BIOS BioPlus Acquisition Corporation

In the fourth quarter of 2012, BioScrip Inc. (BIOS) reported net loss from continuing operations of $1.4 million or 3 cents per share, vis-à-vis a net income of $2.6 million or 5 cents per share in the year-ago quarter. Excluding certain one-time items and stock based compensation, adjusted EPS came in at 2 cents, lower than the year-ago adjusted EPS of 5 cents. However, the result beat the Zacks Consensus Estimate of a penny per share in the fourth quarter.

In 2012, adjusted loss per share was 1 cent, down from the adjusted EPS of 12 cents in 2011. However, the 2012 result was better than the Zacks Consensus Estimate of a loss of 9 cents.

Total revenue rose 14.2% year over year to $180.7 million in the fourth quarter, exceeding the Zacks Consensus Estimate of $173 million. Total revenue in 2012 was $662.6 million, up 19.5% from the prior year, surpassing the corresponding Zacks Consensus Estimate of $654 million.

In the fourth quarter, solid revenue growth was attributable to contributions from Infusion Services and Home Health Services business. The company recorded a 32.4% rise in Infusion Services revenues to $135.6 million on the back of volume growth and accretive acquisition.

Revenues from the Home Health Services segment rose 6.5% to $17.2 million, led by volume growth. However, reimbursement reductions from Medicare and the state of Tennessee TennCare program dragged the franchise sales growth. Lastly, revenues from the PBM Services segment were $26.8 million, down 30.6% from the prior-year quarter. The decline was due to lower revenues from discount cards and decreased funded PBM business.

While the cost of product revenues shot up 39.7% to $92.2 million, the cost of service revenues declined 16.4% to $28.1 million in the quarter. Also, a shift in the therapy mix in the Infusion Services franchise, as well as a lower reimbursement rates for home health from certain government payers led to a considerable 360 basis points (bps) contraction in gross margin to 33.4% in the quarter. Selling, general and administrative expenses increased 14.2% to $49.2 million resulting in a 360 bps drag in adjusted operating margin for the quarter to 6.3%.

BioScrip exited 2012 with $62.1 million of cash and cash equivalents. Annual net cash from operating activities came in at $49.9 million compared with $3.1 million in the prior year. The improvement was led by collection of accounts receivable retained after the sale of Pharmacy Services, net of accounts payable paid related to those businesses.

In Feb 2013, BioScrip completed the acquisition of DaVita’s majority-owned subsidiary HomeChoice Partners, an alternate-site infusion pharmacy service provider for $70 million in cash. The terms of the deal, which is expected to be closed in the first quarter of 2013, also include a potential additional consideration based on the post purchase operating performance of HomeChoice.

Outlook

For 2013, BioScrip expects revenues of $830–$865 million, reflecting growth in the range of 25% to 30%. The current Zacks Consensus Estimate is pegged at $770 million. However, currently the company is evaluating hurricane Sandy’s impact on the performance of its Northeast region for the first quarter of 2013.

Our View

While the higher-than-expected results are encouraging, BioScrip continues to suffer loss. The company’s recent acquisitions should leverage top line in the future. Although BioScrip has several positive catalysts to drive growth over the long haul, looming concerns such as reimbursement cuts, integration risks and margin pressure keep us on the sidelines for this pharmacy benefit manager and infusion service provider.

Accordingly, the stock carries a Zacks Rank #3 (Hold). While we have a neutral disposition on BioScrip, other stocks such as AmerisourceBergen (ABC), CVS Caremark (CVS) and Cardinal Health (CAH) warrant a look. These stocks carry a Zacks Rank #2 (Buy).
 

 
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