Inamed Corporation

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Inamed Corporation

5540 Ekwill Street
Santa Barbara, California 93111
U.S.A.
Telephone: (805) 683-6761
Toll Free: (800) 624-4261
Fax: (805) 692-5432
Web site: http://www.inamed.com

Public Company
Incorporated: 1961 as First American Corporation
Employees: 1,200
Sales: $384.4 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: IMDC
NAIC: 339113 Surgical Appliance and Supplies Manufacturing; 339112 Surgical and Medical Instrument Manufacturing

Inamed Corporation is a healthcare products manufacturer focused on marketing breast implants, dermal fillers to correct facial wrinkles, and devices to treat severe and morbid obesity. The company operates through two divisions: Inamed Aesthetics and Inamed Health. Through Inamed Aesthetics, the company offers a broad range of breast implants that are used for therapeutic purposes in reconstruction surgeries but find their greatest use in breast augmentation procedures. The division also produces a line of dermal fillers, including Reloxin, a botulinum toxin under development that is billed as the company's competitive answer to Allergan, Inc.'s hugely popular Botox dermal filler. Inamed Health produces products for minimally invasive surgical solutions to obesity, including a device marketed under the name "Lap-Band," which is a less traumatic alternative to surgeries such as gastric bypass and stomach stapling. Inamed maintains manufacturing facilities in the United States, Costa Rica, and Ireland, marketing its products in more than 50 countries.

ORIGINS

The Inamed name first appeared in the mid-1980s, a decade after the business it represented was founded. The earliest predecessor to Inamed was a company incorporated in 1961, Florida-based First American Corporation, but the essence of the Santa Barbara, California-based enterprise was founded in 1974. That year, McGhan Medical Corporation was incorporated, a company founded to manufacture silicone products for plastic and reconstructive surgery. The formation of Inamed occurred after a series of transactions that took place during the ensuing decade. In 1977, Minnesota Mining and Manufacturing Company (3M) acquired McGhan Medical, controlling the silicone implant product line until a new McGhan Medical was formed in 1984 to purchase the assets acquired by 3M. In 1985, one year after the assets were spun off by 3M, McGhan Medical became the subsidiary of a publicly held company when First American Corporation became the new corporate parent of the silicone implant product line. The following year, McGhan Medical changed its name to Inamed, a corporate banner meant to convey the concepts of "innovation" and "medicine."

There was an element of risk involved in operating as a breast implant manufacturer, one that was known to Inamed executives when they first unfurled their corporate banner. By basing their financial sustenance on the breast implant market, management exposed itself to the possibility of lawsuits and the possibility that the Food and Drug Administration (FDA) would step in and use its regulatory powers to ban breast implants. Both possibilities existed when the Inamed name was born, and, to the company's disappointment, both threats materialized, presenting the overriding challenge facing Inamed during its first decades in business.

The controversy over breast implants centered on one of three types of implants. All implants essentially were envelopes of silicone, with the difference in types determined by the substance used to fill the shell of the implant. Implants held either silicone gel, saline solution, or a combination of the two substances. Litigation and FDA scrutiny centered on silicone-gel implants, the type overwhelmingly preferred by women because of their more natural look. The first lawsuit against an implant manufacturer was won in 1977, the year 3M acquired McGhan Medical, but the legal salvos volleyed at the breast implant industry did not pick up in intensity until after a San Francisco lawyer, Daniel Bolton, won a $1.5 million judgment for a Nevada woman in 1984. Bolton, who also won a $7.3 million settlement in 1991, based his arguments on complaints that the devices gave patients rheumatoid arthritis and other autoimmune diseases. A host of other accusations fanned a flurry of lawsuits, including complaints of migraine headaches, hair loss, facial paralysis, and memory loss. For its part, the FDA had begun looking into safety issues related to silicone-gel implants in 1982, but it found no evidence to suggest the devices were harmful. The FDA renewed its investigation in the early 1990s, however, when the regulatory agency's commissioner, David Kessler, launched an investigation amid a spate of lawsuits filed against breast implant manufacturers. In January 1992, Kessler ordered a three-month moratorium on the use of implants before banning them for cosmetic purposes in April 1992. Breast implants were used for therapeutic purposes such as breast reconstruction after a mastectomy, but most of the surgeries were performed for breast augmentation, a market that was taken from Inamed and all its fellow competitors.

The FDA ban dealt a stinging blow to silicone-gel implants manufacturers, but by the time Kessler issued his edict the industry already was crippled. Inamed was left with virtually no other rivals, having watched its fellow competitors fall off one by one, devastated by lawsuits and forced to retreat because of the promise of another wave of lawsuits following the FDA's ruling. Companies such as Bristol-Meyers Squibb and Bioplasty abandoned their breast implant businesses. Dow Corning, the world's largest manufacturer of breast implants, bore the most severe wound from the litigious war, a wound that proved fatal. Dow Corning exited the business in early 1992, facing lawsuits representing more than 300,000 plaintiffs. The company was ordered to pay $3.2 billion to settle its claims, which prompted it to declare bankruptcy in 1994. The combined influence of the FDA ruling and the numerous lawsuits reduced the population of the breast implant industry in the United States to two companies by the end of 1992: Inamed and its crosstown rival, Mentor Corporation.

COMPANY PERSPECTIVES

Our vision is to become a leading healthcare company that develops and markets innovative, high-quality, science-based products and services that enhance the quality of people's lives. We will live by the Inamed values and create the best work environment where the best people choose to work. We aspire to deliver superior shareholder returns and to be a good corporate citizen in the communities where our employees live and work.

SURVIVING THE 1992 FDA BAN ON SILICONE-GEL IMPLANTS

Although Inamed survived the assault on its industry, it did not escape unscathed. In 1997, by which point more than 170,000 lawsuits had been filed against implant manufacturers, Inamed paid $28.1 million to resolve its legal difficulties (the company generated $106 million in revenue during the year and posted a loss of $41 million). The litigation settlement exacted a heavy toll on the company, but Inamed remained in business, while others fled or shuttered their operations, by persevering and diversifying. The FDA ban did nothing to dampen the demand for breast augmentation procedures. Between 1992 and 2002 the number of breast enlargement procedures mushroomed from 32,000 to 237,000, nearly all of which were saline-filled implants, a type manufactured by Inamed. Further, the FDA ban did not apply to other countries. Silicone-gel implants remained the implant of choice overseas, particularly in Europe, where Inamed's silicone-gel-implant business continued to flourish. Accordingly, all was not lost in the wake of the FDA ban and industry-wide litigation. Inamed persevered through the 1990s, and to ensure it could look forward to financial growth in the century ahead, the company diversified, giving it three pillars to support its growth in the 21st century.

Inamed's first diversifying move occurred one year before Kessler's ruling on silicon-gel implants. In 1991, the company acquired the patents for a device to treat morbid obesity and formed BioEnterics, which later became Inamed Health, a division devoted to developing and manufacturing medical devices for obesity and abdominal surgery. The device, dubbed the BioEnterics Lap-Band System, did not gain FDA approval until 2001, but once the Lap-Band was on the market it began to record encouraging sales growth. The Lap-Band, which essentially was a band that cinched off the stomach without damaging the tissue, offered morbidly obese patients a minimally invasive alternative to more traumatic procedures, such as gastric bypass and stomach stapling surgeries. Sales of Lap-Bands, which cost $3,000 each, rose 60 percent during their first three years on the market, giving Inamed a substantial new stream of revenue. A more immediate contributor to the company's balance sheet was the 1999 acquisition of Collagen Aesthetics Corporation, a purchase that was organized within the Inamed Aesthetics division. The acquisition added a third business line, injectable dermal-filler products, giving Inamed an increased presence in what was broadly referred to as the vanity medical market. Inamed added to Collagen Aesthetics' Zyderm and Zyplast lines of injectable collagen with brands such as Cosmoderm and Cosmoplast that the company developed after the acquisition. Perhaps the most promising facet of the company's dermal-filler business grew out of the 2003 acquisition of the rights to a wrinkle remover made by France-based Beaufour Ipsen Group. The product, a botulinum toxin A comparable to Allergan Inc.'s bestselling dermal filler Botox, was undergoing clinical trials to gain the FDA's approval midway through the first decade of the 21st century.

Thanks in part to a diversified product line, Inamed entered the 21st century exuding enviable strength. Once the Lap-Band was introduced, giving the company three principal revenue streams, Wall Street expressed its satisfaction, resulting in a 200 percent increase in the company's stock value between 2002 and 2003. Investors soon had more incentive to ally themselves with Inamed after the company completed a promising first step toward getting silicon-gel implants back on the U.S. market. Early in the decade, the FDA agreed to reconsider approving silicone-gel implants for cosmetic purposes amid growing skepticism that the implants were harmful. In October 2003, the FDA's General and Plastic Surgery Devices Panel, an advisory panel, recommended that the government approve the use of the implants for aesthetic purposes, but several months later the FDA rejected its panel's recommendation and denied Inamed's bid to reintroduce silicon-gel implants in the United States. The matter was revisited in April 2005, when the advisory panel rejected Inamed's application for the approval of the company's silicone breast implants, citing lingering questions about safety and durability. One day after Inamed's bid was rejected, the advisory panel voted in favor of recommending to the FDA that Mentor's silicone implants be approved.

KEY DATES

1961:: First American Corporation is incorporated.
1974:: McGahn Medical Corporation is founded and acquired by 3M three years later.
1985:: First American acquires the assets purchased by 3M and changes its name to Inamed Corporation the following year.
1992:: The Food and Drug Administration bans the sale of silicone-gel breast implants for cosmetic purposes.
1998:: Inamed settles litigation with a $28.1 million payment.
1999:: Inamed acquires Collagen Aesthetics Corporation, adding a line of dermal fillers to its product portfolio.
2001:: The Lap-Band, a device to treat obesity, is launched.
2005:: After agreeing to be acquired by Medicis Pharmaceutical Co., Inamed accepts a higher offer to merge with Allergan, Inc., effective March 2006.

THE POSSIBILITY OF A NEW CORPORATE PARENT FOR THE FUTURE

As Inamed continued to petition the FDA's advisory panel for approval, the company found itself involved in merger discussions that promised to mark the beginning of a new era. In March 2005, one month before the FDA's advisory panel rejected the company's application for silicone-gel implant approval, Medicis Pharmaceutical Co., a Scottsdale, Arizona-based leader in the dermatology industry, signed an agreement to acquire Inamed. The $2.8 billion deal, hailed as a marriage of a major dermatology company and a major plastic surgery company, was approved by the directors of both companies, but the merger was not completed. The deal collapsed after Allergan stepped in and offered $3.2 billion for Inamed, an offer that Inamed's board of directors, for obvious reasons, found more attractive than Medicis's offer. The intervention of Allergan led to the termination of the merger agreement between Inamed and Medicis in December 2005, the same month Inamed and Allergan executed their definitive merger agreement. The deal, concluded in March 2006, signaled the end of Inamed's independence and the beginning of a new chapter in its history as part of the $2.3 billion-in-sales, Irvine, California-based Allergan. The precise nature of the company's role within Allergan's organizational structure remained to be determined as both parties waited for regulatory approval and the consummation of the deal.