Covidien Plans Spin-Off of Pharmaceuticals Business

its pharmaceutical business, making it an independent company and giving it room to focus on its medical devises division.

Jose Almeida, Covidien CEO, said Thursday at a press conference that the company had been considering the spin-off for some time because of the differences between the drugs and devices business.

"We have evaluated whether to separate these business for several years, due to the major difference between medical products and pharmaceutical industries," he said.  

Almeida said the medical products and drug businesses have different business models, sales channels, customers and capital requirements and demand different talents.

Covidien employs about 2,500 people in metro St. Louis, and a STLtoday.com report states that there will be no immediate impact on employment here, but that some jobs might be added as the spun-off firm sets up its own administrative operation. A St. Louis Business Journal report states that the spin offs name will likely be Mallinckrodt.

Covidien is based in Dublin, Ireland, makes medical devices and medical supplies in addition to drugs. The spun-off firm will have its legal headquarters in Ireland, largely for tax reasons, per the conference call.

The spinoff's U.S. operation will be based in Hazelwood, and its new CEO will work from here. 

Almeida said the pharmaceutical division's performance had improved in recent years, but reports a recent as this summer show that Covidien was still seeking .

"We're confident the business can now stand on its own," he said at the Thursday conference call.

Almeida said he has picked a CEO for the drug spinoff, although he didn't name the person, but described the person as a "strong leader" with "broad pharmaceutical experience." Almeida also said the new CEO said will join the spin-off from another company.

The pharmaceutical business has about $2 billion in sales, with two thirds of that in the U.S., compared to the medical devises side of more than $9 billion. It is a large provider of acetaminophen, the ingredient in Tylenol, and and the largest U.S. supplier of opioids, according to a Covidien statement. 

The business has received Food and Drug Administration approval for eight new products since 2008, the company states.

Although the spin off would be located at Covidien's Hazelwood headquarters, the company's pharmaceutical division also has a research operation in Webster Groves, a nuclear medicine facility in Maryland Heights and a plant north of downtown St. Louis.

The spinoff would be in the form of a stock distribution, tax free to U.S. shareholders, per the company statement. That tax-free aspect made the option of a spin-off superior to the alternative of selling the company, it also reads. 

The deal could take 18 months to complete and would need approval from regulators.