$3.8 Billion

Here and gone in a flash.

Thus describes the brief existence of CareFusion Corporation, the Cardinal Health spinoff with perhaps the shortest stint on MPO’s Top 30 list.

Spawned from the Clinical and Medical Products segment businesses of its parent company, CareFusion began trading on the New York Stock Exchange on Sept. 1, 2009. The San Diego, Calif.-based firm led a fairly normal existence, growing through acquisitions (Medegen Inc. in 2010, U.K. Medical Limited and Intermed Equipamento Medico Hospitalar Ltda in 2012, Sendal and Vital Signs Inc. in 2013) before being purchased last fall at the tender age of 5 for $12.2 billion by Franklin Lakes, N.J.-based Becton Dickinson and Co.

“As part of BD, we see new growth opportunities for our products in global markets, new value we can create for our customers and new opportunities for our employees as part of what will become one of the largest, global leaders in med-tech,” CareFusion Chairman/CEO Kieran T. Gallahue said when the deal was announced. “The transaction delivers attractive value for CareFusion shareholders, and represents a powerful endorsement of our strong positions in medication management, informatics across our device platforms and leading products to help improve the effectiveness of acute-care procedures.”

The deal closed in mid-March, and CareFusion now is part of BD’s Medical segment. (For more details on the merger’s logic, turn to the Becton Dickinson listing on page 82).

CareFusion’s final year as an independent company was a relatively busy one: It released a handful of new products and settled a federal whistleblower lawsuit for $40.1 million. Its January 2014 agreement with the U.S. Justice Department ended a three-year investigation into allegations of wrongful business practices levied by Cynthia Kirk, Ph.D., a former vice president in the firm’s infection prevention business unit. By settling the case, CareFusion did not admit to any liability.

In a 2010 lawsuit she filed in federal court, Kirk accused CareFusion of violating the U.S. False Claims Act by paying kickbacks to Charles Denham, M.D., via two software development contracts with his company, Health Care Concepts. Kirk, later joined by the federal government, alleged the contracts were shams and exceeded the fair market value for Health Care Concept’s services; she claimed the payments were structured to hide kickbacks to Denham so he could help increase sales of CareFusion’s ChoraPrep sterilizer product through his position as co-chair of the National Quality Forum’s Safe Practices Committee.

The not-for-profit National Quality Forum is an independent panel of healthcare providers that reviews, endorses and recommends uniform healthcare performance measures and practices. The scheme resulted in the improper billing of the Medicare and Medicaid programs for uses of ChloraPrep beyond its Food and Drug Administration-approved labeling. Approved use is limited to preparing a patient’s skin before surgery or injection.

CareFusion released the bulk of its new products in the second half of its fiscal year (ended June 30, 2014). In March, it debuted a new line of bipolar electrosurgical instruments under the V. Mueller brand that includes both forceps and scissors with roughly 200 options—non-stick, titanium and irrigation among them—to meet the specific requirements of surgeons. Industry trends indicate that surgeons are migrating to bipolar electrosurgery because it causes less thermal damage to nearby tissue compared to monopolar instruments.

A key feature of the new scissors is a single-point connection to the electrical source, which reduces the number of wires attached to the handles to improve maneuverability and ease-of-use.

In June, the company launched three new products designed to help reduce surface contamination or the presence of microorganisms that can potentially cause infections during hospital stays and procedures:

• • ChloraPrep 1 mL applicator provides clinicians with a preferred applicator design and the same formulation as all other ChloraPrep applicators but in a new 1 mL size. Executives said the new size is ideal for procedures with an application area approximately 2.5 inches by 2.5 inches or smaller.

• • The ChloraShield IV dressing with chlorhexidine gluconate (CHG) antimicrobial is a flexible and breathable dressing, that enhances patient care during vascular access procedures. The dressing features BeneHold CHG, an adhesive technology from Vancive Medical Technologies, which comfortably secures the dressing to the skin, absorbs fluid and protects the site from external contaminants. The CHG incorporated within the adhesive preserves the dressing from microbial growth. ChloraShield dressings are designed to be easy for clinicians to apply and remove, and comfortable for patients to wear.

• • The MaxZero needleless connector is designed to help improve patient safety and promote nursing best practices. With a solid, sealed surface, the connector provides a barrier to bacteria and contamination and enables effective three second disinfection with an alcohol pad. The design of the MaxZero needleless connector prevents reflux of blood into the catheter at disconnect and also has a smaller profile. A clear fluid path enhances flushing and anti-reflux technology prevents the need for a clamping sequence, helping save nurses time and reducing process steps.

CareFusion ended its brief run in the medtech arena on a positive note, posting an 8 percent revenue increase (on a reported and constant currency basis) to $3.84 billion for the fiscal year. Operating income was up slightly to $621 million, from $619 million the previous year. Excluding nonrecurring items, adjusted operating income climbed 1 percent to $746 million. Operating income as a percent of revenue finished fiscal 2014 at 16.2 percent, or 19.4 percent on an adjusted basis.

Income from continuing operations increased 7 percent to $417 million, or $1.96 per diluted share. Adjusted income from continuing operations swelled 6 percent from the prior year to $503 million, or 11 percent per diluted share to $2.36.

FY14 operating expenses totaled $1.29 billion on a reported basis and $1.18 billion on an adjusted basis. Executives attributed the increase to higher incentive compensation as well as the 2013 purchases of Sendal, an infusion specialty disposable manufacturer in Spain, and the Vital Signs division of GE Healthcare for $500 million. Vital Signs makes single-patient-use consumables for respiratory care and anesthesiology, and markets temperature management and patient monitoring consumables products.

CareFusion reported gains in both of its reporting segments, though Procedural Solutions significantly outpaced Medical Systems. Sales in the Medical Systems segment rose  3 percent to $2.39 billion, led by Infusion and strong Dispensing installations during the fourth quarter. Segment profit declined 8 percent from the prior year to $433 million, a decrease of 6 percent to $490 million on an adjusted basis, driven by longer than expected installation cycles in the Dispensing business during the first half of the year and product revenue mix negatively affecting segment margins.

Within the Procedural Solutions segment, revenue increased 19 percent from the prior year to $1.45 billion. The increase was driven by growth across all business lines and its clinically differentiated products and contributions from the Vital Signs acquisition. Segment profit declined 1 percent to $188 million from the prior year and increased 17 percent to $256 million on an adjusted basis.

$3.55 Billion
No. of Employees: 15,000

The medical device sector has always been challenging. Staying innovative, developing increasingly updated and complex technologies, as well as responding to tough quality and regulatory hurdles isn’t easy. Until recently, however, medical technology companies that overcame those barriers were able to sell their products at prices that made the effort worthwhile.

Today, that’s not always the case, and medical device companies operate in a different world. In the developed countries of North America and Europe, healthcare systems are under acute financial pressure. The United States’ new healthcare adds to the complexity. Healthcare providers are exploring every opportunity to increase efficiencies and reduce costs. For a company such as San Diego, Calif.-based CareFusion, which derives about 80 percent of its revenue from the United States, today’s healthcare reality makes for a more demanding environment than ever before.

Kieran T. Gallahue, CareFusion’s Chairman and CEO noted to a group of investors during the Citi 2013 Global Healthcare Conference in February last year, that the company is “focused on both reducing the cost of healthcare and improving patient safety. And as we start, literally, every single large intercompany meeting, we put the ‘and’ in that statement—which is the ability to reduce costs while at the same time improving the safety of care.”

Gallahue said his team has been engaged in the “process of reengineering” the company, “basically doing seven years’ worth of integration work over the last two years. And as a result, we’ve seen a significant expansion of our margins and at the bottom line, even though we’ve been in a reasonable slow growth market.”

Because the company does so much of its business here at home, there are “significant opportunities for expansion on a global basis,” Gallahue said.

The work toward expanded margins seems to be working. Though revenue for fiscal 2013 (ended June 30, 2013) dropped 1 percent to $3.55 billion, the company’s operating income increased 8 percent to $619 million, from $574 million in fiscal 2012.
Excluding non-recurring items, adjusted operating income rose 8 percent to $739 million. Income from continuing operations increased 8 percent to $389 million, or $1.74 per diluted share, for fiscal 2013. Adjusted income from continuing operations increased 8 percent from the prior year to $475 million, or $2.12 per diluted share.  Net income was $385 million, up from $293 million in 2012.

During the year, CareFusion increased R&D expenses by 17 percent from the prior year to $192 million, reflecting the company’s continued investments in product development and innovation.

Revenue for the company’s Medical Systems segment—which includes medication management (infusion and medication dispensing technologies), supply dispensing technologies and respiratory technologies—decreased 5 percent to $2.33 billion, reflecting a difficult capital environment for hospitals, according to the company and market analysts. Segment profit increased 7 percent from the prior year to $471 million, an increase of 2 percent to $521 million on an adjusted basis, driven by strong margin improvement.

Within the Procedural Solutions segment, revenue increased 5 percent from the prior year to $1.22 billion. This business segment includes disposable products and reusable surgical instruments, including single-use skin antiseptic and other patient-preparation products, non-dedicated intravenous (IV) infusion administration sets and accessories, reusable surgical instruments and non-dedicated ventilator circuits and other disposables used for providing respiratory therapy.

The increase, according to CareFusion officials, was driven by growth across all business lines and its clinically differentiated products. Segment profit grew 40 percent to $189 million and increased 25 percent to $218 million on an adjusted basis.

“We made substantial progress in fiscal 2013 to advance our three-year strategic plan through simplification and investment initiatives that were focused on expanding our margins and making CareFusion a more efficient company,” said Gallahue. “Our strength in execution helped to expand both gross margins and operating margins to achieve double-digit earnings-per-share growth for the quarter, and a 9 percent increase for the year, all during difficult capital markets for hospitals. In addition, our fiscal 2013 operating cash flow from continuing operations of $613 million exceeded our expectations and highlights the ability of our businesses to generate strong cash flow.”

According to Gallahue, CareFusion’s dispensing business has 70 percent market share in the United States. The infusion systems business, which is just over $1 billion, has approximately 50 percent market share—so one out of every two infusion systems in the United States is a CareFusion product. For the firm’s respiratory sector, which is a far more fragmented business, CareFusion has roughly 20 percent market share and is the second-largest player in the world, company leadership claims.

During the first quarter of fiscal 2013, the company combined its respiratory diagnostics products with the Respiratory Technologies business line within the Medical Systems segment. The respiratory diagnostics products had previously been reported within the Procedural Solutions segment as “other.”

By the Buy
During fiscal 2013, CareFusion acquired Intermed Equipamento Medico Hospitalar Ltda., a privately held, respiratory technologies company based in Sao Paulo, Brazil. The move expands the company’s global reach and respiratory products portfolio. Terms of the agreement were not disclosed.

Intermed makes ventilators and respiratory care devices for the full spectrum of infant, pediatric and adult patients that are used in hospitals in Brazil and across Latin America. Brazil, which has the world’s sixth largest economy and fifth largest population, is experiencing growth in its healthcare sector through government investments, growth within the middle class and an increase in formal employment that provides greater access to healthcare services.

“The acquisition of Intermed complements our global respiratory product platform and advances our strategy to expand outside of the United States through investments that build scale and local capabilities in high-value markets,” said Gallahue. “Intermed brings a strong distributor network, local manufacturing capabilities and a new product portfolio that we believe can serve as a base for CareFusion to continue our global expansion efforts in Latin America.”

At the beginning of fiscal 2014, in November 2013, CareFusion Corp. signed a deal to buy Vital Signs division of GE Healthcare for $500 million.

With annual revenue of approximately $250 million, Vital Signs manufactures single-patient-use consumables for respiratory care and anesthesiology. The company also markets products for temperature management and patient monitoring consumables.
The acquisition expands CareFusion’s Specialty Disposables business by adding global scale and new products for anesthesiology, establishing the company as a leader in the more than $3 billion market for respiratory and anesthesia consumables.

With approximately one-third of its revenue coming from customers outside the U.S., Vital Signs will advance CareFusion’s goal to expand in international markets. The combined sales force will have deep customer and clinical expertise in major global markets. With the addition of the Vital Signs portfolio, CareFusion will become a full-line provider of more than 20,000 single-use consumables for respiratory care and anesthesiology, including circuits for oxygen and anesthesia, humidification, masks, filters, pressure infusers and temperature management products.

The Vital Signs purchase was CareFusion’s eighth acquisition since 2010.

Headquartered in Totowa, New Jersey, Vital Signs has more than 1,000 employees worldwide, including manufacturing operations in Shenzhen, China.

You Can’t Fight City Hall
In April 2013, CareFusion agreed to resolve previously disclosed government investigations related to prior sales and marketing practices for its ChloraPrep skin preparation product and its relationships with healthcare professionals.

The company expects to pay the government approximately $41 million to resolve the allegations. The company recorded the charge in the third quarter of fiscal 2013 to establish a reserve for this amount. In connection with these matters, CareFusion has entered into a non-prosecution agreement and will continue to cooperate with the government.

“We are pleased to have reached this important milestone as we continue to build our foundation for future growth,” said Gallahue at the time. “Since our spinoff, we have made significant investments to improve our quality systems, including our sales and marketing practices, and we remain committed to adhering to the highest standards.”

Like the rest of the U.S. medical device industry, CareFusion began accounting for the 2.3 percent medical device excise tax, which took effect in January 2013. In fiscal year 2013, the company paid approximately $11.4 million related to six months of the medical device tax. The company expects the impact of the tax to be approximately $20 million to $25 million in fiscal year 2014 and annually thereafter.

New Product Rollouts
Notable new product introductions for fiscal 2013 included a 3 millimeter (mm) version of its Snowden-Pencer pretzel-shaped laparoscopic retractors. The 3-millimeter shaft enables even smaller incisions and is designed for use in minimally invasive laparoscopic procedures, according to the company. The new retractor fits down a 3-millimeter trocar and is designed to promote faster recovery time, minimize scarring through smaller incisions and reduce post-operative pain and trauma for the patient. The 3- and the 5-millimeter Snowden-Pencer pretzel-shaped laparoscopic retractors allow surgeons easier access, visualization and leverage when manipulating larger organs and structures compared to other retractors.

The pretzel-shaped retractor complements the current line of Snowden-Pencer laparoscopic articulating retractors, which features angled, hooked, circular and triangular shapes. The pretzel retractors, both 3- and 5-millimeter, also can be used with the Snowden-Pencer Fast Clamp system, which holds endoscopic instruments in place during a procedure—potentially reducing the need for additional personnel in the operating room.”

CareFusion also launched an infusion dashboard to help hospital pharmacies monitor infusions across an entire hospital or health system to improve safety and efficiency.

The Alaris Infusion Viewer for Pharmacy Logistics is a Web-based dashboard that shows near real-time status of all infusions across a hospital or health system that is using the Alaris System with the Alaris Pump and/or Alaris Syringe Modules.

The Alaris Infusion Viewer for Pharmacy Logistics uses data that is wirelessly transmitted from the pumps to display if infusions are currently infusing, stopped or completed. It can also show how much time remains and the amount of medication volume that is left to be infused into the patient. Additionally, the new system can display which pumps have a current Guardrails soft alert violation, to streamline alert reviews. Guardrails alerts are triggered by software in the pump when an infusion parameter is out of the normal range for that specific hospital or patient care unit. Pharmacy Logistics is the first application released on the Alaris Infusion Viewer technology platform.

“The Alaris Infusion Viewer for Pharmacy Logistics is an example of how CareFusion is innovating beyond device hardware to provide valuable information that can improve safety and workflow efficiency,” said J.C. Kyrillos, senior vice president and general manager of infusion for CareFusion. “Now, hospital pharmacists don’t have to be in the dark about infused medications after they leave the pharmacy, and they can provide near real-time support and expertise back to the patient bedside where the infusions are occurring.”

$3.60 Billion
No. of Employees: 15,000

CareFusion, once a part of Cardinal Health, continues to make gains as a standalone medical technology company. Revenue for fiscal 2012 (ended June 30, 2012) increased 5 percent to $3.6 billion. Operating income increased 19 percent to $590 million, from $497 million in fiscal 2011. Excluding nonrecurring items, adjusted operating income rose 4 percent to $627 million.

Sales within the Medical Systems division (medication dispensing, infusion pumps and respiratory technology) increased 11 percent to $2.32 billion for fiscal 2012. The company reported strong sales across most product categories. Segment profit increased 28 percent from the prior year to $481 million, an increase of 14 percent to $502 million on an adjusted basis.

Revenue for the Procedural Solutions segment (infection prevention technology, surgical instruments and catheter-based technology) decreased 5 percent from the prior year to $1.28 billion. The decrease was driven by declines in the company’s Specialty Disposables business and the loss of sales from divesting the company’s OnSite Services business in March 2011. Segment profit was even with the prior year at $109 million and decreased 23 percent to $125 million on an adjusted basis. Overall, net income increased 24 percent from $244 million in fiscal 2011 to $303 million in 2012.

Notably, the company increased its research and development spending in FY12 by 12 percent to $164 million.

In April last year, as part of the company’s continued restructuring and reshaping post-Cardinal, CareFusion sold its Nicolet business to San Carlos, Calif.-based Natus Medical Inc. for $58 million in cash. Based in Madison, Wis., the Nicolet division developed clinically differentiated neurodiagnostic and monitoring products, including a portfolio of electroencephalography and electromyography systems, as well as vascular and obstetric doppler sensors and connectivity products. At the time of the acquisition, the division employed more than 400 people worldwide and generated sales of approximately $95 million in 2011.
Natus Medical specializes in devices used for the screening, detection, treatment, monitoring and tracking of common medical ailments in newborn care, hearing impairment, neurological dysfunction, epilepsy, sleep disorders, and balance and mobility disorders.

In June, just before the close of fiscal 2012, CareFusion forged ahead with its fifth acquisition since its 2009 spinoff, buying U.K. Medical Ltd., a distributor of medical products to the National Health Service (NHS) in the United Kingdom. Among the company’s acquisitions include PHACTS LLC, a Seattle, Wash.-based hospital services company, and Germany-based Rowa, which provides medical storage and retrieval services for hospitals. Terms of the deal were not disclosed.

The acquisition of Sheffield, England-based U.K. Medical is part of CareFusion’s growth strategy of establishing infrastructure and a local presence in key markets—the company recently has been active in the Middle East, notably opening an office in Dubai in January of this year. CareFusion already had a working relationship with U.K. Medical—the company is the sole U.K. distributor of CareFusion’s interventional technologies portfolio, including soft-tissue and bone marrow biopsy needles, the AVAmax advanced vertebral augmentation system and the PleurX peritoneal catheter drainage system.

U.K. Medical focuses on distribution of clinically differentiated interventional and implantable single-use medical products for biopsy, cardiac, drainage, obstetrics and gynecology, non-vascular stenting, surgery and vertebroplasty primarily for the NHS.
Continuing its acquisitions, at the beginning of fiscal 2013 in October 2012 CareFusion purchased Intermed Equipamento Medico Hospitalar Ltda., a privately held respiratory technologies company based in São Paulo, Brazil.

Financial terms of the agreement were not disclosed, but the move expands CareFusion’s reach into one of the world’s largest emerging markets.

Intermed makes ventilators and respiratory care devices for infant, pediatric and adult patients that are used in hospitals in Brazil and across Latin America. Brazil, which has the world’s sixth-largest economy and fifth-largest population, is experiencing growth in its healthcare sector through government investments, growth within the middle class and an increase in formal employment that provides greater access to healthcare services.

“The acquisition of Intermed complements our global respiratory product platform and advances our strategy to expand outside of the U.S. through investments that build scale and local capabilities in high-value markets,” said Kieran Gallahue, chairman and CEO of CareFusion. “Intermed brings a strong distributor network, local manufacturing capabilities and a new product portfolio that we believe can serve as a base for CareFusion to continue our global expansion efforts in Latin America.”

Despite strong financial performance, infusion pump recalls continued to plague the company in 2012, mostly toward the beginning of fiscal 2013. In August, the U.S. Food and Drug Administration (FDA) announced a Class I recall of CareFusion’s Alaris pump module Model 8100, saying a potential keypad malfunction in the infusion pump could cause serious injury or death.
The FDA said the affected pump modules, used for delivering a variety of fluids, drugs and blood products to patients, were manufactured between October 2011 and February 2012. According to the recall notice, CareFusion identified a potential problem whereby the overlay on the pump module’s keypad could detach, possibly allowing for fluid ingress into the assembly that could cause infusion to stop. The FDA classified the action as a Class I recall on its website, meaning that the defective units could cause serious harm to a patient’s health.

Also in August, the FDA announced a Class I recall of the Alaris PC unit Model 8015, citing a malfunction in its power supply board.
In addition, the company initiated a voluntary recall of its EnVe ventilators and AirLife Infant Breathing Circuit in July and May 2012, respectively.

Incidentally, in April of this year, the FDA issued a Class I recall of CareFusion’s Alaris PC unit (model 8015 yet again) with software version 9.12. The Alaris PC unit is the central programming, monitoring, and power supply component of the Alaris electronic infusion pump system.

Amid safety concerns and manufacturing defects associated with its products, concerns about CareFusion’s production capabilities also have grown. Unresolved, these matters can lead to a loss in consumer confidence. The costs associated with the recalls and remediation plans also are a matter of concern for the company.

For the first nine months of fiscal 2013 (ended March 31), revenue was nearly even with FY12 at $2.65 billion. Within the Medical Systems segment, revenue decreased 2 percent from the prior year period to $1.74 billion. Segment profit increased 10 percent to $347 million. Revenue for the Procedural Solutions segment increased 5 percent from the prior year period to $910 million.
Segment profit increased 38 percent to $143 million. The company is expecting little to flat growth for fiscal 2013 with end-of-year results on par with 2012.

$3.5 Billion
NO. OF EMPLOYEES: 14,000

With nearly three fiscal years under its belt (FY 2012 was drawing to a close at press time), CareFusion, a spinoff of Cardinal Health, continues to shape itself as an independent medtech firm.

“Growth in our Infusion, Dispensing and Infection Prevention businesses, gross margin expansion and the benefit of strong spending controls drove double-digit improvements in our adjusted operating earnings for the quarter and for the year,” said Kieran Gallahue, chairman and CEO. “We continue to make progress in optimizing our product portfolio and expanding our geographical footprint.”

Revenue for fiscal 2011 (ended June 30, 2011) increased 2 percent to $3.5 billion. (Results from the company’s International Surgical Products business, which had been included in its Medical Technologies and Services segment and was divested in April 2011, were classified as “discontinued operations” in the company’s end-of-year financials. Reported results and comparisons to prior periods exclude the historical results of the ISP business. That’s why the company is reporting an increase in revenue when reported revenue last year was $3.9 billion.) Operating income increased to $496 million and income from continuing operations increased to $291 million, or $1.29 per diluted share. Excluding nonrecurring items, adjusted operating income increased $87 million to $602 million and adjusted income from continuing operations increased $70 million to $371 million, or $1.65 per diluted share.

Revenue for the Critical Care Technologies (infusion, dispensing and respiratory care businesses that develop capital equipment and related dedicated and non-dedicated disposables) segment increased 3 percent to $2.7 billion. Segment profit increased 10 percent to $434 million, and adjusted segment profit increased 14 percent to $511 million. Revenue for the Medical Technologies and Services segment (infection prevention and medical specialties products and services businesses that develop single-use, disposable products and reusable surgical instruments) decreased 4 percent to $799 million. Segment profit increased 17 percent to $49 million, and adjusted segment profit increased 40 percent to $91 million.

R&D investments totaled $155 million for FY11, a drop from $159 million in 2010.

Important changes at the top kicked off FY11.

Kieran T. Gallahue was named chairman and CEO, succeeding David L. Schlotterbeck, who retired as the company’s inaugural chief executive. Gallahue previously served as president and CEO of ResMed, a maker of devices for treating, diagnosing and managing sleep-related respiratory disorders. During his tenure at ResMed, the company grew revenue approximately 500 percent to $1.2 billion, while expanding operating margins and increasing net income more than 20 percent annually. He holds a Bachelor of Science degree in Economics and Accounting from Rutgers University and a master’s degree in business from Harvard Business School.

James F. Hinrichs was promoted to chief financial officer (CFO), replacing Edward Borkowski who left the company. As the former CFO of Cardinal Health’s Clinical and Medical Products segment, Hinrichs led the CareFusion financial organization prior to the hiring of Borkowski in May 2009 and continued as controller until he was named senior vice president of Global Customer Support in January. The Cardinal Health Clinical and Medical Products segment became the foundation of CareFusion following its spinoff on Sept. 1, 2009. Prior to his role as CFO of the Clinical and Medical Products segment of Cardinal Health, Hinrichs served as executive vice president and controller of Cardinal Health and the CFO of Cardinal Health’s Healthcare Supply Chain Services segment. He joined Cardinal Health in February 2004 following 12 years of finance and marketing roles at Merck & Co. He holds undergraduate and graduate degrees in Business from Carnegie Mellon University.

Carlos M. Nunez, M.D., was named CareFusion’s chief medical officer (CMO). Nunez is an anesthesiologist, intensivist and hospitalist. He received his medical degree from the University of Miami School of Medicine, where he also completed his post-graduate training in anesthesiology and critical care medicine.

Chief Operating Officer Dwight Winstead stepped down in June 2011 after more than 40 years in healthcare. He joined Cardinal Health in 1997 and held a variety of positions including president of the Clinical Technologies and Services business and group president for Cardinal Health’s Automation and Information Services segment.

The company was prolific throughout the fiscal year with new products launched.

The AVAmax vertebral balloon was introduced early in the fiscal year. It is a minimally invasive device for use during kyphoplasty, a procedure for treating spinal compression fractures, which often is caused by osteoporosis. AVAmax is part of an all-in-one system that includes an eight-gauge or 10-gauge needle, bone cement and delivery instruments for kyphoplasty or vertebroplasty, an alternate procedure to treat compression fractures. The all-in-one system gives doctors the choice and flexibility to perform either procedure at the time of patient care. CareFusion established a dedicated sales force to sell the device in order to drive product adoption and market penetration in the United States. The global kyphoplasty procedure health care segment is currently estimated to represent approximately $600 million in sales. Approximately 50 percent of U.S. women and 25 percent of men older than the age of 50 will experience an osteoporosis fracture in their lifetime.

Later in the year, CareFusion launched an 11-gauge vertebral balloon for use in the spinal fracture treatment market. The small-sized balloon allows interventional radiologists and spine surgeons to repair vertebral compression fractures that historically have been more difficult to treat due to their size and location in the spinal column, including smaller vertebra. The device is inserted through a cannula that is 17 percent smaller and a balloon shaft that is 25 percent smaller than any other vertebral balloon on the market, according to the company. This design miniaturization helps make the procedure less invasive for patients without compromising the clinical efficacy of the device since it still meets the pressure and volume requirements of legacy vertebral balloons. For clinicians, the tungsten radiopaque tip enables visibility under imaging, helping to ensure safe deployment of the balloon in the vertebral body.

CareFusion also released SentrySuite, the next-generation clinical diagnostics software for the Jaeger and SensorMedics Pulmonary Diagnostics and CardioPulmonary Diagnostics instruments. SentrySuite is a set of software applications to assist with clinically intelligent diagnostics to improve the quality of patient data. The application focuses on data, organization, workflow and connectivity so physicians can focus more time on patient care.

But growth doesn’t just come from new technology. Key acquisitions and streamlining for more efficient operations also can fuel a firm’s expansion. CareFusion wasn’t shy with either approach.

Midway through the fiscal year, CareFusion sold its Onsite Services instrument management and repair business to Frazier Healthcare. Financial terms of the agreement were not disclosed. OnSite Services provides repair specialists and service technicians who can perform preventative maintenance and instrument repairs at a hospital facility or in a national repair center. Revenue from OnSite Services in fiscal year 2010 was approximately $50 million. OnSite Services includes national repair centers in Highland and Sterling Heights, Mich., with a workforce of approximately 240 employees.

In July last year, CareFusion inked a deal to acquire Rowa, a Germany-based company specializing in robotic medication storage and retrieval systems for retail and hospital pharmacies, for approximately $150 million. Rowa’s core products enable high-density, high-speed storage and retrieval of pre-packaged pharmaceutical inventory. With more than 3,500 installations in 30 countries, these automated systems are designed to reduce costs and improve workflow while addressing the unique pharmacy operations requirements outside of the U.S. CareFusion plans to continue Rowa’s focus on retail pharmacy customers, while also targeting accelerated expansion within its core hospital customers. Rowa has more than 300 employees and is headquartered in Kelberg, Germany, with operations in Italy, the Netherlands, Denmark and Sweden.

During the current fiscal year, CareFusion also divested its neurodiagnostic Nicolet business to San Carlos, Calif.-based Natus Medical for $58 million in cash. Based in Madison, Wis., the business employed more than 400 people worldwide and generated sales of approximately $95 million in 2011. Natus provides products used for the screening, detection, treatment, monitoring and tracking of common medical ailments in newborn care, hearing impairment, neurological dysfunction, epilepsy, sleep disorders, and balance and mobility disorders. The Nicolet business develops clinically differentiated neurodiagnostic and monitoring products, including a portfolio of electroencephalography and electromyography systems and related accessories, as well as vascular and obstetric doppler sensors and connectivity products. “The decision to divest the Nicolet business is in line with our strategy to simplify and focus our operations and prioritize our investments to profitably grow over the long term,” said Gallahue “We have a dedicated team in the Nicolet business that will have greater scale and access to broader market opportunities as part of Natus. More than 50 percent of the Nicolet business is in markets outside of the United States.”

Since its spinoff from Cardinal Health in 2009, CareFusion has simplified its portfolio by divesting five non-strategic businesses and has completed four acquisitions.

The company continued to deal with infusion pump recall issues throughout the year. Class I (the most serious) recalls were issued for Alaris infusion pumps and AVEA ventilators. The company moved to correct the hardware problems. No deaths or injuries were reported. Both recalls affected parts that no longer were manufactured by the company at the time of each recall.

At press time, however, just shy of the end of CareFusion’s 2012 fiscal year, another recall was issued for its AirLife Infant Breathing Circuit products because regulatory officials said they could develop cracks during use, causing a leak in the closed ventilation system. About 280,000 of the disposable products being recalled were manufactured between June 1, 2010 and Feb. 3, 2012, according to CareFusion. There were no reports of patient harm associated with the products, the company said.
CareFusion has since improved its manufacturing process and is making a stronger component for its new breathing circuit products, which attach to a mechanical ventilator. The company notified hospitals in late May that it was removing the AirLife products from the market and advised them to destroy whatever remained in their inventory. The U.S. Food and Drug Administration classified the action as a Class I recall on its website on June 29, meaning the defective units could cause serious harm to a patient’s health. The company increased its recall reserve fund by $7 million.

$3.9 Billion

NO. OF EMPLOYEES: 14,000

Though companies drop off MPO’s annual Top 30 list due to mergers and acquisitions, new additions aren’t as common. Billion-dollar medtech companies don’t usually come out of nowhere in a year’s time. It does help, of course, if you have a little bit of a head start. Enter CareFusion, a spinoff from venerable device company Cardinal Health, as the latest addition to our yearly roundup.

For its first year as a standalone firm (listed on the New York Stock Exchange on Sept. 1, 2009, under the ticker symbol “CFN”), management was extremely pleased with performance.

“The results we reported today (the company’s 2010 fiscal year ended June 30, 2010) reflect solid performances across our business segments in our first year as a public company. We overachieved against our original fiscal 2010 expectations with incremental positive contributions from both our Infusion and Respiratory businesses,” said David Schlotterbeck, who was chairman and CEO of CareFusion at the time. He later retired.

For fiscal 2010, revenue increased 9 percent to $3.9 billion on both a reported and constant currency basis, driven primarily by increased sales in the company’s Infusion, Respiratory and Medical Technologies and Services businesses, officials noted, whichpartially were offset by a decrease in the company’s Dispensing business. The company is comparing sales to the year it operated as a division of Cardinal Health.

The company breaks down its reporting in two segments: Critical Care Technologies (CCT) and Medical Technologies and Services (MTS). The CCT segment includes the company’s Dispensing, Infusion and Respiratory businesses and the MTS segment includes the Infection Prevention and Medical Specialties businesses. CCT reported $2.6 billion in revenue, a 9 percent increase compared with operations in 2009, and profit of $395 million, a 12 bump. MTS pulled down about $1.26 million in revenue (a 10 percent increase) and $65 million in profit, which is a loss of 28 percent as a result of discontinued businesses and product lines, according to Care Fusion officials.

Following the release of its fiscal 2010 figures, CareFusion also initiated a company-wide restructuring reducing the firm’s workforce by approximately 700 positions. According to the company, the reductions were designed to eliminate layers of management and reduce the size of the supporting infrastructure. In connection with the restructuring, CareFusion executives estimate the move will generate pre-tax cost savings in fiscal 2011 of $85 million to $95 million and for that amount to increase by an additional $25 million in fiscal 2012.

“During fiscal 2010, we evaluated our cost structure and the strategic fit of certain businesses and are now taking the necessary steps to right size our company,” Schlotterbeck said. “Our goal is to improve our competitive position, accelerate our previously announced efforts to improve our operating margins and enhance our focus on the core opportunities we have for growth.”

In addition to a new start as a public company, CareFusion also saw the end of a protracted quality issue in 2010. In February, the U.S. Food and Drug Administration (FDA) allowed the firm to resume manufacturing and marketing its Alaris SE line of infusion pumps, which had been made by the Clinical and Medical Products division of Cardinal Health. The division had been operating under a consent decree with the FDA since February 2007, which included an injunction on the manufacture and sale of the pump.

The firm also didn’t drag its feet with new product launches, making a number of releases throughout the year.

One notable new product was the AVAmax vertebral balloon, a minimally invasive device for use during kyphoplasty, a procedure for treating spinal compression fractures.Company officials claim that CareFusion is the only company in the industry to offer a full line of products that address both vertebroplasty and balloon kyphoplasty, the two primary approaches to treat spinal compression fractures by delivering bone cement into the vertebral space with specialized needles. During a kyphoplasty, a small balloon is used to create a cavity in the vertebral body and ultimately deliver bone cement in that cavity. A vertebroplasty does not include the use of a surgical balloon to deliver the bone cement.

AVAmax is part of a system that includes needles, bone cement and delivery instruments for both kyphoplasty and vertebroplasty, giving doctors the choice and flexibility to perform either procedure at the time of patient care. CareFusion established a dedicated sales force to sell this product United States, with future expansion plans in Europe in 2011. CareFusion officials estimate the global kyphoplasty market to be worth approximately $600 million.

Spinal compression fractures often are caused by osteoporosis, a disease of low bone strength that affects an estimated 10 million Americans, resulting in an estimated 700,000 case of spinal fractures.

In April last year, CareFusion initiated plans to purchase Medegen Inc., a manufacturer of clinically differentiated needleless access valves and administration sets that deliver intravenous (IV) medication to patients, for $225 million in cash. The firm was identified as a strategic fit because of the complementary nature of CareFusion’s infusion product lines and research and development activities, officials said at the time. Catheter-related blood stream infections (CRBSI) have been shown to increase a patient’s hospital stay by 10 to 24 days, with approximately 25 percent of the 250,000 annual incidents resulting in death. The U.S. Centers for Medicare and Medicaid Services have identified CRBSI as a “never event” and no longer provide reimbursement for care related to these cases, which cost an average of $29,000 per patient to treat. Medegen products have been shown to contribute to reductions of up to 70 percent in these deadly infections, CareFusion officials said.

Efforts to reshape the company haven’t slowed down for fiscal 2011 so far. In February, the company sold its surgical products distribution business to Mundelein, Ill.-based Medline Industries, Inc. for $130 million. The division was based in Rolle, Switzerland, with operations in 16 European and Asian-Pacific countries and distribution and assembly facilities located in Germany, France, Spain and Australia. The business generated sales of approximately $440 million annually.

As part of the agreement, Medline will continue to distribute CareFusion products in agreed-upon geographic areas.

Also in February, Kieran T. Gallahue was named chairman and CEO, succeeding Schlotterbeck who previously announced plans to retire.

Gallahue most recently served as president and CEO of ResMed, a maker of devices for treating, diagnosing and managing sleep-related respiratory disorders. During his tenure at ResMed, the company grew revenue approximately 500 percent to $1.2 billion, while expanding operating margins and increasing net income more than 20 percent annually. He holds a Bachelor of Science degree in Economics and Accounting from Rutgers University and a master’s degree in business from Harvard Business School.

For the first nine months of fiscal 2011 (ended in March 31), revenue increased 1 percent to $2.56 billion.