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. International markets for Cardinal Health include China.

Geographic Reach

In addition to the core US operations, which account for about 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 almost 90% of Cardinal Health's sales, primarily to pharmacy customers across the US. The Cardinal Health Pharmaceutical division operates about 20 distribution warehouses and 140 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 Healthis the company's largest customer, accounting for 28% of fiscal 2014 (ended June) revenue. Group purchasing organizations are also key to the company's business, with Novation and Premier together accounting for 17% of fiscal 2014 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 sales fell 10% in fiscal 2014 (ended June) versus the prior year, to $91.1 billion. (It was the second consecutive year of declining sales for the company.) Cardinal Health blamed the decline in sales, which are primarily impacted by its pharmaceutical distribution contracts, largely to the expiration of its contract with Walgreen in August 2013. (The prior year's negative annual sales comparison was due to the expiration of a distribution contract with Express Scripts.) Brand-to-generic pharmaceutical conversions have also had a negative impact on revenue growth in recent years as pressure to contain prescription drug costs increases and a significant number of patents have expired for major brand name drugs. On the plus side, acquisitions by the company's medical segment resulted in a 9% gain in sales, which partially offset the decline from contract income. Also, net income rebounded by 249% over the prior year to $1.17 billion in fiscal 2014 on a decline in impairments and loss on disposal of assets.

Strategy

Cardinal has grown through acquisitions of companies and products within all of its operating segments. Indeed, 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. 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 July 2014, Cardinal Health and CVS Health launched a 50:50 10-year joint venture, called Red Oak Sourcing (ROS), to source and negotiate generic supply contracts for both companies. ROS is the largest generic sourcing entity in the US and should enhance each company's leadership position in generic-drug distribution and sales, enabling them to negotiate better generic drug prices.

Cardinal Health 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. To 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

The company paid $320 million, all cash, in May 2014 for medical closure manufacturer AccessClosure. The move is expected to strengthen Cardinal's medical distribution segment. Also in March 2014, Cardinal Health purchased fast-growing Sonexus Health to expand its specialty biopharmaceuticals business.

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
  • Director: Melvin Booth
  • Director: Michael Dal Bello
  • Exec Asst: Carol Macivor

Major Office Locations

  • Somerset, NJ

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