BioScrip Inc. (BIOS), a specialty pharmacy services provider, reported a loss per share of $1.25 in the fourth-quarter of fiscal 2010 compared with the previous year’s earnings of 99 cents. However after adjusting for certain one-time expenses, the company recorded a loss of $1.07, well below the Zacks Consensus Estimate of earnings of 4 cents and the year -ago quarter’s $1.03.
This huge fall in EPS was driven by the loss on extinguishment of debt related to term loan ($9.5 million) and rise in net interest expenses ($8.1 million compared with year ago’s $0.45 million) due to a $225.1 million rise in long-term debt. Also the company reported income tax expenses of an astounding $45.7 million compared to the previous year’s income tax benefit of $41.8 million. Moreover a 30.7% increase in share count also dragged the EPS down.
For the full year the adjusted loss per share was $1.01, below the Zacks Consensus Estimate of 14 cents and previous year’s earnings of $1.43.
BioScrip reports under two segments – Infusion and Home Health Services and Pharmacy Services. Total revenues for the quarter increased 31.9% year over year to $450.4 million, favorably impacted by the CHS acquisition (CHS revenue was $69.4 million). This led to a 177.3% increase in Infusion and Home Health Services revenues (to $112.6 million).
Also there was a 12% rise in pharmacy revenues (to $337.8 million). For fiscal 2010, BioScrip reported revenues of $163.8 million, up 23.3% from the previous year end.
Despite the sound growth across all segments, BioScrip has been witnessing several obstacles that led to disappointing gross and operating margins. The gross profit for the quarter was $72.6 million, up 73.3% year over year. However certain vendor rebates and new managed care contracts led to a 383-basis-point decline in gross margin to 16.1% in the quarter.
Besides, expenses related to the CHS business ($20.2 million) and increase in broker fees due to growth in the prescription discount and cash card business, pushed up the selling, general and administrative expenses of BioScrip ($60 million, up 59.6%). Also there was a huge 110.8% increase in expenses related to bad debt in the quarter. Consequently, operating margin contracted 95 bps to 1.27%.
In spite of growth in all of its segments, in recent quarters BioScrip witnessed disappointing margins driven by pricing concessions on specialty drugs, rising reimbursement expenses, the new industry-wide AWP standard and poor macro economic condition . The highly leveraged balance sheet continues to remain a matter of concern.
Moreover the company faces significant competition in the pharmaceutical healthcare services industry from players like CVS Caremark (CVS), Medco Health Solutions (MHS) as well as many smaller organizations that operate on a local or regional basis.
However, the company has adopted a new strategic assessment policy for its business in order to improve its present position. Also the success at CHS business is expected to improve BioScrip’s competitive position by boosting its Infusion and Home Health Services over time.
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