Orthofix International (Huntersville, North Carolina) yesterday reported proposing a transaction that will produce consolidation in the therapeutic spine space while pushing its rate of growth from the “high single digits to more than 15%” annually, according to CFO Alan Milinazzo.

Orthofix has agreed to acquire Blackstone Medical (Springfield, Massachusetts/Wayne, New Jersey) – a private company specializing in the development of spinal implants and related biologic products – for $333 million in cash.

The deal combines Orthofix's spine stimulation franchise with Blackstone's portfolio of fusion, non-fusion and biologic products.

In a morning conference call, Milinazzo said that the combined spine segment is pointed to grow at more than 25% annually and projected to generate revenue of about $260 million in 2007, making it “one of the largest and most unique spine businesses in the world.”

The deal, he said, gives the company “tremendous momentum in our spine business, with our orthopedic and Breg business [Vista California]” and will make “significant contributions to our overall performance.”

Calling the deal “transformational,” Milinazzo said that targeting Blackstone for acquisition was the product of a “long, deliberate search” and added that the company met Orthofix's criteria for “significant critical mass and profitability.”

He said the company's distribution network provides opportunities “to significantly expand the availability of Blackstone's unique product portfolio around the world,” with the distribution systems of the two companies being highly complementary.

Blackstone was founded in 1996 by brothers, Mike, Matt and Bill Lyons.

Matt Lyons, president and CEO of Blackstone, said, “We are especially excited about the benefits of combining our advanced product development capabilities with Orthofix's experience in developing innovative minimally- and non-invasive medical devices.”

Blackstone reports that it has launched 14 new products over the last two years. It also pointed to annual revenue growth of more than 25% in each of the last three years, with total revenue increasing 39% during the first half of 2006 compared with 2005. In the second quarter ended June 30, the company recorded unaudited sales of $22 million, $1.9 million in income and net income of $1.2 million.

A not-so-bright spot on Blackstone's record is its recall in late 2005 of its ICON Modular Fixation System – marketed since June 2005 – classified as a Class I recall by the FDA earlier this year (Medical Device Daily, April 2006). Blackstone said that the system could fail after being implanted, based on reports of construct loosening in the early postoperative period. The company removed from distribution products not yet implanted.

Blackstone reported sales of its biologic products increasing from less than 5% of total revenue to greater than 15%. This includes Trinity, its brand name for Osteocel, manufactured by Osiris Therapeutics (Baltimore), distributed nationally to spine surgeons by Blackstone under an agreement inked by the companies in October of 2005. The product is an allogeneic bone matrix containing viable stem cells, an alternative to autograft in orthopedic procedures.

Orthofix reports that its spine business generated $102 million in sales during 2005, and revenues in the first half of 2006 were up 20% from the prior year. Last year the company launched the only FDA-approved cervical spine stimulator in the world, the Cervical-Stim, after late-2004 agency approval (MDD, Dec. 28, 2004).

Orthofix said it anticipates the deal closing as early as September, subject to regulatory approvals, consummation of the senior debt financing and other conditions. Wachovia Bank and Citigroup have provided a commitment for senior debt financing for the acquisition.

The company's products are distributed worldwide to orthopedic surgeons via sales representatives and its subsidiaries, and through partnerships with other orthopedic product companies, such as Medtronic Sofamor Danek (Memphis, Tennessee) and Kendall Healthcare (Mansfield, Massachusetts).

Its distribution channels include a direct sales force of more than 170 across the U.S., along with more than 100 distributors worldwide, selling more than 1,200 surgeons, and several group purchasing contracts.

Orthofix also is collaborating in R&D partnerships with the Orthopedic Research and Education Foundation (Rosemont, Illinois), the Cleveland Clinic Foundation (Cleveland), Innovative Spinal Technologies (Boston) and the National Osteoporosis Institute (Long Island, New York).

In other dealmaking:

• Reflect Scientific (RSI; Orem, Utah), a manufacturer of laboratory equipment and related supplies to life sciences, has agreed to acquire All Temp Engineering (ATE; San Jose, California). Financial terms were not disclosed.

ATE's assets will be integrated with RSI's recently acquired Cryometrix business unit to support sales and service of the new Cryometrix ultra-low-temperature freezers. The existing infrastructure of ATE will be used to attain improved manufacturing efficiencies and quality assurance, Reflect said.

John Hammerman, general manager of Cryometrix, called ATE “a strong and profitable organization. We look forward to completing the final documentation and closing the transaction as quickly as possible.”

ATE has been a provider of engineered solutions to the cryogenics industry for more 23 years, serving more than 1,450 companies in the biotech, medical device, pharmaceutical, university, semiconductor, aerospace, military and industrial food processing.

Reflect provides products for the biotech, pharmaceutical and medical industries.

• HealthSouth (Birmingham, Alabama) reported that it has signed an agreement to sell Cedar Court Rehabilitation Hospital (Melbourne, Australia), and related assets to Epworth Foundation and ING Management.

Cedar Court assets include a 74-bed rehabilitation hospital and outpatient center, a stand-alone rehabilitation facility at the Oasis Leisure Center and an occupational medicine rehabilitation therapy business.

The transaction is subject to customary closing conditions, including clearance under the Australian Competition and Consumer Commission, the Victorian Department of Human Services and other regulatory approvals.

HealthSouth said that Cedar Court was the last of its international facilities and that the transaction signifies termination of its non-domestic operations.

Mark Tarr, president of HealthSouth's Inpatient Division, said, “We are pleased [Cedar Court] will be able to continue to serve the community under new ownership while we focus on strengthening HealthSouth's core businesses and growing in our target markets throughout the U.S.”

HealthSouth is a major provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare.

• Pediatrix Medical Group (Fort Lauderdale, Florida), a leading provider of neonatal, maternal-fetal and pediatric subspecialty physician services, reported the acquisition of James River Neonatology (Richmond, Virginia), consisting of three physicians and three neonatal nurse-practitioners who staff three neonatal intensive care units (NICUs), including two Level III units at CJW Medical Center and one Level II unit at Southside Regional Medical Center. The group also provides well-baby physician services.

Pediatrix paid cash for the practice – the amount undisclosed – and said the transaction is expected to be immediately accretive.

Founded in 1979, Pediatrix Medical's physicians provide services at more than 240 NICUs, and through Obstetrix, its perinatal physicians provide services in many markets where Pediatrix's neonatal physicians practice.