Option Care Health Inc (OPCH) 2007 Q1 法說會逐字稿

Welcome to BioScrip's first quarter conference call. Joining us today are Richard Friedman, Chairman and Chief Executive Officer, and Stan Rosenbaum, EVP and Chief Financial Officer. If you have not received it yet, you may find today's press release on the Company's website at www.bioscrip.com under the Investor section.

Before we begin, I will remind all listeners that throughout this call we may make statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the intent, belief, or current expectations at the Company, it's Directors or its Officers with respect to the future operating performance of the Company, the operational and financial impact of certain new governmental programs on the Company.

Investors are cautioned that any such forward-looking statements are not guarantees of future performance or the successful execution of the Company's strategic plan and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors, important factors that could cause some of the differences described above are described in the Company's periodic filings with the Securities & Exchange Commission, including its Annual Report on Form 10-K. I direct you to these documents to understand the current business environment and its associated risks.

Earnings before interest, taxes, depreciation, amortization, and option expense, EBITDAO, is a non-GAAP financial measure as defined under U.S. Securities & Exchange Commission Regulation G. As required by Regulation G, BioScrip has provided a reconciliation of this measure to the most comparable GAAP financial measure. This information is available under the Investor section of the BioScrip website, www.bioscrip.com.

Today's call will consist of opening comments from Richard Friedman, a financial review of the quarter by Stan Rosenbaum, and then conclude with a brief question and answer session.

I will now turn the call over to Richard Friedman. Please go ahead.

Thank you, Craig. And good morning, everyone.

Our first quarter 2007 results show solid progress. We are executing on our plan to return BioScrip to profitability. Revenues in our core specialty services business grew 15.4% year-over-year, fueled by preferred distribution arrangements with manufacturers for newly approved drugs, strong growth in infusion, and new business resulting from CAP. Gross margin dollars have increased as a result of increases in more expensive and higher margin specialty products.

The first quarter EBITDAO was approximately $3 million, a $1.7 million improvement over the fourth quarter of 2006 and a $1.3 million improvement over the first quarter of last year. We have produced increasingly positive EBITDAO. BioScrip's operating income improved by nearly $2.5 million or 106% over fourth quarter 2006.

We expect these positive trends to continue. At the same time, BioScrip continues to upgrade its Management Team and make great strides remedying the challenges created as a result of our merger integration, which is consistent with our commitment to shareholders.

I would now like to turn to an update on our growth drivers. As previously reported, starting July 1st, 2006, BioScrip was named as the sole vendor under Medicare's Competitive Acquisition Program, or CAP, and began dispensing Medicare Part B drugs and biologics to participating CAP physicians. First quarter 2007 CAP revenues were approximately $10 million, representing 38% sequential growth. There are currently 2,450 enrolled physicians.

We are pleased with these results and expect to see even greater growth through targeted marketing and educational programs to physician specialists that we believe are the most viable candidates for the current CAP election period. The new enrollment period commenced May 1st, 2007 and will run through June 15th effective August 1st.

Our infusion business unit continues to grow rapidly, and we expect this trend to continue as the pipeline of new drugs expected to come to market are weighted towards infused administration. Given our strong reputation, our expertise, and our strong manufacturer relationships we believe that BioScrip is well positioned to expand its infusion services portfolio and geographic footprint. In addition, we continue to work to expand our delivery channels in which our infusion services are offered, from the home, to the physician's office, and in the future, to ambulatory infusion centers.

$57 million of incremental 2006 revenues were associated with preferred distribution arrangements, with manufacturers for newly approved drugs. In the first quarter of 2007 alone, comparable revenue were $26.4 million, representing 46.3% of all 2006 and an annualized run rate of approximately $114 million.

Quarter-over-quarter growth was approximately 18% and 300% over first quarter of 2006. Additionally, the patient and data services typically associated with these products are now being further developed and presented to managed care plans and manufacturers in an effort to enhance BioScrip's value as a specialty services provider.

Given our position as the sole CAP vendor, we believe that we have the unique opportunity to market a commercial CAP program to meet the needs of MCOs and other payors who want to control rising specialty pharmacy costs. Our specialty therapy acquisition relief, or [MD Star] Program, is just being introduced to the market. MD Star will be marked to both state programs and commercial health insurers in conjunction with physicians looking for an alternative to buy and build, in order to decrease doctors' cash outlays for inventory, reduced reimbursement rates, and risk on co pays. Ultimately, we hope to help keep patients out of the hospital for specialty administration which is often the most costly for payors.

Given our prominence in the HIV/AIDS market, we continue to look for additional opportunities within that therapy. We're focusing on the changing demographics of HIV in the U.S. Through initiatives, we aim to focus BioScrip as the trusted brand and resource for the African-American and Latino communities increasingly afflicted by HIV/AIDS. We have launched several programs designed to reach out to centers of influence within the minority communities. In order to succeed, we are expanding our services to be a higher touch services organization who appreciates and respects the needs and treatment requirements of those distinct communities. We are providing extensive cultural competency training to our entire staff, assuring that BioScrip will be prepared to meet the challenges and needs of these communities.

From an industry standpoint, the latest industry data shows specialty spending approximately $50 billion in 2006 to go to approximately $100 billion by 2010. This specialty spend are expected to make-up almost 26% of all prescription by 2010, compared to 20% today.

To summarize, we have begun to see positive results from our various initiatives, and BioScrip is well positioned to experience continued performance improvement. We are pleased with our progress and will be steadfast in our commitment to return to profitability.

I will now turn the call over to Stan for the review of our financials. Stan.

Thanks, Rich.

First quarter 2007 sales were $296.3 million as compared to $299.7 million in the first quarter of 2006. As previously noted, BioScrip's loss of the Centene contract negatively impacted sales by approximately $35 million. However, increased revenue in our infusion and specialty mail business, as well as CAP, offset all the $3.4 million of the shortfall.

This mix of revenue had a favorable impact on our gross profit, as Centene ran at lower margins than the business that replaced it. As a result, our gross profit for the period was $32.9 million, compared to $30,3 million for the first quarter of 2006.

Total operating expenses for the first quarter of 2007 were $32.8 million, an increase of $900,000 over first quarter 2006. This increase was due to the acquisition of ITS and the CAP program and were offset by cost reduction programs implemented in the third quarter of 2006.

Bad debt expense for the quarter was $3 million or 1% of sales. This compares to $2.3 million or 0.8% of sales in the prior year. The increase in the percentage reflects the acquisition of ITS as well as the impact of replacing Centene sales which required [no bad debt provision,] with other business that does require a [bad debt] provision.

As a result of the above, the Company had operating income of $136,000 for the first quarter, as compared to a loss of $1.6 million in the comparable period of 2006. EBITDAO for the quarter was $3 million, compared to $1.7 million from the first quarter of 2006. It should also be noted this is an improvement of $1,750,000 from the fourth quarter of 2006. Our pretax loss for the first quarter was $950,000 as compared to $2.1 million in the prior year and $3.3 million in the fourth quarter.

On January 1st, 2007 the Company adopted FIN 48, which is the accounting for uncertainty in income taxes. As a result, the Company recorded a $2.4 million increase in our tax liability with a corresponding charge to retained earnings.

In addition, as in the fourth quarter of 2006, the Company increased its valuation reserve with the tax benefits arising from our increase in first quarter taxable losses. This coupled with a first quarter settlement of a tax issue, resulted in a charge of $400,000 to our tax expense. Accordingly, our net loss of $1,340,000 is higher than our pretax loss of $950 due to the reserve mentioned above. This compares to a $1.1 million net loss from the first quarter of 2006.

Turning to our balance sheet, our accounts receivable balance remained essentially unchanged from December 31st, 2006, but our DSO has improved 2 days.

CAP money is being received, and from April 1st to today we have received $8.4 million with an additional $9 million expected in the next few weeks. Although inventory is up over $3 million from yearend, our days on hand remain constant. We'd expect this number to improve as we go through the year.

The balance sheet also reflects the liability for the adoption of FIN 48, of which $4.5 million, $4.5 million of which $400,000 is included in current liabilities.

At March 31st our outstanding borrowings under our credit facility were $50,185,000 and availability was $24,815,000. As of yesterday we had approximately $36,500,000 available under this facility.

I'll now turn the call back to Rich.

Thank you, Stan.

We will now open the lines up for your questions. Bridget.

[OPERATOR INSTRUCTIONS.]

Our first question comes from the line of Glenn Garmont of First Albany Capital.

Thanks. Good morning. I just had two questions.

Number one, in terms of the, the specialty mix in the quarter, what percent of your business is Synogis? And is it meaningful? I guess what I'm trying to figure out, you know, is Synogis is a lower margined product, you know, it's typically a bigger product in the calendar first quarter, and if you kind of negate the Synogis impact would your gross margins have been even higher?

And then, secondarily, you know, when do you expect to be cash flow positive? Do you think you have enough remaining availability under your facility or will you need to go back and revisit that? I just want to get a sense for what your thinking is just in terms of the, you know, the capital structure over the next couple of quarters? Thanks.

Hi, Glenn. Good morning. It's Rich. Stan will deal with the cash flow, but that's positive today. So Synogis was very small. The Synogis was probably in that whole specialty segment for the quarter, just about 1%. It was virtually very, very small.

And, Stan, you want to deal with the [shares]?

Sure. Good morning, Glenn. I would say that with a $3 million positive EBITDAO in the first quarter we were cash flow positive. I think our cash position continues to improve, and will continue to improve as the CAP money continues to come in under the new law that was passed last December.

Yes, liquidity looks very good for the Company today, the availability is increasing on a steady basis. We're now EBITDAO positive. We have very little capital needs, except for some system works that we have to do, so liquidity is improving on a daily basis.

Okay, well, that's good news. So basically the, you know, the debt levels have kind of peaked here, your cash flow has significantly improved, and you'll kind of, you'll start to whittle away at that balance from here?

Yes.

Okay, great. Thanks.

Our next question comes from the line of Brooks O'Neil of Dougherty & Company.

Good morning, guys. I'd just to like to follow-on on Glenn's question regarding the capital needs. So is it fair to assume based on your comments that you are not thinking of trying to access additional capital at this time, and that your growth plans are not dependent on accessing additional capital?

We believe we have sufficient capital and improving, an improving cash flow which would more than offset any capital needs we need going forward.

Well, that's great, Stan. Thanks a lot. I think that's very encouraging.

Secondly, Rich, maybe you'd be willing, maybe you won't, but maybe you would be willing to give us just a little more detail on some of the new manufacturer arrangements you have. I think that's probably one of the more promising developments here, and I'd would just like to learn as much about what's going on, where you're having success, whether it be specific manufacturers or therapeutic classes or whatever, I'd be interested?

Hi, Brooks. Clearly, the manufacturer relationships have, have helped this Company significantly. As I said, overall, there are only a few categories that we look at of the new products, dealing with sickle cell anemia, MS, and a few other categories that are actually significant. But when you look at what's been happening overall in the new product launches, and this is what's really exciting when you look at the industry data, by going from $50 billion to $100 billion over the next few years these are going to be effectively newly introduced products and as we increase our reputation.

But when you look at a 300% increase year-over-year and you look at increases quarter-over-quarter that we were talking about and our reputation is only increasing, you know, Brooks, I just expect this to continue fueling the growth of BioScrip. So we have arrangements where we're really not disclosing the manufacturers and the products by name, but take it that it is going extremely well and we expect it to continue in the future.

That's good. Are you still having success with [Desabre]?

Desabre, as you know, on a, an industry wide basis has really not come back to the level that it was before it was pulled off the market. We continue to have a fairly decent market share in our areas, but clearly overall it's not to the level where it was when it was first pulled off the market.

Right.

First quarter over the -- oh, it's actually growing on a month-to-month basis, but clearly not at the levels that we expect.

Yes.

But, you know, when we look at [IN overload,] MS, oncology, and Chrohn's, that's where we're seeing the greatest percentage increases and dollar increases.

Uh-huh, uh-huh. And then maybe you can just follow-on with any additional comments on the infusion business? I'm certainly excited about the outlook there, and I know you've been putting quite a lot of attention on that business. Are you opening any new centers or is all your growth there coming from your existing platforms?

Well, to date, it's been from our existing platforms. We are expanding in Florida. We're in the process of negotiating some centers up here in the northeast. We're very excited about the infusion side of our business, coupled with, quite frankly, the commercial CAP. We think it goes hand in hand, the MD Star Program with infusion is, we think, very, very bright, with the CAP Program. Because, quite frankly, walking into a managed care organization today and showing them that physicians in their region have signed up for CAP shows them that the doctors are willing to look at different ways of buy and [billed].

If, in fact, we could show the managed care organizations that by keeping patients out of the hospital it's a significant cost savings, both on the service side, as well as the drug side, so by moving a patient into a BioScrip infusion center as opposed to sending that patient to the hospital for infusion is a win/win in all of healthcare. There are many hospitals that are not making money on infusion services today, and we're actually getting calls on those. So we believe having BioScrip infusion centers in conjunction with managed care organizations and physicians is a -- will be a significant driver in the future.

Okay, good. And then maybe just, lastly, maybe Stan could give us a quick update on information systems progress, and just maybe overall commentary on how you're doing in terms of managing the people and processes to improve collections, billing, you know, and all that stuff?

Okay. In the first quarter, we announced that we've hired a new chief information officer, who joined us early in the first quarter. And he has been very helpful in setting the direction of our IT function. In the first quarter we did convert two of our systems. One was in our Rosalind Facility, the other one was in our New Jersey Facility, so we have further reduced the number of operating systems by two, going into, going forward.

But, more importantly, what we're trying to do is to find, as you know, we have, we are working very hard to determine the future of, of the mail and community store systems because they have been a problem to us in terms of information, in terms of accounting, in terms of cash receivables, and we have worked very hard. We have identified two potential systems going forward that we could, that we could potentially use to alleviate the issues surrounding those two reporting units.

We are, probably will make a decision on which one to go with in the second quarter. We will start prototyping in the third quarter, and we probably will begin to see implementation, since we wouldn't want to do it in the fourth quarter, sometime in 2008, the beginning of 2008.

Okay.

The system cost will be certainly within our ability to pay under existing availability, so I don't see that as a big issue going forward. As far as collections go, we are doing, we're now, we're now posting about 80% of our collections. Things have improved dramatically, and we are, in fact, collecting a lot of the old stuff, which is part of the reason why you saw the improvement in the DSO.

Uh-huh, uh-uh. That's good. Keep, keep on that.

You bet, Brooks.

Then, last but not least, I'm just curious, obviously the PBM business continues to be a little bit of a drag, and it might be a source of capital to fund some of the more exciting areas for the business. Any thoughts on that possibility?

Well, it is not a drag. The PBM business, you know, does throw-off positive cash flow, and so right now we have no plans on doing anything with the PBM business. We've picked up additional accounts recently, and we, we will continue to look at accounts and take advantage of our PBM asset.

Okay. Thanks a lot.

Thank you, Brooks.

Our next question comes from the line of Mellissa Mullikin of Piper Jaffray. Please go ahead.

Good morning.

Good morning, Mellissa.

Good morning.

Just a couple of questions here. To follow-up on Brooks' last one there, the PBM side, you had talked about [Accelerex] rolling off, and it was being pushed back further than what you thought. Did you see some of that roll-off in Q1 or is that, that still in place there?

No, we had Acclerex for the entire first quarter. We expect to see it decline starting the second quarter.

Okay. So you would expect for the balance of the year to see your PBM's revenue just drop modestly?

Yes.

Okay, great. And then if taxes had come in in line with where I had modeled them you guys would have actually beat my number, so I'm curious to get a little bit more detail as to was the real impact there, was it just that $2.4 million charge or can you explain a little bit, in a little bit more detail what the impact was on the income statement?

Sure. When we established a reserve at yearend, that $25.7 million, for the valuation reserve, in essence it basically said that you can't get any benefit for your NOLs. You can't have no benefit for your losses; all right? Because whatever benefit you set-up you have to fully reserve.

On the other hand, we do take our amortization of goodwill for tax purposes, and since this is a liability established on an indefinite live asset under FASB 109 we are required to maintain that liability, resulting in a $700,000 charge to our P&L every single quarter that just stands out there by itself. That is what they call in the accounting industry, "a naked credit." We have to continue to book that every quarter, and so you'll always see that $700,000. The reason it's not an issue, under normal circumstances is we wouldn't have to set-up the valuation reserve and, therefore, the two would offset each other. In this case, all you see is that $700,000 sitting out there, less that adjustment I talked about, a settlement with the IRS, earlier.

Okay. Which took it to $400,000?

That is correct.

Okay.

You'll only see that $700,000 until we return to profitability.

And, Mellissa, what most people would expect on a $900,000 pretax loss, you would have a tax benefit --

Right, exactly.

-- of approximately $400,000, showing a net loss of approximately $500,000, but because of the naked credit and we really have to go back and look at FASBE 109, we have to be providing those taxes until that deferred tax liability is utilized.

Okay. So once you are showing a pretax profit, you'll, this -- you'll see the offset to the $700?

Once we establish -- well, anytime we would report a taxable profit, we would not have to take taxes on a taxable profit because we have NOLs.

Right.

Unfortunately for us, we cannot carry those NOLs as an asset on our balance sheet.

Because of the --

We can utilize them as they arise.

And at what point will you be able to utilize them?

Absolutely, that's where we get the benefit going forward, as we make more, as we make money in the future.

Okay.

Counterintuitive.

What's that?

Kind of counterintuitive.

Yes, it is. Let's see, what else did I have here -- bad debt expense, it looks, it looked actually, it was pretty flat to Q4.

Uh-huh.

Can you talk a little bit about how you see that progressing through the balance of the year? I mean do you feel like it's kind of plateaued out at about this $3 million level, or is there additional, additional opportunity there?

No, we're always looking for ways to improve the number. However, at this particular point, I think the 1% of sales is a good number.

Okay.

All right? It's, you know, it's slightly higher on one side of our business, slightly lower in another, but 1% seems to be where we're coming out here.

Okay. And then your -- you talked about ambulatory infusion and expanding your capabilities there, can you talk about what capabilities you have now and how you expect that to change? And what's the timeline for that?

Sure. What we do today is our model is inclusive of home healthcare and setting up infusion suites within physicans' offices. We also have freestanding infusion centers out in Burbank, California, ones going into New Jersey, and we're negotiating on some space right now in upstate New York.

The model clearly, Mellissa, is, is to get the alternative where the most cost effective one we believe long term is going to be infusion centers. The reason for that is you're able to aggregate a number of patients with one nurse, and also hopefully be able to offer better pricing on a specialty product. Clearly, the hospital fees and other expenses are the most expensive, home healthcare with the one-on-one situation is pretty expensive.

So we believe, as we continue to market to managed care organizations, again, under the MD Star Program, combined with the infusion savings, all, it all fits together that we will be working with managed care organizations, and this also works quite frankly to physician groups. As reimbursement rates have changed over the past few years, many physicians do not want to do infusion in their office because it's not cost effective to go do, so they've been sending more and more patients over to the hospital. As we get physicians even aggregate their patients and send them to a center, that will make more sense for them, as well.

So we believe and it's in the future, and it's going to start every -- it's going to grow every quarter of, hopefully, the number of contracts and number of centers that we will have. But I can't sit here today and predict how many we will have over the next X number of months. But this is something that we are focusing in on. We are working, there are a number of resources behind this, and we expect it to be a contributor, probably more of a contributor in '08, '09, and going forward, as opposed to being a major contributor in '07.

Okay, great. Well, thanks, guys. Nice quarter. Very encouraging.

Thank you.

Thank you, Mellissa.

Our next question comes from the line of [Sean McMahon] of Kennedy Capital. Please go ahead.

Hi, guys. Can you just give me your free cash flow number and your CapEx? What you think it'll be this year?

Well, our free cash is running -- as I said, our EBITDAO is running in the $3 million range per quarter, and I would expect that to improve as we go forward during the year. And as far as capital expenditures for this year I would say would be, depending on how far we get along in our systems integration, would probably be somewhere in the $4 to $5 million range.

Also, Sean, as Stan said earlier, we have the money coming in from the CAP Program which we effectively funded the government for a long period of time, and we expect another $9 million -- I think Stan that was the number, that comes in in the next few weeks?

Yes, the next few weeks.

So that becomes free cash, effectively. So we're very encouraged, as we said earlier, by the increase in liquidity, and we don't have a lot of CapEx except for some of the systems that Stan and [Doug Lee] are working on, so we feel pretty good that debt will come down significantly based upon the amount of cash we're [now] throwing off.

Okay. Thank you.

Our next question comes from the line of [Glenn Madsen] of [GTK Capital]. Please go ahead.

My questions have been answered. Thank you.

[OPERATOR INSTRUCTIONS.]

Our next question comes from the line of [Bill Maskovitz] of Heartland Funds. Please go ahead

Good morning.

Good morning, Bill.

It's a pleasure to see things starting to move in the right direction.

Thank you.

So congratulations.

Thank you.

And I guess in terms of this CAP Program, it's still amazing that, is it correct that you have no competition at this moment?

That is correct.

So the rest of the world must think it's extremely low or unprofitable business. Could you comment on that, and tell us what kind of margins you think, you know, once you reach let's say a half a billion dollars in sales or $250 million in sales, what, what is possible? Just if you can give us a range or something like that, something to hang our hat on?

Bill, we are very encouraged by the CAP Program, as you know. There are a number of reasons that companies did not look at it primarily from the oncology side of it. And we're marketing, the disease states we're looking at, quite frankly, is in the rheumatology, allergy, immunology, ophthalmology. We believe that eventually oncology could come over as reimbursement rates continue to decline, the ASP model.

I am not going to tell you what the margins are. I don't want to disclose that information. I will tell you that probably under the Freedom of Information Act, the bidding is public, and the bidding overall I think averaged around 4, 4.5% when the applications were filed with CMS. Clearly, this is the ability to leverage our facility in Columbus, Ohio. We love the program. The ability to roll this out into the commercial CAP arena with MD Star, I think is significant. So, you know, I'm very proud of what BioScrip has done.

The biggest problem, Bill, quite frankly, we did not put any efforts behind this program at all because of the payment situation. Now that the legislation has been passed and we're starting to receive payments on a timely basis, we have now decided to put significant dollars behind a marketing effort for the current campaign.

Okay. So timely payment is nice, huh?

Timely payment is always nice, you know, and but it's even better based upon where we've been and now where we are.

Okay. Well, how about this? What is the current size of the market then that you are targeting?

Well, when you look at, just the estimate is that the government spent about $12 billion under Medicare Part B a year-and-a-half, you know, for the calendar year ending I believe it was 2006. You have to say that approximately 70% of that spend is in the oncology marketplace. So then you're left with maybe about $4 billion, $5 billion with everything else. So what we're focusing right now are on those specialties that we believe are the highest utilizers, which are the three that I just spoke about.

So, and plus you'll have spillover from the other specialties, so the area, and we, we're even picking up oncologists. The oncologists right now, we're seeing more and more of it, that are turning patients over to the hospital. So, you know, it's tough to say it could be anywhere up to $12 billion, but we're focusing much more today on therapeutic categories that are probably in the $4 billion range and staying away from the marketing to the oncology side.

Okay. Well, thank you, and we look forward to continued progress here.

Thank you, Bill.

Our next question comes from the line of Rodney Hathaway of Heartland Funds. Please go ahead, sir.

Good morning, Rich.

Hi, Rodney.

Just to follow-up on the infusion business that you're looking to ramp up, could you give us a sense of what kind of incremental cost will be involved with that business, especially if you're looking at putting these facilities within either existing, you know, centers or building out a denovo type facility?

Sure. Building out a center, the capital really isn't that bad, it's about $116,000 per center, and that, that's an HR center. The break-even point of these centers starting from zero is probably five to six months.

The, however, if, if we're able to secure a contract with a managed care organization, which is the direction that we are going in, and they can direct the patients to the center, clearly, the breakeven is, is in a matter of months as opposed to being six, six, seven months down the road.

And then from there you basically have an RN and some support staff to it, so the cost of these centers on an individual basis is not that great. Clearly, our objective is to get the managed care contracts in place and also get contracts with the physician community of the physicians that are not doing the infusion today, aggregate those, as well, so it's as quickly as we can populate those centers, is as fast as we could have profitability on them.

That's fantastic. I mean the payback on that being a few months sounds great. Do you have kind of a team leader that's spearheading this niche, specifically, or is it within a larger scope, and a larger group?

No, it's being run by [Brian Reagen], who heads up our infusion business. It's funny, though, I'm out there quite a bit, and Brian is out there, we have a team of people specifically working on this. We have dedicated resources on this, and it's a major effort of this Company to it.

Great. And just on the reimbursement side, can you just give us a sense, I mean within healthcare we know how volatile certain reimbursement issues can be, can you give us a sense within the infusion area how steady or volatile that looks to be going forward?

Well, you know, it's probably you will remember, but over the last number of years we've seen a steady decline in the operating margins of that business, but I will tell you over the last probably year-and-a-half, two -- maybe it's even two years now, that the margins -- it's probably a year-and-a-half, that the margins have basically remained steady.

We see, actually, going into this service model, that the model on the service side that we should be able to see margins that are significantly better than the distribution margins we see, and then coupled on top if we have the product margin on top of that, it should be pretty healthy.

It sounds great. Again, great to see the progress you're making, and keep up the good work. Thanks.

Thank you, Rodney.

[OPERATOR INSTRUCTIONS.]

We have a follow-up question from the line of Bill Maskovitz of Heartland Funds. Please go ahead.

Okay. Just one final thing here, what about the risks here? What do you worry about the most these days? Business wise that is? Just confine it to the business.

Yes, I was gong to say the taxes, but let's go back to the business. You know, Bill, it's really the -- what worries me the most is having the resources to execute and it's more of the human resources to execute on some of the strategies and having the horsepower in order to go do that. I, when you look at what we have, the CAP Program I think is absolutely significant. You have the commercial CAP Program, which is the MD Star Program. We have the infusion business which we all believe is something that makes a lot of sense. So, you know, BioScrip I believe has some great assets and with the industry the way it is, I'm very encouraged what's there.

What, what we all always worry about is the ability, you know, for a Company our size to go execute this and in the timeframe we want. I'm also extremely encouraged with the multicultural marketing activity and going out there looking at HIV in this country and seeing the 16% increase in the incidence rate of new diagnosed cases in the African-American and Latino community and down 11% in effectively the gay white community. So I think BioScrip is doing the right things, it is out there and what I always worry about is the ability to go execute.

Okay. Well, thanks. I really appreciate it, and good luck.

Thank you, Bill.

Our next question comes from the line of [Richard Ravetz] of [Ravetz Investors.] Please go ahead.

Good morning.

Good morning, Richard.

Good morning, Richard.

One question, only. Clarify something for me. If your business grows in a, over a period of time $100 million, what does that bring down to pretax profit?

With the same mix?

Yes, of course.

Stan, do you want to answer that?

Sure. Our overall margins as a Company run somewhere in the 11% range, so you'd drop $11 million at the gross profit line. Our variable operating expenses are probably running somewhere in the 10%, 10% to 12% range. So, you know, you could drop $8, $7, $8 million.

So effectively we're at a point where you're leveraging our operating expenses. If it runs through the Columbus Facility, you know, we've talked about this before, you may need 15 to 20 people in order to handle $100 million worth of business. You look at on the infusion side that are throwing off significant operating income today, that leverage is not as great as it would be in a facility like Columbus which is much more of an automated type of situation. So, but Stan is right, I think as we add in this money you'll see significant percentages start coming down to the operating income line.

So you're saying 7 to 8% approximate?

Well, it depends, if it's all the capital --

Approximate?

-- as an example, Richard, it's going to be less.

Yes, of course.

The margin is less.

Of course.

But you're saying just overall, yes, we're running at 11% margin on the gross side.

Thank you very much.

Okay.

Operator?

[OPERATOR INSTRUCTIONS.]

We have a follow-up question from the line of Bill Maskovitz of Heartland Funds. Please go ahead, sir.

Okay. This is definitely the last question. How about Street coverage? Does, does anyone actively follow BioScrip?

I think we could ask Mellissa. [Inaudible,] you want to -- okay?

Well, we have coverage with First Albany and with Piper Jaffray.

Okay. Thanks.

[OPERATOR INSTRUCTIONS.]

Sir, there appears to be no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you, Bridget, and thank you, everyone.

BioScrip continues to make significant progress. Our initiatives are the right ones. We look forward to updating you again at our next conference call. And, again, thank you for your participation, and have a great day.