George S. Barrett, Chairman and CEO
Michael C. Kaufmann, Chief Financial Officer
Donald M. Casey Jr., CEO, Medical Segment
Jon L. Giacomin, CEO, Pharmaceutical Segment
Meghan M. FitzGerald, Exec. VP, Strategy and Health Policy
Stephen T. Falk, Exec. VP, General Counsel and Corporate Secretary
Craig S. Morford, Chief Legal and Compliance Officer
NUMBER OF EMPLOYEES: 34,500 (total)
GLOBAL HEADQUARTERS: Dublin, Ohio
The melody is lost on George Barrett.
A former singer, Barrett can’t help but read (or, more accurately, hear) the “inner lines” of a musical composition. He’ll intuitively tune out violins to follow the viola, or pass over woodwinds to find the countermelody in an oboe, for example.
“When musicians listen to a piece of music, they hear the inner lines...” Barrett told a Columbus Dispatch reporter several years ago. “If you only hear the obvious, you’re often missing something quite important. You have to read between the lines and figure out the story behind the story.”
Barrett’s own inside story is quite unconventional; a star athlete in both high school and college, he once dreamed of playing professional soccer. But a serious back injury sidelined his recreational aspirations, prompting him to pursue a career in music. He studied opera at the prestigious Metropolitan Opera House in Manhattan, although he never intended to become a famous tenor. “I went because—well, how do you not if you’re invited?” he explained to The Dispatch.
Barrett experienced some success with non-operatic music, recording commercial jingles and performing his own (original) songs at renowned Greenwich Village clubs like the Bitter End and Folk City. He eventually caught the eye of a California talent agency, which offered him a recording contract.
Barrett might have switched coasts too, if he was single and more of a night owl. “I loved music, but I didn’t like the life of a musician. I wanted to sleep at night and be awake during the day,” he said. “I didn’t like the self-promotion required. I just felt in the pit of my stomach, this wasn’t the life I wanted.”
The life Barrett ultimately chose promised neither fame nor fortune, but the former professional crooner nevertheless attained both (to some extent) through hard work and a bit of serendipity. He began working at a dermatological startup launched by his future father-in-law, eventually becoming CEO. After that company was purchased, he landed a position at Teva North America and was later named its chief executive.
In 2008, he joined Cardinal Health as vice chairman and CEO of the firm’s healthcare supply chain services division. The following year, he was named CEO, replacing R. Kerry Clark.
“It’s one of those strange things,” Barrett said of his vocational odyssey. “It was complete serendipity.”
Cardinal Health’s inside story is not as serendipitous or as colorful as Barrett’s, but it’s still a tale worth telling. Under its musician-turned business mogul’s leadership, the company has begun transforming itself into a 21st-century medical solutions provider, expanding its core business of bulk drug distribution to encompass medical supplies, diagnostic technology, interventional cardiology, and home healthcare. It also has supplemented its medication therapy management services for pharmacists, and has grown deep roots in China, where the firm generated more than $3 billion in fiscal 2015 revenue.
The company’s strong Middle Kingdom performance typified its overall results in FY15. Total revenue rebounded above $100 billion, and non-GAAP (generally accepted accounting principles) operating earnings experienced the largest gain in company history, growing 14.6 percent year-over-year to $2.2 billion. In addition, the company generated $2.5 billion in operating cash flow, and returned $1.5 billion to shareholders through expanded dividends and share repurchases.
“Cardinal Health had a hell of a year in fiscal 2015,” Barrett told investors during an earnings conference call last summer. “Our organization was able to generate this financial performance while making sound and strategic moves in drug distribution, generics, specialty, small office practices, consumables, physician preference items, all putting us in a forward position to sustain meaningful and measurable growth into the future. So again, a hell of a year.”
Perhaps most impressive about Cardinal Health’s fiscal year performance (ended June 30, 2015) was its notable achievements in the absence of its second-largest customer. The company suffered a significant setback three years ago when Walgreen Co. and European drug giant Alliance Boots GmbH agreed to purchase their branded and generic pharmaceutical products from rival AmerisourceBergen Corp. To offset the loss, Cardinal Health formed a joint venture with CVS Caremark Corp. in July 2014, but the company still lamented its breakup with Walgreen in its FY15 annual report, claiming it negatively impacted sales.
Cardinal Health’s Pharmaceutical segment recovered nicely from the breakup, increasing total revenue 13.7 percent to $91.1 billion. Growth was driven primarily by higher customer sales, drug price inflation, and the launch of hepatitus C pharmaceutical products. Segment profit surged 20 percent to $2.1 billion.
Revenue was essentially flat in the Medical segment, climbing $433 million year-over-year (3.9 percent) to $11.4 billion, mostly due to the acquisition of Johnson & Johnson’s Cordis business. The $1.94 billion purchase—announced in March 2015—strengthens Cardinal Health’s global cardiovascular market footprint and enhances physician preference portfolio, which include offerings in cardiovascular (i.e., catheters, stents), wound management, and orthopedics.
Based in Fremont, Calif., Cordis generated roughly $780 million in 2014 revenue. The United States is its largest market, but 70 percent of Cordis’ total sales come from abroad; the business has a significant presence in more than 50 countries, including Brazil, China, France, Germany, Japan, and the United Kingdom.
Cardinal Health integrated Cordis into its Medical segment after the deal’s October closing. The company expects the purchase to add 20 cents (including 7 to 8 cents of interest expense) to fiscal 2017 adjusted earnings per share (EPS), and save $100 million in annual costs by the end of FY18. However, the acquisition will most likely be somewhat dilutive to adjusted EPS in fiscal 2016 (ended June 30).
The Cordis acquisition occurred too late in the fiscal year to rescue Medical segment profit, which fell 2.4 percent to $433 million. Executives attributed the decrease to a decline in revenue from national brand product sales, though the dropoff was partially offset by expanding product portfolios.
New product introductions, however, were few and far between in fiscal 2015. The MynxGrip Vascular Closure Device received U.S. Food and Drug Administration approval in November 2014 to seal 5F, 6F, and 7F femoral arterial and femoral venous access sites. The device features a proprietary, extravascular sealant that adheres to veins to help with mechanical closure, and dissolves within 30 days. According to Cardinal Health, use of the device can expedite recovery by reducing time to hemostasis and ambulation. The MynxGrip is also intended to improve efficiency and reduce complications by eliminating the need for manual compression.
In May 2015, Cardinal Health unveiled its new portfolio of negative pressure wound therapy systems, including the SVED device and NPWT PRO family line. The latter system encompasses a 10-day, single-use device to facilitate patients’ transition from acute to extended or home care; and a lightweight, discreet system for home use.