Covidien, the US healthcare company, plans to spin off its pharmaceutical business as it looks to concentrate its efforts on medical devices.
The drug unit, which specialises in pain medicines and generics, generates about $2bn in annual sales and represents 17 per cent of Covidien’s current business. The business has been a drag on Covidien’s earnings and analysts have said that a spin-off would unlock value.
Covidien’s device business is a leading producer of diagnostic equipment and generates about $9.6bn in annual sales.
Covidien was created as a spin-off from Tyco, an industrial group, in 2007 and José Almeida, the former head of Covidien’s device business, was named chief executive last summer.
“We’ve evaluated whether to separate these businesses for several years, due to the major differences between the medical products and pharmaceutical industries,” said Mr Almeida on Thursday. “We believe that now is the right time to do so because we have significantly improved the operations, performance and pipeline of our pharmaceuticals business.”
Covidien said the spin-off to shareholders would allow the drug business to pursue faster growth outside the US and give it more flexibility to market the products in its pipeline.
“Given that pharma has been a drag on Covidien’s faster growing and more profitable medical devices business, we think investors will view today’s announcement positively,” said Adam Feinstein, analyst at Barclays Capital.
Shares of Covidien closed up 3.3 per cent to $43.55 on Thursday.