Medicis to Buy Inamed for $2.8 Billion

In what some Wall Street wags have dubbed the “extreme makeover” deal, Medicis Pharmaceutical Corp. (Scottsdale, AZ) has announced its intention to acquire Inamed Corp. (Santa Barbara, CA) in a cash and stock deal valued at around $2.8 billion. Medicis is a specialty pharmaceutical company focusing on preparations for the treatment of dermatologic, aesthetic, and podiatric conditions, including acne, eczema, rosacea, and facial wrinkles. Inamed manufactures breast implants for cosmetic augmentation and reconstructive surgery, and surgical devices for the treatment of morbid obesity. It has recently become a distributor for facial aesthetics products, including Botox.

In a joint announcement issued by the companies, the newly formed entity is described as “positioned to take advantage of the fast-growing vanity market.” The company will distribute its products in more than 60 countries worldwide.

Under the terms of the agreement, Inamed stockholders will receive 1.4205 shares of Medicis common stock and $30 in cash for each share of Inamed. Based on closing prices and outstanding share volume when the deal was announced on March 18, the merger represents $75 in value per Inamed share, or a total valuation of approximately $2.8 billion.

Jonah Shacknai, chairman and CEO of Medicis, will assume the same titles in the new organization. Nick Teti, Inamed’s chairman, president, and CEO will serve as vice chairman.

Shacknai: A broader array.

Shacknai, citing aging baby-boomers and the growing interest among all age groups in maintaining a healthy appearance, said “We are excited about this strategic business combination, which will create a global platform in the fast-growing aesthetics market. 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.”

Teti: Significant cash flow.

Teti said the merger represents a “tremendous opportunity for our customers, employees, and shareholders. It enables us to create an even stronger company; one with a broad portfolio of complementary products, the combination of two dynamic sales forces, a strong research and development pipeline, and significant cash flow.”

The company will be headquartered in Scottsdale, but will retain a strong presence in the Santa Barbara area in addition to international operations in Ireland and Costa Rica. The transaction has been approved by the boards of both companies, and is subject to stockholder and regulatory approval. It is expected to close by the end of the calendar year 2005.

Most medtech and pharmaceutical analysts were positive on the proposed merger, citing the complementary fit of the two companies’ product lines as well as the general high-growth prospects of the aesthetics market in both developed and emerging economies around the world. The combined company is expected to post annual sales of more than $700 million right out of the box.

One wrinkle that remains is Inamed’s business in silicone gel breast implants, a class of products that has had a tortuous history in the U.S. market—including unproven, yet widely reported, allegations that they can cause serious disease and illness if their contents leak into the body. The implants, which have been banned by FDA since 1992 (except for use in reconstructive surgery), are readily available in Europe and other international markets. In 2003, the agency’s general and plastic surgery advisory panel recommended approval of silicone gel implants. But in 2004, in a surprising move, FDA ruled against the panel’s recommendation and issued new guidance to manufacturers. Inamed has since submitted an updated premarket approval (PMA) application, and is scheduled to meet again with the FDA panel on April 11–13.

Although not likely to effect the merger, a negative ruling from FDA could dampen investor interest in the new company.

Medicis, with 319 employees, had revenues of $303.7 million for the year ending June 30, 2004, an increase of 22.7% from $247.5 million for the previous year. Inamed, with 1200 employees, reported 2004 revenues of $384.4 million, up 15.6% from $332.6 million in 2003.

© 2005 Canon Communications LLC

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