Medical device chief with a healthy outlook on business

José E Almeida, the 51-year-old chief executive of Irish-headquartered healthcare company Covidien, was awarded a total pay package of $11.2 million (€8.2m) last year. How does he find the time to spend this amount?

“Very easily,” the affable Brazilian jokes, before pointing out his salary is actually far less. “Seventeen to 18 per cent of that number is really cash. The rest is stock and incentives dependent on targets,” he says.

Covidien is one of the largest manufacturers of medical devices and supplies in the world. If you’ve ever had surgery, chances are at least one of Covidien’s medical products was used. Yet many people, including doctors, have never heard of it, according to Almeida.

“I look at Covidien as a young company. Sometimes people in the trade don’t know about it. Unless you were in healthcare or are an inquisitive patient, you usually would not know our products.”

This is despite the fact it produces between 40,000 and 50,000 products, from ventilators to sensors to surgical staplers and syringes.

Tyco scandal

Formerly Tyco Healthcare, the company was founded in 1960, as part of larger Swiss conglomerate Tyco International.

In 2002, Tyco International was rocked by a scandal involving the excesses of then-chairman and CEO Dennis Kozlowski, who was subsequently convicted, in 2005, of looting more than $600 million from the company to pay for big parties, gaudy art and an opulent Manhattan apartment.

Two years later, Covidien was spun out into an independent company, and has been a separately-listed business since.

Originally based in Bermuda, Covidien moved its headquarters to Dublin in 2009. The move wasn’t all about Ireland’s low corporate tax-rate, though.

“Being in Ireland is one of the factors satisfying our shareholders. It’s not the only one, though. Covidien pays taxes in every jurisdiction we do business. If the tax in Ireland is increased, we will pay that increase.

“The IDA in the 2000s did a wonderful job creating the right environment for companies to set up. We were flabbergasted at the polymer manufacturing here. The manufacturing strategy deployed by the IDA in the early days was a great benefit to the country.”

Covidien has 38,000 employees worldwide, 1,400 of which are in Galway, Tullamore, Athlone and Dublin. It is the largest private industrial employer in the Midlands.

“One of the biggest products we sell in China and Brazil are ventilators made in Galway. When we expand in emerging markets, it impacts the local places where products are made in Ireland.”

Last year, Covidien completed the spin-off of its pharmaceuticals business Mallinckrodt into a separate company. It had previously disclosed plans in December 2011 to spin off the business, saying its two pipelines differ substantially in length, regulatory approval requirements, possible risks and potential returns.

“We divest things when we think someone else would be a better owner,” Almeida says.

The company makes a lot of money. In the first three months of this year, it had revenues of $2.6 billion (€1.9bn). Last year, it brought in $10.2 billion (€7.5bn), making an operating profit of $2.1 billion (€1.5bn).

Innovation

Almeida says innovation remains the key to strong revenues and continuing growth, with the company having launched 100 new products over the past five years. It has also made a number of acquisitions to boost its product range. Earlier this year Covidien completed the acquisition of Given Imaging, providing it additional scale and scope to serve the multibillion-euro global gastrointestinal market. Covidien paid $860 million (€635m) for the Israeli company, a manufacturer of ingestible pills containing a camera that takes images of a patient's insides in order to detect disorders.

Almeida says innovation is and will remain a critical contributor to the company’s strong competitive advantage in the medical devices market, adding that a lot of the innovation, research and development is being carried out in Ireland.

In 2011, the company announced an investment of more than €25 million in six separate research and development projects in Ireland, and last year it was named by the European Commission as the EU’s top investor in healthcare research and development.

He says being a multinational company comes with its challenges.

“We sell products in 140 countries. We always have something going on. Russia is a concern for us right now. They changed their systems there. We have good sales there but there are political differences and challenges to doing business.”

Due to varying systems and situations in different countries, he says, Covidien needs to be a very flexible organisation.

“When they changed healthcare in the US with the Affordable Care Act, we had to move quickly to understand a bill that was 26,000 pages long with huge complexity in it. Dealing with change like that is enormous.

“We are all for creating access to healthcare. The Affordable Care Act gets to it. But there are other ways it can be paid for other than over-taxing the medical device industry. We are paying out of our sales an incremental tax that did not exist before the act.”

Even Ireland has changed a great deal over the past decade, he says. “The laws have changed, in the national sense and coming from Europe. That creates challenges for Covidien.”

According to Almeida, any idea of healthcare being a recession-proof business was destroyed by the global economic downturn in 2008.

“We were affected by the recession as lots of procedures are elective procedures. You might not need to take care of something immediately, such as weight-loss surgery or hernia repair. The demand for some of our products can vary with financial distress. The recession also led to bigger queues for government-funded medical care.”

However, he says, Covidien’s growth rates were better than the market average over the last few years, due to the fact the company’s products are used in non-elective surgery as well as elective.

The recession has led to change in the decision-making process behind medical device purchases, says Almeida.

“In the new world, products need to have medical appeal and economic appeal. You need to convince the doctor that the technology is good, and the person who is paying.”

Modest headquarters Almeida says the company's corporate headquarters on Dublin's Hatch Street is very modest, adding he doesn't like when CEOs get idolised.

“Early on in my career, I saw a very strongheaded boss who drove results through yelling and intimidation. I was young and looked up to him and thought he was a success for that behaviour. I wanted to be like that. Luckily my common sense eventually kicked in and I was able to reverse and mimic the opposite behaviour.”

He believes it is important to admit mistakes, and not have a fear of failure.

“I make mistakes more than I get it right. We had a factory in England. I saw technology in the US which I thought I could implement in the UK plant to make it more efficient. I was advised to kill the project as it wasn’t working, but I didn’t. We had to write off a couple of million dollars on that plant. I went in front of our employees and said it was a mistake we made.”

As for the future, he says a drive for value versus volume is emerging.

"In developed markets, the population is getting older and living longer. You need to make the dollar or euro go further. Can you bring value to the system? That is the major trend in medical devices." CV José E Almeida Name: José E Almeida Age: 51 Position: Chief executive and chairman of Covidien Education: Bachelor of Science in mechanical engineering from Escola de Engenharia Maua in São Paulo Family: Married with two daughters Something you might expect: He is very health conscious, eats lots of veg and runs 5-6 miles per day. Something that might surprise: He is very interested in classical music and plays classical guitar