United
States
|
Securities
and Exchange Commission
|
________________
Form
10-Q
________________
(Mark
One)
R
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
|
|
|
|
For
the quarterly period ended March 31, 2009
|
|
OR
|
£
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
|
|
|
|
For the transition period from
________ to _______
|
Commission
file number: 0-28740
________________
BioScrip,
Inc.
(Exact
name of registrant as specified in its charter)
________________
Delaware
|
05-0489664
|
(State
or Other Jurisdiction
|
(I.R.S.
Employer Identification No.)
|
of
Incorporation or Organization)
|
|
|
|
100
Clearbrook Road, Elmsford, NY
|
10523
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(914)
460-1600
(Registrant’s
telephone number, including area code)
________________
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
R
No
£
Indicate
by check mark whether the registrant has submitted electronically and posted to
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
£
No
£
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):
Large
accelerated filer:
£
|
Accelerated
filer:
R
|
Non-accelerated
filer:
£
|
Smaller
reporting company:
£
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
£
No
R
On May 1,
2009, there were 41,843,194 outstanding shares of the registrant’s common stock,
$.0001 par value per share.
FINANCIAL
INFORMATION
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except for share and per share amounts)
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
Receivables,
less allowance for doubtful accounts of $9,866 and $11,629
|
|
|
|
|
|
|
|
|
at
March 31, 2009 and December 31, 2008, respectively
|
|
|
144,612
|
|
|
|
158,649
|
|
Inventory
|
|
|
39,040
|
|
|
|
45,227
|
|
Prepaid
expenses and other current assets
|
|
|
3,210
|
|
|
|
2,766
|
|
Total
current assets
|
|
|
186,862
|
|
|
|
206,642
|
|
Property
and equipment, net
|
|
|
14,714
|
|
|
|
14,748
|
|
Other
assets
|
|
|
1,103
|
|
|
|
1,069
|
|
Goodwill
|
|
|
24,498
|
|
|
|
24,498
|
|
Total
assets
|
|
$
|
227,177
|
|
|
$
|
246,957
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
36,114
|
|
|
$
|
50,411
|
|
Accounts
payable
|
|
|
67,341
|
|
|
|
76,936
|
|
Claims
payable
|
|
|
4,891
|
|
|
|
5,230
|
|
Amounts
due to plan sponsors
|
|
|
5,699
|
|
|
|
5,646
|
|
Accrued
expenses and other current liabilities
|
|
|
9,607
|
|
|
|
9,575
|
|
Total
current liabilities
|
|
|
123,652
|
|
|
|
147,798
|
|
Deferred
taxes
|
|
|
730
|
|
|
|
533
|
|
Income
taxes payable
|
|
|
3,229
|
|
|
|
3,089
|
|
Total
liabilities
|
|
|
127,611
|
|
|
|
151,420
|
|
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:
|
|
|
|
|
|
|
|
|
41,763,194,
and 41,622,629, respectively; shares outstanding; 38,718,278
and
|
|
|
|
|
|
|
|
|
38,691,356,
respectively
|
|
|
4
|
|
|
|
4
|
|
Treasury
stock, shares at cost: 2,642,260 and 2,624,186,
respectively
|
|
|
(10,320
|
)
|
|
|
(10,288
|
)
|
Additional
paid-in capital
|
|
|
249,217
|
|
|
|
248,441
|
|
Accumulated
deficit
|
|
|
(139,335
|
)
|
|
|
(142,620
|
)
|
Total
stockholders' equity
|
|
|
99,566
|
|
|
|
95,537
|
|
Total
liabilities and stockholders' equity
|
|
$
|
227,177
|
|
|
$
|
246,957
|
|
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$
|
325,749
|
|
|
$
|
327,471
|
|
Cost
of revenue
|
|
|
289,759
|
|
|
|
295,099
|
|
Gross
profit
|
|
|
35,990
|
|
|
|
32,372
|
|
Selling,
general and administrative expenses
|
|
|
30,327
|
|
|
|
31,537
|
|
Bad
debt expense
|
|
|
1,380
|
|
|
|
650
|
|
Income
from operations
|
|
|
4,283
|
|
|
|
185
|
|
Interest
expense, net
|
|
|
(594
|
)
|
|
|
(585
|
)
|
Income
before income taxes
|
|
|
3,689
|
|
|
|
(400
|
)
|
Tax
provision
|
|
|
404
|
|
|
|
77
|
|
Net
income (loss)
|
|
$
|
3,285
|
|
|
$
|
(477
|
)
|
Income
(loss) per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
(0.01
|
)
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
(0.01
|
)
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
38,709
|
|
|
|
38,177
|
|
Diluted
|
|
|
38,787
|
|
|
|
38,177
|
|
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,285
|
|
|
$
|
(477
|
)
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,111
|
|
|
|
1,552
|
|
Change
in deferred income tax
|
|
|
197
|
|
|
|
-
|
|
Compensation
under stock-based compensation plans
|
|
|
776
|
|
|
|
957
|
|
Bad
debt expense
|
|
|
1,380
|
|
|
|
650
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
12,657
|
|
|
|
(16,205
|
)
|
Inventory
|
|
|
6,187
|
|
|
|
(917
|
)
|
Prepaid
expenses and other assets
|
|
|
(478
|
)
|
|
|
(1,469
|
)
|
Accounts
payable
|
|
|
(9,595
|
)
|
|
|
5,694
|
|
Claims
payable
|
|
|
(339
|
)
|
|
|
1,123
|
|
Amounts
due to plan sponsors
|
|
|
53
|
|
|
|
525
|
|
Accrued
expenses and other liabilities
|
|
|
173
|
|
|
|
(3,901
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
15,407
|
|
|
|
(12,468
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment, net of disposals
|
|
|
(1,077
|
)
|
|
|
(2,175
|
)
|
Net
cash used in investing activities
|
|
|
(1,077
|
)
|
|
|
(2,175
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings
on line of credit
|
|
|
329,480
|
|
|
|
338,236
|
|
Repayments
on line of credit
|
|
|
(343,777
|
)
|
|
|
(323,505
|
)
|
Surrender
of stock to satisfy minimum tax withholding
|
|
|
(33
|
)
|
|
|
(235
|
)
|
Net
proceeds from exercise of employee stock compensation
plans
|
|
|
-
|
|
|
|
147
|
|
Net
cash (used in) provided by financing activities
|
|
|
(14,330
|
)
|
|
|
14,643
|
|
Net
change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
Cash
and cash equivalents - beginning of period
|
|
|
-
|
|
|
|
-
|
|
Cash
and cash equivalents - end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
DISCLOSURE
OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
593
|
|
|
$
|
847
|
|
Cash
paid during the period for income taxes
|
|
$
|
205
|
|
|
$
|
183
|
|
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF PRESENTATION
These
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements, including the notes thereto, and
other information included in the Annual Report on Form 10-K of BioScrip, Inc.
and subsidiaries (the “Company”) for the year ended December 31, 2008 (the “Form
10-K”) filed with the U.S. Securities and Exchange Commission on March 5, 2009.
These unaudited consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) for
interim financial information, and the instructions to Form 10-Q and Article 10
of Regulation S-X promulgated under the Securities Exchange Act of 1934, as
amended. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements.
The
information furnished in these unaudited consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the results for
the interim periods presented. Operating results for the three months ended
March 31, 2009 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2009. The accounting policies
followed for interim financial reporting are similar to those disclosed in Note
2 of Notes to Consolidated Financial Statements included in the Form
10-K.
Certain
prior period amounts have been reclassified to conform to the current year
presentation. Such reclassifications have no material effect on the Company’s
previously reported consolidated financial position, results of operations or
cash flow.
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 160,
Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51
(“SFAS
160”), which became effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. SFAS 160
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also sets forth reporting requirements that
identify and distinguish among the interests of the parent and those of
noncontrolling owners. The Company will assess the impact of SFAS 160
if it enters into a noncontrolling interest arrangement.
In
September 2006, 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 applies 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 was
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. On February
12, 2008, FASB approved the Financial Staff Position (“FSP”) No. SFAS 157-2,
Effective Date of FASB
Statement No. 157
, which delayed 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 adopted SFAS 157 effective
January 1, 2008 for its financial assets and liabilities, which had no material
impact on its results of operations or financial position. The
Company adopted SFAS 157 for non-financial assets and liabilities effective
January 1, 2009, with no material effect on its results of operations or
financial positions.
NOTE
3 – EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted income per
common share (in thousands, except for per share amounts):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,285
|
|
|
$
|
(477
|
)
|
Denominator
- Basic:
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
38,709
|
|
|
|
38,177
|
|
Basic
income (loss) per common share
|
|
$
|
0.08
|
|
|
$
|
(0.01
|
)
|
Denominator
- Diluted:
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
38,709
|
|
|
|
38,177
|
|
Common
share equivalents of outstanding stock options and restricted
awards
|
|
|
78
|
|
|
|
-
|
|
Total
diluted shares outstanding
|
|
|
38,787
|
|
|
|
38,177
|
|
Diluted
income (loss) per common share
|
|
$
|
0.08
|
|
|
$
|
(0.01
|
)
|
Excluded
from the computation of diluted earnings per share for the three months ended
March 31, 2009 were 5,784,013 shares, which are issuable upon the exercise of
outstanding stock options. The inclusion of these shares would have
been anti-dilutive as the exercise price of these shares exceeded market
value. The net loss per common share for the three months ended March
31, 2008 excludes the effect of all common stock equivalents, as their inclusion
would be anti-dilutive.
NOTE
4 – STOCK-BASED COMPENSATION PLANS
Under the
Company’s 2008 Equity Incentive Plan (the “2008 Plan”), the Company may issue,
among other things, incentive stock options (“ISOs”), non-qualified stock
options (“NQSOs”), stock appreciation rights, restricted stock, and performance
units to employees and directors. Under the 2008 Plan, 3,580,000
shares were authorized for issuance (subject to adjustment for grants made under
the Company’s 2001 Incentive Stock Plan (the “2001 Plan”) after January 1, 2008,
as well as forfeitures, expirations or awards that under the 2001 Plan otherwise
settled in cash after the adoption thereof). As of March 31, 2009,
there were 1,518,039 shares remaining available for grant under the 2008
Plan. The Plan is administered by the Company’s Board of Directors
Management Development and Compensation Committee (the “Compensation
Committee”). Upon adoption of the 2008 Plan, no further grants may be
made under the 2001 Plan.
Under the
provisions of the 2008 Plan, as well as under the Company’s prior equity
compensation plans (collectively the “Plans”), plan participants may use shares
to cover tax withholding on income earned as a result of the exercise, vesting
and/or lapsing of restrictions on equity awards. Upon the exercise of
stock options and the vesting of other equity awards granted under the Plans,
participants will generally have taxable income subject to statutory withholding
requirements. The number of shares that may be issued to participants
upon the exercise of stock options and the vesting of equity awards may be
reduced by the number of shares having a market value equal to the amount of tax
required to be withheld by the Company to satisfy Federal, state and local tax
obligations as a result of such exercise or vesting.
Stock
Options
Options
granted under the Plan: (a) typically vest over a three-year period and, in
certain instances, fully vest upon a change in control of the Company, (b) have
an exercise price that may not be less than 100% of its fair market value on the
date of grant (110% for ISOs granted to a stockholder who holds more than 10% of
the outstanding stock of the Company), and (c) are generally exercisable for ten
years, five years for ISOs granted to a stockholder holding more than 10% of the
outstanding stock of the Company, after the date of grant, subject to earlier
termination in certain circumstances.
The
Company recognized compensation expense related to stock options of $0.5 million
and $0.8 million for the three months ended March 31, 2009 and 2008,
respectively.
The fair
value of each stock option award on the date of the grant was calculated using a
binomial option-pricing model. Option expense is amortized on a
straight-line basis over the requisite service period with the following
weighted average assumptions:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Expected
volatility
|
|
|
65.1
|
%
|
|
|
52.0
|
%
|
Risk-free
interest rate
|
|
|
2.67
|
%
|
|
|
3.90
|
%
|
Expected
life of options
|
|
5.6
years
|
|
|
6.2
years
|
|
Dividend
rate
|
|
|
-
|
|
|
|
-
|
|
Fair
value of options
|
|
$
|
1.17
|
|
|
$
|
4.16
|
|
On April
28, 2009, the Compensation Committee approved a grant of 1,257,550 NQSOs to
management consistent with the Compensation Committee’s historic grant
practices.
At March
31, 2009, there was $2.5 million of unrecognized compensation expense related to
unvested option grants. That expense is expected to be recognized over a
weighted-average period of 2.0 years.
Restricted
Stock
Under the
2008 Plan, stock grants subject solely to an employee’s or director’s continued
service with the Company will not become fully vested less than (a) three years
from the date of grant to employees and, in certain instances, fully vest upon a
change in control of the Company, and (b) one year from the date of grant for
directors. Stock grants subject to the achievement of performance
conditions will not vest less than one year from the date of
grant. No such time restrictions applied to stock grants made under
the Company’s prior equity compensation plans.
The
Company recognized compensation expense related to restricted stock awards of
$0.3 million and $0.2 million for the three months ended March 31, 2009 and
2008, respectively.
As of
March 31, 2009, there was $1.4 million of unrecognized compensation expense
related to unvested restricted stock awards. That expense is expected to be
recognized over a weighted-average period of 1.7 years.
Since the
Company records compensation expense for restricted stock awards based on the
vesting requirements, which generally includes time elapsed, market conditions
and/or performance conditions, the weighted average period over which the
expense is recognized may vary from quarter to quarter. Also, future
equity-based compensation expense may be greater if additional restricted stock
awards are made.
Performance
Units
Under the
2008 Plan, the Compensation Committee may grant performance units to key
employees. The Compensation Committee will establish the terms and conditions of
any performance units granted, including the performance goals, the performance
period and the value for each performance unit. If the performance goals are
satisfied, the Company would pay the key employee an amount in cash equal to the
value of each performance unit at the time of payment. In no event may a key
employee receive an amount in excess of $1.0 million with respect to performance
units for any given year. To date, no performance units have been granted under
the 2008 Plan.
NOTE
5 – 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 Company’s services, the Company has 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.
Revenues
from Specialty Services and PBM Services are derived from the Company’s
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
third party administrators (“TPAs”) and self-funded employer groups
(collectively, “Plan Sponsors”).
The
Specialty Services segment consists of the Company’s 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 our
ambulatory infusion sites. All Specialty Services target certain
specialty medications that are used to treat patients living with chronic and
other complex healthcare conditions.
The PBM
Services segment consists of the Company’s 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.
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Results
of Operations:
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Specialty
Services
|
|
$
|
274,323
|
|
|
$
|
277,308
|
|
PBM
Services
|
|
|
51,426
|
|
|
|
50,163
|
|
Total
|
|
$
|
325,749
|
|
|
$
|
327,471
|
|
Income
(loss) from operations:
|
|
|
|
|
|
|
|
|
Specialty
Services
|
|
$
|
1,638
|
|
|
$
|
(1,753
|
)
|
PBM
Services
|
|
|
2,645
|
|
|
|
1,938
|
|
Total
|
|
|
4,283
|
|
|
|
185
|
|
Interest
expense
|
|
|
594
|
|
|
|
585
|
|
Income
tax expense
|
|
|
404
|
|
|
|
77
|
|
Net
income (loss):
|
|
$
|
3,285
|
|
|
$
|
(477
|
)
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
Specialty
Services
|
|
$
|
943
|
|
|
$
|
1,784
|
|
PBM
Services
|
|
|
134
|
|
|
|
391
|
|
Total
|
|
$
|
1,077
|
|
|
$
|
2,175
|
|
Depreciation
Expense:
|
|
|
|
|
|
|
|
|
Specialty
Services
|
|
$
|
929
|
|
|
$
|
947
|
|
PBM
Services
|
|
|
182
|
|
|
|
121
|
|
Total
|
|
$
|
1,111
|
|
|
$
|
1,068
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
Specialty
Services
|
|
$
|
163,455
|
|
|
$
|
249,869
|
|
PBM
Services
|
|
|
63,722
|
|
|
|
65,232
|
|
Total
|
|
$
|
227,177
|
|
|
$
|
315,101
|
|
Certain
prior period segment data has been reclassified to conform to the current year’s
presentation. These reclassifications had an immaterial impact on
previously reported segment data.
The
following table sets forth by segment, contracts with Plan Sponsors that
accounted for revenues in excess of 10% of the Company’s total revenues for the
three month periods ended March 31, 2009 and 2008 (in thousands, except
percentages):
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
PBM
Services Revenue from Plan Sponsor
|
|
$
|
30,949
|
|
|
$
|
29,349
|
|
Specialty
Services Revenue from Plan Sponsor
|
|
|
13,564
|
|
|
|
15,794
|
|
Total
Services Revenue from Plan Sponsor
|
|
$
|
44,513
|
|
|
$
|
45,143
|
|
Percentage
of Total Revenue
|
|
|
14
|
%
|
|
|
14
|
%
|
NOTE
6 – CONCENTRATION OF CREDIT RISK
The
Company provides trade credit to its customers in the normal course of
business. One customer accounted for approximately 14% of revenues
during the three month periods ended March 31, 2009 and 2008, and 17%
and 19% of accounts receivable as of March 31, 2009 and 2008,
respectively.
NOTE
7 – LINE OF CREDIT
As of
March 31, 2009 there was $36.1 million in outstanding borrowings under the
Company’s revolving credit facility (“Facility”) with an affiliate of Healthcare
Finance Group, Inc. (“HFG”). The Facility provides for borrowing up
to $85.0 million at the London Inter-Bank Offered Rate (“LIBOR”) or a
pre-determined minimum rate plus the applicable margin and other associated
fees. The term of the Facility runs through November 1,
2010. Under the terms of the Facility, the Company may request to
increase the amount available for borrowing up to $100.0 million, and convert a
portion of any outstanding borrowings from a Revolving Loan into a Term
Loan. The borrowing base utilizes receivables balances and proceeds
thereof as security under the Facility. There was $48.9 million
available for borrowing under the Facility as of March 31, 2009. The
weighted average interest rate on the Facility during the quarter ended March
31, 2009 was 4.7% compared to 5.1% for the quarter ended March 31,
2008.
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 the
covenants contained in the agreements as of March 31, 2009.
NOTE
8 – INCOME TAXES
The
Company uses an estimated annual effective tax rate in determining its quarterly
provision for income taxes. The methodology employed is based on the
Company’s expected annual income, statutory tax rates and tax strategies
utilized in the various jurisdictions in which it operates.
Since
December 31, 2006, the Company has fully reserved its deferred tax assets as it
concluded that it was more likely than not that its deferred tax assets would
not be utilized. The Company continually assesses the necessity of
maintaining a valuation allowance for its deferred tax assets. If the
Company determines in a future period that it is more likely than not that the
deferred tax assets will be utilized, the Company will reverse all or part of
the valuation allowance for its deferred tax assets.
The
Company’s provision for income taxes was $0.4 million, or 11.0%, for the quarter
ended March 31, 2009. The effective tax rate of 11.0% is below the
statutory rate, due to a reduction in the Company’s valuation allowance
associated with the expected utilization of a portion of the net operating
losses in 2009. The provision for income taxes for the quarter ended
March 31, 2008 was $77,000, primarily relating to liabilities for state income
taxes payable.
The
Company and its subsidiaries file income tax returns with Federal, state and
local jurisdictions. The Company’s uncertain tax positions are
related to tax years that remain subject to examination. As of March
31, 2009, U.S. tax returns for 2005, 2006, 2007 and 2008 remain subject to
examination by Federal tax authorities. Tax returns for the years
2004 through 2008 remain subject to examination by state and local tax
authorities for a majority of the Company’s state and local
filings.
NOTE
9 – SECURITY INTEREST AND LETTERS OF CREDIT
During
the fourth quarter of 2008, in consideration for more favorable payment terms,
the Company granted its primary drug wholesaler a secured, first priority lien
in all of its inventory as well as the proceeds thereof. In addition,
in the ordinary course of business, the Company obtained certain letters of
credit (“LC”) from commercial banks in favor of various parties. At
March 31, 2009, there was $0.9 on deposit as collateral for these
LCs.
The
following discussion should be read in conjunction with the audited consolidated
financial statements, including the notes thereto, and Management’s Discussion
and Analysis of Financial Condition and Results of Operations included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the
“Form 10-K”) filed with the U.S. Securities and Exchange Commission, as well as
our unaudited consolidated interim financial statements and the related notes
thereto included elsewhere in this Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2009 (this “Report”).
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 of 1933, as amended, 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, but are not limited
to:
|
·
|
Statements
relating to our business development
activities;
|
|
·
|
Sales
and marketing efforts;
|
|
·
|
Status
of material contractual arrangements, including the negotiation or
re-negotiation of such
arrangements;
|
|
·
|
Future
capital expenditures;
|
|
·
|
Effects
of regulation and competition in our business;
and
|
|
·
|
Future
operation performance.
|
Investors
are cautioned that any such forward-looking statements are not guarantees of
future performance, involve risks and uncertainties and that actual results may
differ materially from those possible results discussed in the forward-looking
statements as a result of various factors. These factors include, among other
things:
|
·
|
Risks
associated with increased government regulation related to the health care
and insurance industries in general, and more specifically, pharmacy
benefit management and specialty pharmaceutical distribution
organizations;
|
|
·
|
Unfavorable
economic and market conditions;
|
|
·
|
Reductions
in Federal and state reimbursement;
|
|
·
|
Existence
of complex laws and regulations relating to our
business;
|
|
·
|
Achieving
financial covenants under the “Facility” (defined
below);
|
|
·
|
Availability
of financing sources;
|
|
·
|
Declines
and other changes in revenue due to expiration of short-term
contracts;
|
|
·
|
Network
lock-outs and decisions to in-source by health
insurers;
|
|
·
|
Unforeseen
problems arising from contract
terminations;
|
|
·
|
Increases
or other changes in the Company’s acquisition cost for its products;
and
|
|
·
|
Changes
in industry pricing benchmarks such as average wholesale price (“AWP”),
wholesale acquisition cost (“WAC”) and average manufacturer price
(“AMP”).
|
The
changes in industry pricing benchmarks could have the effect of reducing prices
and margins, including the impact of a proposed settlement in a class action
case involving the First DataBank and MediSpan AWP reporting services, and
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.
You
should not place undue reliance on such forward-looking statements as they speak
only as of the date they are made. Except as required by law, 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.
Business
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
business is reported under two operating segments: (i) specialty pharmaceutical
services (“Specialty Services”), and (ii) pharmacy benefit management (“PBM”)
services (“PBM Services”). Our Specialty Services include
comprehensive support, dispensing and distribution, patient care management,
data reporting as well as a range of other complex therapy management services
for certain chronic health conditions. The medications we dispense
include oral, injectable and infusible medications used to treat patients living
with chronic and other complex health conditions and are provided to patients
and physicians. Our PBM Services include pharmacy network management,
claims processing, benefit design, drug utilization review, formulary management
and traditional mail order pharmacy fulfillment.
Revenues
from Specialty Services and PBM Services 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 third party administrators
(“TPAs”) and self-funded employer groups (collectively, “Plan
Sponsors”).
Our
Specialty Services are marketed and/or sold to Plan Sponsors, pharmaceutical
manufacturers, physicians, and patients, and target certain specialty
medications that are used to treat patients living with chronic and other
complex 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
participated in two programs in 2008 that are not continuing throughout
2009. We were the sole vendor for the Centers for Medicare and
Medicaid Services’ (“CMS”) Competitive Acquisition Program (“CAP”), and the sole
national specialty pharmacy provider of HIV/AIDS and solid organ transplant
drugs and services to patients insured by United Healthcare (“UHC”) and its
participating affiliates.
Our CAP
contract expired at December 31, 2008 and discontinuing our participation in
this program is expected to reduce 2009 revenues by $71 million compared to
2008. We expect our 2009 gross profit as a percentage of revenue to
increase over the same percentage in 2008 as the contract was not profitable in
2008.
The UHC
contract termination occurred in two stages. The HIV/AIDS drugs and
services portion of the contract ceased January 31, 2009 and the solid organ
transplant drugs and services portion of the contract ceased March 31,
2009. This termination is expected to reduce our 2009 revenues by $99
million compared to 2008 revenue; however, it is expected to increase our gross
profit as a percentage of revenue in 2009 over the percentage in
2008.
The
combined effect of these contractual changes is expected to reduce 2009 revenues
by approximately $170 million, or 12%. However, the gross margin percentages on
these high volume contracts were below our historical average gross profit
percentages on our Specialty Services business. As such, gross profit
as a percentage of revenues is expected to increase. We have
developed cost reduction plans that are expected to lower operating expenses in
conjunction with the volume decreases as we cease serving these
contracts.
Our PBM
Services are marketed to Plan Sponsors 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.
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 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 those 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. There have been no changes to critical accounting estimates in the
quarter ended March 31, 2009. For a full description of our accounting policies
please refer to Note 2 of Notes to Consolidated Financial Statements included in
the Form 10-K.
Results
of Operations
In the
following Management’s Discussion and Analysis we provide a discussion of
reported results for the three month period ended March 31, 2009 as compared to
the same period a year earlier.
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$
|
325,749
|
|
100.0
|
%
|
|
$
|
327,471
|
|
100.0
|
%
|
Gross
profit
|
|
$
|
35,990
|
|
11.0
|
%
|
|
$
|
32,372
|
|
9.9
|
%
|
Income
from operations
|
|
$
|
4,283
|
|
1.3
|
%
|
|
$
|
185
|
|
0.1
|
%
|
Interest
expense, net
|
|
$
|
(594
|
)
|
-0.2
|
%
|
|
$
|
(585
|
)
|
-0.2
|
%
|
Income
before income taxes
|
|
$
|
3,689
|
|
1.1
|
%
|
|
$
|
(400
|
)
|
-0.1
|
%
|
Net
income (loss)
|
|
$
|
3,285
|
|
1.0
|
%
|
|
$
|
(477
|
)
|
-0.1
|
%
|
Revenue.
Revenue for the
first quarter of 2009 was $325.7 million as compared to revenue of $327.5
million in the first quarter of 2008. Specialty Services revenue for
the first quarter of 2009 was $274.3 million as compared to revenue of $277.3
million for the same period a year ago, a decrease of $3.0 million, or 1.1%.
That decrease is primarily due the termination of the CAP and UHC contracts
offset by an increase in other new Specialty Services contracts as well as the
increase associated with drug cost inflation. PBM Services revenue for the first
quarter of 2009 was $51.4 million, as compared to revenue of $50.2 million in
the first quarter of 2008, an increase of $1.2 million, or 2.4%. The increase
was primarily attributable to growth in the prescription discount card
programs.
Cost of Revenue and Gross
Profit
. Cost of revenue for the first quarter of 2009 was
$289.8 million as compared to $295.1 million for the same period in
2008. Gross margin dollars during the first quarter of 2009 were
$36.0 million, compared to $32.4 million for the first quarter of 2008, an
increase of $3.6 million. Gross margin as a percentage of revenue increased to
11.0% in the first quarter of 2009 from 9.9% in the first quarter of
2008. The increase in gross margin percentage from 2008 to 2009 is
partially a result of the termination of the CAP and UHC contracts, as well as
action taken to purchase drugs during the fourth quarter of 2008 in anticipation
of drug cost increases during the first quarter of 2009. In the first
quarter of 2008, the gross profit percentage was negatively impacted by timing
delays in obtaining increases in reimbursement rates after drug acquisition cost
increases were implemented by manufacturers of specialty drugs. Drug
acquisition cost increases typically occur in the first quarter of each year
along with a corresponding increase in reimbursement rates. In 2008
there was a longer than usual delay in updating the industry price lists used by
us and our peers to charge customers for reimbursement.
Selling, General and Administrative
Expenses
. Selling, general and administrative expenses (“SG&A”) for
the first quarter of 2009 were $30.3 million, or 9.3% of total revenue, as
compared to $31.5 million, or 9.6% of total revenue, for the same period in
2008. The decrease in SG&A is primarily due to staff reductions, reductions
in professional fees associated with state compliance audits and other cost
reduction measures, partially offset by severance costs.
Bad Debt Expense.
For the
first quarter of 2009, bad debt expense was $1.4 million, or 0.4% of revenue, as
compared to $0.7 million, or 0.2% of revenue, in the first quarter of 2008. Our
overall methodology used for determining our provision for bad debt remains
essentially unchanged, and the comparative increase in 2009 is primarily due to
the first quarter of 2008 experiencing significant collections on previously
reserved receivables.
Net Interest Expense
. Net
interest expense was $0.6 million for the first quarter of 2009 as compared to
$0.6 million for the same period a year ago.
Provision for Income Taxes.
Income tax expense of $0.4 million was recorded for the first quarter of
2009 on pre-tax net income of $3.7 million, an 11.0% effective tax
rate. The effective tax rate for the quarter is below the statutory
rate due to a reduction in the Company’s valuation allowance associated with the
expected utilization of a portion of the net operating losses in
2009. This compares to $0.1 million of income tax expense on a
pre-tax loss of $0.4 million for the same period a year ago. The
prior year provision relates primarily to liabilities for state income
taxes.
Net Income (Loss) and Income (Loss)
Per Share.
Net income for the first quarter of 2009 was $3.3 million, or
$0.08 per diluted share, as compared to a net loss of $0.5 million, or ($0.01)
per diluted share, for the same period last year.
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.
Net cash
provided by operating activities totaled $15.4 million during the first three
months of 2009, as compared to $12.5 million of cash used in operating
activities during the first three months of 2008. The increase in
cash provided by operating activities was primarily the result of net income of
$3.3 million, as well as decreases in accounts receivable and decreases in
inventory offset by cash used in accounts payable. The decrease of
$14.0 million in accounts receivable is due to improved cash
collections. The decrease of $6.2 million in inventory was a result
of purchases made in the fourth quarter of 2008 in anticipation of price
increases, as well as the termination of the CAP and UHC
contracts. The decrease of $9.6 million in accounts payable is
related to the reduction of inventory.
Net cash
used in investing activities during the first three months of 2009 was $1.1
million compared to $2.2 million for the same period in 2008. The
cash used was driven primarily by the investment in our information technology
infrastructure during the first quarter of 2008.
Net cash
used in financing activities during the first three months of 2009 was $14.3
million, due to an increase in payments on our line of credit, compared to $14.6
million provided by financing activities for the same period in 2008, due
primarily to an increase in borrowings.
At March
31, 2009, there was $36.1 million in outstanding borrowings under our revolving
credit facility (the “Facility”) with an affiliate of Healthcare Finance Group,
Inc. (“HFG”), as compared to $48.5 million at March 31, 2008. The
Facility provides for borrowing up to $85.0 million at the London Inter-Bank
Offered Rate (“LIBOR”) or a pre-determined minimum rate plus the applicable
margin and other associated fees. The term of the Facility runs
through November 1, 2010. Under the terms of the Facility, we may
request to increase the amount available for borrowing up to $100.0 million, and
convert a portion of any outstanding borrowings from a Revolving Loan into a
Term Loan. The borrowing base utilizes receivable balances and
proceeds thereof as security under the Facility. At March 31, 2009 we
had $48.9 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 the covenants contained in
the agreements as of March 31, 2009
At March
31, 2009, we had working capital of $63.2 million compared to $58.8 million at
December 31, 2008. We anticipate that our working capital needs will
decrease in the current year due to the termination of certain contracts in
2008. We made substantial information technology (“IT”) systems
investments during 2008 and will continue to invest in 2009 to improve
efficiencies, internals 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 may
also 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.
At March
31, 2009, we had Federal net operating loss carryforwards available to us of
approximately $29.0 million, of which $5.9 million is subject to an annual
limitation, all of which will begin expiring in 2017 and later. We
have state net operating loss carryforwards remaining of approximately $15.3
million, the majority of which will begin expiring in 2017 and
later.
During
the fourth quarter of 2008, in consideration for more favorable payment terms,
we granted our primary drug wholesaler a secured, first priority lien in our
entire inventory. In addition, in the ordinary course of business, we
have obtained certain letters of credit (“LC”) from commercial banks in favor of
various parties. At March 31, 2009, we had $0.9 million on deposit as
collateral for these LCs.
Exposure
to market risk for changes in interest rates relates to our outstanding debt. At
March 31, 2009 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 2 of this Report. Based on our line of credit balance at March
31, 2009, a 1% increase in current market interest rates would have an impact of
approximately $0.5 million, pre-tax, on an annual basis. We do not use financial
instruments for trading or other speculative purposes and are not a party to any
derivative financial instruments.
At March
31, 2009, 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.
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to reasonably
assure that information required to be disclosed by us in reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported on
a timely basis and that such information is accumulated and communicated to
management, including
the Chief
Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) as
appropriate, to allow for timely decisions regarding required
disclosures.
Based on
their evaluation as of March 31, 2009, pursuant to Exchange Act Rule 13a-15(b),
the Company’s management, including its CEO and CFO, believe that our disclosure
controls and procedures are effective.
During
the first quarter 2009, there was no change in our internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
OTHER
INFORMATION
None
(a)
|
On
April 28, 2009 we held our Annual Meeting of Stockholders (the “Annual
Meeting”).
|
(b)
|
At
the Annual Meeting, our stockholders elected Charlotte W. Collins, Louis
T. DiFazio, Richard H. Friedman, Myron Z. Holubiak, David R. Hubers,
Richard L. Robbins, Stuart A. Samuels and Steven K. Schelhammer as
directors to serve until our next annual meeting of
stockholders.
|
(c)
|
At
the Annual Meeting our stockholders also approved the appointment of Ernst
& Young LLP as our independent auditors for the year ending December
31, 2009.
|
(d)
|
Set
forth below are the final results of the voting at the annual
meeting:
|
|
(i)
|
Election
of Directors:
|
|
For
|
|
Withheld
|
Charlotte
W. Collins
|
17,798,458
|
|
10,114,393
|
Louis
T. DiFazio
|
25,951,079
|
|
1,961,772
|
Richard
H. Friedman
|
25,662,385
|
|
2,250,466
|
Myron
Z. Holubiak
|
18,073,682
|
|
9,839,169
|
David
R. Hubers
|
26,002,132
|
|
1,910,719
|
Richard
L. Robbins
|
26,004,665
|
|
1,908,186
|
Stuart
A. Samuels
|
18,041,572
|
|
9,871,279
|
Steven
K. Schelhammer
|
18,125,896
|
|
9,786,955
|
|
(ii)
|
Adoption
Ratification of the appointment of Ernst & Young LLP as our
independent auditors for the year ending December 31,
2009:
|
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Votes
|
27,506,533
|
|
402,965
|
|
3,353
|
|
0
|
(a) Exhibits.
Exhibit
3.1
|
Second
Amended and Restated Certificate of Incorporation of BioScrip, Inc.
(Incorporated by reference to Exhibit 3.2 to the Company’s Registration
Statement on Form S-4 (File No. 333-119098), as amended, which became
effective on January 26, 2005)
|
Exhibit
3.2
|
Amended
and Restated By-Laws of BioScrip, Inc. (Incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC
on May 16, 2007, accession No. 0000950123-07-007569)
|
Exhibit
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
|
Exhibit
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
|
Exhibit
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
|
Exhibit
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
|
Pursuant
to the requirements 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.
|
|
|
BIOSCRIP,
INC.
|
|
|
Date:
May 5, 2009
|
/s/ Stanley G. Rosenbaum
|
|
Stanley
G. Rosenbaum, Chief Financial Officer,
|
|
Treasurer
and Principal Accounting Officer
|