BioScrip, Inc. (BIOS)

BIOS has begun to cut necessary overhead reaching critical mass and positive operating leverage. According to an analysis conducted by Kaiser Permanente most payors contract with more than one specialty pharmacy management company and view cost containment in this space a priority. This should allow for ample opportunities to gain market share from leaders ESRX, MHS and ABC. With a strong biologic pipeline with many drugs competing in the same care class, the need for specialty pharmacy, DM, PBM and distributions services is set to be robust for the foreseeable future. Given that Part B is largely unaffected by healthcare reform proposals, I believe that an increase in covered lives and underlying secular trends for biotherapeutics will allow BIOS to outperform the market for some time to come. When evaluating precedent transactions, both public and private, in the specialty pharmacy/distribution space, and backing into an intrinsic EV/EBITDA multiple, I find that BIOS, now that operating and management issues are being smoothed out, has the potential to trade between 18-21x forward EBITDA.

Excellent Takeover Candidate!