Advanced Medical Recalls Contact Lens Solution

NEW YORK -- Advanced Medical Optics Inc. on Tuesday recalled almost 3 million units of its Complete MoisturePlus contact lens solution due to sterility problems that could lead to eye infections, the second major recall of a contact lens solution this year.

The company, whose shares fell 8 percent on the news and a related decision to slash its 2006 profit forecast, said it was recalling 183,000 units of the product in the United States, after three lots made in China and sold in Japan were found to have bacterial contamination.

"Because of this production-line issue at its manufacturing plant in China, Advanced Medical Optics is recalling 18 lots distributed in the U.S. that were manufactured on the same production lines during the same production period," the Santa Ana, California-based company said in a release.

Most of the recalled 2.9 million units were shipped to Japan and other parts of Asia, the company said. It said there were no reports of physical harm from the recalled U.S. lots.

"Non-sterility of a contact lens solution may have serious health consequences, including eye infection and microbial keratitis," the company said, but added it considered the likelihood of harm to be "low."

The company has temporarily stopped all manufacturing at the China factory to clean and sanitize it, a process it expects to take 10 to 12 weeks.

The announcement comes just six months after the highly publicized global recall by rival U.S. eye care company Bausch & Lomb Inc. of its ReNu with MoistureLoc contact lens solution after it was linked to keratitis - or inflammation of the cornea - caused by a fungus.

ReNu with MoistureLoc had annual sales of $100 million. Analysts have estimated Bausch & Lomb faces up to $1 billion in potential liability from the fungal infections. Bausch & Lomb, which has been beset with accounting irregularities, earlier this month expects to report lower third-quarter earnings largely because of the product recall.

Advanced Medical Optical said it posted eye-care sales of about $209 million in the first nine months of 2006 and that the business accounts for about 28 percent of total company sales.

In view of its own recall, Advanced Medical now expects 2006 earnings per share, excluding special items, of $1.30 to $1.40, compared with a prior forecast of $1.85 to $1.90. Analysts expect earnings of $1.88 per share, according to Reuters Estimates.

For 2007, the company sees EPS of $1.85 to $2.00, down from the $2.25 to $2.35 forecast earlier. Analysts were expecting $2.28, according to Reuters Estimates.

For the remainder of 2006 and 2007, Advanced Medical projected recall-related costs and charges of about $35 million to $40 million.

It now expects 2006 revenue of $985 million to $1 billion, somewhat lower than a previous forecast of up to $1.02 billion. For 2007, the company projects revenue of $1.06 billion to $1.08 billion, compared with its previous forecast of up to $1.1 billion.

Advanced Medical Optics was down $3.31, or 8.4 percent, at $35.94 - a 52-week low - in afternoon trading on the New York Stock Exchange.

Shares of rival eye-care company Alcon Inc. rose 6.2 percent to $107.94, also on the NYSE.

Bank of America analyst David Maris said sales of Alcon's contact lens solutions should benefit from the damage of the recalls by both Bausch & Lomb and Advanced Medical Optics.

"From the Bausch & Lomb example, we have seen that it is difficult to recover from market share losses" following a recall, Maris said in a research note.

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