Cardinal Health (NYSE: CAH) is one of three major players in the $252 billion pharmaceutical distribution industry. To react to slower growth in branded drug prices, Cardinal recently changed its compensation system to fee-for-service, resulting in steadier cash flow. Out of the three large pharmaceutical distribution companies, Cardinal is the most diversified, insulating it more against possible risk in the distribution business.

A variety of factors have affected the pharmaceutical distribution industry. The shift from branded to generic drugs allows distributors to gain higher profit margins, but threatens the total market sales of pharmaceuticals. Changes in health care policy--especially Medicare--can result in a larger volume of drugs being purchased, but threaten with cost controlling and transparency. As the U.S. population grows older, there will be a higher demand for pharmaceuticals. However, there is also the longer-term threat that providers and manufactures may one day be able to cut out the middlemen distributors.

(Read more at Wikinvest )