When your local pharmacy runs low on drugs or supplies, it probably calls Cardinal Health. The company is a top distributor of pharmaceuticals and other medical supplies and equipment in the US. Its pharmaceutical division provides supply chain services including branded and generic prescription and OTC drug distribution. It also franchises Medicine Shoppe retail pharmacies. Its medical division parcels out medical, laboratory, and surgical supplies and provides logistics, consulting, and data management. Customers include retail pharmacies, hospitals, nursing homes, doctor's offices, and other health care businesses.
Pharmaceutical distribution accounts for about 90% of Cardinal Health's sales, with pharmacies accounting for the largest chunk of Cardinal's customer revenues: CVS and Walgreen each account for more than 20% of the company's sales. The Cardinal Health Pharmaceutical division operates about 25 distribution warehouses and 150 nuclear pharmacy labs (for the preparation and distribution of medical imaging agents) across the US and in Puerto Rico, as well as about a dozen distribution centers in China. The division also includes the Cardinal Health Pharmacy Solutions business, the Medicine Shoppe retail pharmacy subsidiary, and a Specialty Solutions unit that distributes specialty pharmaceuticals, such as cancer injectables, plasma products, and intensive care therapies that require special handling.
The smaller Cardinal Health Medical distribution division offers branded and private-label supplies, including scientific laboratory equipment and general hospital and physician practice supplies, primarily from some 50 warehouses in the US, as well as from a handful of facilities in Canada. Its private-label offerings, which include surgical gowns, exam gloves, and fluid collection equipment, are also distributed directly and through third parties in Europe, South America, and the Asia/Pacific region. Cardinal Health Medical also assembles medical procedure kits and provides consulting and logistics services.
Cardinal Health's revenues continued on a positive trend in fiscal 2012, showing a 5% increase to more than $107 billion. The company attributes the growth to increased sales to existing customers in both the pharmaceutical and medical segments, as well as acquisitions in the pharma segment. Profits also rose for the second year in a row in 2012, when Cardinal Health reported an 11% increase in net income to nearly $1.1 billion due to pharma acquisitions and strong generic drug activities, which bring in a higher margin of income. The medical segment has struggled to increase profits in recent years, however, as it faces high material costs in its manufacturing operations.
Cardinal has grown through acquisitions of companies and products within all of its operating segments. Since 1980 it has acquired more than 50 companies, including a number of purchases to bolster its pharma and medical distribution operations in specific regions. It has also expanded in targeted service areas such as the provision of data management and procurement services for specialty health providers.
While sales outside the US have historically accounted for a very small fraction of Cardinal Health's operations, the firm is expanding its operations beyond North America into high-growth regions of the world, such as China, where it established a presence in 2010.
The company also aims to keep revenues and profits on the rise by keeping its operations lean and nimble, an important factor in thin-margin distribution industries. Towards that end, Cardinal Health has conducted some cost-cutting programs such as asset divestitures in recent years. In 2012 the company began overhauling the medical segment's information technology systems to help improve efficiencies within the division.
Mergers and Acquisitions
In 2013 Cardinal Health agreed to pay some $2.1 billion to acquire AssuraMed. The purchase will greatly expand the company's home medical supply operations by broadening its product offerings and distribution network in the home health market.
In addition, in 2012 Cardinal Health purchased Canadian nursing home supply company Futuremed Healthcare for some $125 million. The company plans to continue with international purchases to reduce its dependence on large US pharmacy customers.