O2 Science goes on acquisition binge

Tuesday, April 30, 2002

PHOENIX, Ariz. — O2 Science is growing so fast it's hard to keep track of the start-up respiratory company, if it can still be called a start up.
Over the past few months, O2 Science has acquired 5,000 home respiratory patients from now-defunct HME superstore Health 'n' Home, and as a result of that deal and others now operates 13 branches, stretching from Missouri to Southern California. The company also met with eight HMEs at Medtrade Spring and expected to acquire four of them, President and CEO Mark Hanley told HME News last month.

O2 Science arrived on the scene in 1999 with $25 million in working capital and a five-year roll-up plan to build a home respiratory company with 25 locations.

"We're still shooting for 25," Hanley said. "We are just going to get there a lot sooner than we'd planned. Health 'n' home forced us to open four locations quicker than we planned but it also gave us a good foundation to start with."

With a respiratory mix estimated at 90% of its total business (about half of those Medicare patients), and each location generating about $1 million or more in revenue, it's no surprise O2 Science has been approached itself as a possible acquisition target. But, Hanley said, the company still intends to grow to 25 branches and then assess its next move in 2004, the end of its five year plan.

Despite threats of competitive bidding and cuts to the average whole sale price for respiratory medicines, Hanley still considers the home respiratory market the place to be.

"We expect to get a reduction in reimbursement and anyone in this business who hasn't prepared is probably in for a hit," Hanley said.

To offset a possible cut in the AWP for respiratory drugs, O2 Science has taken steps to get better pricing on drugs and shipping. But if the cut tops 20%, Hanley said, he'd have to evaluate.

If an AWP cut topped 20%, he'd re-evaluate whether it made sense to continue offering that service, but when it comes to the other components of home respiratory therapy, "there is plenty of business to go around." "Long-term chronic lung patients need good service and that is something we specialize in," Hanley said. "Long term, there may be a time when people order a wheelchair off the Internet, but they are not going to order oxygen off the Internet. That's why we decided to stay on the respiratory side. There is a service component that patients will always need." HME