Integra Lifesciences Holding Corp. has made a bid to acquire Johnson & Johnson Corp.'s (J&J) Codman Neurosurgery business for $1.05 billion in cash. The neurosurgery business is part of New Brunswick, N.J.-based J&J's Depuy Synthes unit and brought in sales of $370 million last year.

Plainsboro, N.J.-based Integra, which makes products used in neurosurgery, reconstruction, wound and dental care, said the Codman business, could bolster its pipeline of offerings for tissue ablation, spinal cord repair and cranial stabilization. Integra executives said this is the largest acquisition in the history of the company.

The transaction is expected to close in two steps: first, in the approximately 24 principal countries during the fourth quarter of 2017; and subsequently, in the remaining countries on a rolling basis.

J&J's Depuy Synthes could get a termination fee of $60 million if Integra fails to complete the deal after conditions for closing are satisfied. Depuy Synthes is also subject to pay a termination fee of $41.8 million if it ends the deal due to a breach of exclusivity obligations.

The business could also add to Integra's adjusted earnings per share by at least 22 cents in the first full year after closing and increase thereafter, if the bid is accepted.

The Codman business has been with J&J for more than 50 years and was founded more than 100 years ago, said Peter Arduini, Integra's president and CEO.

He also said Integra and Codman are very complementary to one another.

"We wake up and go to bed every night thinking about neurosurgery, that's who we are," Arduini said, during a Wednesday call discussing the deal.

During the call, company executives played up the fact that the acquisition could be beneficial to Integra's growing presence in the regenerative medicine space. Two years ago, the company snatched up Tei Medical Inc. and Tei Biosciences Inc. for $312 million to expand its reach in wound care and reconstructive surgery. (See Medical Device Daily, June 30, 2015.) Just last month, the company made a significant acquisition in the space when it agreed to purchase Princeton, N.J.-based Derma Sciences for $204 million. (See Medical Device Daily, Jan. 12, 2017.)

"I think what's really exciting about the Codman piece is the scale it gives internationally and the platform it gives us to take our regenerative products worldwide," Arduini said. "This will have a halo effect on those [products] as well."

This acquisition is expected to also accelerate the path to achieving Integra's aspirational targets of $2 billion in revenue and 30 percent adjusted operating income margin. Integra said it expects the Codman Neurosurgery revenue to experience some initial disruption in the first year of the combination, and to then grow 3 percent to 6 percent longer term.

About six years ago, J&J sold off the surgical instruments business of Codman to Warsaw, Ind.-based Symmetry Medical Inc. Investors on the Wednesday call pointed out there were issues with Symmetry incorporating Codman's surgical instruments business, citing issues with some customer orders. Callers then asked how Integra could have a smoother transition.

Arduini noted that J&J has been very open in the discussion to set up guidelines for transition services, so the transition should be much smoother. He also said Symmetry was a smaller company that was picking up a rather large device component.

"I think in the Symmetry deal one of the big challenges was that when you lose the brand name, it's difficult," Arduini said. "[Symmetry] bought [Codman's] instruments and not the brand name, and there tends to be a lot of confusion in the eyes of the customers."

He added, "the fact we take over the full trademark and brands ... makes a big difference."

J&J RELOADED

The proposed deal comes at a time when J&J is in the middle of a plan to reinvigorate its pharmaceutical segment. In its most recent earnings call, the company said its biologic immune disorder drug revenue dropped 3.3 percent to $1.62 billion in 4Q16, due to the rise of competition in the space.

To help boost offerings, J&J said it was acquiring Allschwil, Switzerland-based Actelion Ltd. for $30 billion. However, Actelion has come under fire because its lead drug Uptravi may face some serious safety issues, after five reported patient deaths in France.

"We believe it is highly unlikely recent French safety concerns impact Uptravi's wider use," said Peter Welford, an analyst with Jefferies. "We continue to believe it does not pose a threat to the J&J deal, with the most likely outcome a letter clarifying the appropriate titration of the drug and/or updated labeling."

J&J is also mulling over whether it should sell its under-performing diabetes units. (See Medical Device Daily, Jan. 25, 2017.)

The company is slowly rebuilding its medical device's division.

J&J managed to turn its device division around and had device sales of $25.1 billion for 2016. Although sales saw a decrease of 0.1 percent vs. the prior year, domestic sales increased 1.1 percent. Medical device sales in 4Q16 of $6.44 billion beat the analyst consensus of $6.4 billion.

The division's outlook was far different a year ago, when it said it would lay off about 6 percent of its employees from the medical device division. (See Medical Device Daily, Jan. 20, 2016.) J&J had been struggling with lagging device sales throughout 2015, prompting the firm to take such an action – which would save it about $1 billion.