Cardinal Health Systems, Inc.

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. 

Geographic Reach

In addition to the core US operations, which account for more than 95% of sales, Cardinal Health has expanded its presence to include pharmaceutical distribution operations in China. The medical division also has manufacturing, assembly, and distribution locations in locations including Canada, the Dominican Republic, Malaysia, Malta, Mexico, and Thailand.

Operations

Pharmaceutical distribution accounts for about 90% of Cardinal Health's sales, primarily to pharmacy customers across the US. The Cardinal Health Pharmaceutical division operates about 25 distribution warehouses and 150 nuclear pharmacy labs (for the preparation and distribution of medical imaging agents) throughout 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.

Sales and Marketing

Pharmacies account for the largest chunk of Cardinal's pharmaceutical distribution customer revenues: CVS Health and  Walgreen each account for about 20% of the company's total sales. Group purchasing organizations are also key to the company's business, with Novation and Premier each accounting for more than 10% of revenue. Other customers include hospitals, surgery centers, clinics, physician practices, and clinical laboratories. Together, the pharmaceutical and medical distribution segments serve more than 100,000 locations daily.

Though the bulk of the company's operations consist of direct promotion, sales, and distribution of drugs and medical supplies, Cardinal Health does use some third-party distributors for the manufactured products from its medical division.

Financial Performance

Cardinal Health's revenues took a dip in fiscal 2013, showing a 6% decline to about $101 billion. The drop was caused by a 7% decrease in pharmaceutical segment sales due to the expiration of its supply contract with Express Scripts, as well as lower customer revenues caused by brand-to-generic conversions. On the other hand, the medical segment increased 4% on acquisitions.

Net income also took a dive in fiscal 2013, dropping 69% to some $334 million due to increased acquisition and restructuring costs and sales, general, administrative, and distribution expenses.

Results in 2013 reversed positive earnings and profit trends reported in 2011 and 2012 from organic and acquisitive growth measures.

Strategy

In addition to acquisitions, the company aims to grow through new customer contracts, facility expansion efforts, and collaborations with other medical and drug firms. Growth efforts aim to expand operations in core pharma and medical distribution fields, as well as niche service areas such as the provision of data management and procurement services for specialty health providers.

In 2012 the company widened its molecular imaging drug manufacturing capabilities by adding new cyclotron equipment. It also launched new lines of topical skin adhesive products and exam gloves that year.

In 2013 the company renewed agreements to supply a network of CVS Health pharmacies through 2016; however, it also announced that its pharmaceutical contract with Walgreen would expire at the end of 2013. The company's Express Scripts contract expired in 2012, causing a dip in annual revenues in fiscal 2013.

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. In 2013 it launched another restructuring program to streamline medical distribution operations, including the consolidation of procedure kit facilities and the sale of its sterilization unit in El Paso, Texas.

Mergers and Acquisitions

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.

The company paid $320 million, all cash, in 2014 for medical closure manufacturer AccessClosure. The move is expected to strengthen Cardinal's medical distribution segment.

In 2013 Cardinal Health paid some $2.1 billion to acquire AssuraMed. The purchase greatly expanded 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.

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Cardinal Health Systems, Inc.


14 Schoolhouse Rd
Somerset, NJ 08873-1213
Phone: 1 (732) 537-6544
www.cardinalhealth.com

STATS


  • Employer Type: Unknown
  • Exec Asst: Carol Macivor
  • Mpt, Marketing Research: Jackie Plichta
  • Contrl: Eric Slusser

Major Office Locations

  • Somerset, NJ

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