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Covidien plc (COV)

The 30th Annual JPMorgan Chase Healthcare Conference

January 09, 2012 11:30 am ET


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


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


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

Good morning, everybody. I'm Mike Weinstein. We're going to go ahead and get started with our next session. It's my great pleasure to introduce the Chief Executive Officer of Covidien, Joe Almeida. Joe is going to give us a brief update on the company, and then we'll have a Q&A session across the hall. Thank you. Joe.

José E. Almeida

Michael. Good morning. I'm going to take the next 25 minutes to cover several topics I think will be of great importance to you today. I would like, before we start, to go over the forward-looking statements, if you'll read them.

We're going to be talking about the changing market dynamics. We get asked a lot of questions about pressuring in terms of volume, in terms of price. We're going to talk a little bit about that and how Covidien is going to deal with that in terms of long-term perspective for growth, top line and also bottom line. Go back and look at some of the performance that Covidien has demonstrated in the last 4 years, as well as what would be the growth drivers, so Covidien could continue to deliver sales and OI above market.

The changing market dynamics, the tailwinds are pretty clear. We still have the need for healthcare across the globe. You look at emerging markets. I was recently in Brazil about 3 weeks ago, and the ascension of middle class is unbelievable. And the need for healthcare is ever -- has not been so high in the 23, 25 years since I left the country. You look at the demographics across the globe, the aging population, so all the demographics are there. And so the demand for medical devices is still in place.

What concerns us is that there's a significant change in terms of market growth rate in some of the developed markets, like U.S. and Europe. We see that happen in the last 12 to 18 months. We also see a shift in the dynamics between what used to be a volume-driven business to a value-driven business. And that's key for us in of terms when we look forward, where Covidien put its monies and where we put our focus will be in areas that will bring that value instead of bringing only the volume.

And lastly, the environmental aspects of the regulatory aspects in all countries are being scrutinized in a much higher level. We always think that it's a great opportunity, and we invest significantly in emerging markets. But there are significant barriers to entry there, as well, not only in China but Brazil as well, places like India. So you've got to be able to have an organization that can cope with that. And these are the changes that concerns us, and we're adapting the company to continue to thrive in this environment.

So if you look at the strategic initiatives that we have, how do we position the company to win in this environment? First and foremost is the innovation. And innovation is not the launch of a new technology or a new product line extension that would just add volume to your sales reps' bag. The innovation is the ability to provide the products that are clinically more relevant than what's in the market today and has the ability to be cost-effective to the provider.

To be able to get into an innovation cycle that is effective, Covidien needs to continue to improve its ability to launch products on time and launch larger platforms every so often. So we have made tremendous progress since we went public in 2007. I'm happy with the progress, I'm now satisfied with the pace. We're going to continue to improve our ability to deliver those new products because the largest amount of value to any shareholder of Covidien is Covidien's ability to take our technology and put it in the hands of clinicians, technology that adds clinical value and economical value.

So if we look what we have done in the last couple of years in terms of product development and launches, we have in front of you an example why Covidien was so successful in bringing growth to our top line. The majority of the growth that you've seen in Covidien's top line the last 4 years is attributable to new products, and they are displayed here. I like also to give us some comfort that going into 2012 and 2013 and '14, we have the same focus in delivering new products.

The new products are not only coming from the legacy business that Covidien has, but also it's coming from the acquisitions that we made in the last 24 months, vis-à-vis, ev3, Somanetics, Aspect. Those business and those acquisitions are doing quite well and they have a significant contribution to Covidien's top line. So we have more than 100 products planned to launch in the next 2 years.

When it comes to Pharmaceutical, that is something that I'm amazed with about the pipeline that we're able to create in the last 2 years. If you think about, we have about 12 ANDAs in process. We have the Depomed patents that we acquired about 2 years ago. We have 2 products that will be launched within the next 18 to 36 months. And those look very, very promising. So the strategy for Pharmaceutical, when you shore up your efficiencies in all your operations and drive the growth of that business by bringing specific pain molecules to the market that's exclusive to us, is a winning proposition for that business.

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