What's going on at the Food and Drug Administration? On Tuesday, an advisory panel denied breast implant maker Inamed (NASDAQ:IMDC) the ability to market its silicone-gel product over safety concerns but turned around yesterday and granted Mentor (NYSE:MNT) the same chance for its product.
The difference, the panel said, was that Inamed didn't have sufficient data to alleviate long-term concerns over ruptures. It provided MRI data for one- and three-year time frames and had assumed a constant rupture rate that the panel said was inadequate for predicting actual ruptures, which could occur at much higher rates. Mentor, on the other hand, agreed to stipulations that Inamed apparently had refused.
The FDA will require Mentor to continue collecting data from patients for 10 years, something Inamed said would yield little useful information, and it will also have to offer "hands-on physician education" before plastic surgeons can use the implants. Interestingly, the implants will have to carry labeling that recommends regular MRIs to see whether they rupture.
Following the decision for Mentor, which caught many analysts by surprise considering Inamed's result, the stock bounced more than 11% in the after-hours market; Inamed's stock fell more than 3%, and then nearly 7% in early morning trading.What will this mean for the future merger of Inamed and Medicis (NYSE:MRX)? Just last month, investors were buoyant about the proposed merger because it created synergies for both. Inamed was getting additional exposure to cosmetic and plastic surgeons for its implants and botox treatments, and Medicis was getting a more complete portfolio of products apart from its skin-care line. While botox as a sideline might draw more interest, will it be enough to carry through the merger?
Breast implants account for 56% of Inamed's business, which is primarily conducted in the United States. Only 39% of its $384 million in annual revenues was generated overseas. The company will still be able to sell its saline implants, but they are considered inferior in terms of touch and look. The gel implants that were rejected are considered to look and feel more like the real thing, and Inamed was counting on rapidly increasing sales of breast implants.
Obesity products made up another 23% of Inamed's revenues in 2004, followed by various facial products, with 20% of revenues. The company expects obesity sales to grow by 30% this year, which could lead to similar overall sales growth for 2005. That could still give Medicis the incentive to acquire the company.
Certainly there were differences between the data that Inamed and Mentor presented to the FDA. The latter had more patients and lower rupture rates than the former, for example. Yet it also seems that the panelists didn't like Inamed's refusal to conform to their wishes, whereas Mentor agreed to abide by all of the panel's conditions. In the high-stakes game of regulatory approval, pleasing the panels might have helped Inamed.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article.
