(BIOS) BioScrip Analyst Maintains Neutral Rating on Shares

We maintain our Neutral recommendation on BioScrip Inc. (BIOS) with a target price of $6.25.

BioScrip reported a loss of 4 cents per share in the second quarter of fiscal 2011 compared with the year-ago quarter EPS of 6 cents. However, after deducting the impact of restructuring charges and legal settlement cost, adjusted EPS came in at 10 cents during the quarter, surpassing the Zacks Consensus Estimate of 6 cents.

After a few disappointing quarters, impacted by pricing concessions on various specialty drugs, reimbursement pressures, the new industry-wide AWP standard and the overall impact of the weak economic environment, BioScrip is gradually witnessing improvement in its top line. During the second quarter, the company witnessed an 8.7% year-over-year upsidein revenues from its pharmacy services segment, partly offset by the existing reimbursement pressure.The strong result in this segment was favorably impacted by positive returns from DS Pharmacy (subsidiary of drugstore.com) acquisition, new managed care contracts received during the fourth quarter of 2010 and oncology and cash card business.

Thus the company is perfectly positioned to leverage from its strong clinical reputation for growth. Also its strong accessibility to specialty drugs and relationship with pharmaceutical companies are expected to drive further growth. Besides, the Infusion and Home Health Services revenues increased 2.5% year over year (overall organic infusion growth being 6.3%) primarily attributable to the year-over-year expansion in patient volume combined with consistent revenue growth in the therapies.

The company has started to expand its footprint nationally based on the Critical Homecare Solutions(CHS) acquisition. Product revenue during the quarter witnessed a robust 40.4% increase to $52.0 million, attributable to incremental revenue contribution by the CHS business. Excluding revenue associated with the CHS business, the product revenue witnessed a mere 3% growth. Following this acquisition, BioScrip was able to access a huge number of infusion patients with a strong potential for future growth. CHS is gradually helping the company to integrate across the majority of the existing markets as well as gain entry in new and under-penetrated locations. Additionally, BioScrip is taking advantage of the local community strengths, as well as access to the managed care relationships through CHS.

Also its strong accessibility to specialty drugs and relationships with pharmaceutical companies are expected to drive further growth.

BioScrip’s strong presence in the infusion and home health market should help sustain growth. The company is relatively well diversified across several key disease areas including immunology, multiple sclerosis, and oncology. Moreover, BioScrip has favorable managed care relationships in the domestic market.

However, BioScrip’s highly leveraged balance sheet continues to be a drag on the bottom line, which remains key area of concern, in our view. Moreover, the Home Health industry was impacted by the reduction in Medicare reimbursement in 2011 and the new face-to-face requirement. This may temper BioScrip’s sales growth going forward.

Additionally, we remain apprehensive owing to mounting competitive pressures from players like CVS Caremark (CVS), Medco Health Solutions (MHS), Walgreen (WAG) and AmerisourceBergen (ABC) as well as many smaller organizations that operate on a local or regional basis. Increased competition has led to lower pricing and increased rebate sharing, thereby pressurizing margins.

AMERISOURCEBRGN (ABC): Free Stock Analysis Report

BIOSCRIP INC (BIOS): Free Stock Analysis Report

CVS CAREMARK CP (CVS): Free Stock Analysis Report

MEDCO HLTH SOL (MHS): Free Stock Analysis Report

WALGREEN CO (WAG): Free Stock Analysis Report

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