Covidien plc. (COV)

COV 
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Exchange: NYSE
Industry: Health Care
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Covidien plc (COV)

December 15, 2011 8:00 am ET

Executives

Charles J. Dockendorff - Chief Financial Officer and Executive Vice President

José E. Almeida - Chief Executive Officer, President and Director

Coleman N. Lannum - Vice President of Investor Relations

Analysts

Matthew J. Dodds - Citigroup Inc, Research Division

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Unknown Analyst

Frederick A. Wise - Leerink Swann LLC, Research Division

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

Matthew Taylor - Barclays Capital, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Jason Wittes - Caris & Company, Inc., Research Division

David R. Lewis - Morgan Stanley, Research Division

Raj Denhoy - Jefferies & Company, Inc., Research Division

Lawrence S. Keusch - Morgan Keegan & Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Covidien plc Investor Conference Call. My name is Tasha, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the call over to Mr. Coleman Lannum, Vice President of Investor Relations. Please proceed.

Coleman N. Lannum

Thanks, Tasha, and good morning, everyone. Thank you for joining us this morning, particularly on such short notice, and my apologies for the fact that the call is starting a few minutes late. We're coming to you today from our pharmaceutical headquarters just outside of St. Louis. With me today are Joe Almeida, Covidien's President and CEO; and Chuck Dockendorff, our Chief Financial Officer. The press release announcing our intention to spin-off the pharmaceuticals business was issued earlier this morning and is available on our website and on the Newswires. We've also made some additional material available on our website to assist your analysis. During today's call, we'll make some forward-looking statements and it's possible that actual results could differ materially from our current expectations. Please refer to the cautionary statements contained in our SEC filings for more detailed explanation of the inherent limitations of such forward-looking statements.

Let me also discuss some non-GAAP financial measures with respect to our performance today. A discussion of our non-GAAP measures can be found in the Investor Relations section of our website, covidien.com. Following the brief comments this morning from Joe and Chuck, we'll open up the lines for Q&A. We're going to try to conclude the call promptly at 9:00, so we'd appreciate it if you can keep your questions focused specifically on today's announcement.

Now I'll turn it over to Joe for some initial commentary. Joe?

José E. Almeida

Thanks, Cole. In the next few minutes, Chuck and I will provide some background and address the 4 questions you'll likely have regarding today's announcement. Why? Why now? When? And what are the financial implications? I will handle the first 2 and Chuck will address the last 2. This morning's announcement regarding our pharmaceuticals segment comes after several years of planning and evaluation. As you know, there are significant differences between Medical Devices and Pharmaceuticals. Our Medical Devices and Pharmaceuticals both hold industry-leading positions. They have quite different business models, channels, customers, capital requirements and talent basis. They also have innovation pipelines that differ substantially in regulatory approval requirements, possible risks and potential returns. As you may know, we hold regular reviews of our entire portfolio to uncover strengths and areas of -- for investment and opportunities, be they internal or external.

These periodic evaluations have led us to identify a number of growth-driving investments, as well as several promising acquisitions opportunities. This process also helps us target underperforming areas of our business. To that end, looking back a few years, Pharmaceuticals was certainly on that list of underperformers. Our pharmaceuticals business suffered from a number of product recalls, on-again off-again shortages of key isotope to produce our generators, declining profit margins particularly in imaging a limit pipeline in this sluggish revenue growth. While we might have wanted to separate this business back then, the operating profile was not sufficient for a standalone public company. Today, the picture's very different. The business is well positioned in delivering good results. The pharma business currently ranks #1 globally in both Radiopharmaceuticals and Active Pharmaceutical Ingredients, and has top tier performing contracts for -- in Contrast Products and pain management. We are one of the world's largest producers of both acetaminophen and the largest U.S. supplier of opioid pain medications.

Over the last several years, we have made major strategic improvement in all aspects of our Pharmaceuticals operation. We've streamlined manufacturing, pruned low margin products from the portfolio, significantly improved the profitability of the imaging business, made investment in selling, marketing and research and development to support expansion in branded pain medication. We expanded Medical Affairs including the regulatory performance. We have embraced risk evaluation and mediation strategies, REMS and safe use initiatives including the establishment of our industry-leading CARES, Collaborating and Acting Responsibly to Ensure Safety, alliance to promote education, innovation and collaboration among healthcare professionals, people with pain, safe use advocacy groups and manufacturers. We also strengthened the business by reshaping the pharmaceuticals portfolio, diverse nonstrategic Specialty Chemicals business and the low profit U.S. radiopharmacies network. To address the limited pipeline, we licensed [indiscernible] technology that has brought us 2 new pain management products, EXALGO and PENNSAID. Both are performing well in the marketplace which was launched 18 months ago. We also launched generic versions of ACTIQ fentanyl lozenge and DURAGESIC fentanyl patch to complement our generics portfolio. We expect the continued performance of these new products to generate very good growth for our Specialty Pharmaceuticals line in 2012 and 2013. Our expanded research and development and Business Development organizations also have brought us several promising opportunities, currently clinical trials and in development for future pain management offerings, both branded and generic.

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