07.22.14
$10.24 Billion
KEY EXECUTIVES:
José E. Almeida, Board Chairman, President & CEO
Charles J. Dockendorff, Exec. VP and Chief Financial Officer
James C. Clemmer, President, Medical Supplies
Bryan C. Hanson, Group President, Surgical Solutions
Amy A. Wendell, Sr. VP, Strategy and Business Development
Michael Sgrignari, Sr. VP, Quality & Operations
Michael Tarnoff, M.D., F.A.C.S., Corporate Chief Medical Officer
Peter L. Wehrly, Group President, Developed Markets
Chris Barry, President, Advanced Surgical Technologies
NO. OF EMPLOYEES: 38,000
GLOBAL HEADQUARTERS: Dublin, Ireland
It has been seven years since Tyco spun off its healthcare business. The newly independent and publicly traded company—an amalgam of many smaller firms acquired over the years—was renamed Covidien, and management swiftly went about the work of rebranding and building market recognition for the new moniker. Industry insiders and baseball fans may remember that the company quickly bought a prime advertising spot on the 37-foot, 2-inch high, bright green left field wall (affectionately called the Green Monster) of Fenway Park in Boston, Mass., home of the Boston Red Sox.
How quickly situations in the medical device world can change—sort of. File this under “what’s old is new again.” Not a standalone entity for very long, Covidien plc (based in Ireland for tax reasons but primarily run out of an extensive complex on the South Shore of Massachusetts in the town of Mansfield) soon will become part of a larger organization once more. Medronic Inc., No. 4 on MPO’s list of leading medical device firms this year, has plans to acquire Covidien in a blockbuster deal announced in June this year worth nearly $43 billion. There’s not much overlap between the two medtech giants, which should make the marriage a smooth one, analysts have said. Medtronic’s interest in Covidien is the company’s overseas address. It’s called a corporate inversion—companies that purchase international targets and reincorporate abroad where there are lower tax rates. The deal still has to jump through regulatory hurdles before it is blessed by all concerned (for more information on the deal, see Top of the News on page 12).
Before this year’s medtech deal heard ‘round the world, fiscal 2013 (ended Sept. 30, 2013) was, for the most part, business as usual for Covidien—conservative growth, solid financial performance (even in the face of a challenging marketplace). and prolific new product releases.
Covidien separates its business segments into two categories.
Medical Devices—the largest of the two segments—includes endomechanical instruments (laparoscopic instruments, surgical staplers, interventional lung devices); energy devices (vessel sealing, electrosurgical devices, ablation products); soft-tissue repair products (sutures, mesh, biosurgery products and hernia mechanical devices); vascular products (compression, dialysis, venous insufficiency, thrombectomy, neurovascular and peripheral vascular products); oximetry and monitoring products (sensors, monitors, temperature management products); airway and ventilation products (breathing systems and inhalation therapy devices); and other medical products.
Medical Supplies includes nursing care products (incontinence, wound care, enteral feeding, urology and suction products); medical surgical products (operating room supply products and accessories); SharpSafety products (needles, syringes and sharps disposal products); and original equipment manufacturer (OEM) products (medical supplies manufactured for other medical products companies).
Roll ‘Em Out
Covidien’s numerous and varied technology categories and sectors churn out a steady stream of new technology. For FY13, Covidien spent more than $500 million on research and development activities—while not the only method for new product launches (think acquisition), it’s certainly a good start.
During the fiscal year, Covidien received U.S. Food and Drug Administration (FDA) 510(k) clearance for its Nellcor pulse oximetry portfolio. The line of devices is designed to measure arterial oxygen saturation. According to Covidien, it is the first company to receive clearance for a motion-tolerant bedside pulse oximeter portfolio that also is compliant with ISO 80601-2-61 (the ISO standard for pulse oximetry). Pulse oximeters provide early warning of dangerous respiratory complications, enabling clinicians to detect and address life-threatening events sooner. The portfolio of devices consists of the Nellcor bedside SpO2 (arterial hemoglobin) patient monitoring system, the Nellcor bedside respiratory patient monitoring system and the Nellcor N-600x pulse oximetry monitoring system. Nellcor devices rely on cardiac-based signals to provide a more accurate reading that closely is tied to the patient’s physiology. This, Covidien officials claim, drives consistent performance during various challenging conditions, such as patient motion, noise and low perfusion, which can impede the assessment of patient respiratory status. Motion-tolerant pulse oximetry is important for ensuring patient safety because patient movement can thwart accurate readings and delay diagnosis of serious respiratory compromise. The devices in the newly cleared Nellcor portfolio are indicated for prescription-use only for the continuous non-invasive monitoring of functional oxygen saturation of SpO2 and pulse rate. They are intended for neonatal, pediatric, and adult patients, and for well or poorly perfused patients in hospitals, hospital-type facilities, intra-hospital transport and home environments.
Covidien expanded its portfolio of radiofrequency ablation (RFA) catheters with the launch of the Barrx Channel RFA endoscopic catheter for treating Barrett’s esophagus and certain gastrointestinal bleeding disorders. Left untreated, Barrett’s esophagus, a precancerous condition of the esophageal lining, can lead to life-threatening cancer of the esophagus. The Barrx line of RFA catheters is based on the company’s proprietary technology that controls the amount of RF energy delivered to remove diseased tissue, thereby allowing the growth of healthy tissue. Endoscopic surgeons and gastroenterologists can shorten procedure time with the new Channel RFA device, as this patient-centric design allows for fewer endoscope introductions and removals (compared to other Barrx catheters). The technology in the Channel catheter enables a 7.5-millimeter wide electrode to easily pass through a 2.8-millimeter diameter endoscope channel. Other features and benefits of the new device include a transparent ablation electrode for enhanced visualization and a unique rotatable shaft design that provides additional control and maneuverability. The Barrx Channel RFA endoscopic catheter is available in the United States and Europe.
Covidien entered the fast-growing wound protector market with the launch of two new surgical access devices. Used in open and minimally invasive surgery, the access device protects the wound site from contamination and also provides excellent exposure and visualization. The SurgiSleeve wound protector is easy to place, and since the material is three times stronger on average than what is used in the leading competitive product, the likelihood of tearing during a procedure is reduced, according to the company. The company also released the Versaport bladeless optical 12 millimeter trocar, offering surgeons visualization during trocar placement to help clinicians minimize the risk of trocar injuries. It shares the same proprietary cannula design as the rest of Covidien’s optical and bladeless trocar family.
Three new hernia care products that address clinical needs in laparoscopic inguinal, ventral and umbilical hernia repair were introduced in FY13. These addressed needs include reduced recurrence, pain and risk of infection as well as shorter procedure time and lower cost.
ProGrip laparoscopic self-fixating mesh combines mesh and fixation into one device to increase the security of laparoscopic inguinal hernia repair, while eliminating the pain and reducing the costs associated with tack fixation. The ProGrip laparoscopic mesh provides tack-free fixation over the entire anatomy, including below the inguinal ligament where traditional tacks cannot be placed. The Parietex composite ventral patch is designed for optimal abdominal wall conformability in umbilical and small ventral hernia repair. With a unique design allowing for easy deployment and peripheral fixation, the Parietex composite ventral patch features a macroporous textile supporting consistent tissue integration and a clinically proven collagen film technology to minimize visceral attachment. AbsorbaTack 30X absorbable fixation device builds on the AbsorbaTack fixation line launched in 2008. The new AbsorbaTack 30X fixation device features an enhanced drive mechanism and new shaft for optimal tack deployment in challenging situations. All three products received FDA 510(k) clearance. In the United States, approximately 600,000 inguinal and 700,000 ventral hernia procedures are performed every year, according to industry sources. A hernia develops when the outer layers of the abdominal wall weaken, bulge or tear, with most hernias resulting from strain on the abdominal muscles. Hernias can grow larger over time and cause serious complications if not surgically repaired.
Growth Continues
For fiscal 2013, net sales of $10.24 billion were 4 percent above the $9.85 billion for FY12, with foreign exchange rate movement lowering the sales growth rate by two percentage points. The company reported operating income of $2.13 billion in fiscal 2013, versus $2.09 billion for the prior year. Net income was $1.7 billion, down from $1.9 billion in 2012. Fiscal 2013 diluted GAAP earnings per share from continuing operations were $3.40, versus $3.37 in 2012.
For fiscal 2013, sales for the company’s Medical Devices unit climbed 5 percent to $8.49 billion from $8.11 billion a year ago.
Foreign exchange rate movement reduced the sales growth rate by two percentage points. Sales outside the United States outpaced domestic sales. Non-U.S. sales for the Medical Devices group were $4.8 billion, up 9 percent, compared to U.S.-based sales of $3.66 billion, which slipped 1 percent. Most of the key product groups in the Medical Devices sector reported gains. Sales of endomechanical instruments grew 6 percent to $2.48 billion. Soft-tissue repair product sales grew by only 1 percent to $890 million. Energy device sales increased 7 percent to $1.39 billion. Oximetry and monitoring product sales rose 12 percent to $969 million. Airway and ventilation device sales were up 3 percent for the year to $763 million. Sales of vascular products increased 3 percent to $1.65 billion.
For fiscal 2013, Medical Supplies category sales were $1.75 billion—essentially unchanged from 2012’s $1.74 billion. Higher sales of nursing care products, led by enteral feeding, were offset by decreased sales of OEM, medical surgical and SharpSafety products. For Medical Supplies, the United States was responsible for the lion’s share of sales—$1.54 billion—flat compared to 2012. Sales outside the United States grew slightly (1 percent) to $199 million.
For the company as a whole, U.S. and international sales were nearly even. U.S. sales were $5.21 billion (flat compared to 2012), while international revenue was $5.02 billion (up 9 percent).
A Legal Win
In May 2013, after nearly nine years of litigation, Covidien won a patent infringement lawsuit against Ethicon Endo-Surgery Inc., a Johnson & Johnson company. In 2004, Covidien sued over Ethicon’s Harmonic line of ultrasonic surgical products.
The patents-in-suit are titled “Ultrasonic dissection and coagulation system” and “Ultrasonic curved blade.” While Covidien argued that Ethicon’s devices infringed upon its patents, Ethicon attempted to use an “obviousness” defense. Determining legal obviousness requires considering whether two or more pieces of prior art could be combined, or a single piece of prior art could be modified, to produce the claimed invention. Ethicon argued that its devices combined existing non-ultrasonic, laparoscopic technologies in such a way that would have been obvious and therefore Covidien’s patents were, effectively, unfair.
“Though the simplicity of this argument seems tempting, this is insufficient to make a clear and convincing case that the patents-in-suit ‘only unite old elements with no change in their respective functions,’” U.S. District Judge Janet Bond Arterton wrote in the ruling. Arterton also said Ethicon failed to reasonably show that an engineer of ordinary skill would have seen a benefit to using curved blades, dual cam mechanisms, a rotating blade and clamp, a device that fits down a 5-millimeter trocar and the use of a tube-in-tube design, as the patents describe. Proving this was an essential component to the obviousness defense.
The judge held that Covidien, known as Tyco Healthcare Group LP when the suit was initiated, proved infringement of all asserted claims of the patents-in-suit. The federal court awarded Covidien a $176.5 million verdict upon ruling that several claims of Covidien’s patents were valid, enforceable, and infringed by Ethicon. The amount of the verdict was based on an 8 percent royalty rate on infringing sales through March 2012, plus prejudgment interest. Eight percent of infringing sales from April 1, 2004, to March 31, 2012, yields royalty damages of $140 million, according to the court’s opinion. The prejudgment interest amounts to $36.5 million. The amount remains under appeal.
Acquisition, Expansion & Sales
In January 2013, Covidien announced plans to buy CV Ingenuity, a drug-coated balloon manufacturer based in Fremont, Calif. Financial terms of the transaction were not disclosed. The CV Ingenuity business became part of Covidien’s Vascular product line in its Medical Devices segment. CV Ingenuity’s core technology—though still in the investigational phase—is a drug-coated balloon (DCB) the company calls a “novel, proprietary, tunable, rapid-release system.” Covidien planned to increase research and development spending for the next several years to fund the clinical development of CV Ingenuity technologies. Covidien does not expect FDA approval for a DCB product based on CV Ingenuity technology until fiscal 2017.
The fiscal year also included expansion in growth markets.
Covidien opened a R&D facility in South Korea. Called, appropriately, the Covidien Center of Innovation Korea (CCI Korea), the facility is the first such location for the company in Korea. With a total investment of $21 million planned over a three-year period, CCI Korea is a high-tech medical training center focused on raising awareness of various disease states and providing opportunities for advancing healthcare professionals’ capabilities by creating access to a full-range of Covidien’s medical devices
CCI Korea spans an area of more than 65,000 square feet and includes a surgical lab with 11 operating stations; an intensive care unit (ICU) lab with two ICU stations and a human patient simulator; as well as an auditorium with seating capacity for 112 people, which has 3-D/high-definition display technology and a state-of-the-art, optimized sound system to provide an immersive and experiential training environment.
Covidien signed two memorandums of understanding with the Korean Surgical Society and the Korean Society for Thoracic & Cardiovascular Surgery. All healthcare professionals affiliated with the two societies will experience CCI Korea as part of their mandatory certification programs. Covidien planned to continue to collaborate with Korean medical societies for training programs and new product development at CCI Korea, with a focus on promoting national health and advancing medical technology in the country.
In July 2013, Covidien completed the separation of its pharmaceuticals business, which is now held by Mallinckrodt plc, a new independent company. The company announced in December 2011 that it planned to spin-off the Pharmaceuticals business. The businesses had distinctly different business models, sales channels, customers and capital requirements. In addition, their respective innovation pipelines differed substantially in length, regulatory approval requirements, possible risks and potential returns. The spin-off enabled both businesses to pursue their own strategic and operational plans, including setting optimal levels of investment in research and development and creating business-appropriate capital structures.
KEY EXECUTIVES:
José E. Almeida, Board Chairman, President & CEO
Charles J. Dockendorff, Exec. VP and Chief Financial Officer
James C. Clemmer, President, Medical Supplies
Bryan C. Hanson, Group President, Surgical Solutions
Amy A. Wendell, Sr. VP, Strategy and Business Development
Michael Sgrignari, Sr. VP, Quality & Operations
Michael Tarnoff, M.D., F.A.C.S., Corporate Chief Medical Officer
Peter L. Wehrly, Group President, Developed Markets
Chris Barry, President, Advanced Surgical Technologies
NO. OF EMPLOYEES: 38,000
GLOBAL HEADQUARTERS: Dublin, Ireland
It has been seven years since Tyco spun off its healthcare business. The newly independent and publicly traded company—an amalgam of many smaller firms acquired over the years—was renamed Covidien, and management swiftly went about the work of rebranding and building market recognition for the new moniker. Industry insiders and baseball fans may remember that the company quickly bought a prime advertising spot on the 37-foot, 2-inch high, bright green left field wall (affectionately called the Green Monster) of Fenway Park in Boston, Mass., home of the Boston Red Sox.
How quickly situations in the medical device world can change—sort of. File this under “what’s old is new again.” Not a standalone entity for very long, Covidien plc (based in Ireland for tax reasons but primarily run out of an extensive complex on the South Shore of Massachusetts in the town of Mansfield) soon will become part of a larger organization once more. Medronic Inc., No. 4 on MPO’s list of leading medical device firms this year, has plans to acquire Covidien in a blockbuster deal announced in June this year worth nearly $43 billion. There’s not much overlap between the two medtech giants, which should make the marriage a smooth one, analysts have said. Medtronic’s interest in Covidien is the company’s overseas address. It’s called a corporate inversion—companies that purchase international targets and reincorporate abroad where there are lower tax rates. The deal still has to jump through regulatory hurdles before it is blessed by all concerned (for more information on the deal, see Top of the News on page 12).
Before this year’s medtech deal heard ‘round the world, fiscal 2013 (ended Sept. 30, 2013) was, for the most part, business as usual for Covidien—conservative growth, solid financial performance (even in the face of a challenging marketplace). and prolific new product releases.
Covidien separates its business segments into two categories.
Medical Devices—the largest of the two segments—includes endomechanical instruments (laparoscopic instruments, surgical staplers, interventional lung devices); energy devices (vessel sealing, electrosurgical devices, ablation products); soft-tissue repair products (sutures, mesh, biosurgery products and hernia mechanical devices); vascular products (compression, dialysis, venous insufficiency, thrombectomy, neurovascular and peripheral vascular products); oximetry and monitoring products (sensors, monitors, temperature management products); airway and ventilation products (breathing systems and inhalation therapy devices); and other medical products.
Medical Supplies includes nursing care products (incontinence, wound care, enteral feeding, urology and suction products); medical surgical products (operating room supply products and accessories); SharpSafety products (needles, syringes and sharps disposal products); and original equipment manufacturer (OEM) products (medical supplies manufactured for other medical products companies).
Roll ‘Em Out
Covidien’s numerous and varied technology categories and sectors churn out a steady stream of new technology. For FY13, Covidien spent more than $500 million on research and development activities—while not the only method for new product launches (think acquisition), it’s certainly a good start.
During the fiscal year, Covidien received U.S. Food and Drug Administration (FDA) 510(k) clearance for its Nellcor pulse oximetry portfolio. The line of devices is designed to measure arterial oxygen saturation. According to Covidien, it is the first company to receive clearance for a motion-tolerant bedside pulse oximeter portfolio that also is compliant with ISO 80601-2-61 (the ISO standard for pulse oximetry). Pulse oximeters provide early warning of dangerous respiratory complications, enabling clinicians to detect and address life-threatening events sooner. The portfolio of devices consists of the Nellcor bedside SpO2 (arterial hemoglobin) patient monitoring system, the Nellcor bedside respiratory patient monitoring system and the Nellcor N-600x pulse oximetry monitoring system. Nellcor devices rely on cardiac-based signals to provide a more accurate reading that closely is tied to the patient’s physiology. This, Covidien officials claim, drives consistent performance during various challenging conditions, such as patient motion, noise and low perfusion, which can impede the assessment of patient respiratory status. Motion-tolerant pulse oximetry is important for ensuring patient safety because patient movement can thwart accurate readings and delay diagnosis of serious respiratory compromise. The devices in the newly cleared Nellcor portfolio are indicated for prescription-use only for the continuous non-invasive monitoring of functional oxygen saturation of SpO2 and pulse rate. They are intended for neonatal, pediatric, and adult patients, and for well or poorly perfused patients in hospitals, hospital-type facilities, intra-hospital transport and home environments.
Covidien expanded its portfolio of radiofrequency ablation (RFA) catheters with the launch of the Barrx Channel RFA endoscopic catheter for treating Barrett’s esophagus and certain gastrointestinal bleeding disorders. Left untreated, Barrett’s esophagus, a precancerous condition of the esophageal lining, can lead to life-threatening cancer of the esophagus. The Barrx line of RFA catheters is based on the company’s proprietary technology that controls the amount of RF energy delivered to remove diseased tissue, thereby allowing the growth of healthy tissue. Endoscopic surgeons and gastroenterologists can shorten procedure time with the new Channel RFA device, as this patient-centric design allows for fewer endoscope introductions and removals (compared to other Barrx catheters). The technology in the Channel catheter enables a 7.5-millimeter wide electrode to easily pass through a 2.8-millimeter diameter endoscope channel. Other features and benefits of the new device include a transparent ablation electrode for enhanced visualization and a unique rotatable shaft design that provides additional control and maneuverability. The Barrx Channel RFA endoscopic catheter is available in the United States and Europe.
Covidien entered the fast-growing wound protector market with the launch of two new surgical access devices. Used in open and minimally invasive surgery, the access device protects the wound site from contamination and also provides excellent exposure and visualization. The SurgiSleeve wound protector is easy to place, and since the material is three times stronger on average than what is used in the leading competitive product, the likelihood of tearing during a procedure is reduced, according to the company. The company also released the Versaport bladeless optical 12 millimeter trocar, offering surgeons visualization during trocar placement to help clinicians minimize the risk of trocar injuries. It shares the same proprietary cannula design as the rest of Covidien’s optical and bladeless trocar family.
Three new hernia care products that address clinical needs in laparoscopic inguinal, ventral and umbilical hernia repair were introduced in FY13. These addressed needs include reduced recurrence, pain and risk of infection as well as shorter procedure time and lower cost.
ProGrip laparoscopic self-fixating mesh combines mesh and fixation into one device to increase the security of laparoscopic inguinal hernia repair, while eliminating the pain and reducing the costs associated with tack fixation. The ProGrip laparoscopic mesh provides tack-free fixation over the entire anatomy, including below the inguinal ligament where traditional tacks cannot be placed. The Parietex composite ventral patch is designed for optimal abdominal wall conformability in umbilical and small ventral hernia repair. With a unique design allowing for easy deployment and peripheral fixation, the Parietex composite ventral patch features a macroporous textile supporting consistent tissue integration and a clinically proven collagen film technology to minimize visceral attachment. AbsorbaTack 30X absorbable fixation device builds on the AbsorbaTack fixation line launched in 2008. The new AbsorbaTack 30X fixation device features an enhanced drive mechanism and new shaft for optimal tack deployment in challenging situations. All three products received FDA 510(k) clearance. In the United States, approximately 600,000 inguinal and 700,000 ventral hernia procedures are performed every year, according to industry sources. A hernia develops when the outer layers of the abdominal wall weaken, bulge or tear, with most hernias resulting from strain on the abdominal muscles. Hernias can grow larger over time and cause serious complications if not surgically repaired.
Growth Continues
For fiscal 2013, net sales of $10.24 billion were 4 percent above the $9.85 billion for FY12, with foreign exchange rate movement lowering the sales growth rate by two percentage points. The company reported operating income of $2.13 billion in fiscal 2013, versus $2.09 billion for the prior year. Net income was $1.7 billion, down from $1.9 billion in 2012. Fiscal 2013 diluted GAAP earnings per share from continuing operations were $3.40, versus $3.37 in 2012.
For fiscal 2013, sales for the company’s Medical Devices unit climbed 5 percent to $8.49 billion from $8.11 billion a year ago.
Foreign exchange rate movement reduced the sales growth rate by two percentage points. Sales outside the United States outpaced domestic sales. Non-U.S. sales for the Medical Devices group were $4.8 billion, up 9 percent, compared to U.S.-based sales of $3.66 billion, which slipped 1 percent. Most of the key product groups in the Medical Devices sector reported gains. Sales of endomechanical instruments grew 6 percent to $2.48 billion. Soft-tissue repair product sales grew by only 1 percent to $890 million. Energy device sales increased 7 percent to $1.39 billion. Oximetry and monitoring product sales rose 12 percent to $969 million. Airway and ventilation device sales were up 3 percent for the year to $763 million. Sales of vascular products increased 3 percent to $1.65 billion.
For fiscal 2013, Medical Supplies category sales were $1.75 billion—essentially unchanged from 2012’s $1.74 billion. Higher sales of nursing care products, led by enteral feeding, were offset by decreased sales of OEM, medical surgical and SharpSafety products. For Medical Supplies, the United States was responsible for the lion’s share of sales—$1.54 billion—flat compared to 2012. Sales outside the United States grew slightly (1 percent) to $199 million.
For the company as a whole, U.S. and international sales were nearly even. U.S. sales were $5.21 billion (flat compared to 2012), while international revenue was $5.02 billion (up 9 percent).
A Legal Win
In May 2013, after nearly nine years of litigation, Covidien won a patent infringement lawsuit against Ethicon Endo-Surgery Inc., a Johnson & Johnson company. In 2004, Covidien sued over Ethicon’s Harmonic line of ultrasonic surgical products.
The patents-in-suit are titled “Ultrasonic dissection and coagulation system” and “Ultrasonic curved blade.” While Covidien argued that Ethicon’s devices infringed upon its patents, Ethicon attempted to use an “obviousness” defense. Determining legal obviousness requires considering whether two or more pieces of prior art could be combined, or a single piece of prior art could be modified, to produce the claimed invention. Ethicon argued that its devices combined existing non-ultrasonic, laparoscopic technologies in such a way that would have been obvious and therefore Covidien’s patents were, effectively, unfair.
“Though the simplicity of this argument seems tempting, this is insufficient to make a clear and convincing case that the patents-in-suit ‘only unite old elements with no change in their respective functions,’” U.S. District Judge Janet Bond Arterton wrote in the ruling. Arterton also said Ethicon failed to reasonably show that an engineer of ordinary skill would have seen a benefit to using curved blades, dual cam mechanisms, a rotating blade and clamp, a device that fits down a 5-millimeter trocar and the use of a tube-in-tube design, as the patents describe. Proving this was an essential component to the obviousness defense.
The judge held that Covidien, known as Tyco Healthcare Group LP when the suit was initiated, proved infringement of all asserted claims of the patents-in-suit. The federal court awarded Covidien a $176.5 million verdict upon ruling that several claims of Covidien’s patents were valid, enforceable, and infringed by Ethicon. The amount of the verdict was based on an 8 percent royalty rate on infringing sales through March 2012, plus prejudgment interest. Eight percent of infringing sales from April 1, 2004, to March 31, 2012, yields royalty damages of $140 million, according to the court’s opinion. The prejudgment interest amounts to $36.5 million. The amount remains under appeal.
Acquisition, Expansion & Sales
In January 2013, Covidien announced plans to buy CV Ingenuity, a drug-coated balloon manufacturer based in Fremont, Calif. Financial terms of the transaction were not disclosed. The CV Ingenuity business became part of Covidien’s Vascular product line in its Medical Devices segment. CV Ingenuity’s core technology—though still in the investigational phase—is a drug-coated balloon (DCB) the company calls a “novel, proprietary, tunable, rapid-release system.” Covidien planned to increase research and development spending for the next several years to fund the clinical development of CV Ingenuity technologies. Covidien does not expect FDA approval for a DCB product based on CV Ingenuity technology until fiscal 2017.
The fiscal year also included expansion in growth markets.
Covidien opened a R&D facility in South Korea. Called, appropriately, the Covidien Center of Innovation Korea (CCI Korea), the facility is the first such location for the company in Korea. With a total investment of $21 million planned over a three-year period, CCI Korea is a high-tech medical training center focused on raising awareness of various disease states and providing opportunities for advancing healthcare professionals’ capabilities by creating access to a full-range of Covidien’s medical devices
CCI Korea spans an area of more than 65,000 square feet and includes a surgical lab with 11 operating stations; an intensive care unit (ICU) lab with two ICU stations and a human patient simulator; as well as an auditorium with seating capacity for 112 people, which has 3-D/high-definition display technology and a state-of-the-art, optimized sound system to provide an immersive and experiential training environment.
Covidien signed two memorandums of understanding with the Korean Surgical Society and the Korean Society for Thoracic & Cardiovascular Surgery. All healthcare professionals affiliated with the two societies will experience CCI Korea as part of their mandatory certification programs. Covidien planned to continue to collaborate with Korean medical societies for training programs and new product development at CCI Korea, with a focus on promoting national health and advancing medical technology in the country.
In July 2013, Covidien completed the separation of its pharmaceuticals business, which is now held by Mallinckrodt plc, a new independent company. The company announced in December 2011 that it planned to spin-off the Pharmaceuticals business. The businesses had distinctly different business models, sales channels, customers and capital requirements. In addition, their respective innovation pipelines differed substantially in length, regulatory approval requirements, possible risks and potential returns. The spin-off enabled both businesses to pursue their own strategic and operational plans, including setting optimal levels of investment in research and development and creating business-appropriate capital structures.