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Like much of the rest of the health care sector, the drug-wholesaling industry has proved mostly recession-proof. Revenue rose 8% in 2008, to $386 billion, and an additional 6% bump is expected for last year, according to Pembroke Consulting, a Philadelphia distribution and manufacturing consultancy. Plus, an aging population and reform will be extra boons. "In theory, more insured people should mean more drug utilization," says Adam J. Fein, an economist and the founder of Pembroke. "That means more money in the pockets of wholesalers...
Cardinal's somewhat haphazard acquisition strategy proved difficult to manage, though. Cardinal started as a small Ohio food distributor in 1971, and eight years later, founding CEO Robert Walter moved the company into pharmaceuticals. Over the next two decades, he transformed the firm into a $75 billion conglomerate. "It was a very entrepreneurial company, founded out of the back of this Harvard Business School guy Bob Walter's car," says Lisa Gill, a JPMorgan analyst who has covered Cardinal since 1999. "People talked about Cardinal wanting to be the GE of health care...
...this renewed vitality should help Cardinal boost the competitive advantages it does have. After the CareFusion spin-off, the company reorganized its retail-franchise model, Medicine Shoppe, and strengthened its nuclear-medicine program. It also continues to leverage its unique $8.2 billion medical-supply arm, under which Cardinal manufactures and delivers equipment like surgical gloves, scrubs and gowns to thousands of hospitals and labs. "If you're already dropping off gloves at a hospital, why not also bring along drugs or radioisotopes?" Deutsche Bank analyst Ross Muken says. "The scalability here is huge...
...company's revival isn't completely assured. For instance, Cardinal will have to act fast if, as Barrett says, it wants to catch up with rivals on delivering specialty drugs. Netting $134 billion globally in 2008, these therapies for treating chronic diseases--about half of which are oncology drugs--represent one of the fastest-growing segments of the health care market. AmerisourceBergen's revenue in the sector topped $16 billion last fiscal year. "If Cardinal is going to play, they have to move now," says Sanford C. Bernstein & Co. analyst Helene Wolk, who is bearish on Cardinal. "And they...
...Cardinal announced that its second-quarter revenue increased 3%, to $25 billion, supplemented by a 38% increase in profit on the medical-supply side. But perhaps even better news came when AmerisourceBergen and McKesson unveiled their earnings a few days earlier. Whereas a year ago, one of the two might have boasted about winning some of Cardinal's business, this time around, says Gill, "the same competitor is saying the exact opposite: 'We think all of our competitors are in good places, and given the stickiness, we don't expect any big accounts to change hands.'" In other words, Cardinal...