Cardinal Health 2009 Annual Report Download - page 30

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year term. These agreements are generally only terminable prior to expiration of their term upon the following
conditions: the mutual agreement of the parties; an uncured breach of the agreement; or the occurrence of a
bankruptcy filing or similar insolvency event. Some agreements allow the manufacturer to terminate the
agreement without cause within a defined notice period. See the “Pharmaceutical supply chain business model”
discussion under “Reportable Segments—Healthcare Supply Chain Services” above for more information
regarding distribution service agreement fees.
Competition
The Company operates in markets that are highly competitive.
Healthcare Supply Chain Services Segment
In the Healthcare Supply Chain Services segment, the Company’s pharmaceutical supply chain business
faces competition in the United States from two other national, full-line wholesale distributors (McKesson
Corporation and AmerisourceBergen Corporation) and a number of regional wholesale distributors, self-
warehousing chains, direct selling manufacturers, specialty distributors and third-party logistics companies,
among others, on the basis of a value proposition that includes pricing, breadth of product lines, service offerings
and support services. In addition, the Company has experienced increased competition from a number of sources
with regard to generic pharmaceuticals, including generic telemarketers.
The pharmaceutical supply chain business has narrow profit margins and, accordingly, the Company’s
earnings depend significantly on its ability to:
• compete effectively on the pricing of pharmaceutical products;
• offer a compelling portfolio of generic pharmaceutical products, supported by low-cost sourcing
arrangements with generic pharmaceutical manufacturers;
• distribute a large volume and variety of products efficiently;
• provide quality support services;
• enter into and maintain satisfactory arrangements with pharmaceutical manufacturers so it is
compensated for the services it provides manufacturers; and
• effectively manage inventory and other working capital items.
The Healthcare Supply Chain Services segment’s nuclear pharmacies face competition from nuclear
pharmacy companies and distributors engaged in the preparation and delivery of radiopharmaceuticals for use in
nuclear imaging procedures in hospitals and clinics, including numerous national and regional networks of
radiopharmacies, numerous independent radiopharmacies and manufacturers and universities that have
established their own radiopharmacies. This segment’s nuclear pharmacies compete based upon a variety of
factors, including price, quality, customer service, raw material availability, proprietary technologies or
capabilities and responsiveness.
The Healthcare Supply Chain Services segment’s medical supply chain business faces competition both in
the United States and in Canada. Competitive factors within this business include price, order-filling accuracy
(both invoicing and product selection), breadth of product offerings, product availability, low-cost offerings for
commodity products, and service offerings. This business competes across several customer classes with many
different distributors, including Owens & Minor, Inc., Thermo Fisher Scientific Inc., PSS World Medical, Inc.,
Henry Schein, Inc. and Medline Industries, Inc., among others. This business also competes with a number of
regional medical products distributors and also with third-party logistics companies.
8