Interview: Cheerleader for the medical devices sector knows innovation is key
Head of the Irish arm of Covidien tells John Mulligan why business here is so good
If you've ever gone under the knife, chances are that at least one of Covidien's 10,000 medical products has been used either by your surgeon or in post-operative care.
The US firm, which has its HQ in Ireland, employs about 1,400 people here, split between Athlone -- its biggest Irish base, with 500 staffers including an R&D function -- as well as Galway, Tullamore and Dublin. Covidien employs 38,000 people worldwide.
It's at the non-descript city centre office in Dublin where Donal Balfe, the head of the Covidien Irish arm, as well as other operations in places such as Italy and Mexico, is ostensibly based. But between trips to the US, Irish sites and elsewhere, it's a fair guess that you usually might find it hard to ever track him down there.
"We've been told to keep an eye out for a journalist this morning," says an employee as she leads the way to reception. But inside, it's as if there's barely a soul around. A snippet of conversation drifts from somewhere but it's fleeting and there's still no-one to be seen.
A fit-looking, grey-haired Balfe strides into the conference room. A medical device sector lifer, the Dubliner has been with Covidien since 2000, having worked with Bayer for 17 years before that. He's also a cheerleader for the sector in Ireland, with the medical device industry here employing 25,000 people across 250 firms and contributing €7.9bn to exports every year.
"Ireland has been very involved in the medical device industry for the past 30 or 40 years," says Balfe. "There's a huge core of people -- 25,000 -- and probably as many more again who have worked in it during their career. The skills, expertise and knowledge that exists in Ireland is phenomenal."
"There's a huge potential for Ireland to harness that and to use those skills and expertise built up over the years. From a government strategy perspective, there is the opportunity."
Taoiseach Enda Kenny has been drafted in for a few appearances at Covidien plants in the past, and while the medical device sector is a big employer and important to the economy, it's probably just not as sexy as Google or Facebook. Does that mean it's lower down the pecking order in terms of gaining attention from political mandarins? Definitely not, insists Balfe.
"They are aware of the statistics. We've got a lot of attention from the Taoiseach and Richard Bruton. The IDA keeps them very much informed too. Everybody interfaces with Google on a daily basis and it tends to get more media attention, but we don't need to be in the media every day of the week," he says.
"The knowledge of the significance of our business is in the right place. These guys in the Government know how important the medical device business is."
A spin-off from US conglomerate Tyco, Covidien has been an independent and separately-listed business since 2007, with an annual revenue of $10.2bn (€7.5bn) and operating income of $2.1bn (€1.5bn) in its last financial year.
Balfe points out that innovation remains the key to continuing growth, with the company having launched 100 new products over the past five years. Last week, he was inspecting a new product at the Covidien plant in Galway that will be launched in coming weeks and which will be manufactured there.
"We're constantly trying to improve our products and develop new ones to treat various disease states. There's a lot of investment in that. There's plenty of opportunity to develop products that will do jobs quicker, do them safer and give a better return for patients."
Covidien has been particularly active in gastro-intestinal applications in the recent past. Just last month it agreed to pay $860m for an Israeli company called Given Imaging, a manufacturer of ingestible pills that contain a camera that takes images of a patient's innards in order to detect disorders.
Balfe and others in the medical device sector have recently been ringing alarm bells about EU plans to tighten medical devices rules on products from hip replacements to pacemakers. They fear the rules could results in the entry of new products to the market being delayed unnecessarily.
"We're very keen to see that we can develop products that will improve patient care and safety," he says. "We want to develop products that will deliver healthcare on a worldwide basis at a reduced cost and encourage innovation. If a more burdensome regulatory framework doesn't deliver better devices, then it's just burden for burden's sake."
While Covidien, which is headed by CEO and chairman Jose Almeida, spends about $500m (€366m) a year on R&D, the bulk of that is spent outside Ireland. A relatively small number of Covidien staff here is involved in what the Government sees as the R&D Holy Grail.
Decisions on investment in products are made collaboratively within the group, and Balfe bristles slightly when asked if it's his US colleagues who really call the shots.
"There's no one big boss telling us what to do," he says. "It's a collaborative effort. We all have input into that and we develop one strategy.
"I'd have very big input into the development of that."
Covidien's latest full-year financial results indicate how the firm's effective tax rate was 21.2pc, compared to just 14.7pc in 2012. But excluding specific items, the adjusted tax rate for the 2013 financial year was actually 16pc compared to 17.3pc in 2012.
If it was incorporated in the US for tax purposes, those figures would certainly be higher. But Balfe is unapologetic.
"Ireland is a very big base for Covidien. Sure, tax is one of the considerations, but it's not a brass plate operation. It's not the only consideration. Ireland has the highest per capita number of employees in the medical device business in Europe, so it's a very strong base for a medical device company to be situated in," he says.
But after the fall-out generated in the US as companies such as Apple and Google engineered ridiculously low tax burdens by using Ireland's tax legislation and combining it with others such as the Netherlands', does he think that the system here has been abused?
"Legislators make the law and people follow the law. We are very compliant so there's no issue for us. I don't think Ireland is viewed as a dodgy location off western Europe for business investment.
"We're a sovereign state, we have our laws and they're quite transparent. Certainly in the circles I operate in, there'd be no notion that Ireland is in any way cavalier."
Balfe must also be glad that he ended up working in the medical devices field rather than pharmaceuticals. Covidien ditched its own pharma business last year (it accounted for about $2bn of sales) to concentrate on its device products. Big pharma has been dealing with a spate of major products that have been going off patent, taking with them, in many cases, big chunks of revenue and profits.
"We have 10,000 products and we have as many or not more patents," Balfe explains. "We have much higher churn of patents but it doesn't mean a big hit to our business. In pharma, if a big patent goes, it could mean 20pc or 25pc of your business vanishes. It's a long way from that in our business."
Meanwhile, Balfe believes that because health budgets in developed countries are under growing pressure as populations age, there's an opportunity for Covidien to help keep healthcare costs down. He's also still enthralled by the advances that have been made in the industry.
"Laparoscopic (keyhole) surgery has been huge. We're a big player in the vascular space and treatment of things like strokes, and where you can put a stent through the femoral artery and deploy it in the brain is just amazing. It has a huge impact on patient outcomes."
BALFE IN BRIEF
Position: Vice president, manufacturing, respiratory and monitoring solutions, Covidien Age: 50
Career: He joined Covidien in 2000. Prior to that he had spent 17 years with Bayer, where he went on to become an operations director
Pastimes: Jogging, golf
Family: Married, two children