United
States
|
|
Securities
and Exchange Commission
|
|
|
Washington,
D.C. 20549
|
________________
Form 10-Q
________________
(Mark
One)
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R
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
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|
For
the quarterly period ended September 30, 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)
|
|
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100
Clearbrook Road, Elmsford, NY
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10523
|
|
(Address
of Principal Executive Offices)
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(Zip
Code)
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(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: £
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Smaller
reporting company: £
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|
(Do
not check if a smaller reporting
company)
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|||
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
October 30, 2009, there were 39,316,399 outstanding shares of the registrant’s
common stock, $.0001 par value per share.
BIOSCRIP,
INC. AND SUBSIDIARIES
(in
thousands, except for share and per share amounts)
|
September
30,
|
December
31,
|
|||||
|
2009
|
2008
|
|||||
|
ASSETS
|
(unaudited)
|
|||||
|
Current
assets
|
||||||
|
Cash
and cash equivalents
|
$ | - | $ | - | ||
|
Receivables,
less allowance for doubtful accounts of $9,828 and $11,629
|
||||||
|
at
September 30, 2009 and December 31, 2008, respectively
|
147,326 | 158,649 | ||||
|
Inventory
|
47,833 | 45,227 | ||||
|
Prepaid
expenses and other current assets
|
3,866 | 2,766 | ||||
|
Total
current assets
|
199,025 | 206,642 | ||||
|
Property
and equipment, net
|
15,674 | 14,748 | ||||
|
Other
assets
|
983 | 1,069 | ||||
|
Goodwill
|
24,498 | 24,498 | ||||
|
Total
assets
|
$ | 240,180 | $ | 246,957 | ||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||
|
Current
liabilities
|
||||||
|
Line
of credit
|
$ | 39,584 | $ | 50,411 | ||
|
Accounts
payable
|
62,909 | 76,936 | ||||
|
Claims
payable
|
4,228 | 5,230 | ||||
|
Amounts
due to plan sponsors
|
5,951 | 5,646 | ||||
|
Accrued
expenses and other current liabilities
|
10,200 | 9,575 | ||||
|
Total
current liabilities
|
122,872 | 147,798 | ||||
|
Deferred
taxes
|
1,095 | 533 | ||||
|
Income
taxes payable
|
3,512 | 3,089 | ||||
|
Total
liabilities
|
127,479 | 151,420 | ||||
|
Stockholders'
equity
|
||||||
|
Preferred
stock, $.0001 par value; 5,000,000 shares authorized;
|
||||||
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no
shares issued or outstanding
|
- | - | ||||
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Common
stock, $.0001 par value; 75,000,000 shares authorized; shares
issued:
|
||||||
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42,349,728,
and 41,622,629, respectively; shares outstanding; 39,272,399
and
|
||||||
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38,691,356,
respectively
|
4 | 4 | ||||
|
Treasury
stock, shares at cost: 2,653,007 and 2,624,186,
respectively
|
(10,366 | ) | (10,288 | ) | ||
|
Additional
paid-in capital
|
252,274 | 248,441 | ||||
|
Accumulated
deficit
|
(129,211 | ) | (142,620 | ) | ||
|
Total
stockholders' equity
|
112,701 | 95,537 | ||||
|
Total
liabilities and stockholders' equity
|
$ | 240,180 | $ | 246,957 | ||
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
BIOSCRIP,
INC. AND SUBSIDIARIES
(in
thousands, except per share amounts)
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
|
September
30,
|
September
30,
|
||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||
|
Revenue
|
$ | 333,476 | $ | 359,427 | $ | 987,974 | $ | 1,035,338 | |||||
|
Cost
of revenue
|
291,980 | 323,346 | 872,100 | 931,159 | |||||||||
|
Gross
profit
|
41,496 | 36,081 | 115,874 | 104,179 | |||||||||
|
Selling,
general and administrative expenses
|
32,402 | 31,859 | 94,335 | 95,031 | |||||||||
|
Bad
debt expense
|
2,433 | 1,413 | 5,410 | 2,786 | |||||||||
|
Income
from operations
|
6,661 | 2,809 | 16,129 | 6,362 | |||||||||
|
Interest
expense, net
|
447 | 669 | 1,471 | 1,931 | |||||||||
|
Income
before income taxes
|
6,214 | 2,140 | 14,658 | 4,431 | |||||||||
|
Tax
provision
|
467 | 730 | 1,249 | 1,879 | |||||||||
|
Net
income
|
$ | 5,747 | $ | 1,410 | $ | 13,409 | $ | 2,552 | |||||
|
Income
per common share
|
|||||||||||||
|
Basic
|
$ | 0.15 | $ | 0.04 | $ | 0.35 | $ | 0.07 | |||||
|
Diluted
|
$ | 0.14 | $ | 0.04 | $ | 0.34 | $ | 0.07 | |||||
|
Weighted
average common shares outstanding
|
|||||||||||||
|
Basic
|
38,961 | 38,403 | 38,807 | 38,359 | |||||||||
|
Diluted
|
40,184 | 38,934 | 39,345 | 39,187 | |||||||||
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
BIOSCRIP,
INC. AND SUBSIDIARIES
(in
thousands)
|
Nine
Months Ended
|
||||||
|
September
30,
|
||||||
|
2009
|
2008
|
|||||
|
Cash
flows from operating activities:
|
||||||
|
Net
income
|
$ | 13,409 | $ | 2,552 | ||
|
Adjustments
to reconcile net income to net cash provided by
|
||||||
|
(used
in) operating activities:
|
||||||
|
Depreciation
and amortization
|
3,596 | 4,685 | ||||
|
Change
in deferred income tax
|
562 | 1,440 | ||||
|
Compensation
under stock-based compensation plans
|
2,385 | 2,859 | ||||
|
Bad
debt expense
|
5,410 | 2,786 | ||||
|
Changes
in assets and liabilities
|
||||||
|
Receivables,
net
|
5,913 | (37,351 | ) | |||
|
Inventory
|
(2,606 | ) | (2,557 | ) | ||
|
Prepaid
expenses and other assets
|
(1,014 | ) | (2,116 | ) | ||
|
Accounts
payable
|
(14,027 | ) | 13,829 | |||
|
Claims
payable
|
(1,002 | ) | 879 | |||
|
Amounts
due to plan sponsors
|
305 | 1,237 | ||||
|
Accrued
expenses and other liabilities
|
1,048 | (3,629 | ) | |||
|
Net
cash provided by (used in) operating activities
|
13,979 | (15,386 | ) | |||
|
Cash
flows from investing activities:
|
||||||
|
Purchases
of property and equipment, net of disposals
|
(4,522 | ) | (5,873 | ) | ||
|
Net
cash used in investing activities
|
(4,522 | ) | (5,873 | ) | ||
|
Cash
flows from financing activities:
|
||||||
|
Borrowings
on line of credit
|
997,920 | 1,042,246 | ||||
|
Repayments
on line of credit
|
(1,008,747 | ) | (1,021,001 | ) | ||
|
Surrender
of stock to satisfy minimum tax withholding
|
(78 | ) | (262 | ) | ||
|
Net
proceeds from exercise of employee stock compensation
plans
|
1,448 | 276 | ||||
|
Net
cash (used in) provided by financing activities
|
(9,457 | ) | 21,259 | |||
|
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
|
$ | 1,432 | $ | 3,092 | ||
|
Cash
paid during the period for income taxes
|
$ | 741 | $ | 236 | ||
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
BIOSCRIP,
INC. AND SUBSIDIARIES
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 and nine months
ended September 30, 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 flows.
The
Company has evaluated events that occurred during the period subsequent to the
balance sheet date through November 2, 2009, which represents the filing date of
this Form 10-Q. As of November 2, 2009, there were no subsequent
events that require recognition or disclosure in the financial
statements.
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
In June
2009, FASB issued Accounting Standards Update No. 2009-01, Generally Accepted Accounting
Principles (“ASC Topic 105”) which established the FASB ASC as the
official single source of authoritative U.S. generally accepted accounting
principles (“GAAP”). All previously existing accounting standards
were superseded at that date. All other accounting guidance not
included in the Codification will be considered
non-authoritative. The Codification also includes relevant SEC
guidance organized using the same topical structure in separate sections within
the Codification.
Following
the Codification, the Board has stated that it will not issue new standards in
the form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates
(“ASU”) that will serve to update the Codification, provide background
information about the guidance and provide the basis for conclusions on the
changes to the Codification.
The
Codification is not intended to change GAAP, but will change the way GAAP is
organized and presented. The Codification is effective for the
Company’s third quarter 2009 financial statements and the principal impact is
limited to disclosures as all future references to authoritative accounting
literature will be referenced in accordance with the Codification. In
order to ease the transition to the Codification, the Company is providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.
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
|
Nine
Months Ended
|
||||||||||||
|
September
30,
|
September
30,
|
||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||
|
Numerator:
|
|||||||||||||
|
Net
income
|
$ | 5,747 | $ | 1,410 | $ | 13,409 | $ | 2,552 | |||||
|
Denominator
- Basic:
|
|||||||||||||
|
Weighted
average number of common shares outstanding
|
38,961 | 38,403 | 38,807 | 38,359 | |||||||||
|
Basic
income per common share
|
$ | 0.15 | $ | 0.04 | $ | 0.35 | $ | 0.07 | |||||
|
Denominator
- Diluted:
|
|||||||||||||
|
Weighted
average number of common shares outstanding
|
38,961 | 38,403 | 38,807 | 38,359 | |||||||||
|
Common
share equivalents of outstanding stock options and restricted
awards
|
1,223 | 531 | 538 | 828 | |||||||||
|
Total
diluted shares outstanding
|
40,184 | 38,934 | 39,345 | 39,187 | |||||||||
|
Diluted
income per common share
|
$ | 0.14 | $ | 0.04 | $ | 0.34 | $ | 0.07 | |||||
Excluded
from the computation of diluted earnings per share for the three and nine months
ended September 30, 2009 were 2,995,497 and 4,530,529 shares, respectively, and
for the three and nine months ended September 30, 2008 were 4,716,212 and
3,839,179 shares, respectively, all of which are issuable upon the exercise of
outstanding stock options. The inclusion of those shares would have
been anti-dilutive as the exercise price of these shares exceeded market
value.
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 for forfeitures, expirations or awards that under the 2001 Plan
otherwise settled in cash after the adoption thereof). As of
September 30, 2009, 200,670 shares remained available for grant under the 2008
Plan. Upon effectiveness of the 2008 Plan in April 2008, the Company
ceased making grants under the 2001 Plan. The 2008 Plan and the 2001
Plan are administered by the Company’s Management Development and Compensation
Committee (the “Compensation Committee”), a standing committee of the Board of
Directors (the “Board”).
Under the
terms of the 2008 Plan and the 2001 Plan, plan participants may use shares to
cover tax withholding on income earned as a result of appreciation of
equity-based instruments upon exercise, vesting and/or lapsing of restrictions
thereon. 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 $0.6 million
and $0.4 million for the three months ended September 30, 2009 and 2008,
respectively, and $1.5 million and $1.7 million for the nine months ended
September 30, 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 and was calculated with
the following weighted average assumptions:
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
|
September
30,
|
September
30,
|
||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||
|
Expected
volatility
|
66.0 | % | - | 66.5 | % | 51.2 | % | ||||||
|
Risk-free
interest rate
|
3.55 | % | - | 2.97 | % | 3.86 | % | ||||||
|
Expected
life of options
|
5.1
years
|
- |
5.6
years
|
5.7
years
|
|||||||||
|
Dividend
rate
|
- | - | - | - | |||||||||
|
Fair
value of options
|
$ | 3.37 | - | $ | 1.60 | $ | 3.50 | ||||||
No stock
options or other equity-based incentive grants were made during the three months
ended September 30, 2008 and as such, no binomial pricing model assumptions for
new grants were established.
At
September 30, 2009, there was $3.5 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, may 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 where the
vesting of stock grants is subject to performance measures. Such
performance shares may vest after one year from 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 $0.5 million for the three months ended September 30, 2009 and
2008, respectively, and $0.9 million and $1.2 million for the nine months ended
September 30, 2009 and 2008, respectively.
As of
September 30, 2009, there was $1.0 million of unrecognized compensation expense
related to unvested restricted stock awards. That expense is expected to be
recognized over a weighted-average period of 1.4 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 ASC 280 Segment Reporting, (“ASC
280”), (formerly 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
Pharmacy Services and Traditional Pharmacy Services. ASC 280 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 Pharmacy Services and Traditional Pharmacy Services are derived
from the Company’s relationships with healthcare payors, including managed care
organizations, government funded and/or operated programs, third
party administrators (“TPAs”) and self-funded employer groups (collectively,
“Plan Sponsors”) as well as from our relationship with pharmaceutical
manufacturers, patients and physicians.
The
Specialty Pharmacy Services segment consists of the Company’s specialty pharmacy
distribution and therapy management services. Specialty Pharmacy
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 the Company’s ambulatory infusion sites. All Specialty
Pharmacy Services target certain specialty medications that are used to treat
patients living with chronic and other complex healthcare
conditions.
The
Traditional Pharmacy Services segment consists mainly of traditional mail order
pharmacy fulfillment, and to a lesser extent, prescription discount card
programs and integrated pharmacy benefit management services. These
Traditional Pharmacy Services are designed to offer 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.
In the
quarter ended September 30, 2009, the Company renamed the reportable segment
formerly known as “PBM Services” to “Traditional Pharmacy
Services”. The new title reflects a shift in the nature of the
business included in this segment which has become substantially more weighted
towards services other than fully funded pharmacy benefit management including
traditional mail service pharmacy fulfillment and prescription discount card
programs.
Segment
Reporting Information
(in
thousands)
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Results
of Operations:
|
||||||||||||||||
|
Revenue:
|
||||||||||||||||
|
Specialty
Pharmacy Services
|
$ | 279,006 | $ | 307,135 | $ | 828,790 | $ | 882,590 | ||||||||
|
Traditional
Pharmacy Services
|
54,470 | 52,292 | 159,184 | 152,748 | ||||||||||||
|
Total
|
$ | 333,476 | $ | 359,427 | $ | 987,974 | $ | 1,035,338 | ||||||||
|
Income
(loss) from operations:
|
||||||||||||||||
|
Specialty
Pharmacy Services
|
$ | 2,007 | $ | 153 | $ | 5,265 | $ | (1,728 | ) | |||||||
|
Traditional
Pharmacy Services
|
4,654 | 2,656 | 10,864 | 8,090 | ||||||||||||
|
Total
|
6,661 | 2,809 | 16,129 | 6,362 | ||||||||||||
|
Interest
expense, net
|
447 | 669 | 1,471 | 1,931 | ||||||||||||
|
Tax
provision
|
467 | 730 | 1,249 | 1,879 | ||||||||||||
|
Net
income:
|
$ | 5,747 | $ | 1,410 | $ | 13,409 | $ | 2,552 | ||||||||
|
Capital
expenditures:
|
||||||||||||||||
|
Specialty
Pharmacy Services
|
$ | 456 | $ | 1,844 | $ | 4,018 | $ | 4,820 | ||||||||
|
Traditional
Pharmacy Services
|
137 | 327 | 504 | 1,053 | ||||||||||||
|
Total
|
$ | 593 | $ | 2,171 | $ | 4,522 | $ | 5,873 | ||||||||
|
Depreciation
Expense:
|
||||||||||||||||
|
Specialty
Pharmacy Services
|
$ | 1,136 | $ | 1,008 | $ | 3,003 | $ | 2,870 | ||||||||
|
Traditional
Pharmacy Services
|
220 | 128 | 593 | 364 | ||||||||||||
|
Total
|
$ | 1,356 | $ | 1,136 | $ | 3,596 | $ | 3,234 | ||||||||
|
Total
Assets
|
||||||||||||||||
|
Specialty
Pharmacy Services
|
$ | 172,726 | $ | 269,201 | ||||||||||||
|
Traditional
Pharmacy Services
|
67,454 | 67,762 | ||||||||||||||
|
Total
|
$ | 240,180 | $ | 336,963 | ||||||||||||
Certain
prior period segment data has been reclassified to conform to the current year’s
presentation. These reclassifications had no material impact on
previously reported segment data.
NOTE
6 – LINE OF CREDIT
At
September 30, 2009, there was $39.6 million in outstanding borrowings under the
Company’s revolving credit facility (the “Facility”) with an affiliate of
Healthcare Finance Group, Inc. (“HFG”), as compared to $50.4 million at December
31, 2008. The Facility provides for borrowings of 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, provided that
a sufficient level of receivable assets are available as
collateral. 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 receivable balances and proceeds
thereof as security under the Facility. At September 30, 2009, the
Company had $45.4 million of credit available under the Facility on a borrowing
basis of $85.0 million. The weighted average interest rate on the
Facility during the quarter ended September 30, 2009 was 4.4% compared to 5.4%
for the quarter ended December 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 September 30, 2009.
NOTE
7 – 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
has 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 based upon application of the criteria
required per the accounting literature, the Company will reverse all or part of
the valuation allowance for its deferred tax assets.
For the
quarter ended September 30, 2009, the Company’s provision for income taxes was
$0.5 million with an effective tax rate of 7.5%. For the quarter
ended September 30, 2008, the Company’s provision for income taxes was $0.7
million with an effective rate of 34.1%. The lower effective tax rate
of 7.5% for the current quarter compared to the statutory rate is primarily a
result of a reduction in the valuation allowance due to the expected utilization
of a portion of the Company’s net operating losses in 2009. The
effective tax rate for the quarter ended September 30, 2008 differs from the
statutory rate primarily due to amortization of indefinite lived
assets.
For the
nine months ended September 30, 2009, the Company’s provision for income taxes
was $1.2 million with an effective tax rate of 8.5%. For the nine
months ended September 30, 2008, the Company’s provision for income taxes was
$1.9 million with an effective tax rate of 42.4%. The lower effective
tax rate of 8.5% for the nine months ended September 30, 2009 compared to the
statutory rate is primarily a result of a reduction in the valuation allowance
due to the expected utilization of a portion of the net operating losses in
2009. The effective tax rate for the nine months ended September 30,
2008 differs from the statutory rate primarily due to amortization of indefinite
lived assets.
The
Company files 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 September 30,
2009, U.S. tax returns for the years 2005 through 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
8 – SECURITY INTEREST AND LETTERS OF CREDIT
Under the
terms of the prime vendor agreement with AmerisourceBergen Drug Company
(“ABDC”), the Company granted ABDC a secured, first priority lien in all of its
inventory as well as the proceeds thereof. In the ordinary course of
business, the Company obtained certain letters of credit (“LC”) from commercial
banks in favor of various parties. At September 30, 2009, there was
$1.1 million 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 September 30, 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, including governmental budget
constraints;
|
|
·
|
Reductions
in Federal and state reimbursement
rates;
|
|
·
|
Delays
or suspensions of Federal and state payments for services
provided;
|
|
·
|
Existence
of complex laws and regulations relating to our
business;
|
|
·
|
Compliance
with financial covenants required under our revolving credit
facility;
|
|
·
|
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 our acquisition cost for our products;
and
|
|
·
|
Changes
in industry pricing benchmarks such as average wholesale price (“AWP”),
wholesale acquisition cost (“WAC”) and average manufacturer price (“AMP”),
including the impact of the AWP Class Action Litigation Settlement and/or
state Medicaid Agencies failure to adjust reimbursement
rates;
|
|
·
|
Increased
competition from our competitors, including competitors with greater
financial, technical, marketing and other resources, could have the effect
of reducing prices and margins.
|
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 Pharmacy
Services, and (ii) Traditional Pharmacy Services. Our Specialty
Pharmacy Services segment includes 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 Traditional Pharmacy Services segment consists mainly
of traditional mail service pharmacy fulfillment, and to a lesser extent,
prescription discount card programs and fully funded pharmacy benefit management
services.
In the
quarter ended September 30, 2009, we renamed the reportable segment formerly
known as “PBM Services” to “Traditional Pharmacy Services”. The new
title reflects a shift in the nature of the business included in this segment
which has become substantially more weighted towards services other than fully
funded pharmacy benefit management including traditional mail service pharmacy
fulfillment and prescription discount card programs.
Revenues
from Specialty Pharmacy Services and Traditional Pharmacy Services are derived
from our relationships with healthcare payors including managed care
organizations, government-funded and/or operated programs, third party
administrators (“TPAs”) and self-funded employer groups (collectively, “Plan
Sponsors”), as well as from our relationship with pharmaceutical manufacturers,
patients and physicians.
Our
Specialty Pharmacy 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
experienced a reduction in revenue in 2009 due to the termination of the Centers
for Medicare and Medicaid Services’ (“CMS”) Competitive Acquisition Program
(“CAP”), and certain United HealthCare (“UHC”) contracts. As
expected, our gross profit as a percentage of revenue increased as a result of
these contract terminations, as they operated at margin rates below the average
for Specialty Pharmacy Services.
On
September 26, 2009, First DataBank and Medi-Span reduced the markup factor
applied to WAC to determine the AWP for over 20,000 drug codes as a result of
the settlement of a class action lawsuit involving First DataBank and
Medi-Span. A majority of our Third Party Payor customers agreed to
adjust reimbursement rates payable to us following the implementation of the AWP
change and our net reimbursement remained the same. However, certain
state governmental agencies have declined to make any adjustment to their
reimbursement following the implementation of the AWP change and accordingly our
reimbursement, as well as those of our peers, for services provided to
government funded and/or operated programs will be reduced. The
impact of the AWP settlement will be to reduce our gross margins beginning in
the fourth quarter of 2009. We estimate the annual impact will be
approximately $5.0 million. In 2010, we expect the margin impact will be offset
by overall organic growth as well as an emphasis on higher margin business
mix.
Our
Traditional Pharmacy Services are marketed to Plan Sponsors and are designed to
promote a broad range of cost-effective, clinically appropriate pharmacy
services through our own mail service distribution facility and national
pharmacy retail network. 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 September 30, 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 and nine month periods ended September 30, 2009
as compared to the same periods a year earlier.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||
|
September
30,
|
September
30,
|
|||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||
|
Revenue
|
$ | 333,476 | 100.0 | % | $ | 359,427 | 100.0 | % | $ | 987,974 | 100.0 | % | $ | 1,035,338 | 100.0 | % | ||||||||
|
Gross
profit
|
$ | 41,496 | 12.4 | % | $ | 36,081 | 10.0 | % | $ | 115,874 | 11.7 | % | $ | 104,179 | 10.1 | % | ||||||||
|
Income
from operations
|
$ | 6,661 | 2.0 | % | $ | 2,809 | 0.8 | % | $ | 16,129 | 1.6 | % | $ | 6,362 | 0.6 | % | ||||||||
|
Interest
expense, net
|
$ | 447 | 0.1 | % | $ | 669 | 0.2 | % | $ | 1,471 | 0.1 | % | $ | 1,931 | 0.2 | % | ||||||||
|
Income
before income taxes
|
$ | 6,214 | 1.9 | % | $ | 2,140 | 0.6 | % | $ | 14,658 | 1.5 | % | $ | 4,431 | 0.4 | % | ||||||||
|
Net
income
|
$ | 5,747 | 1.7 | % | $ | 1,410 | 0.4 | % | $ | 13,409 | 1.4 | % | $ | 2,552 | 0.2 | % | ||||||||
Revenue. Revenue for the
third quarter of 2009 was $333.5 million as compared to revenue of $359.4
million in the third quarter of 2008, a decrease of $25.9 million, or
7.2%. Specialty Pharmacy Services revenue for the third quarter of
2009 was $279.0 million as compared to revenue of $307.1 million for the same
period a year ago, a decrease of $28.1 million, or 9.2%. The decrease was
primarily due to the termination of the CAP and certain UHC contracts offset by
revenue generated under new contracts and drug inflation. Traditional Pharmacy
Services revenue for the third quarter of 2009 was $54.5 million, as compared to
revenue of $52.3 million for the same period a year ago, an increase of $2.2
million, or 4.2%. The increase was primarily attributable to growth in our
discount cash card programs.
Revenue
for the nine months ended September 30, 2009 was $988.0 million as compared to
revenue of $1,035.3 million for the nine months ended September 30, 2008, a
decrease of $47.3 million, or 4.6%. Specialty Pharmacy Services
revenue for the nine months ended September 30, 2009 was $828.8 million as
compared to revenue of $882.6 million for the same period a year ago, a decrease
of $53.8 million, or 6.1%. The decrease was primarily due to the termination of
the CAP and certain UHC contracts offset by revenue generated under new
contracts and drug inflation. Traditional Pharmacy Services revenue for the nine
months ended September 30, 2009 was $159.2 million, as compared to revenue of
$152.7 million for the same period a year ago, an increase of $6.5 million, or
4.3%. The increase was primarily attributable to growth in our discount cash
card programs.
Cost of Revenue and Gross
Profit. Cost of revenue for the third quarter of 2009 was
$292.0 million as compared to $323.3 million for the same period in
2008. Gross margin dollars were $41.5 million for the third quarter
of 2009 as compared to $36.1 million for the same period a year ago, an increase
of $5.4 million, or 15.0%. Gross margin as a percentage of revenue increased to
12.4% in the third quarter of 2009 from 10.0% in the third quarter of
2008. The increase in gross margin percentage from 2008 to 2009 was
primarily the result of the termination of the CAP and certain UHC contracts
which, as expected, reduced volume and increased Specialty Pharmacy Services’
overall margin percentage. In addition to a more favorable business
mix, supply chain programs and reduced shipping costs also contributed to the
increase of the gross margin percentage and dollars.
Cost of
revenue for the nine months ended September 30, 2009 was $872.1 million as
compared to $931.2 million for the same period in 2008. Gross margin
dollars were $115.9 million for the nine months ended September 30, 2009 as
compared to $104.2 million for the same period a year ago, an increase of $11.7
million, or 11.2%. Gross margin as a percentage of revenue increased to 11.7% in
the nine months ended September 30, 2009 from 10.1% in the nine months ended
September 30, 2008. The increase in gross margin percentage from 2008 to 2009
was primarily the result of the termination of the CAP and certain UHC contracts
which, as expected, reduced volumes and increased Specialty Pharmacy Services’
overall margin percentage. In addition to a more favorable business
mix, supply chain programs and reduced shipping costs also contributed to the
increase of the gross margin percentage and dollars. We also
experienced an increase in gross margin dollars in 2009 due to action taken to
purchase drugs during the fourth quarter of 2008 in anticipation of drug cost
increases to take effect during the first quarter of 2009. In early
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, which caused a
reduction in gross margin in the three months ended March 31, 2008.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses (“SG&A”) for
the three months ended September 30, 2009 were $32.4 million, or 9.7% of total
revenue, as compared to $31.9 million, or 8.9% of total revenue, for the quarter
ended September 30, 2008. SG&A expenses were up slightly due to
several offsetting factors. First, variable broker costs to market discount card
programs increased $0.7 million due to revenue growth. Offsetting
this volume-based growth in SG&A was the $0.8 million reduction in cost due
to the absence of the one-time settlement with the Office of the Inspector
General (“OIG”) in the third quarter of 2008. In addition,
investments in our sales force and information technology increased salaries and
consulting costs. These costs were partially offset by continued cost control
measures in our operating units and reduction in Corporate overhead costs such
as employee benefits. Legal and Compliance costs also increased due to
refreshing our compliance programs.
SG&A
for the nine months ended September 30, 2009 was $94.3 million, or 9.5% of total
revenue, as compared to $95.0 million, or 9.2% of total revenue, for the same
period in 2008. SG&A expenses were down slightly due to several
offsetting factors. First, variable broker costs to market discount card
programs increased $2.3 million due to revenue growth. These costs
and costs to strengthen our sales force and information technology were more
than offset by continued cost control measures which reduced certain salaries
and benefits and by the absence of the one-time settlement with the Office of
the Inspector General (“OIG”) in the third quarter of 2008.
Bad Debt Expense. For the
third quarter of 2009, bad debt expense was $2.4 million, or 0.7% of revenue, as
compared to $1.4 million, or 0.4% of revenue, in the third quarter of
2008. Prior year results include recoveries on previously reserved
amounts. Our overall methodology used for determining our provision
for bad debt remains essentially unchanged.
For the
nine months ended September 30, 2009, bad debt expense was $5.4 million, or 0.5%
of revenue, as compared to $2.8 million, or 0.3% of revenue, in the nine months
ended September 30, 2008. Prior year results include recoveries on previously
reserved amounts. Our overall methodology used for determining our
provision for bad debt remains essentially unchanged.
Net Interest Expense. Net
interest expense was $0.4 million for the third quarter of 2009 as compared to
$0.7 million for the same period a year ago, due to reduced borrowing
levels.
Net
interest expense was $1.5 million for the nine months ended 2009 as compared to
$1.9 million for the same period a year ago, due to reduced borrowing levels as
well as a reduced borrowing rate.
Provision for Income Taxes.
For the quarter ended September 30, 2009, our provision for income taxes
was $0.5 million with an effective tax rate of 7.5%. For the quarter
ended September 30, 2008, our provision for income taxes was $0.7 million with
an effective rate of 34.1%. The lower effective tax rate of 7.5% for
the current quarter compared to the statutory rate is primarily a result of a
reduction in the valuation allowance due to the expected utilization of a
portion of the net operating losses in 2009. The effective tax rate
for the quarter ended September 30, 2008 differs from the statutory rate
primarily due to amortization of indefinite lived assets.
For the
nine months ended September 30, 2009, our provision for income taxes was $1.2
million with an effective tax rate of 8.5%. For the nine months ended
September 30, 2008, our provision for income taxes was $1.9 million with an
effective tax rate of 42.4%. The lower effective tax rate of 8.5% for
the nine months ended September 30, 2009 compared to the statutory rate is
primarily a result of a reduction in the valuation allowance due to the expected
utilization of a portion of the net operating losses in 2009. The
effective tax rate for the nine months ended September 30, 2008 differs from the
statutory rate primarily due to amortization of indefinite lived
assets.
Net Income and Income Per Share.
Net income for the third quarter of 2009 was $5.7 million, or $0.14 per
diluted share, as compared to net income of $1.4 million, or $0.04 per diluted
share, for the same period last year.
Net
income for the nine months ended September 30, 2009 was $13.4 million, or $0.34
per diluted share, as compared to net income of $2.6 million, or $0.07 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 $14.0 million during the first nine
months of 2009, as compared to $15.4 million of cash used in operating
activities during the first nine months of 2008. The increase in cash
provided by operating activities was primarily the result of net income of $13.4
million, as well as a decrease in accounts receivable, which was offset by an
increase in inventory and by a reduction in accounts payable. The
$11.3 million reduction in accounts receivable was due to termination of the CAP
and certain UHC contracts. The increase of $2.6 million in inventory
was a result of supply chain programs. The decrease of $14.0 million
in accounts payable is primarily related to the timing of strategic inventory
purchases.
Net cash
used in investing activities during the first nine months of 2009 was $4.5
million compared to $5.9 million for the same period in 2008. The
cash used was driven primarily by the investment in our information technology
infrastructure during the first nine months of 2009 and 2008.
Net cash
used in financing activities during the first nine months of 2009 was $9.5
million compared to $21.3 million of cash provided by financing activities for
the same period a year ago. The cash used in financing activities to
pay down the line of credit was generated from higher net income and lower
working capital requirements. We also received $1.4 million from the
exercise of employee stock compensation plans in 2009.
At
September 30, 2009, there was $39.6 million in outstanding borrowings under our
revolving credit facility (the “Facility”) with an affiliate of Healthcare
Finance Group, Inc. (“HFG”), as compared to $50.4 million at December 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, provided a sufficient level of
receivable assets are available as collateral. 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 September 30, 2009 we had $45.4 million of credit
available on a borrowing basis of $85.0 million 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 September 30, 2009
At
September 30, 2009, we had working capital of $76.2 million compared to $58.8
million at December 31, 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
September 30, 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.
In the
ordinary course of business, we also obtained certain letters of credit (“LC”)
from commercial banks in favor of various parties. At September 30,
2009, there was $1.1 million on deposit as collateral for these
LCs.
Exposure
to market risk for changes in interest rates relates to our outstanding debt. At
September 30, 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 September 30, 2009, a 1% increase in current market interest rates would have
an impact of approximately $0.4 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
September 30, 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 September 30, 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.
Changes
in Internal Controls
Throughout
2009 we have been implementing a new pharmacy dispensing, clinical management
and accounts receivable management system. The implementation of this
system resulted in changes to our system of internal control over financial
reporting that we believe enhance our system of internal controls and was not
made in response to any material deficiency in internal control.
Other
than the implementation of this new system, there have been no changes in our
internal control over financial reporting that occurred during our most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Without
admitting liability for any matters alleged in the complaint, on August 6, 2009,
the Company agreed to settle all claims in the Eufaula action without any
admission of liability. This settlement was preliminarily approved by the
court on August 27, 2009, and the final court approval is scheduled to be heard
on November 4, 2009. If approved by the court at the hearing scheduled for
November 4, 2009, members of a settlement class of pharmacies would receive
$0.065 for each branded prescription filled during the class period properly
presented to the administrator, a fee for their attorneys and incentive fee for
the named plaintiff, and costs of administration. In exchange, the Company
would be released from all class members' claims. The settlement is fully
covered by insurance and will not ahve any adverse impact on the Company's
business, financial position or results of operations.
(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 July 30, 2009, accession No. 0001014739-09-000029)
|
|
Exhibit
10.1
|
Prime
Vendor Agreement dates as of July 1, 2009 between AmerisourceBergen Drug
Corporation and the Company.*
|
|
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
|
____________________
*The
Registrant has requested confidential treatment with respect to certain
information contained in this exhibit. In the event that the
Commission should deny such request in whole or in part, the Company shall file
the exhibit by amendment to this Quarterly Report on Form 10-Q (which shall
include those portions of the exhibit not deemed Confidential by the
Commissions).
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:
November 2, 2009
|
/s/ Stanley G. Rosenbaum
|
|
Stanley
G. Rosenbaum, Chief Financial Officer,
|
|
|
Treasurer
and Principal Accounting Officer
|
|
18
EXHIBIT
10.1
Note:
Certain material has been omitted from this Prime Vendor Agreement in accordance
with a request for confidential treatment submitted to the Securities and
Exchange Commission. [*****] indicates omitted material. The omitted material
has been filed separately with the Securities and Exchange
Commission.
PRIME
VENDOR AGREEMENT
This
Prime Vendor Agreement ("Agreement") is made as of July 1, 2009
("Agreement Date") by AmerisourceBergen Drug Corporation, a Delaware corporation
("ABDC"), and BioScrip, Inc., a Delaware corporation, on
behalf of itself and its subsidiaries (collectively,
"Customer").
A. ABDC
is a national distributor of pharmaceutical and other products, including
prescription (“Rx”) and over-the-counter (“OTC”) pharmaceuticals, nutritional,
health and beauty care (“HBC”) and home health care (“DME”) products
(collectively, "Products"), and services (“Services”);
B. Customer
owns and/or operates one or more pharmacies and distribution centers
("Facilities") at each location in Exhibit A, as updated from time to time to
include other facilities Customer opens, closes, acquires, is affiliated with or
otherwise operates during the Term in the United States; and
C. The
parties agree to the following obligations to each other under which ABDC will
provide Products and Services to Customer (“Program”).
1. PRICING
AND PAYMENT TERMS
ABDC will
be Customer’s Primary Vendor for all of Customer's Facilities for Products and
ABDC agrees to sell to Customer as Customer’s Primary Vendor, all in accordance
with the terms and conditions of this Agreement. Customer will pay Product costs
and Program fees pursuant to the payment terms in Exhibit "1"
("Pricing/Payment Terms"). As Customer’s "Primary Vendor" Customer
agrees to purchase from ABDC and ABDC agrees to sell to Customer, [*****],
measured on a dollar basis, of all prescription pharmaceutical Products it
purchases that are available through pharmaceutical wholesaler distributors,
generally, but excluding
purchases of therapeutic plasma products (i.e., IVIG, Albumin and Hemophilia
clotting Factors), as
verified quarterly. ABDC agrees that any Customer purchases of such
therapeutic plasma products that are purchased from ABDC's affiliate,
AmerisourceBergen Specialty Group, will be included in the calculation of “Net
Purchases” (as defined in Paragraph 1(A)(4) of Exhibit 1. In
addition, Customer will purchase, at a minimum, the minimum aggregate annual
purchase amount in Paragraph 5(A) of Exhibit 1. Orders for Products, including
controlled substances (CSOS for Schedule IIs) will be electronically transmitted
and will describe Products that ABDC will provide to Customer, the quantity and
designated delivery location. Payment (except pre-pay) must be by automated
clearinghouse electronic funds transfer (ACH/EFT). If Customer is
unable to transmit Orders for Products electronically due to system failure
(whether Customer’s or ABDC’s) or otherwise, Customer may transmit orders
manually by telephone, fax or other available method.
2. PRxO
GENERICS PROGRAM PARTICIPATION
Customer
must participate in ABDC's preferred generic formulary program ("Preferred Rx
Options” or “PRxO Generics”) pursuant to Paragraph 3 of the Pricing/Payment
Terms.
3. CUSTOMER
LOCATIONS & DELIVERIES
ABDC will
deliver Products (i) twice a day, five (5) days a week (or 10 deliveries per
week) except ABDC holidays and warehouse physical inventory days to Customer’s
primary distribution Facility (located in Columbus, Ohio); and (ii) once a day
to Customer’s other Facilities, five days a week (Monday –
Friday). ABDC will provide Customer with a copy of its
holiday list and inventory dates at such time as the list becomes generally
available to ABDC employees, but in any event, no later than December 15 of the
prior year. [*****] Customer will be charged [*****] for each additional emergency order
to a Facility (plus ABDC's actual out-of-pocket expense for courier or other
non-standard or expediited deliver service). Newly acquired facilities
with existing agreements with other distributors will become Facilities under
this Agreement upon the first date that Customer may terminate
such
1
existing
agreement in accordance with its terms, with or without cause, without breaching
it or paying an early termination penalty. Service to Facilities
outside of the continental United States may be subject to a delivery
surcharge. Customer may order Products for which it needs pedigree
service pursuant to Paragraph 6 of Exhibit 2 (Additional Value Added
Services).
4. FILL RATES.
ABDC
commits to a [*****] “Adjusted Fill Rate” on a chain-wide basis measured
quarterly. The ”Adjusted Fill Rate” is calculated as
follows: (a) An item shorted on an original order will not
be counted as a short for the second time until 72 hours from the initial
receipt of the short order have passed. (b) Where only a
partial quantity is received of an individual line item, it will be a short only
if fifty percent (50%) or less of the quantity ordered is
shipped. (c) On any new item, or an item previously not
ordered by Customer, a period of thirty (30) days will be given to add the item
to ABDC’s inventory. This period is computed from the date Customer
places the original order and provides estimates on
usage. (d) The quantity of an item ordered in a week by a
facility that is [*****] of Customer's average weekly volume during the
preceding month for such item will not be considered
short. (e) Manufacturers' legitimate back orders,
unavailability or shortages are not computed as a short order in determining the
Adjusted Fill Rate. Achievement of the [*****] Adjusted Fill Rate
will be deemed a material term of this Agreement.
5. CUSTOMER
SERVICE
ABDC will provide Customer with a
[*****] customer support representative. [*****].
6. RETURNED
GOODS POLICY
In
returning Product to ABDC, Customer will comply with ABDC's standard policy
("Returned Goods Policy"), as amended from time to time by ABDC. If
Customer returns more than 3% of its Rx Net Purchases or 3% of its non-Rx Net
Purchases in any month, ABDC may assess Customer an additional restocking
fee. Customer may only return Product purchased from ABDC and for
which Customer provides the invoice number and purchase date. ABDC
may reject returns that do not have an invoice number or purchase date or that
exceed in amount either 3% return limit or the amount on the referenced
invoice. ABDC may refuse all future returns from Customer if Customer
submits any counterfeit Product for return; provided, however, Customer may
return to ABDC any counterfeit, adulterated, mislabeled or otherwise suspicious
product purchased from ABDC if Customer identifies it as such so as to help
minimize the risk such product will be re-sold or otherwise placed back into the
stream of commerce.
7. ADDITIONAL SERVICES &
PROVISIONS.
Services
to be provided by ABDC are listed in Exhibit "2". Terms,
conditions and other provisions are set forth in Exhibit "3"
("Provisions"). ABDC may, from time to time, develop policies and
procedures related to new or existing Services offered to customers, on an
interim or as-needed basis. If ABDC develops such policies or
procedures or changes current ones, ABDC will notify Customer in writing at
least thirty (30) days before such changes are
effective. [*****]
8. TERM
OF AGREEMENT
Subject
to Provisions Paragraph 5, the Term will be from August 26, 2009 ("Effective
Date") until August 31, 2012. The parties may extend this Agreement
up to two (2) additional years upon mutual written consent. If not
terminated, the Term will thereafter extend on a month-to-month basis until
either party gives 90 days' prior written notice to the other of its intention
to have this Agreement terminate.
2
9. EARLY
TERMINATION
If (1)
Customer terminates the Agreement prior to the expiration of the Term under any
circumstances other than a default by ABDC; or (2) ABDC terminates the Agreement
prior to the expiration of the Term as a result of a default by Customer,
Customer will pay ABDC as an early termination payment and not as a
penalty: [*****]. Any such amount is in addition to other
amounts, lost profits or other actual damages caused by Customer’s breach of
this Agreement. This Section 9 does not grant Customer any right to
terminate this Agreement except as otherwise expressly provided in this
Agreement.
10. RECORDS
To the
extent required by 42 U.S.C. §1395x(v)(1), until four years after the Term, ABDC
will make available to the U.S. Department of Health & Human Services
Secretary, the Comptroller General, or their respective authorized
representatives, upon their written request, a copy of this Agreement and all
records required to certify the nature and extent of pricing for Products and
Services from ABDC under this Agreement. ABDC will ensure, to the
extent it carries out its duties through a subcontract with a value or cost of
$10,000 or more in a 12 month period with a related organization, such
subcontract will contain similar provisions. Notwithstanding the
foregoing, ABDC has no duty to make public attorney-client privileged
documents.
11. NOTICES
Notices
must be in writing and sent certified mail, prepaid, return receipt requested,
or sent by facsimile to the address or facsimile number below. Parties may
change this information by written notice to the other party. Pursuant to the
Telephone Consumer Protection Act of 1991, 47 U.S.C. §227, Customer consents to
receiving notices, including product updates, recalls, new product launches and
programs, advertisements and other marketing materials by telephone facsimile
(“fax”) machine from ABDC, its affiliates and their related companies, to its
fax numbers.
|
|
To
Customer:
|
BioScrip,
Inc.
|
Fax: (914)
460-1661
With a
copy
to: BioScrip,
Inc.
100
Clearbrook Road
Elmsford,
NY 10523
Attn: General
Counsel
Fax: (914)
460-1670
|
|
To
ABDC:
|
AmerisourceBergen
Drug Corporation
|
Fax: (610) 727-3601
|
|
with
a copy to:
|
AmerisourceBergen
Corporation
|
1300
Morris Drive
Chesterbrook,
Pennsylvania 19087-5594
Attn:
General Counsel
Fax:
(610) 727-3612
3
12. EXHIBITS
The
following exhibits to this Agreement are incorporated by this
reference.
1 Pricing/Payment
Terms
2 Value-Added
Services
3 Provisions
IN
WITNESS WHEREOF, the parties have had a duly authorized officer, partner or
principal execute this Prime Vendor Agreement as of its Agreement
Date.
|
CUSTOMER:
BioScrip,
Inc., on behalf of itself and its subsidiaries
By:
/s/ Rick
Smith
Name:
Rick
Smith
|
ABDC:
AmerisourceBergen
Drug Corporation
By:
/s/ John
Palumbo
Name:
John
Palumbo
|
4
EXHIBIT
1 TO
PRIME
VENDOR AGREEMENT
PRICING / PAYMENT
TERMS
In
addition to payment for Products, Customer will pay ABDC the following Program
and other fees for ABDC's Product distribution and Services for Customer.
Pricing does not reflect any administrative or other fee to a buying group or
group purchasing organization ("GPO"). If Customer contracts with a GPO,
Customer will pay any such fees required to be paid by ABDC as a result of
Customer’s business under this Agreement to the applicable GPO. In any event, ABDC shall not pay a GPO fee until a GPO designation
form signed by Customer is filed with ABDC. Customer will pay any
increase in GPO administrative fees during the Term that are required to be paid
by ABDC as a result of Customer’s business under this
Agreement.
1. PROGRAM
FEES
A. (1)
Customer will pay the following Price of Goods based upon the definition of
“Cost” below, subject to the following adjustments for Customer’s Total Combined Monthly Net Purchases and its average
monthly purchases of PRxO Generic Purchases as a percentage of Customer’s total
Rx Purchases (“PRxO Generics Compliance”) under this Agreement, for Products
other than Products and Services designated as ABDC Special Price
Products. ABDC will add to the billed amount any applicable sales,
use, business and occupation, gross receipts or other taxes that ABDC is
required to collect and pay. Customer will promptly return to ABDC
non-disposable equipment and material (e.g., totes, padding, pallets,
packs/coolers/insulation, monitors/loggers, etc.) or pay replacement cost of
items not made available for pickup at the later to occur of (i) the next
scheduled delivery; or (ii) five business days thereafter. Tiers will
be adjusted once per quarter, with any change effective on the 15th day
of the quarter and based on Net Purchases for the prior calendar
quarter.
|
Extended Semi-Monthly Pay (EFT)
– [*****]
|
||||
|
[*****]
|
||||
|
Monthly
Net Purchases
|
[*****]
|
[*****]
|
[*****]
|
[*****]
|
|
[*****]
|
[*****]
|
[*****]
|
[*****]
|
[*****]
|
|
[*****]
|
[*****]
|
[*****]
|
[*****]
|
[*****]
|
|
[*****]
|
[*****]
|
[*****]
|
[*****]
|
[*****]
|
Notes: (1)
The Price of Goods for OTC will be [*****].
(2) The
Price of Goods for Drop shipments will be [*****].
(3) The
Price of Goods for [*****].
(2) “Cost"
with respect to any Product means the lower of (i) the price of the Product on a
supplier’s price list on the date the Product is allocated to Customer or (ii)
any applicable Customer/GPO contract price for the Product authorized by a
supplier and maintained in an ABDC bid file, in each case exclusive of discounts
for prompt payment given to ABDC by its manufacturers. Cost outside
the continental U.S. may be higher than manufacturer’s/supplier's normal price
list.
(3) Selected
Products (“ABDC Special Price Products”) including but not limited to food, gift
items, HBC items, home healthcare (DME), items deemed operationally difficult to
manage, items purchased from suppliers not offering cash discounts of [*****] or better, deliveries
FOB destination or other standard terms, generics, nutritionals, private label,
school and office items, slow-moving items, supplies (bottles & vials) and
Services will not be billed based upon Cost (as defined above), but
will instead be billed in accordance with the terms and conditions established
by ABDC from time to time for such Products and Services. Purchases
of ABDC Special Price Products count toward total Monthly Net
Purchases.
(4) The
above Price of Goods is conditioned upon Customer's PRxO Generics Net Purchases
being at least (i) [*****] of its total Net Purchases
from ABDC or (ii) [*****] of its total generic Rx
Net Purchases from all sources. Customer will still qualify for the
Cost of Goods applicable to [*****] PRxO Generic compliance
even if its Net Purchase volume is less than [*****] as long as its PRxO
Generics purchases from ABDC are at least [*****] of its total generic Rx
purchases from all sources; provided, however, if Customer's generic Rx Net
Purchases meet the [*****] level but is less than
[*****] of its total Net Purchases, ABDC may reasonably adjust brand Rx Price of
Goods to reflect lower profitability pursuant to Paragraph
5. Customer’s generic Rx purchases will be evaluated quarterly for
compliance with this condition, with any Price of Goods adjustments made
accordingly.
B. [*****]
| CONFIDENTIAL | |
| Customer will delete this Exhibit "1" (or request confidential treatment) | |
| if it discloses this Agreement for any reason, including in any SEC filing. |
;
5
C. Additional Value-Added
Services. The additional value-added Services in Exhibit "2" will be
provided to Customer by ABDC for [*****] for Facilities that
meet minimum Net Purchase levels.
D. Ordering
Hardware/Software. In addition to the foregoing value-added Services fee,
Customer will pay to ABDC the per-month fees in Exhibit "2" for
ordering and reporting software and hardware selected by Customer for each
installation on system hardware at Customer's Facilities and other
locations. The parties will coordinate to ensure C-II controlled
substance electronic ordering systems (CSOS) interface correctly.
E. Contract
Administration. In administering Customer's GPO/supplier
contracts, Customer must (i) provide a copy of new contracts, (ii) comply with
supplier's terms, (iii) use all products for its "own use" (as defined in
judicial and legislative interpretations), (iv) notify ABDC at least forty-five
(45) days before it changes suppliers, and (v) upon changing suppliers, assist
ABDC in disposing of any excess inventory acquired for
Customer. Additionally, Customer will notify ABDC before
discontinuing purchases of any special inventory that it has requested that ABDC
stock (whether or not pursuant to a contract) and, provided ABDC’s inventory
levels are commercially reasonable relative to Customer’s historic purchase
orders of such Products, assist ABDC in disposing of any excess of such
inventory. When invoiced, Customer will promptly reimburse ABDC for
any unpaid chargebacks that are (x) denied by a GPO or manufacturer/supplier or
(y) not paid within forty-five (45) days and, in either case, Customer will look
solely to such GPO or manufacturer/supplier for redress.
3. PRxO
GENERICS PROGRAM
A. PRxO
Generics. Customer must participate in PRxO Generics Program
pursuant to requirements as amended from time to time by ABDC and must purchase
from ABDC no less than [*****] of its total generic Rx
purchases or [*****] of its total Net Purchases from ABDC in the PRxO Generic
Program; provided, however, Customer’s total generic Rx Net Purchases may be
less than [*****]
(but at least [*****]) as provided in Paragraph 1(A)(4) of this Exhibit
1. A GCN is the number assigned to one strength of one Product in the
multiple sizes offered of that Product (e.g. Atenolol 25mg, in unit sizes of
100, 500 and 1000 are one GCN). GCN counts are subject to change with new
Product launches. The Top 100 is a list of more than one hundred commonly used
generic Rx Products set by ABDC from time to time.
B. Custom Price
File. ABDC created a custom PRxO Generics price file for
Customer that is based on an analysis of Customer's top generic purchases, [*****] and representing
[*****] of Customer's
generic spending prior to the Agreement Date. [*****] ABDC
will assign a generic specialist to participate in a monthly call with Customer
to evaluate generic purchases, monitor the competitive landscape for generic Rx,
present opportunities and drive additional generic Rx savings. In
addition ABDC will conduct quarterly business reviews to benchmark Customer's
PRxO Generics performance and pricing.
C. [*****]
D. Compliance & Price
Adjustment. ABDC may audit Customer's total generic Rx
purchases from all sources other than ABDC. Purchase rebates are not
cumulative, with calculations quarterly and no carryover from one quarter to the
next. Pending rebates will be noted in Customer's invoices and
statements. Customer indemnifies ABDC pursuant to Paragraph 6 of Exhibit 3 for
any inappropriate use of such invoices and statements. ABDC will
issue any credit to Customer within 30 days of the end of each calendar
quarter.
4. PAYMENT
TERMS
A. Payment. Customer
agrees to [*****] payment terms for Product
purchases.
Payments
for invoices dated between the [*****] and the [*****] of the
month are due on or before the [*****] of the same month
[*****] and invoices
dated from the [*****] to the end of the month are due and payable on the
[*****] of the
following month.
B. Terms. All
payments must be received for deposit to ABDC's account by the due date by
ACH/EFT. Payment term changes may affect Price of Goods.
5. MINIMUM
ORDER VOLUME
A. Annual
Purchases. Customer must comply with (i) Primary Vendor
obligations under Section 1 of the Agreement, with Net Purchases [*****] during each Contract Year,
and (ii) minimum Net Purchases of PRxO Generics under Paragraph 1(A)(4) of this
Exhibit 1. "Net Purchases" during a period means total purchases less
returns, credits, rebates, late payment fees and similar items, with no
carryover from one period to the next and with any minimums prorated for any
partial period, including Contract Year 1. Contract Year 1 is from
the Effective Date until August 31, 2010. Subsequent Contract Years
are the following 12 calendar-month periods. Customer's Net Purchases during
subsequent Contract Years are projected (but not obligated) to increase at a
rate of [*****] per
Contract Year.
| CONFIDENTIAL | |
| Customer will delete this Exhibit "1" (or request confidential treatment) | |
| if it discloses this Agreement for any reason, including in any SEC filing. |
6
B. Small Order
Charge. If a Facility purchases less than [*****] per month, a
delivery charge of [*****] per delivery will be assessed during the following
month for each order that is less than [*****] until at least
[*****] per month is purchased by such Facility.
C. Price of Goods
Adjustments. Customer acknowledges that Price of Goods and
Program fees available under this Agreement are based upon Customer's meeting
such minimum annual, PRxO Generics and other Net Purchases and, if Customer
fails to do so, in addition to any other remedies, including Paragraph 1(A)(4),
ABDC may reasonably adjust Price of Goods and Program fees on 10 days' notice to
reflect Net Purchases that average less than [*****] per month in any three (3)
consecutive months.
| CONFIDENTIAL | |
| Customer will delete this Exhibit "1" (or request confidential treatment) | |
| if it discloses this Agreement for any reason, including in any SEC filing. |
;
7
EXHIBIT
2 TO
PRIME
VENDOR AGREEMENT
ADDITIONAL VALUE-ADDED
SERVICES
1. Services
A. ABDC
offers Customer the following Services for the monthly fees in
Paragraph 1(C) of Pricing/Payment Terms.
· Bar-Coded
Shelf Labels
· DEA
Scheduled Pharmaceuticals Purchased Report
· Monthly
Usage and 80/20 Report
· Price
stickers – Rx and OTC
B. Other
than pedigree services required by applicable law, ABDC may discontinue any
Services as it deems appropriate, in which case ABDC will make a reasonable
proportionate reduction in the monthly fee based upon the value of the
discontinued Services. In addition, from time to time ABDC may offer such new
Services, at such additional fees as it determines.
2. Ordering & Reporting
Software and Hardware
A. ABDC
offers Customer the following ordering and reporting software and
hardware.
|
·
|
Custom
Reporting software for [*****].
|
|
·
|
Internet
ordering software (Catalog and Order Entry (COE), iEcho
or similar software, as appropriate)
[*****].
|
|
·
|
UltraPhase/Telxon
handheld electronic order entry terminal ([*****] per pharmacy)
[*****].
|
|
·
|
Ordering
hardware will be included for Customer at no additional monthly charge per
installation. Any such hardware may be used solely with ABDC's ordering
and reporting software. Customer is responsible for hardware
maintenance and repair.
|
B. ABDC
retains title to all ordering and reporting hardware and software and, pursuant
to Provisions Paragraph 5.2, Customer must return them upon termination of this
Agreement.
C. Computer
consulting and related services will be offered at ABDC's then-current standard
charges for such services.
3. Monthly Select Special Price
Product Report
Each month, ABDC will provide to
Customer the list of current ABDC Special Price Products.
4. Recalls
ABDC will notify Customer of all
recalls as instructed in the supplier's notification.
5. Drop Ship
Service
From time
to time upon Customer's or a supplier's request, ABDC may provide drop shipment
billing service as a convenience where Products are shipped directly to Customer
by the supplier and the supplier bills Customer through
ABDC. Suppliers must meet ABDC's liability insurance and other
requirements. Customer's ability to return such Products through ABDC
may be subject to different terms orotherwise restricted.
8
Drop
shipments may be subject to an additional charge. Other terms,
including title, insurance and risk of loss, are set by each supplier and ABDC
disclaims all liability in connection with drop shipments.
6. Pedigree
Services
|
A.
|
|
|
o
|
Retrieve
PDF Version of Pedigree via ABC Portal
|
| o |
Electronic
Pedigree File That Complies With the 04182006 EPC Global
Standard
|
|
B.
|
Customer
will be responsible for paying all shipments expenses going outside the
state of Florida.
|
|
C.
|
Customer
understands any damage to Product during shipment is to be handled through
Customer’s carrier. Customer is responsible for providing
adequate insurance on its deliveries.
|
|
D.
|
Customer
understands that returns are allowed within seven (7) days of the
sale. If ABDC makes a mistake in order fulfillment, ABDC will
pay freight for the return and for the shipment to correct the
mistake. Otherwise, Customer must pay freight for the
return.
|
|
E.
|
Customer
will pay a monthly pedigree service fee of [*****]. ABDC reserves the right
to increase monthly fees with [*****] notice if overall
distributor customer Rx volume significantly increases over
time.
|
|
F.
|
Customer
will be invoiced for pedigree service charges, including freight, on the
first day of each calendar month. Payment is due under the
payment terms in this
Agreement.
|
9
EXHIBIT
3 TO
PRIME
VENDOR AGREEMENT
PROVISIONS
1.
DUTIES OF ABDC
1.1 Orders. Orders may be
subject to minimum order size requirements. Other than supplier back-ordered
Products, ABDC will make reasonable efforts to deliver orders placed by ABDC's
normal order cut-off time by the next delivery day. Hawaii, Alaska, U.S.
territories and foreign deliveries may be subject to a delivery
surcharge.
1.2 Emergency Orders.
ABDC will use commercially reasonable efforts to meet a requested delivery time
for emergency orders, which may be subject to an additional charge. If ABDC
cannot do so, Customer may fill emergency orders outside the Program on such
occasions using another provider notwithstanding minimum purchase commitments in
this Agreement.
1.3 Records, Audits. ABDC
will maintain records of transactions for one year during the Term and after.
Such audits may be conducted only during ordinary business hours and upon
reasonable notice. No audit may cover any period previously audited for the same
issue. All costs will be borne by Customer, including costs to produce records.
If an audit establishes net overcharges or undercharges, ABDC will credit or
charge Customer within thirty (30) days of receipt of written notice of the net
overcharge (or, if later, within thirty (30) days of receiving an applicable
supplier's credit) or undercharge.
2.
DUTIES OF CUSTOMER
2.1 Primary Vendor
Orders. For Products required by Facilities, Customer will submit an
order for all Products (electronic or as otherwise provided).
2.2 Disclosure. Customer
will comply with all laws, including reporting or reflecting discounts, rebates
and other price reductions pursuant to 42 U.S.C. §1320a-7b(b)(3)(A) on cost
reports or claims submitted to federal or state healthcare programs, retaining
invoices and related pricing documentation and making them available on request
to healthcare program representatives.
2.3 Notice of Changes.
Customer will promptly notify ABDC of changes in ownership, name, business form
(e.g., sole proprietorship, partnership or corporation) or state of
incorporation or formation, or any intent to sell, close, move or modify its
operations.
2.4 No Set-Off.
Customer's obligation to pay for Products will be absolute, unconditional and
not subject to reduction, set-off, counterclaim or delay.
2.5 Billing Statements.
Billing disputes must be brought promptly to attention of ABDC's accounts
receivable department or Customer will be deemed to accept the accuracy of
statements and waive its right to dispute any amounts 12 months after receipt of
the first statement containing the disputed amount.
2.6 Late Payment. All
payments must be received in ABDC's account during normal business hours on the
date due. Drivers and other ABDC employees cannot accept cash. Price of Goods
reflects a prompt payment discount. If payment is not received by the
due date, ABDC will invoice Customer such unearned discount by recalculating
Price of Goods based on Cost + 2% (or, if greater, 2% more than the invoiced
Price of Goods) effective as of the due date. Thereafter, if payment is
delinquent, ABDC may withhold any payments to Customer and will assess a per-day
late payment fee of the lower of 0.05% (18%/360) or the maximum rate permitted
by law on the outstanding balance until paid, beginning on the first business
day after such due date. Additionally, ABDC may adjust future Price of Goods to
reflect Customer's payment history. Such rights are in addition to ABDC's other
remedies and will not relieve Customer of its obligation to pay
promptly.
2.7 Title And Risk Of
Loss. All goods are F.O.B. Customer’s location, with freight prepaid for
normal delivery. Expedited delivery is extra. Title and risk of loss pass upon
delivery to Customer.
2.8 Extension Of Credit.
Payment terms are an extension of credit based upon an evaluation of Customer's
financial condition upon commencement of this Agreement as reflected in written
information from Customer. Customer will abide by ABDC's standard credit terms
as amended from time to time by ABDC. Customer will promptly notify ABDC in
writing of any Claim that, with an unfavorable result, would have a material
adverse effect on Customer's financial condition or operation. Upon request,
Customer will furnish ABDC complete annual and quarterly financial statements
and other evidence of its financial condition necessary to establish, in ABDC's
opinion, Customer's ability to perform its obligations. If ABDC reasonably
believes Customer's ability to make payments is materially impaired or its
financial condition has materially deteriorated, ABDC may from time to time
amend Customer's payment terms, require past due amounts to be paid and/or
require posting of adequate security or such other documents as ABDC may
require. Pending receipt of requested items, ABDC may withhold delivery of
Products and providing Services; place Customer on a C.O.D. basis if ABDC has
not received payment when due after giving notice by 10:00 a.m. and giving
Customer until 2:00 p.m. the same day for ABDC to receive payment; and/or
require Customer to pay part or all of any past due amount as a condition to
continued service.
3.
NO WARRANTIES
Customer
acknowledges that ABDC is not the manufacturer of any Products and ABDC
DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THOSE OF
MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE, FOR
PRODUCTS AND SERVICES. No oral or written information provided by ABDC, its
employees or other representatives will create any such warranty. In no event
will ABDC be liable for any special, incidental or consequential damages in
connection with or related to Products, hardware, Software, including ordering
software, or Services. [*****]
4.
CONFIDENTIALITY
The
Confidentiality Agreement between the parties, dated February 22, 2007, is
incorporated by this reference and its term is hereby extended to the Term of
this Agreement. Pursuant to the Confidentiality Agreement, each party
and its employees or representatives ("Receiving Party") is obligated to protect
all proprietary and confidential information ("Confidential Information")
disclosed by the other ("Disclosing Party") and to not use or disclose it except
in connection with the Program or as otherwise agreed; provided, however, either
party may make such disclosure as is required by applicable securities laws and
rules of NASDAQ or another stock exchange, with any such disclosure subject to
the other party's reasonable prior review and approval. Confidential
Information does not include information (i) available on a non-confidential
basis, (ii) known or able to be formulated by Receiving Party, or (iii) required
to be disclosed by law. Pricing and payment terms are confidential and may not
be shared with any third party. Customer will remove Exhibit "1" (or
request confidential treatment) if it discloses this Agreement for any reason,
including in a Securities and Exchange Commission filing.
5.
TERMINATION OF AGREEMENT
5.1 Default. In addition
to other available remedies, either party may immediately terminate this
Agreement for cause upon written notice to the other party upon:
(a) The
other party's (i) filing an application for or consenting to appointment of a
trustee, receiver or custodian of its assets; (ii) having an order for relief
entered in Bankruptcy Code proceedings; (iii) making a general assignment for
the benefit of creditors; (iv) having a trustee, receiver or custodian of its
assets appointed unless proceedings and the person appointed are dismissed
within thirty (30) days; (v) insolvency within the meaning of Uniform Commercial
Code Section 1-201 or failing generally to pay its debts as they become due
within the meaning of Bankruptcy Code Title 11, Section 303(h)(1) (11 U.S.C.
§303(h)(1)), as amended; or (vi) certification in writing of its inability to
pay its debts as they become due (and either party may periodically require the
other to certify its
10
ability
to pay its debts as they become due) (collectively, "Bankruptcy");
(b) The
other party's failure to pay any amount due or failure to deliver Product and
such failure continues five (5) days after written notice;
(c) The
other party's failure to perform any other material obligation of this Agreement
or any other agreement now or hereafter entered into between the parties and
such failure continues for thirty (30) days after it receives notice of such
breach from the non-breaching party; provided, however, if the other party has
commenced to cure such breach within such thirty (30) days, but such cure is not
completed within such thirty (30) days, it will have a reasonable time to
complete its cure if it diligently pursues the cure until completion; and
further provided that if such breach occurs more than three times during any
twelve (12) month period, the non-breaching party may terminate this Agreement
upon thirty (30) days written notice. "For cause" does not include Customer's
receiving a more favorable offer from an ABDC competitor.
5.2 Survival Upon
Termination. Within five (5) days of expiration or earlier termination of
this Agreement for any reason, all amounts owed by Customer will be immediately
due and payable, Customer will (i) pay ABDC any amount owed and (ii) return to
ABDC all hardware, Software and other equipment, including ordering devices and
totes, or pay to ABDC the replacement cost of such items that are not returned.
Obligations in Provisions Paragraphs 4, 5.2, 6 and 9 and any provision the
context of which shows the parties intended it to survive will remain in effect
after the Term.
6.
INDEMNIFICATION
Each
party ("Indemnifying Party") will indemnify and defend the other, its employees
and representatives ("Indemnified Party") against all claims and damages
(including expenses and attorneys' fees) ("Claim") to the extent arising out of
Indemnifying Party's obligations under this Agreement. Failure to give prompt
written notice of a Claim will not relieve Indemnifying Party of liability
except to the extent caused by such failure. Indemnifying Party will defend a
Claim with counsel reasonably satisfactory to Indemnified Party and Indemnified
Party will cooperate fully in such defense.
7.
CUSTOMER'S INSURANCE
Customer
will maintain sufficient insurance to cover all unpaid inventory in its
possession. Customer will maintain professional liability insurance with limits
of no less than $2,000,000 per incident and $10,000,000 aggregate. ABDC will be
named on such policies as an additional insured. ABDC may reasonably increase
such required limits from time to time.
8.
SOFTWARE LICENSE
8.1 License. ABDC grants
Customer a non-exclusive, nontransferable and revocable license to use software
and related documentation ABDC provides for use in the Program ("Software").
Customer may not make, or allow others to make, copies except one backup copy.
Customer must include all proprietary notices in permitted copies. Customer may
not modify Software or create derivative works and may not translate, reverse
engineer, disassemble or decompile Software.
8.2 Limited Warranty.
ABDC warrants that, during the Term, (i) Software will perform substantially in
accordance with its documentation if operated as directed and (ii) hardware
provided by ABDC and diskettes, CD-ROMs or other media on which the Software is
provided will be free from defects under normal use. ABDC DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THOSE OF MERCHANTABILITY,
NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE, FOR HARDWARE AND
SOFTWARE, AND ACCURACY
OF ANY DATA. ALL DATA IS PROVIDED "AS IS." DUE TO THE NATURE OF SOFTWARE,
HARDWARE AND DATA, ERRORS AND INTERRUPTIONS MAY OCCUR AND CUSTOMER HAS ALL RISKS
FOR QUALITY AND PERFORMANCE. No oral or written information provided by ABDC,
its employees or other representatives will create any warranty.
8.3 Remedy. ABDC's
liability and Customer’s exclusive remedy for breach of warranties in Paragraph
8.2 will be, at ABDC's option, to (i) repair or replace Software or hardware so
it performs substantially in accordance with its documentation; (ii) advise
Customer how to achieve substantially the same functionality using different
procedures, or (iii) replace defective media returned within ninety (90) days of
the Effective Date. Such replacement will not extend such ninety (90) day
period.
9.
MISCELLANEOUS
9.1 Force Majeure. If
ABDC's performance is prevented or delayed by labor disputes, fire, terrorism,
acts of God or any other cause beyond its control, including unavailability of
Products, transportation, materials or fuel, delays by suppliers, internet,
telecommunication or electrical system failures or interruptions, compliance
with any law or any other cause beyond its control ("Force Majeure"), ABDC may
reduce or eliminate Products without liability or obligation during the Force
Majeure period. In addition, if Force Majeure affects ABDC's cost of operations,
ABDC may, at its discretion, add to the cost of Products its increased fuel
costs, including taxes, and other costs associated with Product handling or
operations, so long as Force Majeure affects its costs if such costs rise more
than [*****].
9.2 Security Interest. In
addition to any security interest previously or hereafter provided by Customer
to ABDC, Customer hereby grants to ABDC a security interest which may be a
purchase money security interest in inventory of Products until all amounts owed
to ABDC are paid. ABDC may do such things as are necessary to achieve the
purposes of this Paragraph.
9.3 Assignment. This
Agreement inures to the benefit of and is binding upon the heirs, successors and
assigns of each party; provided, however that Customer may only assign its
rights or delegate its duties under this Agreement with ABDC's written consent,
including the sale, transfer or assignment of the business of Customer, in whole
or in part, whether by merger, change of control, asset sale, operation of law
or otherwise, including any change of 25% or more of the voting equity in
Customer or in the power to vote 25% or more of the voting interest in Customer
in connection with an acquisition. Customer hereby consents to ABDC's
assigning part or all of its obligations to any affiliate and to assigning or
granting a security interest in this Agreement in connection with any financing
or securitization by ABDC or any affiliate.
9.4 Legal Requirements.
ABDC warrants it does not and will not discriminate against any employee or
applicant for employment because of race, creed, color, national origin,
religion, gender, sexual preference, veteran status, handicap or as otherwise
may be prohibited by law and will meet affirmative action obligations as are
imposed by law. ABDC agrees to comply with the provisions of 29 CFR Part
470.
9.5 Miscellaneous. The
successful party in any legal action, including in a Bankruptcy proceeding, may
recover all costs, including reasonable attorneys’ fees. Pennsylvania law will
govern this Agreement without reference to conflict of laws provisions. Any
waiver or delay in enforcing this Agreement will not deprive a party of the
right to act at another time or due to another breach. All provisions are
severable. In the event of a conflict between a prior document
between the parties and this Agreement, this Agreement will control. This
Agreement supersedes prior oral or written representations by the parties that
relate to its subject matter other than the security interest, which is in
addition to and not in lieu of any security interest created in other
agreements. Captions are intended for convenience of reference only. The parties
may not modify this Agreement other than by a subsequent writing signed by each
party. This Agreement will be interpreted as if written jointly by the parties.
The parties are independent contractors.
11
EXHIBIT
31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Richard H. Friedman, certify that:
1. I
have reviewed this Quarterly Report on Form 10-Q of BioScrip, Inc.;
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2.
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Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
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3.
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Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
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4.
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The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f))for the registrant and
have:
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(a)
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Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
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(b)
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Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
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(c)
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Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the controls and procedures, as of the end of the period covered by this
report based on such evaluation;
and
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(d)
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Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
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5.
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The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
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(a)
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All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
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(b)
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Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
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Date:
November 2, 2009
/s/ Richard H.
Friedman
Richard
H. Friedman,
Chief
Executive Officer
EXHIBIT
31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Stanley G. Rosenbaum, certify that:
1. I
have reviewed this Quarterly Report on Form 10-Q of BioScrip, Inc.;
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2.
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Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
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3.
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Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
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4.
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The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f))for the registrant and
have:
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|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
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(b)
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Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
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(c)
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Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the controls and procedures, as of the end of the period covered by this
report based on such evaluation;
and
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(d)
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Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
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5.
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The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
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(a)
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All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
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(b)
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Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
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Date:
November 2, 2009
/s/ Stanley G.
Rosenbaum
Stanley
G. Rosenbaum, Chief Financial Officer
Treasurer
and Principal Accounting Officer
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report
of BioScrip, Inc. (the “Company”) on Form 10-Q for the quarter ended September
30, 2009, as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Richard H. Friedman, Chief Executive Officer of the
Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date:
November 2, 2009
/s/ Richard H.
Friedman
Richard
H. Friedman,
Chief Executive
Officer
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report
of BioScrip, Inc. (the “Company”) on Form 10-Q for the quarter ended September
30, 2009, as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Stanley G. Rosenbaum, Chief Financial Officer of the
Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date: November
2, 2009
/s/ Stanley G.
Rosenbaum
Stanley
G. Rosenbaum, Chief Financial Officer
Treasurer
and Principal Accounting Officer