UPDATE 2-Shire to buy Advanced BioHealing for $750 mln

* Advanced BioHealing makes diabetic foot ulcer treatment

* Advanced BioHealing cancels planned $214 million IPO

* Investor Safeguard Scientifics shrs up 4 pct after hours (Adds background, comment from Canaan Partners, updates share price)

CHICAGO, May 17 (Reuters) - British drugmaker Shire Plc (SHP.L) said on Tuesday that it plans to buy privately held Advanced BioHealing Inc, maker of a bio-engineered skin substitute, for $750 million cash.

Advanced BioHealing's Dermagraft skin substitute is used to treat slow-healing diabetic foot ulcers. The product, with $146 million in U.S. sales in 2010, has a 5 percent patient share of a potential $3 billion market, the company said.

If not treated effectively, diabetic foot ulcers can lead to lower limb amputation.

Shire said it would finance the purchase through existing cash resources and expects no impact from the deal on its 2011 outlook.

Based on the acquisition, Shire said it planned to establish a new regenerative medicine business unit led by Kevin Rakin, Advanced BioHealing's chief executive officer.

The Dermagraft product is also being studied for the treatment of venous leg ulcers.

"We believe the product is broadly applicable to hard-to-heal wounds," said Stephen Bloch, a partner in Canaan Partners, a founding investor in Advanced BioHealing.

Canaan, Advanced BioHealing's largest shareholder with a 30 percent stake, guided the company's growth from an initial investment of $15 million in 2006.

Before the deal was announced, Advanced BioHealing, based in Westport, Connecticut, had been planning to go public. Its initial public offering was expected to raise up to $214 million on Tuesday, with shares expected to begin trading on the New York Stock Exchange on Wednesday.

Safeguard Scientifics Inc (SFE.N), a holding company with an investment in Advanced BioHealing, said it stood to receive $140 million in connection with the Shire transaction, which is expected to close in the second or third quarter of this year.

Safeguard's shares rose 4 percent to $21.00 after hours after closing on Tuesday at $19.23 on the New York Stock Exchange. (Reporting by Susan Kelly, with additional reporting by Alina Selyukh, editing by Bernard Orr)