DUBLIN, Ohio — Most securities analysts like the Cardinal Health-CareFusion spin-off. Yet they are still worried about the long-term future of Cardinal itself.
Company executives talk of a new laser-like focus that lets Cardinal Health put fresh investment into company infrastructure and pay attention to supply chain services so it can be a better middle-man between drug makers, and the pharmacies and hospitals they serve.
But the world is changing. More pharmacy benefit managers encourage by-mail interaction with drug companies, which can cut into Cardinal’s revenue. Also, analysts worry about the company’s reliance on a handful of customers. In its 2009 fiscal year, five customers accounted for more than half of the company’s revenue, including 21 percent from CVS Caremark and 23 percent from Walgreens, according to an analysis by Morningstar.
“We think consolidation among retail pharmacies and the rise of pharmacy benefit managers will gradually erode the value of Cardinal’s economic moat,” Morningstar analyst Matthew Coffina wrote earlier this month.
Mark Rosenbaum, Cardinal’s chief customer officer, isn’t worried. And neither, he says, is the rest of the company. Rosenbaum thinks the company will manage the analyst concerns, expand into the higher-growth hospital market, and continue to look for new opportunities. Below, Rosenbaum discusses the new Cardinal and its new opportunities: from potential acquisitions to medical convention centers.
Q. One reason for the CareFusion-Cardinal spin-off was to provide a laser-like focus for Cardinal. What’s an example of that focus?
A. From our perspective, it’s the opportunity to focus on what we do. It’s important to get us back to our roots. We’re a supply chain company that helps hospitals, pharmacies and ambulatory care services to be cost-efficient. Now, that is all we are. There was a time we would sacrifice one side of the business for another when we talked to a customer. The spinoff gives us a real opportunity now to focus on what we have, which is the supply chain.
This also allows us to invest in the business — in information technology, for example — and invest in things that we couldn’t before.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Q. Most analysts still worry about the long-term health of Cardinal because of its reliance on large customers and because of pharmacy consolidation.
A. We’re not really concerned about it. There are still independent pharmacies that are opening every year. We still develop a lot of programs focusing on the independent world. We’re not concerned about it in the sense of what happens if it goes away tomorrow. There is an aging population, and there is always going to be a need for our services. It’s still a business we’re very positive about.
Q. Yet, the CareFusion line was the high-growth segment of the business. Is there any high growth left?
A. From the diversity of our customers, I look at segmentation. We have growing opportunities on the hospital side — particularly in medical and surgical. These are institutions that we can go to and, because of the inventory they have to manage and the cost of that inventory, we can demonstrate our value to them. And I think that we can show a huge cost savings there. That’s a space we’re very bullish on.
Q. Cardinal is among the first tenants in the New York World Product Centre. What was the attraction?
A. It’s an area we’re intrigued by. New York is a destination and the opportunity to show product, display product and have a universal, international, go-to location for health-care executives and manufacturers. The people who asked us to participate are good friends and partners in the industry.
Q. Will you have a presence in the medical mart in Cleveland? Or the one in Tennessee?
A. We haven’t said one way or the other. I’ve met with the folks in Cleveland and had a good dialogue about it. They’re supposed to get something back to us.
We believe we have an obligation to be interested in these because of the role we play in health care, period. We do hundreds of displays a year, and there’s a selfish motivation: if we can cut that number by half, there’s a value for us.
All three locations have their own differences, so we’re interested in it but not certain exactly what ultimately will become of it.
Q. Where will you look to expand next?
A. We’re looking at opportunities to collaborate with data companies. We’re generating an inordinate amount of data. Anyone who can help us with the data we’re collecting, we are going to be interested in.
