“Divide and conquer” trumped “strength in numbers” when Cardinal Health weighed the idea of spinning off its tech-focused clinical and medical products businesses in 2008.
November 16 2010 by Jennifer Pellet
“Divide and conquer” trumped “strength in numbers” when Cardinal Health weighed the idea of spinning off its tech-focused clinical and medical products businesses in 2008. Sure, the division’s rapid growth was a boon to the Dublin, Ohio-based healthcare company’s bottom line, and it, in turn, benefited from Cardinal’s distribution network, concedes David Schlotterbeck, who served as vice chairman of Cardinal and is now CEO of the spinoff, CareFusion. “But there was recognition that these were two different businesses that needed to be managed in different ways, and that ultimately this part of Cardinal would be more valuable as a stand-alone entity.”
Yet there were plenty of hurdles along the path to independence— and freedom didn’t come cheap. To prepare for the costs of being a standalone public company, the company reportedly jettisoned some 1,300 workers. Even so, CareFusion debuted on the NYSE in September of 2009 saddled with $1.4 billion in debt and with its former parent retaining a 20 percent stake in the new entity. “I looked at it as the price of freedom,” says Schlotterbeck, who adds that 400 employees worked full time for a full year on making the spinoff happen. “It was a big, big job.”
Born at a hefty weight—15,000 employees and $3.7 billion in annual revenue—CareFusion is ideally situated to capitalize on what is increasingly recognized as a global healthcare crisis. Its products—intravenous pumps, patient identification systems and other hospital products geared toward averting medical errors and reducing infection—focus on improving the quality of healthcare and, in the process, reducing costs.
Unlike standard intravenous devices, for example, the company’s Alaris infusion pumps continually monitor patients for signs of an adverse reaction to medication. “We have a closed-loop system that monitors patients for depressed respiration, which is the first indicator of an adverse reaction that can lead to brain damage or death,” explains Schlotterbeck. “We can alert caregivers up to an hour before the adverse reaction actually occurs.”
From an infection-preventing pre-surgical solution called Chloraprep to a ventilator small enough to be transported along with a patient, every CareFusion product delivers both care quality and return on investment, avers Schlotterbeck. “If I can’t prove it takes costs out of healthcare, I don’t let that product go to market,” he says.
Devices that save lives while bringing down healthcare costs might seem a no brainer, yet CareFusion had a bumpy first year. Along with its peers, the company suffered as the weak economy forced hospitals to slash budgets. In Q3 2010, ended March 31, it reported a net loss of $9 million, compared to net income of $171 million in the same quarter in 2009. Q4 saw improvement, with income jumping up to $85 million, bringing CareFusion back on track with net income for fiscal 2010 of $317 million on $3.9 billion in revenue.
Schlotterbeck isn’t taking any chances, however. In its fiscal 2010 report, the company announced a restructuring expected to reduce its workforce by 700. The savings will go largely toward R&D to bolster the pipeline of new products vital to the company’s future.
“We’ve got a very enviable position in the marketplace, unlike a number of other companies in medical technology,” he says. “We see R&D as our lifeblood in sustaining that. We’ve always outrun the market when it comes to top-line growth—and that’s something I intend to continue.”