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Although its US home is in New England, and it has a product line called Puritan, Covidien is no pilgrim to the medical device marketplace. With annual sales approaching $12 billion and offerings that include thousands of different products and brands, Covidien is a top player in the medical device industry. The company supplies everything from disposable – more... medical products to surgical equipment and supplies. Customers include hospitals, surgical centers, and drug manufacturers, among others. It has nearly 50 global manufacturing sites and markets its products worldwide, although the US accounts for more than half of its sales. In a major move, the company plans to spin off its pharmaceuticals business.

IPO

Covidien in late 2011 announced plans to spin off its $2-billion-in-sales pharmaceuticals business into a stand-alone public company. The business, which generated 17% of Covidien's fiscal 2012 (ends September) sales, is a top producer of bulk acetaminophen and a top supplier of opioid pain medications in the US. The spin-off could take up to 18 months and requires regulatory approval.

Geographic Reach

Dublin-based Covidien rings up about 55% of its sales in the US. Europe is the firm's second-largest market, accounting for more than 20%, followed by the Asia-Pacific Region, representing about 16%.

Operations

The Medical device business, which includes endomechanical instruments, energy devices, and soft tissue repair products, accounts for more than two-thirds of Covidien's total sales. Pharmaceuticals represent 17%, while medical supplies, including nursing care and surgical products, represents about 15% of Covidien's total.

The company's medical devices segment, which brings in more than two-thirds of Covidien's total sales, provides products that include laparoscopic instruments and surgical staplers, LigaSure vessel sealing systems, and soft tissue repair products (V-Loc wound closure devices), vascular products (Pipeline Embolization Device; TurboHawk plaque excision) and Puritan Bennett ventilation products as well as sensors, monitors, and temperature management products (Nellcor; OxiMax). In 2011 the company's SpiderFX embolic protection device received FDA approval for use in lower extremity endovascular procedures.

The smaller medical supplies division develops, makes, and distributes nursing care products for managing incontinence, treating wounds (Curity and Kerlix brands), and enteral feeding systems; operating room supplies (electrodes, chart paper products); and such products as needles and syringes for OEMs, or other medical products manufacturers.

Financial Analysis

Covidien's sales and net income each increased by about 2% in fiscal 2012 (ends September) vs. the prior year. Medical device sales increased more than 3%, while sales of pharmaceuticals rose nearly 2% and medical supplies saw a drop off in sales of 2%. Sales of vascular products and energy devices both saw double-digit gains and drove the increase in the medical device business.

Covidien has been increasing its spending on research and development in recent years. In fiscal 2012 R&D expenditures totaled $623 million (more than 5% of sales) vs. $554 million and $447 million in 2011 and 2010, respectively.

Strategy

Covidien's growth regimen includes a steady diet of new product launches and acquisitions. Indeed, it has launched more than 100 new products since 2007 and new product sales have tripled over that time. The company's primary customers include hospitals, surgical centers, long-term care facilities, imaging centers, and drug manufacturers. Covidien often negotiates contracts through group purchasing organizations (GPOs), although it also sells its products through third-party distributors and direct sales representatives. Contracting with GPOs can be a bit of a double-edged sword for the company because, though they generally represent a large, diverse customer base requiring a wealth of medical supplies, they also exist to negotiate lower prices with suppliers like Covidien. GPO contracts are awarded on a category-by-category basis through competitive bidding; a process that tends to reduce the products' market prices. Despite an increasing number of its customers joining price-busting GPOs, Covidien has still increased its net sales revenue each year for the past six years.

Perhaps it is its dizzying array of inventory that helps keep Covidien in the black. The company manufactures more than 50,000 different medical devices and supplies, including electrodes, surgical kits, wound care dressings, needles, and syringes from Kendall, and wound closure and other surgical products. 

Mergers and Acquisitions

In 2012 the company acquired Israeli pulmonary device maker superDimension, which markets the i-Logic bronchoscopy system for lung lesion biopsies, for some $300 million. It then purchased another Israeli firm, Oridion Systems, which produces Microstream capnography (airway ventilation) monitors and modules, for about $300 million. Also in 2012 acquisitive Covidien bought medical device maker BARRX Medical. The $325 million purchase added minimally-invasive devices used in gastrointestinal endoscopy procedures. The company also acquired private respiratory ventilator systems maker Newport Medical for about $108 million.

In a larger than usual deal, Covidien purchased medical device firm ev3 for some $2.6 billion in mid-2010. The purchase expanded the company's vascular device offerings in the areas of neurovascular and peripheral vascular disease; it also strengthened Covidien's relationships with specialty surgeons, cardiologists, and radiologists. – less

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