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Covidien To Spin Off Pharmaceuticals Business - Update

12/15/2011 7:39 AM ET

Medical devices maker Covidien plc (COV: Quote) said Thursday that it plans to spin off its pharmaceuticals business into a standalone public company. The company noted that the transaction, if completed, would give both its businesses greater flexibility to focus on and pursue their respective growth strategies.

Covidien's pharmaceuticals business currently generates about $2 billion in annual sales, with about two-thirds derived from the U.S. market. On execution of the spin-off, the resulting Covidien medical products business would have annual sales of about $9.6 billion, based on 2011 reported sales, about evenly split between the U.S. and non-U.S. markets.

Covidien expects that the transaction will take the form of a distribution that will be tax-free to U.S. shareholders of new publicly traded stock in the new pharmaceuticals company. The company currently expects the completion of the transaction could take up to 18 months.

Covidien noted that the medical devices business segment would represent about 80 percent of the company's sales, with medical supplies comprising the remainder. According to the company, it would hold the number one or number two market positions in categories representing about 90 percent of its sales.

José Almeida, President and Chief Executive Officer of Covidien said, "We've evaluated whether to separate these businesses for several years, due to the major differences between the medical products and pharmaceutical industries. We believe that now is the right time to do so because we have significantly improved the operations, performance and pipeline of our pharmaceuticals business."

Covidien's pharmaceutical business is one of the world's largest producers of bulk acetaminophen, the largest U.S. supplier of opioid pain medications, and is among the top ten generic pharmaceutical makers in the U.S., based on prescriptions. Since 2008, the business has received approval from the U.S. Food and Drug Administration for eight new products, including two branded pain products launched in 2010.

In addition, the business is a supplier of generators used to produce technetium-99m, a critical diagnostic medical isotope. It also is the only manufacturer that offers a fully integrated system of diagnostic contrast media in prefilled syringes and injectors.

In mid-November, Covidien reported a 2 percent increase in profit for the fourth quarter from last year, by higher sales of medical devices. Covidien's net income for the fourth quarter was $451 million or $0.92 per share, up from $443 million or $0.89 per share in the year-ago period. Net sales for the quarter increased 15 percent to $3.08 billion from $2.67 billion in the previous-year quarter.

COV closed Wednesday's trading at $42.16, down $0.20 on a volume of 4.50 million shares.

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by RTT Staff Writer

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