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A drug-free Covidien is now all about devices

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Covidien ($COV) has completed the spinout of its drug business and, as of July 1, is pretty much all about medical devices.

Moving forward, the old Covidien pharmaceuticals operation, dubbed Mallinckrodt ($MNK), focuses on pain management drugs and medical imaging diagnostics. The companies finished their separation at the end of June, capping a plan that Covidien first announced in December 2011 in an effort to give each operation's distinct business model a chance for more focused on robust growth. Abbott Laboratories ($ABT) did the same thing for similar reasons at the end of 2012, separating its drug business into separate company called AbbVie ($ABBV). Abbott today relies on medical devices, diagnostics and generic drugs, among other businesses.

The new Covidien is still pretty formidable. Execs tout that fact in their separation announcement that the company's business, excluding pharmaceuticals, produced nearly $10 billion in sales during fiscal 2012. Also, 38,000 employees in 70 countries remain a part of Covidien. But 80% of the company's sales are now dependent on medical devices, with the difference coming from medical supplies. Covidien said it has either the leading or second highest market position in most of its sales categories, but a weak device or medical supply market will be felt more acutely, without pharmaceuticals to spread out the revenue burdens.

Covidien chairman, president and CEO José E. Almeida said in a statement that the spinout will allow Covidien to expand its focus on developing new products as well as growth in emerging markets, without backing away from aggressive financial targets. That translates into a goal of mid-single digit sales growth and double-digit adjusted earnings per share growth over time, with a plan to give back at least 50% of free cash flow to shareholders each year via dividends and share repurchases.

"We are maintaining our long-term financial goals and continue to target top-line growth at or above the markets in which we compete," Almeida said.

- read the release

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