Cardinal Health to Optmize Distribution of Heart Stents

Case Type: market sizing; operations strategy; supply chain optimization.
Consulting Firm: IMS Health Consulting Group first round full time job interview.
Industry Coverage: healthcare: hospital & medical.

Case Interview Question #00852: Your client Cardinal Health Inc. (NYSE: CAH) is a Fortune 500 health care services company based in Dublin, Ohio, United States. The company specializes in distribution of pharmaceuticals and medical products, serving more than 100,000 locations. Cardinal Health provides medical products to over 75 percent of hospitals in the United States.

Cordis Corporation is a medical device company that develops and manufactures heart stents. Heart stents are small “tubes” that keep arteries propped open during open heart surgery. They are left in afterwards to prevent the arteries from collapsing. Alternatives to heart stents are drugs or not using anything.

Recently the client Cardinal Health agreed to acquire Cordis Corporation. The CEO of Cardinal Health feels that the previous management of Cordis had not maximized the market potential for their heart stent products. He has asked you to (1) determine what the potential market size is, as well as (2) determine the best method to distribute the heart stent products.

Additional Information: to be provided to candidate after relevant questions

1. Market size

* Approximately 1% of people over the age of 55 will need open heart surgery in any given year.
* Heart stents are more effective than other alternatives.
* All insurance (including medicare/Medicaid) will cover heart stents.
* Only cardiologists/cardio-surgeons perform the surgery where heart stents would be used.
* There are two other companies that produce heart stents, but we are the clear market leader with over 50% of the market share today.

2. Distribution

* There are three distribution options:
(1) Use our current proprietary sales force.
(2) Create a distinct sales force for heart stents.
(3) Have medical distributors distribute our product.
* Our current sales force is comprised primarily of pharmaceutical style sales-representatives with little or no medical training.
* Other heart stent manufacturers use distributors.
* If we were to build a new, distinct sales force it would be comprised of surgeons who would do a heart surgery alongside a cardiologist and show them how to use the heart stents.
* It is not a problem to hire qualified sales reps for a new sales force.

Possible Solution:

1. Market Sizing

I started with the U.S. market and then expanded to other developed countries with advanced health care.

Assumed USA has a population of 300 Million:

* 100M: 0-25 years
* 100M: 25-55 years
* 100M: 55 years+

100M x 1% = 1M heart stents each year in US
Assumed 3 x U.S. market size for world market, thus total market size = 4M

Compared alternatives:

* Drugs — may be less effective, risky, and costly (risk: patients may not take drugs after leaving hospital)
* Nothing — high risk

2. How to distribute

I weighed both the pros & cons of each of the three distribution options and ultimately recommended a “new sales force” as the most appropriate. However, if there is only a small market (i.e. new market such as Peru, Singapore, where sales figures are not predictable and we have no relationships, distributors may be best method at first).