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J&J acquisition may give Mentor muscle

Article-J&J acquisition may give Mentor muscle

New Brunswick, N.J. -- With its $1.07 billion acquisition of Mentor Corp., Johnson & Johnson, based here, is bailing itself into the cosmetic-product and breast-implant market.

Mentor Corp., based in Santa Barbara, Calif., is a leading supplier of aesthetic-medicine devices such as MemoryGel breast implants, skin-rejuvenation products and liposuction equipment. According to an Associated Press report, Mentor will be a stand-alone unit in J&J's Ethicon Inc., a supplier of sutures, mesh and other surgical products.

Pending regulatory approvals, the transaction should close in 2009's first quarter.

Other than Evolence, a collagen-based filler launched a few months ago, and surgical devices for procedures such as stomach reduction, J&J has relatively sparse presence in the aesthetic market. This will change with the Mentor acquisition.

In a prepared statement, Alex Gorsky, a J&J group chairman in charge of Ethicon, said the Mentor transaction "expands our capacity to provide physicians with products that can restore patients" appearance, self-esteem and quality of life." He added that Mentor CEO Josh Levine will stay on as a member of Ethicon's global management board.

Industry analyst Thomas J. Gunderson tells Cosmetic Surgery Times that J&J's purchase of Mentor should benefit both parties.

"With J&J's growth slowed and its cash position strong, investors have been wondering why there have not been more acquisitions, given the low stock price of many of the smaller medical companies," says Mr. Gunderson, a managing director and senior healthcare analyst for Minneapolis-based investment firm Piper Jaffray & Co. "That J&J is stepping up in aesthetic medicine is notable, as is that it is acquiring a company with silicone-gel-based products. Clearly J&J is interested in the long-term growth potential of aesthetic products, and clearly the silicone-gel issue must be finally over if the same company that sells baby shampoo is willing to also market silicone-gel breast implants."

Equally clear, Mr. Gunderson says, are the benefits to Mentor "not the least of which will be its ability to compete more effectively with aesthetic-market giant Allergan, the Irvine, Calif.-based maker of Botox, Juvederm and the Natrellel line of silicon-gel and saline-filled breast implants.

"Mentor is helped in that it now has access to greater resources," he says. "U.S. and international marketing should be enhanced, and leverage of the surgical know-how via Ethicon should also benefit Mentor. And, over the last two years, Mentor has been susceptible to...Allergan's greater marketing capacity and access to capital. Now that it's with J&J, Mentor is back in a 'fair fight,' if not a little ahead."

Mr. Gunderson says J&J obviously is looking to the future with this acquisition. Aesthetic surgery and other cosmetic procedures, which were booming as recently as a year ago, have slowed considerably as the economy has spiraled downward. According to a recent survey conducted by the American Society of Plastic Surgeons, 60 percent of plastic surgeons say they performed fewer cosmetic procedures in the first half of 2008 than in the same period in 2007.

"Cosmetic surgery is clearly not a booming business in 2008, and not expected to be in the first part of 2009," Mr. Gunderson tells Cosmetic Surgery Times. J&J is looking at cosmetic procedures for the long term. Adding Mentor's breast implants, two or three more hyaluronic acid fillers and a botulinim toxin, PureTox, currently in pivotal clinical trials, all point to J&J's bet on the future of more technology, not less, in the area of aesthetics. In the United States and to a lesser extent the rest of world, these aesthetic procedures have been negatively impacted by the tough economy. That said, J&J clearly sees what many in the field see: a tough economy, but vanity hasn't gone away for ever--it's just taking a time-out.

Mentor anticipates approval of one of it HA fillers, Prevelle, to occur in the fourth quarter of fiscal year 2009.

Neither Mentor nor J&J responded to Cosmetic Surgery Times' requests to comment on the acquisition. Allergan, however, responded by issuing what could be construed as a challenge as much as a statement on the acquisition.

"We are hopeful that the entry of Johnson & Johnson, and specifically Ethicon, will further help us responsibly grow the medical aesthetic market," says Allergan Vice President of Corporate Communications Caroline Van Hove. "As leaders in this market globally, Allergan's goal in particular is to facilitate informed decision-making among consumers interested in elective procedures and ensure the proper and comprehensive physician education and training needed to deliver optimal outcomes for the patients. Any partner who wants to join us in this effort will be welcomed but will be expected to deliver on high-quality products and services that will meet patients' and physicians' expectations and provide information that is factual, science-driven and based on true innovation."

As for his take on how Allergan will respond to J&J's purchase of Mentor, Mr. Gunderson says he thinks Allergan's strategy will change little, if at all--at least in the near future.  

"Internally, AGN probably enjoyed having greater access to capital and other resources than did Mentor; now that differentiation will be over," he says. "In the short term, there will likely be some integration disruption as J&J and Mentor merge, and Allergan will be able to take some advantage in the market with the disruption. But in the long term, Mentor just got stronger, plain and simple."

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