Supply Chain
The sale by Cardinal Health, Dublin, Ohio, of its drug manufacturing unit, expected to be complete in April, will not affect hospital customers, company officials say. The unit, Pharmaceutical Technologies and Services (PTS), mainly serves pharmaceutical companies, supplying them with such products as softgel capsules, controlled release forms and Zydis fast-dissolving wafers.
For hospitals doing business with Cardinal, it will be a “seamless transition,” says Cardinal Health spokesman Troy Kirkpatrick.
After the sale, the company says it will continue to be a major manufacturer and distributor of med-surg products, including its Pyxis line of hospital automation systems for medicines and supplies and its Alaris line of intravenous infusion systems. And even as it stops making pharmaceuticals, the company says it will continue distributing pharmaceuticals and providing pharmaceutical consulting.
The PTS unit is being purchased by the Blackstone Group, a private equity group in New York, for an estimated $3.1 billion in after-tax proceeds, which Cardinal Health plans to use primarily to buy back shares. The unit, which serves nine of the top 10 pharmaceutical companies and most of the leading biotech firms, has been a drag on company earnings, according to company quarterly reports. The unit represents a relatively small part of Cardinal Health’s yearly earnings—$1.8 billion out of a total $81 billion in company revenue in the latest fiscal year.
R. Kerry Clark, who assumed the position of president and CEO in April 2006, first announced plans to spin off the drug-making unit late last year. “While synergies clearly exist between PTS and our other businesses, we believe there is greater customer and shareholder value in the expansion of our supply chain and medical and clinical products businesses domestically and internationally,” he says.
However, the company is retaining two PTS subunits: Martindale Group, Brentwood, U.K., which develops generic, intravenous medicine, which Cardinal Health says dovetails with its hospital and generics strategy, and Beckloff Associates, Overland Park, Kan., a pharmaceutical consulting firm. Cardinal Health plans to buy SpecialtyScripts Pharmacy, Fall River, Mass., for an undisclosed price, signaling an expansion into the specialty drugs distribution market. SpecialtyScripts Pharmacy provides drug therapies for chronic illnesses and complex diseases such as HIV, arthritis and cancer.
The following are Cardinal Health’s remaining segments:
- Health care supply chain services—medical: distributing med-surg products into hospitals and other providers, including PreSource custom surgical packaging.
- Medical products manufacturing: producing more than 4 million medical and surgical products each day, including surgical instruments, respiratory products, suction tubing, surgical drapes, gowns and gloves.
- Clinical technologies and services: making intravenous medication safety and infusion therapy delivery systems, software applications, needle-free disposables and patient monitoring equipment; the company offers point-of-use systems such as the Pyxis Medstation line.
- Health care supply chain services—pharmaceutical: repackaging and distributing pharmaceuticals for pharmacies, manufacturing and distributing radiopharmaceuticals, franchising and operating retail pharmacies and distributing therapeutic plasma to hospitals and other providers.
At last count, the company had 30 med-surg manufacturing plants, 46 med-surg distribution centers and 25 pharmaceutical distribution centers in the United States.
Cardinal Health’s most recent quarterly report, released the same day as the news of the sale, showed profit from continuing operations rising 10 percent on double-digit growth in its core businesses. Revenue climbed 13 percent to $21.8 billion. Even so, the company’s drug distribution business faces a possible challenge in the proposed merger of CVS Corp., Woonsocket, R.I., with Caremark Rx Inc., Nashville.
CVS is Cardinal Health’s largest customer, but Caremark Rx has an ongoing drug distribution contract with Cardinal Health’s rival, McKesson Corp., San Francisco.
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