Why Bioscrip Inc. Is Tumbling

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What's happening: Shares in Bioscrip dropped by over 10% earlier today after announcing that it had raised $62.5 million from the sale of a combination of convertible preferred stock and warrants.

Why it's happening: Bioscrips' infusion business is growing, but the company is still reporting quarterly net losses. As a result, it may not be too surprising that it inked this deal to bolster its financial position.

In the fourth quarter, the company's sales grew 12.5% to $253.7 million. Sales were led higher by its infusion business, which grew 13% to $239.5 in the quarter; however, a shift to less profitable therapies resulted in gross margin shrinking from 30.2% last year to 25.9% last quarter. As a result, the company reported a quarterly net loss of $61.9 million, or $0.90 per share, which brought its full year loss to $143.4 million, or $2.09 per share.

The company's losses have taken a toll on the company's financials. In the 12-months ending December, the company used $24.6 million in net cash from continuing operations and finished the year with $740,000 in cash and $423.8 million in debt. A year ago, the company had $1 million in cash.

In this deal, Bioscrip sold 625,000 shares of series A convertible preferred stock at $100 per share that can be converted into common stock at $5.17 per share, 1.8 million class A warrants to purchase common stock at $5.295 per share, and 1.8 million class B warrants to purchase common stock at $6.595 per share. The buyers were Coliseum Capital Management and Blackwell Partners.

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As part of the deal, Bioscrip will pay a dividend of 8.5% per year on the preferred stock. If the company accrues its dividend payment, then the payment increases to 11.5% per year. As a reminder, preferred stock has preference over common stock with respect to dividend rights and rights upon liquidation. Bioscrip also announced that it is appointing Coliseum's managing director Christopher Shackelton to its Board of Directors.

Now what: The move bulks up BioScrips' balance sheet and offers it a bit more financial flexibility; however, it does so at a steep cost. Despite solid growth for its infusion business, the company's cash burn, lackluster balance sheet, preferred dividend obligation, and risk of dilution to existing investors makes this company one that I'll be avoiding.

The article Why Bioscrip Inc. Is Tumbling originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.