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The Boston Globe

Globe 100

No. 1 medical device company

Covidien turns medical devices into cash

50,000 products mean sales in the billions

Jose E. Almeida, Covidien CEO

Yoon S. Byun/Globe Staff

Jose E. Almeida, Covidien CEO

MANY CORPORATE GIANTS count on billion-dollar blockbuster products, from Coca-Cola to the iPad, to make money.

Covidien PLC, on the other hand, has stitched together a bulging catalog of more than 50,000 obscure health products, ranging from surgical instruments to bandages, that together generate billions of dollars in sales a year.

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Solid sales and profit growth drove Covidien to number 16 on the Globe 100 - the highest for a medical device maker this year. In 2011, Covidien reported $11.7 billion in revenue, up 11 percent from the previous year. The company’s profits grew even faster - up 17 percent to $1.9 billion. And its market value continued a rise to more than $26 billion.

“We have focused the company in a few areas that are very, very important, and that has resulted in good performance,’’ said Jose E. Almeida, the company’s chief executive. Almeida was promoted to chief executive last summer to succeed Richard Meelia, who retired in July.

Since Covidien was spun out of Tyco International in 2007, the company has made a series of strategic acquisitions in its core areas, divesting some businesses and stepping up investment into new products.

“They are pretty dominant in most of the markets they are in,’’ said Michael Matson, a senior analyst with Mizuho Securities USA Inc. in New York. “It is a big, diverse company.’’

When it was part of Tyco, the company’s product line was even broader. Tyco tended to look for bargain acquisitions in almost any industry, focusing more on buying opportunities than deals that fit into its existing portfolio.

But as an independent company, Covidien’s management has tried to zero in on its core medical device businesses.

“Covidien’s management has done an excellent of job repositioning the company,’’ said Michael Weinstein, an analyst at J.P. Morgan in New York who follows Covidien.

In the last 60 days alone, the company has struck deals to buy four medical device makers, including Oridion Systems of Israel for $300 million in April. Late last year, Covidien announced plans to spin off its pharmaceuticals business.

“The management is very good,’’ Matson said. “They’ve done a good job focusing the business on higher growth areas, reinvesting in those areas, and getting out of businesses that weren’t helping.’’

The company also has more than doubled the percentage of revenue dedicated to research and development - from 2 percent to 5 percent - since 2007. In the next 12 months, the company plans to launch 30 new products.

“We had to become an innovative company,’’ said Almeida. “We had lost our way.’’

The firm, which is run out of Mansfield but incorporated in Ireland, has also tried to hold a line on costs. Since 2007, it has embarked on several efforts to streamline operations and cut expenses around the world. The company said it ultimately expected to spend $650 million on the programs.

“They’ve done a good job cutting costs and improving their margins,’’ said Matson.

The firm now has 41,000 employees, including nearly 2,000 in Massachusetts. Almeida said local employment will probably remain stable for the foreseeable future.

Covidien, of course, isn’t as well known as many other health products companies, despite sponsorship relationships with major sports teams like the Boston Red Sox and the New England Patriots, in part because the company sells its wares to hospitals - not consumers - and doesn’t have any multibillion-dollar products.

But Matson also said that Covidien is not overly reliant on any one source of revenue - proof that you don’t need blockbusters to drive strong growth.

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.
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