Cardinal Health 2008 Annual Report Download - page 27

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• product movement, inventory and management reports; and
• consultation on store operations and merchandising.
The Company’s proprietary software systems feature customized databases specially designed to help its
pharmaceutical supply chain customers order more efficiently, contain costs and monitor their purchases.
In addition, this segment’s pharmaceutical supply chain business provides services to branded
pharmaceutical manufacturers, including distribution services, inventory management services, data/reporting
services, new product launch support and contract and chargeback administration services. This segment also
operates a pharmaceutical repackaging and distribution program that provides repackaged pharmaceutical
products to its customers.
This segment operates centralized nuclear pharmacies that prepare and deliver radiopharmaceuticals for use
in nuclear imaging and other procedures in hospitals and clinics. This segment also provides third-party logistics
support services, distributes therapeutic plasma to hospitals, clinics and other providers located in the United
States and manufactures and markets generic pharmaceutical products for sale to hospitals, clinics and
pharmacies in the United Kingdom. This segment also operates a specialty pharmacy that provides prescription
fulfillment and clinical care services directly to individual patients requiring highly intensive therapies.
Through this segment, the Company is a franchisor of apothecary-style retail pharmacies through its
Medicine Shoppe International, Inc. and Medicap Pharmacies Incorporated (“Medicap,” and together with
Medicine Shoppe International, Inc., “Medicine Shoppe”) franchise systems in the United States and abroad.
Medicine Shoppe also owns and operates a limited number of retail pharmacy locations.
Pharmaceutical supply chain business model. This segment’s pharmaceutical supply chain business
maintains prime vendor relationships with its customers that streamline the purchasing process by reducing the
number of vendors. Using a prime vendor offers customers logistical savings and fosters partnerships between
the customers and distributor that result in greater efficiency and lower costs.
Five primary factors influence the pharmaceutical supply chain business’ gross margin for pharmaceutical
products: customer discounts, manufacturer cash discounts, distribution service agreement fees, pharmaceutical
price appreciation and manufacturer rebates and incentives.
In general, the Company sells pharmaceutical products to its customers at a contract price that is based on
the manufacturer’s published price or another designated price at the time of sale (in either case, the
“manufacturer’s designated price”). For branded pharmaceuticals, the contract price is determined by applying a
discount to the manufacturer’s designated price. The term “customer discounts” refers to the difference in dollars
between the sales price to customers for pharmaceutical products (net of discounts, rebates and incentives given
to customers) and the manufacturer’s designated price for those pharmaceutical products sold in a particular
period.
The term “manufacturer cash discounts” refers to the aggregate amount in dollars of cash incentives the
Company receives from manufacturers for prompt payment of invoices. Manufacturer cash discounts are
typically a fixed percentage of purchases from the manufacturer.
The term “distribution service agreement fees” refers to aggregate fees paid by manufacturers for services
provided by the Company related to the distribution of the manufacturers’ products. The Company’s
fee-for-service arrangements are reflected in written distribution service agreements, and may be a fee or a fee
plus pharmaceutical price appreciation (as described below). In certain instances, the Company must achieve
certain performance criteria to receive the maximum fees under the agreement. The fee is typically a fixed
percentage of either the Company’s purchases from the manufacturer or the Company’s sales of the
manufacturer’s products to its customers.
3