US Cosmetic Medical Market Faces New Challenge In Senate Bill
By Jon Kamp, Of DOW JONES NEWSWIRES
In a new wrinkle, the Senate health-reform legislation unveiled Wednesday aims
to tax people who get cosmetic medical procedures, putting fresh pressure on an
industry already nicked by the economic downturn.
The news modestly blemished stocks Thursday of companies that make cosmetic
products, including Botox and breast-implant maker Allergan Inc. (AGN) and
Medicis Pharmaceutical Corp. (MRX), which sells a Botox competitor and fillers
for facial wrinkles. Allergan slipped 2.3% to $58.65, while Medicis declined 2%
to $23.46.
The industry responded by calling the tax discriminatory against women, who
are the big customers for cosmetic procedures, and the wrong way to raise money
to pay for expanding health care.
"What's next? Are we going to tax people who color their hair?" said Jonah
Shacknai, chairman and chief executive of Medicis, in an interview.
He said lawmakers were making moral judgments about cosmetic procedures. "
Let's be intellectually honest about this," he said.
Much larger Allergan, meantime, called the tax "ill-conceived" and a "random
hit on an easy target that is only punitive and not corrective."
A spokesman for Johnson & Johnson's (JNJ) Mentor unit, which competes with
Allergan in the breast-implant market, declined comment.
The proposal, buried deep in the nearly 2,100-page Senate bill, is for a 5%
tax on cosmetic procedures. There isn't much detail, but Oppenheimer analyst
Amit Hazan said this likely includes procedures involving Botox; dermal fillers,
which Allergan also sells; breast implants; and laser procedures.
The idea has been batted around before, and New Jersey implemented a tax in
2004, so it didn't come completely out of left field. But "the magnitude was
shocking," said Shacknai, who anticipated a lower amount.
The tax would start next year. To make it official, the Senate will have to
pass the bill, the provision would then have to survive reconciliation with an
already passed House bill that doesn't include such a tax, and then it needs a
signature from President Barack Obama.
The potential impact on makers of aesthetic medical products remains to be
seen. Analyst Hazan said Allergan "by far has the most to lose," and that
Allergan-related products could face $110 million to $120 million in taxes.
The catch is that companies themselves wouldn't face the tax; instead,
consumers would pay it on procedures that can already include hefty out-of-
pocket expenses, such as $8,000 for breast implants, Hazan estimated. Commenting
on Botox, William Blair analyst Ben Andrew said he doesn't think the tax will
broadly affect usage patterns.
But it certainly won't help a recession-battered sector "just at a time [when]
we're seeing more traction in the market," Medicis' Shacknai said. The tax could
also trickle down by causing doctors or manufacturers to lower prices.
Allergan also has cited signs of market improvement as the economy recovers.
It announced plans last month to ramp up direct-to-consumer advertising for a
handful of products.
Phil Haeck, a plastic surgeon in Seattle and incoming president of the
American Society of Plastic Surgeons, said his top tax-related concern is
discrimination against women. But another worry is how the tax will be
collected, he said, because some procedures fall under a gray area.
A person may get nose surgery to free up an airway, for example, but also for
cosmetic reasons. So should doctors collect a tax on the entire procedure to pay
to the government? Among members in Haeck's association, 85% do cosmetic and
reconstructive surgery.
Analyst Hazan doesn't think the tax makes sense, either, but he also said
there isn't a strong advocacy group to fight against the proposal.
"The good people of Beverly Hills, Dallas, and the Upper East Side of
Manhattan will wake up feeling a little bit angrier today, and perhaps looking a
little bit older tomorrow," he wrote in a note to investors.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com
(END) Dow Jones Newswires
11-19-091655ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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