In rude health

FRIDAY INTERVIEW: Richard J Meelia, chairman, Covidien plc:LOOKING OUT the window of the restaurant at Covidien's new customer support centre, the scene is one of a half-completed building site, with deep pits half-filled with water.

The healthcare group’s new state-of-the-art operation is one of a number of businesses whose presence points to a future for troubled developer Liam Carroll’s Cherrywood site. Officially opened this week, the pan-European customer services centre is the latest investment in Ireland by Covidien, the medical devices and supplies group that itself rose from wreckage – in this case, that of Tyco International.

Rich Meelia, Covidien’s chief executive, chairman and president, built the original Tyco Healthcare division. From a turnover of $600 million, the division has grown, largely through acquisition, into a $10 billion business.

The company was convulsed in 2002 when extravagant chief executive Dennis Kozlowski was accused of tapping millions in company money to fund his lavish lifestyle. When the company was split into three in 2007, Meelia was the only divisional head to remain in place.

“During that time, knowing we did nothing wrong, it was very unsettling. There were several of us who contemplated leaving because it was so oppressive but then we realised that if we did it would look funny. People would ask ‘why are they leaving?’

“So to stay there for our employees, for ourselves, and then to emerge as the leadership team was very gratifying. I believe in humility but I was very proud of our ability to launch Covidien.”

Initially domiciled in Bermuda, as part of Tyco, the company relocated its corporate headquarters to Dublin just over a year ago, despite US grumblings about corporate relocations. Meelia says Covidien could have gone back to the US but costs were so high shareholders would have objected. “The next alternative for us was to assess a location where we have a real presence, an environment that we can leverage to our benefit . . . and which had an established tax treaty with the US.

“It was Switzerland or Ireland and, for us, Ireland was hands down the best choice because of our existing operations here.”

In fact, Ireland hosts the third-largest geographic footprint in terms of Covidien’s global workforce – and the biggest in Europe.

Acknowledging the US Congress is likely to go after companies that left the US to avoid paying taxes, he says Covidien’s challenge is to explain, “That’s not us. We were never there. We are a three-year-old company. We made a move and that cost us a lot of money but it was the right move.”

Meelia was in Dublin this week for the opening of the customer services centre, where Taoiseach Brian Cowen did the honours. The last time Covidien was in the headlines here last May, it was over plans to cut close to 200 jobs in Cowen’s back yard, in Tullamore, where it had been the largest single employer.

The two events reflect the changing nature of both the company and the Irish economy. Tullamore, where the company had been since 1982, fell victim to competition. A necessary increase in automation meant fewer jobs. In the end, the voluntary redundancy package was oversubscribed. At Cherrywood, in south Dublin, the company has brought together 17 customer service operations from countries across Europe into one state-of-the-art centre which will eventually employ 200 people.

Meelia announced plans to invest €1.8 million in a medical technologies RD project with three Irish universities – the details will be made public in September.

Meelia is a lifer in the medical devices industry. Having left Boston College with an MBA in 1973, he joined American Health Products in a sales and marketing function. By 1991, he was president at Kendall Healthcare, the company whose acquisition marked the entry of Tyco into the healthcare sector.

The company grew by acquisitions and it continues to be acquisitive, but the model has changed dramatically under the new regime. Under Tyco, Meelia says, the company went after easy targets, big companies burdened with unnecessary costs whose removal immediately boosted the bottom line but held little long-term growth potential. Now, Covidien chases companies with growth potential.

“All our acquisitions have been and will continue to be focused on technology we believe will make a difference clinically in whatever disease state we are addressing,” Meelia says. And while Covidien doesn’t demand the “Tyco-era” return on investment in year one, it won’t accept dilution beyond the first couple of years.

Until now, its targets have largely been bolt-on acquisitions, companies in the $300-$500 million bracket. Earlier this month, however, it announced the $2.6 billion acquisition of ev3, a maker of stents and other medical devices in the vascular and neurovascular field.

“We really like that space,” he says.

Recession may be tough but Meelia takes a pragmatic view. “Conditions are difficult but we are very fortunate. We get a little spoiled because when things get bad for us, it means growth slows down a little bit, whereas you get into housing or some of these really cyclical industries, you know, they go down . . .”

Meelia himself has Irish connections on both sides, tracing roots back to Galway and to south Leinster.

He sees Ireland having a strong role to play in the company. “We are interested in leveraging our presence here for a lot of reasons. It is a very highly educated workforce and medical technology is a very big part of what goes on, so it would be crazy for us not to.

“And being very candid, the more we do here, the more presence we establish, the less issues we have with the US relative to what we are doing here as a US/Irish company.”

Since Covidien assumed the mantle of Tyco Healthcare, the Irish operations have benefited. In the last two years, Athlone was the centre of excellence for airways development, responsible for all product development.

Galway is a centre of excellence in manufacturing of ventilators. “When we acquired a company in France recently that made mid-range and low-end [home-use] ventilators, we moved that over to Galway,” he says.

He sees Ireland’s drive towards a smart economy as aligned with the aims of this company.

“What you are doing with a smart economy is no different than we are trying to do with our company because there is so much pressure on healthcare that those companies just offering more of the same are doomed; you have to offer something that makes a real difference clinically. Otherwise the price goes down, the profit goes down and the value goes down.”

With 43,000 people in about 160 companies producing over 50,000 different medical products, Covidien is no lightweight, but it has moved consciously up the technology ladder in recent years.

“Our focus is on the mid-tech – products used in critical care units and the operating room . . . The whole notion of us is to move into that mid-tech space rather than supplies. Ireland is almost a reflection of what you see in Covidien worldwide. There are some elements in the high end, some the low end and it is the lower end over time that are going to be the challenging ones for us.”

On The Record

Name:Richard J Meelia

Age:61

Position:chairman, president and chief executive of healthcare company Covidien plc

Family:Married to Judy for 38 years. They have three adult children and four grandchildren.

Something you might expect:As someone involved in the healthcare sector, it might be expected that Meelia is passionate about providing resources, both time and funding, to a number of philanthropic causes. He has spent much of his adult life working with underprivileged and/or disabled individuals.

Something that might surprise:Meelia is a fitness enthusiast, regularly competing in triathlons and road races, and a keen golfer.