Cardinal Health 2015 Annual Report Download - page 29

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Business
Cardinal Health | Fiscal 2015 Form 10-K 28
Business
General
We are a healthcare services and products company that improves
the cost-effectiveness of health care. We help pharmacies, hospitals,
and other healthcare providers focus on patient care while reducing
costs, enhancing efficiency and improving quality. We also provide
medical products to patients in the home.
Pharmaceutical Segment
In the United States, our Pharmaceutical segment:
• distributes branded and generic pharmaceutical, over-the-counter
healthcare and consumer products through its Pharmaceutical
Distribution division to retailers (including chain and independent
drug stores and pharmacy departments of supermarkets and mass
merchandisers), hospitals and other healthcare providers. This
division:
• maintains prime vendor relationships that streamline the
purchasing process resulting in greater efficiency and lower
costs for our customers;
• renders services to pharmaceutical manufacturers including
distribution, inventory management, data reporting, new
product launch support, and contract pricing and chargeback
administration;
• provides pharmacy operations, medication therapy
management and patient outcomes services to hospitals and
other healthcare providers; and
• manufactures and repackages generic pharmaceuticals and
over-the-counter healthcare products;
• operates nuclear pharmacies and cyclotron facilities through its
Nuclear Pharmacy Services division that manufacture, prepare
and deliver radiopharmaceuticals for use in nuclear imaging and
other procedures in hospitals and physician offices; and
• distributes specialty pharmaceutical products; provides services
to pharmaceutical manufacturers, third-party payors and
healthcare providers supporting the development, marketing,
distribution and payment for specialty pharmaceutical products;
and provides specialty pharmacy services through its Specialty
Solutions division.
In China, the Pharmaceutical segment distributes branded, generic
and specialty pharmaceutical, over-the-counter healthcare and
consumer products, provides logistics, marketing and other services
and operates direct-to-patient specialty pharmacies through Cardinal
Health China.
See Note 15 of the “Notes to Consolidated Financial Statements” for
Pharmaceutical segment revenue, profit and assets for fiscal 2015,
2014 and 2013.
Pharmaceutical Distribution
Our Pharmaceutical Distribution division generates gross margin
when the aggregate selling price to our customers exceeds the
aggregate cost of products sold. Gross margin includes margin from
our generic pharmaceutical program, margin from pharmaceutical
distribution agreements with branded manufacturers and margin
from over-the-counter healthcare and consumer products. It also
includes cash discounts. Margin from our generic pharmaceutical
program includes price discounts and rebates from manufacturers
and may include price appreciation on some products. Our earnings
on generic pharmaceuticals are generally highest during the period
immediately following the initial launch of a generic product because
generic pharmaceutical selling prices are generally highest during
that period and tend to decline over time. Margin from pharmaceutical
distribution agreements with branded manufacturers refers primarily
to fees we receive for rendering a range of distribution and related
services to manufacturers and also includes benefits from
pharmaceutical price appreciation.
Sourcing Venture With CVS Health
In July 2014, we established Red Oak Sourcing, a U.S.-based generic
pharmaceutical sourcing venture with CVS Health with an initial term
of 10 years. Both companies have contributed sourcing and supply
chain expertise to the 50/50 venture and have committed to source
generic pharmaceuticals through arrangements negotiated by the
venture. Red Oak Sourcing negotiates generic pharmaceutical
supply contracts on behalf of both companies.
Specialty Pharmaceutical Products and Services
We refer to products and services offered by our Specialty Solutions
division as “specialty pharmaceutical products and services.” The
Specialty Solutions division distributes oncology, rheumatology,
urology, nephrology and other pharmaceutical products ("specialty
pharmaceutical products") and human-derived plasma products to
hospitals, dialysis clinics, physician offices and other healthcare
providers; provides consulting, patient support, logistics and other
services to pharmaceutical manufacturers, third-party payors and
healthcare providers primarily supporting the development,
marketing, distribution and payment for specialty pharmaceutical
products; and provides specialty pharmacy services. Our use of the
terminology "specialty pharmaceutical products and services" may
not be comparable to the terminology used by other industry
participants.