NEW YORK (CNN/Money) -
As they prepare to make the jump to silicone, Mentor and Inamed have the American breast implant market all to themselves, but they could soon face competition from an industry legend unnoticed by many investors.
MediCor Ltd., founded in 1999 by its chairman, Donald McGhan, is getting ready to muscle its way into the United States with a new saline implant.
While Mentor (down $2.20 to $50.36, Research) and Inamed (Research) fight for a majority stake, MediCor has been buying companies overseas. Based in Las Vegas and traded over the counter, MediCor is not just some young upstart or foreign interloper. McGhan also founded Inamed and was its CEO, created the product line now used by Mentor, and helped invent the first breast implant with Dow Corning, back in 1963.
"[McGhan] is the grandfather of breast implants, if you will," said Amit Hazan, analyst for Suntrust Robinson Humphrey.
McGhan's first implant was made of silicone gel. But the Food and Drug Administration pulled silicone implants off the market in 1991 because of concerns about ruptures and leaks. In the United States, silicone implants are approved only for reconstructive surgery following mastectomies.
However, the $350 million U.S. implant market is poised to change radically because Mentor and Inamed, which both sell silicone implants overseas, are trying to get them approved by the FDA for cosmetic use. Both companies have received approvable letters from the FDA, which usually serves as a precursor to market approval. Both companies are in good standing with investors, having seen their stock value increase more than 50 percent during the last 12 months.
MediCor buys up the competition
MediCor, which totaled about $20 million in sales during the first three quarters of 2005, produces silicone implants for the European and South American markets, where the use of silicone is not restricted. With its recent acquisition of British implant maker Biosil Limited and supplier Nagor Limited, MediCor says it now holds 30 percent of the non-U.S. market share for breast implants. This recent deal follows the 2004 acquisition of the French implant maker Eurosilicone and the 2000 acquisition of Biodermis, maker of scar management materials.
MediCor chief executive officer Theodore Maloney proclaimed the silicone implant as "the product of choice, for the most part" and said "it is our absolute market objective to bring silicone implants into the U.S." However, MediCor could be years behind its competitors in submitting silicone implant applications to the FDA, so it is relying on saline for now.
California-based Inamed and Mentor sell implants that are filled with saline during surgery, after they are placed inside the patient's body. But MediCor has developed an implant that is pre-filled with saline at the factory. MediCor plans to submit a traditional saline implant to the FDA in the fourth quarter of 2005, followed by the next-generation pre-filled implant in 2006.
"We have two feet on the beach in the U.S. market with these two saline products," Maloney said. "[The next generation-saline implant] is physically more similar to a silicone implant than the inflatable saline implant."
Saline versus silicone: who wins?
McGhan believes that saline will continue to be a big seller, even with the likely approval of silicone.
"The whole market isn't going to switch to silicone gel," McGhan said. "We believe very strongly that the saline-filled breast market will be somewhere around 25 to 30 percent of the market after silicone's back on the market."
But analysts aren't so sure.
"I like the strategy they're taking, which is to consolidate the smaller players outside the U.S. to become a stronger player," said Hazan, the analyst for Suntrust Robinson Humphrey. But, despite the venerable presence of McGhan, Hazan said MediCor's saline strategy is "risky at best." Hazan said that 90 percent of the non-U.S. market is silicone.
"It's like they're working very hard on the Beta tape and they don't realize people are watching DVDs," said Hazan, comparing the outmoded video tape with saline implants.
MediCor is bolstered by strong leadership and would put price pressure on its U.S. competitors, said Jayson Bedford, analyst for Adams Harkness. But he said the company's market model depends heavily on the FDA's silicone decisions.
"If the FDA approves silicone, I think that MediCor will be coming into the market to somewhat of a disadvantage, relative to the other companies," said Bedford. "But if the FDA does not approve, I think MediCor is on much stronger footing."
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