Pharmaceuticals distributor Cardinal Health Inc. is turning to its chief executive to oversee the books following the departure of its finance chief, indicating a lack of potential successors in an industry facing declining profitability and potential settlement costs associated with the U.S. opioid crisis.
The Dublin, Ohio-based company Monday said Chief Financial Officer Jorge M. Gomez — who has served in the role since Jan. 2018 — will step down to become finance chief at Dentsply Sirona Inc., a maker of dental products. Mr. Gomez leaves Cardinal on Aug. 9, a day after the release of the company’s year-end results for fiscal 2019.
Chief Executive Michael Kaufmann will take over as interim CFO while
Cardinal searches for a successor. Mr. Kaufmann served as the company’s finance chief from 2014 to 2017 and was elevated to the CEO position in Jan. 2018.
The appointment of Mr. Kaufmann as interim finance chief points to Cardinal’s lack of potential candidates to succeed Mr. Gomez, analysts said, and suggests the company has had a challenge attracting the right talent.
“Companies this size normally have deep benches to fill this type of vacancies from below,” said Brian Tanquilut, an analyst at financial services advisory Jefferies LLC. Both Mr. Kaufmann and Mr. Gomez were promoted internally for their most recent jobs.
Cardinal Chairman Gregory Kenny in an email highlighted the strength of the firm’s finance team and praised Mr. Kaufmann’s knowledge of the company.
“As a company with a rich culture that is focused on our people and delivering value to the healthcare industry, we are looking for a person that embodies our values and will promote career development across the organization,” Mr. Kenny said.
The vacancy in a key management position comes at a challenging time for Cardinal.
The company has been battling with falling profitability, specifically in its generic drugs business. Cardinal’s earnings per share slumped to 81 cents in fiscal 2018, down 80% from $4.03 per share in fiscal 2017.
Two recent acquisitions, Cordis and Patient Recovery, so far haven’t yielded forecast returns, adding to the pressure on the company’s management, Mr. Tanquilut said.
“The loss of any executive during a key point in a turnaround is a challenge,” said Eric W. Coldwell, an analyst at financial services firm Robert W. Baird & Co. “Cardinal seemed a bit unprepared for Jorge’s [Mr. Gomez] departure and it won’t sit well with investors that the CFO is transitioning as the company prepares and delivers its fiscal year outlook,” Mr. Coldwell said.
Cardinal has also disclosed it is among several pharmaceutical wholesale distributors that have been named as defendants in more than 2,000 lawsuits related to the distribution of prescription opioid pain medications in the U.S. More than 60 of these lawsuits are purported class actions, according to the company’s latest regulatory filings.
The pressure on profit margins as well as potential settlement costs associated with these lawsuits complicate Cardinal’s efforts to find a new CFO, said John Ransom, an analyst at financial services provider Raymond James Financial Inc. “It will be tough for them to fill the spot, ” Mr. Ransom said.
As interim CFO, one of Mr. Kaufmann’s tasks will be to deal with the costs of a potential settlement, analysts said. Competitor McKesson Corp. in May agreed to pay $37 million to resolve claims that the company helped fuel the opioid epidemic.
“As a pharmaceutical wholesale distributor, we do not control either the supply of, or the demand for, opioids, since we do not manufacture medications or write prescriptions,” Cardinal said on its website.
Other companies in the space, including McKesson and AmerisourceBergen Corp., have also suffered from executive turnover in recent years. “The industry continues to see a lot of departures and struggles to attract new talent,” said Raymond James’ Mr. Ransom.
