Vultures Circling Bausch & Lomb

Archives Admin · #1 (**permalink**) 04-12-2006, 11:16 AM

UBS Investment Research reiterated a "neutral" rating on Bausch & Lomb after the company said it halted sales of some versions of its ReNu contact lens solution after reports of a corneal infection surfaced.

The Rochester, N.Y.-based company's decision, announced Monday evening, was prompted by a report from the Centers for Disease Control and Prevention of 109 suspected cases of fungal keratitis among users of the ReNu with MoistureLoc solution.

"Although timing of the resolution is unclear, we believe this could have a significant impact on Bausch & Lomb's lens care franchise, given that ReNu with MoistureLoc alone accounted for $45 million in 2005 sales," wrote analyst Benner Ulrich.

Shares of Bausch & Lomb (nyse: BOL - news - people ) were down 17% in Tuesday afternoon trading .

"We estimate that $50 million to $100 million in lost sales would have a negative impact of 37 cents to 74 cents to our earnings-per-share estimate."

The analyst said Bausch & Lomb is now more vulnerable to future competition from Johnson & Johnson, which markets the Acuvue line of products.

"Based on our discussions with multiple consultants and industry contacts, we believe it is likely Johnson & Johnson will enter the market in the next 12 to 18 months," said Ulrich. "If Johnson & Johnson comes to market in 2007, we estimate that it could capture approximately 15% market share in four years."

In addition, the UBS analyst said rival eye care products maker Advanced Medical Optics (nyse: AVO - news - people ) could also benefit as it has the third-largest market share in the lens care market behind Bausch & Lomb and Alcon (nyse: ACL - news - people ).

Elsewhere, Bear Stearns said both AMO and Alcon could pick up market share in the wake of the announcement. "With potentially $38 million in U.S. ReNu sales up for grabs, Advanced Medical Optics and Alcon could pick up share as consumers switch to alternative products."

Piper Jaffray downgraded Bausch & Lomb to "market perform" from "outperform" and cut the price target to $52 from $82.

"From a worst-case-scenario view, which clearly appears to be the appropriate one here, we believe that the downside risk to our current $511 million estimate for Bausch's lens care revenue business in 2006 may be $75 million," wrote analyst Steven Hamill.

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Vultures Circling Bausch & Lomb

Contact Lenses