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Item 1. Business

2021-02-24 compared with 2020-02-26 · 162 added, 163 removed, 166 unchanged (66% of the section changed)

We are a leading provider of medication management automation solutions and adherence tools for healthcare systems and pharmacies.

Our solutions support the vision of a fully autonomous pharmacy, a roadmap designed to improve patient outcomes and operational efficiencies through a fully automated, medication management infrastructure.

Our goal is to transform the pharmacy care delivery model through automation designed to replace manual, error-prone processes, combined with intelligence and services offerings, that are helping our customers harness the power of data and deliver intelligent business insights.

We are a leader in transforming the pharmacy care delivery model.

Our medication management automation solutions and adherence tools empower healthcare systems and pharmacies to focus on clinical care, rather than administrative tasks.

Our solutions support the vision of a fully autonomous pharmacy, a roadmap designed to improve operational efficiencies through a fully automated, medication management infrastructure.

Our vision is to transform the pharmacy care delivery model through automation designed to replace manual, error-prone processes, combined with a single, cloud-based platform and advanced services offerings.

We believe our connected devices, products, and solutions will help our customers harness the power of data and analytics, and deliver improved patient outcomes.

In 2019, several pharmacy leaders published a framework that validates the need for greater automation of pharmacy workflows and outlines the levels to progress towards the fully autonomous pharmacy.

Through our medication management automation platform that spans the continuum of care, we are advancing the vision for the autonomous pharmacy.

By delivering a combination of automation, intelligence, and expert services, to be powered by a cloud data platform, we believe we are helping to empower healthcare and pharmacy providers to focus on clinical, rather than administrative, tasks.

Over 6,000 facilities worldwide use our automation and analytics solutions to help increase operational efficiency, reduce medication errors, deliver actionable intelligence, and improve patient safety.

More than 40,000 institutional and retail pharmacies across North America and the United Kingdom leverage our innovative medication adherence and population health solutions to improve patient engagement and adherence to prescriptions, helping to reduce costly hospital readmissions.

By delivering a combination of automation, intelligence, and advanced services, to be powered by a single, cloud-based platform, we believe we are helping to empower healthcare and pharmacy providers to increase healthcare value and improve patient outcomes.

We believe our robust customer base and channel within the pharmacy automation market enable us to bring new solutions and innovations to market.

Over 7,000 facilities worldwide use our automation and analytics solutions which are designed to improve pharmacy workflows, increase operational efficiency, reduce medication errors, deliver actionable intelligence, and improve patient safety.

More than 50,000 institutional and retail pharmacies across North America and the United Kingdom leverage our innovative medication adherence and population health solutions to improve patient engagement, and adherence to prescriptions and vaccine scheduling, helping to reduce costly hospital readmissions.

We believe our broad portfolio of products and services, combined with innovation, align us with the long-term trends of the healthcare market to manage patients across the continuum of care while helping to control costs and improve patient outcomes.

Operating Segments

We previously operated and reported our business in two segments:

Automation and Analytics, and Medication Adherence.

In an effort to deliver on the strategic vision of the autonomous pharmacy and address industry changes including the continuing consolidation of healthcare systems, rising pharmaceutical costs, and increased scrutiny on controlled substances, we initiated a company-wide organizational realignment in the fourth quarter of 2018 to centrally manage our business operations, including the development and marketing of all of our products, sales and distribution, supply chain and inventory management, as well as regulatory and quality functions.

As a result of this organizational realignment, we now operate and report our business as one segment.

We manage our operations as a single segment for the purposes of assessing performance and making operating decisions.

Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer.

The CODM allocates resources and evaluates the performance of Omnicell at the consolidated level using information about our revenues, gross profit, income from operations, and other key financial data.

All significant operating decisions are based upon an analysis of Omnicell as one operating segment, which is the same as our reporting segment.

Business Strategy

We are committed to being the care provider’s most trusted partner and executing on the vision of the autonomous pharmacy by delivering automation, intelligence, and services designed to transform the pharmacy care delivery model, helping to dramatically improve outcomes and lower costs for our healthcare partners.

We believe there are significant challenges in pharmacy that drive the demand for our solutions and represent large market opportunities in three product categories:

We are committed to being the care provider’s most trusted partner and executing on the vision of the autonomous pharmacy by delivering automation, intelligence, and advanced services, powered by a single, cloud-based platform.

We believe there are significant challenges in pharmacy practice including, but not limited to, medication errors, drug shortages, medication loss due to drug diversion, significant medication waste and expiration costs, a high level of manual steps in the medication management automation process, complexity around compliance requirements, high pharmacy employee turnover rates, hospitalizations from adverse drug events in outpatient settings, high variability in outcomes, and limited inventory visibility.

We believe that these significant challenges in pharmacy practice drive the demand for increased digitization and virtualization, and that our solutions enable this and represent large opportunities in four market categories:

• Point of Care.

As a market leader, we expect to continue expansion of this product category as customers increase use of our dispensing systems in more areas within their hospitals.

In addition, we are early in the replacement cycle of our XT Series automated dispensing systems which we believe is a significant market opportunity and we expect to continue to focus on further penetrating markets through competitive conversion.

In addition, we are early in the replacement, upgrade, and expansion cycle of our XT Series automated dispensing systems which we believe is a significant market opportunity and we expect to continue to focus on further penetrating markets through competitive conversions.

We believe our current portfolio within the Point of Care market and new innovation and services will continue to drive improved outcomes and lower costs for our customers.

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This market represents the beginning of the medication management process in acute care settings, and, we believe, the next big automation opportunity to replace manual and repetitive processes which are common in the pharmacy today.

Manual processes are prone to significant errors, and products such as our IV sterile compounding solutions and XR2 Automated Central Pharmacy system automate these manual processes and are designed to reduce the risk of error for our healthcare partners.

We believe new products and innovation in the Central Pharmacy market create opportunities to replace prior generation Central Pharmacy robotics and carousels.

Manual processes are prone to significant errors, and products such as IVX Workflow, our IV sterile compounding solutions, and the XR2 Automated Central Pharmacy system automate

these manual processes and are designed to reduce the risk of error for our healthcare partners.

We believe new products and innovations, including Omnicell One™, in the Central Pharmacy market create opportunities to replace prior generation Central Pharmacy robotics and carousels.

The Central Pharmacy also represents an opportunity to provide technology-enabled services designed to reduce the administrative burden on the pharmacy and allow clinicians to operate at the top of their license.

• 340B Software-Enabled Services.

This market is targeted to covered entities participating in Section 340B of the Public Health Services Act.

The act requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to health care organizations that care for many uninsured and low-income patients and results in a complex compliance environment.

We believe that there are significant opportunities for health systems to improve participation benefits and maximize program savings through software-enabled services and solutions.

Our Omnicell 340B platform of technology-enabled services includes split billing software, contract pharmacy administration, specialty contract pharmacy administration, and drug discount access solutions.

• Retail, Institutional, and Payer.

We believe the Retail, Institutional, and Payer market represents a large opportunity as the majority of drugs are distributed in the non-acute sector.

New technology is leading to innovation at traditional retail providers, which combined with the move to value-based care results, we believe

will incentivize the market to adopt solutions to help providers and payers engage patients in new ways that lower the total cost of care.

We believe adoption of our Population Health Solutions portfolio of software products and services, along with medication adherence packaging, will increase adherence performance rates, increase prescription volume for our customers and reduce hospital and emergency room visits due to improved adherence.

We believe our technology, services, and solutions within these three product categories position us well to address the needs of retail, acute, and post-acute pharmacy providers.

New technology and updated state board regulations are leading to innovation at traditional retail providers, which, combined with the move to value-based care, we believe will incentivize the market to adopt solutions to help providers and payers engage patients in new ways that lower the total cost of care.

We believe adoption of our EnlivenHealth (formerly Population Health Solutions) portfolio of software products and services, along with medication adherence packaging, will increase adherence performance rates, increase prescription volume for our customers, and reduce hospital and emergency room visits due to improved adherence.

As retail pharmacies play an increasingly vital role in population health following the onset of the COVID-19 pandemic, EnlivenHealth has extended solutions to assist with vaccination programs, testing protocols, and patient engagement efforts.

There are three main areas of focus:

◦ CareScheduler is an exclusive digital solution that automates the scheduling, reporting, and patient outreach for administering the COVID-19 vaccine and other vaccines and testing procedures.

◦ Medication Synchronization is an appointment-based solution that aligns a patient's medications to a single refill date, designed to improve medication adherence and reduce hospital readmissions.

◦ Medication Therapy Management is a platform that offers intuitive workflow with high-level decision support for efficiently completing CMS-compliant Comprehensive Medication Reviews using pharmacy claims data.

We believe our technology, services, and solutions within these market categories position us well to address the needs of retail, acute, and post-acute pharmacy providers.

Environmental, Social, and Governance Initiatives

We view Omnicell as a company with a social mission:

Our focus on reinventing the pharmacy care delivery model is designed to dramatically improve health outcomes and lower healthcare costs.

Our teams are motivated by knowing that our work to improve medication management has a tangible, real-world impact on healthcare workers, patients, and communities.

We recognize that we are accountable not only to our customers and shareholders, but also to the global community.

In December 2020, we published initial ESG disclosure and performance information, aligned to Sustainability Accounting Standards Board, Task Force on Climate-related Financial Disclosures, and Global Reporting Initiative guidelines.

We are focused on innovating to drive sustainability across our business;

ethically and responsibly sourcing materials by adhering to internationally-recognized Organisation for Economic Co-operation and Development guidance;

and elevating our diversity and inclusion initiatives.

Industry Background and Market

We believe our solutions support the vision for fully autonomous medication management and are strongly aligned with trends in the healthcare market and well positioned to address the evolving needs of healthcare institutions.

The healthcare industry continues to experience a significant degree of consolidation, with healthcare providers combining to create larger healthcare delivery organizations in order to achieve greater market power.

We believe our solutions support the vision for the fully autonomous pharmacy and are strongly aligned with trends in the healthcare market, and well positioned to address the evolving needs of healthcare institutions.

We believe this trend has increased the market need for more integrated medication management automation solutions on a single platform to help improve patient and financial outcomes for both inpatient and outpatient settings.

Our portfolio of products and services, combined with innovation, are designed with this objective in mind.

Our portfolio of connected devices, products, and services, combined with innovation, are designed with this objective in mind.

In addition, healthcare providers and facilities are affected by significant economic pressures.

Annual gross spending on medications in the United States (on an invoice basis before rebates or discounts) was estimated to have reached approximately $485 billion in 2018, according to a report published by the IQVIA Institute for Human Data Science in 2019.

Annual spending on medications across retail, inpatient, and outpatient settings in the United States on a net basis was calculated to have reached approximately $380 billion in 2018, according to a report published by the Centers for Medicare & Medicaid Services Office of the Actuary in December 2019 and various reports and statistics published by the American Hospital Association.

In addition, based on a 2016 report by National Opinion Research Center at the University of Chicago, pharmaceutical costs have substantially outpaced general inflation in recent years.

Annual prescription drug expenditures in the United States were approximately $508 billion in 2019, according to the IQVIA National Sales Perspective database.

Also, based on a 2018 report by the Health Care Cost Institute, the largest growth in spending for professional services—defined as payments to physicians and other clinical care team members for services provided in physician offices and hospitals—occurred among administered drugs, which accounted for the biggest share, at 39%, of the total increase in professional services spending from 2014 to 2018.

Rising costs of labor, prescription drugs, and new medical technology all contribute to increased spending.

Governmental pressures surrounding healthcare reform have led to increased scrutiny of the cost and efficiency with which healthcare providers deliver their services.

These factors, combined with continuing consolidation in the healthcare industry, have increased the need for the efficient delivery of healthcare in order to control costs, and have elevated the strategic importance of medication management across the continuum of care.

Furthermore, substantial increases in healthcare administration highlight the need for more complete medication management automation solutions to help drive efficiency and improve patient safety.

The number of healthcare administrators grew approximately 3,000% from 1970 to 2016, substantially outpacing the growth in physicians over the same period, according to a statistic derived by the Physicians for a National Health Program using data from the Bureau of Labor Statistics, the National Center for Health Statistics, and the U.S.

Census Bureau’s Current Population Survey.

Over time, complexities in medication management have increased along with the volume of patients and medications, but many manual processes are still used, resulting in inefficient tracking and delivery of medication and supplies despite the substantial growth in administration staff.

Even with the vast increase in administrative positions, many clinical staff are burdened with administrative tasks themselves.

Governmental pressures surrounding healthcare reform and compliance have led to increased scrutiny of the cost and efficiency with which healthcare providers deliver their services.

Furthermore, over time, complexities in medication management have increased along with the volume of patients and medications, but many manual processes are still used, resulting in inefficient tracking and delivery of medications and supplies.

Many clinical staff are burdened with administrative tasks.

According to a survey conducted by the American Society of Health-System Pharmacists in 2019, approximately 75% of pharmacist activities are non-clinical in nature.

In addition, many existing healthcare information systems are unable to support the modernization of healthcare delivery processes or address mandated patient safety initiatives.

These factors contribute to medical errors and unnecessary process costs across the healthcare sector.

Legislation and industry guidelines, such as those produced by the U.S.

These factors contribute to medical errors and unnecessary process costs across the healthcare sector including in medication management.

Legislation and industry guidelines, such as those issued by the U.S.

Food and Drug Administration (the "FDA"), The Joint Commission, the U.S.

Pharmacopeial Convention and the Institute for Safe Medication Practices in the areas of medication management—including storage, security, and labeling—have created an environment of increased patient safety awareness and regulatory control.

Against this backdrop, healthcare organizations, desiring to improve quality and avoid liability, have been driven to prioritize investment in capital equipment, including pharmacy automation, which is a standard of care, to improve patient safety.

While the overall storage and security of medications in hospitals has improved, recent years show increased focus on controlled substance management, particularly in light of the opioid crisis in the United States.

Against this backdrop, healthcare organizations, desiring to improve quality and avoid

liability, have been driven to prioritize investments in capital equipment, including pharmacy automation, which is a standard of care, to improve patient safety.

While the overall storage and security of medications in hospitals have improved, there had been an increased focus on controlled substance management in recent years, particularly in light of the opioid crisis in the United States.

According to a research report published by the Butler Center for Research in 2015, studies in the United States have shown that 10% to 15% of healthcare professionals will misuse substances during their lifetime, with significantly higher levels of opioid abuse in particular.

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Poor adherence results in increased hospital readmissions, deteriorated treatment outcomes, and avoidable healthcare costs.

Medication non-adherence is estimated to cost the U.S.

healthcare system up to $300.0 billion a year, according to research published in the Risk Management and Healthcare Policy Journal in 2014.

In addition, a 2017 study published in the Journal of the American Pharmacists Association

found that medication issues are responsible for 26% of hospital readmissions.

With more than 38 million Americans taking five or more maintenance medications routinely (based on statistics published by the Centers for Disease Control and Prevention in 2017), pharmacists need ways to support the arduous task of keeping patients compliant.

The estimated annual cost of prescription drug-related morbidity and mortality resulting from non-optimized medication therapy, including medication non-adherence, was $528 billion in 2016, according to a study published in the Annals of Pharmacotherapy in 2018.

In addition, a 2017 study published in the Journal of the American Pharmacists Association found that medication issues are responsible for 26% of hospital readmissions.

With more than 40 million Americans taking five or more maintenance medications routinely (based on statistics published by the National Center for Health Statistics in 2018), pharmacists need ways to support the arduous task of keeping patients compliant.

According to a 2011 article by the World Health Organization, “although these medications are effective in combating disease, their full benefits are often not realized because approximately 50% of patients do not take their medications as prescribed.” Medication adherence can be improved through attitudinal and behavioral changes, which pharmacists can encourage and help facilitate by providing interventional support, including adherence tools such as blister cards, reminders, prescription synchronization, and patient engagement tools.

We believe our Population Health Solutions have the potential to reduce hospitalizations and emergency department visits, and improve patient health by increasing medication adherence.

Healthcare Reform

In 2010, the Patient Protection and Affordable Care Act (“PPACA”) was passed by the U.S.

Congress and signed into law by President Obama.

The PPACA mandated a broad range of programs to improve access to care, slow the growth of healthcare spending and improve the quality of healthcare.

Even though the future of PPACA continues to be unclear under the current administration, the need for increased efficiency in order to provide high-quality healthcare at a lower cost remains a key objective of healthcare systems.

Accordingly, in our annual tracking of pharmacy and nursing leadership mindshare, operational efficiency in medication distribution and administration continues to be a top priority.

We believe our products help healthcare organizations leverage and enhance their investments in electronic health record implementation and integration by allowing them to reduce process steps, eliminate manual tracking and waste, enable population-level performance insights, track quality levels, and reduce errors that result in unnecessary cost.

By harnessing data provided by our automation systems via our cloud platform and translating them into actionable insights via solutions, such as Performance Center, we help enable our customers to optimize the pharmacy supply chain and lower costs.

We believe our EnlivenHealth portfolio has the potential to reduce hospitalizations and emergency department visits, and improve patient health by increasing medication adherence.

Government Regulation

Our operations are global and are affected by complex state, federal, and international laws and regulations.

These laws and regulations relate to healthcare, privacy and security, product compliance, import, export, trade, healthcare fraud and abuse (including anti-kickback and false claims laws), environmental standards, anti-corruption, anti-bribery, labor and employment, as well as other areas.

We receive, store, and process personal information and other data from and about our customers, in addition to our employees and service providers, and our customers use our solutions to obtain and store personal information, including personal health information.

As a result, we are subject to various laws and regulations related to privacy, data protection, and information security.

In the United States, these include federal health information privacy laws (such as the Health Information Portability and Accountability Act of 1996 ("HIPAA"), various state and federal security breach notification laws, consumer protection laws, as well as state laws addressing privacy and security.

Internationally, various foreign jurisdictions in which we operate have established, or are developing, their own data privacy and security legal framework with which we or our customers must comply, including the European Union’s General Data Protection Regulation (“GDPR”).

In addition, while the manufacture and sale of most of our current products are not regulated by the FDA or the Drug Enforcement Administration, through our acquisition of Aesynt Incorporated, we have both Class I and Class II, 510(k) exempt medical devices which are subject to FDA regulation and require compliance with the FDA Quality System Regulation as well as medical device reporting.

Furthermore, our operations are impacted by trade regulations in many countries that govern the import of raw materials and finished products, and we are also subject to laws and regulations that seek to prevent corruption and bribery in the marketplace (including the U.S.

Foreign Corrupt Practices Act and the United Kingdom Bribery Act) as well as laws and regulations pertaining to healthcare fraud and abuse, including state and federal anti-kickback and false claims laws in the United States.

Since we manufacture and sell our products outside of the United States, certain products of a local nature and variations of product lines must also meet other local regulatory requirements.

Additional risks are inherent in conducting business outside the United States, including more robust information governance and environmental regulations in the European Union, expropriation, nationalization, and other governmental action.

Demand for many of our existing and new products is, and will continue to be, affected by the extent to which local regulatory requirements increase our risk and/or expense to do business in those countries.

Compliance with the laws and regulations applicable to our global operations is costly and requires sufficient resources to actively maintain various governance, risk, and compliance systems in several areas, including FDA, quality, information governance and security, and environmental, health and safety, to enable Omnicell to keep abreast of the constantly evolving

regulatory landscape both in the United States and abroad.

Any failure to comply with these laws and regulations could result in a range of fines, penalties, and/or other sanctions.

Products and Services

As we execute on the vision of the autonomous pharmacy, we plan to integrate our current offerings and technologies on a cloud infrastructure, and invest in broadening our solutions across three key areas:

As we continue to execute on the vision of the autonomous pharmacy, we plan to integrate our current offerings and technologies on a cloud infrastructure, and invest in broadening our solutions across three key areas:

We provide a range of advanced automation, including robotics designed to digitize and streamline workflows and reduce human error in central pharmacy and clinical areas, and to support medication adherence initiatives in retail pharmacies.

Our automation products and services include central pharmacy automation solutions for both dispensing and IV compounding systems, medication and supply dispensing systems at the point of care, as well as medication adherence solutions which are used by retail, community, and outpatient pharmacies to help improve patient engagement and adherence to prescriptions.

Our automation products and technology-enabled services include central pharmacy automation solutions for both dispensing and IV compounding systems, medication and supply dispensing systems at the point of care, as well as medication adherence solutions which are used by retail, community, and outpatient pharmacies to help improve patient engagement and adherence to prescriptions.

Point of Care

Our point of care automation solutions are designed to improve clinician workflows in patient care areas of the healthcare system, such as nursing units, operating rooms, and emergency departments.

Our point of care automation solutions are designed to improve clinician workflows in patient care areas of the healthcare system, such as nursing units, patient wards, operating rooms, and emergency departments.

Automated dispensing systems are an essential part of medication management because they safeguard medications - including controlled substances - and automatically track inventory.

We strive to continually develop new innovations for our automated dispensing system to close gaps in safety and help enable clinicians to spend less time managing medications and more time caring for patients.

We strive to continually develop new innovations for our automated dispensing systems to close gaps in safety and help enable clinicians to spend less time managing medications and more time caring for patients.

Our XT Series automated dispensing systems for medications and supplies used in nursing units and other clinical areas of the hospital can be customized with various software and hardware options.

Our interoperability solutions integrate our automated dispensing system with key electronic health record systems to help streamline workflow and increase accuracy.

Our interoperability solutions integrate our automated dispensing systems with key electronic health record systems to help streamline workflow and increase accuracy.

We also offer specialized automated dispensing systems for the operating room.

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Our broad medication management platform offers a range of automated hardware and software solutions.

Our central pharmacy automation solutions are designed to empower healthcare providers to increase staff efficiency, reduce inventory costs, prevent medication errors, improve compliance, and strengthen security of controlled substances.

Our central pharmacy automation solutions are designed to empower healthcare providers to increase staff efficiency, reduce inventory costs, prevent

medication errors, improve compliance, and strengthen security of controlled substances.

By automating manual, error-prone processes, our technology helps enable pharmacy staff to work more efficiently and directly contribute to clinical care.

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We offer specialized services and analytics software designed to help healthcare facilities improve their bottom line and patient care by harnessing data from automation and other systems.

Our Performance Center solution combines a cloud-based predictive intelligence platform with expert services designed to monitor pharmacy operations and recommend opportunities to help improve efficiency, regulatory compliance, and patient outcomes.

In addition, we offer analytics software designed to provide a more efficient and effective way to monitor potential drug diversion and address inventory management issues.

Our Population Health Solutions offer a portfolio of medication management tools designed to help improve health outcomes.

Omnicell Patient Engagement is a web-based nexus of solutions designed to comprehensively support improvement in health outcomes related to medication use.

Omnicell Patient Communications include hosted Interactive Voice Response (IVR), Outbound Communications and Mobile App, and enable tailoring of patient contact to individual preferences.

Our Omnicell One (formerly Performance Center) solution, a technology-enabled service, combines a cloud-based predictive intelligence platform with expert services designed to drive enterprise improvements in medication inventory optimization, medication waste reduction, and drug diversion monitoring.

Our comprehensive 340B solution provides a combination of software, deep knowledge of the 340B program, and software-enabled services, to help deliver superior outcomes in both savings and compliance, optimizing the 340B program for eligible entities.

The suite of offerings includes split billing software, contract pharmacy administration, specialty contract pharmacy administration, and drug discount access solutions.

EnlivenHealth™ offers a portfolio of medication management tools designed to help improve health outcomes.

EnlivenHealth Patient Engagement is a web-based nexus of solutions designed to comprehensively support improvement in health outcomes related to medication use.

EnlivenHealth Patient Engagement includes clinical solutions such as Medication Synchronization, Immunization and Scheduling, Targeted Patient Interventions, Medication Therapy Management, and Opioid Mitigation Solution, and patient communications such as hosted Interactive Voice Response (IVR), Outbound

Communications, and Mobile App, which enable tailoring of patient contact to individual preferences.

Combined with advanced analytics to stratify populations and prioritize patient interventions, these solutions support improved performance for both pharmacies and health plans, helping them to succeed in value-based healthcare by driving health outcomes - better care, better health, and lower costs.

Expert Services

We provide expert services that serve as an extension of pharmacy operations to support improved efficiency, regulatory compliance, and patient outcomes.

Our expert services provide comprehensive, customer-centric, outcome-based adoption services to help ensure successful adoption of our technology.

Technology-Enabled Services

We provide technology-enabled services that serve as an extension of pharmacy operations to support improved efficiency, regulatory compliance, and patient outcomes.

Our technology-enabled services provide comprehensive, customer-centric, outcome-based adoption services to help ensure successful adoption of our technology.

Our Central Pharmacy IV Compounding Service offers a comprehensive service model inclusive of IV robotic technology, data analytic tools, and clinical support for insourced sterile compounding programs.

Our Central Pharmacy

Dispensing Service is a turnkey, full service central pharmacy automation solution designed to improve inventory control, compliance, safety, and efficiency through automation, supported by operational staff, maintenance, and optimization services.

Our Central Pharmacy Dispensing Service is a turnkey, full service central pharmacy automation solution designed to improve inventory control, compliance, safety, and efficiency through automation, supported by operational staff, maintenance, and optimization services.

We also offer Professional Services, as the introduction of new innovations within our health system customers has become increasingly complex, with greater organizational impacts.

We view our customers as partners in the pursuit of better health outcomes for patients and improved satisfaction for the clinicians who serve them.

Every engagement is an opportunity for us to help customers reach their clinical and business objectives.

In addition to our own development, we have, from time to time, acquired businesses and technologies that expand our product lines and are a strategic fit for our business.

In April 2017, we completed the acquisition of InPharmics, a provider of advanced pharmacy informatics solutions to hospital pharmacies.

The InPharmics solutions add clinical and compliance analytics to our Performance Center offering, positioning us as a leading partner for health systems seeking to improve all facets of medication management.

In December 2016, we completed the acquisition of Ateb, a leading provider of pharmacy-based patient care solutions and medication synchronization to independent and chain retail pharmacies, an area where we had no prior market penetration.

Ateb’s integrated medication synchronization program, combined with Omnicell’s SureMed medication adherence packaging and related automation solutions, uniquely positions us to support pharmacists as they implement and scale their medication adherence programs.

In January 2016, we completed the acquisition of Aesynt, a leader in central pharmacy robotics and IV compounding automation.

We added these two solution sets to the Omnicell portfolio to give us one of the most comprehensive medication management platform offerings in the industry.

With the addition of central pharmacy robotics and IV compounding, we are now able to support customers who desire a centralized cartfill or nurse server medication distribution model all the way to fully decentralized dispensing and hybrid combinations along that continuum.

We are also able to offer solutions for preparing IV compounds, including oncology drugs, which is an area where our combined customers have expressed significant interest.

On October 1, 2020, we completed the acquisition of the 340B Link business (the “340B Link Business”) of Pharmaceutical Strategies Group, LLC.

The acquisition adds to our portfolio a comprehensive and differentiated suite of software-enabled services and solutions used by certain eligible hospitals, health systems, clinics, and entities to manage compliance and capture 340B drug cost savings on outpatient prescriptions filled through the eligible entity’s pharmacy or a contracted pharmacy partner.

Sales and Distribution

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Approximately 89% of our revenue was generated in this market for the year ended December 31, 2020.

No single customer accounted for greater than 10% of our revenues for the years ended December 31, 2019, 2018, or 2017.

Our sales force is organized by geographic region in the United States and Canada where our sales are primarily made direct to end-user customers with the exception of some distribution of medication adherence consumables.

Our sales force is organized by geographic region in the United States and Canada,

where our sales are primarily made direct to end-user customers with the exception of some distribution of medication adherence consumables.

Outside the United States and Canada, we field direct sales employees in the United Kingdom, France, Germany, the United Arab Emirates, Belgium, and Australia.

For other geographies, we generally sell through distributors and resellers.

Our foreign operations are discussed in Note 3, Revenues, and Note 7, Property and Equipment , of the Notes to Consolidated Financial Statements and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations , of this annual report.

Our combined direct, corporate, and international distribution sales teams consisted of approximately 370 staff members as of December 31, 2020.

Nearly all of our direct sales team members have hospital capital equipment or clinical systems experience.

The sales cycle for our automation systems, from the initial sales meeting to completion of installation, is long and can take in excess of 12 to 24 months.

Nearly all of our direct sales team members have hospital capital equipment, services, or clinical systems experience.

As of December 31, 2020, we have 145 long-term, sole-source agreements with the top 300 U.S.

health systems.

The sales cycle for our automation systems, from the initial sales meeting to completion of installation, can take in excess of 12 to 24 months.

This is due in part to the relative cost of our systems and the number of people within each healthcare facility involved in the purchasing decision and installation process.

To initiate the selling process, the sales representative generally targets the director of pharmacy, the director of nursing, the director of materials management, or other decision makers, and is responsible for educating each group within the healthcare facility about the economic, safety, and compliance benefits of our solutions relative to competing methods of managing medications or medical and surgical supplies.

We contract with Group Purchasing Organizations (“GPOs”), each of which functions as a purchasing agent on behalf of member hospitals and other healthcare providers, as well as with government entities and agencies.

To initiate the selling process, the sales representative generally targets the director of pharmacy, the director of nursing, the director of materials management, or other decision makers, and educates each group within the healthcare facility about the economic, safety, and compliance benefits of our solutions relative to competing methods of managing medications or medical and surgical supplies.

We contract with Group Purchasing Organizations (“GPOs”), each of which functions as a purchasing agent on behalf of member hospitals and other healthcare providers.

Pursuant to the terms of GPO agreements, each member contracts directly with us and can purchase our product at pre-negotiated contract terms and pricing.

These GPO contracts are typically for multiple years with options to renew or extend for up to two years and some of which can be terminated by either party at any time.

Our significant current GPO contracts include HealthTrust Purchasing Group, Intalere (f.k.a.

Amerinet, Inc.), Premier Inc., The Resource Group, Resource Optimization & Innovation, LLC, and Vizient, Inc.

We have also contracted with the U.S.

General Services Administration, allowing the Department of Veteran Affairs, the Department of Defense, and other Federal government customers to purchase or lease our products.

The accounts receivable balances are with individual members of the GPOs, and therefore no significant concentration of credit risk exists.

During our fiscal year ended December 31, 2019, sales to members of the ten largest GPOs accounted for approximately 64% of total consolidated revenues.

Our current most significant GPO contracts include Vizient, Inc., Premier Inc., and HealthTrust Purchasing Group.

We also have a Federal Supply Schedule contract with the Department of Veterans Affairs (the "GSA Contract"), allowing the Department of Veterans Affairs, the Department of Defense, and other Federal government customers to purchase or lease our products.

Some of our contracts with these organizations are terminable at the convenience of either party.

The accounts receivable balances are with individual members of the GPOs and Federal agencies that purchase under the GSA Contract, and therefore no significant concentration of credit risk exists.

During our fiscal year ended December 31, 2020, sales to members of the ten largest GPOs and Federal agencies that purchase under the GSA Contract accounted for approximately 60% of total consolidated revenues.

We offer multi-year, non-cancelable lease payment terms to assist healthcare organizations in purchasing our systems by reducing their cash flow requirements.

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Our products are available in a variety of languages including Traditional Chinese, Simplified Chinese, Japanese, Korean, French, Swedish, Dutch, Spanish, and German.

We have not sold and have no future plans to sell our products either directly or indirectly to customers located in countries that are identified as state sponsors of terrorism by the U.S.

Department of State, or those subject to economic sanctions and export controls.

Manufacturing and Inventory

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The automation product manufacturing process primarily consists of the final assembly of components and testing of the completed product.

Many of the subassemblies and components we use are provided by third-party contract manufacturers or other suppliers.

We and our partners test these subassemblies and perform inspections to assure the quality and reliability of our products.

While many components of our systems are standardized and available from multiple sources, certain components or subsystems are fabricated by a sole supplier according to our specifications and schedule requirements, or are only available from limited sources.

Many of the sub-assemblies and components we use are provided by third-party contract manufacturers or other suppliers.

A portion of these contract manufacturers and other suppliers are based in Asia.

We and our partners test these sub-assemblies and perform inspections to assure the quality and reliability of our products.

or are only available from limited sources.

Our medication adherence product manufacturing process consists of fabrication and assembly of equipment and mechanized process manufacturing of consumables.

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The markets in which we operate are intensely competitive.

We compete directly with a number of companies and are affected by evolving and new technologies, changes in industry standards, and dynamic customer requirements.

Our current direct competitors in the medication management automation solutions market include Becton, Dickinson and Company;

Cerner Corporation;

Swisslog Healthcare as a division of KUKA;

Cardinal Health, Inc.;

PAR Excellence Systems, Inc.;

Baxter Healthcare Corporation;

Grifols, S.A.;

Willach Pharmacy Solutions;

DIH Technologies Corporation;

Yuyama Co., Ltd;

RoboPharma B.V.;

Meditech-Pharma;

KLS Steuerungstechnik GmbH;

Gollmann Kommissioniersysteme GmbH;

and Loccioni.

Our current direct competitors in the medication adherence solutions market include Drug Package, Inc.;

Manchac Technologies, LLC;

RX Systems, Inc.;

McKesson Corporation;

Digital Pharmacist Inc.;

Tabula Rasa Healthcare, Inc.

(through its acquisition of PrescribeWellness);

Synergy Medical Systems;

Parata Systems;

and Medicine-On-Time in the United States, and Jones Packaging Ltd.;

Synergy Medical Systems;

and WebsterCare outside the United States.

We compete directly with a number of companies in the medication management automations solutions market, as well as the medication adherence solutions market, on the basis of many factors, including price, quality, customer outcome and cost of operation, innovation, product features and capabilities, installation and service, reputation and brand recognition, size of installed base, range of solutions, distribution, and promotion.

We expect continued and increased competition from current and future competitors in the markets in which we operate, and are affected by evolving and new technologies, changes in industry standards, and dynamic customer requirements.

We believe our products and services compare favorably with the offerings of our competitors, particularly with respect to proprietary technological advancements, system performance, system reliability, installation, applications training, service response time, and service repair quality.

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All of our product software is subject to copyright protection under applicable United States and foreign copyright laws.

We intend to seek and obtain registration of our trademarks in the United States and foreign jurisdictions.

We have obtained United States and, for certain marks, foreign registrations of, among others, the following marks:

Omnicell, the Omnicell logo, OmniCenter, SafetyStock, SinglePointe, OnDemand, SureMed, AccuFlex, Detect-Rx, Time My Meds, Pharmacy Line, Connect-Rx, MedCarousel, and ROBOT-Rx.

We have also obtained United States and, for certain marks, foreign registrations of various marks, and we intend to seek and obtain additional registrations of our trademarks in the United States and foreign jurisdictions.

Trade secrets and other confidential information are also important to our business.

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Research and Development

We use industry standard operating systems and databases, but generally develop our own application and interface software in our research and development facilities.

New product development projects are prioritized based on customer input.

Research and development primarily takes place in Mountain View, California;

Cranberry Woods, Pennsylvania;

Petersburg, Florida;

Raleigh, North Carolina;

Bochum, Germany;

Beijing, China;

and Trieste, Italy.

Research and development expenses were $68.6 million, $64.8 million, and $66.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

We had approximately 2,700 employees as of December 31, 2019.

We have rebalanced our staff as needed, at times eliminating some functional positions and at other times adding new functional-specific positions to meet the evolving needs of the business.

To our knowledge, none of our domestic employees are represented by a collective bargaining agreement, nor have we experienced any work stoppage.

We believe that our employee relations are good.

Our research and development efforts begin with customer collaboration.

The insight that we gain through this collaboration helps us to develop solutions to address the unmet needs and challenges faced by our customers.

We continue to make significant investments in the vision of the autonomous pharmacy, in particular, in our cloud-based platform, in the further development of technology-enabled software and services, and in the evolution of our robotic automation capabilities, while continuing to enhance the other elements of our product and service portfolio.

The results of our research and development efforts will further drive the advancement of our cloud-based offerings and amplify the vision of the autonomous pharmacy.

Human Capital Management

As of December 31, 2020, we had approximately 2,860 employees worldwide (with approximately 2,470 in the United States and Canada), excluding individuals who are classified as temporary or contractors.

We regularly conduct employee engagement surveys, most recently via the Glint platform.

Through continued investment in talent processes and acting on employee feedback, we have achieved an overall employee satisfaction (ESAT) score of 77, which exceeds the average score of similarly-sized companies identified by Glint that use the Glint platform by four points.

We believe this reflects our positive employee relations and that Omnicell is viewed by our employees as a good place to work.

Compensation and Benefits

• We embrace a strong pay-for-performance total rewards philosophy that we believe is competitive, performance-based, and cost-effective.

We offer market-competitive pay and a comprehensive benefits package.

• Our quarterly bonus program is designed to incentivize our employees to focus on work that will further our strategic priorities.

• We offer reward and recognition programs that embed our core values into our culture and everything we do, allowing for peer-to-peer recognition and motivating our employees to continually work to advance our mission, vision, and values.

Health and Wellness

We offer a comprehensive wellness program designed to promote a healthy lifestyle, including exercise challenges, on-site gym facilities, virtual workouts, and health coaching.

In addition to making physical health a priority, we offer mental health counseling and resources, financial coaching, and Teladoc Health services.

Learning and Development

• Our Talent and Leadership development function plays a strategic role in helping us attract and retain talent.

We strive to develop career growth capabilities while delivering a consistent learning experience irrespective of role, function, or location.

• We invest in our employees’ learning through robust training programs including Omnicell University, our Core Values in Action training, our New Employee Orientation and our Leading at Omnicell training.

• Our People Manager Talent Development curriculum creates one unique global Omnicell approach to talent development.

It is designed to enable our organizational transformation by aligning how we lead across all levels.

Diversity, Equity, and Inclusion

Relationships Matter is one of our core values and that means we are people who care.

We value the whole person, not just the work person.

At Omnicell, we have always prohibited discrimination on the basis of any protected characteristic and make employment decisions on the basis of merit.

We strive to create and maintain a positive, supportive, inclusive, and diverse work environment.

Our different backgrounds, education, cultures, and experiences all contribute to the advancement of our business.

We realize we have an opportunity to take more action and that our journey to improve diversity, equity, and inclusion (“DEI”) at Omnicell will continue to evolve.

A focus on understanding our related data will be critical to our success.

With a continued commitment to DEI, we are taking the steps to build a truly diverse and inclusive culture and plan to create and launch a more comprehensive strategy that we anticipate publicizing in 2021.

Business under Government Contracts

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We assist healthcare facilities in financing their cash outlay requirements for the purchase of our systems by offering multi-year, non-cancelable sales contracts.

For additional information regarding these financing activities, refer to Note 1, Organization and Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements in this annual report.

Product Backlog

Product backlog is the dollar amount of medication management automation solutions and adherence tools for which we have purchase orders from our customers and for which we believe we will install, bill, and gain customer acceptance generally within one year.

Product backlog is the dollar amount of medication management automation solutions and adherence tools for which we have purchase orders from our customers and for which we believe the majority we will install, bill, and gain customer acceptance within one year.

Due to industry practice that allows customers to change order configurations with limited advance notice prior to shipment and occasional customer changes in installation schedules, we do not believe that backlog as of any particular date is necessarily indicative of future sales.

However, we do believe that backlog is an indication of a customer’s willingness to install our solutions.

However, we do believe that backlog is an indication of a customer’s

willingness to install our solutions.

Our product backlog was $924 million and $588 million as of December 31, 2020 and 2019, respectively.

What changed 10-K

Item 1. Business