Experts weigh benefits, risks of Allergan-Inamed merger

January 1, 2006

National report — A proposed $3.2 billion merger of Botox-maker Allergan and breast-implant maker Inamed would ultimately benefit dermatologists, an Allergan official says.

National report - A proposed $3.2 billion merger of Botox-maker Allergan and breast-implant maker Inamed would ultimately benefit dermatologists, an Allergan official says.

But one industry analyst says the proposed deal could lead to potentially higher prices for dermal fillers, and could create anticompetition concerns.

Medicis withdrew its offer Dec. 13.

Allergan's offer included a Dec. 31 deadline.

Regulatory concerns

If the merger is approved, Mr. Ingram said Allergan may quickly divest Inamed's Reloxin brand - a botulinum toxin type A product distributed by Inamed in the United States - to a competitor to satisfy concerns of the Federal Trade Commission (FTC). Allergan produces its own botulinum toxin type A product, Botox.

At press time, Mr. Ingram said Allergan had begun working with the FTC to satisfy trade concerns.

One dermatologist believes the merger of the two companies, if approved, may spell discounts on aesthetic products.

"I'm hoping that if one buys certain amounts of Botox, one will get certain reductions in filler prices," says Vic A. Narurkar, M.D., who practices in San Francisco, is president of the American Society of Cosmetic Dermatology and Aesthetic Surgery (ASCDAS) and assistant clinical professor of dermatology at the University of California, Davis, Medical Center.

Opinions mixed

Still, analysts had mixed opinions of the outcome of the Allergan-Inamed talks at press time.

A Nov. 15 Allergan press release noted that Allergan would acquire Inamed's BioEnterics Lap-Band system, a minimally invasive surgical device for treating obesity, that Allergan considers "a key growth driver" in this rapidly expanding market.

The Lap-Band product grew at a rate of more than 30 percent in 2005 and will grow 36.9 percent in 2006, according to Alexander Arrow, M.D., CFA, medical technology analyst for Lazard Capital Markets.

That performance, as well as similar success for Inamed's breast implant business, may mean Inamed shareholders ultimately are "more likely to decide that the current Allergan offer is insufficient, and either remain independent, or hold out for a potential better offer from Allergan or some other suitor," Dr. Arrow says.

Allergan's offer for Inamed came amid a November 2005 attempt by California-based breast implant-maker Mentor Corp. to take over Medicis for $2.2 billion. Medicis initially rejected that offer.

"Nothing in Mentor's attempted purchase of Medicis should have any impact on our acquisition (of Allergan) one way or the other, and it has no bearing on our analysis," as the overture to Inamed was not a defensive maneuver, Mr. Ingram says.

Growing market

Regardless of the Allergan deal's fate, the consolidation maneuvers in the aesthetic sector represent the desires of Allergan, Mentor and Medicis to participate in high future growth in the breast implant market when silicone wins federal approval, as well as in the growing market for dermal fillers and the $1 billion botulinum toxin market, says John Calcagnini, senior medical device analyst, CIBC World Markets Corp.

"These products carry above-average revenue growth, high margins and have a high growth outlook with regard to demographics," he says.