Medical device maker Inamed (NASDAQ:IMDC) won a victory recently when an FDA advisory panel recommended that the company be approved to sell its silicone breast implants. But does the slim 9-to-6 panel margin portend problems for this profitable and quickly growing company?
To be sure, breast implants are big business. Between 1992 and 2001, the number of operations increased by 533%, and doctors performed 236,888 breast enlargement operations in 2002 alone.
Prior to 1992, when silicone implants were outlawed, they were manufactured by Baxter (NYSE:BAX), Bristol-Myers Squibb (NYSE:BMY), 3M (NYSE:MMM), and Dow Corning, a subsidiary of Dow Chemical (NYSE:DOW).
Complications arose, and all four companies fell victim to multiple lawsuits. In March 1994, they agreed to a $4.25 billion settlement -- the largest class action settlement at that time.
Unfortunately, a safer saline product proved inferior to the softer, more natural feel of silicone gel, as evidenced by the fact that, in Europe, women select silicone 9 to 1 over saline. By being first to market with the new silicone, Inamed expects to steal share from leader Mentor (NYSE:MNT). Both have been manufacturing breast implant products for decades, and neither was swamped by litigation.
Should Inamed shareholders be concerned about silicone? Yes! The company acknowledges that in-place implants can rupture or simply leak. The company's latest quarterly filing acknowledges that it has not found a carrier willing to provide "risk-shifting liability insurance on terms and conditions which are acceptable to the Company."
Then there's always the risk the FDA will not green-light its advisory panel's recommendation. High-profile women's groups and others are still trying to prevent approval.
A full 55% of Inamed's sales are derived from breast implant products. So, yes, the company's top-line growth of 14.5% will accelerate if FDA approval is granted. But even with the increased sales -- and one other interesting product for obesity -- at 46 times earnings, Inamed's uninsured risks are a bit too much.
W.D. Crotty can be reached at [email protected].
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