Mentor ( MNT) issued a third-quarter financial report that fell well below analysts' predictions for earnings and sales, and, citing strategic uncertainties, the company withdrew its profit guidance for the fiscal year ending March 31. "The health of our business is strong and we are confident in the future," Joshua H. Levine, the president and CEO, said Monday. "Our third-quarter results were impacted by transitory factors and temporal disruptions." Those factors included the Food and Drug Administration's continuing review of Mentor's silicone-gel breast implants for cosmetic purposes. In the U.S., these implants are only permitted in rare instances, such as reconstructive surgery for women who have undergone mastectomies. Many foreign markets allow the implants for cosmetic purposes. Mentor, based in Santa Barbara, Calif., also is seeking to expand its aesthetics-medicine business -- such as dermatology products -- and to find a "strategic alternative" for its urological-products unit. Levine said a decision should made in 90 days. "While we strongly believe these activities have the potential to create significant value for Mentor's shareholders, there is uncertainty regarding their timing, said Levine. "Because of a lack of visibility in these areas, we believe it is appropriate to withdraw our full-year financial guidance for fiscal year 2006." The company had forecast earnings of $1.60 to $1.65 for the fiscal year, excluding the potential impact of silicone-gel implants and a decision on its urological products. The Wall Street consensus had been $1.56. The earnings and revenue news, delivered after the markets had closed, sent Mentor's stock sinking in extended trading. Lately the shares were down $3.27, or 7.5%, to $40.63. In regular trading, the stock slipped 19 cents. For the three months ended Dec. 31, Mentor posted earnings of 33 cents a share, excluding one-time items, on revenue of $120.5 million. Analysts polled by Thomson First Call had forecast a profit of 38 cents a share, excluding items, and revenue of $130.6 million.
On a GAAP basis, Mentor earned $12.7 million, or 26 cents a share, for the third quarter ended Dec. 31. The company had a profit of $16.3 million, or 34 cents a share, for the same period in 2004. Revenue for the third quarter of 2004 was $120.6 million. Levine said the FDA's review of Mentor's silicone-gel implant application has affected its U.S. implant business as women defer seeking cosmetic surgery, waiting for government approval of the new implants. Saline implants are permitted for cosmetic use in the U.S., but plastic surgeons and the company say women prefer the silicone implants over the salt water-filled version. In July, Mentor received
conditional approval from the FDA for cosmetic uses of the implants, but neither the company nor the agency would comment on the conditions or a timetable for meeting those conditions. Levine said Mentor is in "active dialogue" with the agency over the conditions cited by the FDA, as well as post-marketing monitoring of silicone-gel implant recipients. Levine said he couldn't predict when the FDA might act. Inamed ( IMDC), also based in Santa Barbara, received conditional clearance from the FDA in September for its silicone-gel breast implant. Like Mentor, it hasn't described the conditions or a timetable for getting the product to market. Inamed is in the process of being acquired by Allergan ( AGN - Get Report). The takeover is still under review by the Federal Trade Commission. Mentor tried a dramatic leap into skin-care and other aesthetics-medicine products in November by offering $2.2 billion for Medicis Pharmaceutical ( MRX), but Medicis rejected the stock swap offer. Allergan outbid Medicis for Inamed. Even though Mentor won't pursue Medicis "at this time," Levine said that "we remain committed to executing on our strategy to become a company focused exclusively in aesthetic medicine."