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Acelity makes deal with Allergan
December 21, 2016

Joe Woody, president and CEO of Acelity, predicted "increased momentum and investments."

By Patrick Danner, San Antonio Express-News

San Antonio medical technology company Acelity LP Inc. announced Tuesday it is selling LifeCell, its regenerative medicine business, to pharmaceutical giant Allergan for $2.9 billion in cash.

The sale is unrelated to Acelity's decision nearly two weeks ago to pull the plug on plans for an initial public offering, company spokeswoman Laurel Harper said in an email.

LifeCell's applications in plastic and reconstructive surgeries would appear to be a good fit for Allergan, which sells breast implants and other products used in cosmetic procedures. The deal marks Allergan's entry into the regenerative medicine arena.

Allergan is known for the wrinkle treatment Botox, its top-selling drug expected to surpass $3 billion in sales next year, and the prescription eye-drop product Restasis. The company is based in Dublin, Ireland, but its executive offices are in New Jersey.

The transaction, subject to regulatory review, is expected to close in the first half of next year.

Acelity got a great price for LifeCell, said Venkat Rajan, an analyst with San Antonio-based Frost & Sullivan's advanced medical technology group.

"That type of cash gives you some flexibility to go out and make other acquisitions, if need be, or further hone your focus on being the most complete solution in wound management and wound care," Rajan said.

Acelity will continue to operate its advanced wound therapeutics business, comprised of Kinetic Concepts Inc. and Systagenix Wound Management.

"The sale of LifeCell to Allergan allows Acelity to continue its transformation with increased momentum and investments that focus on developing and commercializing advanced wound therapies and dressings in markets around the globe," Acelity President and CEO Joe Woody said in statement. He was unavailable for comment.

LifeCell was acquired for $1.7 billion in 2008 when Acelity was known as Kinetic Concepts. LifeCell's products include AlloDerm, used in breast reconstruction following mastectomy procedures, and Strattice, used in hernia repairs.

The LifeCell sale won't have any impact on Acelity's San Antonio operations because LifeCell's offices, manufacturing, and research and development operations are in New Jersey, not far from Allergan's executive offices.

Overall, Acelity has about 5,800 employees, including 1,500 in San Antonio. LifeCell has about 800 employees, all in New Jersey. That's double the number it had in 2008 at the time of the acquisition.

LifeCell represents the bulk of Acelity's regenerative medicine business, which uses technology to help the body restore or replace damaged cells and tissues.

The unit's revenues have fluctuated in recent years. Revenues rose $5.8 million to $433.9 million last year, primarily as a result of an increase in breast reconstruction procedures using Life-Cell products. But in 2014 the unit's revenues fell by about $14 million to $428.1 million as customers chose lower-cost alternatives for abdominal wall repair procedures, the company said in a regulatory filing.

Allergan projects Life-Cell will generate about $450 million in total revenue this year.

Acelity also has a heavy debt load it largely incurred five years ago when a group led by London-based private equity firm Apax Partners completed a $6.3 billion leveraged buyout of the company.

Acelity had about $4.8 billion in long-term debt on June 30, according to the most recent data on file with the Securities and Exchange Commission.

The company's outstanding debt is eating away at its bottom line. The interest costs on its debt have eroded all profits it could have earned every year since the buyout in 2011 - as well as the first half of this year.

Overall, Acelity reported nearly $1.9 billion in revenue last year, virtually unchanged from 2014. The company had operating earnings of $363.3 million in 2015, but $425.4 million in interest costs on their debt led to a $47.7 million net loss for the year.

In the first half of this year, Acelity lost $46.1 million on $923.8 million in revenue.

On Dec. 8, Acelity announced it had shelved its plans for an initial public offering. Woody said in a statement that the IPO market in the U.S. has been challenging over the past year, prompting the SEC to ask the company to withdraw its plans. It may reconsider an IPO as the market evolves, he added.

Bloomberg News contributed to this report.

 

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