Covidien aims for AbbVie mk II with Mallinckrodt spinout


Give the people what they want. This old saw is applicable to more than just showbiz, it seems, and increasingly conglomerates are seeking to divide their pharmaceutical and medical device operations into separate businesses to appeal to ever more specific groups of investors.

Covidien is the latest company to follow Abbott’s lead in bisecting itself into a device developer and a pharma company, by planning to split off its drug business, Mallinckrodt, in late June. AbbVie’s shares have risen 30% since its divestment and, if Mallinckrodt can echo this, other small to mid-size conglomerates such as Baxter and Hospira could be tempted down the same path.

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The parallels between Abbott and Covidien are far from exact. Apart from the difference in size – the combined Abbott had a market cap of over $100bn whereas Covidien is currently worth $31bn – the Illinois giant split right down the middle, or very nearly, into two similarly sized concerns; Mallinckrodt represents only around 17% of Covidien’s total revenues.

The strategy could work for Covidien. Many of the larger groups have been divesting their smaller businesses; Pfizer disburdened itself of its animal health business and Johnson & Johnson is contemplating giving its diagnostics business the heave-ho (Forget big M&A, here comes the big divorce, February 14, 2013). There is no reason why the same idea would fail to pay off on a smaller scale.

There are challenges. Exalgo, an extended-release form of hydromorphone, came off patent in March, and though no generic has yet entered the arena its sales, forecast to hit $100m in fiscal 2013, will suffer erosion soon enough.

Nevertheless Covidien expects Mallinckrodt’s sales to grow by 7-11% in the second half of this year, with its speciality pharmaceuticals growing at 21-25%, boosted by sales of the spasticity drug Gablofen, which it obtained through the acquisition of CNS Therapeutics back in September. Mallinckrodt’s forecast expansion is somewhat better than the 4-5% sales growth predicted for the new slimmed-down version of Covidien.

If the move does work out, with Mallinckrodt growing like a mini-AbbVie, Baxter (42% medtech, according to EvaluateMedtech), Hospira (25% medtech) and perhaps even Bayer (4.1% medtech) might be persuaded that the scheme has merits. When the new-look Covidien and Mallinckrodt report third-quarter numbers in late July and give 2014 guidance in September, these companies, and others, will be watching closely.

To contact the writer of this story email Elizabeth Cairns in London at or follow @LizEPVantage on Twitter

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