Medical Device Daily Associate

Prescription skin medication maker Medicis (Scottsdale, Arizona) surprised some analysts yesterday when it reported its plan to purchase breast implant maker Inamed (Santa Barbara, California) for nearly $2.8 billion.

The companies said during a conference call that this merger agreement would create a global leader in breast and facial aesthetics products and therapeutic dermatological medicine markets, with annual revenue in excess of $700 million, operations in more than 12 countries, businesses in more than 60 countries and about 1,500 employees.

The companies noted that the combined entity would have a "broad, well-established, portfolio of complementary products in the facial aesthetics, breast aesthetics and therapeutic dermatological markets, and innovative surgical devices for the treatment of morbid obesity."

Under the terms of the transaction, approved by both companies' boards of directors, Inamed stockholders will receive 1.4205 shares of Medicis common stock and $30 in cash for each share of Inamed common stock.

Based on Medicis' closing price on March 18, and the number of Inamed shares outstanding, the merger consideration represents about $75 in value per Inamed share.

Jonah Shacknai, current chairman, president and CEO of Medicis, will become chairman and CEO of the combined companies, and Nick Teti, currently Inamed's chairman, president and CEO, will assume the post of vice chairman of the board.

In addition to Teti, three other Inamed representatives will join the current eight-member Medicis board.

"This transaction, which we believe to be transformational, will create a company with a global growth platform an incredibly strong financial position and greater resources for increased research and development, which is, of course, the mother's milk of all business," said Shacknai during the call. "Joining forces with Inamed gives us the ability to offer our primary customers – plastic surgeons, cosmetic surgeons and dermatologists – a broader array of complementary, highly effective products to meet the needs of their patients."

Shacknai noted that the combined product portfolio of the companies would include "well-known brands" in the dermatological market and in the facial aesthetics market "including in the future, and very importantly, reloxin, a Botulinum toxin type A."

He also pointed out that Inamed brings "the world's leading breast augmentation products" to the table, as well as the Lap-Band system for the treatment of morbid obesity.

Teti said that he believes this business combination "will greatly improve our already strong position" in the breast aesthetics market.

While the company will be based in Scottsdale, Medicis said it would retain a "strong presence" in Santa Barbara and Fremont, California, and international locations, including Arklow, Ireland, and San Jose, Costa Rica.

While the companies were upbeat about the pending merger, some analysts questioned whether the deal would be as valuable if the FDA rejects Inamed's bid to have the 12-year-old ban on silicone breast implants overturned.

"If Inamed does not win approval of silicone breast implants in the U.S., this could be a negative," David Maris, a Banc of America (New York) analyst, said in an investor note.

Thousands of women said they suffered a range of conditions caused by the silicone implants, including autoimmune diseases such as lupus and rheumatoid arthritis, leading to a slew of lawsuits and recalls of the products made by several manufacturers.

Inamed last week disclosed that the Securities and Exchange Commission has begun a formal private investigation related to one style of its silicone gel-filled breast implants.

The transaction, which is expected to close by the end of calendar 2005, is still subject to the approval by Medicis and Inamed stockholders, regulatory approvals and customary closing conditions.

Shacknai noted that the pending merger is about growth, and as such, he said employees would have "significant opportunities" in the combined companies. He also noted that since both businesses are large and complementary, "we anticipate very limited impact on our work forces."

Deutsche Bank Securities is serving as financial advisor and Latham & Watkins as legal counsel to Medicis. JPMorgan is serving as financial advisor and Morrison & Foerster as legal counsel to Inamed.

Medicis has branded prescription products in a number of therapeutic categories, including acne, eczema, fungal infections, psoriasis, rosacea, seborrheic dermatitis and skin and skin-structure infections.