Experts weigh benefits, risks of Allergan-Inamed merger

Jan 1, 2006
By: John Jesitus
© Dermatology Times

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.

The combined franchise "would offer an interesting and unique mixture of complementary products and services within the medical aesthetics market that would meet a wide variety of patient needs," said Douglas Ingram, Allergan executive vice president, general counsel and secretary, at press time.

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

Allergan, based in Irvine, Calif., filed an unsolicited offer for Inamed, headquartered in Santa Barbara, in November. Inamed officials said Allergan's offer was superior to an earlier, $2.6 billion takeover bid by Arizona-based gel implant maker Medicis Pharmaceutical Corp.

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.

Mr. Calcagnini and Mr. Ingram offer differing views of the competitive landscape, should the Allergan deal be approved.

Mr. Ingram says an Allergan-Inamed merger would create more competition in the aesthetic market. If Medicis, marketer of the No. 1 dermal filler in the United States (Restylane, hyaluronic acid), had acquired Inamed, he says, "All of the significant dermal fillers would be owned by one company."

The Allergan-Inamed deal would give consumers the opportunity to choose between Medicis' Restylane and Inamed's Juvederm (hyaluronic acid), he says.

But Mr. Calcagnini says Medicis' Restylane would have a tough time competing with Allergan and Inamed's ability to bundle Juvederm with Botox. He adds, "Botox is a much bigger market than dermal fillers."

As for competition, he says, "There are other types of dermal fillers from other companies, such as BioForm (Radiesse, calcium hydroxylapatite)" divvying up the filler marketplace.

"Allergan's buying Inamed does run the risk of being anti-competitive, as Allergan is so dominant in the dermatology channel with the success of Botox," Mr. Calcagnini says. He says many dermatologists are "annoyed at the way Allergan has raised prices on Botox over the years."

Combining Allergan with Inamed could result in "potentially higher prices on dermal fillers, on top of the already high price for Botox," he says.

On a positive note, Mr. Calcagnini says that since these businesses would generate significant earnings and cash flow for Allergan, some of this money could be reinvested in other dermatology technologies.

"But this is true for whomever ends up buying Inamed, I suspect."

The Allergan-Inamed match also might produce expanding indications and studies for Botox in alternative indications, such as migraines, he says.