07.22.14
$3.55 Billion
Key Executives:
Kieran Gallahue, Chairman & CEO
Jim Hinrichs, Chief Financial Officer
Don Abbey, Exec. VP of Quality & Regulatory Affairs
Tom Leonard, President, Medical Systems
Vivek Jain, President, Procedural Solutions
Ron Frisbie, Exec. VP, Global Manufacturing Operations
No. of Employees: 15,000
Global Headquarters: San Diego, Calif.
The medical device sector has always been challenging. Staying innovative, developing increasingly updated and complex technologies, as well as responding to tough quality and regulatory hurdles isn’t easy. Until recently, however, medical technology companies that overcame those barriers were able to sell their products at prices that made the effort worthwhile.
Today, that’s not always the case, and medical device companies operate in a different world. In the developed countries of North America and Europe, healthcare systems are under acute financial pressure. The United States’ new healthcare adds to the complexity. Healthcare providers are exploring every opportunity to increase efficiencies and reduce costs. For a company such as San Diego, Calif.-based CareFusion, which derives about 80 percent of its revenue from the United States, today’s healthcare reality makes for a more demanding environment than ever before.
Kieran T. Gallahue, CareFusion’s Chairman and CEO noted to a group of investors during the Citi 2013 Global Healthcare Conference in February last year, that the company is “focused on both reducing the cost of healthcare and improving patient safety. And as we start, literally, every single large intercompany meeting, we put the ‘and’ in that statement—which is the ability to reduce costs while at the same time improving the safety of care.”
Gallahue said his team has been engaged in the “process of reengineering” the company, “basically doing seven years’ worth of integration work over the last two years. And as a result, we’ve seen a significant expansion of our margins and at the bottom line, even though we’ve been in a reasonable slow growth market.”
Because the company does so much of its business here at home, there are “significant opportunities for expansion on a global basis,” Gallahue said.
The work toward expanded margins seems to be working. Though revenue for fiscal 2013 (ended June 30, 2013) dropped 1 percent to $3.55 billion, the company’s operating income increased 8 percent to $619 million, from $574 million in fiscal 2012.
Excluding non-recurring items, adjusted operating income rose 8 percent to $739 million. Income from continuing operations increased 8 percent to $389 million, or $1.74 per diluted share, for fiscal 2013. Adjusted income from continuing operations increased 8 percent from the prior year to $475 million, or $2.12 per diluted share. Net income was $385 million, up from $293 million in 2012.
During the year, CareFusion increased R&D expenses by 17 percent from the prior year to $192 million, reflecting the company’s continued investments in product development and innovation.
Revenue for the company’s Medical Systems segment—which includes medication management (infusion and medication dispensing technologies), supply dispensing technologies and respiratory technologies—decreased 5 percent to $2.33 billion, reflecting a difficult capital environment for hospitals, according to the company and market analysts. Segment profit increased 7 percent from the prior year to $471 million, an increase of 2 percent to $521 million on an adjusted basis, driven by strong margin improvement.
Within the Procedural Solutions segment, revenue increased 5 percent from the prior year to $1.22 billion. This business segment includes disposable products and reusable surgical instruments, including single-use skin antiseptic and other patient-preparation products, non-dedicated intravenous (IV) infusion administration sets and accessories, reusable surgical instruments and non-dedicated ventilator circuits and other disposables used for providing respiratory therapy.
The increase, according to CareFusion officials, was driven by growth across all business lines and its clinically differentiated products. Segment profit grew 40 percent to $189 million and increased 25 percent to $218 million on an adjusted basis.
“We made substantial progress in fiscal 2013 to advance our three-year strategic plan through simplification and investment initiatives that were focused on expanding our margins and making CareFusion a more efficient company,” said Gallahue. “Our strength in execution helped to expand both gross margins and operating margins to achieve double-digit earnings-per-share growth for the quarter, and a 9 percent increase for the year, all during difficult capital markets for hospitals. In addition, our fiscal 2013 operating cash flow from continuing operations of $613 million exceeded our expectations and highlights the ability of our businesses to generate strong cash flow.”
According to Gallahue, CareFusion’s dispensing business has 70 percent market share in the United States. The infusion systems business, which is just over $1 billion, has approximately 50 percent market share—so one out of every two infusion systems in the United States is a CareFusion product. For the firm’s respiratory sector, which is a far more fragmented business, CareFusion has roughly 20 percent market share and is the second-largest player in the world, company leadership claims.
During the first quarter of fiscal 2013, the company combined its respiratory diagnostics products with the Respiratory Technologies business line within the Medical Systems segment. The respiratory diagnostics products had previously been reported within the Procedural Solutions segment as “other.”
By the Buy
During fiscal 2013, CareFusion acquired Intermed Equipamento Medico Hospitalar Ltda., a privately held, respiratory technologies company based in Sao Paulo, Brazil. The move expands the company’s global reach and respiratory products portfolio. Terms of the agreement were not disclosed.
Intermed makes ventilators and respiratory care devices for the full spectrum of infant, pediatric and adult patients that are used in hospitals in Brazil and across Latin America. Brazil, which has the world’s sixth largest economy and fifth largest population, is experiencing growth in its healthcare sector through government investments, growth within the middle class and an increase in formal employment that provides greater access to healthcare services.
“The acquisition of Intermed complements our global respiratory product platform and advances our strategy to expand outside of the United States through investments that build scale and local capabilities in high-value markets,” said Gallahue. “Intermed brings a strong distributor network, local manufacturing capabilities and a new product portfolio that we believe can serve as a base for CareFusion to continue our global expansion efforts in Latin America.”
At the beginning of fiscal 2014, in November 2013, CareFusion Corp. signed a deal to buy Vital Signs division of GE Healthcare for $500 million.
With annual revenue of approximately $250 million, Vital Signs manufactures single-patient-use consumables for respiratory care and anesthesiology. The company also markets products for temperature management and patient monitoring consumables.
The acquisition expands CareFusion’s Specialty Disposables business by adding global scale and new products for anesthesiology, establishing the company as a leader in the more than $3 billion market for respiratory and anesthesia consumables.
With approximately one-third of its revenue coming from customers outside the U.S., Vital Signs will advance CareFusion’s goal to expand in international markets. The combined sales force will have deep customer and clinical expertise in major global markets. With the addition of the Vital Signs portfolio, CareFusion will become a full-line provider of more than 20,000 single-use consumables for respiratory care and anesthesiology, including circuits for oxygen and anesthesia, humidification, masks, filters, pressure infusers and temperature management products.
The Vital Signs purchase was CareFusion’s eighth acquisition since 2010.
Headquartered in Totowa, New Jersey, Vital Signs has more than 1,000 employees worldwide, including manufacturing operations in Shenzhen, China.
You Can’t Fight City Hall
In April 2013, CareFusion agreed to resolve previously disclosed government investigations related to prior sales and marketing practices for its ChloraPrep skin preparation product and its relationships with healthcare professionals.
The company expects to pay the government approximately $41 million to resolve the allegations. The company recorded the charge in the third quarter of fiscal 2013 to establish a reserve for this amount. In connection with these matters, CareFusion has entered into a non-prosecution agreement and will continue to cooperate with the government.
“We are pleased to have reached this important milestone as we continue to build our foundation for future growth,” said Gallahue at the time. “Since our spinoff, we have made significant investments to improve our quality systems, including our sales and marketing practices, and we remain committed to adhering to the highest standards.”
Like the rest of the U.S. medical device industry, CareFusion began accounting for the 2.3 percent medical device excise tax, which took effect in January 2013. In fiscal year 2013, the company paid approximately $11.4 million related to six months of the medical device tax. The company expects the impact of the tax to be approximately $20 million to $25 million in fiscal year 2014 and annually thereafter.
New Product Rollouts
Notable new product introductions for fiscal 2013 included a 3 millimeter (mm) version of its Snowden-Pencer pretzel-shaped laparoscopic retractors. The 3-millimeter shaft enables even smaller incisions and is designed for use in minimally invasive laparoscopic procedures, according to the company. The new retractor fits down a 3-millimeter trocar and is designed to promote faster recovery time, minimize scarring through smaller incisions and reduce post-operative pain and trauma for the patient. The 3- and the 5-millimeter Snowden-Pencer pretzel-shaped laparoscopic retractors allow surgeons easier access, visualization and leverage when manipulating larger organs and structures compared to other retractors.
The pretzel-shaped retractor complements the current line of Snowden-Pencer laparoscopic articulating retractors, which features angled, hooked, circular and triangular shapes. The pretzel retractors, both 3- and 5-millimeter, also can be used with the Snowden-Pencer Fast Clamp system, which holds endoscopic instruments in place during a procedure—potentially reducing the need for additional personnel in the operating room.”
CareFusion also launched an infusion dashboard to help hospital pharmacies monitor infusions across an entire hospital or health system to improve safety and efficiency.
The Alaris Infusion Viewer for Pharmacy Logistics is a Web-based dashboard that shows near real-time status of all infusions across a hospital or health system that is using the Alaris System with the Alaris Pump and/or Alaris Syringe Modules.
The Alaris Infusion Viewer for Pharmacy Logistics uses data that is wirelessly transmitted from the pumps to display if infusions are currently infusing, stopped or completed. It can also show how much time remains and the amount of medication volume that is left to be infused into the patient. Additionally, the new system can display which pumps have a current Guardrails soft alert violation, to streamline alert reviews. Guardrails alerts are triggered by software in the pump when an infusion parameter is out of the normal range for that specific hospital or patient care unit. Pharmacy Logistics is the first application released on the Alaris Infusion Viewer technology platform.
“The Alaris Infusion Viewer for Pharmacy Logistics is an example of how CareFusion is innovating beyond device hardware to provide valuable information that can improve safety and workflow efficiency,” said J.C. Kyrillos, senior vice president and general manager of infusion for CareFusion. “Now, hospital pharmacists don’t have to be in the dark about infused medications after they leave the pharmacy, and they can provide near real-time support and expertise back to the patient bedside where the infusions are occurring.”
Key Executives:
Kieran Gallahue, Chairman & CEO
Jim Hinrichs, Chief Financial Officer
Don Abbey, Exec. VP of Quality & Regulatory Affairs
Tom Leonard, President, Medical Systems
Vivek Jain, President, Procedural Solutions
Ron Frisbie, Exec. VP, Global Manufacturing Operations
No. of Employees: 15,000
Global Headquarters: San Diego, Calif.
The medical device sector has always been challenging. Staying innovative, developing increasingly updated and complex technologies, as well as responding to tough quality and regulatory hurdles isn’t easy. Until recently, however, medical technology companies that overcame those barriers were able to sell their products at prices that made the effort worthwhile.
Today, that’s not always the case, and medical device companies operate in a different world. In the developed countries of North America and Europe, healthcare systems are under acute financial pressure. The United States’ new healthcare adds to the complexity. Healthcare providers are exploring every opportunity to increase efficiencies and reduce costs. For a company such as San Diego, Calif.-based CareFusion, which derives about 80 percent of its revenue from the United States, today’s healthcare reality makes for a more demanding environment than ever before.
Kieran T. Gallahue, CareFusion’s Chairman and CEO noted to a group of investors during the Citi 2013 Global Healthcare Conference in February last year, that the company is “focused on both reducing the cost of healthcare and improving patient safety. And as we start, literally, every single large intercompany meeting, we put the ‘and’ in that statement—which is the ability to reduce costs while at the same time improving the safety of care.”
Gallahue said his team has been engaged in the “process of reengineering” the company, “basically doing seven years’ worth of integration work over the last two years. And as a result, we’ve seen a significant expansion of our margins and at the bottom line, even though we’ve been in a reasonable slow growth market.”
Because the company does so much of its business here at home, there are “significant opportunities for expansion on a global basis,” Gallahue said.
The work toward expanded margins seems to be working. Though revenue for fiscal 2013 (ended June 30, 2013) dropped 1 percent to $3.55 billion, the company’s operating income increased 8 percent to $619 million, from $574 million in fiscal 2012.
Excluding non-recurring items, adjusted operating income rose 8 percent to $739 million. Income from continuing operations increased 8 percent to $389 million, or $1.74 per diluted share, for fiscal 2013. Adjusted income from continuing operations increased 8 percent from the prior year to $475 million, or $2.12 per diluted share. Net income was $385 million, up from $293 million in 2012.
During the year, CareFusion increased R&D expenses by 17 percent from the prior year to $192 million, reflecting the company’s continued investments in product development and innovation.
Revenue for the company’s Medical Systems segment—which includes medication management (infusion and medication dispensing technologies), supply dispensing technologies and respiratory technologies—decreased 5 percent to $2.33 billion, reflecting a difficult capital environment for hospitals, according to the company and market analysts. Segment profit increased 7 percent from the prior year to $471 million, an increase of 2 percent to $521 million on an adjusted basis, driven by strong margin improvement.
Within the Procedural Solutions segment, revenue increased 5 percent from the prior year to $1.22 billion. This business segment includes disposable products and reusable surgical instruments, including single-use skin antiseptic and other patient-preparation products, non-dedicated intravenous (IV) infusion administration sets and accessories, reusable surgical instruments and non-dedicated ventilator circuits and other disposables used for providing respiratory therapy.
The increase, according to CareFusion officials, was driven by growth across all business lines and its clinically differentiated products. Segment profit grew 40 percent to $189 million and increased 25 percent to $218 million on an adjusted basis.
“We made substantial progress in fiscal 2013 to advance our three-year strategic plan through simplification and investment initiatives that were focused on expanding our margins and making CareFusion a more efficient company,” said Gallahue. “Our strength in execution helped to expand both gross margins and operating margins to achieve double-digit earnings-per-share growth for the quarter, and a 9 percent increase for the year, all during difficult capital markets for hospitals. In addition, our fiscal 2013 operating cash flow from continuing operations of $613 million exceeded our expectations and highlights the ability of our businesses to generate strong cash flow.”
According to Gallahue, CareFusion’s dispensing business has 70 percent market share in the United States. The infusion systems business, which is just over $1 billion, has approximately 50 percent market share—so one out of every two infusion systems in the United States is a CareFusion product. For the firm’s respiratory sector, which is a far more fragmented business, CareFusion has roughly 20 percent market share and is the second-largest player in the world, company leadership claims.
During the first quarter of fiscal 2013, the company combined its respiratory diagnostics products with the Respiratory Technologies business line within the Medical Systems segment. The respiratory diagnostics products had previously been reported within the Procedural Solutions segment as “other.”
By the Buy
During fiscal 2013, CareFusion acquired Intermed Equipamento Medico Hospitalar Ltda., a privately held, respiratory technologies company based in Sao Paulo, Brazil. The move expands the company’s global reach and respiratory products portfolio. Terms of the agreement were not disclosed.
Intermed makes ventilators and respiratory care devices for the full spectrum of infant, pediatric and adult patients that are used in hospitals in Brazil and across Latin America. Brazil, which has the world’s sixth largest economy and fifth largest population, is experiencing growth in its healthcare sector through government investments, growth within the middle class and an increase in formal employment that provides greater access to healthcare services.
“The acquisition of Intermed complements our global respiratory product platform and advances our strategy to expand outside of the United States through investments that build scale and local capabilities in high-value markets,” said Gallahue. “Intermed brings a strong distributor network, local manufacturing capabilities and a new product portfolio that we believe can serve as a base for CareFusion to continue our global expansion efforts in Latin America.”
At the beginning of fiscal 2014, in November 2013, CareFusion Corp. signed a deal to buy Vital Signs division of GE Healthcare for $500 million.
With annual revenue of approximately $250 million, Vital Signs manufactures single-patient-use consumables for respiratory care and anesthesiology. The company also markets products for temperature management and patient monitoring consumables.
The acquisition expands CareFusion’s Specialty Disposables business by adding global scale and new products for anesthesiology, establishing the company as a leader in the more than $3 billion market for respiratory and anesthesia consumables.
With approximately one-third of its revenue coming from customers outside the U.S., Vital Signs will advance CareFusion’s goal to expand in international markets. The combined sales force will have deep customer and clinical expertise in major global markets. With the addition of the Vital Signs portfolio, CareFusion will become a full-line provider of more than 20,000 single-use consumables for respiratory care and anesthesiology, including circuits for oxygen and anesthesia, humidification, masks, filters, pressure infusers and temperature management products.
The Vital Signs purchase was CareFusion’s eighth acquisition since 2010.
Headquartered in Totowa, New Jersey, Vital Signs has more than 1,000 employees worldwide, including manufacturing operations in Shenzhen, China.
You Can’t Fight City Hall
In April 2013, CareFusion agreed to resolve previously disclosed government investigations related to prior sales and marketing practices for its ChloraPrep skin preparation product and its relationships with healthcare professionals.
The company expects to pay the government approximately $41 million to resolve the allegations. The company recorded the charge in the third quarter of fiscal 2013 to establish a reserve for this amount. In connection with these matters, CareFusion has entered into a non-prosecution agreement and will continue to cooperate with the government.
“We are pleased to have reached this important milestone as we continue to build our foundation for future growth,” said Gallahue at the time. “Since our spinoff, we have made significant investments to improve our quality systems, including our sales and marketing practices, and we remain committed to adhering to the highest standards.”
Like the rest of the U.S. medical device industry, CareFusion began accounting for the 2.3 percent medical device excise tax, which took effect in January 2013. In fiscal year 2013, the company paid approximately $11.4 million related to six months of the medical device tax. The company expects the impact of the tax to be approximately $20 million to $25 million in fiscal year 2014 and annually thereafter.
New Product Rollouts
Notable new product introductions for fiscal 2013 included a 3 millimeter (mm) version of its Snowden-Pencer pretzel-shaped laparoscopic retractors. The 3-millimeter shaft enables even smaller incisions and is designed for use in minimally invasive laparoscopic procedures, according to the company. The new retractor fits down a 3-millimeter trocar and is designed to promote faster recovery time, minimize scarring through smaller incisions and reduce post-operative pain and trauma for the patient. The 3- and the 5-millimeter Snowden-Pencer pretzel-shaped laparoscopic retractors allow surgeons easier access, visualization and leverage when manipulating larger organs and structures compared to other retractors.
The pretzel-shaped retractor complements the current line of Snowden-Pencer laparoscopic articulating retractors, which features angled, hooked, circular and triangular shapes. The pretzel retractors, both 3- and 5-millimeter, also can be used with the Snowden-Pencer Fast Clamp system, which holds endoscopic instruments in place during a procedure—potentially reducing the need for additional personnel in the operating room.”
CareFusion also launched an infusion dashboard to help hospital pharmacies monitor infusions across an entire hospital or health system to improve safety and efficiency.
The Alaris Infusion Viewer for Pharmacy Logistics is a Web-based dashboard that shows near real-time status of all infusions across a hospital or health system that is using the Alaris System with the Alaris Pump and/or Alaris Syringe Modules.
The Alaris Infusion Viewer for Pharmacy Logistics uses data that is wirelessly transmitted from the pumps to display if infusions are currently infusing, stopped or completed. It can also show how much time remains and the amount of medication volume that is left to be infused into the patient. Additionally, the new system can display which pumps have a current Guardrails soft alert violation, to streamline alert reviews. Guardrails alerts are triggered by software in the pump when an infusion parameter is out of the normal range for that specific hospital or patient care unit. Pharmacy Logistics is the first application released on the Alaris Infusion Viewer technology platform.
“The Alaris Infusion Viewer for Pharmacy Logistics is an example of how CareFusion is innovating beyond device hardware to provide valuable information that can improve safety and workflow efficiency,” said J.C. Kyrillos, senior vice president and general manager of infusion for CareFusion. “Now, hospital pharmacists don’t have to be in the dark about infused medications after they leave the pharmacy, and they can provide near real-time support and expertise back to the patient bedside where the infusions are occurring.”