The following discussion should be read in conjunction with the audited consolidated financial statements, including the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the "Form 10-K") filed with the U.S. Securities and Exchange Commission, as well as our unaudited consolidated interim financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 (this "Report").

This Report contains statements not purely historical and which may be considered forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. These forward looking statements may include, but are not limited to:

· Statements relating to our business development activities;

· Sales and marketing efforts;

· Status of material contractual arrangements, including the negotiation or re-negotiation of such arrangements;

· Future capital expenditures;

· Effects of regulation and competition in our business; and

· Future operation performance.

Investors are cautioned that any such forward-looking statements are not guarantees of future performance, involve risks and uncertainties and that actual results may differ materially from those possible results discussed in the forward-looking statements as a result of various factors. These factors include, among other things:

· Risks associated with increased government regulation related to the health care and insurance industries in general, and more specifically, pharmacy benefit management and specialty pharmaceutical distribution organizations;

· Unfavorable economic and market conditions;

· Reductions in Federal and state reimbursement;

· Existence of complex laws and regulations relating to our business;

· Achieving financial covenants under the "Facility" (defined below);

· Availability of financing sources;

· Declines and other changes in revenue due to expiration of short-term contracts;

· Network lock-outs and decisions to in-source by health insurers;

· Unforeseen problems arising from contract terminations;

· Increases or other changes in the Company's acquisition cost for its products; and

· Changes in industry pricing benchmarks such as average wholesale price ("AWP"), wholesale acquisition cost ("WAC") and average manufacturer price ("AMP").

The changes in industry pricing benchmarks could have the effect of reducing prices and margins, including the impact of a proposed settlement in a class action case involving the First DataBank and MediSpan AWP reporting services, and increased competition from our competitors, including competitors with greater financial, technical, marketing and other resources. This Report contains information regarding important factors that could cause such differences.

You should not place undue reliance on such forward-looking statements as they speak only as of the date they are made. Except as required by law, we assume no obligation to publicly update or revise any forward-looking statement even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

Business Overview

We are a specialty pharmaceutical healthcare organization that partners with patients, physicians, healthcare payors and pharmaceutical manufacturers to provide access to medications and management solutions to optimize outcomes for chronic and other complex healthcare conditions.

Our business is reported under two operating segments: (i) specialty pharmaceutical services ("Specialty Services"), and (ii) pharmacy benefit management ("PBM") services ("PBM Services"). Our Specialty Services include comprehensive support, dispensing and distribution, patient care management, data reporting as well as a range of other complex therapy management services for certain chronic health conditions. The medications we dispense include oral, injectable and infusible medications used to treat patients living with chronic and other complex health conditions and are provided to patients and physicians. Our PBM Services include pharmacy network management, claims processing, benefit design, drug utilization review, formulary management and traditional mail order pharmacy fulfillment.

Revenues from Specialty Services and PBM Services are derived from our relationships with healthcare payors including managed care organizations, government-funded and/or operated programs, pharmaceutical manufacturers, patients and physicians, as well as a variety of third party payors, including third party administrators ("TPAs") and self-funded employer groups (collectively, "Plan Sponsors").

Our Specialty Services are marketed and/or sold to Plan Sponsors, pharmaceutical manufacturers, physicians, and patients, and target certain specialty medications that are used to treat patients living with chronic and other complex health conditions. These services include the distribution of biotech and other high cost injectable, oral and infusible prescription medications and the provision of therapy management services.

We participated in two programs in 2008 that are not continuing throughout 2009. We were the sole vendor for the Centers for Medicare and Medicaid Services' ("CMS") Competitive Acquisition Program ("CAP"), and the sole national specialty pharmacy provider of HIV/AIDS and solid organ transplant drugs and services to patients insured by United Healthcare ("UHC") and its participating affiliates.

Our CAP contract expired at December 31, 2008 and discontinuing our participation in this program is expected to reduce 2009 revenues by $71 million compared to 2008. We expect our 2009 gross profit as a percentage of revenue to increase over the same percentage in 2008 as the contract was not profitable in 2008.

The UHC contract termination occurred in two stages. The HIV/AIDS drugs and services portion of the contract ceased January 31, 2009 and the solid organ transplant drugs and services portion of the contract ceased March 31, 2009. This termination is expected to reduce our 2009 revenues by $99 million compared to 2008 revenue; however, it is expected to increase our gross profit as a percentage of revenue in 2009 over the percentage in 2008.

The combined effect of these contractual changes is expected to reduce 2009 revenues by approximately $170 million, or 12%. However, the gross margin percentages on these high volume contracts were below our historical average gross profit percentages on our Specialty Services business. As such, gross profit as a percentage of revenues is expected to increase. We have developed cost reduction plans that are expected to lower operating expenses in conjunction with the volume decreases as we cease serving these contracts.

Our PBM Services are marketed to Plan Sponsors and are designed to promote a broad range of cost-effective, clinically appropriate pharmacy benefit management services through our national PBM retail network and our own mail service distribution facility. We also administer prescription discount card programs on behalf of commercial Plan Sponsors, most typically TPAs. Under such programs we derive revenue on a per claim basis from the dispensing network pharmacy.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis. We base those estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates, and different assumptions or conditions may yield different estimates. There have been no changes to critical accounting estimates in the quarter ended March 31, 2009. For a full description of our accounting policies please refer to Note 2 of Notes to Consolidated Financial Statements included in the Form 10-K.

Results of Operations

In the following Management's Discussion and Analysis we provide a discussion of
reported results for the three month period ended March 31, 2009 as compared to
the same period a year earlier.


                                                  Three Months Ended
                                                       March 31,
                                              2009                  2008
           Revenue                      $ 325,749   100.0 %   $ 327,471   100.0 %
           Gross profit                 $  35,990    11.0 %   $  32,372     9.9 %
           Income from operations       $   4,283     1.3 %   $     185     0.1 %
           Interest expense, net        $    (594 )  -0.2 %   $    (585 )  -0.2 %
           Income before income taxes   $   3,689     1.1 %   $    (400 )  -0.1 %
           Net income (loss)            $   3,285     1.0 %   $    (477 )  -0.1 %

Revenue. Revenue for the first quarter of 2009 was $325.7 million as compared to revenue of $327.5 million in the first quarter of 2008. Specialty Services revenue for the first quarter of 2009 was $274.3 million as compared to revenue of $277.3 million for the same period a year ago, a decrease of $3.0 million, or 1.1%. That decrease is primarily due the termination of the CAP and UHC contracts offset by an increase in other new Specialty Services contracts as well as the increase associated with drug cost inflation. PBM Services revenue for the first quarter of 2009 was $51.4 million, as compared to revenue of $50.2 million in the first quarter of 2008, an increase of $1.2 million, or 2.4%. The increase was primarily attributable to growth in the prescription discount card programs.

Cost of Revenue and Gross Profit. Cost of revenue for the first quarter of 2009 was $289.8 million as compared to $295.1 million for the same period in 2008. Gross margin dollars during the first quarter of 2009 were $36.0 million, compared to $32.4 million for the first quarter of 2008, an increase of $3.6 million. Gross margin as a percentage of revenue increased to 11.0% in the first quarter of 2009 from 9.9% in the first quarter of 2008. The increase in gross margin percentage from 2008 to 2009 is partially a result of the termination of the CAP and UHC contracts, as well as action taken to purchase drugs during the fourth quarter of 2008 in anticipation of drug cost increases during the first quarter of 2009. In the first quarter of 2008, the gross profit percentage was negatively impacted by timing delays in obtaining increases in reimbursement rates after drug acquisition cost increases were implemented by manufacturers of specialty drugs. Drug acquisition cost increases typically occur in the first quarter of each year along with a corresponding increase in reimbursement rates. In 2008 there was a longer than usual delay in updating the industry price lists used by us and our peers to charge customers for reimbursement.

Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") for the first quarter of 2009 were $30.3 million, or 9.3% of total revenue, as compared to $31.5 million, or 9.6% of total revenue, for the same period in 2008. The decrease in SG&A is primarily due to staff reductions, reductions in professional fees associated with state compliance audits and other cost reduction measures, partially offset by severance costs.

Bad Debt Expense. For the first quarter of 2009, bad debt expense was $1.4 million, or 0.4% of revenue, as compared to $0.7 million, or 0.2% of revenue, in the first quarter of 2008. Our overall methodology used for determining our provision for bad debt remains essentially unchanged, and the comparative increase in 2009 is primarily due to the first quarter of 2008 experiencing significant collections on previously reserved receivables.

Net Interest Expense. Net interest expense was $0.6 million for the first quarter of 2009 as compared to $0.6 million for the same period a year ago.

Provision for Income Taxes. Income tax expense of $0.4 million was recorded for the first quarter of 2009 on pre-tax net income of $3.7 million, an 11.0% effective tax rate. The effective tax rate for the quarter is below the statutory rate due to a reduction in the Company's valuation allowance associated with the expected utilization of a portion of the net operating losses in 2009. This compares to $0.1 million of income tax expense on a pre-tax loss of $0.4 million for the same period a year ago. The prior year provision relates primarily to liabilities for state income taxes.

Net Income (Loss) and Income (Loss) Per Share. Net income for the first quarter of 2009 was $3.3 million, or $0.08 per diluted share, as compared to a net loss of $0.5 million, or ($0.01) per diluted share, for the same period last year.

Liquidity and Capital Resources

We utilize both funds generated from operations and available credit under our Facility (as defined below) for general working capital needs, capital expenditures and acquisitions.

Net cash provided by operating activities totaled $15.4 million during the first three months of 2009, as compared to $12.5 million of cash used in operating activities during the first three months of 2008. The increase in cash provided by operating activities was primarily the result of net income of $3.3 million, as well as decreases in accounts receivable and decreases in inventory offset by cash used in accounts payable. The decrease of $14.0 million in accounts receivable is due to improved cash collections. The decrease of $6.2 million in inventory was a result of purchases made in the fourth quarter of 2008 in anticipation of price increases, as well as the termination of the CAP and UHC contracts. The decrease of $9.6 million in accounts payable is related to the reduction of inventory.

Net cash used in investing activities during the first three months of 2009 was $1.1 million compared to $2.2 million for the same period in 2008. The cash used was driven primarily by the investment in our information technology infrastructure during the first quarter of 2008.

Net cash used in financing activities during the first three months of 2009 was $14.3 million, due to an increase in payments on our line of credit, compared to $14.6 million provided by financing activities for the same period in 2008, due primarily to an increase in borrowings.

At March 31, 2009, there was $36.1 million in outstanding borrowings under our revolving credit facility (the "Facility") with an affiliate of Healthcare Finance Group, Inc. ("HFG"), as compared to $48.5 million at March 31, 2008. The Facility provides for borrowing up to $85.0 million at the London Inter-Bank Offered Rate ("LIBOR") or a pre-determined minimum rate plus the applicable margin and other associated fees. The term of the Facility runs through November 1, 2010. Under the terms of the Facility, we may request to increase the amount available for borrowing up to $100.0 million, and convert a portion of any outstanding borrowings from a Revolving Loan into a Term Loan. The borrowing base utilizes receivable balances and proceeds thereof as security under the Facility. At March 31, 2009 we had $48.9 million of credit available under the Facility.

The Facility contains various covenants that, among other things, require us to maintain certain financial ratios as defined in the agreements governing the Facility. We were in compliance with all the covenants contained in the agreements as of March 31, 2009

At March 31, 2009, we had working capital of $63.2 million compared to $58.8 million at December 31, 2008. We anticipate that our working capital needs will decrease in the current year due to the termination of certain contracts in 2008. We made substantial information technology ("IT") systems investments during 2008 and will continue to invest in 2009 to improve efficiencies, internals controls, and data reporting and management. We believe that our cash on hand, together with funds available under the Facility and cash expected to be generated from operating activities will be sufficient to fund our anticipated working capital, IT systems investments and other cash needs for at least the next twelve months.

We may also pursue joint venture arrangements, business acquisitions and other transactions designed to expand our business, which we would expect to fund from borrowings under the Facility, other future indebtedness or, if appropriate, the private and/or public sale or exchange of our debt or equity securities.

At March 31, 2009, we had Federal net operating loss carryforwards available to us of approximately $29.0 million, of which $5.9 million is subject to an annual limitation, all of which will begin expiring in 2017 and later. We have state net operating loss carryforwards remaining of approximately $15.3 million, the majority of which will begin expiring in 2017 and later.

During the fourth quarter of 2008, in consideration for more favorable payment terms, we granted our primary drug wholesaler a secured, first priority lien in our entire inventory. In addition, in the ordinary course of business, we have obtained certain letters of credit ("LC") from commercial banks in favor of various parties. At March 31, 2009, we had $0.9 million on deposit as collateral for these LCs.