Business as usual after Covidien spin-out

The firm’s chief executive says there are no plans to change the headquarters in Ireland

THE DECISION to spin out Covidien’s pharmaceuticals business is the first major shift in strategy by José Almeida since taking over the reins of the company back in July.

Almeida, who comes from the medical devices side of the business, succeeded Rich Meelia, the man who had led Covidien all through its time as Tyco Healthcare and then, in 2007, as an independently listed public company following the fallout from the Dennis Kozlowski scandal.

But the move to separate the pharma and devices business had long been expected by Wall Street and is unlikely to impact heavily on the company’s Irish operations, the vast bulk of which are focused on the devices end of the business.

Covidien has announced investments of close to €40 million in Ireland over the past two years – in a state-of-the-art customer service centre and in RD initiatives in-house, with academic institutions and in joint ventures with industry partners.

Speaking in Dublin recently, Almeida was full of praise for Ireland, hailing the “phenomenal work” done by successive generations of policymakers over the past 30 years.

“I don’t think many people in Ireland realise how well put together this plan was over time,” he said, describing the progression from the early years of the IDA when the focus was on industrialisation of a predominantly rural economy to the more recent focus on technology and biotech.

Ireland is important to Covidien in a number of ways. As it extricated itself from Tyco, it sought to relocate from its then base in Bermuda. Ireland was chosen over Switzerland on the basis that the company had a larger presence here. In fact, Ireland hosts the third-largest geographic footprint in terms of Covidien’s global workforce – and the biggest in Europe.

Under Meelia, Covidien built on that presence in part to persuade a sceptical Washington that it was not flying a flag of convenience. Almeida has no worries on that issue.

“We are an Irish company and there is no thinking or no thoughts about changing the company’s HQ. That’s not even a point for discussion. Like a multinational company, we face legislative challenges across the globe and those are no different because we are here in Ireland.”

He is particularly focused on the need to invest in technology to remain competitive, pointing to lessons learned in Tyco when the emphasis on acquisition meant RD spending was consistently reduced.

“We learned our lesson. When we became an independent public company, we started to invest in RD. We have taken that money and dispersed it in Ireland, China and India”, he said, noting that the company’s recently filed results point to an increase in RD spending of more than 30 per cent.

While opportunities in the emerging economies are very attractive, Almeida said the Irish RD investment was pitched at the higher end of the technology spectrum because of the practicalities of the market.

“Creating an RD group for advanced development here in Ireland is key for us because that is the future of our company, to be able to develop those technologies, not the ‘me toos’. Don’t try to create the feature in your product that is adding cost but not doing anything clinically for the patient.

“At the end of the day, the patient, the consultant, the provider of services, the payer – in most cases the government – all need to be in sync; everybody has to win.”

He said Ireland offered several advantages for companies like Covidien. “One is that you have strong universities here and you have the ability to develop that integral part of industry which is the talent coming from the universities and the association of companies and universities.

“That’s why coming here is not just about us just hiring a bunch of people to do RD; We’ll hire some but we will have other companies in Ireland hiring for us and doing the exchange [of research] so this is a great part of the programme.”

Increased regulation in the United States will, Almeida believes, open opportunities in Europe for companies to more efficiently develop, trial and commercialise new technologies.

And he had words of encouragement for the Government as it looks to drag itself out of the crisis caused by the collapse of the economy and the concern about the broader euro zone.

“The situation is tough but don’t let it deviate the industrial policy that has made Ireland so successful.

“The country has had a good progression from where it used to be [in the 1960s and early 1970s] to where it is today and into the future. The situation is tough for everyone, but it is going to get better. So don’t deviate, because the policy is robust and has been well executed.”