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About Cardinal Health Systems, Inc.

When your local pharmacy runs low on drugs or supplies, it might just call 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, generic, and specialty pharmaceutical and OTC drug distribution. It also franchises Medicine Shoppe retail pharmacies. Cardinal's medical division parcels out medical, laboratory, and surgical supplies and provides logistics, consulting, and data management. Customers include retail pharmacies, hospitals, health care systems, surgery centers, nursing homes, doctor's offices, clinical labs, and other health care businesses. The US accounts for the majority of Cardinal's sales.

Operations

Cardinal Health operates through two primary segments -- Pharmaceutical and Medical.

Pharmaceutical distribution, primarily to pharmacy customers across the US, accounts for around 90% of Cardinal Health's sales. The company operates one national logistics center, around 25 distribution warehouses, seven specialty distribution facilities, and more than 140 nuclear pharmacy labs (for the preparation and distribution of medical imaging agents) throughout the US and in Puerto Rico. The Pharmaceutical segment also includes the Medicine Shoppe retail pharmacy subsidiary; its Specialty Solutions unit distributes specialty pharmaceuticals, such as cancer injectables, plasma products, and intensive care therapies that require special handling.

The smaller Medical segment offers branded and private-label supplies, including scientific laboratory equipment and general hospital and physician practice supplies, primarily from its more than 70 warehouses, manufacturing facilities, and other locations in the US. It also operates about 25 manufacturing, research, or distribution facilities in Canada, Costa Rica, the Dominican Republic, Germany, Ireland, Japan, Malaysia, Malta, Mexico, and Thailand. The segment's private-label offerings, which include surgical gowns, exam gloves, and fluid collection equipment, are distributed directly and through third parties in the US, Canada, Europe, and Asia. Cardinal Health Medical also assembles medical procedure kits and provides consulting and logistics services.

Cardinal Health and CVS Health operate a 50:50 joint venture, Red Oak Sourcing (ROS), that sources and negotiates generic supply contracts for both companies. ROS is the largest generic sourcing entity in the US.

Geographic Reach

Cardinal Health's Pharmaceutical segment operates roughly 25 primary distribution facilities, seven specialty distribution facilities, more than 140 nuclear pharmacies and radiopharmaceutical manufacturing facilities, and a national logistics center; these facilities are all located in about 45 US states and Puerto Rico.

The Medical segment has more than 70 manufacturing, assembly, and distribution locations in the US and Puerto Rico. It operates some 25 international locations in Canada, Costa Rica, the Dominican Republic, Germany, Ireland, Japan, Malaysia, Malta, Mexico, and Thailand.

Altogether, the group owns more than 70 operating facilities and leases more than 200 facilities around the world.

Sales and Marketing

Cardinal Health sells to thousands of pharmacies and provides support to hospitals throughout the US. Its largest customers are CVS Health (about 25% of total revenue) and OptumRx (more than 10% of revenue); its five largest customers combined account for nearly half of its total revenues. Group purchasing organizations are also key to the company's business, with Vizient and Premier together accounting for more than 20% of total revenues. Other customers include surgery centers, clinics, physician practices, and clinical laboratories.

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 segment.

Financial Performance

Cardinal Health's net revenue has been rising steadily for the last five years due to numerous acquisitions which have broadened the group's operations. However, net income has been impacted by those same acquisitions: It slipped 10% in fiscal 2017 (ended June) and then fell dramatically the following year. Declining generics prices and slowly rising branded drug prices have also hurt net income.

In fiscal 2018, revenue increased 5% to $136.8 billion due to higher pharmaceutical and specialty pharmaceutical sales. The Medical segment also had higher sales, primarily due to the acquisition of Medtronic's medical supplies business. Those gains were partially offset by the loss of a major customer and the sale of the group's China distribution business.

Net income fell 80% to $256 million in fiscal 2018; this was primarily due to corporate expenses related to the Medtronic asset acquisition. The impact of generic pricing changes also brought profits down, as did inventory challenges and higher operating costs for the Cordis cardiovascular and endovascular products business.

The company ended fiscal 2018 with $1.8 billion in net cash, some $5.1 billion less than it had at the end of fiscal 2017. Operating activities provided $2.8 billion, while investing activities (primarily the Medtronic purchase) used $5.6 billion and financing activities used $2.3 billion.

Strategy

Cardinal has grown through acquisitions of companies and products within all of its operating segments. Recent purchases have focused on medical supplies and devices. In 2017, the company acquired several medical supplies units from Medtronic for about $6.1 billion. 

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 early 2019, the company launched a new supply chain automation tool to help hospital manage operating room costs and inventory.

The company operates in a highly competitive field that is undergoing major shifts due to consolidation, health care reform, and the entry of new players. These challenges put pressure on Cardinal to reduce prices, but that ends up reducing its margins. Additionally, Cardinal's generics business has been declining due to pricing deflation and fewer product launches.

To counteract those pressures, Cardinal Health aims to keep its operations lean and nimble, an important factor in thin-margin distribution industries. The company has also conducted some cost-cutting programs such as asset divestitures in recent years. In response to upcoming drug distribution reforms in China, the company sold its Chinese pharmaceutical and medical distribution operations to Shanghai Pharmaceuticals for $1.2 billion in 2018 (although it retains certain businesses in the country, such as Cordis, its patient recovery business). Also that year, Cardinal sold its stake in naviHealth for $736 million plus a 44% stake in a partnership that owns naviHealth.

Mergers and Acquisitions

In early 2019 Cardinal Health acquired Mirixa, which provides tools to help pharmacies manage medications, from the National Community Pharmacists Association. Mirixa joined Cardinal's OutcomesMTM business.

In 2017 Cardinal bought the medical supplies businesses of Medtronic for about $6.1 billion. The units acquired sell products for patient care, deep vein thrombosis, and nutritional insufficiency. They cover more than 20 product categories and include brands such as Curity, Kendall, Dover, Argyle, and Kangaroo. The units are complementary to Cardinal's medical supply offerings.

Company Background

Cardinal Health harks back to Cardinal Foods, a food wholesaler named for Ohio's state bird. In 1971 Robert Walter, then 26 and with the ink still fresh on his Harvard MBA, acquired Cardinal in a leveraged buyout.

In 1980 Cardinal moved into pharmaceuticals distribution with the acquisition of Zanesville. It went public in 1983 as Cardinal Distribution, and Walter began looking for more acquisitions. Cardinal soon expanded nationwide by swallowing other distributors. In 1988 Cardinal sold its food group and narrowed its focus to pharmaceuticals.

Cardinal Health Systems, Inc.

14 SCHOOLHOUSE RD
Somerset, NJ 08873-1213
Phone: 1 (732) 537-6544

Stats

Employer Type: Privately Owned
Director, HEOR Business Development: Christy Albertson
Pharmacy Director: Robert Harris
Customer Service Manager: Ivelisse Rivera
Employees (This Location): 300
Employees (All Locations): 5,000

Major Office Locations

Somerset, NJ

Other Locations

Muncie, IN
West Chester, OH