Specialty pharmacy services provider,
BioScrip Inc.
(
BIOS
) reported a loss of a penny per share from continued operations
in the third quarter of fiscal 2012, flat year over year.
However, adjusting for certain one-time items, earnings per share
(EPS) came in at 7 cents, which breezed past the Zacks Consensus
Estimate of a loss of a penny per share but was in line with the
year-ago adjusted EPS. Total revenue in the reported quarter
stood at $170.4 million, up 27.3% year over year and exceeding
the Zacks Consensus Estimate of $160 million.
Earlier in May 2012, BioScrip sold certain Pharmacy Services
assets including the pharmacy mail operations and the community
retail pharmacy stores to
Walgreen
(
WAG
). Following the divestiture, BioScrip restructured its operating
segments from Infusion/Home Health Services and Pharmacy Services
into three new operating divisions: Infusion Services, Home
Health Services and PBM Services.
In the reported quarter, solid revenue growth was attributable
to a 39.5% rise in Infusion Services revenue to $125.9 million,
and a 4.2% increase in PBM Services segment revenue to $27.1
million, partially offset by a 1.4% decline in the company's Home
Health Services segment revenues to $17.3 million. Reimbursement
reductions from Medicare and the state of Tennessee TennCare
program resulted in the year-over-year decline in the Home Health
Services segment.
In the reported quarter there was a 48.2% increase in cost of
product revenues ($85.6 million) combined with a 19.3% rise in
cost of service revenues ($26.7 million). Also, shift in the
therapy mix in the Infusion Services segment, as well as a
decrease in home health reimbursement rates from certain
government payers led to a huge 603 basis points (bps)
contraction in gross margin to 34.0% in the quarter.
Selling, general and administrative expenses during the quarter
surged 10.5% to $46.8 million resulting in a 184 bps drag in
adjusted operating margin for the quarter to 6.6%.
BioScrip exited the quarter with $67.2 million of cash and
cash equivalents. Year-to-date operating cash flow was $56.9
million compared with $7.0 million in the comparable year-ago
period. This was due to the collection of accounts
receivable retained after the asset sale, net of accounts payable
paid related to those businesses.
In the reported quarter, BioScrip acquired Illinois
-
based privately held InfuScience, Inc., a provider of alternate
site infusion pharmacy services. The acquisition price was $38.3
million in cash. However, it could increase by an additional $3
million within 1 year of the acquisition, depending on the
performance of the acquired body. In 2011, InfuScience generated
$40.0 million in annual revenues.
Outlook
BioScrip reiterated its fiscal 2012 revenue guidance of
$660-$690 million. However, currently the company is evaluating
hurricane Sandy's impact on the performance of its Northeast
region.
Our Take
While the company demonstrated strong sales growth during the
quarter, the huge pressure on margins was a matter of concern.
However, we believe that the asset sale will help BioScrip to
emphasize more on areas with long-term growth potential and high
returns. With favorable demographic trends, including an aging
population in the U.S., the company is optimistic about the
future prospects of the home health industry. Additionally,
we believe that the recent acquisition improves the company's
position in the Infusion and Home Health industry where it has
meaningful strength and competitive advantages. According to the
National Home Infusion Association ("NHIA"), U.S. health care
expenditure in the alternate-site infusion therapy segment
currently represents $9-$11 billion a year.
BioScrip retains a short-term Zacks #3 Rank (Hold). Over the
long term, we have a 'Neutral' recommendation on the stock.
BIOSCRIP INC (BIOS): Free Stock Analysis
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WALGREEN CO (WAG): Free Stock Analysis Report
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