Mike Kaufmann, CEO
Jon Giacomin, CEO, Medical Segment
Jorge M. Gomez, CFO
Debbie Weitzman, President, U.S. Pharmaceutical Distribution
Patrick Holt, President, Cordis
Steve Mason, President, Cardinal Health at Home
Steve Blazejewski, President, Global Commercial Solutions
Craig Cowman, Exec. VP, Global Sourcing
Joseph DePinto, President, Cardinal Health Specialty Solutions
Michele Holcomb, Exec. VP, Strategy and Corporate Development
NO. OF EMPLOYEES: 49,800 (total)
GLOBAL HEADQUARTERS: Dublin, Ohio
The rumors swirled. Many saw it unlikely that Medtronic would hold onto the Patient Care product portfolio of former MPO Top 30 company list member, Covidien—the acquisition of which was announced in June 2014 for more than $42 billion. When and to whom the business would be divested, however, was never clear. A Reuters exclusive in early April 2017 had sources claim the deal was going down between Medtronic and Cardinal Health, but nothing was officially announced at that time. Finally, all the speculation came to an end approximately two weeks later when it was made known the unit would indeed be purchased by Cardinal Health for $6.1 billion.
The full purchase was for Medtronic’s Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses, parts of the firm’s Patient Monitoring & Recovery division of its Minimally Invasive Therapies Group. In total, the three businesses consisted of 23 product categories across multiple market settings. Brands involved in the transaction included Curity, Kendall, Dover, Argyle, and Kangaroo, most of which are used in the majority of U.S. hospitals. Combined, the divested assets accounted for approximately $2.4 billion in revenue over the prior four reported quarters for Medtronic. Now, it was joining Cardinal Health, a company whose medical device segment was dwarfed by its pharmaceutical unit by almost 10 times.
“We are thrilled about today’s announcement, as this well-established product line is complementary to our medical consumables business and fits naturally into our customer offering. For this reason, this product portfolio has been on our radar for many years,” said George S. Barrett, then Cardinal Health chairman and CEO. “We distribute some of these products today and have been collaborative partners with the leadership of this business. Given the current trends in healthcare, including aging demographics and a focus on post-acute care, this industry-leading portfolio will help us further expand our scope in the operating room, in long-term care facilities, and in home healthcare, reaching customers across the entire continuum of care.”
The transaction also saw almost 10,000 former Medtronic employees join Cardinal Health along with the expansive product portfolio. In incorporating the new lines into its catalog, the company saw its total product SKUs increase from nearly 12,000 in 850 categories to almost 21,000 product SKUs in 1,200 categories. The growth of the company is further illustrated when considering that only five years earlier, those numbers were closer to 4,800 SKUs in 470 categories. More specifically, the newly acquired products included incontinence, wound care, enteral feeding, urology, operating room supply, electrode and needle, syringe, and sharps disposal lines. Those offerings join Cardinal Health’s preexisting goods, including cardiovascular and endovascular products; wound care products; single-use surgical drapes, gowns, and apparel; exam and surgical gloves; and fluid suction and collection systems.
“This is a positive transaction for all involved—Medtronic, Cardinal Health, and our respective shareholders and employees—who we believe will all thrive under this change in ownership,” Omar Ishrak, Medtronic’s chairman and CEO, declared at the time of the announcement of the deal. “Ultimately, we came to the conclusion that these products—while truly meaningful to patients in need—are best suited under ownership that can provide the investment and focus that these businesses require.”
ANALYST INSIGHTS: Cardinal has been adept at acquisitions and divestitures over the past several years, continuing to grow their status on the performance list. As they have continued to expand globally, their market share continues to grow in an already crowded field.
—Marissa K. Fayer, CEO and Founder, Health Equity for Women and HERHealthEQ
The transaction wasn’t officially completed by the close of Cardinal Health’s 2017 fiscal year, but rather one month later at the end of July. It was expected at that time the integration work and transitions would be completed over the next 18 months.
The new businesses were joining an already well-established array of products that were well known throughout hospitals, doctors’ offices, and healthcare facilities. As previously noted, while the medical segment of Cardinal Health represents a small fraction of the firm’s overall revenue, it’s still a significant presence within the medical device industry space. In its 2017 fiscal year—which ran from the first day of July 2016 to the last day of June 2017—the overall company saw $130 billion in total revenue, an increase of 7 percent over prior year. Of that, the pharmaceutical segment contributed the lion’s share at more than $116 million, which mirrored the company’s growth at 7 percent over the previous fiscal period. The medical segment, however, enjoyed near double digit growth, coming in at a 9 percent increase over 2016’s fiscal year. That translated to $13.5 billion in total revenue for the segment. Cardinal Health points to sales growth from new and existing customers as well as $212 million in contributions from acquisitions.
Undoubtedly, the company was also looking to gain growth from new distribution deals announced throughout its 2017 fiscal year—the focus of which was on an acquisition that took place in 2015. At that time, Cardinal Health had paid almost $2 billion for Johnson & Johnson’s Cordis unit. With what seemed to be a strategic focus on a number of international regions (with a heavy emphasis on Asia), the distribution agreements primarily focused on the former J&J entity, but did include other portions of the firm’s medical segment.
For example, in October 2016, it was announced that the company would bring powder-free gloves to Hong Kong, while further penetrating the disposable drapes and gowns segment as part of its expansion in Asia.
“There is a tremendous demand for powder-free gloves in Asia,” said Carl Hall, vice president/managing director of Commercialization, Asia-Pacific at Cardinal Health. “In this region, aside from Japan, Australia, New Zealand, and Hong Kong, approximately 70 percent of users are still using powdered gloves. Our goal is to help Asia move to a powder-free environment in order to improve the safety and health of patients and clinicians.”
ANALYST INSIGHTS: Almost one year after the official close of its $6.1 billion acquisition of the legacy Covidien (MDT) Patient Recovery Business (Patient care, DVT, and Nutritional Insufficiency), Cardinal Health is looking to make its next move deeper into the device world, while the jury is still out on the $150 million of assumed synergies on the Covidien purchase.
—Mark Bonifacio, Founder and President, Bonifacio Consulting Services
The company was also broadening its product lines within the region with a focus on single-use surgery products to enable better infection control methods. Providing a disposable option, explained Hall, gives healthcare providers a more economical, less pollutant, and safer solution that fulfills their needs.
Later that same month, Cardinal Health announced new and expanded distribution deals involving a third party that ultimately bolstered the Cordis business offering. The agreements, which added coronary stents and percutaneous transluminal coronary angioplasty (PTCA) balloon catheters, expanded Cordis’ portfolio of products that support the treatment of patients undergoing percutaneous coronary intervention.
Announced in conjunction with the 28th annual Transcatheter Cardiovascular Therapeutics scientific symposium of the Cardiovascular Research Foundation, details illustrate the company’s continued focus on the Asian market, but also demonstrate opportunities realized in North America, for example:
- An expansion of an existing distribution agreement with Biosensors. The new arrangement enabled Cordis to be the exclusive distributor for Biosensors’ coronary interventional products in Japan. This put Cordis in a position to distribute Biosensors’ coronary stent portfolio in approximately 27 countries in Europe, the Middle East, and Africa (EMEA), in addition to Japan, Australia, and New Zealand (at the time of the announcement).
- A distribution agreement was announced with Kaneka, enabling Cordis to distribute the company’s PTCA balloon catheters in EMEA, as well as select countries in Asia Pacific and Latin America (LATAM). In Japan, Korea, Australia, and New Zealand, Cordis would be able to sell versions of Kaneka’s PTCA balloon catheters under the names of NEON and NEON NC. In China, Cordis was declared to be the sole distributor of Ikazuchi Rev and Fortis II, under Kaneka’s brand. Cordis would also begin selling the Ikazuchi Zero and Raiden 3 PTCA balloons under the Kaneka brand name pending Kaneka receiving CE mark and other regulatory clearances in EMEA, China, and select LATAM countries.
- A distribution agreement with Meril that enabled Cordis to sell Meril’s MOZEC and MOZEC NC Rx PTCA balloon dilatation catheters in the United States and Canada.
ANALYST INSIGHTS: Now that the $6 billion acquisition of the Covidien portfolio (from MDT) is complete, Cardinal continues to look to growth acquisition targets that will also help its bottom line performance. Cardinal is under pressure on margins in their Pharma business and needs value-added help from new portfolio additions.
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
At the end of March 2017, Cardinal Health doubled down on expanding the international market opportunity for its Cordis unit with two additional deals, both of which expanded the company’s presence in China:
- An agreement with Brosmed that enabled Cordis to exclusively commercialize two of Brosmed’s PTCA balloon catheters in China. The deal centered around Brosmed’s Artimes, a pre-dilation semi-compliance PTCA balloon, and Apollo, a post-dilation high pressure PTCA balloon, both of which were manufactured in the Guangdong Province in China and had already obtained approval from the China Food and Drug Administration.
- An agreement that permitted Cordis to commercialize Kaneka’s portfolio of semi- and non-compliant workhorse PTCA balloon catheters in China. The products have a low-entry profile and hydrophilic coating that facilitate access to calcified lesions or lesions that require higher crossability.