Lens solution recall could hamper firm
Advanced Medical Optics Inc., seeking to become the nation’s leading provider of eye-care treatments, may need to scale back its growth ambitions after a large-scale recall of one of its bestselling products, analysts said Tuesday.
The Santa Ana-based company, spun off in 2002 from Irvine-based Allergan Inc., might do well to focus on the recall and rethink its bid for much bigger rival Bausch & Lomb Inc., analysts said.
Late Friday evening, Advanced Medical Optics announced it was recalling all of its Complete MoisturePlus contact lens solution, a product that accounted for about one-tenth of its gross revenue last year. That came after federal health officials linked the cleanser to a rare but serious eye infection.
Chief Executive James V. Mazzo tried Tuesday to allay concerns over the product, saying that there was no direct link between it and the disease and that Advanced Medical Optics was recalling MoisturePlus only “out of abundance of caution.”
Nonetheless, shares of the company -- which trade under the ticker symbol EYE -- plummeted $5.51, or 13.7%, to close at $34.69, the biggest decline in eight months.
The drop in share value means the company will have a much harder time getting financing in its bid for Bausch & Lomb, said Mark J. Mullikin, an analyst with Piper Jaffray & Co. in Minneapolis. “I think that they really should focus on current problems,” he said.
During a conference call with analysts Tuesday, Mazzo and other executives declined to comment on whether they would continue to pursue Bausch & Lomb.
Advanced Medical Optics, which employs about 4,200 people in 24 countries, has been in an aggressive expansion mode lately. Last month, the company completed its purchase of Irvine-based IntraLase Corp. for $808 million in cash. In January, the company bought WaveFront Sciences Inc. of Albuquerque, N.M., for $20 million. Those acquisitions turned Advanced Medical Optics into one of the world’s largest providers of corrective eye surgery equipment and technology.
The company last year earned $79.5 million, or $1.21 a share, on revenue of $997.5 million.
But Advanced Medical Optics announced its most ambitious acquisition yet when it said last week that it would seek to buy Bausch & Lomb. The Rochester, N.Y.-based company, one of the world’s largest manufacturers of eye-care products with $2.3 billion in sales, tentatively accepted a $3.67-billion buyout proposal from private equity firm Warburg Pincus but is considering other bids.
A day after Advanced Medical Optics announced an interest in its rival, the U.S. Centers for Disease Control and Prevention issued a health advisory warning consumers to stop using MoisturePlus immediately and to discard unused containers.
CDC officials said they had found a link between MoisturePlus and an outbreak of Acanthamoeba keratitis, or AK, which can cause blindness. The infection, which is caused by a microorganism, is rare but happens more frequently among contact lens users, possibly because of improper use or cleaning of lenses. According to the CDC, AK occurs in one or two cases per million contact lens users in the U.S.
In recent years, the CDC tracked 39 contact lens wearers with the disease, the agency said. More than half of them reported using MoisturePlus.
Health officials do not know the cause of the infections, CDC spokeswoman Lola Russell said, but “we know the risk exists.”
Mazzo, the chief executive, asserted Tuesday that the outbreak was not a result of manufacturing problems or contamination at the company’s plants, but he provided no further details.
The recall of the cleaning solution, with sales of $106 million last year, represents a big financial blow because of its high gross profit margins, about 60% to 70%, the company said.
“It is clearly a setback,” Chief Financial Officer Randy Meier said. But the damage will not be known for at least another week, when the company expects to recast its financial forecast.
Last year, in a separate incident, the company recalled 183,000 units of 12-ounce packs of MoisturePlus after bacterial contamination was traced to a Chinese manufacturing plant. Mazzo said the plant cleared FDA inspection recently.
That was of little solace to Cheryl Holt, a contact lens wearer from Burbank who learned of the recall from news reports.
“I looked at a local Vons and Target store over the weekend, trying to find a lens solution that was ‘made in USA,’ ” said Holt, 50, noting that MoisturePlus was still on many store shelves.
An Advanced Medical Optics spokesman said the company had halted shipments of the product and that retailers had been informed.
