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Investorman Member Level  Wednesday, 11/02/05 06:59:42 PM
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All Associated Press NewsNEW YORK (AP) - Shares of breast implant makers surged Wednesday on the anticipation of a pending Food and Drug Administration approval of silicone gel breast implants after one company's fax notifying clinical trial investigators came to light.

Shares of Mentor Corp. rose $3.60, or 7.4 percent, to close at $52 on the New York Stock Exchange. Inamed Corp. shares climbed $2.26, or 3.1 percent, to $75.44 in regular trading on the Nasdaq, and continued to rise 92 cents in aftermarket activity. Shares of Inamed suitor by Medicis Pharmaceutical Corp. rose $1.37, or 4.5 percent, to close at $32 on the NYSE.

As reported Wednesday in the Washington Post and a CIBC World Markets research note, Mentor mistakenly sent out a draft fax Oct. 25 telling clinical trial investigators who implant silicone gel breast implants for reconstructive purposes they would still have to track study patients now that the FDA had approved the implants for cosmetic use.

The letter was retracted Oct. 27, CIBC analyst John Calcagnini said in a research note. In an interview, Calcagnini attributed the stock movement to anticipation of an FDA approval of the implants generated by the news of the fax.

Silicone-gel implants were banned for cosmetic use in the United States 13 years ago, after thousands of women claimed that leaking implants had damaged their health. However, scientific advisers to the Food and Drug Administration convened in April, clearing the way to reintroduce the implants to the market. During those meetings, Mentor's data elicited a panel recommendation to the FDA for approval, whereas Inamed did not.

In an interview, Lazard Capital Markets analyst Alexander Arrow agreed the fact that the letter had already been written rallied investors to buy shares in the companies. However, Arrow disagreed with other analysts in the belief that Mentor will get a head start over Inamed for approval for safety reasons.

"Our research shows that what most likely will come out is an equivalent synchronized decision: they could both be approved, or they could both be denied, or could both be asked for more data on the same day," Arrow said. "FDA's view and our understanding is that being fair to the companies is less of a priority than protecting the public health."

Arrow backed up his opinion calling the panel preference for Mentor's data over Inamed's in April as "a popular misconception," in that three panel members who were instrumental in deciding the vote showed concerns that would be of little to no importance in an FDA decision. The analyst believes the level playing field will lower the risk profile for the devices.

Both Mentor and Inamed currently market saline-filled breast implants for cosmetic use in the United States. Some consumers believe the silicone-gel implants look and feel more natural than their salt-water counterparts.

Arrow also disagrees with the belief that silicone gel implants will naturally be higher margin products than saline-filled implants. Arrow said the average saline implant, which is essentially a shell filled by the surgeon, is about $400 and costs about $92 to make. On the other hand, silicone gel implants must be filled at the factory and undergo more rigorous quality control. While silicone gel implants for reconstructive purposes currently cost about $800, Arrow said the market is unlikely to support double the price once the implants are approved for cosmetic use.

Mentor Corp. reported Monday that its fiscal second-quarter profit fell 4 percent on lower-than-anticipated sales of its breast implants, as consumers held out for the silicone gel implants. Profit slipped to $12.1 million, or 25 cents per share, as revenue rose 5 percent to $114.2 million.

Inamed on Tuesday said that third-quarter earnings fell 11 percent as expenses from the Medicis takeover offset rising sales. Inamed earnings slipped to $14.9 million, or 41 cents per share, as revenue grew 17 percent to $105.2 million.

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