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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

Commission file number 1-9741

INAMED CORPORATION
(Exact name of registrant as specified in its charter)

5540 Ekwill Street
Santa Barbara, California 93111-2936
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (805) 683-6761

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock Purchase Rights

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    Noo

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        The aggregate market value of voting stock held by non-affiliates as of March 15, 2002 was $424.1 million, based on the closing price on the NASDAQ National Market on that date.

        On March 15, 2002, there were 20,444,850 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

        The information required by Part III is incorporated by reference to a definitive proxy statement to be filed by the Registrant not later than April 30, 2002 pursuant to Regulation 14A.

INAMED CORPORATION

Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2001

TABLE OF CONTENTS

        This report contains trademarks and trade names that are the property of Inamed Corporation and its subsidiaries, and of other companies, as indicated.

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PART I

ITEM 1. BUSINESS

        Inamed is a global medical device company that develops, manufactures, and markets a diverse line of products that enhance the quality of people's lives. These products include breast implants for aesthetic augmentation and reconstructive surgery following a mastectomy, a range of dermal products to correct facial wrinkles, and the LAP-BAND® and BIB® systems used to treat severe and morbid obesity.

COMPANY HISTORY

        A predecessor company, McGhan Medical Corporation, was incorporated in 1974 and was a manufacturer of silicone products for plastic and reconstructive surgery. In 1977, that business was sold to Minnesota Mining and Manufacturing Company, or 3M. In 1984, a newly formed McGhan Medical Corporation acquired the assets of 3M's silicone implant product line. In 1985, that corporation became a subsidiary of a publicly-held company through a merger with First American Corporation, a Florida corporation. In 1986, First American changed its name to Inamed Corporation. Inamed formed its BioEnterics Corporation subsidiary in 1991, primarily to pursue opportunities in the field of stomach constriction technology. In December 1998, Inamed changed its state of incorporation to Delaware through a reincorporation merger. In September 1999, Inamed completed its acquisition of Collagen Aesthetics, Inc., which was then a publicly-held corporation which manufactured and marketed primarily collagen-based facial implants and other aesthetics products. In 2001, Inamed renamed its McGhan Medical Corporation subsidiary to Inamed Medical Products Corporation, or IMPC, and simplified its structure by consolidating its U.S. operations into this corporation. BioEnterics Corporation continues to exist as a holder of the rights to the BioEnterics products, and it contracts with other Inamed subsidiaries such as IMPC for the manufacture, distribution, and other support of the BioEnterics product line.

PRODUCTS AND PRODUCT CANDIDATES

        Inamed has three main product lines—breast aesthetics, facial aesthetics and obesity intervention.

Breast Aesthetics

        We develop, manufacture, and market a diverse line of breast implants, consisting of a variety of shapes, sizes, and textures. Our breast implants consist of a silicone elastomer shell filled with either saline solution or silicone gel. This shell can consist of either a smooth or textured surface. Inamed markets its breast implants under the trade names McGhan® and CUI® and the trademarks BioCell®, MicroCell®, BioDimensional™, and Biocurve™. Our breast implants are available in more than 400 variations to meet customers' preferences and needs.

        Saline-filled breast implants.    We sell saline-filled breast implants in the U.S. and internationally for use in breast augmentation for cosmetic reasons and for reconstructive surgery following mastectomy. The U.S. market is the primary consumer of saline-filled breast implants.

        Silicone gel-filled breast implants.    We sell silicone gel-filled breast implants primarily in Europe, Latin America, Australia, and Asia. More than 90% of our breast implants sold outside the U.S. are silicone-gel filled. Our silicone gel-filled implants are available in the United States under an adjunct study protocol for use in breast reconstruction. In June 2000, we completed the implantation phase of a core clinical study designed to gain U.S. Food and Drug Administration, or FDA, approval for standard silicone gel-filled breast implants and the two-year follow-up portion of the study is expected to be completed by mid-2002. In January 2002, we submitted to the FDA the first of several pre-market approval, or PMA, modules seeking approval of our silicone gel-filled breast implants. PMA modules

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will continue to be submitted throughout 2002 and we expect to file our final PMA module by the end of the year.

        In September 2000, the FDA approved a feasibility study for our cohesive silicone gel-filled breast implants. In March 2001, we announced that the FDA had approved the expansion of the study to a full-scale clinical study. The cohesive gel implants are currently the leading selling breast implants in Europe.

        Tissue Expanders.    We sell a line of tissue expanders for breast reconstruction and as an alternative to skin grafting to cover burn scars and to correct birth defects.

Facial Aesthetics

        We develop, manufacture, and market facial implants designed to improve facial appearance by smoothing wrinkles andscars and enhancing the definition of facial structure. Our primary facial aesthetics products are Zyderm® and Zyplast® and the Hylaform® range of hyaluronic acid-based facial implants. We also sell solid silicone implants.

        Zyderm® and Zyplast®.    Zyderm® and Zyplast® implants are injectable formulations of bovine collagen. Zyderm®implants are formulated especially for people with fine line wrinkles or superficial facial contour defects. These implants are particularly effective in smoothing delicate frown and smile lines and fine creases that develop at the corners of the eyes and above and below the lips and can also help correct some kinds of shallow scars. Zyplast® implants are designed to treat deeper depressions and can be used for more pronounced contour problems, such as deeper scars, lines and furrows, and for areas upon which more force is exerted, such as the corners of the mouth. The implants take on the texture and appearance of human tissue and are subject to similar stresses and aging processes. Consequently, supplemental treatments are necessary to maintain the desired result. Zyderm® and Zyplast® implants require a skin test, with a requisite 30-day period to observe the possibility of allergic reaction in the recipient. In the U.S., the FDA approved the PMA for Zyderm® in 1981 and for Zyplast® in 1985. Zyderm® and Zyplast® were approved for marketing in Europe in 1995.

        Hylaform® Gel.    Hylaform® gel implants are a hyaluronic acid-based injectable product for the treatment of facial wrinkles and scars. The product, licensed from Genzyme Biosurgery and sold in Europe since 1996, does not require a skin test, so patients can be treated immediately.

        In 2001, two new formulations of Hylaform® gel were developed. The new formulations are Hylaform® FineLine, designed especially for people with fine line wrinkles or superficial facial contour defects, and Hylaform® Plus, formulated for treating deeper depressions and more pronounced contour problems such as deeper scars, lines, and furrows. Inamed launched these new Hylaform® gel products in Europe in September 2001 and is the only company that sells a range of both hyaluronic acid-based and collagen-based dermal fillers in Europe. In December 2001, Health Canada's Therapeutic Products Programme, or HCTPP, granted Genzyme Biosurgery a Medical Device License for Hylaform® gel. In January 2002, the HCTPP approved both Hylaform® Plus and Hylaform® FineLine. These approvals allow us to market the entire line of Hylaform® products for cosmetic indications in Canada.

        In January 2001, the FDA granted conditional approval to Genzyme Biosurgery to begin a limited clinical trial with Hylaform® gel. In October 2001, Inamed and Genzyme Biosurgery jointly announced plans to develop the complete Hylaform® line of products in the U.S. Inamed expects to begin clinical studies in the first half of 2002 and hopes to complete them by the end of the year. We intend to aggressively pursue our submission of the PMA for Hylaform® in the U.S. once the trials are completed.

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        CosmoDerm™ and CosmoPlast™ Implants. CosmoDerm™ and CosmoPlast™ implants are a line of injectable human skin-cell derived collagen product candidates that Inamed licenses from Advanced Tissue Sciences, Inc. In May 2001, Inamed filed a PMA supplement with the FDA seeking regulatory approval for CosmoDerm™ and CosmoPlast™ in the U.S. In late 2001, the FDA requested that we conduct an additional skin test to supplement the PMA filing. We initiated the additional study requested by the FDA in March 2002 and expect to submit the additional data in mid-2002. We hope to receive FDA approval for CosmoDerm™ and CosmoPlast™ by the end of 2002.

        Botulinum Toxin A.    In December 2001, Inamed and Ipsen Limited signed a letter of intent which provides that Inamed will develop and market Ipsen's Botulinum Toxin A for all cosmetic indications, including wrinkles, in the United States, Canada, and Japan. The product is a sterile, freeze-dried, purified form of Botulinum Toxin A and Inamed will be the exclusive distributor of all current and future formulations. Inamed expects to initiate clinical studies in the first half of 2002. The product is currently marketed in Europe and elsewhere where it competes with other botulinum toxin products such as Botox®.

        Discontinued Products.    As part of a strategic refocusing on core products in 2001, we discontinued selling the Refinity™ skin care line and sold our rights and remaining inventory to Cosmederm Technologies. We also relinquished exclusive marketing rights and ceased active marketing of SoftForm® facial implants and the Refinity™ Coblation® skin resurfacing system. For both of these products, we remain a non-exclusive distributor and are selling down our inventory.

Obesity Intervention

        We develop, manufacture, and market several devices for the treatment of morbid obesity. Our principal product in this market area, the LAP-BAND® Adjustable Gastric Banding System, is designed to provide minimally invasive long-term treatment of morbid obesity and is used as an alternative to gastric bypass surgery or stomach stapling. The LAP-BAND® is an adjustable silicone elastomer band which is laparoscopically placed around the upper part of the stomach through a small incision, creating a small pouch at the top of the stomach. This slows down the passage of food and makes the patient feel fuller sooner. The LAP-BAND® procedure is adjustable and reversible.

        The LAP-BAND® has achieved widespread acceptance in Europe, as well as Australia, the Middle East, and other countries and regions, with approximately 75,000 units sold since 1993. In June 2001, the LAP-BAND® was approved by the FDA for use in weight reduction for morbidly obese adults who have failed more conservative weight reduction alternatives. Commercial distribution of the LAP-BAND® was initiated in the U.S. in July 2001.

        We also sell the BioEnterics Intragastric Balloon, or BIB®, System, which is a short-term therapy designed for patients who must reduce weight in preparation for surgery or for moderately obese patients in conjunction with a long-term comprehensive diet and exercise program. Currently distributed outside the U.S. only, the BIB® is a silicone elastomer balloon that is filled with saline after insertion into the patient.

        Another product, the BioEnterics Gastric Balloon Suction Catheter, was introduced in the U.S. in June 2001. It contains a durable silicone balloon used by surgeons to facilitate pouch sizing and provide gastric suction during laparoscopic gastric bypass procedures.

Other Products

        Contigen® is our collagen product used for treatment of urinary incontinence due to intrinsic sphincter deficiency. We obtained approval from the FDA to market Contigen® in September 1993. C. R. Bard, Inc. licensed from us exclusive worldwide marketing and distribution rights to Contigen®. We also provide other collagen products for use by other medical manufacturers. We manufacture

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CoStasis® for Cohesion Technologies, Inc. and Collagraft® and Collagraft® intermediates for NeuColl, Inc.

SALES AND MARKETING

        We sell our products directly and through independent distributors in approximately 70 countries worldwide. We reinforce our sales and marketing program with telemarketing, which is designed to increase sales through follow-up on leads and the distribution of product information to potential customers. We supplement our marketing efforts with appearances at trade shows, advertisements in trade journals, sales brochures, and national media. In addition, we sponsor symposiums and educational programs to familiarize surgeons with the leading techniques and methods of using our products.

        Breast Aesthetics.    In the U.S. and Canada, breast aesthetics products are sold by the McGhan Medical division to plastic and reconstructive surgeons, cosmetic surgeons, facial and oral surgeons, dermatologists, out-patient surgery centers, and hospitals through its staff of sales representatives. In the rest of the world, our breast aesthetics products are sold by the McGhan International division through its staff of sales representatives in the largest European markets. In other European markets, in the Middle East, Latin America, Africa, and the Asia-Pacific region, our breast aesthetics products are sold through a network of distributors. Additionally, we have a direct sales force for facial products in Japan and Australia.

        Facial Aesthetics.    Our facial aesthetics products are sold to plastic and reconstructive surgeons, hospitals and clinics, as well as to dermatologists. The facial aesthetics products are sold in most of the same countries and by the same sales organizations that sell the breast aesthetics products.

        Obesity Intervention.    Our obesity intervention products are sold worldwide by the BioEnterics division to general, laparoscopic, and bariatric surgeons, as well as to hospitals. In the U.S. and Canada, obesity intervention products are sold by a sales force of company-employed representatives and managers. BioEnterics products are widely distributed outside the United States in over 40 countries under the direction of three regionally-based managers.

COMPETITION

Breast Aesthetics

        We compete in the U.S. breast implant market with Mentor Corporation. We are not aware of any other company conducting clinical studies of breast implant products in the U.S. Internationally, we compete with several manufacturers, including Mentor Corporation, Silimed, Eurosilicone, Poly Implant Prostheses, Nagor, Laboratories Sebbin, and LPI.

        We believe that the principal factors permitting our products to compete effectively are high-quality product consistency, product design, management's knowledge of and sensitivity to market demands, plastic surgeons' familiarity with our products and brand names, and our ability to identify and develop or license patented products embodying new technologies.

Facial Aesthetics

        Our facial products compete in the dermatology and plastic surgery markets with substantially different treatments, such as laser treatments, chemical peels, fat injections and gelatin- or cadaver-based collagen products. In addition, several companies are engaged in research and development activities examining the use of collagen and other biomaterials for the correction of soft tissue defects. Internationally, we compete primarily with Q-Med's Restylene, Restylene Fine Lines, and Perlane. Q-Med is expected to file with the FDA in 2002 for approval to market Restylene in the U.S.

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Obesity Intervention

        No gastric bands other than Inamed's are commercially available in the U.S. and we are not aware of any other companies conducting clinical studies of gastric bands. Outside the United States, the LAP-BAND® competes primarily with the Swedish Adjustable Gastric Band (manufactured by Obtech Medical A.G., Switzerland) and the Heliogast Band (manufactured by Helioscopie, S.A., France). The LAP-BAND® also competes with surgical obesity procedures, including gastric bypass, vertical banded gastroplasty, and biliopancreatic diversion.

Other Products

        Contigen® competes with comparable bulking agents and some surgical procedures, including sling procedures, bladder neck suspension, and insertion of bone anchors. CoStasis® competes with other comparable liquid hemostat products and some surgical procedures for use in controlling bleeding during procedures. Collagraft® and Collagraft® intermediates compete with other allograft products and allograft surgical procedures including reconstructive pins, rods, and screws.

PRODUCT DEVELOPMENT

        We have a qualified staff of scientists, engineers, and technicians working on material technology and product design as part of our research and development efforts. Our research and development expense is primarily directed toward supporting the clinical trials of our products. In addition, we are directing our research and development toward new and improved products based on scientific advances in technology and medical knowledge, together with qualified input from the surgical profession.

PATENTS, LICENSES, AND RELATED AGREEMENTS

        We currently own or have exclusive license rights covering approximately 160 patents and patent applications and approximately 90 trademarks and trademark applications throughout the world. Our patents include a U.S. patent on a "Universal Gastric Band", which covers our LAP-BAND®Adjustable Gastric Banding System through 2014, and various patents covering texturing processes for breast implants, including certain rights purchased from Medical Products Development, Inc. which expire in 2010 or later. In November 2001, the appeal board of the European Patent Office approved a patent application covering our LAP-BAND® System and that patent is expected to be issued in 2002. We also hold an exclusive, worldwide, perpetual, fully paid-up license to various patents and patent applications in the fields of human aesthetics products, technologies, and treatments from Cohesion Technologies, Inc. and other patents relating to our breast implant products, tissue expanders, injection ports and valve systems, and other obesity and general surgery products.

        In addition, we are currently engaged in various collaborative ventures for the development, manufacturing, and distribution of new products. These projects include the following:

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We are the exclusive distributor and licensee for Genzyme Biosurgery's Hylaform® products, including Hylaform® Plus and Hylaform®FineLine, everywhere except the U.S., China, and Hong Kong. We purchase the product from Genzyme Biosurgery and pay a royalty based on sales.



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We have entered into a letter of intent with Genzyme Biosurgery to acquire exclusive U.S. distribution rights for Hylaform® products. The product supply and royalty provisions are similar to the international agreement and Inamed will fund all development work required to obtain FDA approval.

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We have entered into a letter of intent with Ipsen Limited to develop and be the exclusive distributor and licensee for Ipsen's current and any future Botulinum Toxin A products for all cosmetic indications in the U.S., Canada, and Japan.



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We have an agreement with Advanced Tissue Sciences, Inc., or ATS, under which we acquired an exclusive, worldwide license to certain intellectual property for the development and distribution of certain of ATS's human-based, tissue-engineered products for surgical applications. We are actively pursuing development of injectable collagen for the correction of facial wrinkles, to be marketed under the names CosmoDerm™ and CosmoPlast™. Under the terms of this agreement, we purchase bulk material from ATS and conduct clinical studies. Certain milestone payments are due upon receipt of FDA approval and payment of royalties would commence when sales begin.



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We have an agreement with Reconstructive Technologies, Inc., or RTI, under which we acquired an exclusive, worldwide license to certain intellectual property for the development and distribution of a product for the rapid in vivo expansion of human skin following burns or breast cancer surgery. This agreement requires us to reimburse RTI for development expenses up to a funding limit, which has already been reached. We are currently evaluating the direction of this program.

        We are also a party to license agreements allowing other companies to manufacture products using some of our technology in exchange for royalties and other compensation or benefits. Although we believe our patents and patent rights are valuable, our technical knowledge with respect to manufacturing processes, materials, and product design are also valuable. As a condition of employment, we require that all employees execute a confidentiality agreement relating to our proprietary information and intellectual property rights.

MANUFACTURING AND RAW MATERIALS

        Our manufacturing facilities are located in Santa Barbara, Carpinteria and Fremont, California; San José, Costa Rica; and in Arklow, County Wicklow, Ireland.

Breast Aesthetics

        Our breast implant and related tissue expander products are manufactured in our facilities in Santa Barbara, California; San José, Costa Rica; and Arklow, Ireland. In late 2000, we began manufacturing some of our breast implant products in Costa Rica. We manufacture our devices and products in a controlled environment utilizing specialized equipment for precision measurement, quality control, packaging, and sterilization.

        Our manufacturing activities for products sold in the U.S. are subject to FDA regulations and guidelines, and these products and their manufacturing procedures are reviewed by the FDA. The quality system at our facilities in Santa Barbara was inspected by the FDA in March and April 2001, as part of our saline-filled breast implant post-PMA inspection, and found to be in compliance with applicable quality system regulations. The quality system at our Costa Rica facility was inspected by the FDA in September 2001, as part of our post-PMA inspection, and found to be in compliance with applicable quality system regulations.

        Our manufacturing activities in Europe are subject to regulatory requirements and periodic inspections by the European notifying body, G-MED. The quality systems in the Arklow, Ireland facility were inspected by G-MED in November 2001. They were re-certified as being in compliance with applicable standards set forth in ISO 9001, EN 46001, and ISO 13485, permitting us to continue to sell our products in the European Community.

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        In late 1998, we entered into a strategic alliance with a privately held specialty chemical company, whereby that company has agreed to act as our exclusive supplier of silicone raw materials. This alliance includes favorable long-term pricing and technical support.

Facial Aesthetics

        Zyderm® and Zyplast® implants are manufactured at our Fremont, California facility. We use a patented viral inactivation process for our collagen-based products to ensure both safety and quality. The production processes use readily available chemicals and enzymes and bovine dermis from cows as the source of collagen. Since 1987, the hides have been sourced from a U.S.-located closed herd in an effort to prevent contamination of our collagen-based products. We believe that the supply of raw materials and processing materials for our manufacturing operations can be purchased from other sources. The collagen-based products have refrigerated shelf lives of 36 months. In 2001, we started our manufacturing activities for bioengineered human collagen which is obtained in bulk from ATS and further processed and packaged at our Fremont facility.

        Our manufacturing facility for collagen-based products is subject to regulatory requirements and periodic inspection by regulatory authorities, including the FDA and foreign entities. The quality system at our Fremont facilities was last inspected by the FDA in June 1998, as part of the FDA's normal inspection program, and found to be in compliance with applicable quality system regulations. In addition, these facilities were inspected by TÜV Product Services in March 2001, and were re-certified as being in compliance with applicable standards set forth in ISO 9001, EN 46001 and ISO 13485, permitting Inamed to continue to sell these products in the European Community.

        Hylaform® gel and silicone facial implants are manufactured by third parties. The Refinity™ skin care line, the Refinity™Coblation® skin resurfacing system, and SoftForm® facial implants were also manufactured by third parties; however, we have disposed of the skin care line and have ceased active marketing of Coblation® and SoftForm® and do not intend to purchase more product.

Obesity Intervention

        Our obesity intervention products are manufactured at our facility in Carpinteria, California. In December 1999, during our voluntary participation in an FDA re-engineering feasibility study, the FDA evaluated this facility for compliance with Hazard Analysis Critical Control Points, or HACCP, criteria and found it to be in compliance. In June 2001, we received our FDA approval for the LAP-BAND® in the U.S. The facility was inspected by TÜV Product Services in November 2001 and was certified as being in compliance with applicable standards set forth in ISO 9001, EN 46001 and ISO 13485. In late March 2002, the FDA began an inspection of our Carpinteria facility.

Other Products

        We produce other collagen products at our Fremont, California facility for use by other medical manufacturers. Contigen® is manufactured for C. R. Bard, Inc., CoStasis® for Cohesion Technologies, Inc. and Collagraft® and Collagraft® intermediates are manufactured for NeuColl Inc.

Environmental Compliance

        Our manufacturing facilities in the U.S. are regulated by federal, state, and local laws. We believe that our operations are in full compliance with all applicable laws and we received no citations or notices of violations in 2001. In 2002, we do not expect to incur any material expense to maintain our compliance level.

        Our manufacturing facility in Arklow, Ireland, is regulated by the Irish Environmental Protection Agency, or EPA. The Irish EPA carries out regular checks and monitors compliance with the

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requirements of the Integrated Pollution Control License, or IPC. Inamed is in compliance with all the requirements of the IPC license except for xylene air emissions, where recent monitoring has shown sporadic emissions exceeding the license limits. An application has been made to the Irish EPA for an increase in the existing IPC license limits. Due to the sporadic nature of the events and the actions taken with the agency, we do not foresee any fines. If the Irish EPA does not license the increased emissions levels, then we may be required to invest in an emission abatement system at an estimated cost of approximately $1 million.

        Our manufacturing facility in Costa Rica is regulated by SETENA (Secretaría Técnica Nacional Ambiental) and the office of the Minister of Health. The Costa Rica facility is in full compliance with all applicable regulations. We do not project to incur any material expense to maintain this compliance level during 2002.

GOVERNMENT REGULATION

        Medical devices and biologics are subject to regulation by the FDA, state agencies and, in varying degrees, by foreign health agencies. These regulations, as well as various federal and state laws, govern the manufacturing, labeling, record keeping, clinical testing, and marketing of these products. The majority of our medical device and biologic product candidates must undergo rigorous testing and an extensive government regulatory approval process prior to sale in the U.S. and other countries. The lengthy process of seeking required approvals and the continuing need for compliance with applicable laws and regulations require the expenditure of substantial resources. Regulatory approval, when and if obtained, may be limited in scope, which may significantly limit the indicated uses for which a product may be marketed. Approved products and their manufacturers are subject to ongoing review, and discovery of previously unknown problems with products may result in restrictions on their manufacture, sale, or use or their withdrawal from the market.

Regulation of Medical Devices

        All of our current products are medical devices intended for human use and are subject to FDA regulation. Unless an exemption applies, each medical device we market in the U.S. must have a 510(k) clearance or a PMA in accordance with the Federal Food, Drug, and Cosmetic Act. FDA regulations generally set standards for medical devices, require proof of safety and effectiveness prior to marketing, require safety data and clinical protocol approval prior to evaluation in humans, establish "good manufacturing practices," and permit detailed inspection of manufacturing facilities. These regulations also require reporting of product defects to the FDA and prohibit export of devices that do not comply with FDA regulations, unless the devices comply with established foreign regulations and the FDA and the health agency of the importing country determine export is not contrary to public health. FDA regulation divides medical devices into three classes. Class I devices are subject to general controls to preclude mislabeling or adulteration and require compliance with labeling and other general requirements. Class II devices are subject to special controls and must also comply with general controls. Class III devices are subject to the most extensive regulation and in most cases require submission to the FDA of a PMA application that includes information on the safety and effectiveness of the device. The majority of our products are regulated as Class III medical devices.

        Products marketed in the European Community must comply with the requirements of the European Medical Device Directive, or MDD, and be CE-marked. Medical device laws and regulations similar to those described above are also in effect in some of the other countries to which we export our products. These range from comprehensive device approval requirements for some or all of our medical device products to requests for product data or certifications. Failure to comply with these domestic and international regulatory standards and requirements could affect our ability to market and sell our products in these markets. The current regulatory status of our products is discussed in the "Products" section above.

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Regulation of Biologics

        Although we do not currently market any biologic products, we expect to seek approval to market biologic products in the future, including Botulinum Toxin A. The FDA approval process for biologic products is a complex process with a number of discrete phases, beginning with laboratory analysis and pre-clinical testing in animals. To begin human testing, an investigational new drug, or IND, application is filed with the FDA. Human clinical testing typically involves three phases. In phase 1, small clinical trials are conducted to determine the safety of the product and the acceptable dose. In phase 2, expanded clinical trials are conducted to assess safety and efficacy of the product. In phase 3, still larger clinical trials are conducted to provide sufficient data for the statistically valid proof of safety and efficacy. After completing all three phases of human testing, a biologic license application, or BLA, is submitted to the FDA for approval. If the FDA approves the BLA, the product becomes available for marketing. Periodic reports must be submitted to the FDA, including descriptions of any adverse reactions reported. The FDA may request additional studies to evaluate long-term effects. Side effects or adverse events that are reported during clinical trials can delay, impede, or prevent marketing approval. Similarly, adverse events that are reported after marketing approval can result in additional limitations being placed on the product's use and, potentially, withdrawal of the product from the market.

Regulation of Manufacturing

        As a manufacturer of medical devices or therapeutic products, our manufacturing processes and facilities are subject to continuing review by the FDA and various state and international agencies. These agencies inspect us and our facilities from time to time to determine whether we are in compliance with various regulations relating to manufacturing practices and other requirements. In the U.S., our facilities must comply with the FDA's Quality System Regulation requirements for Good Manufacturing Practices. For products sold in Europe, we must demonstrate compliance with the ISO 9000 and EN 46000 international quality system standards. The regulatory status of our manufacturing facilities is discussed under "Manufacturing" above.

Other Regulation

        We are subject to federal, state, local, and foreign environmental laws and regulations, including the U.S. Occupational Safety and Health Act, the U.S. Toxic Substances Control Act, the U.S. Resource Conservation and Recovery Act, and other current and potential future federal, state, or local regulations. Our manufacturing and research and development activities involve the controlled use of hazardous materials, chemicals, and biological materials, which require compliance with various laws and regulations regarding the use, storage, and disposal of such materials.

        We are also subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular product. The U.S. federal government has published regulations that identify "safe harbors" or exemptions for certain payment arrangements that do not violate the anti-kickback statutes. Inamed seeks to comply with the safe harbors where possible. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations or court decisions addressing some of our practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid) claims for reimbursed products or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary

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penalties, as well as the possibility of exclusion from federal health care programs (including Medicare and Medicaid).

        Our present and future business has been and will continue to be subject to various other laws and regulations.

Foreign Corrupt Practices Act

        The U.S. Foreign Corrupt Practices Act, to which Inamed is subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay, or authorize the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity.

THIRD PARTY COVERAGE AND REIMBURSEMENT

        Purchases of breast aesthetics products for augmentation and facial aesthetics products are generally not reimbursed by government or private insurance carriers. However, since 1998, U.S. federal law has mandated nationwide insurance coverage of reconstructive surgery following a mastectomy, which includes coverage for breast implants. Outside the U.S., reimbursement for breast implants used in reconstructive surgery following a mastectomy may be available, but the programs vary on a country-by-country basis.

        In the U.S., purchases of the LAP-BAND® system to treat morbid obesity are reimbursed in some regions by Medicare. Private insurance coverage currently varies by carrier and geographic location. The Company is pursuing reimbursement with many major carriers and hopes to achiever broader reimbursement coverage for the product in 2002. The older, more established, surgical procedures for obesity treatment, including gastric bypass, are generally reimbursed. Outside the U.S., reimbursement programs vary on a country-by-country basis.

        In some countries, both the procedure and product are fully reimbursed by the government healthcare systems for all citizens who need it, and there is no limit on the number of procedures that can be performed. In other countries, there is complete reimbursement but the number of procedures that can be performed at each hospital is limited either by the hospital's overall budget or by the budget for the type of product.

PRODUCT REPLACEMENT PROGRAMS

        We conduct our product development, manufacturing, marketing, and service and support activities with careful regard for the consequences to patients. As with any medical device manufacturer, however, we occasionally receive communications from surgeons or patients with respect to various products claiming the products were defective, lost volume, or have resulted in injury to the patient. In the case of a deflation of our saline-filled breast implant products sold and implanted in the U.S., in most cases our ConfidencePlus™ program provides product replacement and some financial assistance for surgical procedures required within ten years of implantation. Breast implants sold and implanted elsewhere are subject to a similar program, although no surgical expenses are covered. We do not warrant any level of aesthetic result and, as required by government regulation, make extensive disclosure concerning the risks of our products and implantation surgery.

GEOGRAPHIC DATA

        A majority of our sales and long-lived assets are primarily in the U.S. and Canada. See Note 17 of the notes to the consolidated financial statements, attached as Exhibit (a)(1).

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WORKING CAPITAL

        We maintain significant breast aesthetics consignment inventories, consistent with industry practice. Since a doctor may not be sure of the exact size of breast implant required for implantation and cannot be sure that no accidental damage will occur to an implant, the doctor is likely to order extra quantities and sizes beyond the quantity and size ultimately used in surgery. By carrying a consignment inventory of typical sizes at certain hospitals and other medical offices, we reduce the level of product return subsequent to surgery.

        Otherwise, inventories are managed to a level that permits good customer service. Additionally, there are inventory builds prior to launching new products. Such builds occurred in 2001 for Hylaform® and human collagen. In 2000, the principal such build was Refinity™ Coblation® equipment. In 2000, we also built inventory to improve overall customer service levels.

        Our accounts receivable payment terms are consistent with normal industry practices.

EMPLOYEES

        As of December 31, 2001, we had approximately 990 employees in active service, of which approximately 680 were in the U.S., Canada, and Costa Rica and approximately 310 were at other international operations. Except for employees at our manufacturing facility in Arklow, Ireland, none of our employees are represented by a labor union.

        We recognize the importance of environmental responsibility and the need to provide a safe and healthy workplace for our employees by complying with all federal, state, and local laws, rules, and regulations. During the past fiscal year, we have received no citations, notices of violations or other censures from public agencies regulating environmental compliance or our employees' health and safety. We do not expect any significant capital expenditures to comply with environmental, health, or safety regulations in 2002. We believe that our current systems and processes are adequate for current needs.

ITEM 2. PROPERTIES

        We lease all of our office, manufacturing, and distribution facilities which are as follows: Carpinteria, California (51,000 square feet), Fremont, California (61,000 square feet), Santa Barbara, California (225,000 square feet), Arklow, County Wicklow, Ireland (63,000 square feet), and San José, Costa Rica (23,000 square feet). The square footage for Santa Barbara, California includes two manufacturing facilities: Ward (120,000 square feet) and Los Carneros (105,000 square feet). In 2001, 46,000 square feet of the Ward space was vacated, as was 3,100 square feet of office space in New York, New York.

        We lease office and warehouse space ranging from 1,500 square feet to 4,000 square feet for international sales offices, located in Canada, Australia, France, Germany, Italy, Japan, Spain, and the United Kingdom. We believe our facilities are generally adequate for our needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

        We are a party to various legal proceedings, both in the ordinary course of our activities and otherwise. These proceedings primarily involve claims for bodily injury arising from the use of our products. We are also a defendant in various other legal proceedings, including a patent infringement dispute, a putative class action concerning a discontinued advertising program, and matters arising from the discontinued Trilucent breast implant, including coverage litigation with our Trilucent insurance carriers. These matters are described more fully in Note 21 of the notes to the consolidated financial statements.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        Our common stock has been trading on the NASDAQ National Market under the symbol IMDC since September 30, 1999. From June 11, 1997 to September 29, 1999, our common stock was traded on the OTC Bulletin Board. On March 15, 2002, we had 524 stockholders of record. Our common stock price at the close of business on March 15, 2002 was $28.60 per share.

        The table below sets forth the high and low bid prices of our common stock for the periods indicated. Quotations reflect prices between dealers, do not reflect retail markups, markdowns or commissions, and may not necessarily represent actual transactions.

        We have never paid a cash dividend and do not anticipate paying cash dividends on our common stock in the foreseeable future. In addition, our ability to pay cash dividends is restricted by our credit facility.

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ITEM 6. SELECTED FINANCIAL DATA

        The following financial information is qualified by reference to, and should be read in conjunction with, our consolidated financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this report. The selected consolidated financial information presented below is derived from our audited consolidated financial statements for each of the five years through the period ended December 31, 2001. We completed our acquisition of Collagen Aesthetics, Inc., on September 1, 1999. The results of operations of Collagen Aesthetics, Inc., are included in our operating results from the date of acquisition.

(1)

The consolidated financial statements include the operations of Collagen Aesthetics, Inc. from September 1, 1999 to December 31, 1999.

(2)

Includes reversal of $15.5 million allowance on the deferred tax asset.

(3)

Reflects the recognition of an $8.0 million deferred tax asset based on projection of future income.

(4)

Includes a provision of $1.0 million for the conversion of foreign intercompany accounts to equity.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

        We had cash and equivalents of $34.8 million and $22.3 million at December 31, 2001 and 2000, respectively. The non-U.S. portion of cash and cash equivalents was $24.6 million and $16.7 million at December 31, 2001 and 2000, respectively. Our current plan is not to repatriate funds from foreign operations, which preserves the current tax treatment on foreign profits. Cash provided by operating activities has been, and is expected to continue to be, our primary source of funds. Cash provided by operations was $32.6 million and $31.0 million in 2001 and 2000, respectively.

        Capital expenditures, primarily for manufacturing equipment and facilities improvements, totaled $18.6 million in 2001 compared with $12.5 million in 2000. We anticipate spending approximately $15 million to $18 million in 2002 on capital projects.

        In 2001, inventories have grown $9.3 million, primarily to support certain product launches. Besides growth to support the U.S. launch of the LAP-BAND® and the international launch of Hylaform®, inventory at December 31, 2001 included $4.8 of bioengineered human-derived collagen in support of the planned launches of CosmoDerm™ and CosmoPlast™ in 2002.

        In 2001, we borrowed an additional $25.0 million through an amendment to our existing term loan credit facility. As of December 31, 2001, we had $105.6 million outstanding under this facility. Minimal principal payments are due until March 2004 through January 2005 when quarterly payments of approximately $26 million are due. We also have a $25.0 million revolving credit facility which is currently unutilized. The term loan and any advances under the revolving credit facility bear interest at a floating rate equal to one, two, three or six-month LIBOR plus 4.0%. We have interest rate swaps of $30 million and $20 million which lock in fixed interest rates of 9.95% and 9.65%, respectively, until January 2005. The floating rate component of the swap contracts is one-month LIBOR plus 3.0%. At December 31, 2001, the estimated liability value of the swaps was $4.2 million.

        We spent $16.3 million and $7.7 million in 2001 and 2000, respectively, to repurchase our stock. We have no plans to repurchase stock in 2002, and we are restricted from doing so under the current terms of our credit agreement.

        The primary objectives for our cash investments are liquidity and safety of principal. Investments are generally of short duration and high credit quality.

        We believe that existing funds, cash generated from operations, and existing sources of debt financing are adequate to satisfy our working capital and capital expenditure requirements for the foreseeable future. Further, we believe that we will be able to obtain sufficient replacement financing to repay the existing term loan. However, we may raise additional capital from time to time.

Euro Currency

        On January 1, 1999, eleven of fifteen member countries of the European Union, or the EU, established fixed conversion rates between their existing currencies and the EU's common currency, the "euro". During a transition period from January 1, 1999 to June 30, 2002, non-cash transactions may be denominated in either euros or the existing currencies of the EU participants. Euro currency was issued in January 2002, and on June 30, 2002, all national currencies of the EU participant countries will become obsolete.

        We have evaluated the potential impact of the euro on our European operations and the impact of exchange costs and currency exchange rate risks. The conversion to the euro is not expected to have a material impact on our operations or financial position.

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RESULTS OF OPERATIONS

Sales

        Net sales (net of returns, discounts, and allowances), or sales, for 2001 were $238.1 million, a decrease of $2.0 million, or 1%, from 2000. Sales for 2000 were $240.1 million, an increase of $50.8 million, or 27% over 1999. This increase was primarily the result of the acquisition of Collagen Aesthetics, Inc. in late 1999 which added $47.5 million of sales. Foreign exchange effects adversely impacted sales by approximately 2% in 2001 and 3% in 2000. We expect sales to grow at a high single-digit to low double-digit rate in 2002.

        Breast Aesthetics.    In 2001, sales of breast aesthetics were essentially the same as 2000. We believe that sales were negatively impacted by weak worldwide economic conditions which may have caused some customers to postpone elective procedures such as breast augmentation. Foreign exchange negatively impacted sales by approximately 1%. In 2000, sales were $141.0 million, a 1% increase over 1999. In 2002, sales of breast aesthetics are expected to grow at a mid single-digit rate reflecting improving economic conditions, our increased marketing emphasis on breast reconstruction, and the introduction of product line extensions.

        Facial Aesthetics.    In 2001, sales of facial aesthetics were $67.2 million, a decrease of $6.0 million, or 8%, from 2000. Excluding discontinued products, sales of facial aesthetics products in 2001 were $65.5 million, a decrease of 5% from 2000. These decreases are due primarily to weak worldwide economic conditions, and concerns about BSE, or "mad cow" disease, in Europe and Japan. Foreign exchange also negatively impacted sales by approximately 3%. In 2000, sales were $73.2 million, an increase of $43.0 million compared to 1999. This increase was primarily due to the acquisition of Collagen Aesthetics, Inc. In 2002, Inamed expects the facial aesthetics business, excluding discontinued products, to grow at a high single-digit rate, reflecting sales of the expanded Hylaform® line of products, Zyderm® and Zyplast®, and the expected U.S. launch in late 2002 of CosmoDerm™ and CosmoPlast™. In the U.S., Q-Med has filed for FDA approval for its Restylene product, which is currently marketed internationally.

        Obesity Intervention.    In 2001, obesity intervention sales were $24.1 million, an increase of 41% over 2000. The increase in sales was primarily due to the launch of the product in the U.S. following FDA approval in June 2001, as well as continued growth in international sales. Foreign exchange negatively impacted sales by approximately 4%. In 2000, obesity intervention sales were $17.1 million, an increase of 2% due to growth in international sales. In 2002, we expect obesity intervention sales to increase by 50% to 60% due to accelerating growth in the U.S. We expect to achieve this growth by training and qualifying more physicians on the procedure, working to achieve broader reimbursement for the product and the procedure and educating consumers about the benefits of the LAP-BAND®.

        Other Products.    Other products sales consist of sales of collagen to other manufacturers.

Cost of Goods Sold

        Cost of goods sold as a percentage of sales was 28%, 28%, and 30% for 2001, 2000 and 1999, respectively. The decrease in 2000 was primarily due to manufacturing efficiencies. In 2002, we expect cost of goods sold to be 28% to 29% and the gross profit margin to be 71% to 72% of sales.

Selling, General, and Administrative (SG&A)

        SG&A expenses in 2001 were $96.6 million, a decrease of $5.7 million, or 6%, from 2000. This decrease was primarily due to lower legal expenses in 2001 and higher expenses incurred in 2000 related to the start-up of the Costa Rica manufacturing facility. SG&A expenses in 2001 included the unfavorable settlement in the MDA matter ($2.5 million), the estimate of an unfavorable outcome in

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the Pilholski matter ($0.8 million), the favorable settlement of the PEIC matter ($1.2 million), the favorable outcome of the SADUC matter (where the dismissal of SADUC's claim permitted us to release our reserve of $3.0 million), and estimated legal costs relating to these matters ($0.5 million). As a percentage of sales, SG&A expenses declined to 41% in 2001 from 43% in 2000. SG&A expenses in 2000 were $102.3 million, an increase of $27.5 million, or 37%, over 1999. This increase was primarily due to the Collagen Aesthetics, Inc. acquisition. As a percentage of sales, SG&A expenses rose to 43% in 2000 from 40% in 1999. This increase related to several one-time charges, including pre-operating costs for Costa Rica, an increase in the warranty reserve, and higher legal expenses. In 2002, we expect SG&A expenses to be in the range of 39% to 42% of sales, reflecting increased investment in the U.S. launch of the LAP-BAND® System, offset partially by efficiencies arising from the 2001 restructuring.

Research and Development (R&D)

        R&D expenses of $12.2 million for 2001 increased by $2.3 million, or 23%, from 2000 due primarily to an increase in development expense funding for the collaboration with RTI and costs related to the development of human collagen. As a percentage of sales, R&D expenses increased to 5% in 2001 from 4% in 2000. In 2000, R&D expenses were $9.9 million, a decrease of $0.4 million from 1999. As a percentage of sales, R&D expenses declined slightly to 4% from 5%. In 2002, we expect research and development expenses to be within the range of $12.0 to $13.0 million.

Restructuring

        In 2001, we recorded $12.0 million of restructuring charges to reflect costs associated with changing senior management and consolidating facilities and administrative functions. In the first quarter, we announced the resignation of our President and Co-CEO, the planned closing of our New York City office, and a restructuring and reduction in workforce at our Santa Barbara facilities. The Santa Barbara reduction was facilitated by certain manufacturing operations having moved to our new facility in Costa Rica, which began full operation late in 2000, and the anticipated move of Santa Barbara's remaining manufacturing to a new, more efficient local facility. The first quarter charge, $8.3 million, was primarily employee severance costs but included lease termination costs for the New York office. In the third quarter, we announced the consolidation of certain operations of McGhan Medical Corporation and BioEnterics Corporation into sales and marketing divisions of Inamed as well as consolidation of common support functions. The third quarter charge of $2.6 million was comprised of $2.2 million relating to the consolidation and an additional $0.4 million for costs of closing the New York office. In the fourth quarter, we announced that Dr. C. Scott Eschbach, previously President and CEO of McGhan Medical Corporation, would resign. A fourth quarter charge of $1.1 million included severance cost for Dr. Eschbach as well as some further charges for closing the New York office. We do not expect any further material costs for this restructuring effort.

Amortization

        Amortization of intangible assets and non-cash compensation was $11.3 million in 2001, an increase of $2.0 million from the prior year. This increase is due primarily to amortization related to the Medical Products Development, Inc. patents purchased in the third quarter of 2000. Amortization of intangible assets and non-cash compensation was $9.3 million for 2000, compared to $2.9 in 1999. The increase was due to amortization of the goodwill and other intangible assets related to the Collagen Aesthetics, Inc. acquisition. In 2002, in accordance with FAS 142, goodwill and other intangible assets with indefinite lives will no longer be amortized. We expect amortization of intangible assets and non-cash compensation expense in 2002 to be approximately $5 million.

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Interest Expense

        Net interest and other financing expense totaled $11.7 million in 2001, an increase of $1.2 million, or 11%, from 2000 due primarily to higher debt levels. Net interest and other financing expense was $10.5 million in 2000, a decrease of $2.6 million or 20% from 1999. Included in the 2000 interest expense is a $2.2 million financing charge related to the retirement of the bridge loan used to finance the acquisition of Collagen Aesthetics, Inc. Included in the 1999 interest expense are charges of $5.2 million to amortize fees paid in connection with the bridge loan and a financing charge of $2.2 million incurred in connection with the funding of the breast implant class action settlement.

Foreign Currency

        Foreign currency loss of $0.4 million in 2001 is compared to a gain of $2.6 million in 2000 and a gain of $0.3 million in 1999. The large 2000 gain was primarily due to a favorable derivative position that Inamed settled in its fourth quarter.

Royalty Income and Other

        Royalty income, net of other expenses, declined to $5.0 million in 2001, from $7.0 million in 2000. This decline resulted from the expiration of certain royalty agreements related to breast implants. Royalty income, net of other income and expens