When Integra LifeSciences was just a little company, not even deemed creditworthy by the bank from which it was seeking funds, it managed to purchase a company twice its size, the NeuroCare Group. That was in 1999, when Integra had $15 million in sales of its original artificial skin product, Integra Skin. Neurocare had $35 million in revenues and about 150 employees, more than Integra did. Furthermore, Neurocare was profitable and Integra was losing $10 million a year.
Despite these imbalances in size and profitability, Integra was able to acquire the NeuroCare Group, after raising about $15 million from George Soros and his entities and borrowing another $20 million from the bank. Because NeuroCare was profitable, however, and Integra was not, the banks funds were lent to NeuroCare.
What Integra was looking for from NeuroCare was its commercial infrastructure rather than its technology. NeuroCare already had a portfolio of products its salespeople were marketing to neurosurgeons, and it was easy for them to add Integra’s newly launched DuraGen product to the mix.
“Rather than establishing new relationships, a brand, and pouring all that effort into being a startup,” says Stuart Essig, CEO of Integra LifeSciences, “we could leverage many years of experience in the group we acquired. The product was such a success that it made the company we acquired and Integra substantially more profitable and continued to build our reputation in this new market of neurosurgery.”
Essig will speak on “Operating with Confidence, Accelerating Organic Growth with an Aggressive Acquisition Program,” at the Association for Corporate Growth New Jersey meeting on Thursday, May 28, at 6 p.m. at the Westin Princeton. Cost: $75. To register, go to http://chapters.acg.org/newjersey.
Integra was founded by Rich Caruso as a technology company whose objective was to develop a new form of regenerative medicine, says Essig. This would be accomplished via an Integra-designed scaffold that a surgeon would implant in a patient’s body to help the body repair itself. Both in the company’s initial creation and in its steady growth, acquisitions have been essential. Essig describes three different acquisition strategies that have made Integra what it is today:
Gathering technologies and space to create a company. To develop the artificial skin that was to be Integra’s founding product required a variety of technologies, and Caruso’s feat was to find them and bring them together. He acquired intellectual property and patents from Massachusetts General and Brigham and Women’s hospitals, from the Massachusetts Institute of Technology, and acquired manufacturing capacity in the form of a Marion Laboratories facility. “Bringing together a group of technologies under one roof and using them to develop new products is one aspect of how mergers and acquisitions can add significant value,” says Essig.
Once the technologies were in place the company focused on developing the artificial skin scaffold that would help regenerate tissues, and on bringing it to market. That meant mastering the manufacturing process, doing clinical trials, creating the right marketing group, and ultimately launching the product. That all took place well before Essig arrived in 1998.
Acquiring a commercial infrastructure. Once the technology and product were ready to go, Integra had to build a commercial infrastructure — sales, marketing, brand name, relationships with customers.
One possibility would have been to create a commercial infrastructure by hiring a sales manager from a competitor to build a sales group from scratch. Essig, however, was interested in accelerating the commercialization process and had a better idea. “What better way than to buy an established company that already has those relationships, has other products on the market, and would view the technology from Integra more as a new product launch than having to build out a whole new company?” he asks.
So the team started the acquisition process that would allow them to quickly launch Integra’s technology in the neurosurgery market. The first step was to identify opportunities by asking themselves what size company would make sense, and what kinds of people and products an appropriate acquisition would have. They also had to think about where a potential acquisition was located and whether it would need to move to Integra’s corporate location or vice versa.
Once they had identified a company, they would have to persuade its owner to sell to Integra. “It was a challenge even to establish credibility that we were a potential acquirer, given how small we were,” Essig recalls.
Diversifying into new markets. By 2004 Integra’s revenues in the neurosurgery market exceeded $200 million, and this success brought a new decision to the table — should Integra diversify its revenue base into new markets, using a similar set of strategies?
The company investigated the market of extremity reconstruction — foot, ankle, and hand surgery — which shared some characteristics with the neurosurgery market. “It was a new, young market, looking for innovation,” says Essig. Furthermore, the market was small enough that Integra could have a real impact.
“As a company you didn’t have to be a behemoth to be relevant to your customers, because the number of customers were relatively few,” says Essig. And because the number of orthopedic surgeons in the United States focusing on extremity reconstruction was somewhere between 4,000 to 8,000, Integra would be able to step into this market without needing thousands of new salespeople.
The company identified a French company building a presence in Europe and the United States with innovative foot and ankle implants that could help heal problems related to trauma, deformity, or aging. “Their focus was on implants for structural treatment and our focus was on the soft tissue repair of the skin that was damaged,” says Essig. “This was an opportunity to marry these two technologies in one sales and marketing and commercial infrastructure.” In 2004 Integra acquired Newdeal Technologies in Lyons, again launching its own products through an existing company’s commercial infrastructure.
Recently Integra made a similar move. To accelerate commercialization of its new products for treating bone deformities in the spine, in 2008 Integra acquired Theken, in Akron, Ohio, which became the cornerstone of the new Integra Spine division.
Purchasing companies with complementary product lines. Essig estimates that during his tenure with Integra the company has completed 35 acquisitions, and between 40 and 45 since its founding in 1989. Many of these acquisitions represent new product lines that are complementary to divisions within Integra. Three years ago, for example, Integra purchased from Tyco a range of products for treating brain tumors and added them to its neurosurgery suite. In the area of extremities, Integra bought Kinetikos Medical, in Carlsbad, California, a company that developed and manufactured joints for the hand.
So far Integra’s acquisition strategy has been successful. In 2008 Integra had income of approximately $655 million, with 2,800 employees worldwide; it operates in 10 countries, and its products are used in more than 100 countries. “Today we are a very profitable and growing company,” says Essig.
Although the company has been affected by the slump, with expected revenue growth of only 5 or 6 percent a year, as compared to its historical revenue growth of 20 percent a year, Essig notes that Integra has about 50 open positions at its Plainsboro headquarters, and it is actively looking for talented people in regulatory, quality, finance, legal, sales, marketing, and product development.
Essig is a Long Island native whose mother was a nurse and father was a lawyer. After getting a bachelor’s degree from Princeton University in 1983 he pursued his interests in economics and international business at the University of Chicago, where he received an MBA and a doctorate in financial economics. His dissertation looked at why firms issue certain kinds of securities in public markets, and he was expecting to be a professor. That was until he got a summer job on Wall Street.
Essig got a permanent job with the merger department of Goldman Sachs in 1988, and his first project was the Bristol-Myers Squibb merger. He advised the medical device division of Bristol-Myers on about 20 deals and ended up as managing director of Goldman Sachs’ medical technology practice.
Interested in building a medical device company of his own, Essig met Caruso through mutual acquaintances, and in 1998 Integra’s board asked him to join as CEO to bring the company into the next stage of commercialization. “Understanding our strengths and weaknesses and being open to leveraging other people’s strengths rather than building out ourselves has allowed us to accelerate the process of commercialization,” says Essig, summing up Integra’s strategy for growth.