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COV to Acquire CNS Therapeutics - Analyst Blog

By: Zacks.com
Posted: 9/25/2012 3:35:00 PM
Referenced Stocks: BCR;BDX;COV;JNJ

Recently, Mallinckrodt, the Pharmaceuticals business of Covidien plc ( COV ), announced a definitive deal to acquire St. Paul Minnesota-based specialty pharmaceutical company, CNS Therapeutics, Inc. for roughly $100 million. The acquisition is expected to close by the end of 2012, subject to certain terms and conditions.

Privately-owned CNS Therapeutics develops and markets products specifically intended for site-specific delivery to the central nervous system to treat intractable chronic pain and neurological disorders. The company's key product line viz. Gablogen (baclofen injection) is FDA-approved and is used to treat severe spasticity. Moreover, CNS is currently developing a number of pain and spasticity products to leverage growth.

Acquisition to Boost Specialty Pharmaceuticals Offerings

Covidien plans to integrate the CNS Therapeutic business with its Specialty Pharmaceuticals division, within the Pharmaceutical business, to capitalize on its therapeutic expertise. The inclusion of CNS Therapeutic's marketed product along with its solid pipeline should boost Mallinckrodt's pain management branded product portfolio.

However, Covidien does not expect the deal to be materially accretive to its fiscal 2013 sales and earnings, assuming that the transaction would be completed in the fourth quarter of calendar year 2012.

Mallinckrodt is a leading manufacturer of bulk acetaminophen in the world and the largest supplier of opioid pain management drugs in the U.S. It also features in the top 10 list of prescription-based pharmaceuticals manufacturers in the U.S. Covidien is looking to divest Mallinckrodt and convert it into a stand-alone company by mid-2013.

In the last reported third quarter of fiscal 2012, revenues from Covidien's Pharma segment remained flat year over year at $501 million. Robust gains in the Specialty Pharmaceuticals business were offset by lower Contrast Product sales. Specialty Pharmaceuticals sales surged 21% to $145 million spurred by solid revenue from the Exalgo and Pennsaid products.

Covidien is a leading developer, manufacturer and distributor of medical devices and services on a global scale. Its business segments overlap with the business of its competitors such as Becton, Dickinson and Company ( BDX ), Johnson and Johnson ( JNJ ) and CR Bard Inc. ( BCR ) among others.

Covidien remains committed to rolling out new products and technologies, focusing on emerging markets, and boosting market share in core segments through investments in sales and marketing infrastructure. Management expects that a focus on product innovation, aggressive portfolio management and optimal spending on future investments will yield positive results in the long run.

However, sustained pricing/procedure volume pressure, fluctuating foreign exchange rates, a sluggish U.S. and European economy represent major headwinds.  We currently have a Neutral recommendation on Covidien, which carries a short-term Zacks #3 Rank (Hold rating).


 
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