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Emphasis of 'physician preference items' in healthcare distribution
In giving up Cordis, which manufactures heart stents and other cardiovascular devices and equipment, J&J is sharpening its sprawling business structure on pharmaceuticals. The unit had been on the market since late summer, according to press reports. For its part, Cardinal Health’s announcement emphasizes growth in its medical products business—it both manufactures and distributes a wide range of medical devices and supplies to hospitals and clinics. The company also highlighted its focus on “physician preference items” (generally, implantable medical devices) which are a high-cost and highly competitive part of the hospital-supply business, and cardiovascular products that complement its existing business lines.
“This move highlights our commitment to address a major pain point in healthcare systems through innovative new approaches to the management of physician preference items,” said Cardinal chairman George Barrett in a statement. “This acquisition follows a sequence of strategic moves for Cardinal Health in the areas of cardiology, wound management and orthopedics. We are well-positioned to help customers standardize around mature medical devices, while bringing them innovative solutions around supply chain management, inventory optimization, and work flow tools and data to support the most effective management of the patient." In earlier presentations, Barrett has noted that its medical products business has roughly twice the profitability of its drug business.
For a $91-billion/year business that derives most of its revenue from pharmaceutical distribution, the acquisition isn’t exactly a dramatic shift in direction for the Cardinal Health, and its main competitors, McKesson and AmerisourceBergen, have medical-products distribution activities themselves but arguably not with the concentration that Cardinal Health has had. What is notable, though, is that the acquisition represents a renewed focus on medical products, which Cardinal stepped away from in 2009 by spinning out what became CareFusion, now a San Diego, CA-based medical products company. In October, Becton Dickinson announced a $12.2-billion buyout of that company.