Covidien Promotes Zogenix's Product

The pharmaceutical unit of Covidien plc (COV - Analyst Report) and Zogenix Inc. (ZGNX - Snapshot Report) have recently agreed to co-endorse a prescription medicine called the Sumavel DosePro in the U.S. The Sumavel DosePro is a sumatriptan injection for treating migraine and cluster headaches.

Management at Mallinckrodt LLC, the Pharmaceuticals franchise of Covidien, believes that this deal will be accretive to the company’s revenues by improving its best-in-class pain management product portfolio. Moreover, as per the Zogenix management, the co-promotional agreement will yield results by doubling the existing customer base of Sumavel DosePro.

Per the deal, the U.S. sales team of Mallinckrodt will market the medicine to its consumers till June 30, 2014. In return, Zogenix will pay a percentage of the net product revenues generated from sales.

Revenues from Covidien’s Pharma segment rose 4% to $508 million in the recently reported second quarter of 2012. The growth was primarily fueled by robust gains in the Specialty Pharmaceuticals and Radiopharmaceuticals businesses.

Specialty Pharmaceuticals sales surged 34% to $142 million spurred by solid revenues from generic products and higher sales of branded offerings in the quarter. However, Active Pharmaceutical Ingredients and Contrast Product sales dropped 6% and 12%, respectively, due to lower narcotics sales and sluggish U.S. markets, respectively. Revenues from Radiopharmaceuticals increased 7% on the back of healthy generator sales.

Covidien is a leading global health care products company with a rich history of developing high-quality products in a cost-effective manner. It competes with Johnson & Johnson (JNJ - Analyst Report), Becton Dickinson (BDX - Analyst Report) and C.R. Bard (BCR - Analyst Report), among others.

Covidien remains committed to rolling out new products and technologies, focusing on emerging markets, and boosting market share in core segments through investments in sales and marketing infrastructure. It has launched 100 new products over the last five years and is on track to introduce another 50 products over the next two years.

However, sustained pricing/procedure volume pressure represents a headwind. We are currently Neutral on the stock, supported by a short-term Zacks #3 Rank (Hold).