Integra Lifesciences Holdings Corp. has entered a definitive agreement to acquire regenerative medicine-focused Acell Inc. for an up-front cash payment of $300 million and up to an additional $100 million upon the achievement of certain revenue growth milestones.

The deal is expected to close in the first quarter of 2021, subject to the satisfaction of customary conditions. It also comes almost three months after London-based Smith+Nephew plc said it was going to pick up the extremity orthopedics business of Integra for $240 million in cash. That deal involves the divestiture of Integra’s upper and lower extremity orthopedic portfolio, including products for shoulder replacement, hand, wrist and elbow reconstruction and foot and ankle reconstruction.

Smith+Nephew also will gain control of an R&D pipeline that includes a next-generation shoulder replacement system, which is on track for full commercial launch in 2022.

In excess of $100M in revenues

Last year, Columbia, Md.-based Acell Inc. generated revenues of $100.8 million, a 13% gain vs. 2018. Integra expects the financial effects of this transaction to be accretive to revenue growth and adjusted gross margins. The buy aims to help expand Integra’s orthopedics and tissue technologies (OTT) segment. With the sale of the orthopedics business, something that is expected to occur in early January, OTT will be referred to as the tissue technologies segment.

In a call on the deal, Integra CFO Carrie Anderson said the sale of the orthopedics business is expected prior to the completion of the Acell acquisition. “[W]e will use a combination of divestiture proceeds, cash on hand and our revolver to fund the upfront $300 million purchase price,” she said. Back in February, Integra raised $348.1 million in a private placement.

Wells Fargo’s analysts expressed approval of the deal. “Overall, we like the transaction as it allows IART to fill a portfolio gap in Tissue Technologies (TT) and allows it to further build scale, especially in the inpatient setting,” Shagun Singh wrote.

She added that the buy helps to fill a gap, noting that Acell’s product portfolio is based on a unique porcine urinary bladder matrix (UBM) platform technology, Matristem. That technology aims to help the body in restoring natural tissue while minimizing scarring.

The company also offers the Cytal wound matrix for acute and chronic wounds. A third product is the Gentrix surgical matrix, indicated for use in the surgical reinforcement of soft tissue and hernia repair.

“Overall, we believe Acell is a good strategic fit for IART, as it adds a differentiated porcine matrix to its portfolio of bovine-derived engineered collagen, human amniotic tissue and acellular dermal matrices,” Singh added. “It will also allow IART to leverage its existing infrastructure and call points, especially in the inpatient setting to drive sales and margin expansion.”

Neuro a priority

During Princeton, N.J.-based Integra’s Oct. 28 third-quarter earnings call, Singh asked about M&A and capital allocation. She noted that the company had hinted at technology tuck-in deals in neuro, as well as distribution partnerships, particularly in Asia.

“For us, as a company, clearly having a more focused portfolio and looking for acquisitions to plug into it. I mean it's rather evident. We will be focusing on tissue technologies and also technologies and/or products that will fit within the bag of neurosurgery,” replied Peter Arduini, Integra’s CEO.

Glenn Coleman, the company’s chief operating officer, added that Integra is working on distribution partnerships outside the U.S. He highlighted the Codman acquisition as giving it an edge, particularly in Japan and China. “I'm pleased to say that we actually just closed and signed our first distribution deal for a neuro product in China. And so that's going to be launched here as we move into 2021,” he added, noting that the company is working on other deals in China.

In her latest note, Singh said she expects Integra to be on the hunt for companies next year and beyond.