Allergan Prevails in Contested Battle to Acquire Inamed

In a pitched and convoluted battle to acquire breast-implant manufacturer Inamed Corp. (Santa Barbara, CA), Allergan Inc. (Irvine, CA) has emerged as the victor.

Last March, Inamed accepted a $2.8 billion offer to be acquired by Medicis Pharmaceutical Corp. (Scottsdale, AZ), a manufacturer of prescription acne and skin medications. But in mid-November, Allergan suddenly upped the ante with a $3.2 billion bid. The situation was further complicated by an unsolicited and somewhat underpowered move from Inamed competitor Mentor Corp. (Santa Barbara, CA) to acquire Medicis for $2.2 billion.

Medicis’ Shacknai: No bidding war.

The bid by Allergan, which currently develops pharmaceutical products for the ophthalmic, neurological, dermatological, and other markets, ultimately proved to be too rich for Medicis to counter. Citing the advice of the company’s board, outside counsel, and financial analysts, Medicis chairman and CEO Jonah Shacknai said, “We have concluded that it is in the best interests of Medicis shareholders not to raise our offer for Inamed.”

In making its late-entry bid for Inamed, Allergan said the merger was a good fit with its strategy of focusing on high-growth markets in specialty pharmaceuticals while combining the complementary portfolios of both companies in medical aesthetics products. Additionally, Allegan noted that the merger would create cross-marketing and cross-selling opportunities in its dealings with dermatologists, plastic surgeons, and other medical aesthetic specialists.

Inamed manufactures saline and silicone gel implants for reconstructive and augmentive surgery, antiwrinkle ointments, and minimally invasive devices to treat obesity. The company’s silicone gel implant failed to receive an approval recommendation from an FDA advisory panel last April, but received conditional approval from the full agency in September. The decision put the company on an even footing with rival Mentor, which received the same type of approval in July. Both companies’ devices are expected to be approved for sale in the United States sometime during the first half of 2006.

Although Allergan said the potential of Inamed’s breast implant business was a prime motivator in pursuing the merger, many analysts noted that the company was also eager to acquire Inamed’s Juvederm wrinkle-filler cream. Juvederm is positioned competitively to Allergan’s market-leading Botox pharmaceutical.

Inamed’s Teti: Considering a ‘superior’ prospect.

Calling Allergan’s bid a “superior” offer to that of Medicis, Inamed chairman and CEO Nicholas L. Teti said, “The Inamed board is supportive of the Allergan offer and expects to consider final approval of the Allergan agreement and plan of merger shortly.” Inamed has until December 31 to accept the offer.

Allergan’s Pyott: Expanding into devices.

The acquisition represents Allergan’s first move into the medical device industry. Allergan chairman, president, and CEO David E.I. Pyott described the addition of Inamed’s line of breast implants, antiwrinkle ointments, and minimally invasive devices to treat obesity as “a significant expansion of our existing medical aesthetics franchise.” The U.S. market for nonsurgical antiaging treatments has an estimated market valuation of $12.5 billion. Demands for these products and services have reportedly grown 700% since 1997, largely fueled by the aging of the baby-boomer generation.

Shortly after Allergan made its move for Inamed, Medicis called upon Inamed’s board to inform the company’s shareholders, by December 6, of its recommendation to reject the new offer. When no such action was taken by the specified deadline, Medicis became eligible to receive a compensatory termination charge of $90 million, plus $481,985 in expense reimbursement. In a company news release, Inamed reported that it has paid those fees.

Downplaying any fallout from the collapse of the Inamed deal, Medicis’ Shacknai said, “We are very excited about our business prospects and have energized our corporate development efforts in both the aesthetic and dermatology sectors. Our pipeline is rich in near- and long-term opportunities.”

Additionally, if the Allergan-Inamed merger requires that the new company divest itself of Inamed’s experimental antiwrinkle cream, Reloxin, for antitrust reasons, Medicis would be a prime sales prospect.

Mentor’s Levine: A persistent suitor.

In regard to Mentor, Medicis abruptly dismissed the company’s acquisition bid as “inappropriate.” Despite this, many analysts believe these two companies could still get together at some future point. Despite being rebuffed initially, Mentor CEO Joshua Levine described the proposed merger as a “compelling combination,” and it’s likely that he will make additional overtures in the future.

Allergan, with 5000 employees, reported 2004 revenues of $2.04 billion, up 15.5% from 2003 revenues of $1.77 billion. Inamed, with 1200 employees, had 2004 sales of $384.4 million, an increase of 15.6% over prior-year revenues.

© 2005 Canon Communications LLC

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