Bidding War for the Aesthetic Market's Only Pure Play
Executive Summary
The aesthetic market is becoming somewhat incestuous, with all of its major players current embroiled in some sort of takeover attempt on the businesses of the others. Back in March, dermatology specialist Medicis made an offer to acquire Inamed, the only pure-play in the medical aesthetics market. Some months later, Mentor, Inamed's rival in breast implants, made an offer for Medicis. Now Allergan, "the Botox company," is vying for Inamed with what it believes is a better offer. That all four publicly traded companies are trying to merge with one another highlights just how hot the aesthetics market is today. The bidding war also highlights the unique characteristics of the medical aesthetics specialty, in terms of the blurring between devices and drugs.
The aesthetic market is becoming somewhat incestuous, with all of its major players currently embroiled in some sort of takeover attempt with each other. Back in March, dermatology specialist Medicis Pharmaceutical Corp. made an offer to acquire Inamed Corp. , the only pure-play in the medical aesthetics market (cosmetic drugs and devices marketed to physicians). [See Deal] Some months later, Mentor Corp. , Inamed's rival in breast implants, made an offer for Medicis. Now Allergan Inc. , "the Botox company," is vying for Inamed with what it believes is a better offer. [See Deal] That all four publicly traded companies are trying to merge with one another highlights just how hot the aesthetics market is today. Analysts claim that the non-surgical market for anti-aging treatments is worth $12.5 billion.
The bidding war also highlights the unique characteristics of the medical aesthetics specialty, in terms of the blurring between devices and drugs, where even a drug like Allergan's Botox (botulinum toxin A) is a technique-sensitive injectable, and for that, is more like a device than a drug. Thus, each of these companies, coming into the field from either a heritage in devices or drugs, believes that it offers the best synergies for Inamed.
Device company Inamed, with 2005 revenues of approximately $444 million, offers products in three cosmetic specialties—for the office-based cosmetic surgeon, it is developing a Botox alternative in-licensed from Ipsen , known as Reloxin (botulinum toxin A), and offers a soon-to-be approved hyaluronic acid dermal filler trade-named Juvederm. Inamed also sells breast implants to plastic surgeons, accounting for 56% of its current sales, and to bariatric surgeons, Lap-Band, a less invasive, safer, lower cost alternative to gastric bypass surgery, accounting for 27% of sales. Lap-Band is forecast to grow at 30% going forward.
Specialty pharma Medicis sells one of the leading injectable dermal fillers, Restylane (hyaluronic acid). The opportunity to bundle Reloxin with Restylane, as well as the cross-selling opportunities both companies would enjoy, were what prompted Medicis's original $2.5 billion offer for Inamed.[See Deal]
Mentor is a device company operating in urology and breast implants. Its strategy, when it made its $2.2 billion bid for Medicis in November (which was summarily rejected) was to strengthen the much more profitable and rapidly growing cosmetic side of its business. It had earlier in-licensed rights to its own Botox alternatives from the Wisconsin Alumni Research Foundation . [See Deal]
Now Allergan, which describes itself as a specialty pharmaceutical company, claims it has the best offer and the best synergies. It has launched a $3.2 billion takeover bid, based on $84 a share for Inamed. That's a 12% premium over the initial Medicis offer. The deal is not yet a sure thing, but Allergan is optimistic, says General Counsel Douglas Ingram.
The Inamed deal, which gets Allergan into two new device markets—breast reconstruction and bariatric surgery—appears to counter the strategy it embarked upon in 2002 when it spun off its ophthalmic surgery businesses to Advanced Medical Optics Inc. in order to focus on pharmaceuticals. [See Deal] Then, it shed its slower-growing ophthalmic devices so that it could focus on specialty pharmaceutical markets led by multi-purpose drug Botox.
Ingram says that the earlier exit from devices was different; within the context of a pharmaceutical ophthalmology franchise, the device segment couldn't compete favorably for internal R&D resources, and it didn't enjoy any synergies on the sales and marketing side either, with separate ophthalmology sales forces for the device and pharmaceutical businesses. In contrast, Inamed brings products that can be bundled with Allergan's offerings to the physicians that it already targets with Botox. Inamed also brings its own sales reps in the surgical specialties which are new to Allergan.
The Allergan-Inamed deal makes sense, he says, in light of Allergan's overall strategy to enter new markets with Botox, today a more than $800 million drug which has some 100 different potential clinical applications, and then to strengthen its position in those markets by adding leading products. Allergan is doing this in pain: it is developing Botox for migraine; it has an in-house alpha agonist in development for neuropathic pain, and in October, it signed a co-promotion agreement with GlaxoSmithKline PLC under which it will co-promote, in the US, Glaxo's headache drugs naratriptan (Amerge) and sumatriptan (Imitrex). [See Deal] Likewise, Allergan is developing Botox for gastroparesis. To build a gastroenterology franchise around that, it is developing its own proton pump inhibitor. Inamed's Lap-Band will fit nicely in that franchise, Ingram points out.
Botox may also enable Allergan to move into a new clinical area, Ingram says: urology. Coincidentally, this was once Mentor's core business, but the company is now exploring strategic alternatives for it, as it moves into medical cosmetics. Will the tangled web of relationships between acquirors and acquirees become even more so?