Cardinal Health Looks to PET Drugs to Drive Margins

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While just a small part of Cardinal Health's (NYS: CAH) $100 billion-plus revenue, the nuclear medicine business is an important driver of higher margins for the drug distribution company.

In particular, positron emission tomography (PET) radiopharmaceuticals -- which are used to aid in imaging scans for cancer, heart disease and brain disorders -- are poised to be a big growth area for Cardinal, Columbus Business First reports.

Cardinal's been in the nuclear medicine business for several years. It built its business on single photon emission computed tomography (SPECT) drugs, which incorporate radioactive metals that emit low-energy radiation detected by a type of gamma camera. But PET is where the future of nuclear medicine lies for Cardinal.

"The PET business can be equal if not larger than what we've seen in the low-energy side ... in a pretty near-term horizon," John Rademacher, president of nuclear and specialty pharmacy services at Cardinal, told Columbus Business First.

To get an idea of why nuclear medicine is important to Cardinal, look no further than the margins associated with the business. A Deutsche Bank analyst estimated that Cardinal's revenue from the business is just $750 million -- less than 1 percent of Cardinal's overall revenue -- but margins for the nuclear medicine business are in the high single digits.

Contrast that with margins from the biggest part of Cardinal's business, drug distribution to bulk customers like big pharmacies, that posted razor-thin margins of 0.3 percent.

Plus, the market for PET and SPECT radiopharmaceuticals is expected to enjoy healthy growth in the coming years. U.S. sales of SPECT and PET radiopharmaceuticals reached $1.2 billion in 2010 and are expected to rise to $6 billion by 2018, according to a recent report from Bio-Tech Systems.

In light of the emerging radiopharmaceuticals, Cardinal has been striking collaborations with universities and drug companies "to assist these innovators in developing their products," Rademacher told MedCity News last year. Such collaborations will likely give Cardinal the first shot at commercializing any drugs that result from the partnerships.

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