Henry Schein 2012 Annual Report Download - page 14
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Due in part to the inability of office-based health care practitioners to store and manage large quantities of
supplies in their offices, the distribution of health care supplies and small equipment to office-based health care
practitioners has been characterized by frequent, small quantity orders, and a need for rapid, reliable and
substantially complete order fulfillment. The purchasing decisions within an office-based health care practice are
typically made by the practitioner or an administrative assistant. Supplies and small equipment are generally
purchased from more than one distributor, with one generally serving as the primary supplier.
The health care products distribution industry continues to experience growth due to the aging population,
increased health care awareness, the proliferation of medical technology and testing, new pharmacology treatments
and expanded third-party insurance coverage, partially offset by the affects of increased unemployment on
insurance coverage. In addition, the physician market continues to benefit from the shift of procedures and
diagnostic testing from acute care settings to alternate-care sites, particularly physicians’ offices.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial and marketing resources, seeking to combine with larger companies that can provide
growth opportunities. This consolidation also may continue to result in distributors seeking to acquire companies
that can enhance their current product and service offerings or provide opportunities to serve a broader customer
base.
In recent years, the health care industry has increasingly focused on cost containment. This trend has benefited
distributors capable of providing a broad array of products and services at low prices. It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors capable of providing
specialized management information support. We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.
Competition
The distribution and manufacture of health care supplies and equipment is highly competitive. Many of the
health care distribution products we sell are available to our customers from a number of suppliers. In addition, our
competitors could obtain exclusive rights from manufacturers to market particular products. Manufacturers also
could seek to sell directly to end-users, and thereby eliminate or reduce our role and that of other distributors.
In North America, we compete with other distributors, as well as several manufacturers, of dental, medical and
animal health products, primarily on the basis of price, breadth of product line, customer service and value-added
products and services. In the sale of our dental products, our primary competitors are the Patterson Dental division
of Patterson Companies, Inc. and Benco Dental Supply Company. In addition, we compete against a number of
other distributors that operate on a national, regional and local level. Our primary competitors in the sale of
medical products are McKesson Corp., PSS World Medical, Inc. and Cardinal Health, Inc., which are national
distributors. In the animal health market, our primary competitors are MWI Veterinary Supply, Inc. and the
Patterson Veterinary Supply division of Patterson Companies, Inc. We also compete against a number of regional
and local medical and animal health distributors, as well as a number of manufacturers that sell directly to
physicians and veterinarians. With regard to our dental practice management software, we compete against
numerous companies, including Carestream Health, Inc. and the Patterson Dental division of Patterson Companies,
Inc. The medical practice management and electronic medical records market is very fragmented and we compete
with numerous companies such as NextGen Healthcare Information Systems, Inc., eClinicalWorks, Allscripts, LLC
and athenahealth, Inc. In the animal health practice management market, our primary competitors are IDEXX
Laboratories, Inc. and the Patterson Veterinary Supply division of Patterson Companies, Inc.
We also face significant competition internationally, where we compete on the basis of price and customer
service against several large competitors, including the GACD Group, Pluradent AG & Co., Planmeca Oy, Arseus
NV, Billericay Dental Supply Co. Ltd., National Veterinary Services and Alcyon SA, as well as a large number of
dental, medical and animal health product distributors and manufacturers in Australia, Austria, Belgium, China, the
Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Luxembourg, the Netherlands, New
Zealand, Portugal, Slovakia, Spain, Switzerland, Thailand, Turkey and the United Kingdom.
Significant price reductions by our competitors could result in a similar reduction in our prices. Any of these
competitive pressures may materially adversely affect our operating results.