NEW YORK (CNN/Money) -
The market dynamic for breast implants could swing dramatically over the next year, and it has a lot to do with a new implant with a consistency that's been compared to Gummy Bears.
California-based Mentor Corp. (down $0.25 to $52.42, Research) and Inamed Corp. (down $0.05 to $73.53, Research) both sell saline-filled implants in the U.S. market and silicone implants overseas. Both companies are waiting for the Food and Drug Administration's decision on whether they can sell cohesive silicone implants in the United States.
Mentor received an approval letter from the FDA on July 28, and these are generally seen as precursors to product approval. Inamed is hoping to receive a similar letter soon.
Mentor and Inamed are both working on third and fourth-generation implants, which are considered safer than the silicone implants that were banned in the U.S. in 1991. The third-generation implants are made of cohesive gel that maintains its form and doesn't leak. The fourth-generation, or 'Gummy Bear' implant, is made of gel pieces that are clustered together like the rubbery German candies, with even greater cohesiveness.
In the United States, women can buy silicone implants only for reconstructive surgery following mastectomies, so saline implants make up three-quarters of the U.S. implant market. The $350 million U.S. market could increase dramatically with FDA approval of silicone, because those implants are about twice the cost of saline, said John Calcagnini, analyst for CIBC World Markets.
"You'd almost double the sales of the U.S., potentially," said Calcagnini, who projects a $300 million jump in annual U.S. sales if the FDA approves silicone implants.
Mentor's in the driver's seat, but will Inamed take the wheel?
Mentor is typically seen as the market leader because an FDA advisory panel in April voted in favor of their product, but advised against Inamed's implant, putting Mentor's implant on a faster track to approval. Investors have watched this race closely: Mentor's stock price has jumped about 60 percent over the last six months, while Inamed's stock has been flat.
"Mentor is in the driver's seat," said Jayson Bedford, analyst for Adams Harkness, Inc. "Inamed is well-positioned in number two. Those are the two players that have come to the forefront."
However, this dynamic could change next year if the third-generation implants, which are still awaiting FDA decision, are supplanted by a fourth generation. Inamed could emerge as the market leader if the FDA approves its fourth-generation product, Style 410, known in industry slang as the Gummy Bear implant.
Inamed filed Style 410 with the FDA in December, 2004. If this product is approved, that should come as welcome news to Medicis Pharmaceutical Corp. (up $0.16 to $34.31, Research), a facial cosmetics company that is set to merge with Inamed later this year. Mentor is also testing a fourth-generation implant, but it has yet to file with the FDA.
MediCor (Research) and the privately held Texas company Silimed are also working on fourth-generation implants, analysts say, but they are further behind in testing.
"I think Inamed would be quite successful in switching most patients over to that style," said Eli Kammerman, analyst for Cathay Financial. Kammerman said that 90 percent of Inamed's implant sales in Europe are from silicone, and 80 percent of the silicone sales are from fourth-generation.
Inamed and Mentor's 50-50 market share split could shift to 55-45 in favor of Inamed if Style 410 enters the market ahead of Mentor's product, said Amit Hazan, analyst for Suntrust Robinson Humphrey. But Inamed's lead would be softened by the high quality of Mentor's third-generation implant, Hazan said. Also, analysts are quick to point out that Mentor's fourth-generation implant is not far behind Inamed's, so the market shares could shift again.
American market means more sales, bigger implants
The fourth-generation implants are made of cohesive gel, which is designed not to leak even when an implant is sliced open.
"It virtually eliminates the risk of rupture and leakage and it's a truly shape-stable implant," said Dr. Donald Kress, a Maryland doctor who installed fourth-generation implants in clinical trials for Silimed. "I've done 144 pairs of implants [in clinical trials] and the satisfaction rate has been phenomenal."
The companies have been selling the third and fourth-generation silicone implants overseas for years, where the biggest markets are in Europe, especially in France and Germany, and in South America, particularly in Brazil and Argentina.
A green light from the FDA would increase not only the sales of the implants, but also their size, according to the doctor who helped with Silimed's trials.
"Only the Americans like the big implants," said Dr. Kress. "Even the Germans don't like big implants."
The analysts do not own stock in the companies mentioned here.
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