Cardinal Health 2009 Annual Report Download - page 38

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Substantial defaults or a material reduction in purchases of the Company’s products by large customers
could have an adverse effect on the Company’s results of operations and financial condition.
In recent years, a significant portion of the Company’s revenue growth has been derived from a limited
number of large customers. The Company’s largest customers, CVS and Walgreens, accounted for approximately
21% and 23%, respectively, of the Company’s revenue for fiscal 2009. The aggregate of the Company’s five
largest customers, including CVS and Walgreens, accounted for approximately 54% of the Company’s revenue
for fiscal 2009. In addition, CVS and Walgreens accounted for 19% and 33%, respectively, of the Company’s
gross trade receivable balance at June 30, 2009. As a result, the Company’s sales and credit concentration is
significant. Any defaults in payment or a material reduction in purchases from these or other large customers
could have an adverse effect on the Company’s results of operations and financial condition.
In addition, certain of the Company’s businesses have entered into agreements with GPOs. Approximately
16% of the Company’s revenue for fiscal 2009 was derived from GPO members through the contractual
arrangements established with Novation and Premier. Generally, compliance by GPO members with GPO vendor
selections is voluntary. Still, the loss of an agreement with a GPO could have an adverse effect on the Company’s
results of operations and financial condition because the Company could lose customers or may need to reduce
prices as a result.
The Company may face significant uncertainty in the industry due to government healthcare reform.
Political, economic and regulatory influences are subjecting the healthcare industry to fundamental changes.
The Company anticipates that the current administration, Congress and certain state legislatures will continue to
review and assess alternative healthcare delivery systems and payment methods with an objective of ultimately
reducing healthcare costs and expanding access. Public debate of these issues will likely continue in the future.
The uncertainties regarding the ultimate features of reform initiatives and their enactment and implementation
may have an adverse effect on the Company’s customers’ purchasing decisions regarding its products and
services. At this time, the Company cannot predict which, if any, healthcare reform proposals will be adopted,
when they may be adopted or what impact they may have on the Company.
Changes in the U.S. healthcare environment could adversely affect the Company’s results of operations and
financial condition.
The Company’s products and services are primarily intended to function within the current structure of the
healthcare industry in the United States. In recent years, the healthcare industry has changed significantly in an
effort to reduce costs. These changes include increased use of managed care, cuts in Medicare and Medicaid
reimbursement levels, consolidation of pharmaceutical and medical-surgical supply distributors and medical
product manufacturers, pharmaceutical manufacturers, the consolidation of healthcare providers and pharmacy
chains, and the development of large, sophisticated purchasing groups.
The Company expects the healthcare industry to continue to change significantly in the future. Some of
these changes, such as adverse changes in government funding of healthcare services, legislation or regulatory
requirements relating to matters including privacy of patient information, or changes in the delivery or pricing of
or reimbursement for pharmaceuticals, medical devices, healthcare services or mandated benefits, may cause
healthcare industry participants to reduce the amount of the Company’s products and services they purchase or
the price they are willing to pay for such products and services. Changes in the healthcare industry’s or in any of
the Company’s suppliers’ pricing, reimbursement, selling, inventory, distribution or supply policies or practices,
or regulatory and quality requirements, or changes in the Company’s customer mix, could also significantly
reduce the Company’s revenue, increase the Company’s costs or otherwise significantly affect its results of
operations.
Generic pharmaceuticals. The use of generic pharmaceuticals has increased over the past several years, and
healthcare and public policy trends indicate that the use of generic pharmaceuticals will continue to increase over
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