NEW YORK (CNN/Money) -
The breast implant industry could face a radical shift in coming months if the FDA follows a panel recommendation favoring one company's implant over its rival's.
Investors wanting to put their funds into a single American implant company have to choose between Inamed Corp. (down $3.21 to $60.30, Research) and Mentor Corp. (up $2.58 to $37.91, Research) This is not an easy choice, as the U.S. market share for implants is evenly split. But this week, an FDA advisory panel gave a nod to Mentor by recommending approval of its silicone implants, while rejecting Inamed's. If the FDA follows the panel's advice, this could tip the scales in Mentor's favor.
"They're at about a fifty-fifty market share right now and the market share would change dramatically if silicone were only approved for Mentor," said Amit Hazan, analyst for Suntrust Robinson Humphrey.
The advisory panel voted 7 to 2 in favor of Mentor's silicone implants on Wednesday, and voted 5 to 4 against Inamed's product on Tuesday. Towards the close on Thursday, Inamed share prices fell $3.21, or 5.1 percent, to $60.30, while Mentor shares jumped $2.62, or 7.4 percent, to $37.95.
Inamed chief executive officer Nick Teti said he planned to meet with the FDA because he found the panel's recommendation to be "curious and inconsistent." But according to some analysts, the recommendation is a clear signal to investors to dump Inamed stock and buy up Mentor shares.
"I could tell you that I would be getting out of Inamed," said Dan Owczarski, analyst for Soleil-Belmont Harbor Capital. "They have a price franchise that's incredibly at risk. I wish that I could tell people to buy on the weakness, but there's just too much of an extreme on the two [FDA panel] reviews."
Others aren't so quick to write off Inamed. Inamed, which markets collagen products for facial cosmetics and surgical weight loss products to treat obesity, has a promising implant candidate in its pipeline and could also benefit from its planned merger with Medicis Pharmaceutical Corp. (up $2.27 to $30.02, Research), a facial cosmetics firm. The two firms reached an agreement in March. According to some analysts, Inamed could be a rewarding, albeit risky, long-term investment.
Hazan, who projects the implant market to be $400 million in 2006, believes Mentor's shares could jump to more than $50 from Thursday's price of about $37, leaving Inamed in the dust. However, investors willing to deal with Inamed's short-term difficulties could enjoy long-term gain, said Hazan.
Although the FDA panel said Inamed failed to provide evidence that its silicone implants are safe, the company has submitted another silicone implant to the FDA that uses a cohesive gel rather than a liquid. Silicone implants, criticized for their tendency to rupture and leak, have been banned since 1992, but the silicone gel implants, Style 410, are designed to sidestep this problem.
Inamed has described Style 410 implants as "the preferred choice of breast implants by physicians and patients in countries where they are commercially available."
Also, an acquisition by Medicis could turn the merged companies into a "powerhouse in the facial esthetics market," said Hazan. "The combined companies will have a lot of synergy and it's a good buy for the long term holder."
But the panel's decision could complicate the merger.
"I don't think Medicis anticipated split approval," said Julie Schumacher Hoggatt, analyst for Hibernia Southcoast Capital. "I think that Medicis will likely want to renegotiate a price for the deal."
The fate of the implant industry is contingent on the FDA's decision. The agency often, but not always, follows the advice of its advisory panels, but Eli Kammerman, analyst for Cathay Financial, believes this time the FDA will not approve silicone implants from either company, because the panel did not have enough information on which to base a recommendation.
"I think [Inamed] can compete reasonably well, and the reason is because I do not expect Mentor to receive FDA approval of this silicone," said Kammerman.
None of the analysts interviewed for this story own shares of Inamed or Mentor and their firms do not have banking relations, though Suntrust Robinson Humphrey owns less than 1 percent of Mentor's stock.