Just a year removed from its amicable split-off from Tyco International (Pembroke, Bermuda), Covidien (Mansfield, Massachusetts) finds itself in a rather unique situation. On one hand, the company is enjoying more freedom to grow the business, but it still has to, in the words of one company exec, "play catch-up" to make sure the business grows according to its well-structured plan.
The company took a huge step toward that end yesterday by launching Covidien Ventures, a corporate venture funding vehicle.
Covidien Ventures will invest in areas of strategic importance to the company, with the goal of providing early exposure to innovative technologies and enhancing market intelligence in healthcare products.
"Our areas of strategic importance include medical devices, imaging, and pharmaceuticals," Bruce Farmer, VP of public relations, told Medical Device Daily on Tuesday. "We formed the venture fund to aid in the development of new and emerging markets."
Covidien Ventures will be managed by Daniel Sheehan, VP of corporate venture capital, who recently joined Covidien from Affinity Capital Management. Sheehan, who has 20 years of experience in venture capital, business development and investment banking, will direct the new fund and lead the investment process for Covidien.
"Covidien Ventures will allow us to make early-stage investments and investigate emerging technologies in the healthcare areas of interest to Covidien," said Amy Wendell, senior VP, corporate strategy and business development. "This exposure could potentially lead to our acquiring technology, intellectual property or start-up companies to expand our product portfolio and accelerate business growth."
One of the goals, however, isn't to reinvent the wheel, according to Farmer.
"One of the ways to do this is to find these technologies already out there in their early stages," Farmer said. "We haven't made any investments yet. From our standpoint (CV) is just up and running."
He added that this was not a venture fund and that each investment would stand on its own and be evaluated on how much money was being put into it.
Since the separation from Tyco, the company has performed better than expected, according to some analysts. It formally split from Tyco last year (Medical Device Daily, July 6, 2007).
The company reported third-quarter net sales rising 14% to $2.6 billion from $2.3 billion a year earlier, driven by higher volume and new products, and an operating income of $545 million vs. a loss of $761 million in the prior-year period (MDD, Aug. 18, 2008).
For the first nine months of fiscal 2008, sales of $7.3 billion were 11% above the $6.6 billion in the prior year, with operating income of $1.4 billion vs. $199 million a year earlier, and diluted EPS from continuing operations of $2.03 vs. a loss of 86 cents a share in the comparable period.
While the company was attached to Tyco, it feverishly wrestled with sluggish revenue growth and declining profitability because of under-investment. In 2006, the company had $9.65 billion in sales — a paltry increase from the $9.54 billion in sales it did in 2005.
The goal, Covidien officials say, is to push revenue growth into the mid-single digits within the next few years.