Rank: #9 (Last year: #9) $16.89 Billion ($226.8B total)
Prior Fiscal: $15.01 Billion
Percentage Change: +12.5%
Best FY24 Quarter: Q2 $3.93B
Latest Quarter: Q3 $3.16B
No. of Employees: 48,900 (total)
Global Headquarters: Dublin, Ohio

In September, Cardinal Health began a $1.11 billion deal to acquire Integrated Oncology Network (ION), a physician-led independent community oncology network. It has over 50 practice sites in states, representing more than 100 providers with reach into their local communities. Taken together with Cardinal’s Navista offerings such as its technology platform and value-based care and ancillary services, ION complements and will expand Cardinal Health’s holistic suite of clinical and practice management solutions designed to support independent community oncology practices.

In November, Cardinal also began an agreement to acquire two companies: a majority stake in GI Alliance (GIA), and a merger with Advanced Diabetes Supply Group (ADSG).

GIA is a gastroenterology (GI) management services organization (MSO) with over 900 physicians at 345 locations in 20 states. It operates a multi-specialty platform that will expand both nationally and in other key therapeutic areas. The majority stake for GIA was bought for about $2.8 billion in cash, representing 71% ownership.

ADSG is a diabetic medical supplies provider that merged with Cardinal’s at-Home Solutions business. The company delivers comprehensive diabetes solutions tailored to support individual patients at home. It serves about 500,000 patients annually, providing the latest diabetes therapy innovations from leading manufacturers. ADSG was acquired for about $1.1 billion in cash.

In Cardinal’s fiscal year 2024 (ended June 30), the company’s medical product franchise posted $16.89 billion of revenue, a 12.5% increase over the prior fiscal year. The franchise is divided into Global Medical Products and Distribution (GMPD) and Other, which encompasses at-Home Solutions, Precision Health Solutions, and OptiFreight Logistics operating segments.

ANALYST INSIGHTS: “Not fully understood by many is that Cardinal’s medtech business is less than 10% of their total profits. Their strength in profitability comes from their specialty pharmaceutical businesses. Key to their continued margin growth is to finally get their medtech business gaining revenue and margin traction. It’s one of their core focus’s. Let’s see if they can execute!”

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

The GMPD business collected $12.38 billion of sales last year, remaining relatively flat around 1%. There was a $275 million revenue increase mainly due to higher volumes from existing investors. The growth was somewhat tempered by the adverse impact of personal protective equipment pricing.

Fiscal 2024 Other revenue ascended 12% to $4.51 billion. Cardinal pointed to growth across the at-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight Logistics franchises as the main drivers.

Plans were announced for a new Walton Hills, Ohio distribution center for the U.S. Medical Products and Distribution business in August. The facility, which opened in spring 2025, sits at 249,000 feet, over 30% larger than a nearby Solon, Ohio, location. Next-generation technology integrated into the building aims to improve workflows and move medical products through the building more efficiently. Automation will also drive productivity and performance while reducing ergonomic injury risk.

A new Greenville, S.C., distribution center for Cardinal’s at-Home Solutions business also opened in August. The building is 350,000 square feet, the largest distribution center supporting the at-Home Solutions business. The facility was expected to add about 200 jobs to the region. The latest automation, artificial intelligence, and robotics technology in the facility will help ship nearly 8,000 packages to patients’ homes, which include products like continuous glucose monitors, incontinence and ostomy supplies, breast pumps, and enteral nutrition pumps and formulas.

Rounding out the trio of new facilities was the October grand opening of a medical product distribution center in Boylston, Mass. It replaced the company’s Bedford, Mass., distribution center with an almost 317,000-square-foot facility—doubling the warehouse space and tripling capacity for product storage locations. It features specialized product handling capabilities like refrigeration, proper storage for hazardous materials and industry expertise in product transportation regulations.

In November, the company rolled out the Kendall SCD SmartFlow compression system. The next generation of the Kendall SCD series is a solution to prevent deep vein thrombosis and pulmonary embolism by delivering customized, intermittent pneumatic compression (IPC) to increase blood flow in at-risk patients. Its Vascular Refill Detection (VRD) technology features a sequential, gradient, and circumferential sleeve design to move more blood per hour than uniform compression, according to the company.

The VRD technology adjusts and customizes compression cycles to match the patient’s vascular refill time. The circumferential sleeve design lets therapy be applied regardless of sleeve and tubing position, while the gradient pressure pattern maximizes blood flow.

Cardinal Health also inked a deal to sell T2 Biosystems’ sepsis detection diagnostics in November. The agreement gives Cardinal exclusive rights to sell the FDA-cleared tests, including the T2Dx Instrument, the T2Bacteria Panel, and the T2Candida Panel. T2 Biosystems has developed the only FDA-cleared diagnostics to detect sepsis-causing bacterial and fungal pathogens directly from blood in three to five hours.

$15.01 Billion
Prior Fiscal: $15.89 Billion
Percentage Change: -5.5%
Best FY23 Quarter: Q1, Q2, Q4 $3.8B
Latest Quarter: Q3 $3.1B
No. of Employees: 48,000

In November 2023, the U.S. Food and Drug Administration issued a statement warning against using Monoject syringes with patient-controlled pain management pumps and syringe pumps. The warning followed Cardinal Health’s recall of the Monoject syringes because of incompatibility concerns with syringe pumps. The syringes inject or withdraw fluids from the body, while patient-controlled pain management pumps treat different types of pain with intravenous medications.

Later that month, there was more trouble on the syringe front. The FDA stated it was examining reports of leakages, breakages, and other quality issues with plastic syringes made in China. The agency began conducting investigations with federal partners and said it might stop plastic syringes made in China from entering the U.S. market.

The FDA probe came after changes made to syringe dimensions during production caused recalls and complaints about syringes made at a number of Chinese manufacturing sites. The agency then advised against using China-made syringes during the ongoing investigation.

Fast forward to April of this year, when Cardinal Health was dealt a warning letter from the FDA after an inspection of its Illinois facility uncovered the company was marketing and distributing unapproved devices made by a manufacturer in China. The regulator determined Cardinal was importing two types of syringes sold under the Monoject brand and marketing kits that have misbranded piston syringes made by China’s Jiangsu Shenli Medical Production. The company had neither commercial marketing nor investigational device approval to do this.

According to the warning letter, Cardinal Health’s quality system regulations were failing to adequately establish or maintain procedures to ensure all purchased or received product or services did not conform to 21 CFR 820.50 requirements. The FDA letter also stated that product requirements related to the ISO Standard 7886-1:2017 were also not established in the product requirements document and no data was given from the supplier to ensure compliance with those requirements.

These issues did not impact the company’s FY 2023 performance, but the year was one of loss. The Dublin, Ohio-based life sciences company’s Medical segment pocketed $15.01 billion in its fiscal year (FY) 2023 (ended June 30). This was a 5.5% drop from its previous FY.

Cardinal Health attributed headwinds from inflation mainly related to transportation, commodities, labor, and global supply chain constraints beginning in fiscal 2022 as the reason for the drop. The company has implemented price increases and evolved pricing and commercial contracting processes to mitigate the negative impact of inflation but said it continued to affect Medical segment profit in FY 2023.

Lower volumes within Cardinal Health-branded medical products also tempered the company’s Medical segment profit. A $215 million increase in the company’s at-Home Solutions business was not able to overcome lower sales of these products as well as shrunken personal protective equipment (PPE) pricing and volumes.

In April, Cardinal opened two new distribution centers for its U.S. Medical Products and Distribution (USMPD) and at-Home Solutions businesses, part of the Medical segment’s multi-year warehousing and modernization plan. Situated about 15 miles south of Columbus in Groveport and Grove City, Ohio, the combined 782,000-square-foot facilities feature modern warehouse capabilities. The Groveport U.S. Medical Products and Distribution facility touts Locus robotics and an innovation lab. The Grove City facility is a customer showcase location and the first to feature AutoStore, Cardinal’s automated fulfillment technology optimized with Swisslog SynQ software.

Plans to build a new Greenville, S.C., distribution center for its at-Home Solutions business—its 11th to date—were announced in June. It will span 350,000 square feet and focus on customers in the Carolinas, Virginia, Georgia, Alabama, Tennessee, Missouri, and Louisiana. Advanced automation technology and robotics will be housed in the facility, including outbound conveyor automation and state-of-the-art warehouse management systems. The facility is expected to be operational between the end of this year and June 2025.

The company began a non-exclusive distribution deal with bioelectric medicine company Tivic Health in September. Tivic’s handheld ClearUP device uses non-invasive trigeminal, sympathetic, and vagus nerve stimulation on points along the cheek, nose, and brow to treat sinus and nasal inflammation.

August saw rollout of the NTrainer 2.0 neonatal feeding device. The feeder helps improve a skill called non-nutritive suck, which infants need in order to transition from feeding tubes to the breast or bottle, via mechanical support for swallow-breathe coordination. The second-generation NTrainer is smaller, which Cardinal said makes it more intuitive and easier to integrate into neonates’ feeding protocols.

The Kangaroo Omni enteral feeding pump entered the U.S. market in September. The attitude-independent system delivers IDDSI level 2, 3, or 4 homogenized and blended formulas with smooth consistency. The compact feeder feeds, flushes, hydrates, and transmits a 30-day feeding history. It also stands up to cleaning under running water, displays nutrition missed when the pump is off, and translates screen content in 19 languages.

Cardinal announced an expansion of its partnership with population health company Lightbeam Health Solutions in September as well. The duo aims to offer more tech-based oncology treatment by leveraging Cardinal’s Navista TS, a suite of solutions designed to help community oncologists boost outcomes and lower costs of treatment in a value-based care model. It will be used in tandem with Lightbeam’s population health analytics application, Lightbeam Clinical Services (LCS), and deviceless remote patient monitoring.

$15.89 Billion
Prior Fiscal: $16.69 Billion
Percentage Change: -5%
Best FY22 Quarter: Q1 $4.15B
Latest Quarter: Q3 $3.68B
No. of Employees: 46,500

In 2015, there was a major announcement made with regard to Johnson & Johnson’s Cordis business. At that time, Cordis was a leading global manufacturer of cardiology and endovascular devices. The unit was being purchased by Cardinal Health for approximately $2 billion.

“We are extremely excited about the acquisition of Cordis. This is a significant step forward in our cardiovascular strategy. Cordis brings with it a long and proud legacy of cardiovascular innovation,” said George Barrett, chairman and CEO at the time.

Of course, strategies change. In early August 2021, just about a month into its 2022 fiscal year, Cardinal Health finalized the deal that would see the departure of the Cordis business. The company was sold to Hellman & Friedman, a global private equity firm, for half the original 2015 purchase price.

Several analysts explained the move as one of several poor decisions made by drug distributors. In a comment to Reuters, Morning Star analyst Soo Romanoff said, “These drug distributors have made really bad acquisitions, and this Cordis was one of them. [Cardinal] is just monetizing it because there are no synergies that they are getting from this business.”

Raymond James analyst Alex Ruscher essentially agreed. “This is the latest example of the drug wholesalers unwinding assets snatched up as the industry looked to consolidate over the past five years, with the common trend being buying high and selling lower.”

ANALYST INSIGHTS: Cardinal is a company that continues to work on improving its bottom line due to pressure from Wall Street. They seem to be making some progress with this through an increased emphasis on specialty pharma and precision medicine while streamlining and simplifying their medical product lines. While currently an unexciting company, expect Cardinal to continue to focus, focus, focus to grow its EPS (earnings per share).

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

The move would seem to reduce the company’s medical device manufacturer status as it returns its attention primarily on mitigating supply chain inflation and, more recently, the growth of its at-Home Solutions. In the firm’s annual report, current CEO Jason Hollar specifically called out the at-Home segment and alluded to it being a strategic focus.

Cardinal Health attributed the loss of the Cordis revenue during the 2022 fiscal as being the primary reason for its year-over-year decrease compared to the previous 12-month period. The firm saw a 5% decrease in its Medical segment, going from $16.69 billion in 2021’s fiscal to $15.89 billion. Meanwhile, its Pharmaceutical portion was responsible for a revenue total almost 10 times that amount, reporting $165.5 billion in the 2022 fiscal.

Perhaps addressing the depression of its Medical business from the divestiture, the company announced expansion plans with the building of a pair of medical distribution centers. Targeting the Columbus, Ohio, region for both facilities, the first declaration came at the end of March. A 574,670-square-foot medical distribution center would replace the company’s 235,000-square-foot facility in nearby Obetz, Ohio. The new center (located in Groveport) would not only house employees from the existing location, but would also create new job openings for the region.

In a release, the company stated, “The new building will integrate automation and technology to work alongside Cardinal Health employees; improve safety, service, and quality; deliver operational efficiencies; and better support fluctuations in volume and labor to provide customers with a predictable and stable customer experience.”

Then, just about two months later, the organization announced plans for a distribution facility that would support its aforementioned at-Home Solutions business. This segment of the company provides medical supplies intended to enable comfortable care within the home for patients with chronic and/or serious health conditions. The 208,144-square-foot building was reported as being the tenth distribution center for the firm’s at-Home Solutions unit in the United States. Located in Grove City, Ohio, the new facility would create approximately 100 new job opportunities for the region.

In addition to serving as a new distribution center, the building would also serve as a customer showcase center. It is also the first Cardinal Health warehouse to feature AutoStore, an automated fulfillment technology from Swisslog optimized by Swisslog’s SynQ software. The system has 31,844 storage bins providing 83,000 cubic feet of storage for 14,154 SKUs. According to Cardinal Health, since the robots bring products directly to employees for packing and shipping, they help decrease human error and bring more speed to order fulfillment.

Both locations celebrated openings in April 2023. Cardinal Health indicated they were part of a larger, multi-year strategy for the Medical Segment to modernize warehousing. The plan puts an emphasis on investments in infrastructure and technology. According to the company, the facilities will support business growth and expansion, help accelerate service for existing customers, and bring more jobs to the region. The buildings lie just about 15 miles apart and are south of Columbus.

Another announcement during its 2022 fiscal involved COVID-19 tests from Cue Health as Cardinal Health was called upon to serve as the distribution partner for the firm’s professional use and over-the-counter diagnostics. Specifically, the arrangement involves the Cue Health Monitoring System, the Cue COVID-19 Test for CLIA Certified Healthcare Providers and Laboratories (Professional), Cue COVID-19 Test Positive Control Swabs and Test Negative Control Swabs, and the Cue COVID-19 Test for Home and Over The Counter Use. According to a release, Cardinal was selected for its “demonstrated expertise in helping commercialize diagnostic technologies.” It was also noted the organization serves nearly 90% of U.S. hospitals and more than 60,000 pharmacies.

Cardinal Health also expanded its own product line in the form of a surgical drape featuring Avery Dennison’s patented BeneHold chlorhexidine gluconate (CHG) adhesive technology. The CHG product helps reduce the risk of surgical site contamination with organisms typically associated with surgical site infections. According to Cardinal Health, the incise film is strong, conformable, and breathable, and provides a sterile surface to create a barrier to contamination. The adhesive helps prevent edge lift of the drape, while still removing easily after surgery without harming fragile skin.

Following the close of the 2022 fiscal, about a month later, the firm announced a couple of changes within the organization’s leadership. Most notable, it was revealed that then CEO and board member Mike Kaufmann would step down, as the board had elected Hollar as the new CEO. Hollar had been the company’s CFO since May 2020. Previously, he served in the same position for Tenneco and Sears Holdings Corporation. Patricia English, who had served as chief accounting officer and senior vice president of Cardinal Health and previously served as vice president of accounting, stepped into the CFO role as an interim selection. The role was eventually filled by Aaron Alt.

$16.68 Billion ($162.5B total)
Prior Fiscal: $15.44 Billion
Percentage Change: +8%
R&D Expenditure: N/A
Best FY21 Quarter: Q2 $4.31B
Latest Quarter: Q3 $3.88B
No. of Employees: 47,300 (total)

Nobody seems to know what to do with Cordis.

The cardiovascular and endovascular device maker was founded in 1957 in a garage in Miami, rapidly gaining global recognition as a pioneer in innovative products for interventional vascular medicine. In the 1970s, the company revealed the first sheath introducers with hemostasis valves to minimize blood loss during angioplasty. At the time, it ranked second only to Medtronic among America’s leading pacemaker manufacturers, as well. In the 1980s, Cordis launched a full line of percutaneous transluminal coronary angioplasty (PTCA) guiding catheters. In the 1990s, the company introduced the first PTCA balloon with nylon balloon material. These innovations quickly became industry standards.

Later in the decade, Cordis’ rapid growth attracted Johnson & Johnson’s attention. Cordis merged with Johnson & Johnson Interventional Systems to form Cordis Corporation. And in 2003, J&J’s Cordis helped to earn the landmark FDA approval for the Cypher sirolimus-eluting coronary stent, the first combination drug-device product to reduce restenosis of a treated coronary artery.

Cordis remained a J&J division until March 2015, when it was sold to Cardinal Health for about $2 billion. The move drastically grew Cardinal Health’s medical products business—at the time, the company was primarily a drug wholesaler.

Almost exactly six years later (March 2021), Cardinal Health announced it was selling Cordis to private equity firm Hellman & Friedman for about $1 billion.

“Our decision to divest Cordis demonstrates our disciplined approach to evaluating our portfolio and focusing our resources in our strategic growth areas where we are an advantaged owner,” Cardinal Health CEO Mike Kaufmann said in a press release announcing the sale. “Looking forward, we remain committed to our medical distribution and global medical products businesses.”

The deal was completed last August, rendering Cordis an independent company for the first time since the late 1990s.

“We are thrilled to begin this next chapter for Cordis and value the partnership with Cardinal Health through the transition,” Shar Matin, CEO of Cordis, told the press. “We believe that an independent Cordis company, combined with an innovative approach to bring differentiated products to market, will allow us to create incremental value for teammates, customers, and investors.”

Last August, Cardinal Health leveraged its expansive distribution network to boost access to Quidel’s QuickVue over-the-counter, home COVID-19 test as well as Abbott’s BinaxNow COVID-19 home rapid test. The move was made in response to last year’s burgeoning SARS-CoV-2 Delta variant. Cardinal Health Laboratory Products also supplied swabs, viral transport media, and customizable specimen collection kits.

“Because we offer a full suite of solutions for COVID-19 testing, as well as vaccine transport and storage, Cardinal Health has been helping organizations and communities determine the best solutions for bringing their populations safely back out of the home since the pandemic began,” Cardinal Health Laboratory Products senior VP and GM Chris Kersi commented to the press.

Cardinal’s Medical segment also benefited from the increased demand for certain personal protective equipment (PPE) due to COVID-19 as well. The peak of the heightened demand was during Q2 and Q3 of the firm’s fiscal 2021 (ended June 30). During Q4, selling prices and customer demand shrank compared to that peak.

Fiscal 2021 medical segment revenue rose about 8% to $16.68 billion primarily within products and distribution, according to the company’s annual report. Sales increased $1.1 billion thanks to the net benefit from COVID-19. This included both the positive impact of PPE and higher volumes in the company’s laboratory business.

To cap off the year, last January, Cardinal Health launched its TotalVue Analytics, a tool that leverages predictive analytics and data to identify logistics savings and benchmarking. The tool allows visibility into shipping trends so opportunities to reduce freight costs can be identified, including inbound supplier shipments or outbound shipments from sites of care. For example, a supplier shipping too many packages overnight or a location not using the program to get shipping discounts can be identified.

April saw the release of the Navista Tech Solutions connected, point-of-service suite to help oncologists improve outcomes and costs associated with treatment as they transition to value-based care. A data-driven cost tracking tool helps measure the cost of care at the start and during the episode of care. The integrated platform includes electronic health records, a practice management system, revenue cycle management services, a patient portal, and telehealth solutions. AI-enabled population health decision support proactively identifies patients at risk of adverse events. Another AI tool identifies and matches cancer patients to clinical trials.

Not long after, Cardinal Health launched its Outcomes digital ecosystem with the aim of mitigating medication non-adherence. The digital health tool offers personalized medication therapy management, digital patient engagement, and telepharmacy to foster medication adherence. The open architecture marketplace approach allows the platform to connect clinical services, patient engagement, and billing to optimize pharmacy workflow. The digital ecosystem powering Outcomes supports a 23 million-member patient network and over 60,000 pharmacies across the world.

November saw the rollout of the company’s WaveMark supply management and workflow solutions for clinical labs. WaveMark’s supply automation aims to ease the staffing burden on the clinical lab workforce strained from retirements and increased testing demand—especially in the still-lingering COVID-19 era—by automating laborious and manual inventory-tracking tasks like ordering supplies and identifying product location and lot numbers as needed. It also proactively provides alerts for recalled, expired, and at-risk supplies. According to a company study, WaveMark users saved seven hours weekly in the first three months of use, amounting to about 357 hours a year.

Last August, the company issued both a voluntary correction and initiated a nationwide recall. Cardinal Health recalled about 267 million Monoject Flush prefilled saline syringes because the products were found to reintroduce air into the syringe after the air had been expelled. This caused risk of air injection into blood vessels and potential for air embolism, which can cause serious adverse outcomes or death.

The voluntary correction notice was for the Argyle UVC insertion tray containing Safety Scalpel N11. The product is used to insert an umbilical venous catheter into the umbilical artery or vein of neonates. The company issued the notice to make users aware of Safety Scalpel N11’s full instructions for use, particularly its permanent locking feature. Cardinal said the scalpel functions as intended but there’s a risk for procedural delay due to unintentional permanent locking. This potential delay can result in death in the high-risk neonate population.

Two reports of death had been received at the time, but the causes were not established as the result of the permanently closed and locked scalpel.

In October, the FDA awarded Cardinal a $750,000 contract to implement an 18-month real-world evidence (RWE) study to advance the agency’s efforts to boost RWE’s applicability in regulatory decision-making. The funding will support “Assessment of a Novel Methodology for Endpoints Assessing Response to Lymphoma Treatment in Real-World Studies,” which will evaluate accuracy of real-world data (RWD) for lymphoma tumor response compared to blinded independent central review, the gold standard in randomized clinical trials. Within this research, Cardinal will collaborate with the FDA Oncology Center of Excellence to assess tumor response in the clinical care setting.

$15.44 Billion ($152.92 Billion)
Prior Fiscal: $15.63 Billion
Percentage Change: -1.2%
No. of Employees: 48,000 (total)

They headed south, far beneath the Mason-Dixon Line, to confront a difficult reality.

None of the travelers expected this trip to be easy. But each sensed it was necessary for both personal and professional growth.

“This is about living our values,” Cardinal Health CEO Michael C. Kaufman said in the company’s FY20 Corporate Citizenship report. “It’s about doing the right thing even when it is hard.”

For Kaufman, doing the right thing entailed journeying to Montgomery, Ala., last winter with a group of Cardinal Health executives to tackle racial injustice. The group visited the National Memorial for Peace and Justice, a six-acre tribute to the “legacy of enslaved Black people,” and African American lynching victims; the structure is meant to acknowledge past racial terrorism in America and champion social justice, according to the website.

Located in downtown Montgomery, the memorial consists of 805 hanging steel rectangles, representing each of the U.S. counties where a documented lynching occurred. Each suspended slab is engraved with the names and dates of documented victims, four of which unexpectedly matched the surnames of Kaufman’s travel companions.

After exploring the Memorial, the Cardinal group visited the Legacy Museum, which uses interactive media, sculpture, videography, and photographs to recount America’s slave trade, racial terrorism, the Jim Crow South, and world’s largest prison system.

Kaufman said he and his colleagues left Montgomery “deeply committed” to work together to fight racial inequity and social injustice. “We know that racism is our past and our present. If we do nothing and these issues remain unchecked, racism will be our future. We cannot let that happen,” he wrote in the Corporate Citizenship report. “The leadership team at Cardinal Health is deeply committed to a future with equity and justice, and we embrace the challenges along this path. It is the right thing to do…But it is also the smart thing to do. As we create a more diverse, inclusive, and equitable culture, we become a destination for the best talent. We also become more dynamic, innovative, and better able to serve our customers and communities around the world.”

And thence, the company becomes more profitable.

Smart indeed.

ANALYST INSIGHTS: Interestingly, in a heavy M&A year, Cardinal Health has been quiet on acquisitions. COVID has helped the outlook for Cardinal across its portfolio. It will be interesting to see if Cardinal continues to stay the course or make some type of dramatic portfolio moves. We’re guessing they don’t do anything major in the short term.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

Yet Cardinal Health cannot base its future growth on racial equity alone. The company also must bolster its prospects through better data capabilities (artificial intelligence, predictive analytics), breakthrough innovations, and significant investments in such high-growth areas as Connected Care, Medical services, Specialty, and Cardinal Health at-Home.

“Across the company, our initiatives to enhance our operations, processes, and technologies are delivering meaningful value,” Kaufman noted in Cardinal Health’s FY20 annual report. “In the [fiscal] year, we invested $375 million back into the business, with a focus on enhancing our IT infrastructure and fueling strategic growth opportunities. We are on track to deliver savings beyond our multi-year, $500 million target. This disciplined approach will enable strong cash flow and working capital efficiency in 2021 and will position us for consistent, sustained growth in the future.” Overall, although this year presented significant global and industry challenges, we delivered on our commitments.”

And delivered well: Total sales rose 5 percent in fiscal 2020 to $152.92 billion, driven mostly by a 6 percent boost in Pharmaceutical segment revenue (to $137.5 billion). That growth resulted mainly from higher sales of drugs and Specialty solution products, Cardinal’s annual report stated.

Medical segment proceeds suffered the opposite fate, falling 1 percent to $15.44 billion due to the global coronavirus pandemic. But revenue was slightly offset by strong sales of Cardinal Health at-Home Solutions.

Global manufacturing and supply chain “cost-saving initiatives” bolstered Medical segment profit 15 percent to $663 million. Although the report did not provide specifics of those “initiatives,” one cost-saving measure likely was the springtime sale of Cardinal Health’s remaining equity interest in post-acute care benefits manager naviHealth.

Founded in 2012, naviHealth partners with health plans, hospital systems, physician groups, and other healthcare providers to coordinate clinical decision-making and track patient data. The firm manages acute-care services for about 4.5 million Medicare Advantage members and serves more than 140 hospitals in the Centers for Medicare and Medicaid Services’ Bundled Payments for Care Improvement Advanced program.

Brentwood, Tenn.-based naviHealth develops decision-support tools and uses standardized clinical operations as well as local care coordinators to identify existing care resources in the community and appropriate medical treatments. naviHealth claims its approach helps patients recover more quickly from ailments and hospitalizations.

Cardinal acquired a 71 percent stake in naviHealth six years ago for $290 million; the deal was hailed at the time for expanding Cardinal Health’s services to customers navigating the value-based reimbursement paradigm.

“Discharge and post-acute care coordination is critical for both hospital CEOs and their patients, as care is increasingly delivered in alternative sites and payment models shift the focus to patient outcomes rather than activity,” Michael Petras, president of Cardinal Health at-Home, said when the naviHealth deal was announced. “The acquisition of naviHealth aligns with Cardinal Health’s strategic priority of offering the most complete and integrated suite of services to meet the needs of our Integrated Delivery Network, hospital, and other customers.”

Cardinal Health retained its majority stake in naviHealth for nearly three years before selling a 55 percent ownership in the company to private equity firm Clayton, Dubilier & Rice in June 2018. naviHealth changed hands again less than two years later with its May 2020 sale to UnitedHealth Group’s Optum business. Terms of the deal were not disclosed but published reports estimated the transaction to be worth more than $1 billion.

Cardinal Health garnered $579 million from the sale of its remaining equity stake in naviHealth, according to the annual report. The money came in handy too, as the company incurred $85 million in expenses to recall potentially unsafe surgical gowns (just as the coronavirus began spreading rapidly, creating supply chain challenges) and $8.8 million to settle federal criminal charges.

The company recalled more than 9.1 million AAMI Level 3 (standalone) surgical gowns and 2.9 million Presource procedure packs containing surgical gowns over a contract manufacturing issue that potentially rendered the apparel unsterile. In its recall notice, Cardinal Health told customers the gowns were made beginning in the fall of 2018 at unapproved locations under improper environmental conditions, and were neither registered with the U.S. Food and Drug Administration nor qualified by Cardinal Health.

Affected Presource pack products included the company’s Non-Reinforced, Fabric-Reinforced, and RoyalSilk Non-Reinforced Surgical Gowns. Of the 9.1 million gowns included in the recall, 7.7 million were distributed to roughly 2,800 facilities.

“The safety of our products is a responsibility we take very seriously,” Cardinal Health said in a Jan. 15, 2020, letter to customers. “Our decision was based on quality issues identified at this contract manufacturer’s facility. At this time, we cannot provide sterility assurances with respect to the gowns or the packs containing the gowns because of the potential for cross-contamination. Our communications with the FDA confirm our direction that the affected products and packs containing the affected products should not be used.”

Cardinal Health tried mitigating any recall-related gown shortages by increasing its own production of similar products, and identifying alternative supply sources. The company also offered up AAMI Level 4 gowns to customers as penance.

A second act of contrition involved Cardinal Health paying $5.4 million to the U.S. Securities and Exchange Commission (SEC) to resolve a bribery case dating back to 2010. The company’s former Chinese subsidiary (Cardinal China) stood accused of violating the Foreign Corrupt Practices Act by making improper payments to state-owned retail entities in order to boost sales of a skincare company whose products it distributed in China.

Between 2010 and 2016, Cardinal China retained thousands of workers and managed two large marketing accounts for a European beauty and health company. The employees used marketing account money meant to promote the company’s products on payments to government-employed healthcare professionals and to employees of state-owned retail companies who had influence over purchasing decisions. Cardinal Health received a percentage of profits from sales derived from the improper payments, the SEC charged.

The agency said Cardinal did not do enough to make sure the transactions were executed appropriately.

““Cardinal’s foreign subsidiary hired thousands of employees and maintained financial accounts on behalf of a supplier without implementing anti-bribery controls surrounding these high-risk business practices,” Anita B. Bandy, an associate director in the SEC’s Division of Enforcement, said in February 2020 news release announcing the settlement. “The FCPA is designed to prohibit such conduct, which undermined the integrity of Cardinal’s books and records and heightened the risk that improper payments would go undetected.”

Without admitting or denying wrongdoing, Cardinal Health agreed to pay $5.4 million in disgorgement as well as $2.5 million and $916,887 in pre-judgement interest to the SEC.

More reparations are probable in FY21, as the company was named last July as a defendant in hundreds of product liability lawsuits filed in northern California. The more than 4,200 people lodging the complaints claim they were injured using the Cordis OptEase and TrapEase inferior vena cava filter products—items Cardinal Health inherited with its $1.9 billion purchase of Johnson & Johnson’s Cordis business in 2015. (The company sold the business in March 2021 for approximately $1 billion).

Nearly 40 plaintiffs in jurisdictions outside California have levelled similar accusations about the two Cordis products in 31 additional lawsuits. Cardinal Health expects its legal tab to run as high as $919 million, and has already accrued more than half of it ($468 million as of June 30, 2020).

“These lawsuits seek a variety of remedies, including unspecified monetary damages,” the company said in its FY20 annual report. “We continue to vigorously defend ourselves in these lawsuits and have begun to engage in preliminary resolution discussions with plaintiffs.”

AT A GLANCE
$15.58 Billion ($136.8B total)
Prior Fiscal: $13.52 Billion
Percentage Change: +15.0%
No. of Employees: 50,200 (total)

“Lots of companies don’t succeed over time. What do they do fundamentally wrong? They usually miss the future.” — Larry Page, Alphabet Inc. CEO

How to (truly) Succeed in Business Without Really Trying: Ditch the handbook and heed Page’s advice.

It works. But not without really trying.

Virginia “Ginni” Rometty can vouch for the results, as Page’s wisdom has helped her orchestrate IBM’s protracted transformation into a cloud-based “solutions” business. During her tenure as CEO, the 61-year-old has invested billions of dollars in advanced technologies like AI and quantum computing, and sold off legacy assets that no longer fit the company’s revamped business model (last December, for example, IBM divested seven software products, including BigFix, Unica, and Connections).

Rometty, however, wasn’t always a devotee of Page’s business stratagem. When she first assumed leadership of IBM in January 2012, Rometty dutifully adopted her predecessor’s game plan—i.e., doubling the multinational conglomerate’s per-share earnings by 2015 ($20/share).

Yet more than two years into her tenure (and just 15 months from the deadline), Rometty realized the growth scheme she inherited would seriously hamper IBM’s efforts to reinvent itself (clearly a case of How Not to Succeed in Business, Despite Really Trying). Thus, she switched gears in October 2014, taking full ownership of the company’s future.

Securing that future hasn’t been easy, though (despite claims to the contrary from Shepherd Mead’s book and the Pulitzer Prize-winning Broadway musical). Amid its transformation, IBM endured 22 consecutive quarters of freefalling revenue and repeated bouts of frailty from a strengthening U.S. dollar. But a strict regimen of divestitures and strategic acquisitions seem to have helped the company recover its financial fortitude: net income last year skyrocketed 51.7 percent to $8.73 billion, and total revenue climbed 1 percent to $79.6 billion.

“I really believe the company has in its DNA the ability to change. We’ve done it over and over again,” Rometty told the Harvard Business Review two years ago. “…this is a more extensive transformation because of the convergence of multiple trends that are accelerating the pace of change. It doesn’t matter if you’re an insider so long as you don’t try to protect the past. Then you have the freedom to revinvent yourself for the long term.”

Cardinal Health CEO Michael Kaufmann is realizing the value in Rometty’s advice as he re-evaluates his company’s product portfolio, business mix, and cost structure. Like Rometty’s predecessor, Kaufmann has established a deadline-oriented growth plan—more than $200 million in annual savings by fiscal 2020—but he’s not depending on past practices to achieve it. Nor is he committing to any one specific approach.

“Let me be clear about the road ahead. I am not wed to the past,” Kaufmann, CEO since January 2018, told analysts last summer. “Everything is on the table when it comes to driving long-term growth, delivering shareholder returns, and serving our customers. All of us are committed to being disciplined, with a laser focus on achieving results in the months and years ahead.”

Such results are already starting to materialize: Cardinal Health’s overall revenue jumped 5 percent in FY18 to $136.8 billion, driven by solid gains in both of its business reporting segments. Strong drug distribution and specialty customer sales boosted Pharmaceutical proceeds 4 percent to $121.24 billion, while the July 2017 deal for Medtronic plc’s Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses (Patient Recovery) helped catapult Medical sales 15 percent to $15.58 billion. The $6.1 billion purchase of 23 hospital product brands added $1.9 billion in revenue to Cardinal Health’s coffers, according to the company’s fiscal 2018 annual report (for the year ended June 30, 2018).

ANALYST INSIGHTS: Cardinal Health has been busy integrating the former Covidien Supplies business (recently purchased from Medtronic) into its operations. With that behind it, look for Cardinal to look for new M&A activities in areas where it can improve its profitability through higher margins than most of its current businesses.

—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors

The Patient Recovery acquisition also boosted Medical segment profit by 16 percent (to $662 million), though it was somewhat offset by inventory challenges and higher operating expenses in the Cordis business. Cardinal Health purchased Cordis from Johnson & Johnson in 2015 to expand its global footprint and diversify its product offering, particularly in the cardiovascular space.

Cordis has served its purpose well over the past several years—and that, oddly enough, is part of the problem. To accommodate its broadened product line and overseas business growth, Cardinal Health built out its infrastructure, but the expansion ultimately cost more than the company anticipated.

“Building of that infrastructure has been more expensive than we thought,” Kaufmann admitted during a quarterly earnings call in May 2018. “We’re clearly disappointed and absolutely will own up to that.”

On its own, the costly infrastructure expansion would have had a minimal impact on finances; but the addition of inventory troubles helped drive down Cardinal Health’s stock price last spring to its lowest point in nearly five years.

The source of those inventory troubles, ironically, is Cardinal Health’s own attempts at visibility (the company has begun using IT systems to gain a better understanding of existing network inventory). That effort has created a “large inventory write-off,” Kaufmann claims, and been exacerbated by the limited shelf life of many Cardinal Health products. The inventory issues also have impacted the company’s manufacturing plants: Without reliable data on product demand, Cordis has struggled to maximize the efficiency of its facilities.

Despite all the challenges with inventory visibility, however, the company is confident it can benefit from the lessons it learned from Cordis’ shortcomings. “We still have additional levels of inventory visibility that we would like to see. But we…feel a lot better where we are today, as you can imagine, by having the visibility that we got,” Kaufmann said on the Q3 earnings call. “The biggest area of challenge that we have is not so much in our own systems to seeing inventory visibility. It’s in our consigned inventory. That’s where we have to take it to the next level…to get better visibility there to make sure we don’t have any additional write-off concerns in that part.”

Those concerns should gradually wane with the continued rollout of IT systems. Cardinal Health executives forecast “a path to profitable growth” for Cordis by the end of fiscal 2019.

That path became considerably smoother in fiscal 2018 with the U.S. Food and Drug Administration (FDA) approval of the Elu-NIR Drug-Eluting Stent System and FDA panel support for the INCRAFT AAA Stent Graft System.

Developed by Israeli cardiovascular intervention solution provider Medinol Ltd., the EluNIR stent system features a metallic spring tip and the most narrow strut width of any stent on the U.S. market, the company claims. The device is designed to treat patients with narrowed or blocked coronary arteries. Cordis and Medino forged a long-term U.S. distribution deal for the stent system in October 2017, about a month before the product won FDA approval. The first commercial implants in America were performed in early January 2018 at New York-Presbyterian Hospital/Columbia Medical Center in New York, N.Y., and the Piedmont Heart Institute in Atlanta, Ga.

Five months after the EluNIR made its U.S. debut, the FDA Circulatory System Devices Panel of the Medical Devices Advisory Committee voted in favor of the INCRAFT AAA Stent Graft System, based on data from the pivotal INSPIRATION trial. The INCRAFT system is an ultra-low profile and flexible endovascular aneurysm repair (EVAR) solution intended to treat infrarenal abdominal aortic aneurysms (AAA).

Although several EVAR devices currently are available in the United States, treatment options are limited for many AAA patients with small femoral or iliac arteries, or those with heavily calcified/tortuous vessels. The INCRAFT system received CE mark approval in 2014 and is commercially available in Canada and various countries in Europe, the Middle East, South America, and Asia.

“INCRAFT is an attractive new ultra-low profile EVAR option that allows for bilateral in-situ adjustment during the procedure, helping to minimize the need for additional components or extensions,”Dr. Takao Ohki, chairman and professor of Surgery and chief of Vascular Surgery at the Jikei University School of Medicine (Tokyo) and co-principal INSPIRATION study investigator, said when INCRAFT received full FDA approval in late November 2018.

The FDA Advisory panel’s approval of INCRAFT occurred just 24 hours before Cardinal Health announced the sale of a majority stake in post-acute care benefits manager naviHealth to a private equity firm. Intended to accelerate its growth, the $650 million deal gives New York, N.Y.-based Clayton, Dubilier & Rice 55 percent ownership of the Nashville, Tenn., startup, and Cardinal Health 45 percent interest, with the right to reacquire the business.

naviHealth’s technology uses evidence-based protocols and clinical expertise to track patient recoveries and manage discharges in an effort to lower readmission rates and improve clinical decision-making. The company claims its platform has led to a more than 20 percent decrease in post-actue medical expenses.

“This new investment structure provides naviHealth with the resources needed to support and accelerate its growth trajectory,” Kaufmann said in announcing the deal. “naviHealth’s leadership team, clinical expertise, and proprietary clinical decision support technology are key differentiators in a rapidly growing sector of the healthcare industry. CD&R’s understanding of naviHealth’s business, and their relationships with current and potential customers, will help provide additional value to patients, health systems, and health plans while also allowing Cardinal Health to benefit from future success.”

The naviHealth deal also will allow Cardinal Health to benefit from a more simplified business mix. To that end, the company sold its China business in November 2017 to Shanghai Pharmaceuticals Holding Co. Ltd. for $861 million. The deal, which included Cardinal Health’s drug and medical product distribution divisions, further cemented Shanghai’s footprint in the Chinese market (the company already had top billing in the Middle Kingdom’s drug development and distribution theater before the deal occurred). The divestiture gives Shanghai Cardinal Health’s 17 distribution centers throughout 322 cities; 11,000 healthcare facilities; and 30 direct-to-patient pharmacies in 22 cities. Shanghai also gained an additional 146,000 square meters of storage space and 7,000 square meters of cold storage capacity.

Cardinal Health entered the Chinese market nine years ago with the $470 million purchase of Zuellig Pharma China, but the move never really paid off for the company as it was overshadowed by several major domestic players. At the time of the sale, the company ranked a distant eighth in the China’s drug distribution market.

“It was clear that the returns we were seeing and the prospects for market leadership did not justify maintaining our current position or committing the additional level of investment required for future growth,” Kaufmann wrote in the annual report.

$13.5 Billion ($130B total)
NO. OF EMPLOYEES: 49,800 (total)

The rumors swirled. Many saw it unlikely that Medtronic would hold onto the Patient Care product portfolio of former MPO Top 30 company list member, Covidien—the acquisition of which was announced in June 2014 for more than $42 billion. When and to whom the business would be divested, however, was never clear. A Reuters exclusive in early April 2017 had sources claim the deal was going down between Medtronic and Cardinal Health, but nothing was officially announced at that time. Finally, all the speculation came to an end approximately two weeks later when it was made known the unit would indeed be purchased by Cardinal Health for $6.1 billion.

The full purchase was for Medtronic’s Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses, parts of the firm’s Patient Monitoring & Recovery division of its Minimally Invasive Therapies Group. In total, the three businesses consisted of 23 product categories across multiple market settings. Brands involved in the transaction included Curity, Kendall, Dover, Argyle, and Kangaroo, most of which are used in the majority of U.S. hospitals. Combined, the divested assets accounted for approximately $2.4 billion in revenue over the prior four reported quarters for Medtronic. Now, it was joining Cardinal Health, a company whose medical device segment was dwarfed by its pharmaceutical unit by almost 10 times.

“We are thrilled about today’s announcement, as this well-established product line is complementary to our medical consumables business and fits naturally into our customer offering. For this reason, this product portfolio has been on our radar for many years,” said George S. Barrett, then Cardinal Health chairman and CEO. “We distribute some of these products today and have been collaborative partners with the leadership of this business. Given the current trends in healthcare, including aging demographics and a focus on post-acute care, this industry-leading portfolio will help us further expand our scope in the operating room, in long-term care facilities, and in home healthcare, reaching customers across the entire continuum of care.”

The transaction also saw almost 10,000 former Medtronic employees join Cardinal Health along with the expansive product portfolio. In incorporating the new lines into its catalog, the company saw its total product SKUs increase from nearly 12,000 in 850 categories to almost 21,000 product SKUs in 1,200 categories. The growth of the company is further illustrated when considering that only five years earlier, those numbers were closer to 4,800 SKUs in 470 categories. More specifically, the newly acquired products included incontinence, wound care, enteral feeding, urology, operating room supply, electrode and needle, syringe, and sharps disposal lines. Those offerings join Cardinal Health’s preexisting goods, including cardiovascular and endovascular products; wound care products; single-use surgical drapes, gowns, and apparel; exam and surgical gloves; and fluid suction and collection systems.

“This is a positive transaction for all involved—Medtronic, Cardinal Health, and our respective shareholders and employees—who we believe will all thrive under this change in ownership,” Omar Ishrak, Medtronic’s chairman and CEO, declared at the time of the announcement of the deal. “Ultimately, we came to the conclusion that these products—while truly meaningful to patients in need—are best suited under ownership that can provide the investment and focus that these businesses require.”

ANALYST INSIGHTS: Cardinal has been adept at acquisitions and divestitures over the past several years, continuing to grow their status on the performance list. As they have continued to expand globally, their market share continues to grow in an already crowded field.

—Marissa K. Fayer, CEO and Founder, Health Equity for Women and HERHealthEQ

The transaction wasn’t officially completed by the close of Cardinal Health’s 2017 fiscal year, but rather one month later at the end of July. It was expected at that time the integration work and transitions would be completed over the next 18 months.

The new businesses were joining an already well-established array of products that were well known throughout hospitals, doctors’ offices, and healthcare facilities. As previously noted, while the medical segment of Cardinal Health represents a small fraction of the firm’s overall revenue, it’s still a significant presence within the medical device industry space. In its 2017 fiscal year—which ran from the first day of July 2016 to the last day of June 2017—the overall company saw $130 billion in total revenue, an increase of 7 percent over prior year. Of that, the pharmaceutical segment contributed the lion’s share at more than $116 million, which mirrored the company’s growth at 7 percent over the previous fiscal period. The medical segment, however, enjoyed near double digit growth, coming in at a 9 percent increase over 2016’s fiscal year. That translated to $13.5 billion in total revenue for the segment. Cardinal Health points to sales growth from new and existing customers as well as $212 million in contributions from acquisitions.

Undoubtedly, the company was also looking to gain growth from new distribution deals announced throughout its 2017 fiscal year—the focus of which was on an acquisition that took place in 2015. At that time, Cardinal Health had paid almost $2 billion for Johnson & Johnson’s Cordis unit. With what seemed to be a strategic focus on a number of international regions (with a heavy emphasis on Asia), the distribution agreements primarily focused on the former J&J entity, but did include other portions of the firm’s medical segment.

For example, in October 2016, it was announced that the company would bring powder-free gloves to Hong Kong, while further penetrating the disposable drapes and gowns segment as part of its expansion in Asia.

“There is a tremendous demand for powder-free gloves in Asia,” said Carl Hall, vice president/managing director of Commercialization, Asia-Pacific at Cardinal Health. “In this region, aside from Japan, Australia, New Zealand, and Hong Kong, approximately 70 percent of users are still using powdered gloves. Our goal is to help Asia move to a powder-free environment in order to improve the safety and health of patients and clinicians.”

ANALYST INSIGHTS: Almost one year after the official close of its $6.1 billion acquisition of the legacy Covidien (MDT) Patient Recovery Business (Patient care, DVT, and Nutritional Insufficiency), Cardinal Health is looking to make its next move deeper into the device world, while the jury is still out on the $150 million of assumed synergies on the Covidien purchase.

—Mark Bonifacio, Founder and President, Bonifacio Consulting Services

The company was also broadening its product lines within the region with a focus on single-use surgery products to enable better infection control methods. Providing a disposable option, explained Hall, gives healthcare providers a more economical, less pollutant, and safer solution that fulfills their needs.

Later that same month, Cardinal Health announced new and expanded distribution deals involving a third party that ultimately bolstered the Cordis business offering. The agreements, which added coronary stents and percutaneous transluminal coronary angioplasty (PTCA) balloon catheters, expanded Cordis’ portfolio of products that support the treatment of patients undergoing percutaneous coronary intervention.

Announced in conjunction with the 28th annual Transcatheter Cardiovascular Therapeutics scientific symposium of the Cardiovascular Research Foundation, details illustrate the company’s continued focus on the Asian market, but also demonstrate opportunities realized in North America, for example:

• • An expansion of an existing distribution agreement with Biosensors. The new arrangement enabled Cordis to be the exclusive distributor for Biosensors’ coronary interventional products in Japan. This put Cordis in a position to distribute Biosensors’ coronary stent portfolio in approximately 27 countries in Europe, the Middle East, and Africa (EMEA), in addition to Japan, Australia, and New Zealand (at the time of the announcement).

• • A distribution agreement was announced with Kaneka, enabling Cordis to distribute the company’s PTCA balloon catheters in EMEA, as well as select countries in Asia Pacific and Latin America (LATAM). In Japan, Korea, Australia, and New Zealand, Cordis would be able to sell versions of Kaneka’s PTCA balloon catheters under the names of NEON and NEON NC. In China, Cordis was declared to be the sole distributor of Ikazuchi Rev and Fortis II, under Kaneka’s brand. Cordis would also begin selling the Ikazuchi Zero and Raiden 3 PTCA balloons under the Kaneka brand name pending Kaneka receiving CE mark and other regulatory clearances in EMEA, China, and select LATAM countries.

• • A distribution agreement with Meril that enabled Cordis to sell Meril’s MOZEC and MOZEC NC Rx PTCA balloon dilatation catheters in the United States and Canada.

“In the past year, since becoming a Cardinal Health company, we have executed several key strategic collaborations that strengthen the Cordis product and solutions offering in interventional cardiology,” said David Wilson, then president of Cordis. “We strongly believe that agreements like these provide the opportunity to rapidly expand our portfolio and deliver increased value to customers around the world. We will continue to explore additional opportunities to broaden the global Cordis offering.”

ANALYST INSIGHTS: Now that the $6 billion acquisition of the Covidien portfolio (from MDT) is complete, Cardinal continues to look to growth acquisition targets that will also help its bottom line performance. Cardinal is under pressure on margins in their Pharma business and needs value-added help from new portfolio additions.

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

At the end of March 2017, Cardinal Health doubled down on expanding the international market opportunity for its Cordis unit with two additional deals, both of which expanded the company’s presence in China:

• • An agreement with Brosmed that enabled Cordis to exclusively commercialize two of Brosmed’s PTCA balloon catheters in China. The deal centered around Brosmed’s Artimes, a pre-dilation semi-compliance PTCA balloon, and Apollo, a post-dilation high pressure PTCA balloon, both of which were manufactured in the Guangdong Province in China and had already obtained approval from the China Food and Drug Administration.

• • An agreement that permitted Cordis to commercialize Kaneka’s portfolio of semi- and non-compliant workhorse PTCA balloon catheters in China. The products have a low-entry profile and hydrophilic coating that facilitate access to calcified lesions or lesions that require higher crossability.

“Cordis, as a Cardinal Health company, has significantly expanded our offerings in China during the last 12 months with several new products in interventional cardiovascular,” said Jessie Lian, general manager of Cordis China. “We are committed to ensuring Chinese patients have access to high quality cardiovascular care, from access to intervention and closure.”

$12.4 Billion ($121.5B total)
NUMBER OF EMPLOYEES: 37,300 (total)

This issue of the Top Companies report may be the last time Cardinal Health comes in at No. 6 on the list. While the company has been a perennial member of the Top 10 for quite a few years, it hit No. 6 last year and tied for that position this year. After looking at recent headlines, however, it is likely the company may finally crack the Top 5 in next year’s annual analysis.

In April 2017, the company made a huge investment in the growth of its medical sector (a comparatively small contributor to the company’s overall revenue figure, which disproportionately originates from its pharmaceutical segment—$109.1 billion versus $12.4 billion). Cardinal Health announced that it was paying $6.1 billion to Medtronic for its Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses. The combined business are expected to bring annual revenues of approximately $2.3 billion.

“Not only is this portfolio complementary to our existing suite of products, it enables us to build further scale on our established global platforms,” said Cardinal Health’s Medical segment CEO, Don Casey, who will eventually oversee the new additions once the transaction is finalized. “We are familiar with the team who will be joining us and have worked closely with many of them in the past. We believe this will help us execute an efficient and seamless integration after the transaction closes. These leading products perfectly complement Cardinal Health’s position in a value-based world, bringing additional reach and breadth that build on our existing strengths.”

While not a transaction that took place in Cardinal Health’s 2016 fiscal year, it does further build on another acquisition the company made that was completed during that 12-month period. In October 2015 (Cardinal Health runs on a July-June fiscal year), the company completed the previously announced purchase of Johnson & Johnson’s Cordis business for $1.9 billion. The acquisition represents another expansion piece for the Medical segment and puts the combined total for the two purchases at just over $8 billion. Although the revenue of Cardinal Health’s Pharmaceutical segment far outpaces that of the Medical portion, it’s obvious the device aspect is still viewed as an important part of the overall company.

The Cordis portfolio of products expands Cardinal Health’s offerings within the cardiovascular, wound management, and orthopedics sectors. According to the release announcing the completion of the transaction, Cordis saw sales of $780 million in 2014. Further, Cardinal Health expects to enjoy synergies that exceed $100 million annually exiting fiscal 2018.

“I’m extremely pleased to welcome our new Cordis colleagues to Cardinal Health,” said George Barrett, chairman and CEO of Cardinal Health. “With an aging population and the accompanying demand for less invasive medical treatments, health systems around the world are searching for the best ways to ensure the highest quality care in the most cost-effective way.”

Upon closing of the deal, David J. Wilson remained as the Cordis worldwide president. Joining him were the 3,000 Cordis employees who became a part of the Cardinal Health family.

Also coming over were some key product lines with which Cardinal Health will supplement its own offerings. These included the Cordis Crossing Portfolio, which reduces the complexity of challenging cases and provides a comprehensive crossing solution of specialty and workhorse devices; and the Elitecross Support Catheter family, which provides support and pushability to help get to and through complex lesions. The combined entity had displayed these offerings, among other Cardinal Health technologies, at the Transcatheter Cardiovascular Therapeutics conference that took place just seven months following the initial announcement of the transaction.

Since the acquisition did close relatively early in Cardinal Health’s 2016 fiscal year, it is likely that the enhanced offerings from Cordis were, at least in part, responsible for the over $1 billion increase in revenues the Medical segment enjoyed between 2015 and 2016. Overall, the corporate entity was up 19 percent over the prior year, posting combined total revenues of $121.5 billion in 2016 compared to $102.5 billion in 2015. Most of that increase, however, originated from the Pharmaceutical segment. The 9 percent revenue growth in the Medical segment was a substantial increase versus the modest 4 percent growth seen in 2015.

ANALYST INSIGHTS: Due to pricing pressure in its Pharma Business, Cardinal needs Medical Devices more than ever before. This lead to its recent acquisition of key device product lines from Medtronic. Cardinal has a difficult balancing act as it continues to adapt its portfolio while also managing its debt burden. More strategic moves need to be made—can they afford to make them?

—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors

But the Cordis deal wasn’t the only transaction that made an impact on Cardinal Health in its fiscal 2016. In August 2015, the company announced it was acquiring 71 percent of naviHealth for $290 million (making the full purchase of the business within four years). While substantially smaller than the Cordis deal, the naviHealth buy was targeted toward having the ability to serve in the post-acute care space. The company is also involved with the management of bundled payment programs, a direction more of the healthcare industry will undoubtedly be headed toward.

“Discharge and post-acute care coordination is critical for both hospital CEOs and their patients, as care is increasingly delivered in alternative sites and payment models shift the focus to patient outcomes rather than activity,” said Michael Petras, president of Cardinal Health at Home. “The acquisition of naviHealth aligns with Cardinal Health’s strategic priority of offering the most complete and integrated suite of services to meet the needs of our Integrated Delivery Network, hospital, and other customers.”

In addition to the aforementioned device and service offerings, Cardinal Health offers a branded line of higher margin products, such as single-use surgical drapes, gowns, and apparel; exam and surgical gloves; and fluid suction and collection systems. The company, however, is also seeking to resolve hospital supply chain challenges.

Commissioning a survey that queried 150 hospital decision makers on supply chain issues, Cardinal Health found that reimbursement and the increasingly high cost of supplies represented the two biggest issues these professionals face. The survey also found that few decision makers were confident in the effectiveness of their supply chains. Further, two-thirds of participants indicated they “strongly agree” that improving the effectiveness of their supply chain will reduce overall costs, increase revenue, and lead to better quality of care.

“This is an exciting time for healthcare supply chain management. We’re seeing executives take action to improve and demand more value from their supply chain. They recognize that maintaining status quo in their systems is no longer sufficient due to the ever-increasing cost pressures in the industry,” said Tony Vahedian, senior vice president and general manager, Medical Services and Solutions, Cardinal Health. “We believe hospital decision makers understand that the supply chain can be a strategic asset if the industry collaborates to improve its effectiveness and unlock data within it.”

With this in mind, the company launched Inventory Management Solutions OR workflow modules to remove cost from the operating room supply chain. These offerings are intended to be used for biological implants, sutures, and trauma and spine implants. The modules were developed to increase visibility to product demand and consumption, while reducing the waste incurred during manual processes.

“The intricacy of managing inventory for biological implants, sutures, and trauma and spine implants is demanding, so we designed a simplified solution to reduce non-value-added activities and tedious manual tasks that can lead to human error,” said Jean-Claude Saghbini, vice president and general manager of Cardinal Health Inventory Management Solutions. “Driving out inventory waste is a priority, but more importantly, we’re supporting our customers in their mission to ensure better, cost-effective patient care.”

A month before closing out fiscal 2016, the company’s Cordis business announced that it was making a return to the drug-eluting stent (DES) market. Cardinal Health had entered into a distribution agreement with Biosensors to sell its coronary stent portfolio in Europe, Middle East, Africa, Australia, and New Zealand. Biosensors’ product offering includes the BioFreedom polymer-free drug-coated stent, the BioMatrix NeoFlex DES, BioMatrix Alpha cobalt chromium DES, and Chroma cobalt chromium bare metal stent.

“We are very excited about this DES agreement with Biosensors, because it represents our commitment to expand our product portfolio to support the demands in cardiovascular care today,” said David Wilson, president of Cordis. “While Cordis is known for developing product innovations, partnerships like this provide an opportunity to rapidly expand our portfolio and deliver increased value to customers and the patients they serve.”

$11.4 Billion (102.5B total)
NUMBER OF EMPLOYEES: 34,500 (total)

The melody is lost on George Barrett.

A former singer, Barrett can’t help but read (or, more accurately, hear) the “inner lines” of a musical composition. He’ll intuitively tune out violins to follow the viola, or pass over woodwinds to find the countermelody in an oboe, for example.

“When musicians listen to a piece of music, they hear the inner lines…” Barrett told a Columbus Dispatch reporter several years ago. “If you only hear the obvious, you’re often missing something quite important. You have to read between the lines and figure out the story behind the story.”

Barrett’s own inside story is quite unconventional; a star athlete in both high school and college, he once dreamed of playing professional soccer. But a serious back injury sidelined his recreational aspirations, prompting him to pursue a career in music. He studied opera at the prestigious Metropolitan Opera House in Manhattan, although he never intended to become a famous tenor. “I went because—well, how do you not if you’re invited?” he explained to The Dispatch.

Barrett experienced some success with non-operatic music, recording commercial jingles and performing his own (original) songs at renowned Greenwich Village clubs like the Bitter End and Folk City. He eventually caught the eye of a California talent agency, which offered him a recording contract.

Barrett might have switched coasts too, if he was single and more of a night owl. “I loved music, but I didn’t like the life of a musician. I wanted to sleep at night and be awake during the day,” he said. “I didn’t like the self-promotion required. I just felt in the pit of my stomach, this wasn’t the life I wanted.”

The life Barrett ultimately chose promised neither fame nor fortune, but the former professional crooner nevertheless attained both (to some extent) through hard work and a bit of serendipity. He began working at a dermatological startup launched by his future father-in-law, eventually becoming CEO. After that company was purchased, he landed a position at Teva North America and was later named its chief executive.

In 2008, he joined Cardinal Health as vice chairman and CEO of the firm’s healthcare supply chain services division. The following year, he was named CEO, replacing R. Kerry Clark.

“It’s one of those strange things,” Barrett said of his vocational odyssey. “It was complete serendipity.”

Cardinal Health’s inside story is not as serendipitous or as colorful as Barrett’s, but it’s still a tale worth telling. Under its musician-turned business mogul’s leadership, the company has begun transforming itself into a 21st-century medical solutions provider, expanding its core business of bulk drug distribution to encompass medical supplies, diagnostic technology, interventional cardiology, and home healthcare. It also has supplemented its medication therapy management services for pharmacists, and has grown deep roots in China, where the firm generated more than $3 billion in fiscal 2015 revenue.

The company’s strong Middle Kingdom performance typified its overall results in FY15. Total revenue rebounded above $100 billion, and non-GAAP (generally accepted accounting principles) operating earnings experienced the largest gain in company history, growing 14.6 percent year-over-year to $2.2 billion. In addition, the company generated $2.5 billion in operating cash flow, and returned $1.5 billion to shareholders through expanded dividends and share repurchases.

“Cardinal Health had a hell of a year in fiscal 2015,” Barrett told investors during an earnings conference call last summer. “Our organization was able to generate this financial performance while making sound and strategic moves in drug distribution, generics, specialty, small office practices, consumables, physician preference items, all putting us in a forward position to sustain meaningful and measurable growth into the future. So again, a hell of a year.”

Perhaps most impressive about Cardinal Health’s fiscal year performance (ended June 30, 2015) was its notable achievements in the absence of its second-largest customer. The company suffered a significant setback three years ago when Walgreen Co. and European drug giant Alliance Boots GmbH agreed to purchase their branded and generic pharmaceutical products from rival AmerisourceBergen Corp. To offset the loss, Cardinal Health formed a joint venture with CVS Caremark Corp. in July 2014, but the company still lamented its breakup with Walgreen in its FY15 annual report, claiming it negatively impacted sales.

Cardinal Health’s Pharmaceutical segment recovered nicely from the breakup, increasing total revenue 13.7 percent to $91.1 billion. Growth was driven primarily by higher customer sales, drug price inflation, and the launch of hepatitus C pharmaceutical products. Segment profit surged 20 percent to $2.1 billion.

Revenue was essentially flat in the Medical segment, climbing $433 million year-over-year (3.9 percent) to $11.4 billion, mostly due to the acquisition of Johnson & Johnson’s Cordis business. The $1.94 billion purchase—announced in March 2015—strengthens Cardinal Health’s global cardiovascular market footprint and enhances physician preference portfolio, which include offerings in cardiovascular (i.e., catheters, stents), wound management, and orthopedics.

Based in Fremont, Calif., Cordis generated roughly $780 million in 2014 revenue. The United States is its largest market, but 70 percent of Cordis’ total sales come from abroad; the business has a significant presence in more than 50 countries, including Brazil, China, France, Germany, Japan, and the United Kingdom.

Cardinal Health integrated Cordis into its Medical segment after the deal’s October closing. The company expects the purchase to add 20 cents (including 7 to 8 cents of interest expense) to fiscal 2017 adjusted earnings per share (EPS), and save $100 million in annual costs by the end of FY18. However, the acquisition will most likely be somewhat dilutive to adjusted EPS in fiscal 2016 (ended June 30).

The Cordis acquisition occurred too late in the fiscal year to rescue Medical segment profit, which fell 2.4 percent to $433 million. Executives attributed the decrease to a decline in revenue from national brand product sales, though the dropoff was partially offset by expanding product portfolios.

New product introductions, however, were few and far between in fiscal 2015. The MynxGrip Vascular Closure Device received U.S. Food and Drug Administration approval in November 2014 to seal 5F, 6F, and 7F femoral arterial and femoral venous access sites. The device features a proprietary, extravascular sealant that adheres to veins to help with mechanical closure, and dissolves within 30 days. According to Cardinal Health, use of the device can expedite recovery by reducing time to hemostasis and ambulation. The MynxGrip is also intended to improve efficiency and reduce complications by eliminating the need for manual compression.

In May 2015, Cardinal Health unveiled its new portfolio of negative pressure wound therapy systems, including the SVED device and NPWT PRO family line. The latter system encompasses a 10-day, single-use device to facilitate patients’ transition from acute to extended or home care; and a lightweight, discreet system for home use.

$11 Billion
NO. OF EMPLOYEES: 34,000

Talk about starting with a bang. Fiscal year 2014 was an important one for Cardinal Health—one that, some would say, proved its mettle. The company, which divides its business into Pharmaceutical and Medical segments, took a major hit on the pharmaceutical side with the loss of its behemoth Walgreen Co. contract in August 2013 (the company’s fiscal year 2014 began July 1, 2013). But as it lost its second largest customer, Cardinal also managed to secure a 10-year contract with Walgreen rival CVS Caremark. According to Forbes, the joint venture will source and negotiate generic supply contracts for both Cardinal Health and CVS Caremark. Good news indeed for Cardinal, as pharmaceuticals make up the vast majority of its revenue stream—$80 billion out of the $91 billion total revenues for fiscal year 2014.

“We made significant progress on our strategic priorities: launching the largest generic purchasing entity in the United States through our joint venture with CVS Caremark, expanding our position and capabilities in specialty, substantially increasing our line of consumable medical products, taking significant steps to enhance our program on physician preference items in both cardiovascular and orthopedics, enlarging our footprint in the home, and showing continued strong growth in China,” said Chairman and CEO George Barrett.

In fiscal year 2014, the company generated $2.5 billion in operating cash flow and returned $1.1 billion to shareholders through dividends and share buybacks. Barrett called China an “outstanding growth story” in Cardinal’s annual report, with the company growing revenues in the region by 30 percent, reaching $2.6 billion. This growth includes both the pharmaceutical and medical device businesses. China is Cardinal’s main market outside the United States and Canada.

“We enter fiscal year 2015 well-positioned to address the needs of a rapidly changing healthcare system,” added Barrett.

Milestones

The Medical business fared well in 2014, flourishing without nearly as much theatrics as its Pharmaceutical sister. Bringing in $10.9 billion in FY14, Medical segment revenues grew 9 percent over the previous year and segment profits grew 19 percent at $444 million. The favorable numbers are a reflection of the benefit of Cardinal’s major 2013 acquisition, Ohio-based AssuraMed, maker of home-based medical supplies to treat diabetes, incontinence, respiratory conditions, urological disorders, wounds and other chronic ailments. AssuraMed contributed $816 million for 2014 revenues, Cardinal reports. The company now is known as the Cardinal Health at Home division within the Medical segment.

“As we indicated at the time of the acquisition, we intended to increase the AssuraMed portfolio,” Barrett said in the annual financial report. “We have, in fact, broadened the product line as well as increased the number of Cardinal Health branded products to this important channel of the home. All told, we are extremely pleased with the progress here and the fact that AssuraMed exceeded our articulated full-year, non-GAAP (generally accepted accounting principles) earnings per share accretion target of $0.18 per share.”

The major acquisition for FY 2014 was Santa Clara, Calif.-based maker of vascular closure devices, AccessClosure Inc. The buy was valued at $320 million, and the transaction was funded with cash on hand.

“We’re excited about the AccessClosure acquisition, because it’s another great example of innovating to provide solutions and cost savings to the healthcare industry,” said Don Casey, CEO of Cardinal Health’s Medical Segment. “This acquisition is aligned to the company’s targeted growth areas, and we’re looking forward to similar opportunities for further expansion.”

Following this purchase, Cardinal was able to celebrate the 2 millionth shipment of AccesClosure’s Mynx vascular closure device in June 2014, just before the fiscal year ended.

“We are gratified to see that Mynx has generated such a strong response,” said Shaden Marzouk, vice president of clinical affairs at Cardinal Health. “We believe the success of Mynx in the marketplace is a result of its unique combination of innovative design, outstanding outcomes and cost effectiveness.”

Cardinal Health did not receive any medical device regulatory milestones in FY14, but the company did release two different medical products. In September 2013, the company unveiled the 2-Bin Kanban solution, an inventory management for clinical settings; and in October 2013, the Cardinal Health Surgical Clipper was released.

People News

In the beginning of FY14, Cardinal Health said goodbye to a company veteran of four decades, Tony Caprio. Caprio held the title of executive vice president in the Office of Customer Experience (OCE) and general manager for the Healthcare IQ business partnership when he announced his retirement in August 2013. In his role with the Cardinal Health Office of Customer Experience, Caprio oversaw the Cardinal Health strategy and integrated offerings to hospitals and Integrated Delivery Networks. Prior to his role in the OCE, Caprio served in a series of increasingly responsible sales positions. He began his 37-year career with Cardinal Health in sales for American Hospital Supply.

Upon Caprio’s retirement, Taylor Smith transitioned into the role of senior vice president of Enterprise Sales in the Office of Customer Experience, where he took responsibility for leading the Enterprise Sales team and managing the strategic relationship with Healthcare IQ, Cardinal’s informatics offering that provides analytics and comparative data for the decision-support of operational, financial and clinical challenges within healthcare systems. Before his new role, Smith served as the company’s senior vice president and general manager of Orthopedic Solutions.

Also during fiscal 2014, Chief Financial Officer Jeffrey W. Henderson announced his intention to retire in 2015. He has been succeeded by Mike Kaufmann, who has served in the role of CEO of Cardinal Health’s Pharmaceutical segment since 2009. He joined Cardinal Health in 1990 and held a number of senior operational, sales and finance positions. These positions included group president of the medical business of the former Healthcare Supply Chain segment, after serving as the segment’s CFO.

$10.06 Billion ($101.1 B total)
NO. OF EMPLOYEES: 33,000

When you think of Cardinal Health, it’s a safe bet that food isn’t the first thing that pops into your mind. But food is exactly how the multibillion-dollar healthcare company got its start. In 1971, company founder Robert D. Walter opened a small distribution center in Columbus, Ohio. In less than a decade, the then-named Cardinal Foods became a prominent regional food distributor until branching into pharmaceutical distribution in 1979. The rest, as the trite old saying goes, is history.

Food distribution may no longer be the company’s bread and butter, but the firm still has a lot on its plate.

Dublin, Ohio-based Cardinal Health separates its business into two categories: Pharmaceutical and Medical.

The Pharmaceutical segment consolidates pharmaceuticals from hundreds of manufacturers into site-specific deliveries to retail pharmacies, hospitals, mail-order facilities, physician offices, surgery centers and long-term and other alternate care facilities. The company also operates the world’s largest network of nuclear pharmacies and is expanding its positron emission tomography agent manufacturing capabilities to support new drug development and personalized medicine. In addition, about 200 U.S. hospitals outsource the management of their inpatient pharmacies to Cardinal Health.

The company’s Medical unit makes and distributes medical, surgical and laboratory products to hospitals, ambulatory surgery centers, clinical laboratories, physician offices and other healthcare providers in the United States, Canada and China and to U.S. patients in the homecare setting.

This area of the business also sources and develops its own line of private-brand medical and surgical products. Manufactured products include single-use surgical drapes, gowns and apparel; exam and surgical gloves; and fluid suction and collection systems. The division also assembles sterile and non-sterile procedure kits. The division also provides supply chain services, including spend management, distribution management and inventory management services, to healthcare providers.

To succeed in today’s healthcare market place, companies must position themselves as more than just providers or a single good or service. The value proposition comes from being a problem-solver for physicians and hospitals—not just providing safe and effective devices or drugs, but also finding ways to save the healthcare system money and/or time in the longer term.

That’s a niche Cardinal Health strives to occupy. That said, healthcare markets in the United States are evolving and volatile—particularly in commodity-driven product and service categories.

For fiscal year 2013 (ended June 30, 2013) overall company revenue decreased 6 percent to $101.1 billion, mostly due, according Cardinal management, to the expiration of a pharmaceutical distribution contract and the impact of some pharmaceuticals transitioning from brand names to generic. Earnings from continuing operations decreased 69 percent to $335 million due to an $829 million non-cash goodwill impairment charge related to the company’s Nuclear Pharmacy Services division. Pharmaceutical revenue was $91.1 billion, down 7 percent for the year.

Medical segment revenue increased 4 percent to $10.1 billion, and segment profit increased 12 percent to $372 million. According to the company, the principal drivers for the increase in fiscal 2013 over fiscal 2012 were the positive impact of acquisitions and decreased cost of commodities used in self-manufactured products, partially offset by pricing changes driven in part by customers and product mix. Officials also pointed to the 2.3 percent medical excise tax on certain manufactured or imported medical devices that became effective at the beginning of the year as having a “slightly unfavorable impact” on the medical segment’s profit.

Sharing the Love
The biggest news for Cardinal’s Medical division in 2013, was a purchase announced on Valentine’s Day. The company unveiled plans for $2.07 billion sweetheart deal to acquire privately held AssuraMed of Twinsburg, Ohio.

Cardinal funded the purchase with a combination of cash and $1.3 billion in debt loaned by Bank of America. The deal closed in April.

Cardinal Health Chairman and CEO George Barrett said the purchase marks a “natural extension” of his company’s business and will enable the firm to offer its products to the growing number of home healthcare customers. The global market for home healthcare products and services is expected to reach $372 billion by 2015.

Founded in 1928 in Garfield Heights, Ohio, (a Cleveland suburb), AssuraMed provides medical supplies to home-based patients suffering from diabetes, incontinence, respiratory conditions, urological disorders, wounds and other chronic ailments. The company generated $1 billion in sales and currently serves more than 1 million patients nationally with more than 30,000 products. In January of 2013, it finalized the $150 million acquisition of Elyria, Ohio-based home and long-term care medical product provider Invacare Corp.

“AssuraMed is a natural extension of the Cardinal Health businesses and of our mission to be essential to care. The acquisition allows us to serve the growing number of Americans treated in home settings—particularly those patients recovering from acute episodes and those suffering with chronic diseases,” Barrett said. “This is a platform opportunity for Cardinal Health products and services which will be increasingly important as the delivery of care migrates to more cost-effective settings. It has been a central component of our strategy to help enable the healthcare system by serving patients throughout the continuum of care. This acquisition further aligns us with key trends including demographic shifts and increased consumerism.”

AssuraMed operates through two separate businesses, Independence Medical and Edgepark Medical Supplies. In addition to broadening Cardinal Heath’s reach into the home, AssuraMed’s expertise in products for specific disease categories and small parcel logistics is expected to help Cardinal Health serve customers across the broad ambulatory care channel, including care sites such as physician offices and in support of home health agencies.

“We are excited about becoming part of Cardinal Health. Cardinal Health has a long tradition in providing healthcare solutions to its customers and we know this expertise will enable AssuraMed to move even farther and faster in building out our home care business,” said Michael Petras, former CEO AssuraMed who became part of Cardinal’s management team.

9. Cardinal Health
$8.9 Billion ($102.6B total)

KEY EXECUTIVES:
George S. Barrett, Chairman & CEO
Jeffrey W. Henderson, Chief Financial Officer
Michael A. Lynch, CEO, Medical Segment
Michael C. Kaufman, CEO, Pharmaceutical Segment
Mark R. Blake, Exec. VP, Strategy & Corporate Development
Stephen T. Falk, Exec. VP, General Counsel & Corporate Secretary
Craig S. Morford, Chief Legal & Compliance Officer

NO. OF EMPLOYEES: 22,600 (total)

GLOBAL HEADQUARTERS: Dublin, Ohio

Most all businesses experience defining years. Some, like Apple, encounter them in their infancy; others stumble upon them rather late in their existence (the massive 2009 financial collapse of the 103-year-old General Motors Company certainly qualifies, considering its quick return to profitability).
Cardinal Health experienced its own defining year in fiscal 2011. Chairman and CEO George S. Barrett branded the year as an outstanding one, but noted it still contained isolated pockets of subpar performance. Such imperfections, however, only intensified the company’s efforts to increase profits and secure future growth.

“It was a year of outstanding accomplishments, exceeding our key company financial goals, and making great strides on both operational and strategic levels,” Barrett told investors during a conference call last summer to discuss Cardinal’s fourth-quarter and full-year earnings. “All in all, we achieved an excellent balance of investing for current and future growth, and returning significant value to our shareholders.”

“As strong as our year was, there are still areas for improvement,” Barrett continued. “Although it was an outstanding year for us in generics, system-wide supply disruptions created challenges for us and for our customers. This [had] an impact on our generic compliance growth rate. We set some aggressive generic compliance rate improvement goals for fiscal 2011 on top of strong growth in fiscal 2010. We have continued to progress to competitive levels, but we did fall a bit short of our goal of another 10 percent improvement. We will continue to keep our foot on the accelerator here.”

Executives also are keeping their collective foot on the accelerator of Cardinal’s Medical business, which lost 14 percent in profit during the fiscal year ended June 30, 2011. The segment’s profit fell to a recession-era level of $369.9 million, a 3.9 percent decline compared with the $384.9 million the unit posted at the height of the downturn in 2009. Bigwigs attributed the sharp slip in profit to higher product prices.

“Although our Medical segment faced some unique challenges,” Barrett noted in a letter to shareholders within the company’s 2011 annual report, “…the underlying performance of the business is strong.”

Not as strong as the Pharmaceutical segment, which reported a 4 percent rise in revenue and a 25 percent surge in profit. The growth represents an impressive turnaround from FY2010, when the segment reversed roles with its counterpart. Cardinal’s Pharmaceutical business recorded a meager 2 percent overall revenue increase (which, ironically, is the precise amount of the Medical segment’s growth in fiscal 2011) and a 3 percent decline in profit that year. Executives attributed the tumble in profit to a spate of generic drug launches and a shortage of Technetium-99, an isotope used by doctors 40,000 times a day to detect cancers and heart disease.

With replenished levels of Technetium-99 last year, there was one less hurdle to overcome in the Pharmaceutical segment’s quest for growth. A frustrating roadblock remained, though—the conversion of branded drugs to generics, an amazingly effective drain on growth that Cardinal executives estimate cost the unit 5 percent in revenue.

Nevertheless, the Pharmaceutical segment managed to offset that lost revenue through $2.7 billion in divestitures, a $1.8 billion increase in existing customer sales, and several strategic acquisitions.

The company’s largest merger in fiscal 2011 was the $1.3 billion deal for Kinray Inc., a privately held pharmaceutical distributor based in New York, N.Y. Before its purchase, the company generated more than $3.5 billion in annual sales and served more than 2,000 retail pharmacies, mostly in the New York metropolitan area.

The Kinray acquisition, announced in November 2010, boosts Cardinal’s presence among smaller pharmacies in the Northeast and reduces its dependency on two dominant customers (most likely Walgreen Co. and CVS Caremark Corp., which uses distributors such as Cardinal to buy generic drug supplies). Analysts believe the Kinray deal increases the number of independent pharmacies served by Cardinal by 40 percent, to about 7,000.

Just weeks after announcing the Kinray deal, Cardinal bought Zuellig Pharma China, a 19-year-old drug distributor, for $470 million. Known in the Middle Kingdom as Yong Yu, the company is China’s largest pharmaceuticals importer and gives Cardinal a foothold in the world’s second-largest drug distribution market.

“The acquisition of Yong Yu in China not only expanded our pharmaceutical business in a market which is growing rapidly, but it also enables growth opportunities for other parts of our portfolio, including nuclear, consumer health, and medical product distribution,” Barrett noted in the annual report.

Besides Kinray and Yong Yu, Cardinal set its sights on Healthcare Solutions Holding LLC early in fiscal 2011, doling out $517 million in cash and an additional $150 million over three years for the company.

Healthcare Solutions Holding is the privately owned parent of operating companies that provide software tools, services and data to specialty-care doctors, drug companies and insurers to improve both patient care and the efficiency of their practices. Both outcomes can help reduce healthcare costs. For example, the firm’s P4 Healthcare and its P4 Pathways in Ellicott City, Md., offer oncology practice and disease management tools to healthcare providers.

Cardinal executives orchestrated the Healthcare Solutions acquisition to extend the company’s reach in the specialty pharmaceuticals market, which is expected to grow at twice the rate of traditional pharmaceuticals over the next five years and generate more than $160 billion in worldwide sales by 2013, according to data from Parsippany, N.J.-based IMS Health.

While such notable purchases were non-existent in the Medical segment, the unit still made some significant strides toward long-term growth in fiscal 2011. One of the more noteworthy moves came courtesy of the U.S. Department of Defense (DOD), which awarded the company a 20-month contract for the distribution of medical supplies. The contract, according to Cardinal executives, has an option for two additional 20-month contract periods, for a total of five years. Executives expect the DOD contract to impact revenue during the second half of FY2012.

Other potential long-term profit boosters include the Medical Business Transformation Initiative, which was scheduled for implementation during the second half of fiscal 2012; the introduction of Cardinal’s Hybrid Preference Pack, a sustainable surgical kitting solution that combines reusable and disposable surgical items into a single kit; and encouraging clinical research regarding the SurgiCount Safety-Sponge System, a sponge counting and documentation system distributed by the Dublin, Ohio-based company.

The research, published in the February 2011 edition of The Joint Commission Journal on Quality and Patient Safety, showed that institutions successfully can eliminate the occurrence of retained or misplaced surgical sponges by using the Surgi-Count system. The study cited results from a high-volume surgical practice that reduced its retained surgical sponge rate to zero from a previous average of once every 64 days.

Despite such a rosy outcome, however, the research—as well as the Hybrid Preference Pack unveiling—could not push the Medical segment’s revenues much past $8.9 billion, a 2 percent increase compared with FY 2010. Total segment assets barely moved in fiscal 2011, inching up 0.71 percent to $3.89 billion, according to the annual report.

Revenue for the entire company rose 4 percent to $102.6 billion and operating earnings jumped 16 percent to $1.5 billion. Non-GAAP diluted earnings per share from continuing operations were $2.67, a 20 percent increase.

$8.8 Billion ($99B total)
NO. OF EMPLOYEES: 31,200 (total)

“The journey of a thousand miles begins with one step.”
— Lao tzu, Chinese philosopher

Cardinal Health Inc. embarked on a transformational journey in fiscal 2010, one that began with a single, but nevertheless important step: the spinoff of its clinical and medical products businesses into an independent, wholly owned entity named CareFusion Corporation. The spinoff ended 12 months of planning, strategizing and restructuring by Cardinal Health executives, thus enabling the company to start a new chapter in conjunction with its 40th anniversary.

“With the spinoff of CareFusion complete, we began this journey with a commitment to reinvigorate our performance, our strategic positioning and our internal culture,” Cardinal’s Chairman and CEO George S. Barrett told shareholders in the company’s fiscal 2010 annual report. “And while the journey continues in fiscal 2011, the extent and rate of our progress on these dimensions was better than we anticipated.”

Better than anyone anticipated, really. Total revenue in fiscal 2010 rose 3 percent to $98.5 billion, or $1.62 per diluted share, and operating earnings grew 1.5 percent to $1.3 billion. The company only barely managed to increase its gross margin, edging out its FY2009 total by $33.2 million, or 0.89 percent, but it returned more than $500 million to shareholders and climbed a notch on the Fortune 500 list, moving from number 18 to number 17. While such feeble growth may not be the norm for a company that has branded itself a healthcare services industry leader, it proves the firm can stand on its own without the support of its surging medical products division (which, in 2008, posted an incredible 46.8 percent revenue increase).

Cardinal survived quite well in its first year without its reliable growth engine, considering it incurred $76 million in spinoff costs and net earnings plummeted 44 percent to $642.2 million. The firm generated $2.1 billion in cash from operations and its two main operating segments, Medical and Pharmaceutical, both posted revenue gains in fiscal 2010, ended June 30. The company’s Medical segment manufactures and sources such products as sterile and non-sterile procedure kits; single-use surgical drapes, gowns and apparel; exam and surgical gloves; and fluid suction and collection systems, while the Pharmaceutical sector distributes brand-name, generic and specialty drugs; operates nuclear pharmacies and cyclotron facilities; franchises retail pharmacies under the Medicine Shoppe and Medicap brands; and provides pharmacy services to hospitals and other healthcare facilities.

Cardinal’s Medical segment outperformed its Pharmaceutical division in FY2010, thanks to newfound areas of growth that executives inend to cultivate into future revenue boosters. Those areas include a burgeoning medical distribution business in Canada, which scored double-digit revenue and profit growth, and a steadily rising hospital supply business. Barrett insists that his firm is well positioned in the hospital supply space with a footprint across all customer channels and a rebuilt sourcing model for medical products.

Investments in the company’s ambulatory and clinical laboratory businesses also contributed to the solid performance of the Medical segment in 2010, though executives did not provide sales or revenue figures for either one. In the annual report, Barrett said only that the clinical laboratory business delivered “top- and bottom-line growth, helped in part by the irregular flu season in the first half of the fiscal year.”

Efforts in recent years to improve the performance of its Presource surgical kitting business finally paid off for Cardinal in FY2010. Through Lean Six Sigma initiatives and expansion into more surgical centers, the business once again generated profits, giving the firm precisely the sales pitch it needs to build upon that growth. Cardinal’s Presource kitting business helps customers create and maintain an efficient operating room supply chain and improve patient safety.

Each of Cardinal’s budding new offshoots of growth—from its Canadian medical distribution business to its Presource surgical kitting program—helped fuel a 7.2 percent rise in Medical segment revenue and an 11 percent surge in profit in fiscal 2010. The company’s annual report shows that revenue totaled $8.8 billion compared with fiscal 2009’s $8.16 billion (all FY2009 financial data reflects the reclassification of CareFusion to discontinued operations and the change in reporting segments).
Segment profit came to $428 million, a $43 million increase compared with the previous fiscal year.

Such solid growth did not infiltrate the Pharmaceutical segment, which recorded a 2 percent overall revenue increase and a 3 percent drop in profit. Still, the segment captured the lion’s share of revenue, garnering $89.8 billion, or 91 percent of Cardinal’s total revenue in fiscal 2010. Executives attributed the decrease in profit to a spate of generic drug launches and a shortage of Technetium-99, an isotope used by doctors 40,000 times a day to detect cancers and heart disease. Eighty percent of nuclear medicine scans use the isotope, derived from molybdenum-99 and combined with a substance to target a specific bodily organ or tumor. The shortage was triggered by the shutdown of a Canadian nuclear reactor in Chalk River, Ontario, that produces half the U.S. supply of molybdenum-99 and another in the Netherlands that was closed for maintenance.

Compensating for such unexpected headwinds wasn’t easy, but Cardinal did its best by strengthening partnerships with major pharmaceutical clients and shifting the company’s focus to programs that better address the needs of independent retail pharmacies. Other moves helped as well, namely the August 2009 acquisition of Biotech, a privately held operator of positron emission tomography (PET) cyclotrons and nuclear pharmacies in the southwestern United States, and the public-private collaboration Cardinal formed with the University of Washington to advance the use of molecular imaging in clinical investigations and trials. The partnership calls for the university’s radiology department to relocate a portion of its on-campus molecular tracer laboratories into Cardinal’s PET manufacturing facility in Seattle, Wash. Executives are hoping the shared space will inspire the two organizations to develop new molecular imaging agents.

Not all of Cardinal’s strategic moves were good for business, though. The company’s attempt at enhancing its Medicine Shoppe franchise backfired, triggering a class-action lawsuit filed by more than 600 franchisees who claimed the Dublin, Ohio-based firm used “heavy-handed tactics” and “predatory pricing” to renegotiate their agreements in 2009. Executives contend the firm simply gave franchisees the option of switching to an alternative model that offered a more flexible, fee-based structure (as opposed to the royalty-based standard). But the suit alleges that some franchise owners were required under a new contract to pay an early termination fee of $1 million or more. In addition, they also were forced to agree to purchase goods only from Cardinal for more than a dozen years.

The suit further accuses Cardinal of accepting tens of millions of dollars in prepaid franchise fees, and then reducing services. Owners who did not sign the new agreement were damaged by the “arbitrary reduction” of services, the suit asserts, whileCardinal undercut them by offering drastically lower fees tonew franchisees.

14. Cardinal Health

$4.6 Billion ($101.3 B total)

KEY EXECUTIVES:
George S. Barrett, Chairman and CEO
Jeff Henderson, CFO
Mike Lynch, CEO, Medical Segment
Steve Inacker, President, Channel Mgt., Medical Segment
Mike Duffy, Exec. VP, Operations, Medical Segment

NO. OF EMPLOYEES: 43,500 (total)

GLOBAL HEADQUARTERS: Dublin, Ohio

Cardinal Health seems to be a company constantly in flux through acquisitions, divestitures, internal reorganization of divisions, etc. Fiscal 2009 (ended June 30, 2009) was no exception.

The big news, of course, was the spinoff of much of Cardinal’s medical device business into an independent company called CareFusion. Product lines included in the spinoff were Cardinal Health’s Alaris IV infusion and Pyxis dispensing systems, AVEA and LTV series ventilators, V. Mueller surgical instruments and clinically differentiated offerings to reduce hospital-acquired infections through MedMined services and ChloraPrep preoperative skin preparation, among others.

Cardinal Health retained—in addition to its primary pharmaceutical supply chain business—its medical and surgical product manufacturing, such as gloves, surgical apparel, fluid management devices, products made for the operating room, in addition to medical product supply distribution and logistics.

While CareFusion will be on MPO’s Top Companies list next year as a wholly separate corporate entity after its own full fiscal year (in fact, had it been a separate company for FY09, revenues would have been in excess of $3.5 billion), there’s no telling the story of Cardinal Health’s fiscal ’09 without the background of the deal.

Discussion of the spinoff began in August of 2008 at the beginning of Cardinal Health’s 2009 fiscal year. It wasn’t until the end of August of 2009 that the deal was completed. CareFusion began trading on the New York Stock Exchange on Sept. 1, 2009, under the symbol “CFN.” Based in San Diego, Calif., CareFusion began with more than 13,000 employees worldwide. Cardinal Health had owned the CareFusion trademark since 2006 when it acquired CareFusion Inc., a maker of handheld barcode technology that provides positive patient identification for medication administration, and laboratory specimen collection, in addition to blood transfusions.

Kerry Clark, who had been chairman of Cardinal Health retired follwing the CareFusion spinoff. He was replaced by George Barrett, who became chairman and CEO. David Schlotterbeck, who had been a vice chairman at Cardinal and CEO of the former Clinical and Medical Products division, became CEO of CareFusion.

Financially, overall, not a bad year indeed for Cardinal Health. For fiscal 2009, total segment revenue grew 9 percent to $101.3 billion. Excluding the businesses that were spun off as CareFusion, Cardinal Health’s adjusted fiscal 2009 revenue would have been approximately $96 billion, according to the company. Increased annual revenue was the result of pharmaceutical price appreciation and increased volume from the company’s existing customer base (the combined impact of these two factors was $8 billion), the addition of new customers within the Healthcare Supply Chain Services segment ($954 million) and the impact of acquisitions ($887 million). Total segment profit was $2.1 billion, down 3 percent from $2.2 billion.

Healthcare and Supply Chain Services increased sales 10 percent to $95.7 billion from $87.1 billion; profit was flat at $1.3 billion. The Clinical and Medical Products sector sales remained steady for 2009, $4.58 billion compared with $4.61 billion for 2008; profit was down 9 percent to $670 million.

At the beginning of its financial year, in September 2008, Cardinal Health sold its MedSystems business to Linden LLC, a healthcare and life-sciences private equity firm. Under the terms of the agreement, Linden acquired MedSystems, a maker of enteral devices and surgical protection products, which joined Cardinal Health through the acquisition of VIASYS Healthcare in 2007. The company was renamed Corpak MedSystems Inc. under Linden’s ownership. Terms of the agreement were not disclosed.

Corpak MedSystems manufactures and globally markets a complete range of value-added single use feeding delivery devices and systems primarily serving the hospital intensive care unit markets.

In December 2008, Cardinal Health and SRI Surgical signed a five-year supply and co-marketing agreement to offer surgical kits that include disposable health care products from Cardinal Health and reusable health care products from SRI Surgical. The agreement made Cardinal Health the exclusive manufacturer of SRI Surgical’s complete line of more than 400 disposable surgical kits. In addition, the agreement called for the development of a new product offering, the Hybrid Preference Pack, in which SRI Surgical would combine its reusable surgical components with disposable surgical components from Cardinal Health. This new product will couple the convenience of disposables with the waste-wise benefits of reusable products. As part of the agreement, Cardinal Health manufactures the disposable surgical components for Hybrid Preference Packs at its network of four kit manufacturing facilities, where it already assembles more than 21 million disposable surgical kits each year.

Cardinal Health (now under CareFusion) was not able to escape the controversy surrounding infusion pumps. The devices have come under criticism and special scrutiny by the U.S. Food and Drug Administration (FDA) due to frequent failures and manufacturing problems (see the Editor’s Letter in this year’s May issue of Medical Product Outsourcing).

In June 2009, the division of Cardinal Health that is now CareFusion issued an urgent Medical Device Recall Notification to customers of its Alaris infusion pumps addressing potential risk. The affected devices had one or more failures associated with the Occlusion Warning Message, Syringe Volume Warning Message, Electrostatic Discharge protection circuitry, and Fluid Ingress into the device’s pumping mechanism. In July, the FDA followed up with a Class I recall when the agency determined that defects with the units may result in patients experiencing under- or over-infusion, which could result in serious injury or death. The device is intended for use with adult and pediatric patients in hospitals, including critical-care units, emergency rooms, outpatient surgical centers, hospices and nursing homes.

The Alaris line has had its share of ups and downs. In early July 2009, CareFusion once again began distributing Alaris PC units and PCA (Patient Controlled Analgesia) modules following a shipping hold announced in March. The FDA issued a 510(k) clearance for a software correction that will be implemented on new Alaris PC units. The 510(k) clearance followed FDA acceptance of the company’s corrective action plan for field remediation of its infusion pumps that was announced on June 9. In January of this year, the FDA lifted an injunction on the manufacture and marketing of the Alaris SE models. The company had operated under a consent decree—or a voluntary agreement—with the FDA since 2007.

So far, for fiscal 2010, the streamlined Cardinal Health has seen mixed results. For the third quarter of FY10, the revenue for the Pharmaceutical segment increased to $22.2 billion (roughly level with 2009); profit rose 7 percent to $307 million. For the medical segment, sales increased 7 percent to $2.1 billion, while profit declined 16 percent to $108 million. The company expects to return to year-over-year profit growth in the fourth quarter.”

$13.7 Billion ($91B total)
NO. OF EMPLOYEES: 43,500

Cardinal Health spent a good portion of fiscal 2008 preparing for a major restructuring that occurred at the start of fiscal 2009. In early July 2008, the company announced the consolidation of its four businesses into two segments, Healthcare Supply Chain Services and Clinical and Medical Products.

Cardinal had five distinct divisions before it sold its Pharmaceutical Technologies and Services arm in 2007 and came up with a plan to restructure the remaining businesses.

Cardinal’s nuclear pharmacies and its distribution centers for pharmaceuticals and medical products comprise the Healthcare Supply Chain Services segment, while products related to medication dispensing, respiratory care and infection prevention are included in the Clinical and Medical Products segment.

“About two years ago, we began to focus Cardinal Health to serve customers in these two distinct areas of the healthcare industry,” R. Kerry Clark, Cardinal chairman and CEO, told shareholders in a letter published in the company’s 2008 annual report. Clark was named chairman and CEO after company founder Robert D. Walter retired at the end of fiscal 2008 (June 30).

“This evolution of our structure is important, because over time, it has become clear that Healthcare Supply Chain Services and Clinical and Medical Products have very different characteristics and need the flexibility to deploy resources and manage operations that optimize their business models and deliver value to customers,” Clark said.

As part of the restructuring, Cardinal is separately reporting results through a third segment for a group of businesses that include an outsourced pharmacy manager; an orthopedic implant and instrument firm; an enteral device and airway management product manufacturer; and a pharmacy company.

Though they are valuable to the company, executives are nevertheless evaluating these businesses to determine “their fit in the existing segment structure.”

As a result of the restructuring, Cardinal cut 600 jobs, or about 1.5 percent of its work force. Those job cuts will cost the company $63 million in restructuring charges, which it will recognize in fiscal 2009.

Cardinal incurred $65.7 million in restructuring charges in fiscal 2008, a 63.8 percent jump compared with the $40.1 million in restructuring expenses the company reported in fiscal 2007. Acquisition charges were cut in half, while litigation and other expenses fell substantially, going from $630.4 million in fiscal 2007 to $19.4 million in fiscal 2008. Cardinal’s high legal bill in fiscal 2007 was triggered by the settlement of a lawsuit filed by shareholders that accused the company of accounting irregularities and inflated earnings. Cardinal denied any wrongdoing and established a $600 million reserve for the settlement.

Total consolidated revenue rose 5 percent in fiscal 2008, reaching $91 billion. Operating earnings jumped 54 percent to $2.1 billion, and non-GAAP operating earnings climbed 3 percent. Cardinal reported diluted earnings per share (EPS) of $3.61, a 74 percent increase compared with a diluted EPS of $2.07 in fiscal 2007. Non-GAAP diluted EPS from continuing operations in fiscal 2008 rose 11 percent to $3.80.

In his letter to shareholders, Clark said his company made “steady progress” in fiscal 2008 in Healthcare Supply Chain Services, while the Clinical and Medical Products segments experienced “very strong top and bottom line growth.” About halfway through the fiscal year, Cardinal executives hired George S. Barrett to lead the Healthcare Supply Chain Services sector. Barrett was corporate executive vice president of global pharmaceutical markets for Teva North America, a Jerusalem-based pharmaceutical firm. Barrett replaced Mark W. Parrish, who stepped down from the post in November 2007.

In addition to getting a new leader, the Healthcare Supply Chain Services sector also got the first glimpse of its new home in fiscal 2008. Cardinal began building a $50 million, 250,000-square-foot expansion at the company’s headquarters in Dublin, Ohio. The new addition, dubbed West Campus by Cardinal executives, has its own cafeteria, coffee shop and a fitness center. The layout features a “progressive open office environment designed to foster collaboration among employees and teams,” according to a news release about the expansion.

Cardinal’s Healthcare Supply Chain Services-Pharmaceutical and Healthcare Supply Chain Services-Medical segments reported a combined revenue of $87.3 billion, a 4 percent increase compared with the $84 billion both segments posted in fiscal 2007. Combined profit for the two segments fell 12 percent to $1.4 billion; Kerry attributed the decline to anti-diversion investments, large chain customer contract re-pricings and a decline in overall pharmaceutical market growth.

The Healthcare Supply Chain Services-Medical segment generated $8 billion in revenue in fiscal 2008, a 7.5 percent increase compared with the $7.5 billion in revenue the segment reported in fiscal 2007. Company executives attributed the growth to increased volume from existing hospital, laboratory, and ambulatory care customers, as well as new customers and favorable foreign exchange rates. Profit in this segment fell 4.7 percent to $303 million.

Revenue in Cardinal’s Clinical Technologies and Services segment grew 7.5 percent, going from $2.68 billion in fiscal 2007 to $2.88 billion in fiscal 2008. Profit totaled $496.6 million, a 25.7 percent increase compared with the $385.7 million the segment posted in fiscal 2007.

The most significant segment growth in fiscal 2008 occurred in Medical Products and Technologies, where revenue rose 46.8 percent to $2.69 billion and profit jumped 52 percent to $300 million. Many factors contributed to the growth including the acquisitions of Pleasantville, N.Y.-based Viasys Healthcare ($680 million) and Enturia Inc. in Leawood, Kan. ($21 million), international revenue growth ($100 million, of which $62 million came from favorable foreign exchange rates), higher sales from existing customers ($35 million) and new product launches ($32 million).

Some of those new product launches included the Esteem Micro Powder-Free Synthetic Surgical glove in August 2007. Made from a polyisoprene formula that is nearly identical to natural rubber latex, the Esteem Micro glove contains no protein allergens and is designed for procedures that require a more refined touch. The glove also can be used as an outer glove for medical procedures that require double gloves.

Cardinal also introduced a line of hemorrhage control bandages to hospitals, surgery centers and doctors’ offices in the United States during fiscal 2008. The company signed a four-year agreement with HemCon Medical Technologies Inc. in Portland, Ore., to distribute the bandages, which have been used by the U.S. military since 2003. Used to control severe arterial bleeding, the HemCon bandages are thinner, more flexible and sized differently than the original version. The bandages have been 97 percent effective in controlling bleeding on the battlefield, according to Cardinal.

As Cardinal rolled out its new products though, it was forced to issue a worldwide recall for the Alaris Pump module, model 8100 (formerly known as the Medley Pump module). The company recalled the device due to a defect that could lead to over-infusion. Cardinal became aware of the defect after reviewing customer complaints and service data; the company received one report of an injury and two reports of patient deaths that could have been linked to the defective pumps.

$12 Billion ($87B total)
NO. OF EMPLOYEES: 43,500

For Cardinal Health, fiscal 2007 was a good year that “marked a return to strong growth with a more focused business model that we expect will provide a foundation for continued growth in the years to come,” wrote CEO R. Kerry Clark in a letter to shareholders.

As the year began, the company didn’t waste any time on creating that  “more focused business model.”

Cardinal kicked off FY07 with plans to divest its $1.8 billion Pharmaceutical Technologies and Services division, which manufactures and packages 100 billion doses of medication a year for pharmaceutical and biotech firms. The unit employed roughly 10,000 people at more than 30 facilities worldwide. In April 2007, private equity firm the Blackstone Group (which is part of the group offering to purchase orthopedic manufacturer Biomet) stepped up as a buyer for $3.3 billion. Proceeds from the sale were used to repurchase Cardinal Health stock.

The company also reorganized its divisions during the first quarter of 2007 into the following four segments: Healthcare Supply Chain Services—Pharmaceutical; Healthcare Supply Chain Services—Medical; Clinical Technologies and Services; and Medical Products Manufacturing. This change was made to better align operations with the needs of customers and take advantages of internal synergies, according to the company.

More change came in May with a deal valued at $1.42 billion (in addition to the assumption of $50 million in debt). Cardinal Health purchased Viasys Healthcare, a manufacturer of respiratory care devices as well as neurological, audio and vascular diagnostics, disposable medical products used in surgical procedures and orthopedic implants. Cardinal Health expects the acquisition to boost its role in the $4 billion respiratory care market, as well as expand its medical product offerings. Viasys posted 2006 revenue of $610 million. The purchase of Viasys signaled Cardinal’s intention to become a larger player in the respiratory care market.

Clark, who took over as chairman and CEO in November, succeeding Cardinal Health founder Robert D. Walter (who became executive director and plans to retire at the end of the company’s 2008 fiscal year), characterized 2007 as “a breakout year” for the company’s Clinical Technologies and Medical Products sectors, which manufacture a range of products including intravenous infusion devices, automated dispensing and respiratory systems, in addition to infection prevention products. In total, the units accounted for more than 25% of the company’s profit. Revenue for fiscal 2007 (ended Sept. 30) was $4.5 billion, up 11% from fiscal 2006, and profit was $584 million, an increase of 20%.

With an expanding profit margin of 13%, Cardinal Health’s management expects the divisions to be an important driver of consolidated operating margins. Clinical Technologies and Services ($2.7 billion in revenue) grew 11%, while Medical Products Manufacturing ($1.8 billion) increased sales by 12%. Factors favorably impacting the bottom line included manufacturing cost reductions ($20 million) driven by strategic sourcing and expense control related to the company’s restructuring program, as well as growth from manufactured gloves and respiratory product lines.

The Healthcare Supply Chain Services—Medical unit reported $7.5 billion (4% growth) in revenue and $318 million in profit.  The increase primarily was driven by increased volume from existing customers and a surge in new customer accounts, according to Cardinal Health.

Growth didn’t just come in balance sheet terms, however. In October, construction began on a $50 million, 250,000-square-foot expansion at the company’s headquarters in Ohio. The new West Campus facility will be home to the Healthcare Supply Chain Services sector.

Cardinal Health, the largest company in Ohio by revenue, employs nearly 3,500 people across the state, including 2,700 in Central Ohio. With the completion of the West Campus facility, Cardinal Health planned to add more than 700 additional jobs.

Fiscal 2007 also saw the conclusion of an ongoing legal battle for the company. Cardinal reached a final settlement with the Securities and Exchange Commission (SEC) and settled several related lawsuits concerning historical financial reporting practices that date back to fiscal 2000 and 2004. Under the agreement approved by the SEC, Cardinal Health paid a civil penalty of $35 million, retained an independent consultant to review certain company policies and procedures, and will be enjoined from future violations of certain provisions of the federal securities laws. Since the investigation began, Cardinal Health has made a number of important changes to its financial reporting and disclosure practices; hired a new chief financial officer, chief accounting officer and controller; and enhanced its Finance department staff to support the company’s size and growth. The company also created the position of chief ethics and compliance officer, which it filled in 2005.

So far, fiscal 2008 hasn’t been without its share of inorganic growth. In March 2008, Cardinal Health announced plans to acquire the assets of privately held Enturia Inc. for $490 million. The cash transaction includes Enturia’s leading line of infection prevention products—sold under the ChloraPrep brand name—which are used in hospitals and surgery centers to disinfect the skin before surgical and vascular procedures to help prevent bloodstream and surgical site infections, two of the most common types of healthcare-associated infections (HAI) among patients.

There’s growth potential in the market. According to the US Centers for Disease Control and Prevention in Atlanta, GA, one in 20 patients, or nearly 2 million people per year, acquire an HAI, which results in nearly 100,000 deaths. Catheter-related bloodstream infections represent 19% of HAIs, and surgical site infections represent 23%. Beginning in October this year, the US Centers for Medicare and Medicaid Services no longer will reimburse hospitals for the added cost of treating certain HAIs, placing an increased economic burden on hospitals.

On the organic growth side, for the third quarter of fiscal year 2008 (ended March 31, the most recent results as of press time), the Medical Products and Technologies segment grew revenue by 48% to $679 million, driven by the acquisition of Viasys Healthcare and strong growth within the core infection prevention and medical specialty businesses. Segment profit grew 72% to $80 million on the Viasys addition, strong organic growth and the benefit of foreign exchange, the company reported.

Revenue for the Clinical Technologies and Services business increased by 11% to $747 million, driven by continued growth in customer installations for medication and supply dispensing products and infusion pumps. Segment profit increased by 29% to $127 million from a favorable product mix and improved operating leverage from expense management initiatives, the company reported. Segment profit for the quarter was partially offset by a $6.5 million reserve for a recall of integrated circuits and connectors on certain Alaris System infusion pumps. Cardinal Health officials indicated that the company would be ready to resolve the problem by the end of the 2008 calendar year. Alaris units were recalled by the company in 2007 after learning of a defect that could lead to over-infusion.

“Our Clinical and Medical products sector continued to deliver strong year-over-year growth, reflecting our leadership positions in medication dispensing, infusion, respiratory and infection prevention products,” Clark said. ”We will continue to invest in these businesses to strengthen our offerings for the future.”

For the first nine months of FY08, the company’s overall revenue was $68 billion, a 6% increase.

One area, in particular, that management cited for future growth was international sales. In fiscal 2007, less than 10% of the company’s earnings came from business outside the United States. For 2008, the company plans to more aggressively pursue sales beyond US borders.

$10 Billion ($81B Total)

Key Executives:
Robert D. Walter, Chairman and Founder
R. Kerry Clark, President and CEO
Dave Schlotterbeck, CEO, Clinical & Medical Products
Jeff Henderson, CFO
Mike Lynch, Group President, Medical Products Manufacturing

No. of Employees: 40,300

World Headquarters: Dublin, OH

While Cardinal Health experienced 10% revenue growth overall, resulting in $81 billion for fiscal 2006 (ended June 30), the company’s Medical Products and Services division grew at a slower rate—2%—to reach $10 billion. Earnings for the division increased 4% to $647 million.

Cardinal Health’s Medical Products and Services unit distributes medical and laboratory products, representing approximately 2,000 suppliers in addition to its own line of surgical and respiratory therapy products. The company also manufactures sterile and non-sterile procedure kits; single-use surgical drapes; gowns and apparel; exam and surgical gloves; fluid suction and collection systems; respiratory therapy products; surgical instruments; special procedure products; and other products.

The company’s officials attributed the 2% revenue growth to new customer accounts and product launches; increased volume from existing customers; and international revenue growth due to new customers, primarily in Canada.

In August, the company suspended production, sales, repairs and installation of its Alaris SE—formerly the Signature Edition—infusion pump following the seizure of approximately 1,300 units by the FDA. Earlier in the month, the company said it voluntarily initiated corrective action. According to the FDA, an over-sensitive keypad on the device could lead to the over-infusing of patients. Cardinal Health sent warning letters to customers. Approximately 140,000 Alaris SE infusion pumps had been distributed in the year prior to the seizure. Cardinal Health officials were quick to point out that the device represented only 1% of annual revenue for its Clinical Technologies and Services division.

The company reached an agreement with the FDA in February on the process it would follow to resume the manufacture and sale of the infusion pumps. The company submitted a remediation plan for the seized pumps and engaged an independent expert to inspect Alaris manufacturing facilities and certify operations.

With the beginning of fiscal 2007, the company seemed to be in a reorganization mode with a series of divestitures and acquisitions.

In November, Cardinal Health announced plans to sell its $1.8 billion Pharmaceutical Technologies and Services division, which manufactures and packages 100 billion doses of medication a year for pharmaceutical and biotech firms. The unit employs roughly 10,000 people at more than 30 facilities worldwide. In April, private equity firm the Blackstone Group (which is part of the group offering to purchase orthopedic manufacturer Biomet) stepped us as a buyer for $3.3 billion.

“In the coming years, Cardinal Health will focus more on our products and services that help providers improve safety and productivity of healthcare,” said CEO Kerry Clark. “We believe there is greater customer and shareholder value in the expansion of our supply chain and medical and clinical products businesses domestically and internationally.”

On the acquisition side, Cardinal Health announced last July it would purchase MedMined, a privately held medical analytics firm that helps hospitals track and prevent hospital-acquired infections. Terms of the deal were not disclosed. In October, Cardinal Health scooped up—again with no terms disclosed—Care Fusion, a manufacturer and developer of wireless barcode patient identification systems used in hospitals.

Most recently, in a deal valued at $1.42 billion (in addition to the assumption of $50 million in debt), Cardinal Health announced in May the purchase of Viasys Healthcare, a manufacturer of respiratory care devices as well as neurological, audio and vascular diagnostics, disposable medical products used in surgical procedures and orthopedic implant manufacturing. Cardinal Health expects the acquisition to boost its role in the $4 billion respiratory care market, as well as expand its medical product offerings. Viasys posted 2006 revenue of $610 million.

Overall, for the first three quarters of fiscal 2007 (ended March 31), the company reported sales of $64.6 billion, an increase of 11%. For the third quarter, revenue for the Medical Products Manufacturing division also increased 11% to $458 million. The company said growth was led by strong demand for surgical drapes, gowns and masks; exam gloves; and special procedure products. Profit for the unit grew 4% to $47 million for the quarter.

Cardinal Health also recently announced a $600 million settlement in a lawsuit in which shareholders had alleged the company inflated its earnings and also accused it of accounting irregularities.

Looking ahead, the company said its long-term goals are to reach revenue growth of 8% to 10% in fiscal 2008. “We see more substantial profit growth coming from the clinical and medical products segments as strong demand for our market-leading products generates additional customer opportunities worldwide, and operational changes provide greater leverage to the bottom line,” Clark said.

$9.8 Billion ($74B Total)
No. of Employees: 55,000

For fiscal year ended June 30, 2005, Cardinal Health was able to achieve a 15% gain in sales. However, the full picture shows troubled times as Cardinal actually experienced its first earnings decline in the company’s 35-year history, sliding from $2.2 billion in 2004 to $1.6 billion in 2005.

Cardinal’s Medical Products and Service business had mixed news, garnering a 7% increase to $9.8 billion while earnings declined 3% to $672 million. The earnings slide was attributed to competitive pricing pressures and significant increases in raw material and fuel costs.

During 2005, the company did make some moves to strengthen business. Cardinal opened a new plant in Las Piedras, Puerto Rico, where it will manufacture components for the Pyxis Products business. With this addition, Cardinal now operates six facilities employing nearly 1,000 people in Puerto Rico.

Cardinal also signed preferred provider agreements with MedAssets Supply Chain Systems, a major group purchasing organization representing 22,000 healthcare providers, for its Alaris infusion safety systems and Pyxis medication and supply automation solutions.

Overall, though, the company’s top executives were disappointed with the final results of FY 2005, noting in their annual report, “Our financial performance was disappointing. We could have done better.” As a result, Cardinal’s primary strategy is to sell some of its assets and become a leaner, more focused company.

Changes are certainly in motion, as 2006 has seen major shifting within the company. Earlier this year, Cardinal Health appointed R. Kerry Clark, former vice chairman of the board of The Procter & Gamble Company, to president, chief executive officer and a member of the board of directors. Clark succeeded Robert D. Walter, the company’s founder and long-time CEO. Since he is remaining with the company as the Cardinal’s chairman, Walter will work closely with Clark to shape the company’s future. Cardinal also announced that George L. Fotiades, president and chief operating officer, would leave the company following a transition period.

As the company adjusts to all the changes in motion, Cardinal is beginning to show a bit of rebound, but things are still somewhat unsteady. Third-quarter FY 2006 results for Cardinal Health continue to strengthen as revenues reached record levels. For the quarter ended March 31, revenue had increased 9% to $21 billion. Earnings before discontinued operations continued a downward trend, however, losing 5% over last year. In the Medical Products and Services business, revenue was slightly ahead of the prior year, including a 6% increase in revenue within the medical products manufacturing and distribution businesses. Sales growth in medical products manufacturing was helped by demand for Cardinal health’s glove and respiratory products.

The third quarter also has been particularly active for Cardinal with announcements of divestitures and acquisitions. As part of a strategy to focus on core, market-leading products, Cardinal plans to divest certain businesses as part of Cardinal Health’s specialty distribution business to OTN, a wholly owned subsidiary of Oncology Holdings, Inc.

Cardinal also has entered into discussions concerning the sale of its healthcare marketing services and UK-based Intercare pharmaceutical distribution businesses. Both businesses have been listed as discontinued operations.

During the quarter, Cardinal sold its pharmacy staffing business to Soliant Health, the healthcare staffing unit of MPS Group.

Furthermore, Cardinal Health signed a five-year agreement with Novation to distribute medical and surgical products, essentially extending a long-term relationship between Novation and Cardinal Health. Under the agreement, Cardinal Health will provide medical and surgical products and logistics services to Novation members. The contract will go into effect September 1, 2006 and run through August 2011.

“This is a vote of confidence in our company and the value of our products and services for healthcare facilities nationwide,” said Jim Neubauer, Cardinal Health’s vice president of Health Systems. “We are pleased to continue building on our long-term relationship with such a valuable customer.”

Finally, in an effort to augment its line of medical product offerings, Cardinal also completed the acquisition of Golden, CO-based Denver Biomedical, Inc., a designer and manufacturer of the Pleurx Pleural Catheter System.

With operations becoming more focused on core technologies, Cardinal expects to grow revenues by 8% to 10% annually.

“After completing a thorough review of our businesses and global operations, we remain convinced of the tremendous potential Cardinal Health has to help improve productivity and the safety of health care worldwide,” said president and CEO Clark. “We have made progress during fiscal 2006 in transforming Cardinal Health and see continued momentum as we transition to fiscal 2007. In 2007, we will continue to focus on organic growth and using our scale to reduce costs across the enterprise, which we expect will result in strong revenue and earnings-per-share growth for the year.”