We and numerous other
defendants moved to dismiss the complaint with prejudice for
failure to state a claim, failure to plead with particularity,
expiration of the statute of limitations, and other grounds. The
court heard oral argument on the dismissal motions in January
2008 and a decision is expected soon. There have been no other
proceedings in the action. We deny the allegations and intend to
defend vigorously against them. Given the preliminary stage of
these matters, we are unable to assess the probable outcomes of
these proceedings or their financial impact.
In July 2007, a complaint was filed in Federal court in the
Southern District of Ohio naming our subsidiary, Chronimed
Holdings, Inc. as a defendant. The plaintiffs are several
members of the DiCello family who sold all the stock of an Ohio
pharmacy company known as Northland to us in 2005. The action is
captioned
JDP, Inc., et al. v. Chronimed Holdings,
Inc.
, Civil Action No. 2:07:646 (Frost). The complaint
alleges that the plaintiffs were entitled to receive an
additional purchase price payment in 2007 under the stock
purchase agreement based on Northlands 2006 EBITDA, a
position we dispute, and the complaint seeks damages of at least
$5.64 million and other relief under several legal
theories. We moved to stay the lawsuit and compel arbitration of
the disagreement under the terms of the stock purchase
agreement. The district court denied the motion to compel
arbitration but granted a stay pending our appeal of the denial
to the Sixth Circuit Court of Appeals, where briefing on the
motion to compel arbitration has been completed. It is expected
that the appellate court will schedule oral argument on the
appeal shortly. There have been no other proceedings in the
action. We deny the allegations and intend to defend vigorously
against the matters. While we are confident in our position, an
adverse ruling in this matter would not have a material adverse
effect on our business, operations or financial position.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year reported on in this
Form 10-K.
22
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock, par value $0.0001 per share (Common
Stock), is traded on the Nasdaq Global Market under the
symbol BIOS. The following table represents the
range of high and low sale prices for our Common Stock for the
last eight quarters. Such prices reflect interdealer prices,
without retail
mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
2006
|
|
|
First Quarter
|
|
$
|
8.12
|
|
|
$
|
6.05
|
|
|
|
|
|
Second Quarter
|
|
$
|
7.19
|
|
|
$
|
4.27
|
|
|
|
|
|
Third Quarter
|
|
$
|
5.65
|
|
|
$
|
2.74
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
4.30
|
|
|
$
|
2.39
|
|
|
2007
|
|
|
First Quarter
|
|
$
|
3.85
|
|
|
$
|
2.88
|
|
|
|
|
|
Second Quarter
|
|
$
|
4.96
|
|
|
$
|
3.00
|
|
|
|
|
|
Third Quarter
|
|
$
|
6.84
|
|
|
$
|
4.44
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
9.82
|
|
|
$
|
6.35
|
|
As of February 29, 2008, there were 255 stockholders of
record in addition to approximately 7,200 stockholders whose
shares were held in nominee name. On February 29, 2008 the
closing sale price of our Common Stock on Nasdaq was $7.03.
We have never paid cash dividends on our Common Stock and do not
anticipate doing so in the foreseeable future.
Between February 1, 2007 and December 31, 2007, we
issued a total of 263,993 shares of common stock without
registration under the Securities Act of 1933, as amended (the
Act). The shares were issued in reliance on NASDAQ
Marketplace Rule Section 4350(i)(iv) as issuances to
persons who had not previously been an employee or director of
ours as an inducement material to such persons entering into
employment with us. All of such issuances were approved by our
compensation committee and were issued for no cash consideration.
The dates of sale and amount of common stock issued on each such
date are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Sale
|
|
Type
|
|
Number of Shares
|
|
Exercise Price
|
|
2/1/2007
|
|
|
Stock Award
|
|
|
|
40,000
|
|
|
|
|
|
2/5/2007
|
|
|
Stock Award
|
|
|
|
42,493
|
|
|
|
|
|
4/9/2007
|
|
|
Stock Award
|
|
|
|
7,500
|
|
|
|
|
|
4/10/2007
|
|
|
Stock Award
|
|
|
|
5,000
|
|
|
|
|
|
6/21/2007
|
|
|
Stock Award
|
|
|
|
50,000
|
|
|
|
|
|
8/1/2007
|
|
|
Stock Award
|
|
|
|
40,000
|
|
|
|
|
|
12/14/2007
|
|
|
Stock Award
|
|
|
|
29,000
|
|
|
|
|
|
12/14/2007
|
|
|
Stock Option
|
|
|
|
50,000
|
|
|
$
|
8.81
|
|
The issuances and sales of the above securities were exempt from
registration under the Securities Act in reliance on
Section 4(2) of the Act because the issuance of the common
stock to the recipients did not involve a public offering.
Appropriate legends have been affixed to the common stock issued
in those transactions. All recipients received adequate
information about us or had access, through employment or other
relationships, to such information.
23
The graph set forth below compares, for the five-year period of
December 31, 2002 through December 31, 2007, the total
cumulative return to holders of the Companys Common Stock
with the cumulative total return of the Nasdaq Composite Index
and the Nasdaq Health Services index.
* * * * * * * *
24
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
The selected consolidated financial data presented below should
be read in conjunction with, and is qualified in its entirety by
reference to, Managements Discussion and Analysis and our
Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Report. The 2005 information below
includes Chronimed beginning March, 2005 and Northland beginning
October, 2005. The 2006 information below includes Infusion West
beginning March, 2006. (See Note 4 of Notes to Consolidated
Financial Statements.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Balance Sheet Data
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,521
|
|
|
$
|
2,957
|
|
|
$
|
9,428
|
|
Working capital
|
|
$
|
49,213
|
|
|
$
|
37,023
|
|
|
$
|
67,488
|
|
|
$
|
13,968
|
|
|
$
|
20,283
|
|
Total assets
|
|
$
|
296,822
|
|
|
$
|
305,456
|
|
|
$
|
298,629
|
|
|
$
|
185,788
|
|
|
$
|
170,294
|
|
Stockholders equity
|
|
$
|
166,203
|
|
|
$
|
161,833
|
|
|
$
|
195,765
|
|
|
$
|
115,683
|
|
|
$
|
107,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Statement of Operations Data
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1, 2)
|
|
$
|
1,197,732
|
|
|
$
|
1,151,940
|
|
|
$
|
1,072,895
|
|
|
$
|
629,890
|
|
|
$
|
588,176
|
|
Merger related expenses(3)
|
|
$
|
|
|
|
$
|
58
|
|
|
$
|
4,575
|
|
|
$
|
|
|
|
$
|
|
|
Goodwill and intangible impairment(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,165
|
|
|
$
|
|
|
|
$
|
|
|
Net income (loss) (5,6,7,8)
|
|
$
|
3,317
|
|
|
$
|
(38,289
|
)
|
|
$
|
(23,847
|
)
|
|
$
|
7,033
|
|
|
$
|
9,130
|
|
Net income (loss) per basic share
|
|
$
|
0.09
|
|
|
$
|
(1.03
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
0.32
|
|
|
$
|
0.41
|
|
Net income (loss) per diluted share(9)
|
|
$
|
0.09
|
|
|
$
|
(1.03
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
0.31
|
|
|
$
|
0.40
|
|
Weighted average shares outstanding used in computing basic
income (loss) per share
|
|
|
37,647
|
|
|
|
37,304
|
|
|
|
34,129
|
|
|
|
22,245
|
|
|
|
22,164
|
|
Weighted average shares outstanding used in computing diluted
income (loss) per share
|
|
|
38,491
|
|
|
|
37,304
|
|
|
|
34,129
|
|
|
|
22,702
|
|
|
|
22,640
|
|
|
|
|
(1)
|
|
Revenue includes: excelleRx PBM Services revenue of
$15.0 million, $29.7 million, $21.7 million,
$14.3 million and $8.1 million for the years 2007,
2006, 2005, 2004, and 2003, respectively; Centene Corporation
PBM Services revenue of $47.1 million, $133.1 million,
$102.1 million, and $92.4 million for the years 2006,
2005, 2004, and 2003, respectively;
TennCare
®
PBM Services revenue of $67.8 million for the year 2003;
and Value Options revenue of $19.7 million and
$20.8 million for the years 2004 and 2003, respectively.
Revenue from TennCare ended in 2003. Revenue from Value Options
ended in 2004. Revenue from Centene Corporation ended in 2006.
Revenue from excelleRx ended in 2007.
|
|
(2)
|
|
Certain prior period amounts have been reclassified to conform
to the current year presentation. Such reclassifications had no
material effect on previously reported results of operations.
|
|
(3)
|
|
Reflects merger, integration and re-branding expenses related to
the acquisition of Chronimed on March 12, 2005.
|
|
(4)
|
|
Includes a $4.0 million charge, net of tax, related to
write-off of trade names due to our rebranding strategy in the
Specialty Services segment, and an $18.2 million charge,
net of tax, related to goodwill impairment in the PBM Services
segment.
|
|
(5)
|
|
Net income in 2003 includes a $0.6 million charge, net of
tax, related to a settlement with our founder, E. David Corvese,
and a restructuring charge of $0.9 million, net of tax.
|
|
(6)
|
|
Net income in 2004 includes a $0.5 million charge, net of
tax, related to a settlement with Value Options of Texas, Inc.
|
25
|
|
|
(7)
|
|
Net loss in 2005 includes a $4.3 million charge, net of
tax, to reflect an increase in the allowance for doubtful
accounts receivable created by lower than expected collections
during the merger integration period.
|
|
(8)
|
|
Net loss in 2006 includes a $25.7 million income tax charge
for the establishment of a valuation allowance recorded against
deferred tax assets.
|
|
(9)
|
|
The 2006 and 2005 net loss per diluted share excludes the
effect of common stock equivalents, as their inclusion would be
anti-dilutive.
|
* * * * * * * * *
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) is designed to assist the reader in
understanding our consolidated financial statements, the changes
in certain key items in those financial statements from year to
year and the primary factors that accounted for those changes,
as well as how certain accounting principles affect our
consolidated financial statements. The discussion also provides
information about the financial results of the various segments
of our business to provide a better understanding of how those
segments and their results affect our financial condition and
results of operations as a whole. This discussion should be read
in conjunction with our Consolidated Financial Statements,
including the Notes thereto, and the information discussed in
Part I, Item 1A Risk Factors.
Safe
Harbor Statement Under the Private Securities Litigation
Reform Act of 1995
This report contains statements not purely historical and which
may be considered forward-looking statements within the meaning
of Section 27A of the Securities Act, and Section 21E
of the Securities Exchange Act of 1934, as amended (the
Exchange Act), including statements regarding our
expectations, hopes, beliefs, intentions or strategies regarding
the future. These forward looking statements may include
statements relating to our business development activities,
sales and marketing efforts, the status of material contractual
arrangements, including the negotiation or re-negotiation of
such arrangements, future capital expenditures, the effects of
regulation and competition on our business, future operating
performance and the results, benefits and risks associated with
integration of acquired companies. Investors are cautioned that
any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties; that actual
results may differ materially from those possible results
discussed in the forward-looking statements as a result of
various risks, uncertainties and other factors. You should not
place undue reliance on such forward-looking statements as they
speak only as of the date they are made, and we assume no
obligation to publicly update or revise any forward-looking
statement even if experience or future changes make it clear
that any projected results expressed or implied therein will not
be realized.
These factors include, among other things, risks associated with
increased government regulation related to the healthcare and
insurance industries in general and more specifically, pharmacy
benefit management and specialty pharmaceutical distribution
organizations, changes in reimbursement rates from government
and private payors, the existence of complex laws and
regulations relating to our business, increased competition from
our competitors, including competitors with greater financial,
technical, marketing and other resources. This report contains
information regarding important factors that could cause such
differences.
Business
Overview
Overview
We are a specialty pharmaceutical healthcare organization that
partners with patients, physicians, healthcare payors and
pharmaceutical manufacturers to provide access to medications
and management solutions to optimize outcomes for chronic and
other complex healthcare conditions.
Our specialty pharmaceutical services (Specialty
Services) include the comprehensive support, dispensing
and distribution, patient care management, data reporting as
well as a range of other complex management services
26
for certain medications. These medications include orals,
injectables and infusibles used to treat patients living with
chronic health conditions and are provided in various capacities
to patients, physicians, healthcare payors and pharmaceutical
manufacturers. Our pharmacy benefit management (PBM)
services include pharmacy network management, claims processing,
benefit design, drug utilization review, formulary management
and traditional mail order pharmacy fulfillment. These services
are reported under two operating segments: (i) Specialty
Services; and (ii) PBM and Traditional Mail Services
(collectively, PBM Services).
Specialty Services and PBM Services revenues are derived from
our relationships with healthcare payors including managed care
organizations, government-funded
and/or
operated programs, pharmaceutical manufacturers, patients and
physicians as well as a variety of third party payors, including
TPAs and Plan Sponsors.
Our Specialty Services are marketed
and/or
sold
primarily to healthcare payors, pharmaceutical manufacturers,
physicians, and patients, and target certain specialty
medications that are used to treat patients living with chronic
health conditions. These services include the distribution of
biotech and other high cost injectable, oral and infusible
prescription medications and the provision of therapy management
services.
We are the sole vendor for the Centers for Medicare and Medicaid
Services (CMS) Competitive Acquisition Program
(CAP) for certain Medicare Part B drugs and
biologicals which commenced July 1, 2006. CAP is a
voluntary program that offers physicians the option of obtaining
many of their Medicare Part B drugs from us by writing a
prescription, thus eliminating the need for buying the
medications and billing CMS for drug reimbursement, which, prior
to the existence of CAP, was primarily the only way for
physicians to treat Medicare beneficiaries with such drugs. CAP
benefits to physicians include reduction or elimination of the
financial risks associated with carrying high-cost drug
inventories and reduction of the administrative burdens of
physicians. Our CAP contract runs on an exclusive basis through
December 31, 2008, and is being competitively bid for the
potential addition of new vendors by CMS beginning 2009 and
beyond. We have submitted our bid to participate in CAP for
periods after 2008. While we have no reason to believe that we
will not be selected as a CAP provider, no assurances can be
given at this time. However, management believes that our
failure to be named as a CAP provider, whether or not on an
exclusive basis, will not have a materially adverse affect on
our business, operations or financial position or results of
operations.
In July we announced that we were awarded an agreement (the
UHC Agreement) to serve as one of two national
specialty pharmacy providers of HIV/AIDS and Solid Organ
Transplant drugs and services to patients insured by United
Healthcare and its participating affiliates. This agreement
became effective on August 1, 2007, with the initial term
of the agreement running through December 31, 2008. We have
no reason to believe that the UHC Agreement will not continue
beyond the end of 2008. However, at this time we have received
no assurances that the Agreement will continue into 2009. The
failure of the UHC Agreement to continue beyond 2008 could have
a material and adverse affect on our business, operations and
financial results of operations in 2009.
We plan to grow our infused product sales by marketing a broader
product offering, including adding new therapies to our current
focus on immunological blood products and expanding our
geographic service area. We will work with physicians who
utilize our services to support their in-office infusion
activities and we expect to establish ambulatory infusion
centers.
Our PBM Services are marketed to healthcare payors including
employer groups and TPAs and are designed to promote a broad
range of cost-effective, clinically appropriate pharmacy benefit
management services through our national PBM retail network and
our own mail service distribution facility. We also administer
prescription discount card programs on behalf of commercial Plan
Sponsors, most typically TPAs. Under such programs we derive
revenue on a per claim basis from the dispensing network
pharmacy.
Over the past several years our strategic growth has been
focused on building our Specialty Services. Consequently,
Specialty Services revenues have grown to more than 80% of our
total revenue.
Critical
Accounting Estimates
Our consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting
principles (GAAP). In preparing our financial
statements, we are required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and
27
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. We evaluate our estimates and judgments on an ongoing
basis. We base our estimates and judgments on historical
experience and on various other factors that we believe to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Our actual results may differ from these estimates, and
different assumptions or conditions may yield different
estimates. The following discussion highlights what we believe
to be the critical accounting estimates and judgments made in
the preparation of our consolidated financial statements.
The following discussion is not intended to be a comprehensive
list of all the accounting estimates or judgments made in the
preparation of our financial statements, and in many cases the
accounting treatment of a particular transaction is specifically
dictated by GAAP, with no need for managements judgment in
its application. See our audited consolidated financial
statements and notes thereto which appear in
Item 8 Financial Statements and Supplementary
Data of this Annual Report, which contain accounting policies
and other disclosures required by GAAP.
Revenue
Recognition
We generate revenue principally through the sale of prescription
drugs, which are dispensed either through a pharmacy
participating in our pharmacy network or a pharmacy owned by us.
Revenue is generally derived under fee-for-service agreements;
however, an immaterial amount of revenue is derived from
capitated agreements where the fee is based on a per patient
basis.
Fee-for-service agreements
include:
(i) specialty and mail service
agreements, where we dispense prescription medications through
our pharmacy facilities and (ii) PBM agreements, where
prescription medications are dispensed through pharmacies
participating in our retail pharmacy network as well as through
our traditional mail service facility. Under fee-for-service
agreements, revenue for Specialty Services is recognized either
at the time the drug is shipped in the case of most Specialty
agreements or at the time of infusion when nursing services are
provided and billed by us. Customers receive medication from us
by picking it up from a retail location or by mail or other
means of shipping. In those cases where we ship the medication,
revenue is recognized at the point of shipment. At that point,
the earnings process is considered complete and we have
substantially accomplished the terms of our transaction Revenue
for PBM Services is recognized when the pharmacy services are
reported to us through the point of sale (POS)
claims processing system and the drug is dispensed to the
Member. Fee-for-service agreements accounted for more than 95%
of our revenue for each of the years ended December 31,
2007, 2006 and 2005.
Revenue generated under PBM agreements is classified as either
gross or net by us based on whether we are acting as a principal
or an agent in the fulfillment of prescriptions through our
retail pharmacy network. When we independently have a
contractual obligation to pay a network pharmacy provider for
benefits provided to its Plan Sponsors Members, and
therefore are the primary obligor as defined by
Emerging Issues Task Force Issue
No. 99-19,
we include payments (which include the drug ingredient cost)
from these Plan Sponsors as revenue and payments to the network
pharmacy providers as cost of revenue. These transactions
require us to pay network pharmacy providers, assume credit risk
of Plan Sponsors and act as a principal. If we merely act as an
agent, and consequently administer Plan Sponsors network
pharmacy contracts, we do not have the primary obligation to pay
the network pharmacy and assume credit risk and as such record
only the administrative fees (and not the drug ingredient cost)
as revenue.
Allowance
for Doubtful Accounts
Allowances for doubtful accounts are based on estimates of
losses related to customer receivable balances. The procedure
for estimating the allowance for doubtful accounts requires
significant judgment. The risk of collection varies based upon
the product, the payor (commercial health insurance, government,
physician), the patients ability to pay the amounts not
reimbursed by the payor and point of distribution (retail, mail
service and infusion). We estimate the allowance for doubtful
accounts based upon a variety of factors including the age of
the outstanding receivables and our historical experience of
collections, adjusting for current economic conditions and, in
some
28
cases, evaluating specific customer accounts for risk of loss.
We periodically review the estimation process and make changes
to the estimates as necessary. When it is deemed probable that a
customer account is uncollectible, that balance is written off
against the existing allowance.
Allowance
for Contractual Discounts
We are reimbursed for the medications and services we sell by
Plan Sponsors. Revenues and related accounts receivable are
recorded net of payor contractual discounts to reflect the
estimated net billable amounts for the products and services
delivered. We estimate the allowance for contractual discounts,
based on historical experience and in certain cases on a
customer-specific basis, given our interpretation of the
contract terms or applicable regulations. However, the
reimbursement rates are often subject to interpretation that
could result in payments that differ from our estimates.
Additionally, updated regulations and contract negotiations
occur frequently, necessitating our continual review and
assessment of the estimation process.
Rebates
Manufacturers rebates are recorded as estimates until such
time as the rebate monies are received. These estimates are
based on historical results and trends and are revised on a
regular basis depending upon our latest forecasts, as well as
information received from rebate sources. Should actual results
differ, adjustments will be recorded in future earnings. In some
instances, rebate payments are shared with our managed care
organizations. Rebates are recorded as a reduction of cost of
goods sold.
Payables
to Plan Sponsors
Payables to plan sponsors primarily represent payments made by
Plan Sponsors in excess of the invoiced reimbursement. These
amounts are refunded to Plan Sponsors in Specialty Services. In
addition, these payables include the sharing of
manufacturers rebates with the Plan Sponsors in the PBM
Services segment.
Income
Taxes
As part of the process of preparing our consolidated financial
statements, management is required to estimate income taxes in
each of the jurisdictions in which we operate. We account for
income taxes under Statement of Financial Accounting Standards
(SFAS), SFAS 109,
Accounting for Income
Taxes
(SFAS 109). SFAS 109 requires
the use of the asset and liability method of accounting for
income taxes. Under this method, deferred taxes are determined
by calculating the future tax consequences attributable to
differences between the financial accounting and tax bases of
existing assets and liabilities. A valuation allowance is
recorded against deferred tax assets when, in the opinion of
management, it is more likely than not that we will not be able
to realize the benefit from our deferred tax assets.
On January 1, 2007, we adopted the provisions of Financial
Accounting Standards Board (FASB), FASB
Interpretation No. 48
Accounting for Uncertainty in
Income Taxes
(FIN 48). FIN 48
establishes the accounting for uncertain tax positions.
FIN 48 clarifies the accounting for income taxes by
prescribing a recognition threshold and measurement attribute
that a tax position is required to meet before being recognized
in the financial statements and provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. We file income tax returns, including returns for
our subsidiaries, as prescribed by Federal tax laws and the tax
laws of the state and local jurisdictions in which we operate.
Our uncertain tax positions are related to tax years that remain
subject to examination. Interest and penalties related to
unrecognized tax benefits are recorded as income tax expense.
See Note 12 Income Taxes of the Notes to the
Consolidated Financial Statements for discussion of the effects
of our adoption of FIN 48.
Purchase
Price Allocation
We account for acquisitions under the purchase method of
accounting. Accordingly, any assets acquired and liabilities
assumed are recorded at their respective fair values. The
recorded values of assets and liabilities are based on third
party estimates and independent valuations. The remaining values
are based on managements judgments
29
and estimates. Accordingly, our financial position or results of
operations may be affected by changes in estimates and judgments
used to value these assets and liabilities.
Goodwill
In accordance with SFAS 142,
Goodwill and Other
Intangible
Assets, we evaluate goodwill for impairment based
on a two-step process. The first step compares the fair value of
a reporting unit with its carrying amount, including goodwill.
If the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is not impaired and the
second step of the impairment test is unnecessary. If the
carrying amount of the reporting unit exceeds its fair value,
the second step of the goodwill impairment test is necessary to
measure the amount of impairment loss, if any. The second step
compares the implied fair value of reporting unit goodwill with
the carrying amount of that goodwill. If the carrying amount of
the reporting unit goodwill exceeds the implied fair value of
that goodwill, an impairment loss would be recognized in an
amount equal to that excess.
The Company has two reporting units; Specialty Services and PBM
Services. As a result of an evaluation of the PBM Services
segment in a prior year, all goodwill associated with PBM
Services had been written off. The goodwill associated with
Specialty Services was evaluated and no impairment existed at
December 31, 2007 or 2006.
Impairment
of Long Lived Assets
We evaluate whether events and circumstances have occurred that
indicate that the remaining estimated useful life of long-lived
assets, including intangible assets, may warrant revision or
that the remaining balance of an asset may not be recoverable.
The measurement of possible impairment is based on the ability
to recover the balance of assets from expected future operating
cash flows on an undiscounted basis. Impairment losses, if any,
would be determined based on the present value of the cash flows
using discount rates that reflect the inherent risk of the
underlying business. No impairment of long lived assets existed
at December 31, 2007 or 2006.
Accounting
for Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value
recognition provisions of SFAS No. 123(R),
Share-Based Payment
(SFAS 123(R)), using
the modified-prospective-transition method. Under that
transition method, compensation cost recognized during 2007
includes: (i) compensation cost for all share-based
payments granted prior to, but not yet vested as of,
January 1, 2006 based on the grant date fair value
estimated in accordance with the original provisions of
SFAS 123, and (ii) compensation cost for all
share-based payments granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with
the provisions of SFAS 123(R). Results for prior periods
have not been restated.
The fair value of each option award is estimated on the date of
grant using a binomial option-pricing model that uses the
following assumptions: (i) expected volatility is based on
the historical volatility of our stock, (ii) the risk-free
interest rate for periods within the contractual life of the
option is based on the U.S. Treasury yield curve in effect
at the time of the grant, and (iii) the expected life of
options granted is derived from previous history of stock
exercises from the grant date and represents the period of time
that options granted are expected to be outstanding. We use
historical data to estimate option exercise and employee
termination assumptions under the valuation model.
Off-Balance
Sheet Arrangements
We do not participate in transactions that generate
relationships with unconsolidated entities or financial
partnerships, such as special purpose entities or variable
interest entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other
limited purposes. As of December 31, 2007, we are not
involved in any unconsolidated special purpose entities or
variable interest entities.
30
Reclassifications
Certain prior period amounts have been reclassified to conform
to the current year presentation. Such reclassifications had no
material effect on our previously reported consolidated
financial position, results of operations or cash flows.
Results
of Operations
The following unaudited condensed consolidated pro forma
financial information for the year ended December 31, 2005
has been prepared as if the Chronimed acquisition had been
consummated at January 1, 2005, utilizing the purchase
method of accounting, with pro forma adjustments for
amortization of intangibles associated with the acquisition. The
number of basic and diluted shares has also been adjusted
assuming we exchanged each outstanding share of Chronimed common
stock for 1.12 shares of our common stock. We believe this
information to be helpful in gaining an understanding of future
financial and operating results and trends. In the following
Managements Discussion and Analysis we provide discussion
of both the reported results as set forth in the Financial
Statements and the pro forma results as presented in the
following tables:
Pro Forma
Consolidated Results
(in thousands, except per share
and percentage data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
Chronimed
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
BioScrip
|
|
|
Pre-Merger
|
|
|
Adjustments
|
|
|
Combined
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services
|
|
$
|
688,512
|
|
|
$
|
114,079
|
|
|
$
|
|
|
|
$
|
802,591
|
|
PBM Services
|
|
|
384,383
|
|
|
|
|
|
|
|
|
|
|
|
384,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
1,072,895
|
|
|
|
114,079
|
|
|
|
|
|
|
|
1,186,974
|
|
Cost of revenue
|
|
|
956,519
|
|
|
|
101,155
|
|
|
|
|
|
|
|
1,057,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
116,376
|
|
|
|
12,924
|
|
|
|
|
|
|
|
129,300
|
|
% of Revenue
|
|
|
10.8
|
%
|
|
|
11.3
|
%
|
|
|
|
|
|
|
10.9
|
%
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
96,630
|
|
|
|
10,498
|
|
|
|
|
|
|
|
107,128
|
|
Bad debt expense
|
|
|
12,814
|
|
|
|
840
|
|
|
|
|
|
|
|
13,654
|
|
Amortization of intangibles
|
|
|
6,395
|
|
|
|
|
|
|
|
958
|
|
|
|
7,353
|
|
Merger related expenses
|
|
|
4,575
|
|
|
|
2,037
|
|
|
|
|
|
|
|
6,612
|
|
Goodwill and intangible impairment
|
|
|
25,165
|
|
|
|
|
|
|
|
|
|
|
|
25,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
145,579
|
|
|
|
13,375
|
|
|
|
958
|
|
|
|
159,912
|
|
% of Revenue
|
|
|
13.6
|
%
|
|
|
11.7
|
%
|
|
|
|
|
|
|
13.5
|
%
|
Loss from operations
|
|
|
(29,203
|
)
|
|
|
(451
|
)
|
|
|
(958
|
)
|
|
|
(30,612
|
)
|
Interest (expense) income, net
|
|
|
(392
|
)
|
|
|
84
|
|
|
|
|
|
|
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(29,595
|
)
|
|
|
(367
|
)
|
|
|
(958
|
)
|
|
|
(30,920
|
)
|
Income tax benefit
|
|
|
(5,748
|
)
|
|
|
(143
|
)
|
|
|
(114
|
)
|
|
|
(6,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,847
|
)
|
|
$
|
(224
|
)
|
|
$
|
(844
|
)
|
|
$
|
(24,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
34,129
|
|
|
|
|
|
|
|
|
|
|
|
34,129
|
|
Diluted weighted average shares
|
|
|
34,129
|
|
|
|
|
|
|
|
|
|
|
|
34,129
|
|
Basic net loss per share
|
|
$
|
(0.70
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.73
|
)
|
Diluted net loss per share
|
|
$
|
(0.70
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.73
|
)
|
31
CONSOLIDATED
RESULTS
Year
ended December 31, 2007 vs. December 31,
2006
Revenue
.
Total reported revenue for the
year ended December 31, 2007 increased $45.8 million,
or 4.0%, to $1,197.7 million from $1,151.9 million for
the same period in 2006. The year-over-year increase was
concentrated in the Specialty Services segment and is primarily
attributable to sales of new drugs, strong growth in infused
products, new business related to CAP and the acquisition of
Infusion West in March 2006. The increase is partially offset by
revenues associated with the loss of PBM contracts.
Specialty Services revenue for the year ended December 31,
2007 was $974.2 million compared to $866.6 million for
the same period in 2006, a $107.6 million, or 12.4%,
increase. This increase was due primarily to sales of new
specialty drugs under exclusive or preferred distribution and
managed care arrangements, strong growth in infusion products,
new business related to CAP and the acquisition of Infusion West
in March 2006.
PBM Services revenue for the year ended December 31, 2007
was $223.5 million compared to $285.3 million for the
same period in 2006, a $61.8 million, or 21.7%, decrease.
The decline in revenue is due primarily to the loss of revenues
associated with certain PBM customers. The decline in PBM
revenue is partially offset by increased volume in our
traditional mail business.
Cost of Revenue and Gross
Profit
.
Reported cost of revenue for the year
ended December 31, 2007 was $1,060.7 million compared
to $1,033.9 million for the same period in 2006. This
increase in cost of revenue was primarily the result of
increased sales, offset by improved acquisition costs resulting
from improved contracting. The total gross profit as a
percentage of revenue for the year ended December 31, 2007
was 11.4%, compared to 10.2% for the same period in 2006. The
Specialty Services segment gross profit rate increased primarily
as a result of improved drug acquisition costs and favorable
business mix. The PBM Services segment gross profit rate
increased primarily due to a shift from lower margin customers
to higher margin customers.
Selling, General and Administrative
Expenses
.
For the year ended
December 31, 2007, selling, general and administrative
expenses (SG&A) increased to
$120.1 million, or 10.0% of total revenue, from
$115.3 million, or 10.0% of total revenue, for the same
period in 2006. The year-over-year increase in SG&A is
primarily the result of compensation related expense.
Bad Debt Expense
.
For the year ended
December 31, 2007 we recorded bad debt expense of
$5.1 million, a decrease of $7.3 million compared to
$12.4 million in 2006. Bad debt expense has decreased due
to improved billing, cash collection and posting practices and
the favorable settlement of previously reserved doubtful
accounts.
Amortization of Intangibles
.
For the
year ended December 31, 2007 we recorded amortization
expense of intangibles of $2.9 million compared to
amortization expense from intangibles of $6.5 million in
2006. In first quarter 2007 the amortization of the intangible
assets associated with the Chronimed acquisition expired,
resulting in a decrease in amortization expense.
Net Interest Expense
.
Net interest
expense was $3.3 million for the year ended
December 31, 2007 compared to $3.0 million for the
year ended December 31, 2006. The increase in interest
expense was the result of higher average borrowing levels
primarily created by growth in the Specialty Services segment
and a reduction in claims payable.
Provision for Income Taxes
.
The
reported provision for income taxes was $2.3 million for
2007 compared to $19.0 million for 2006. The decrease in
the provision from 2006 to 2007 was due primarily to the
establishment of a valuation allowance recorded against deferred
tax assets of $25.7 million in 2006. At December 31,
2007, we had Federal net operating loss carryforwards of
approximately $27.3 million, of which $8.6 million is
subject to an annual limitation, all of which will begin
expiring in 2017 and later.
Net Income and Earnings Per Share
.
We
reported net income of $3.3 million, or $0.09 per share,
for the year ended December 31, 2007, compared to a net
loss of $38.3 million, or $1.03 per share, for the same
period a year ago. The number of weighted average basic and
diluted shares at December 31, 2007 was 37,647,270 and
38,491,009, respectively, compared to 37,303,531 for both at
December 31, 2006.
32
Year
ended December 31, 2006 vs. December 31,
2005
Revenue
.
Total reported revenue for the
year ended December 31, 2006 increased $79.0 million,
or 7.4%, to $1,151.9 million from $1,072.9 million for
the same period in 2005. The 2005 results reflect the
acquisition of Chronimed starting March 12, 2005. The
year-over-year increase was concentrated in the Specialty
Services segment and is primarily attributable to sales of new
drugs, strong growth in infused products, new business related
to CAP and the acquisitions of JPD, Inc d/b/a Northland Medical
Pharmacy (Northland) in October 2005 and Infusion
West in March 2006. The increase is partially offset by the loss
of PBM contracts.
Revenue for the year ended December 31, 2006 was
$1,151.9 million compared to $1,187.0 million on a pro
forma basis for the year ended December 31, 2005, a
$35.1 million, or 3.0%, decrease. The discussion below
explains the primary reasons for revenue changes in each of our
segments, Specialty Services and PBM Services.
Specialty Services revenue for the year ended December 31,
2006 was $866.6 million compared to $802.6 million on
a pro forma basis for the same period in 2005, a
$64.0 million, or 8.0% increase. This increase was due
primarily to sales of new specialty drugs under exclusive or
preferred distribution arrangements, strong growth in infusion
products, new business related to CAP, and the acquisition of
Northland in October 2005 and Infusion West in March 2006.
PBM Services revenue for the year ended December 31, 2006
was $285.3 million compared to $384.4 million on a pro
forma basis for the same period in 2005, a $99.1 million,
or 25.8% decrease. The decline in revenue is due primarily to
the loss of our customer Centene Corporation, which acquired its
own PBM business and transitioned its PBM business with us to
its own PBM throughout 2006. The decline in PBM revenue is
partially offset by increased volume in our traditional mail
business.
Cost of Revenue and Gross
Profit
.
Reported cost of revenue for the year
ended December 31, 2006 was $1,033.9 million compared
to $956.5 million for the same period in 2005. The total
gross profit rate as a percentage of revenue for the year ended
December 31, 2006 was 10.2%, compared to 10.8% for the same
period in 2005. The Specialty Services segment gross profit rate
decreased primarily as a result of program changes associated
with the implementation of Medicare Part D on
January 1, 2006, and industry-wide reimbursement pressures.
The PBM Services segment gross profit rate, which is lower than
Specialty Services, increased in 2006 from 2005 due to improved
generic utilization and favorable rate impact created from the
loss of lower margin business in 2006, partially offset by a
rate change by a large traditional mail services client.
Combined cost of revenue decreased $23.8 million, or 2.3%,
to $1,033.9 million for the year ended December 31,
2006 from $1,057.7 million on a pro forma basis for the
year ended December 31, 2005. Gross profit rate as a
percentage of revenue decreased to 10.2% for the year ended
December 31, 2006 compared to 10.9% on a pro forma basis
for the same period in 2005. The Specialty Services gross profit
decrease in 2006 was primarily the result of program changes
associated with the implementation of Medicare Part D on
January 1, 2006, and industry-wide reimbursement pressures.
This was partially offset by an increase in PBM Services gross
profit rate in 2006 due to improved generic utilization and
favorable rate impact created from the loss of lower margin
business in 2006 partially offset by a rate change by a large
traditional mail client.
We continue to experience downward reimbursement pressure in
both our Specialty Services and PBM Services segments as
healthcare costs receive increasing scrutiny at local and
national levels. In addition, the healthcare services industry
continues to consolidate, creating larger and more aggressive
competitors. In particular, we are beginning to see some of our
competitors attempt to lock us out of certain specialty pharmacy
contracts where we have been a provider in the past, which could
cause a reduction in our revenue.
Selling, General and Administrative
Expenses
.
For the year ended
December 31, 2006, SG&A increased to
$115.3 million, or 10.0% of total revenue, from
$96.6 million, or 9.0% of total revenue, for the same
period in 2005. The 2005 results reflect the acquisition of
Chronimed starting March 12, 2005. The year-over-year
increase in SG&A is primarily the result of additional
ongoing operating expenses associated with acquisitions made
since September 30, 2005, stock option expense due to the
adoption of SFAS 123(R) at January 1, 2006, operating
expense increases related to CAP, and severance expense related
to staffing reductions. These expense increases were partially
offset by a reduction in spending.
33
SG&A for the year ended December 31, 2006 was
$115.3 million, or 10.0% of total revenue, compared to
$107.1 million, or 9.0% of total revenue, on a pro forma
basis for the year ended December 31, 2005. The increase in
SG&A primarily is the result of ongoing operating expenses
associated with acquisitions made since September 30, 2005,
stock option expense due to the adoption of SFAS 123(R) at
January 1, 2006, operating expense increases related to
CAP, severance expense related to the departure of former senior
management and general staff reduction, and general operating
expense increases.
Bad Debt Expense
.
For the year ended
December 31, 2006 we recorded bad debt expense of
$12.4 million, a decrease of $0.4 million compared to
$12.8 million in 2005. The decrease is the result of
increased resources added to enhance our collection process and
improve receivable collection performance.
Bad debt expense for the year ended December 31, 2006 was
$12.4 million compared to $13.7 million on a pro forma
basis for 2005, a decrease of $1.3 million. The decreased
bad debt expense reflects a lower bad debt accrual rate due to
an improvement in collections. The pro forma 2005 results
reflect a fourth quarter charge of $7.1 million to reflect
an increase in the allowance for doubtful accounts receivable
created by lower than expected collections during the Chronimed
merger integration period.
Amortization of Intangibles
.
For the
year ended December 31, 2006 we recorded amortization
expense of intangibles of $6.5 million compared to
amortization expense from intangibles of $6.4 million in
2005. The increase is due to the amortization associated with
the acquisition completed during 2006.
Amortization expense for the year ended December 31, 2006
was $6.5 million compared to $7.4 million on a pro
forma basis for 2005, a decrease of $0.9 million. This
decrease is due primarily to the write-off in 2005 of trade name
assets associated with Natural Living, Inc. and Vitality Home
Infusion Services, Inc. due to the rebranding strategy.
Merger Related Expenses
.
There were
merger related expenses of $0.1 million in 2006. For the
year ended December 31, 2005 merger related expenses were
$4.6 million. The integration and other merger-related
expenses include expenses incurred to consolidate the
acquisition of Chronimed, including severance and rebranding
costs.
Pro forma merger related expenses for the year ended
December 31, 2005 were $6.6 million and reflected
$2.0 million of merger-related expenses incurred by
Chronimed from January 1, 2005 to March 12, 2005, the
date of the Chronimed acquisition, in addition to those
discussed above.
Goodwill and Intangible
Impairment
.
There were no goodwill or
intangible impairment write offs for the year ended
December 31, 2006. The year ended December 31, 2005
included the write off of $5.8 million for the trade name
intangible assets associated with Natural Living, Inc. and
Vitality Home Infusion Services, Inc. The
re-branding
of all of our business lines to a single brand, BioScrip,
prompted the write off of the existing trade name intangible
assets. Also included in 2005 were goodwill and intangible
impairment charges of $19.4 million, principally associated
with the PBM Services segment. The PBM Services impairment is
the result of the loss of the Centene contract and other related
PBM Services contracts, and its negative impact on the long term
financial outlook for the PBM Services business.
Net Interest Expense
.
Net interest
expense was $3.0 million for the year ended
December 31, 2006 compared to $0.4 million for the
year ended December 31, 2005. Interest expense associated
with our line of credit was higher in 2006 as our average
borrowing levels were higher. The increase is principally the
result of additional borrowings used to fund the acquisition of
Infusion West, operating losses, declining PBM revenue and
increased working capital needs associated with the CAP program.
Interest expense for the line of credit was partially offset by
interest income received on short term investments and money
market accounts.
Net interest expense was $3.0 million for the year ended
December 31, 2006 compared to $0.3 million on a pro
forma basis for the year ended December 31, 2005.
Provision for and Benefit from Income
Taxes
.
The reported provision for income
taxes was $19.0 million for 2006 compared to a reported
benefit from income taxes of $5.7 million for 2005. The
2006 tax provision includes the establishment of a valuation
allowance recorded against deferred tax assets. At
December 31, 2006, we had Federal net operating loss
carryforwards of $21.6 million which begin expiring in 2017
and later.
34
Net Income and Earnings Per Share
.
We
reported a net loss of $38.3 million, or $1.03 per share,
for the year ended December 31, 2006, compared to a net
loss of $23.8 million, or $0.70 per share, for the same
period in 2005. The increase in net loss is due primarily to a
$25.7 million income tax charge to establish a valuation
allowance against deferred tax assets. The number of weighted
average basic and diluted shares at December 31, 2006 was
37,303,531 compared to 34,128,650 at December 31, 2005, due
to the acquisition and the related issuance of stock.
Net loss for the year ended December 31, 2006 was
$38.3 million, or $1.03 per diluted share, compared to pro
forma net loss of $24.9 million, or $0.73 per diluted
share, for the year ended December 31, 2005.
Liquidity
and Capital Resources
We utilize both funds generated from operations and available
credit under our Facility (as defined below) for general working
capital needs, capital expenditures and acquisitions.
For 2007, net cash provided by operating activities totaled
$24.2 million, an improvement of $54.1 million over
the $29.9 million used in operating activities for 2006.
The cash provided in 2007 was primarily the result of net income
of $3.3 million adjusted by non-cash depreciation and
amortization of $7.0 million, an increase in accounts
payable of $5.6 million and accrued expenses of
$5.5 million, as well as a decrease in provision for losses
on receivables of $5.1 million. These amounts were offset
by a decrease in amounts due to Plan Sponsors of
$5.7 million and claims payable of $4.4 million.
Net cash used in investing activities in 2007 was
$5.5 million compared to net cash used in investing
activities of $18.4 million in 2006. The change was driven
primarily by the acquisition in 2006 of Infusion West.
Net cash used in financing activities in 2007 was
$18.7 million compared to net cash provided by financing
activities in 2006 of $46.8 million due to a reduction of
the line of credit in 2007.
At December 31, 2007, we had working capital of
$49.2 million compared to $37.0 million at
December 31, 2006. The increase in working capital
primarily is attributable to the reduction in outstanding
borrowings and amounts due to Plan Sponsors partially offset by
an increase in vendor payables.
At December 31, 2007 there were $33.8 million
outstanding borrowings under our revolving credit facility (the
Facility) with an affiliate of Healthcare Finance
Group, Inc. (HFG), a $19.1 million decrease
from December 31, 2006. Our revolving credit facility
provides for borrowing up to $75 million at the London
Inter-Bank Offered Rate (LIBOR) plus the applicable margin. The
Facility term is through November 1, 2010. The Facility
permits us to request an increase in the amount available for
borrowing to up to $100 million, as well as to convert a
portion of any outstanding borrowings from a Revolving Loan into
a Term Loan. The borrowing base utilizes receivables balances
and other related collateral as security under the Facility.
The weighted average interest rate on the line of credit was
7.24% during 2007 compared to 7.61% for 2006. At
February 29, 2008 we had $31.0 million of credit
available under the Facility.
The Facility contains various covenants that, among other
things, require us to maintain certain financial ratios, as
defined in the agreements governing the Facility. We were in
compliance with all such covenants as of December 31, 2007.
On March 1, 2006, we acquired Infusion West for
$13.1 million in cash. Direct expenses associated with the
acquisition were less than $0.1 million. That acquisition
was paid for with proceeds from the Facility. As we continue to
grow, we anticipate that our working capital needs will also
continue to increase. We have made substantial information
technology (IT) systems investments in 2007 and will
continue to invest in 2008 to improve efficiencies, internal
controls, and data reporting and management. We believe that our
cash on hand, together with funds available under the Facility
and cash expected to be generated from operating activities will
be sufficient to fund our anticipated working capital, IT
systems investments and other cash needs for at least the next
twelve months.
We also may pursue joint venture arrangements, business
acquisitions and other transactions designed to expand our
business, which we would expect to fund from borrowings under
the Facility, other future indebtedness or, if appropriate, the
private
and/or
public sale or exchange of our debt or equity securities.
35
At December 31, 2007, we had Federal net operating loss
carryforwards of approximately $27.3 million, of which
$8.6 million is subject to an annual limitation, all of
which will begin expiring in 2017 and later. We have post
apportioned state net operating loss carryforwards remaining of
approximately $15.4 million, the majority of which will
begin expiring in 2017 and later.
The following table sets forth our contractual obligations
affecting cash in the future:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Period
|
|
|
|
(in thousands)
|
|
Contractual Obligations
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Line of credit(1)
|
|
$
|
33,778
|
|
|
$
|
33,778
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating leases
|
|
|
14,615
|
|
|
|
4,555
|
|
|
|
6,771
|
|
|
|
2,204
|
|
|
|
1,085
|
|
Purchase commitment(2)
|
|
|
23,850
|
|
|
|
23,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$
|
72,243
|
|
|
$
|
62,183
|
|
|
$
|
6,771
|
|
|
$
|
2,204
|
|
|
$
|
1,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Interest on the line of credit is payable monthly. For
additional information regarding the line of credit see
Note 9 Line of Credit.
|
|
(2)
|
|
Commitment with a supplier to purchase established product
quantities.
|
Other
Matters
Controls
and Procedures
As of the end of the period covered by this Annual Report,
evaluations of disclosure controls and internal control over
financial reporting were performed under the supervision and
with the participation of management, including our Chief
Executive Officer (CEO) and Chief Financial Officer
(CFO). Based upon these evaluations, management
believes our controls were effective as of December 31,
2007. See Part II, Item 9A. Controls and
Procedures for a full discussion of the Evaluation of
Disclosure Controls and Procedures, Management Report on
Internal Control over Financial Reporting and our Management
Remediation Plan.
|
|
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Exposure to market risk for changes in interest rates relates to
our outstanding debt. At December 31, 2007 we did not have
any long-term debt. We are exposed to interest rate risk
primarily through our borrowing activities under our line of
credit discussed in Item 7 of this report. A 1% increase in
interest rates would result in an increase in annual interest
expense of approximately $0.4 million, pre-tax, based upon
the average daily balance during 2007. We do not use financial
instruments for trading or other speculative purposes and are
not a party to any derivative financial instruments.
At December 31, 2007, the carrying values of cash and cash
equivalents, accounts receivable, accounts payable, claims
payable, payables to plan sponsors and others, debt and line of
credit approximate fair value due to their short-term nature.
Because management does not believe that our exposure to
interest rate market risk is material at this time, we have not
developed or implemented a strategy to manage this market risk
through the use of derivative financial instruments or
otherwise. We will assess the significance of interest rate
market risk from time to time and will develop and implement
strategies to manage that market risk as appropriate.
* * * * * * * * *
36
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of BioScrip, Inc.
We have audited the accompanying consolidated balance sheets of
BioScrip, Inc. and subsidiaries as of December 31, 2007 and
2006, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2007. Our audits
also included the financial statement schedule listed in the
Index at Item 15. These financial statements and schedule
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of BioScrip, Inc. and subsidiaries at
December 31, 2007 and 2006, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2007, the Company adopted
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
. Also as
discussed in Note 2 to the consolidated financial
statements, effective January 1, 2006, the Company adopted
SFAS No. 123(R),
Share-Based Payment
.
We have also audited, in accordance with the Standards of the
Public Company Accounting Oversight Board (United States),
BioScrip, Inc.s internal control over financial reporting
as of December 31, 2007, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 6, 2008 expressed an unqualified opinion
thereon.
Minneapolis, Minnesota
March 6, 2008
37
BIOSCRIP,
INC. AND SUBSIDIARIES
December 31,
(in thousands, except for
share amounts)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
Receivables, less allowance for doubtful accounts of $12,083 and
$13,774 at December 31, 2007 and 2006, respectively
|
|
|
128,969
|
|
|
|
135,139
|
|
Inventory
|
|
|
33,598
|
|
|
|
33,471
|
|
Prepaid expenses and other current assets
|
|
|
1,434
|
|
|
|
2,090
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
164,001
|
|
|
|
170,700
|
|
Property and equipment, net
|
|
|
11,742
|
|
|
|
10,409
|
|
Other assets
|
|
|
478
|
|
|
|
681
|
|
Goodwill
|
|
|
114,824
|
|
|
|
114,991
|
|
Intangible assets, net
|
|
|
5,777
|
|
|
|
8,675
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
296,822
|
|
|
$
|
305,456
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
33,778
|
|
|
$
|
52,895
|
|
Accounts payable
|
|
|
57,342
|
|
|
|
51,724
|
|
Claims payable
|
|
|
5,164
|
|
|
|
9,548
|
|
Amounts due to plan sponsors
|
|
|
4,568
|
|
|
|
10,280
|
|
Accrued expenses and other current liabilities
|
|
|
13,936
|
|
|
|
9,230
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
114,788
|
|
|
|
133,677
|
|
Deferred taxes
|
|
|
12,754
|
|
|
|
9,946
|
|
Income taxes payable
|
|
|
3,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
130,619
|
|
|
|
143,623
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 5,000,000 shares
authorized; no shares issued or outstanding
|
|
$
|
|
|
|
$
|
|
|
Common stock, $.0001 par value; 75,000,000 shares
authorized; shares issued: 41,331,346 and 40,680,233,
respectively; shares outstanding: 38,250,633 and 37,488,257,
respectively
|
|
|
4
|
|
|
|
4
|
|
Treasury stock, shares at cost: 2,436,642 and 2,247,150,
respectively
|
|
|
(9,399
|
)
|
|
|
(8,002
|
)
|
Additional paid-in capital
|
|
|
244,186
|
|
|
|
239,315
|
|
Accumulated deficit
|
|
|
(68,588
|
)
|
|
|
(69,484
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
166,203
|
|
|
|
161,833
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
296,822
|
|
|
$
|
305,456
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
38
BIOSCRIP,
INC. AND SUBSIDIARIES
Years
Ended December 31,
(in thousands, except per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
$
|
1,197,732
|
|
|
$
|
1,151,940
|
|
|
$
|
1,072,895
|
|
Cost of revenue
|
|
|
1,060,717
|
|
|
|
1,033,884
|
|
|
|
956,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
137,015
|
|
|
|
118,056
|
|
|
|
116,376
|
|
Selling, general and administrative expenses
|
|
|
120,147
|
|
|
|
115,258
|
|
|
|
96,630
|
|
Bad debt expense
|
|
|
5,119
|
|
|
|
12,443
|
|
|
|
12,814
|
|
Amortization of intangibles
|
|
|
2,898
|
|
|
|
6,538
|
|
|
|
6,395
|
|
Merger related expenses
|
|
|
|
|
|
|
58
|
|
|
|
4,575
|
|
Goodwill and intangible impairment
|
|
|
|
|
|
|
|
|
|
|
25,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
8,851
|
|
|
|
(16,241
|
)
|
|
|
(29,203
|
)
|
Interest expense, net
|
|
|
(3,270
|
)
|
|
|
(3,018
|
)
|
|
|
(392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
5,581
|
|
|
|
(19,259
|
)
|
|
|
(29,595
|
)
|
Tax provision (benefit)
|
|
|
2,264
|
|
|
|
19,030
|
|
|
|
(5,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,317
|
|
|
$
|
(38,289
|
)
|
|
$
|
(23,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.09
|
|
|
$
|
(1.03
|
)
|
|
$
|
(0.70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
0.09
|
|
|
$
|
(1.03
|
)
|
|
$
|
(0.70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic income (loss)
per share
|
|
|
37,647
|
|
|
|
37,304
|
|
|
|
34,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted income (loss)
per share
|
|
|
38,491
|
|
|
|
37,304
|
|
|
|
34,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
39
BIOSCRIP,
INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance December 31, 2004
|
|
$
|
2
|
|
|
$
|
(8,002
|
)
|
|
$
|
131,031
|
|
|
$
|
(7,348
|
)
|
|
$
|
115,683
|
|
Exercise of stock options and other related activities
|
|
|
|
|
|
|
|
|
|
|
1,892
|
|
|
|
|
|
|
|
1,892
|
|
Tax benefit recorded from option exercises
|
|
|
|
|
|
|
|
|
|
|
475
|
|
|
|
|
|
|
|
475
|
|
Shares issued in connection with Chronimed acquisition
|
|
|
2
|
|
|
|
|
|
|
|
101,560
|
|
|
|
|
|
|
|
101,562
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,847
|
)
|
|
|
(23,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
4
|
|
|
|
(8,002
|
)
|
|
|
234,958
|
|
|
|
(31,195
|
)
|
|
|
195,765
|
|
Exercise of stock options and other related activities
|
|
|
|
|
|
|
|
|
|
|
1,356
|
|
|
|
|
|
|
|
1,356
|
|
Tax benefit recorded from option exercises
|
|
|
|
|
|
|
|
|
|
|
456
|
|
|
|
|
|
|
|
456
|
|
Compensation under employee stock compensation plans
|
|
|
|
|
|
|
|
|
|
|
2,545
|
|
|
|
|
|
|
|
2,545
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,289
|
)
|
|
|
(38,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
4
|
|
|
|
(8,002
|
)
|
|
|
239,315
|
|
|
|
(69,484
|
)
|
|
|
161,833
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
1,867
|
|
|
|
|
|
|
|
1,867
|
|
Surrender of stock to satisfy minimum tax withholding
|
|
|
|
|
|
|
(1,397
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,397
|
)
|
Compensation under employee stock compensation plans
|
|
|
|
|
|
|
|
|
|
|
3,004
|
|
|
|
|
|
|
|
3,004
|
|
Cumulative effect of FIN 48 adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,421
|
)
|
|
|
(2,421
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,317
|
|
|
|
3,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
$
|
4
|
|
|
$
|
(9,399
|
)
|
|
$
|
244,186
|
|
|
$
|
(68,588
|
)
|
|
$
|
166,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
40
BIOSCRIP,
INC. AND SUBSIDIARIES
Years
Ended December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,317
|
|
|
$
|
(38,289
|
)
|
|
$
|
(23,847
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,192
|
|
|
|
4,316
|
|
|
|
3,520
|
|
Amortization
|
|
|
2,898
|
|
|
|
6,538
|
|
|
|
6,395
|
|
Goodwill and intangible impairment
|
|
|
|
|
|
|
|
|
|
|
25,165
|
|
Change in deferred income tax
|
|
|
2,808
|
|
|
|
20,297
|
|
|
|
(6,032
|
)
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
456
|
|
|
|
475
|
|
Excess tax benefits relating to employee stock compensation
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
Compensation under employee stock compensation plans
|
|
|
3,004
|
|
|
|
2,545
|
|
|
|
116
|
|
Provision for losses on receivables
|
|
|
5,119
|
|
|
|
12,443
|
|
|
|
12,814
|
|
Changes in assets and liabilities, net of acquired assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
1,050
|
|
|
|
(15,764
|
)
|
|
|
(21,471
|
)
|
Inventory
|
|
|
(127
|
)
|
|
|
(7,109
|
)
|
|
|
(3,556
|
)
|
Prepaid expenses and other current assets
|
|
|
859
|
|
|
|
1,108
|
|
|
|
1,154
|
|
Loss on disposal of fixed assets
|
|
|
|
|
|
|
237
|
|
|
|
464
|
|
Accounts payable
|
|
|
5,618
|
|
|
|
9,056
|
|
|
|
11,073
|
|
Claims payable
|
|
|
(4,384
|
)
|
|
|
(21,854
|
)
|
|
|
2,743
|
|
Amounts due to plan sponsors
|
|
|
(5,712
|
)
|
|
|
573
|
|
|
|
|
|
Accrued expenses and other current and non-current liabilities
|
|
|
5,545
|
|
|
|
(4,396
|
)
|
|
|
(15,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
24,187
|
|
|
|
(29,862
|
)
|
|
|
(6,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(5,526
|
)
|
|
|
(5,436
|
)
|
|
|
(5,129
|
)
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(13,097
|
)
|
|
|
6,918
|
|
Decrease in other assets
|
|
|
|
|
|
|
125
|
|
|
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(5,526
|
)
|
|
|
(18,408
|
)
|
|
|
3,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments on line of credit
|
|
|
(1,219,876
|
)
|
|
|
(985,916
|
)
|
|
|
(744,295
|
)
|
Borrowings on line of credit
|
|
|
1,200,760
|
|
|
|
1,031,383
|
|
|
|
744,419
|
|
Net proceeds from exercise of employee stock compensation plans
|
|
|
1,867
|
|
|
|
1,356
|
|
|
|
1,776
|
|
Excess tax benefits relating to employee stock compensation
|
|
|
|
|
|
|
19
|
|
|
|
|
|
Surrender of stock to satisfy minimum tax withholding
|
|
|
(1,397
|
)
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(15
|
)
|
|
|
(93
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(18,661
|
)
|
|
|
46,749
|
|
|
|
1,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(1,521
|
)
|
|
|
(1,436
|
)
|
Cash and cash equivalents-beginning of period
|
|
|
|
|
|
|
1,521
|
|
|
|
2,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents-end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
3,471
|
|
|
$
|
2,849
|
|
|
$
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes
|
|
$
|
1,599
|
|
|
$
|
2,484
|
|
|
$
|
1,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
41
BIOSCRIP,
INC. AND SUBSIDIARIES
|
|
NOTE 1
|
NATURE OF
BUSINESS
|
Corporate
Organization and Business
BioScrip, Inc. and subsidiaries (the Company or
BioScrip) is a specialty pharmaceutical healthcare
organization that partners with patients, physicians, healthcare
payors and pharmaceutical manufacturers to provide access to
medications and management solutions to optimize outcomes for
chronic and other complex healthcare conditions. The
Companys specialty pharmaceutical services
(Specialty Services) include the comprehensive
support, dispensing and distribution, patient care management,
data reporting and a range of other complex management services
for certain medications including orals, injectables and
infusibles used to treat patients living with chronic health
conditions and are provided in various capacities to patients,
physicians, healthcare payors and pharmaceutical manufacturers.
The Companys pharmacy benefit management (PBM)
services include pharmacy network management, claims processing,
benefit design, drug utilization review, formulary management
and traditional mail order pharmacy fulfillment. These services
are reported under two operating segments: (i) Specialty
Services; and (ii) PBM and Traditional Mail Services
(collectively, PBM Services).
The Company distributes high-cost pharmaceuticals and provides
clinically focused case and disease management programs to
Members afflicted with chronic illnesses or genetic impairments.
The disease states or conditions for which the Company has such
programs include HIV/AIDS, Immune Deficiency, Cancer,
Hemophilia, Multiple Sclerosis, Growth Hormone Deficiency,
Gauchers Disease, Rheumatoid Arthritis, Infertility,
Hepatitis C, Psoriasis, Crohns Disease and Transplants.
The specialty drugs distributed through the BioScrip programs
are dispensed and serviced from the Companys 40 specialty
pharmacy locations across the United States.
On March 12, 2005 the Company acquired all of the issued
and outstanding stock of Chronimed Inc. (Chronimed)
in a stock-for-stock transaction. The acquisition resulted in an
organization that is able to offer broader disease coverage,
focused therapy management, expanded national retail and mail
distribution capabilities and a PBM platform.
Basis
of Presentation
The Companys consolidated financial statements have been
prepared in accordance with U.S. generally accepted
accounting principles (GAAP).
Reclassification
Certain prior period amounts have been reclassified to conform
to the current year presentation. Such reclassifications had no
material effect on the Companys previously reported
consolidated financial position, results of operations or cash
flows.
|
|
NOTE 2
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. On March 12,
2005 the Company acquired all the issued and outstanding capital
stock of Chronimed Inc. On October 7, 2005 the Company
acquired all of the issued and outstanding stock of JPD, Inc.
d/b/a Northland Medical Pharmacy. On March 1, 2006 the
Company acquired all of the issued and outstanding stock of
Intravenous Therapy Services, Inc. All acquisitions have been
consolidated since the date of purchase and all significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make certain estimates and assumptions.
These estimates and assumptions affect the reported amounts of
assets and liabilities
42
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Receivables
Receivables include amounts due from certain third party payors
and patient co-payments for pharmacies owned by the Company,
amounts due from plan sponsors under the Companys PBM
agreements, amounts due from pharmaceutical manufacturers for
rebates, and service fees resulting from the distribution of
certain drugs through retail pharmacies.
Allowance
for Doubtful Accounts
Allowances for doubtful accounts are based on estimates of
losses related to customer receivable balances. The procedure
for estimating the allowance for doubtful accounts requires
significant judgment and assumptions. The risk of collection
varies based upon the product, the payor (commercial health
insurance, government, and physician), the patients
ability to pay the amounts not reimbursed by the payor and the
point of distribution (retail, national mail). The Company
estimates the allowance for doubtful accounts based upon a
variety of factors including the age of the outstanding
receivables and the historical experience of collections,
adjusting for current economic conditions and, in certain cases,
evaluating specific customer accounts for risk of loss. The
Company periodically reviews the estimation process and makes
changes to the estimates as necessary. When it is deemed
probable that a customer account is uncollectible, that balance
is written off against the existing allowance.
Allowance
for Contractual Discounts
The Company is reimbursed for the medications and services it
sells by Plan Sponsors. Revenues and related accounts receivable
are recorded net of payor contractual discounts to reflect the
estimated net billable amounts for the products and services
delivered. The Company estimates the allowance for contractual
discounts, based on historical experience and in certain cases
on a customer-specific basis, given its interpretation of the
contract terms or applicable regulations. However, the
reimbursement rates are often subject to interpretation that
could result in payments that differ from estimates.
Additionally, updated regulations and contract negotiations
occur frequently, necessitating the continual review and
assessment of the estimation process.
Inventory
Inventory is stated at the lower of cost or market. Cost is
determined using the
first-in,
first-out method. Inventory consists principally of purchased
prescription drugs for the Companys traditional mail and
specialty distribution operations. Included in inventory is a
reserve for expired inventory.
Property
and Equipment
Property and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation is calculated using
the straight-line method over the estimated useful lives of
assets. The estimated useful lives of the Companys assets
are as follows:
|
|
|
|
|
Asset
|
|
Useful Life
|
|
Computer and office equipment
|
|
|
3-5 years
|
|
Furniture and fixtures
|
|
|
5-7 years
|
|
Leasehold improvements and leased assets are amortized using a
straight-line basis over the related lease term or estimated
useful life of the assets, whichever is less. The cost and
related accumulated depreciation of assets sold or retired are
removed from the accounts with the gain or loss, if applicable,
recorded in the statement of operations. Maintenance and repair
costs are expenses as incurred.
43
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Costs relating to the development of software for internal
purposes are charged to expense until technological feasibility
is established in accordance with Statement of
Position 98-1
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Thereafter, the remaining
software production costs up to the date placed into production
are capitalized and included as Property and Equipment.
Amortization of the capitalized amounts commences on the date
placed into production and is calculated using the straight-line
method over the estimated economic life of the software.
Claims
Payable
Claims payable represent the dollar value of prescriptions
processed or adjudicated in the Companys PBM
Services business that are to be reimbursed to participating
network pharmacies as of the balance sheet date. The Company is
responsible for all covered prescriptions provided to PBM plan
enrollees (Members) processed through its network pharmacies
during the contract period. Claims are adjudicated through its
on-line adjudication system. These claims become a liability to
the Company at the point of adjudication, which is when it has
agreed that the prescription claim is valid, correctly priced
and due to the network pharmacy for a participating PBM plan
member.
Amounts
due to Plan Sponsors
Amounts due to Plan Sponsors primarily represent overpayments
that will be paid back to Plan Sponsors in Specialty Services.
In addition, these payables include the sharing of
manufacturers rebates with the Plan Sponsors in the PBM
Services segment.
Rebates
Manufacturers rebates are primarily part of the
Companys PBM Services segment and are recorded as
estimates until such time as the rebate monies are received.
These estimates are based on historical results and trends and
are revised on a regular basis depending on the Companys
latest forecasts, as well as information received from rebate
sources. Should actual results differ, adjustments will be
recorded in future earnings. In some instances, rebate payments
are shared with the Companys managed care organizations.
Rebates are recorded as a reduction of cost of goods sold.
Revenue
Recognition
The Company generates revenue principally through the sale of
prescription drugs, which are dispensed either through a
pharmacy participating in its pharmacy network or a pharmacy
owned by the Company. Revenue is generally derived under
fee-for-service agreements; however, an immaterial amount of
revenue is derived from capitated agreements where the fee is
based on a per patient basis.
Fee-for-service agreements include: (i) specialty and mail
service agreements, where the Company dispenses prescription
medications through its pharmacy facilities and (ii) PBM
agreements, where prescription medications are dispensed through
pharmacies participating in its retail pharmacy network as well
as through our traditional mail service facility. Under
fee-for-service agreements, revenue for Specialty Services is
recognized either at the time the drug is shipped in the case of
most Specialty agreements or at the time of infusion when
nursing services are provided and billed by the Company.
Customers receive medication from the Company by picking it up
from a retail location or by mail or other means of shipping. In
those cases where the Company ships the medication, revenue is
recognized at the point of shipment. At that point, the earnings
process is considered complete and the Company has substantially
accomplished the terms of the transaction Revenue for PBM
Services is recognized when the pharmacy services are reported
to us through the point of sale (POS) claims
processing system and the drug is dispensed to the Member.
Fee-for-service agreements accounted for more than 95% of the
Companys revenue for each of the years ended
December 31, 2007, 2006 and 2005.
44
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue generated under PBM agreements is classified as either
gross or net by based on whether the Company acts as a principal
or an agent in the fulfillment of prescriptions through its
retail pharmacy network. When the Company independently has a
contractual obligation to pay a network pharmacy provider for
benefits provided to its Plan Sponsors Members, and
therefore are the primary obligor as defined by
Emerging Issues Task Force Issue
No. 99-19,
the Company includes payments (which include the drug ingredient
cost) from these Plan Sponsors as revenue and payments to the
network pharmacy providers as cost of revenue. These
transactions require us to pay network pharmacy providers,
assume credit risk of Plan Sponsors and act as a principal. If
the Company we merely acts as an agent, and consequently
administers Plan Sponsors network pharmacy contracts, the
Company does not have the primary obligation to pay the network
pharmacy and assume credit risk and as such record only the
administrative fees (and not the drug ingredient cost) as
revenue.
Cost
of Revenue
Cost of revenue includes the costs of prescription medications,
pharmacy claims, fees paid to pharmacies, shipping and other
direct and indirect costs associated with pharmacy management
and administration, claims processing operations and mail order
services, offset by volume and prompt pay discounts received
from pharmaceutical manufacturers and distributors and total
manufacturer rebates.
Impairment
of Long Lived Assets
The Company evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of
long lived assets, including intangible assets, may warrant
revision or that the remaining balance of an asset may not be
recoverable. The measurement of possible impairment is based on
the ability to recover the balance of assets from expected
future operating cash flows on an undiscounted basis. Impairment
losses, if any, would be determined based on the present value
of the cash flows using discount rates that reflect the inherent
risk of the underlying business. During 2005, the Company
implemented a rebranding of all our business lines to a single
brand name, BioScrip. As a result of that strategy
the value of the trade names associated with our Natural Living,
Inc. and Vitality Home Infusion Services, Inc. subsidiaries has
been eliminated, and those assets have been removed from the
balance sheet, resulting in a $5.8 million charge in the
second quarter of 2005.
In the fourth quarter of 2005, as part of the Companys
annual goodwill impairment testing, it determined that
intangible assets associated with certain customer lists were no
longer recoverable from future cash flows resulting in a
$0.8 million intangible impairment charge in fourth quarter
2005. During 2007 and 2006, no impairment of intangibles
occurred.
Goodwill
In accordance with Statement of Financial Accounting Standards
(SFAS), SFAS 142,
Goodwill and Other
Intangible Assets
, the Company evaluates goodwill for
impairment based on a two-step process. The first step compares
the fair value of a reporting unit with its carrying amount,
including goodwill. The second step compares the implied fair
value of reporting unit goodwill with the carrying amount of
that goodwill. The measurement of possible impairment is based
upon the comparison of the fair value of each reporting unit
with the book value of its assets.
The Company has two reporting units; Specialty Services and PBM
Services. The fair value of Specialty Services exceeded its
carrying amount resulting in no impairment charges in fiscal
years 2007, 2006 and 2005. In 2005, the fair value of PBM
Services was less than its carrying amount, resulting in the
write off of all goodwill associated with PBM Services,
primarily as a result of contract terminations, including the
termination of the Companys contract with Centene
Corporation, the Companys largest PBM Services customer.
45
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Lease
Accounting
The Company accounts for leasing transactions by recording rent
expense on a straight-line basis, starting on the date it gains
possession of leased property, over the expected life of the
lease. Lease terms are generally five years, with many
containing options to extend for periods ranging from one to
five years. The Company includes tenant improvement allowances
and rent holidays received from landlords as adjustments
reducing straight-line rent expense and the effect of any rent
escalation clauses as adjustments to straight-line rent expense
over the expected life of the lease.
Income
Taxes
As part of the process of preparing the Companys
consolidated financial statements, management is required to
estimate income taxes in each of the jurisdictions in which it
operates. The Company accounts for income taxes under
SFAS 109,
Accounting for Income Taxes
(SFAS 109). SFAS 109 requires the use
of the asset and liability method of accounting for income
taxes. Under this method, deferred taxes are determined by
calculating the future tax consequences attributable to
differences between the financial accounting and tax bases of
existing assets and liabilities. A valuation allowance is
recorded against deferred tax assets when, in the opinion of
management, it is more likely than not that the Company will not
be able to realize the benefit from its deferred tax assets.
On January 1, 2007, the Company adopted the provisions of
Financial Accounting Standards Board (FASB), FASB
Interpretation No. 48
Accounting for Uncertainty in
Income Taxes
(FIN 48). FIN 48
establishes the accounting for uncertain tax positions.
FIN 48 clarifies the accounting for income taxes by
prescribing a recognition threshold and measurement attribute
that a tax position is required to meet before being recognized
in the financial statements and provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. The Company files income tax returns, including
returns for its subsidiaries, as prescribed by Federal tax laws
and the tax laws of the state and local jurisdictions in which
it operates. The Companys uncertain tax positions are
related to tax years that remain subject to examination.
Interest and penalties related to unrecognized tax benefits are
recorded as income tax expense. (See Note 12
Income Taxes of the Notes to the Consolidated Financial
Statements for discussion of the effects of the Companys
adoption of FIN 48.)
Disclosure
of Fair Value of Financial Instruments
The Companys financial instruments consist mainly of cash
and cash equivalents and its line of credit. The carrying
amounts of cash, cash equivalents and the line of credit
approximate fair value due to their fully liquid or short-term
nature.
Accounting
for Stock-Based Compensation
At December 31, 2007, the Company has a number of
stock-based employee compensation plans (the Plans)
pursuant to which incentive stock options (ISOs),
non-qualified stock options (NQSOs), restricted
stock, performance units and performance share awards may be
granted to employees and non-employee directors. Option and
stock awards are typically settled by issuing authorized but
unissued shares of the Company.
Prior to January 1, 2006, those plans were accounted for
under the recognition and measurement provisions of Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees
(APB
25), and related interpretations, as permitted by
SFAS No. 123,
Accounting for Stock-Based
Compensation
(SFAS 123), issued by the
FASB. Under APB 25, only the intrinsic value of stock options
was recognized in the Statement of Operations for periods prior
to January 1, 2006. Effective January 1, 2006, the
Company adopted the fair value recognition provisions of
SFAS No. 123(R),
Share-Based Payment
(SFAS 123(R)), using the
modified-prospective-transition method. Under that transition
method, compensation cost recognized during 2006 includes:
(i) compensation cost for all share-based payments granted
prior to, but not yet vested as of, January 1, 2006 based
46
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and (ii) compensation
cost for all share-based payments granted subsequent to
January 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R).
Results for prior periods have not been restated.
See Note 13 for additional information regarding
stock-based compensation.
Income
(Loss) per Share
Basic income (loss) per common share is based on the weighted
average number of shares outstanding. Diluted income per share
is based on the weighted average number of shares outstanding,
including common stock equivalents, and diluted (loss) per share
is based on the weighted average number of shares outstanding
because the impact of common stock equivalents would be
anti-dilutive (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,317
|
|
|
$
|
(38,289
|
)
|
|
$
|
(23,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
37,647
|
|
|
|
37,304
|
|
|
|
34,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
0.09
|
|
|
$
|
(1.03
|
)
|
|
$
|
(0.70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
37,647
|
|
|
|
37,304
|
|
|
|
34,129
|
|
Common share equivalents of outstanding stock options and
restricted stock
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted shares outstanding
|
|
|
38,491
|
|
|
|
37,304
|
|
|
|
34,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share
|
|
$
|
0.09
|
|
|
$
|
(1.03
|
)
|
|
$
|
(0.70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and restricted stock awards of 3,259,893,
4,758,681 and 3,879,127 for 2007, 2006 and 2005, respectively,
were excluded from the diluted net income per share calculation
because their effect would be anti-dilutive.
Recent
Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115
(SFAS 159), which becomes
effective for fiscal years beginning after November 15,
2007. SFAS 159 permits companies to choose to measure many
financial instruments and certain other items at fair value on a
per instrument basis, with changes in fair value recognized in
earnings each reporting period. This will enable some companies
to reduce volatility in reported earnings caused by measuring
related assets and liabilities differently. SFAS 159 also
establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and
liabilities. The Company is currently evaluating the impact, if
any, that adopting SFAS 159 will have on its results of
operations and its financial condition.
In September 2006, the FASB issued SFAS No. 157
Fair Value Measurements
(SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair
value measurements. A single definition of fair value, together
with a framework for measuring fair value, should result in
increased consistency and comparability in fair value
measurements. SFAS 157 will apply whenever another standard
requires or permits assets or liabilities to be measured at fair
value, and does not expand the use of fair value to any new
circumstances. SFAS 157 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. On February 12, 2008 the FASB approved
47
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Financial Staff Position (FSP)
No. SFAS 157-2,
Effective Date of FASB Statement No. 157
(FSP
FAS 157-2),
which delays the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008, and interim periods
within those fiscal years for non-financial assets and
non-financial liabilities, except for those items that are
recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company
is currently evaluating the impact, if any, that adopting
SFAS 157 will have on its results of operations and its
financial condition.
In December, 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141(R)),
which applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008. An entity may not apply it before that date.
SFAS 141(R) establishes principles and requirements for how
the acquirer: i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree;
ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and
iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and
financial effects of the business combination. The Company does
not expect the adoption of SFAS 141 (R) to have an effect
on its results of operations and its financial condition unless
it enters into a business combination after January 1, 2009.
|
|
NOTE 3
|
OPERATING
SEGMENTS
|
In accordance with SFAS No. 131,
Disclosures
about Segments of an Enterprise and Related Information
(SFAS 131), and based on the nature of the
Companys services, the Company aggregates its operating
segments into two reportable segments: Specialty Services and
PBM Services. SFAS 131 requires an enterprise to report
segment information in the same way that management internally
organizes its business for assessing performance and making
decisions regarding allocation of resources. The Company
evaluates the performance of operating segments and allocates
resources based on income from operations.
The Specialty Services segment aggregates the Companys
specialty pharmacy distribution and therapy management services.
Specialty Services distribution occurs locally through community
pharmacies, centrally through mail order facilities, and through
our infusion pharmacies for patients requiring infused
medications in the home or infused at a variety of sites
including out ambulatory infusion sites. All Specialty Services
target certain specialty medications that are used to treat
patients living with chronic health conditions and are
opportunities to provide therapy management and coordination of
benefit services.
The PBM Services segment aggregates the Companys
integrated pharmacy benefit management and traditional mail
services. These Services are designed to offer third party
administrators and other Plan Sponsors cost-effective delivery
of pharmacy benefit plans including the low cost distribution of
mail services for Plan Members who receive traditional
maintenance medications.
The accounting policies applied to the business segments are the
same as those described in the Summary of Significant Accounting
Policies. The 2005 information below includes Chronimed
beginning March, 2005 and Northland beginning October, 2005. The
2006 information below includes Intravenous Therapy Services,
Inc. beginning March 1, 2006. Certain prior period amounts
have been reclassified to conform to the current year
presentation. Such reclassifications are deemed immaterial to
segment data presented below. There is no effect on previously
reported Income (loss) from operations.
48
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment
Reporting Information
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services
|
|
$
|
974,201
|
|
|
$
|
866,622
|
|
|
$
|
688,512
|
|
PBM Services
|
|
|
223,531
|
|
|
|
285,318
|
|
|
|
384,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,197,732
|
|
|
$
|
1,151,940
|
|
|
$
|
1,072,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services
|
|
$
|
(2,397
|
)
|
|
$
|
(19,533
|
)
|
|
$
|
(5,831
|
)
|
PBM Services
|
|
|
11,248
|
|
|
|
3,350
|
|
|
|
6,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,851
|
|
|
|
(16,183
|
)
|
|
|
537
|
|
Merger and integration
|
|
|
|
|
|
|
58
|
|
|
|
4,575
|
|
Goodwill and intangible impairment
|
|
|
|
|
|
|
|
|
|
|
25,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
8,851
|
|
|
|
(16,241
|
)
|
|
|
(29,203
|
)
|
Interest expense, net
|
|
|
(3,270
|
)
|
|
|
(3,018
|
)
|
|
|
(392
|
)
|
Income tax expense (benefit)
|
|
|
2,264
|
|
|
|
19,030
|
|
|
|
(5,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income:
|
|
$
|
3,317
|
|
|
$
|
(38,289
|
)
|
|
$
|
(23,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services
|
|
$
|
3,691
|
|
|
$
|
3,591
|
|
|
$
|
2,411
|
|
PBM Services
|
|
|
501
|
|
|
|
725
|
|
|
|
1,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,192
|
|
|
$
|
4,316
|
|
|
$
|
3,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services
|
|
$
|
232,989
|
|
|
$
|
241,973
|
|
|
$
|
217,012
|
|
PBM Services
|
|
|
63,833
|
|
|
|
63,483
|
|
|
|
81,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
296,822
|
|
|
$
|
305,456
|
|
|
$
|
298,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services
|
|
$
|
4,846
|
|
|
$
|
4,063
|
|
|
$
|
4,866
|
|
PBM Services
|
|
|
680
|
|
|
|
1,373
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,526
|
|
|
$
|
5,436
|
|
|
$
|
5,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table outlines by segment contracts with a Plan
Sponsor having revenues that exceeded 10% of the Companys
total revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
PBM Services Revenue
|
|
$
|
116,557
|
|
|
$
|
120,771
|
|
Specialty Services Revenue
|
|
|
31,061
|
|
|
|
25,688
|
|
|
|
|
|
|
|
|
|
|
Total Services Revenue from Plan Sponsor
|
|
$
|
147,618
|
|
|
$
|
146,459
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenue
|
|
|
12
|
%
|
|
|
13
|
%
|
49
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Chronimed
Inc. Acquisition
On March 12, 2005 the Company acquired all of the issued
and outstanding stock of Chronimed in a stock-for-stock
transaction pursuant to which each share of Chronimed common
stock was exchanged for 1.12 shares of the Companys
common stock. The results of operations of Chronimed are
included in the Consolidated Statement of Operations beginning
March 12, 2005. The acquisition of Chronimed added 28
specialty pharmacies throughout the U.S. to the
Companys existing pharmacies and Chronimeds
operations have been included in the Specialty Services segment.
The acquisition has been accounted for in accordance with
SFAS No. 141,
Business Combinations
, from the
date of acquisition.
The aggregate purchase price paid for Chronimed was
$105.3 million including direct expenses of
$3.7 million associated with the acquisition. The
14,380,551 shares of common stock exchanged and 2,612,146
stock options assumed in the acquisition were valued using the
average market price of the Companys common stock during
the period beginning two days before and ending two days after
the revised merger agreement was announced. The purchase price
was allocated to the acquired assets and liabilities based on
managements estimates of their fair value and an
independent valuation.
The purchase price paid for Chronimed resulted in the fair value
of assets acquired being in excess of the net asset value of the
business. Goodwill, described in SFAS 141,
Paragraph 43 as the excess of the cost of an acquired
entity over the net of the amounts assigned to assets acquired
and liabilities assumed, was recognized and was consistent
with the rationale for the acquisition as follows:
|
|
|
|
|
the opportunity to combine the companies individual
strengths in payor contracting, physician sales, manufacturer
services, clinical management and fulfillment;
|
|
|
|
the opportunity to sell the Companys products through
Chronimeds existing retail pharmacies;
|
|
|
|
the opportunity to broaden the Companys suite of disease
states and customer base;
|
|
|
|
the expansion of the Companys retail pharmacy coverage;
|
|
|
|
the opportunity to create significant mail-operations
synergies; and
|
|
|
|
the opportunity to create corporate function and other cost
synergies, which will enable the combined entity to grow and
improve margins.
|
50
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the allocation of the purchase
price as of December 31, 2005:
Purchase
Price Allocation
(in thousands)
|
|
|
|
|
Purchase price:
|
|
|
|
|
Value of stock exchanged
|
|
$
|
90,192
|
|
Value of stock options assumed
|
|
|
11,370
|
|
Transaction costs
|
|
|
3,696
|
|
|
|
|
|
|
Total purchase price
|
|
|
105,258
|
|
Less: net tangible assets as of March 12, 2005
|
|
|
58,316
|
|
|
|
|
|
|
Excess of purchase price over net tangible assets acquired
|
|
$
|
46,942
|
|
|
|
|
|
|
Allocation of excess purchase price:
|
|
|
|
|
Customer lists and tradenames
|
|
$
|
9,560
|
|
Goodwill
|
|
|
37,382
|
|
|
|
|
|
|
Total
|
|
$
|
46,942
|
|
|
|
|
|
|
Customer lists acquired from Chronimed were being amortized over
twenty-four months. In conjunction with the rebranding of all
business lines to a single brand, the tradenames acquired from
Chronimed were fully amortized as of December 31, 2005.
The following table sets forth the estimated fair value of the
tangible assets and liabilities acquired with the purchase of
Chronimed:
Net
Tangible Assets Acquired
(in thousands)
|
|
|
|
|
|
|
|
|
Cash and short term investments
|
|
$
|
20,788
|
|
|
|
|
|
Accounts receivable
|
|
|
42,591
|
|
|
|
|
|
Inventory
|
|
|
9,661
|
|
|
|
|
|
Prepaids and other current assets
|
|
|
1,077
|
|
|
|
|
|
Fixed assets
|
|
|
3,771
|
|
|
|
|
|
Deferred tax assets
|
|
|
2,682
|
|
|
|
|
|
Long term assets
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
|
|
|
|
80,713
|
|
Accounts payable
|
|
|
(5,075
|
)
|
|
|
|
|
Accrued expenses
|
|
|
(13,052
|
)
|
|
|
|
|
Accrued severance
|
|
|
(1,013
|
)
|
|
|
|
|
Deferred tax liability
|
|
|
(3,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
|
|
|
|
(22,397
|
)
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired
|
|
|
|
|
|
$
|
58,316
|
|
|
|
|
|
|
|
|
|
|
51
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The excess of the purchase price over the fair value of the
identifiable net assets and the fair value of the identifiable
intangible assets acquired was allocated to goodwill and was
assigned to the Specialty Services segment.
As part of the merger, the Company consolidated Chronimeds
Minnetonka, Minnesota mail service operations into the
Companys higher capacity mail distribution operation in
Columbus, Ohio and closed the Minnetonka mail facility.
Severance costs of $1.0 million were included in the
purchase price and were paid out by December 31, 2005.
The following unaudited consolidated pro forma financial
information for the year ended December 31, 2005 has been
prepared assuming Chronimed was acquired as of the beginning of
2005, utilizing the purchase method of accounting, with certain
pro forma adjustments for amortization of intangibles. The pro
forma financial information is presented for informational
purposes only and is not necessarily indicative of the actual
results had the acquisition occurred at the beginning of the
period. This pro forma financial information is not intended to
be a projection of future operating results.
Pro Forma
Statements of Operations
(unaudited)
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
December 31, 2005
|
|
|
Revenue
|
|
$
|
1,186,974
|
|
Net (loss) income
|
|
$
|
(24,915
|
)
|
Basic income (loss) per common share
|
|
$
|
(0.73
|
)
|
Diluted income (loss) per common share
|
|
$
|
(0.73
|
)
|
Northland
Medical Pharmacy Acquisition
On October 7, 2005 the Company acquired all of the issued
and outstanding stock of JPD, Inc. d/b/a Northland Medical
Pharmacy (Northland), a community-based specialty
pharmacy located in Columbus, Ohio for $12.0 million in
cash. Northland complements the Companys expanding
community pharmacy model.
Intravenous
Therapy Service Acquisition
On March 1, 2006 the Company acquired all of the issued and
outstanding stock of Intravenous Therapy Services, Inc.
(Infusion West), a specialty home infusion company
located in Burbank, California for approximately
$13.1 million in cash, plus a potential earn-out payment
contingent on achieving certain future performance benchmarks.
The addition of Infusion West enhances the Companys
ability to service infusion patients on both the East and West
coasts and complements its strategic objective of expanding its
infusion operations nationally.
The operating results of each of these acquisitions are included
in the Companys consolidated statement of operations from
the date of each acquisition. Pro forma results of operations
for the Northland and Infusion West acquisitions have not been
presented since the effects of these business acquisitions were
not material to the Companys financial performance either
individually or in the aggregate.
The acquisition of Chronimed resulted in the consolidation of
certain finance and information technology functions. The
Companys two Rhode Island offices, which included finance
and IT functions, were closed as a result of these
consolidations. These functions were fully transitioned to the
Companys Minnesota offices as of December 31, 2005.
52
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with the consolidation of the finance and IT
departments as described above, throughout the second half of
2005, the Company terminated 67 employees. All of these
terminations were the result of the purchase of Chronimed and
were expensed in the Specialty Services segment. Severance costs
in connection with this restructuring were recorded in
accordance with SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities
, with the
expense being allocated over the estimated retention period of
employees. Severance costs of $2.0 million were recorded in
SG&A expenses for employee separation costs in 2005, in
connection with the termination of these employees. In September
and December of 2005 the two Rhode Island offices were closed,
resulting in $0.4 million of expense recorded in SG&A.
All of these costs were recorded in the Specialty Services
segment. All restructuring costs were paid out as of
December 31, 2006.
Restructuring
Costs
(in thousands)
|
|
|
|
|
Provisions for restructuring
|
|
$
|
2,370
|
|
Payments for restructuring
|
|
|
(1,073
|
)
|
|
|
|
|
|
Liability at December 31, 2005
|
|
|
1,297
|
|
|
|
|
|
|
Provisions for restructuring
|
|
|
58
|
|
Payments for restructuring
|
|
|
(1,355
|
)
|
|
|
|
|
|
Liability at December 31, 2006
|
|
$
|
|
|
|
|
|
|
|
|
|
NOTE 6
|
GOODWILL
AND INTANGIBLES
|
The Company follows SFAS 141 and Statement of Financial
Accounting Standard No. 142,
Goodwill and Other
Intangible Assets
, (SFAS 142) in accounting
and reporting for its business combinations, goodwill and
intangible assets. SFAS 141 requires all business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting.
SFAS 142 states that goodwill is no longer subject to
amortization over its estimated useful life. Goodwill is subject
to at least an annual assessment for impairment by applying a
fair-value based test. Management assesses impairment in the
fourth quarter of each year or whenever there is an impairment
indicator. Under SFAS 141, an acquired intangible asset
should be separately recognized and amortized over its useful
life (unless an indefinite life) if the benefit of the
intangible asset is obtained through contractual or other legal
rights, or if the intangible asset can be sold, transferred,
licensed, rented or exchanged regardless of the acquirers
intent to do so.
The following table provides a reconciliation of goodwill (in
thousands):
|
|
|
|
|
|
|
Total
|
|
|
Balance as of December 31, 2005
|
|
$
|
104,268
|
|
Goodwill acquired
|
|
|
10,654
|
|
Goodwill adjustments
|
|
|
69
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
114,991
|
|
Goodwill acquired
|
|
|
|
|
Goodwill adjustments
|
|
|
(167
|
)
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
114,824
|
|
|
|
|
|
|
Currently all goodwill is in the Specialty Services segment.
Portions of goodwill are expected to be deductible for income
tax purposes.
53
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table details the acquired intangible assets and
their accumulated amortization as of December 31, 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
As of December 31, 2007
|
|
|
As of December 31, 2006
|
|
|
|
Average Life
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
(in months)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Non-compete agreements(1)
|
|
|
15.3
|
|
|
$
|
3,900
|
|
|
$
|
(2,736
|
)
|
|
$
|
3,900
|
|
|
$
|
(1,931
|
)
|
Customer lists(2)
|
|
|
88.6
|
|
|
|
11,000
|
|
|
|
(6,387
|
)
|
|
|
20,200
|
|
|
|
(13,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
14,900
|
|
|
$
|
(9,123
|
)
|
|
$
|
24,100
|
|
|
$
|
(15,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
A non-compete agreement valued at $0.5 million was added
for the Infusion West acquisition in 2006. The Roslyn
non-compete agreement of $0.7 million was fully amortized
in 2006.
|
|
(2)
|
|
Customer lists acquired from Chronimed were fully amortized in
2007.
|
The amortization expense for the years ended December 31,
2007, 2006 and 2005 was $2.9 million, $6.5 million and
$6.4 million, respectively. The estimated amortization
expense for the next five years is as follows (in thousands):
|
|
|
|
|
For the year ending December 31,
|
|
|
|
|
2008
|
|
$
|
1,935
|
|
2009
|
|
$
|
1,372
|
|
2010
|
|
$
|
1,230
|
|
2011
|
|
$
|
1,146
|
|
2012
|
|
$
|
94
|
|
The Companys net intangible assets as of December 31,
2007 are composed of customer relationships and non compete
agreements associated with the acquired businesses. The adjusted
expected amortizable life of these assets ranges from two to ten
years.
|
|
NOTE 7
|
RELATED
PARTY TRANSACTIONS
|
One of the Companys former board members, who resigned in
February 2006, was a partner of the Companys primary
outside legal services firm. Fees were paid to that legal firm
of $1.6 million, $1.7 million, and $2.1 million
for the years ended December 31, 2007, 2006 and 2005,
respectively.
|
|
NOTE 8
|
PROPERTY
AND EQUIPMENT
|
Property and equipment, at cost, consists of the following at
December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Computer and office equipment, including equipment acquired
under capital leases
|
|
$
|
11,679
|
|
|
$
|
10,375
|
|
Work in Progress
|
|
|
2,985
|
|
|
|
265
|
|
Furniture and fixtures
|
|
|
2,816
|
|
|
|
2,763
|
|
Leasehold improvements
|
|
|
7,525
|
|
|
|
6,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,005
|
|
|
|
19,974
|
|
Less: Accumulated depreciation
|
|
|
(13,263
|
)
|
|
|
(9,565
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
11,742
|
|
|
$
|
10,409
|
|
|
|
|
|
|
|
|
|
|
54
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depreciation expense for the years ended December 31, 2007,
2006 and 2005 was $4.2 million, $4.3 million and
$3.5 million, respectively.
The Companys revolving credit facility
(Facility) with an affiliate of Healthcare Finance
Group, Inc., provides for borrowing up to $75 million at
the London Inter-Bank Offered Rate (LIBOR) plus the applicable
margin. The Facility term is through November 1, 2010. The
Facility permits the Company to request an increase in the
amount available for borrowing to up to $100 million, as
well as to convert a portion of any outstanding borrowings from
a Revolving Loan into a Term Loan. The borrowing base utilizes
receivables balances and other related collateral as security
under the Facility. There was $33.8 million and
$52.9 million outstanding under our revolving credit
facility as of December 31, 2007 and 2006, respectively.
The weighted average interest rate on the Facility during 2007
was 7.24%.
The Facility contains various covenants that, among other
things, require the Company to maintain certain financial
ratios, as defined in the agreements governing the Facility. The
Company was in compliance with all covenants as of
December 31, 2007.
On February 27, 2003, the Executive Committee of the Board
of Directors approved a stock repurchase program authorizing the
Company to repurchase up to an aggregate of $10.0 million
of its Common Stock in open market or private transactions. No
stock was repurchased during 2007, 2006 or 2005, however, during
2007 189,492 shares were returned in payment of tax
withholding obligations on the vesting of restricted stock
awards. As of December 31, 2007, approximately
$4.9 million of the $10.0 million authorized remains
available for additional share repurchases. The Company holds a
total of 2,436,642 shares of treasury stock acquired under
current and prior repurchase programs.
|
|
NOTE 11
|
COMMITMENTS
AND CONTINGENCIES
|
Legal
Proceedings
On February 14, 2005, a complaint was filed in the Alabama
Circuit Court for Barbour County, captioned
Eufaula Drugs,
Inc. v. ScriptSolutions
[sic], one of approximately
fourteen substantially identical complaints commenced in Alabama
courts against various unrelated pharmacy benefit management
companies. On April 8, 2005, the plaintiff filed an amended
complaint substituting the Companys, BioScrip PBM Services
f/k/a ScripSolutions (PBM Services) subsidiary as
the defendant, alleging breach of contract and related tort and
equitable claims on behalf of a putative nationwide class of
pharmacies alleging insufficient reimbursement for prescriptions
dispensed, principally on the theory that PBM Services was
obligated to update its prescription pricing files on a daily
rather than weekly basis. The complaint seeks unspecified money
damages and injunctive relief. PBM Services sought
unsuccessfully to remove the action to Federal court. On
February 5, 2007, the court denied PBM Services
motion to dismiss the action for lack of jurisdiction and
failure to state a claim, and on February 16, 2007, PBM
Services answered the complaint denying the material
allegations. The parties are now engaged in discovery into the
question of class certification only. BioScrip intends to deny
the allegations and intends to defend vigorously against the
action. While the Company is confident in its position, it does
not believe that an adverse ruling in this matter would have a
material adverse effect on its business, operations, financial
position or results of operations.
The U.S. Attorneys Office in Boston and the
Department of Justice informed the Company that its Chronimed
Holdings, Inc. d/b/a StatScript Pharmacy
(StatScript) subsidiary, was named as a defendant in
a
qui tam
law suit filed by a whistleblower against
Serono, Inc., and several other defendants in the Federal
district court for the District of Massachusetts alleging claims
under the Federal False Claims Act. In May 2007, the complaint
was
55
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
served on the Company and other defendants by the relators
because the Federal government and various state governments on
behalf of which the relators alleged claims declined to
intervene to prosecute the claims and the Federal government
decided not to pursue earlier conversations it had initiated
into possible settlement of the claims alleged in the
relators complaint. The action is captioned
United
States ex rel. Driscoll, et al. v. Serono, Inc., et al.,
Civil Action
No. 00-11680GAO
(D. Mass.). The complaint alleges that the Company and other
defendant pharmacy companies violated the Federal False Claims
Act and various states false claims-like acts by receiving
from Serono but not reporting in unspecified Medicare and
Medicaid reimbursement claims alleged discounts on certain
purchases of Seronos product, Serostim. The Company and
numerous other defendants moved to dismiss the complaint with
prejudice for failure to state a claim, failure to plead with
particularity, expiration of the statute of limitations, and
other grounds. The court heard oral argument on the dismissal
motions in January 2008 and a decision is expected soon. There
have been no other proceedings in the action. The Company denies
the allegations and intends to defend vigorously against them.
Given the preliminary stage of these matters, the Company is
unable to assess the probable outcomes of these proceedings or
their financial impact.
In July 2007, a complaint was filed in Federal court in the
Southern District of Ohio naming the Companys subsidiary,
Chronimed Holdings, Inc. as a defendant. The plaintiffs are
several members of the DiCello family who sold all the stock of
an Ohio pharmacy company known as Northland to BioScrip in 2005.
The action is captioned
JDP, Inc., et al. v. Chronimed
Holdings, Inc.
, Civil Action No. 2:07:646 (Frost). The
complaint alleges that the plaintiffs were entitled to receive
an additional purchase price payment in 2007 under the stock
purchase agreement based on Northlands 2006 EBITDA, a
position the Company disputes, and the complaint seeks damages
of at least $5.64 million and other relief under several
legal theories. The Company moved to stay the lawsuit and compel
arbitration of the disagreement under the terms of the stock
purchase agreement. The district court denied the motion to
compel arbitration but granted a stay pending the Companys
appeal of the denial to the Sixth Circuit Court of Appeals,
where briefing on the motion to compel arbitration has been
completed. It is expected that the appellate court will schedule
oral argument on the appeal shortly. There have been no other
proceedings in the action. The Company denies the allegations
and intends to defend vigorously against the matters. While the
Company is confident in its position, an adverse ruling in this
matter would not have a material adverse effect on its business,
operations or financial position.
Government
Regulation
Various Federal and state laws and regulations affecting the
healthcare industry do or may impact the Companys current
and planned operations, including, without limitation, Federal
and state laws prohibiting kickbacks in government health
programs, Federal and state antitrust and drug distribution
laws, and a wide variety of consumer protection, insurance and
other state laws and regulations. While management believes that
the Company is in substantial compliance with all existing laws
and regulations material to the operation of its business, such
laws and regulations are subject to rapid change and often are
uncertain in their application. As controversies continue to
arise in the healthcare industry (for example, regarding the
efforts of Plan Sponsors and pharmacy benefit managers to limit
formularies, alter drug choice and establish limited networks of
participating pharmacies), Federal and state regulation and
enforcement priorities in this area can be expected to increase,
the impact of which on the Company cannot be predicted. There
can be no assurance that the Company will not be subject to
scrutiny or challenge under one or more of these laws or that
any such challenge would not be successful. Any such challenge,
whether or not successful, could have a material adverse effect
upon the Companys financial position, results of
operations and cash flows. Violation of the Federal
anti-kickback statute, for example, may result in substantial
criminal penalties, as well as suspension or exclusion from the
Medicare and Medicaid programs. Further, there can be no
assurance that the Company will be able to obtain or maintain
any of the regulatory approvals that may be required to operate
its business, and the failure to do so could have a material
adverse effect on the Companys financial position, results
of operations and cash flows.
56
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Operating
Leases
The Company leases its facilities and certain equipment under
various operating leases with third parties. Facility lease
terms are generally five years, the majority containing options
to extend for periods ranging from one to five years.
Approximately 80% of these leases contain escalation clauses
that increase base rent payments based upon either the Consumer
Price Index or an agreed upon schedule. New or renegotiated
leases may contain periods of free rent, or rent holidays,
ranging from one to six months. Equipment leases are generally
for periods of three to five years.
The future minimum lease payments under operating leases at
December 31 are as follows (in thousands):
|
|
|
|
|
2008
|
|
$
|
4,555
|
|
2009
|
|
|
3,965
|
|
2010
|
|
|
2,806
|
|
2011
|
|
|
1,382
|
|
2012
|
|
|
822
|
|
Thereafter
|
|
|
1,085
|
|
|
|
|
|
|
Total
|
|
$
|
14,615
|
|
|
|
|
|
|
Rent expense for leased facilities and equipment was
approximately $4.4 million, $3.9 million and
$4.3 million for the years ended December 31, 2007,
2006 and 2005, respectively.
The Companys Federal and state income tax provision
(benefit) is summarized in the following table
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(501
|
)
|
|
$
|
(2,408
|
)
|
|
$
|
341
|
|
State
|
|
|
(43
|
)
|
|
|
978
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
(544
|
)
|
|
|
(1,430
|
)
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,448
|
|
|
|
17,832
|
|
|
|
(4,862
|
)
|
State
|
|
|
360
|
|
|
|
2,628
|
|
|
|
(1,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
2,808
|
|
|
|
20,460
|
|
|
|
(6,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Provision for (Benefit from) Income Taxes
|
|
$
|
2,264
|
|
|
$
|
19,030
|
|
|
$
|
(5,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effect of temporary differences that give rise to a
significant portion of deferred taxes is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves not currently deductible
|
|
$
|
7,305
|
|
|
$
|
8,560
|
|
Net operating loss carryforwards
|
|
|
8,287
|
|
|
|
8,452
|
|
Intangibles
|
|
|
3,788
|
|
|
|
3,298
|
|
Accrued expenses
|
|
|
1,804
|
|
|
|
1,968
|
|
Stock based compensation (123R)
|
|
|
1,718
|
|
|
|
1,025
|
|
Property basis differences
|
|
|
1,336
|
|
|
|
707
|
|
Other
|
|
|
2,088
|
|
|
|
1,354
|
|
|
|
|
|
|
|
|
|
|
Subtotal deferred tax assets
|
|
|
26,326
|
|
|
|
25,364
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(12,486
|
)
|
|
|
(9,646
|
)
|
Less: valuation allowance
|
|
|
(26,594
|
)
|
|
|
(25,664
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liability) asset
|
|
$
|
(12,754
|
)
|
|
$
|
(9,946
|
)
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2006, the Company concluded that it
was more likely than not that its deferred tax assets would not
be realized. Accordingly, a valuation allowance of
$25.7 million was recorded against all of the
Companys deferred tax assets at December 31, 2006.
The Company continually assesses the necessity of a valuation
allowance. Based on this assessment, the Company has concluded
that the valuation allowance, in the amount of
$26.6 million, is still required. If the Company determines
in a future period that it is more likely than not that part or
all of the deferred tax assets will be realized, the Company
will reverse part or all of the valuation allowance.
At December 31, 2007, the Company had Federal net operating
loss (NOL) carryforwards of approximately
$27.3 million, of which $8.6 million is subject to an
annual limitation, all of which will begin expiring in 2017 and
later. The Company has post apportioned state NOL carryforwards
remaining of approximately $15.4 million, the majority of
which will begin expiring in 2017 and later.
The Companys reconciliation of the statutory rate to the
effective income tax rate is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Tax (benefit) provision at statutory rate
|
|
$
|
1,897
|
|
|
$
|
(6,548
|
)
|
|
$
|
(10,062
|
)
|
State tax (benefit) provision, net of Federal taxes
|
|
|
366
|
|
|
|
208
|
|
|
|
(576
|
)
|
Non-deductible goodwill
|
|
|
|
|
|
|
|
|
|
|
5,926
|
|
Merger related expenses
|
|
|
|
|
|
|
|
|
|
|
223
|
|
Change in tax contingencies
|
|
|
(1,165
|
)
|
|
|
128
|
|
|
|
(744
|
)
|
Rate change on deferred items
|
|
|
|
|
|
|
|
|
|
|
(463
|
)
|
Valuation allowance changes affecting income tax expense
|
|
|
930
|
|
|
|
25,664
|
|
|
|
48
|
|
Other
|
|
|
236
|
|
|
|
(422
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
2,264
|
|
|
$
|
19,030
|
|
|
$
|
(5,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company adopted the provisions of FASB Interpretation
No. 48,
Accounting for Uncertainty in Income Taxes
,
(FIN 48) effective January 1, 2007. As a
result of the adoption of FIN 48, the Company recorded a
$2.4 million increase in the liability for unrecognized tax
benefits, which was recorded as an adjustment to the opening
balance of accumulated deficit on January 1, 2007. At the
adoption date of January 1, 2007, the Company had
58
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximately $4.8 million of unrecognized income tax
benefits, including interest of approximately $0.7 million.
A reconciliation of the beginning and ending amount of gross
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Unrecognized tax benefits balance at January 1, 2007
|
|
$
|
4,137
|
|
Gross increases for tax positions of prior years
|
|
|
284
|
|
Gross decreases for tax positions of prior years
|
|
|
(380
|
)
|
Gross increases for tax positions taken in current year
|
|
|
6
|
|
Settlements with taxing authorities
|
|
|
(114
|
)
|
Lapse of statute of limitations
|
|
|
(993
|
)
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31, 2007
|
|
$
|
2,940
|
|
|
|
|
|
|
The total amount of unrecognized tax benefits that would affect
the Companys effective tax rate, if recognized, is
$2.7 million as of December 31, 2007.
The Companys policy for recording interest and penalties
associated with uncertain tax positions is to record such items
as a component of income tax expense in the statement of income.
As of January 1, 2007 and December 31, 2007, the
Company had approximately $0.7 million and
$0.5 million of accrued interest related to uncertain tax
positions, respectively.
The Company files income tax returns, including returns for its
subsidiaries, with Federal, state and local jurisdictions. The
Companys uncertain tax positions are related to tax years
that remain subject to examination. As of December 31,
2007, U.S. tax returns for 2003, 2005, 2006 and 2007 remain
subject to examination by Federal tax authorities. Tax returns
for the years 2002 through 2007 remain subject to examination by
state and local tax authorities for a majority of the
Companys state and local filings.
During January 2008, the Company settled certain controversies
with taxing authorities. The settlement called for payment of
$63,000 of tax and interest. The remaining amount of
$0.3 million of unrecognized tax benefits and interest for
this tax position will be reversed during first quarter 2008
through goodwill and is recorded as part of accrued expenses and
other current liabilities on the Companys Consolidated
Balance Sheet.
|
|
NOTE 13
|
STOCK-BASED
COMPENSATION
|
The Company has a number of stock-based employee compensation
plans (the Plans) pursuant to which incentive stock
options (ISOs), non-qualified stock options
(NQSOs), restricted stock, performance units and
performance share awards may be granted to employees and
non-employee directors. Option and stock awards are typically
settled by issuing authorized but unissued shares of the
Company. In 2001, the stockholders approved the Companys
2001 Incentive Stock Plan (the 2001 Plan). Under the
2001 Plan 5,750,000 shares are authorized for issuance. As
of December 31, 2007, there were 186,496 shares
available for grant under the Plans.
The provisions of the Plans allow plan participants to use
shares to cover tax withholding on stock options. Upon exercise
of the stock options, participants have taxable income subject
to statutory withholding requirements. The number of shares
issued to participants may be reduced by the number of shares
having a market value equal to the minimum statutory withholding
requirements for Federal, state and local tax purposes.
Stock
Options
On March 12, 2005 the Company assumed all the option plans
from Chronimed as part of the acquisition. Previously granted
Chronimed options assumed by the Company in 2005 totaled
2,612,146. Vesting on the Chronimed options was accelerated to
be fully vested at the date of acquisition.
Options granted under the Plans typically vest over a three-year
period and, in certain limited instances, fully vest upon a
change in control of the Company. In addition, such options are
generally exercisable for 10 years after the date of grant,
subject to earlier termination in certain circumstances. The
exercise price of ISOs granted under
59
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Plans will not be less than 100% of the fair market value of
the common stock on the date of grant (110% for ISOs granted to
more than a 10% stockholder).
The 1996 Directors Stock Incentive Plan, (the
Directors Plan), which expired in 2006, was adopted
to attract and retain qualified individuals to serve as
non-employee directors of the Company (Outside
Directors), to provide incentives and rewards to such
directors and to align more closely the interests of such
directors with those of the Companys stockholders. Under
the Directors Plan there were 500,000 shares authorized for
issuance. The exercise price of such options is equal to the
fair market value of the Common Stock on the date of grant.
Options granted under the Directors Plan vest over three years.
As of December 31, 2007, options to purchase
325,000 shares are outstanding at an average exercise price
of $6.17. The number of shares exercisable was 270,007.
For the years 2007 and 2006, the fair value of each option award
on the date of the grant was calculated by using a Binomial
option-pricing model and is amortized to expense on a straight
line basis over the requisite service period. For 2005, a
Black-Scholes option-pricing model was used to calculate the
fair value of each option award on the date of the grant. The
pricing models use the assumptions noted in the following table.
Expected volatility is based on the historical volatility of the
Companys stock. The risk-free interest rate for periods
within the contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of the
grant. The expected life of options granted is derived from
previous history of stock exercises from the grant date and
represents the period of time that options granted are expected
to be outstanding. The Company uses historical data to estimate
option exercise and employee termination assumptions under the
valuation models. The Company has never paid dividends on its
common stock and does not anticipate doing so in the foreseeable
future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected volatility
|
|
|
54.4
|
%
|
|
|
53.7
|
%
|
|
|
69.5
|
%
|
Risk-free interest rate
|
|
|
4.70
|
%
|
|
|
4.56
|
%
|
|
|
4.98
|
%
|
Expected life of options
|
|
|
5.2 years
|
|
|
|
5.5 years
|
|
|
|
4.5 years
|
|
Dividend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of options
|
|
$
|
2.29
|
|
|
$
|
1.67
|
|
|
$
|
3.74
|
|
Compensation cost charged against income was $1.9 million
for the year ended December 31, 2007, and $2.2 million
for the year ended December 31, 2006. In accordance with
SFAS 123(R) the Company did not record a tax benefit
relating to the exercise of stock options for the years ending
December 31, 2007 and 2006, due to the Companys net
operating losses.
The following table illustrates the effect on net income and
earnings per share for 2005 had the Company applied the fair
value recognition provisions of SFAS 123 to options granted
under the Companys stock option plans in all periods
presented prior to adopting SFAS 123(R). For purposes of
this pro forma disclosure, the value of the options is estimated
using a Black-Scholes option-pricing formula and is amortized to
expense on a straight-line basis over the options vesting
periods (in thousands, except per share amounts).
|
|
|
|
|
|
|
2005
|
|
|
Net (loss) income, as reported
|
|
$
|
(23,847
|
)
|
Add: Stock award-based employee compensation included in
reported net income, net of related tax effect
|
|
|
27
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effect
|
|
|
(2,023
|
)
|
|
|
|
|
|
Pro forma net (loss) income
|
|
$
|
(25,843
|
)
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
Basic as reported
|
|
$
|
(0.70
|
)
|
Basic pro forma
|
|
$
|
(0.76
|
)
|
Diluted as reported
|
|
$
|
(0.70
|
)
|
Diluted pro forma
|
|
$
|
(0.76
|
)
|
60
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of the adoption of SFAS 123(R) the Company now
classifies cash flows from tax benefits in excess of the tax
deductions of the compensation cost as financing cash inflows.
Prior to the adoption of SFAS 123(R), the Company presented
the tax benefit resulting from the exercise of stock options as
a cash inflow from operating activities in the Statement of Cash
Flows. Under the modified prospective method, prior periods are
not restated to reflect adoption of SFAS 123(R).
Stock option activity through December 31, 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
Weighted Average
|
|
|
|
|
|
|
Average
|
|
|
Intrinsic Value
|
|
|
Remaining
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
(millions)
|
|
|
Contractual Life
|
|
|
Balance, December 31, 2006
|
|
|
5,438,318
|
|
|
$
|
6.77
|
|
|
$
|
1.5
|
|
|
|
6.7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
586,986
|
|
|
|
4.40
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(433,624
|
)
|
|
|
4.31
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(93,045
|
)
|
|
|
4.28
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(292,296
|
)
|
|
|
7.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
5,206,339
|
|
|
$
|
6.71
|
|
|
$
|
11.4
|
|
|
|
5.9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options less expected forfeitures at
December 31, 2007
|
|
|
4,844,602
|
|
|
$
|
6.90
|
|
|
$
|
10.0
|
|
|
|
5.6 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
3,673,666
|
|
|
$
|
7.80
|
|
|
$
|
5.8
|
|
|
|
4.7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included above are 50,000 options granted outside the Plans as
inducements to recruit new employees during the year ended
December 31, 2007 as permitted under Rule 4350(i) of
the NASDAQ Listing Qualification requirements.
The weighted-average grant-date fair value of options granted
during the years ending December 31, 2007, 2006, and 2005,
was $2.29, $1.67, and $3.74, respectively. The total intrinsic
value of options exercised during the years December 31,
2007, 2006, and 2005, was $1.3 million, $0.4 million,
and $1.0 million, respectively.
Cash received from option exercises under share-based payment
arrangements for the years ended December 31, 2007, 2006,
and 2005, was $1.9 million, $1.4 million and
$1.8 million, respectively.
The maximum term of stock options under these plans is ten
years. Options outstanding as of December 31, 2007 expire
on various dates ranging from April 2008 through December 2017.
The following table outlines our outstanding and exercisable
stock options as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Weighted Average
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Options
|
|
|
Exercise
|
|
Range of Option Exercise Price
|
|
Outstanding
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Exercisable
|
|
|
Price
|
|
|
$ 1.93 - $ 5.20
|
|
|
1,937,480
|
|
|
$
|
2.93
|
|
|
|
6.8 Years
|
|
|
|
892,740
|
|
|
$
|
3.02
|
|
$ 5.57 - $ 7.03
|
|
|
1,337,052
|
|
|
|
6.24
|
|
|
|
5.9 Years
|
|
|
|
1,044,452
|
|
|
|
6.30
|
|
$ 7.26 - $ 9.56
|
|
|
1,149,060
|
|
|
|
8.11
|
|
|
|
6.0 Years
|
|
|
|
953,727
|
|
|
|
8.17
|
|
$ 9.60 - $13.06
|
|
|
406,080
|
|
|
|
12.03
|
|
|
|
3.9 Years
|
|
|
|
406,080
|
|
|
|
12.03
|
|
$15.13 - $20.25
|
|
|
376,667
|
|
|
|
17.75
|
|
|
|
2.8 Years
|
|
|
|
376,667
|
|
|
|
17.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,206,339
|
|
|
$
|
6.71
|
|
|
|
5.9 Years
|
|
|
|
3,673,666
|
|
|
$
|
7.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 and 2005, the exercisable portion
of outstanding options was approximately 3.6 million shares
and approximately 4.7 million shares, respectively.
61
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock option activity for non-vested shares through
December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Options
|
|
|
Fair Value
|
|
|
Balance, December 31, 2006
|
|
|
1,798,764
|
|
|
$
|
2.35
|
|
Granted
|
|
|
586,986
|
|
|
$
|
2.29
|
|
Vested
|
|
|
(754,378
|
)
|
|
$
|
2.70
|
|
Forfeited
|
|
|
(98,699
|
)
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
1,532,673
|
|
|
$
|
2.17
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, there was $1.6 million of
unrecognized compensation cost related to non-vested share-based
compensation arrangements granted. That cost is expected to be
recognized over a weighted-average period of 1.8 years.
As compensation expense for options granted is recorded over the
requisite service period of options, future stock-based
compensation expense may be greater as additional options are
granted.
Restricted
Stock
Under the Plans, the Companys Board of Directors may grant
performance or other restricted stock awards to key employees.
The Companys Board of Directors may make the issuance of
common stock subject to the satisfaction of one or more
employment, performance goals or period, purchase or other
conditions. During the year ending December 31, 2007, the
Company issued restricted stock awards totaling
271,493 shares with a fair market value of $3.37 per share.
Included in these shares are 213,993 restricted stock awards
granted outside the Plans as inducements to recruit new
employees during the year ended December 31, 2007 as
permitted under Rule 4350(i) of the NASDAQ Listing
Qualification requirements. The fair value of each stock award
on the date of the grant was calculated by using a Monte Carlo
valuation model for performance shares and 100% of the fair
market value on date of grant for other restricted stock awards
and is amortized to expense on a straight line basis.
The Company incurred stock-based compensation expense of
$1.1 million, $0.4 million and $0.1 million for
the years ending December 31, 2007, 2006 and 2005,
respectively. In accordance with SFAS 123(R), the Company did
not realize a tax benefit relating to the vesting of performance
shares for the years ending December 31, 2007 and 2006, due
to the Companys net operating losses.
Restricted stock award activity through December 31, 2007
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
|
Restricted
|
|
|
Award
|
|
|
Remaining
|
|
|
|
Stock
|
|
|
Date Fair Value
|
|
|
Recognition Period
|
|
|
Balance, December 31, 2006
|
|
|
944,826
|
|
|
$
|
1.15
|
|
|
|
|
|
Granted
|
|
|
271,493
|
|
|
$
|
3.37
|
|
|
|
|
|
Awards vested
|
|
|
(468,244
|
)
|
|
$
|
1.20
|
|
|
|
|
|
Canceled
|
|
|
(75,004
|
)
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
673,071
|
|
|
$
|
2.06
|
|
|
|
0.9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, there was $0.8 million of
unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the Plans. That cost is
expected to be recognized over a weighted-average period of
0.9 years. The total grant date fair market value of awards
vested during the years ended December 31, 2007, 2006 and
2005 was $0.6 million, $0.5 million and
$0.0 million, respectively. The total intrinsic
62
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value of restricted stock awards released during the years
December 31, 2007, 2006 and 2005 was $3.9 million,
$0.5 million and $0.0, respectively.
As compensation expense for restricted stock awards granted is
recorded over the requisite service period of the awards, future
stock-based compensation expense may be greater if additional
performance shares are granted.
Performance
Units
Under the Plans, the Companys Board of Directors may grant
performance units to key employees. The Companys Board of
Directors establishes the terms and conditions of the
performance units including the performance goals, the
performance period and the value for each performance unit. If
the performance goals are satisfied, the Company shall pay the
key employee an amount in cash equal to the value of each
performance unit at the time of payment. In no event shall a key
employee receive an amount in excess of $1.0 million in
respect of performance units for any given year. As of
December 31, 2007 there have been no performance units
granted.
|
|
NOTE 14
|
CONCENTRATION
OF CREDIT RISK
|
The following table outlines contracts with Plan Sponsors having
revenues
and/or
accounts receivable that individually exceeded 10% of the
Companys total revenues
and/or
accounts receivable during the applicable time period:
|
|
|
|
|
|
|
|
|
|
|
Plan Sponsor
|
|
|
|
A
|
|
|
B
|
|
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
% of total revenue
|
|
|
12
|
%
|
|
|
13
|
%
|
% of total accounts receivable at period end
|
|
|
|
*
|
|
|
16
|
%
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
% of total revenue
|
|
|
|
*
|
|
|
13
|
%
|
% of total accounts receivable at period end
|
|
|
|
*
|
|
|
17
|
%
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
% of total revenue
|
|
|
|
*
|
|
|
12
|
%
|
% of total accounts receivable at period end
|
|
|
|
*
|
|
|
19
|
%
|
Plan Sponsor (A) is in the PBM Services segment
Plan Sponsor (B) revenue and accounts receivable is
primarily in the PBM Services segment with a lesser amount in
the Specialty Services segment.
|
|
NOTE 15
|
DEFINED
CONTRIBUTION PLAN
|
The Company maintains a deferred compensation plan under
Section 401(k) of the Internal Revenue Code. Under the
Plan, employees may elect to defer up to 50% of their salary,
subject to Internal Revenue Service limits. The Company may make
a discretionary matching contribution. The Company recorded
matching contributions in selling, general and administrative
expenses of $1.0 million, $0.5 million and
$0.2 million in the years ended December 31, 2007,
2006, and 2005, respectively.
63
BIOSCRIP,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 16
|
SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)
|
A summary of quarterly financial information for fiscal 2007 and
2006 is as follows (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(3)
|
|
$
|
296,218
|
|
|
$
|
294,737
|
|
|
$
|
297,580
|
|
|
$
|
309,197
|
|
Gross profit(3)
|
|
$
|
32,556
|
|
|
$
|
32,909
|
|
|
$
|
35,369
|
|
|
$
|
36,181
|
|
Net income (loss)
|
|
$
|
(1,347
|
)
|
|
$
|
482
|
|
|
$
|
1,666
|
|
|
$
|
2,516
|
|
Basic income (loss) per share
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
Diluted income (loss) per share
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)(3)
|
|
$
|
299,551
|
|
|
$
|
279,454
|
|
|
$
|
280,810
|
|
|
$
|
292,125
|
|
Gross profit(3)
|
|
$
|
30,120
|
|
|
$
|
28,415
|
|
|
$
|
29,264
|
|
|
$
|
30,257
|
|
Net loss(2)
|
|
$
|
(1,156
|
)
|
|
$
|
(5,710
|
)
|
|
$
|
(3,388
|
)
|
|
$
|
(28,035
|
)
|
Basic loss per share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.75
|
)
|
Diluted loss per share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.75
|
)
|
|
|
|
(1)
|
|
The Company acquired Infusion West in March, 2006.
|
|
(2)
|
|
In the fourth quarter of 2006, the Company recorded a
$25.7 million income tax charge to establish a valuation
allowance for deferred tax assets.
|
|
(3)
|
|
Certain prior period amounts have been reclassified to conform
to the current year presentation. Such reclassifications had no
effect on the Companys previously reported consolidated
financial position, results of operations or cash flows.
|
64
Item 9.
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A.
Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, we
evaluated the effectiveness of the design and operation of our
disclosure controls. This evaluation was performed under the
supervision and with the participation of management including
our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO). Disclosure controls are
controls and procedures (as defined in the Exchange Act
Rule 13d-15(e)
and
15d-15(e))
designed to reasonably assure that information required to be
disclosed in our reports filed under the Exchange Act, such as
this Annual Report, is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms. Disclosure controls are also designed to
reasonably assure that such information is accumulated and
communicated to our management, including the CEO and CFO, as
appropriate, to allow timely decisions regarding required
disclosure.
The evaluation of our disclosure controls included a review of
the controls objectives and design, our implementation of the
controls and the effect of the controls on the information
generated for use in this Annual Report. Based upon the controls
evaluation, our CEO and CFO have concluded that our disclosure
controls as of December 31, 2007 were effective.
Based on its evaluation of the effectiveness of the design and
operation of our internal control over financial reporting as of
December 31, 2007, management has evaluated and verified
through testing that the material weakness reported in the 2006
Form 10-K
related to information technology general controls has been
effectively remediated and information technology general
controls are operating effectively as of December 31, 2007.
Specifically, the controls related to information technology
general controls which have been remediated as of
December 31, 2007 are:
|
|
|
|
|
Segregation of duties and restriction of employee access to
applications, databases, and operating systems;
|
|
|
|
Documentation, testing, approval and migration of system changes
to production environments; and
|
|
|
|
Monitoring of personnel in the information technology function
with update access to the production databases supporting
significant applications.
|
Management
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is a process designed by, or
under the supervision of, our CEO and CFO, and effected by our
board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the Companys financial
transactions;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our revenues and expenditures are being made only in
accordance with authorizations of our management and
directors; and
|
|
|
|
Provide reasonable assurance regarding the prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial
statements.
|
Management assessed our internal control over financial
reporting as of December 31, 2007, the end of our fiscal
year. Management based its assessment on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment
65
included an evaluation of such elements as the design and
operating effectiveness of key financial reporting controls,
process documentation, accounting policies, and our overall
control environment.
Based on managements assessment of internal control over
financial reporting our management believes that as of
December 31, 2007, our internal control over financial
reporting was effective. Our independent registered public
accounting firm, Ernst & Young LLP, has issued an
attestation report on the Companys internal control over
financial reporting which is included herein.
Inherent
Limitations on Control Systems
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, will be or have
been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of
controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under
all potential future conditions; over time, control may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.
Changes
in Internal Control over Financial Reporting
As noted above under Evaluation of Disclosure Controls and
Procedures, we remediated the material weaknesses reported in
the 2006
Form 10-K
related to information technology general controls during 2007.
Actions taken in the fourth quarter of 2007 that are reasonably
likely to have materially affected internal controls over
financial reporting include:
|
|
|
|
|
Retraining information technology personnel on policies and
procedures;
|
|
|
|
Improving logical and hardware security throughout our
infrastructure.
|
Other than the remediation of the above items to improve
internal control over financial reporting there have been no
changes in our internal control over financial reporting
identified in connection with the evaluation required by
paragraph (d) of Exchange Act
Rules 13a-15
or
15d-15
that occurred during our fourth fiscal quarter that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
66
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
BioScrip, Inc.
We have audited BioScrip, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). BioScrip,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management
Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, BioScrip, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of BioScrip, Inc. and subsidiaries
as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period
ended December 31, 2007 of BioScrip, Inc. and our report
dated March 6, 2008 expressed an unqualified opinion
thereon.
Minneapolis, Minnesota
March 6, 2008
67
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The sections under the heading
Election of
Directors Current Directors and Nominees for
Director, Corporate Governance and Board
Matters and Executive Officers
in our
definitive proxy statement to be filed with the SEC on or before
March 31, 2008 in connection with our 2008 Annual Meeting
of Stockholders are incorporated herein by reference.
|
|
Item 11.
|
Executive
Compensation
|
The section under the heading
Corporate
Governance
entitled
Compensation of
Directors
and the sections under the heading
Executive Compensation
entitled
Compensation Discussion and Analysis,
Compensation Committee Report, Compensation
Committee Interlocks and Insider Participation,
Summary Compensation Table, All Other
Compensation, Grant of Plan Based Awards,
Outstanding Equity Awards at Fiscal Year End,
Option Exercises and Stock Vested
and
Employment and Severance Agreements
in
our definitive proxy statement to be filed with the SEC on or
before March 31, 2008 in connection with our 2008 Annual
Meeting of Stockholders are incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information under the heading
Common Stock
Ownership by Certain Beneficial Owners and Management
in our definitive proxy statement to be filed with the
SEC on or before March 31, 2008 in connection with our 2008
Annual Meeting of Stockholders is incorporated herein by
reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information under the heading
Corporate
Governance
entitled
Director
Independence
and
Review, Approval or
Ratification of Transactions with Related Persons
in our definitive proxy statement to be filed with the
SEC on or before March 31, 2008 in connection with our 2008
Annual Meeting of Stockholders is incorporated herein by
reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The section under the heading
Ratification of
Ernst & Young LLP as the Companys Independent
Auditors for the Year Ending December 31, 2008
in our definitive proxy statement to be filed with the
SEC on or before March 31, 2008 in connection with our 2008
Annual Meeting of Stockholders is incorporated herein by
reference.
68
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
|
|
|
|
|
Page
|
|
1. Financial Statements:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
36
|
|
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
|
|
37
|
|
Consolidated Statements of Operations for the years ended
December 31, 2007, 2006 and 2005
|
|
|
38
|
|
Consolidated Statements of Stockholders Equity (Deficit)
for the years ended December 31, 2007, 2006 and 2005
|
|
|
39
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
|
|
|
40
|
|
Notes to Consolidated Financial Statements
|
|
|
41
|
|
2. Financial Statement Schedules:
|
|
|
|
|
Valuation and Qualifying Accounts for the years ended
December 31, 2007, 2006 and 2005
|
|
|
72
|
|
All other schedules not listed above have been omitted since
they are not applicable or are not required.
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of August 9, 2004,
among MIM Corporation, Chronimed Acquisition Corp. and Chronimed
Inc.
|
|
(1) (Exhibit 99.2)
|
|
2
|
.2
|
|
Amendment No. 1 dated January 3, 2005 to Agreement and
Plan of Merger dated August 9, 2004 by and among MIM
Corporation, Chronimed Acquisition Corp. and Chronimed Inc.
|
|
(2) (Exhibit 10.1)
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation
|
|
(3) (Exhibit 4.1)
|
|
3
|
.2
|
|
Amended and Restated By-Laws
|
|
(4) (Exhibit 3.1)
|
|
4
|
.1
|
|
Specimen Common Stock Certificate
|
|
(5) (Exhibit 4.1)
|
|
4
|
.2
|
|
Amended and Restated Rights Agreement, dated as of
December 3, 2002 between MIM Corporation and American Stock
Transfer and Trust Company
|
|
(6) (Exhibit 4.2)
|
|
4
|
.3
|
|
First Amendment, dated December 13, 2006, to the Amended
and Restated Rights Agreement, dated as of December 3, 2002
(the Rights Agreement), between the Company and
American Stock Transfer & Trust Company, as
Rights Agent
|
|
(7) (Exhibit 4.3)
|
|
10
|
.1
|
|
Amended and Restated 1996 Incentive Stock Plan
|
|
(8)
|
|
10
|
.2
|
|
Amended and Restated 1996 Non-Employee Directors Stock
Incentive Plan
|
|
(9)
|
|
10
|
.3
|
|
Amended and Restated 2001 Incentive Stock Plan
|
|
(10)
|
|
10
|
.4
|
|
Employment Letter, dated October 15, 2001, between MIM
Corporation and Russell J. Corvese
|
|
(11) (Exhibit 10.51)
|
|
10
|
.5
|
|
Amendment, dated September 19, 2003, to Employment Letter
Agreement between MIM Corporation and Russel J. Corvese
|
|
(12) (Exhibit 10.46)
|
|
10
|
.6
|
|
Amendment, dated December 1, 2004, to Employment Letter
Agreement between MIM Corporation and Russel J. Corvese
|
|
(13) (Exhibit 10.1)
|
|
10
|
.7
|
|
Separation Agreement between BioScrip, Inc. and Henry F.
Blissenbach
|
|
(14) (Exhibit 99.1)
|
|
10
|
.8
|
|
Employment offer letter, dated July 18, 2005, from
BioScrip, Inc. to Brian Reagan
|
|
(5) (Exhibit 10.61)
|
|
10
|
.9
|
|
Amendment to Change of Control Severance Agreement between
BioScrip, Inc. and Brian Reagan
|
|
(5) (Exhibit 10.62)
|
|
10
|
.10
|
|
Severance Letter Agreement, dated August 17, 2006, between
BioScrip, Inc. and Brian Reagan
|
|
(15) (Exhibit 10.1)
|
69
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
10
|
.11
|
|
Severance Agreement, dated August 24, 2006, between
BioScrip, Inc. and Barry A. Posner
|
|
(16) (Exhibit 10.1)
|
|
10
|
.12
|
|
Restated Employment Agreement, dated November 29, 2006,
between BioScrip, Inc. and Richard H. Friedman
|
|
(17) (Exhibit 10.1)
|
|
10
|
.13
|
|
Amendment, effective November 1, 2007, to Restated
Employment Agreement dated November 29, 2006, between
BioScrip, Inc. and Richard H. Friedman
|
|
(18) (Exhibit 10.1)
|
|
10
|
.14
|
|
Severance Agreement, dated August 2, 2007 between BioScrip,
Inc. and Stanley G. Rosenbaum
|
|
(19) (Exhibit 10.1)
|
|
10
|
.15
|
|
Amended and Restated Loan and Security Agreement, dated as of
September 26, 2007, among, MIM Funding, LLC, BioScrip
Pharmacy Services, Inc., BioScrip Infusion Services, Inc.,
BioScrip Pharmacy (NY), Inc., BioScrip PBM Services, LLC,
BioScrip Pharmacy, Inc., Natural Living, Inc., and BioScrip
Infusion Services, LLC as Borrowers, and HFG Healthco-4 LLC, as
Lender
|
|
*
|
|
10
|
.16
|
|
Amended and Restated Pledge Agreement, dated as of
November 1, 2007 among BioScrip, Inc., Chronimed Inc., MIM
Funding, LLC, BioScrip Pharmacy Services, Inc., BioScrip
Infusion Services, Inc., BioScrip Pharmacy (NY), Inc., BioScrip
PBM Services, LLC, BioScrip Pharmacy, Inc., Natural Living,
Inc., and BioScrip Infusion Services, LLC, and HFG Healthco-4
LLC,
|
|
*
|
|
10
|
.17
|
|
Amended and Restated Guaranty, effective as of October 1,
2007, by BioScrip, Inc. and Chronimed, Inc. in favor of HFG
Healthco-4 LLC
|
|
*
|
|
10
|
.18
|
|
Refinancing Arrangements Agreement among BioScrip Pharmacy
Services, Inc., BioScrip Infusion Services, Inc., BioScrip
Pharmacy (NY), Inc., BioScrip PBM Services, LLC, BioScrip
Pharmacy, Inc., Natural Living, Inc., BioScrip Infusion
Services, LLC and MIM Funding, LLC
|
|
*
|
|
21
|
.1
|
|
List of Subsidiaries
|
|
*
|
|
23
|
.1
|
|
Consent of Ernst and Young LLP
|
|
*
|
|
31
|
.1
|
|
Certification of Richard H. Friedman pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
*
|
|
31
|
.2
|
|
Certification of Stanley G. Rosenbaum pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
*
|
|
32
|
.1
|
|
Certification of Richard H. Friedman pursuant to 18 U.S. C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
*
|
|
32
|
.2
|
|
Certification of Stanley G. Rosenbaum pursuant to 18 U.S. C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
*
|
|
|
|
(1)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on August 9, 2004., SEC Accession
No. 0001089355-04-000197
|
|
(2)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on January 5, 2005, SEC Accession
No. 0001014739-05-000007.
|
|
(3)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on March 17, 2005, SEC Accession
No. 0000950123-05-003294.
|
|
(4)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on May 16, 2007, SEC Accession
no. 0000950123-07-007569.
|
|
(5)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 filed with the
SEC on March 31, 2006, SEC Accession
no. 0000950123-06-004022
|
|
(6)
|
|
Incorporated by reference to Post-Effective Amendment No. 3
to the Companys
form 8-A/A
dated December 4, 2002.
|
|
(7)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on December 14, 2006, SEC Accession
No. 0000950123-06-0155184.
|
70
|
|
|
(8)
|
|
Incorporated by reference from the Companys definitive
proxy statement for its 1999 annual meeting of stockholders
filed with the Commission July 7, 1999.
|
|
(9)
|
|
Incorporated by reference from the Companys definitive
proxy statement for its 2002 annual meeting of stockholders
filed with the Commission April 30, 2002.
|
|
(10)
|
|
Incorporated by reference from the Companys definitive
proxy statement for its 2003 annual meeting of stockholders
filed with the Commission April 30, 2003.
|
|
(11)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2001, SEC Accession
No.
0001089355-02-000248.
|
|
(12)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Annual Report on
Form 10-K
filed on for the fiscal year ended December 31, 2003, filed
March 15, 2004, SEC Accession
No. 001014739-04-000021.
|
|
(13)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on December 1, 2004, SEC Accession
No. 0001014739-04-000082
|
|
(14)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on March 1, 2006, SEC Accession
No. 0000950123-06-002440.
|
|
(15)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on August 21, 2006, SEC Accession
No. 0000950123-06-010723.
|
|
(16)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on August 25, 2006, SEC Accession
No. 0000950123-06-010904.
|
|
(17)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on December 4, 2006, SEC Accession
No. 0000950123-06-014788.
|
|
(18)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on November 9, 2007, SEC Accession
No. 0000950123-07-007569
|
|
(19)
|
|
Incorporated by reference to the indicated exhibit to the
Companys Current Report on
Form 8-K
filed on August 3, 2007, SEC Accession
No. 0000950123-07-010803
|
|
*
|
|
Filed with this Annual Report on
Form 10-K.
|
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 7, 2008.
BIOSCRIP INC.
Stanley G. Rosenbaum
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
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|
i. Signature
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Title(s)
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|
Date
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|
|
|
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|
/s/ Richard
H. Friedman
Richard
H. Friedman
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|
Chairman of the Board and Chief
Executive Officer (principal
executive officer)
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|
March 7, 2008
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|
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/s/ Stanley
G. Rosenbaum
Stanley
G. Rosenbaum
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|
Chief Financial Officer
(principal financial officer)
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|
March 7, 2008
|
|
|
|
|
|
/s/ Charlotte
W. Collins
Charlotte
W. Collins
|
|
Director
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|
March 7, 2008
|
|
|
|
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|
/s/ Louis
T. DiFazio
Louis
T. DiFazio, Ph.D.
|
|
Director
|
|
March 7, 2008
|
|
|
|
|
|
/s/ Myron
Z. Holubiak
Myron
Z. Holubiak
|
|
Director
|
|
March 7, 2008
|
|
|
|
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|
/s/ David
R. Hubers
David
R. Hubers
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|
Director
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|
March 7, 2008
|
|
|
|
|
|
/s/ Michael
Kooper
Michael
Kooper
|
|
Director
|
|
March 7, 2008
|
|
|
|
|
|
/s/ Richard
L. Robbins
Richard
L. Robbins
|
|
Director
|
|
March 7, 2008
|
|
|
|
|
|
/s/ Stuart
A. Samuels
Stuart
A. Samuels
|
|
Director
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|
March 7, 2008
|
|
|
|
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|
/s/ Steven
K. Schelhammer
Steven
K. Schelhammer
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|
Director
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|
March 7, 2008
|
72
Bioscrip,
Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
(in thousands)
|
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|
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|
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|
|
|
|
|
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|
|
Balance at
|
|
|
Write-Off
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
of
|
|
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Costs
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|
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Other
|
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Balance at
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Period
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|
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Receivables
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|
|
and Expenses
|
|
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Accounts
|
|
|
End of Period
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Year ended December 31, 2005
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|
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|
|
|
|
|
|
|
|
|
|
|
Accounts receivable(1)
|
|
$
|
2,883
|
|
|
$
|
(6,922
|
)
|
|
$
|
12,814
|
|
|
$
|
5,631
|
|
|
$
|
14,406
|
|
Accounts receivable,
TennCare
®
(2)
|
|
$
|
357
|
|
|
$
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(357
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
14,406
|
|
|
$
|
(13,075
|
)
|
|
$
|
12,443
|
|
|
$
|
|
|
|
$
|
13,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
13,774
|
|
|
$
|
(6,810
|
)
|
|
$
|
5,119
|
|
|
$
|
|
|
|
$
|
12,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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(1)
|
|
Allowance and reserve on balance sheet of Chronimed, acquired
March 12, 2005, and Northland, acquired October 7,
2005.
|
|
(2)
|
|
Amounts credited to the
TennCare
®
reserve account and reductions in related liability accounts
|
73
EXHIBIT INDEX
(Exhibits
being filed with this Annual Report on
Form 10-K)
|
|
|
|
|
|
21
|
.1
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Ernst and Young LLP
|
|
31
|
.1
|
|
Certification of Richard H. Friedman pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of Stanley G. Rosenbaum pursuant to 18 U.S.C.
Section 1350,as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Certification of Richard H. Friedman pursuant to 18 U.S. C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
Certification of Stanley G. Rosenbaum pursuant to 18 U.S. C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
74
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