May 4, 2006
Bausch Confirms Infections in Europe, Increasing Worry
By Julie Steenhuysen
CHICAGO (Reuters) - Bausch & Lomb Inc., under pressure since authorities said its contact lens care products may be linked to a spate of serious eye infections in Asia and the United States, on Thursday said a "handful" of cases of the infection have also been confirmed in Europe.
But the company, whose shares fell 6 percent to hit an almost three-year low, refuted analyst questions that a large debt buyback announced on Wednesday could leave it strapped for cash.
Bausch & Lomb, based in Rochester, New York, last month voluntarily recalled one of its ReNu lens care products in the United States after some users were diagnosed with a rare but serious fungal infections.
Harris Nesbitt analyst Joanne Wuensch said the European cases raise new questions about the already-beleagured company.
"They just can't get ahead of it," Wuensch said.
The stock, which is trading near three-year lows, has fallen nearly 40 percent this year and is the weakest health-care issue in the Standard & Poor's 500 index.
Health authorities have not yet determined a root cause of the fungal infection, known as Fusarium keratitis, which can lead to blindness and potential eye loss.
However, a large percentage of U.S. patients with the infection were users of Bausch & Lomb lens solutions.
The company last month stopped shipping ReNu with MoistureLoc and later advised retailers to remove the contact lens solution from store shelves.
A report from the U.S. Centers for Disease Control and Prevention issued this week found that 27 percent of confirmed cases involved another ReNu brand, ReNu MultiPlus, suggesting the company's entire ReNu franchise may be at risk, analysts said on Wednesday.
Kristen Foster, a spokeswoman for the company, confirmed that the infection is now under investigation in Europe and noted that a certain number of cases of the infection occur routinely.
"The confirmed cases under investigation do not indicate that there is an unusual trend," Foster said.
Bausch & Lomb said its products in Europe include ReNu with MoistureLoc and ReNu MultiPlus.
Authorities in Singapore had earlier linked a number of cases of the same infection to use of Bausch & Lomb ReNu solution, and Hong Kong had asked the company to pull ReNu from store shelves, although testing did not show a problem.
TOO MUCH TO PAY?
Concerns that the infection may also be affecting people in Europe comes amid questions about the company's cash position after a large debt repurchase.
Bausch late on Wednesday said it was offering to repurchase all of five series of bonds totaling nearly $544 million in principal.
In a note to clients, Banc of America Securities analyst David Maris said it appeared that Bausch is offering to repurchase the debt at a very expensive price.
Maris speculated that the debt buyback might be driven by possible expectations the company may further delay filing financial reports with regulators.
Maris said Bausch may be looking to reduce any bondholder leverage if it defaults on its debt.
"We believe after tendering the debt, (it) will be left with little cash, the looming ReNu situation, and an unknown potential medical legal liability."
But a Bausch & Lomb spokesman said the company has ample cash to cover its debt repurchase, which he said was not initiated at the urging of a bondholder.
"I think at the end of the day we were pretty clear. We are tendering these because it was a stated corporate goal. We have more than enough cash even if everyone tenders," said Dan Ritz, Bausch & Lomb's director of investor relations.
Ritz said the company also has no borrowings under its $400 million revolving credit facility, which also could be used as a source of cash.
Bausch & Lomb has delayed the filing of its 2005 10-K annual report as it tries to resolve tax issues and other improper behavior at subsidiaries in Brazil and Korea.
Most analysts have yet to quantify Bausch & Lomb's potential liability if scientists directly link the infection outbreak with the company's products.
Cal Warriner, a West Palm Beach attorney who represents a 69-year-old woman who lost her left eye to Fusarium keratitis and is suing Bausch & Lomb, said the number of cases against the company is growing.
"We're getting phone calls fast and furious," Warriner said. "Originally, it appeared it was a contaminant issue, and now it appears the scope of the inquiry is broadening. People are now looking at the entire ReNu line."
His firm now more than 100 cases against Bausch & Lomb.
The stock was off $2.78 to $41.19 on the New York Stock Exchange.
(Additional reporting by Daniel Burns and Anna Driver in New York)