Using terms like "a new era begins," analysts are predicting healthy revenue gains for Mentor ( MNT) and Allergan ( AGN) now that they can sell silicone-gel implants in the U.S. for women who want breast enlargements.

The ultimate improvement in sales and profits will depend not only on how many new implants the companies can sell but also on how many women choose the silicone version over those filled with saline -- the only implants approved domestically for cosmetic purposes for 14 years.

Wall Street believes the number will be significant. On Friday, the FDA approved silicone-gel implants for cosmetic uses. Since 1992, the agency had allowed them only in cases of congenital breast deformities, reconstructive surgery following mastectomies or for replacing ruptured silicone implants.

Analyst Peter Bye predicts the U.S. implant market will switch from 70% saline to 70% silicone "over the longer term." He doesn't give a precise timetable, but his recent report to clients at Wachovia Capital Markets says each 5%-market share switch to silicone from saline is worth an extra 1.5 cents a share to Allergan's earnings and another 5 cents for Mentor.

Bye says the average selling price of a silicone implant will be more than twice that of a saline implant, but the manufacturing cost will only be 10% to 15% higher. He has outperform ratings on both companies. He doesn't own shares, and his firm doesn't have an investment banking relationship.

Mentor will have a slight market-share edge throughout the decade, he says, adding that worldwide breast-implant sales could nearly double to $997 million in 2010 from last year's $520 million. Most sales will belong to Mentor and Allergan, with the rest coming from a handful of companies selling implants in foreign markets.

The FDA's ruling "should kick-start market growth," says Jose Haresco, of Merriman Curhan Ford in a research report. He forecasts worldwide implant sales of $620 million next year vs. $540 million this year.

Haresco also says the conversion of saline implants to silicone implants is crucial to an early jump in sales. For example, if the FDA hadn't approved silicone implants for cosmetic use, he forecast a 2007 U.S. market in which Allergan and Mentor would have $257.3 million in saline sales and $110.3 million in silicone revenue. The estimated 858,000 saline implants would be more than four times the number of silicone devices.

Now however, Haresco forecasts total saline sales of $205.8 million and silicone sales of $213.2 million next year. He expects 686,000 saline implants against 355,000 silicone implants.

Haresco raised his 2007 implant revenue estimate for Allergan to $274 million from $238 million, and he lifted his profit forecast by 4 cents $4.14 a share. He has a buy rating on Allergan, while his firm is neutral on Mentor. He doesn't own shares in either company, and his firm doesn't have an investment banking relationship.

The FDA's ruling will have a greater impact on Mentor, which is smaller and less diversified than Allergan. For the three months ended Sept. 30, "breast aesthetics" accounted for $58.2 million, or 87%, of Mentor's sales from continuing operations.

At Allergan, breast reconstruction accounted for $54.1 million, or 7% of total revenue, for the quarter ended Sept. 29. By comparison, Allergan's Botox wrinkle-fighting injection contributed $237.7 million to sales, and eye-care drugs accounted for $403.4 million of revenue.

Jonathan Block, an analyst with SunTrust Robinson Humphrey, boosted his fiscal 2007 EPS prediction on Mentor to $1.16 from $1.11, reflecting a quick gain because the fiscal year ends March 31. For the 2007 calendar year, he raised his revenue estimate to $382 million from $328 million and his EPS target to $1.68 from $1.34.

He reiterated his buy rating on the stock, and took up his price target by $4 to $59. Block figures silicone could raise Mentor's breast-augmentation business in the U.S. by more than $1 billion over the next 10 years. He doesn't own shares of Mentor, and his firm doesn't have an investment banking relationship.
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