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Specialty pharmacy services provider, BioScrip Inc. (BIOS - Analyst Report), recently took a step forward to further strengthen its Infusion Services business by entering into an agreement with DaVita HealthCare Partners Inc. (DVA - Analyst Report), the nation’s leading provider of dialysis services to patients suffering from chronic kidney failure. As per the deal, BioScrip will acquire DaVita’s majority-owned subsidiary HomeChoice Partners, Inc., an alternate-site infusion pharmacy services provider, for $70 million in cash.

The terms of the deal, which is expected to be closed in the first quarter of 2013, also include a potential additional consideration based on the post purchase operating performance of HomeChoice. BioScrip expects to realize an estimated $3.9 million of future tax benefit as a result of this transaction. Moreover, post integration (expected 9−12 months), the company expects HomeChoice to generate annual revenues of around $70 million with adjusted EBITDA margin of 12%−14%.

We are encouraged by the company’s decision to invest in the Infusion and Home Health industry where it has a strong presence and enjoys competitive advantages. We note that BioScrip has been recording persistent growth in the Infusion Services segment over the past few quarters. In the last reported quarter, the company’s solid top-line performance was attributable to a 39.5% rise in Infusion Services revenue.

Giventhe huge potential of this business, the company’s focus on the sector is expected to add to its long-term growth prospects. Earlier in July, the company acquired InfuScience, a provider of alternate site infusion pharmacy services with five locations. Also the company’s decision to reposition certain assets of its pharmacy business to redirect resources for supporting the existing Infusion Services business will likely be favorable for BioScrip.

 We believe that the company will gain further competitive edge in the Infusion Services and Home Health segment by targeting new and under penetrated markets as well as accessing a huge number of infusion patients. Our views are also buoyed by the estimates of the National Home Infusion Association ("NHIA"), which stated that the alternate-site infusion therapy sector currently represents $9–$11 billion per year in the U.S. health care expenditure.

Given the favorable demographic trends, including an aging population in the U.S., the company is optimistic about the future growth prospects of the home health industry. BioScrip presently retains a short-term Zacks #3 Rank (Hold). Over the long term, we have a ‘Neutral’ recommendation on the stock.

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