Segment makes about $2 billion in annual sales, with two-thirds coming from the U.S.

Covidien says that it plans to spin off its pharmaceuticals business into a stand-alone public company. This segment currently generates approximately $2.0 billion in annual sales, with about two-thirds derived from the U.S. market. This concentration in the U.S. would enable the new company to compete more effectively in the growing pain management category, according to Covidien.

The pharmaceuticals business is a major player among producers of bulk acetaminophen, suppliers of opioid pain medications, and generic pharmaceutical manufacturers in the U.S. Since 2008, the pharma business has received FDA approval for eight new products including two pain medications launched in 2010.

In addition, Covidien’s pharmaceuticals business also supplies generators used to produce technetium-99m, a diagnostic medical isotope. It says that it is also the only manufacturer that offers a fully integrated system of diagnostic contrast media in prefilled syringes and injectors.

If a spin-off is executed, the resulting Covidien medical products business would have annual sales of approximately $9.6 billion (based on 2011 reported sales), about evenly split between the U.S. and non-U.S. markets. The medical devices segment would represent about 80% of the company’s sales, with medical supplies comprising the remainder.

“We’ve evaluated whether to separate these businesses for several years, due to the major differences between the medical products and pharmaceutical industries,” states José E. Almeida, president and CEO. “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.

“While both businesses hold industry-leading positions, they have distinctly different business models, sales channels, customers, capital requirements, and talent bases,” Almeida adds. “In addition, their respective innovation pipelines differ substantially in length, regulatory approval requirements, possible risks and potential returns.”

Covidien anticipates that the transaction will be in the form of a distribution that will be tax-free to U.S. shareholders of a new publicly traded stock in the new pharmaceuticals company. Covidien currently expects that completion of the transaction could take up to 18 months.

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