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Integra Divests Assets to Natus, Paves Way for Codman Buyout

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Integra LifeSciences Holdings Corporation (IART - Free Report) recently signed a definitive agreement to sell the company’s certain neurosurgery assets to healthcare products and services provider Natus Medical Incorporated (BABY - Free Report) for a total deal value of $47.5 million. This forms part of the company’s efforts to fulfill certain closing conditions toward the proposed $1.05 billion acquisition of Johnson & Johnson’s (JNJ - Free Report) Codman neurosurgery business.

Integra has decided to sell the global Camino ICP monitoring product line, including its San Diego manufacturing facility, to Natus Medical. Natus will also get hold of the U.S. rights related to Integra’s fixed pressure shunts as well as U.S. rights to Codman’s DURAFORM dural graft implant, standard EVD catheters and CSF collection systems.

While announcing this entire set of divestiture, Integra has also discussed its imminent financial impact. Per the company, in 2016, approximately $50 million of revenues were earned from the neurosurgery product lines associated with these divestitures. Taking net of divestitures and the Codman acquisition into account, the company on a preliminary basis, estimated fourth-quarter 2017 revenue contribution of approximately $60-$65 million. For full-year 2018, Integra expects Codman Neurosurgery to contribute between $290 million and $300 million in revenue and net of divestitures.

Overall, the Codman Neurosurgery business is expected to remain accretive toward Integra’s 2018 adjusted earnings per share and contribute at least 22 cents. However, for full-year 2017, Integra expects minimal contribution from Codman Neurosurgery to adjusted earnings per share.

Notably, Integra’s proposed acquisition of Codman, declared in February, will provide the company with the global reach in Neurosurgery which connotes the core expertise within Integra’s Specialty Surgical Solutions.

Per Integra, Codman Neurosurgery’s existing portfolio and new product pipeline in advanced hydrocephalus, neuro-critical care and electrosurgery are going to complement the acquirer’s leading products and pipeline in tissue ablation, dural repair and cranial stabilization. Post the completion of this acquisition, the consolidated portfolio will offer complete solutions for neurosurgery and the scale to invest and bring in new technologies to the table for patients worldwide.

Notably, per a report by Radiant Insights, the global neurosurgery market is expected to witness an estimated CAGR of around 10-12% during 2015-2019. Taking into consideration the huge growth prospects, we believe Integra’s initiative to strengthen its foothold in this particular niche to be well-timed.

Overall, Integra Lifesciences has been consistently trading above the broader industry in the last six months. The stock has rallied 22.8% year to date, substantially outperforming the 5.9% gain of the industry.

Zacks Rank & Key Pick

Integra currently carries a Zacks Rank #3 (Hold). A better-ranked medical stock is Edwards Lifesciences Corporation (EW - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has gained roughly 22.2% over the last six months.

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