Covidien spins off $2 billion pharma business

December 15, 2011
by Brendon Nafziger, DOTmed News Associate Editor
Covidien, one of the world's biggest suppliers of technetium-99m, said Thursday it will spin off its $2 billion pharmaceutical business into a stand-alone company.

José E. Almeida, Covidien's president and CEO, said the company decided to separate the pharmaceutical sector from its medical products segment because of "major differences" between the two businesses.

"While both businesses hold industry-leading positions, they have distinctly different business models, sales channels, customers, capital requirements and talent bases," he said in a statement.

The new company would be better able to bring drugs in the pipeline to market, and have more financial flexibility, the Dublin-based company said.

Analysts so far have been pretty positive about the announcement.

"[O]ver the last few years, the pharma business has been largely a distraction-- dragged down by product recalls, key component supply shortages, branded pharma sales erosion, generic price pressure and declining margins," Rick Wise, an analyst with Leerink Swann, an investment bank, said in a note Thursday. "With this move, COV will ultimately be able to focus even more energy on its core Medical Device business-- driving further growth and profitability expansion."

Covidien's medical products business, which includes its device segment, would have about $9.6 billion in annual sales, the bulk of it coming from the devices group, the company said.

Covidien expects spinning off the company to happen within the next year and a half. The company has also picked a new head for the pharmaceutical group, and said it would announce the name soon.

In addition to being a major supplier of technetium-99m, a derivative of molybdenum-99 and used in nuclear medicine imaging, Covidien's pharmaceutical business is one of the world's biggest generic drug suppliers. It also says it's one of the largest acetaminophen distributors in the world, and America's biggest supplier of opioid pain medications.

Covidien, formerly Tyco Healthcare, was itself the product of a spin-off, when Tyco International cut it loose in 2007.