Cardinal Health 2013 Annual Report Download - page 3

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Pharmaceutical Segment scal 2013 highlights
Revenues for our Pharmaceutical Segment declined, as
expected, 7 percent to $91.1 billion due to the expiration of the
Express Scripts contract in early scal 2013, as well as continued
brand-to-generic pharmaceutical conversions. The segment
delivered another year of strong prot growth and margin
expansion while growing our customer base, expanding our
generic programs, and broadening our Specialty oerings to
providers, biopharma companies and payors.
Our two largest customer agreements came up for renewal in
scal 2013 — Walgreens and CVS. In March of 2013, it became
clear that we would not renew the agreement to serve
Walgreens, set to expire on August 31, 2013. We had
prepared to make the appropriate organizational and strategic
adjustments relative to this change, and our organization
executed well against these plans. We were, of course,
delighted to have renewed our supply agreement with CVS,
who remains a very important partner of ours. The resolution
of these agreements, combined with other customer renewals
and wins and with outstanding work by our Pharmaceutical
Distribution team, strengthened and diversied our customer
portfolio. We also completed the acquisition and integration
of Dik Drug, adding to our independent pharmacy base,
while we strengthened our position with hospital and
institutional pharmacies.
We expect pharmaceutical demand to increase in the coming
years. This is among the most ecient components of the
U.S. healthcare system, and from a value standpoint, this system
gets high returns in outcomes from the 10 percent
of healthcare spend that goes toward drug costs. Clearly,
the high utilization of generic drugs in our system is a
contributor. Generic drugs are assuming a greater position
in the overall pharmaceutical pie with each passing year,
now accounting for 83 percent of total U.S. prescriptions.
Our evolving product mix in our Pharmaceutical Segment
closely aligns with these trends in the pharmaceutical industry.
We’ve grown our position and our scale in generics, and we
work closely with generic companies around the world to bring
value to them and to the market. This was a strong contributor
to our overall Pharmaceutical Segment prot margin expansion
of around 30 basis points for scal 2013.
At the same time, we realize that an increasing portion of
pharmaceutical research and innovation is going into
specialty drugs, which address unique medical needs.
Further, biopharmaceutical companies are studying and
targeting smaller subsets of patients who need to be served in
an integrated and high-touch way. Supporting this, our Specialty
Solutions division has continued its steep revenue growth. Our
condence continues to grow that we have a valuable approach
to working with providers of care, biopharma companies and
payors to encourage that these drugs are delivered and used
in a patient-centered model — and one that acknowledges the
need for cost eectiveness.
As the scal year ended, it became clear that market demand
dynamics for a number of our products in the Nuclear Pharmacy
Services division would require a lowering of its future nancial
outlook and a goodwill impairment charge. That said, it’s
important to note that our nuclear division has contributed
almost $1.6 billion to the company’s prot over the past decade,
and we remain the industry leader in this business. We will
continue to work closely with our large and broad base of
customers who depend on our radiopharmaceutical products
and our expertise in this eld.
Medical Segment scal 2013 highlights
2013 was a very important year for the Medical Segment.
We took signicant steps in repositioning this business to align
with the evolving marketplace. This included completing major
investments to rebuild our IT infrastructure, reorganizing and
redeploying our assets — both human and capital — and
ramping up activities in areas of strategic priority. And we
completed the very signicant acquisition of AssuraMed,
the leading direct-to-home medical supplies distributor.
This enables us, for the rst time, to follow the patient to the
home. These eorts led to margin expansion of 25 basis points
and double-digit segment prot growth for scal 2013 for the
Medical Segment.
We have been very clear that we place a high priority on
anticipating the changes in our marketplace and on
taking the actions necessary to continue to deliver value to
hospitals, IDNs and alternate sites of care — as well as to our
manufacturer partners.
We recongured our go-to-market model and our oerings
in scal 2013 so that we can work with medical device and lab
equipment companies, and with providers to get products to
patients more eciently, and throughout the continuum of care.