Special Situation Investing

Tuesday, August 22, 2006

Bausch & Lomb (BOL) Study Finds Recall Necessary

Preliminary findings on the Bausch & Lomb (BOL) contact lens recalls have been released. From the article:

Bausch & Lomb Inc.'s global recall of a popular contact lens solution in May appears to have stopped the spread of a serious eye infection but U.S. scientists still do not know what caused the outbreak, according to a study released on Tuesday.

The article also had some interesting statistics on the infection:

As of June 30, the researchers had identified 164 confirmed cases of the fungal infection fusarium keratitis. Of those, 94 percent, or 154 patients, wore soft contact lenses. Infected patients came from 33 states and one U.S. territory and about 34 percent of them required a corneal transplant.

According to the study, infected contact lens wearers were 20 times more likely to have used Bausch & Lomb's ReNu with MoistureLoc lens solution than another solution.

In terms of financial costs (for reference BOL has a market cap of $2.6 Billion):

In addition to the loss of a $100 million-a-year product, analysts have estimated Bausch & Lomb faces $500 million to $1 billion in potential liability from the infection.

Bausch & Lomb responded to the article shortly thereafter:

We think the report confirms that Bausch & Lomb took the right action in the interests of consumer health and safety by recalling the MoistureLoc product, and that Bausch & Lomb can continue to recommend its ReNu® MultiPlus® solution with confidence.

BOL's stock price has been hit hard as a result of the contact lens recall. In spite of this, there does not appear to be sufficient margin of safety in BOL to warrant investment. The company sells for ~5x tangible book value, 16x earnings (before the recalls) and ~1.2 x sales.

Previous post on BOL are available here and here.


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