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Covidien Opens R&D Base in China

Zacks Equity Research

Leading healthcare products maker Covidien plc. (COV) recently announced the inauguration of its latest Research and Development (“R&D”) facility called the China Technology Center (“CTC”) in Shanghai. The center aims to collaborate with local medical practitioners to develop innovative medical devices to cater to the Chinese as well as other emerging economies.

Covidien has successfully completed the project following its earlier announcement in September 2011 to start operations in the CTC by mid-2012. The setting up of the new R&D center in China is in accordance with the company’s global strategy to expand its foothold in key emerging markets.

With an investment of $45 million over a span of 3 years, the 100,000-square-feet facility will house the Ireland-based company’s two emerging market R&D organizations, “Tailored Products” and “Breakthrough Platforms.” Tailored Products will identify and develop products customized for China and other emerging markets, while Breakthrough Platforms will create new medical device technologies for Asian markets.

Covidien’s other operations in China include 10 commercial offices, a manufacturing center and The Covidien Clinical Institute (“CCI”), which imparts training to local healthcare professionals regarding proper and effective use of latest medical devices.

The company is also engaged in various partnership programs with some renowned academic institutions in China. Thus, the CTC will become the focal point where medical experts, scientists, students  as well as world-class engineers will together develop cutting-edge technologies to further advance the medical device industry across developing nations.

The new R&D center in Shanghai is also in line with the Chinese government’s 12th Five-Year Plan to boost the nation’s healthcare industry and enhance patient outcome through innovation.

Covidien is a leading global health care products company with a history of developing and manufacturing high-quality products in a cost-effective manner. The company boasts of a well-diversified product and technology portfolio. Covidien's larger Medical Device unit overlaps with the business of its competitors like Johnson & Johnson (JNJ), Becton Dickinson (BDX) and C.R. Bard (BCR).

Covidien is well placed to achieve its long-term revenue and earnings growth targets based on its attractive fundamentals, effective execution, new product cycle, synergies of acquisitions and expansion into emerging markets.

However, sustained pricing/procedure volume pressure, fluctuating foreign exchange rates, a sluggish U.S. and European economy represents major headwinds. Our Neutral recommendation on the stock carries a short-term Zacks #4 Rank (Sell).

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