Cardinal Health 2015 Annual Report Download - page 31

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Business
Cardinal Health | Fiscal 2015 Form 10-K 30
Customers
Our largest customer, CVS Health, accounted for 27 percent of our
fiscal 2015 revenue. In the aggregate, our five largest customers,
including CVS Health, accounted for 41 percent of our fiscal 2015
revenue.
In addition, we have agreements with group purchasing
organizations (“GPOs”) that act as agents to negotiate vendor
contracts on behalf of their members. Our two largest GPO
relationships in terms of member revenue are with Novation, LLC
and Premier Purchasing Partners, L.P. Sales to members of these
two GPOs, under numerous contracts across all of our businesses,
collectively accounted for 18 percent of our revenue in fiscal 2015.
Suppliers
We rely on many different suppliers. Products obtained from our five
largest suppliers accounted for an aggregate of 22 percent of our
revenue during fiscal 2015, but no single supplier’s products
accounted for more than 7 percent of revenue.
The Pharmaceutical Distribution division is a party to distribution
service agreements with most pharmaceutical manufacturers. These
agreements have terms ranging from one year to five years. Most
provide for an automatic renewal feature of one year. Some
agreements allow either party, and in some instances, only the
manufacturer to terminate the agreement without cause subject to a
defined notice period.
Competition
We operate in a highly competitive environment in the distribution of
pharmaceuticals and related healthcare services. We also operate
in a highly competitive environment in the development,
manufacturing and distribution of medical and surgical products. We
compete on many levels, including price, service offerings, support
services and breadth of product lines.
In the Pharmaceutical segment, we compete with wholesale
distributors with national reach (including McKesson Corporation and
AmerisourceBergen Corporation), regional wholesale distributors,
self-warehousing chains, specialty distributors, third-party logistics
companies, companies that provide services supporting the
development, marketing, distribution and payment for specialty
pharmaceutical products and nuclear pharmacies, among others. In
addition, the Pharmaceutical segment has experienced competition
from a number of organizations offering generic pharmaceuticals,
including telemarketers. We also compete with manufacturers that
sell all or part of their product offerings directly.
In the Medical segment, we compete with many different national
medical product distributors, including Owens & Minor, Inc.,
McKesson Corporation and Medline Industries, Inc. We also compete
with regional medical product distributors and companies that
distribute medical products to patients in the home as well as third-
party logistics companies. In addition, we compete with
manufacturers that sell all or part of their product offerings directly.
Competitors of the Medical segment’s manufacturing and procedural
kit businesses include diversified healthcare companies as well as
companies that are more focused on specific product categories.
Employees
At June 30, 2015, we had approximately 24,400 employees in the
United States and approximately 10,100 employees outside of the United States. Overall, we consider our employee relations to be
good.
Intellectual Property
We rely on a combination of trade secret, patent, copyright and
trademark laws, nondisclosure and other contractual provisions, and
technical measures to protect our products, services and intangible
assets. We hold patents relating to some medical and surgical
products and to distribution of our nuclear pharmacy products and
service offerings. We also operate under licenses for certain
proprietary technologies, and in certain instances we license our
technologies to third parties.
We believe that we have taken all necessary steps to protect our
proprietary rights, but no assurance can be given that we will be able
to successfully enforce or protect our rights in the event that they are
infringed upon by a third party. While all of these proprietary rights
are important to our operations, we do not consider any particular
patent, trademark, license, franchise or concession to be material to
our overall business.