Advanced Medical Optics Inc. is about halfway through its effort to overcome a November contact lens solution recall that pummeled the company’s shares and drove a fourth-quarter loss.
The Santa Ana-based company said it plans to have the third of four contact lens solution production lines at its China plant back up by month’s end. The plant’s fourth line should be up by May, according to Advanced Medical.
The company shut down operations in Hangzhou, southwest of Shanghai, after contamination was found in solution from the plant three months ago.
Advanced Medical also has restarted shipping its Complete Mois-turePlus contact lens solution to its Japanese distributors, and plans to resume shipments to the rest of Asia by May.
The company is on target with its plan to get the China plant back up to full steam, officials said.
Advanced Medical’s had “a complete focus on this with a whole team that’s dedicated to getting our lines back up,” Chief Executive James Mazzo said. “We’ve been working very diligently internally and externally.”
The company recalled nearly 3 million bottles of Complete MoisturePlus, nearly all in Asia. About 183,000 bottles made it to the U.S.
Advanced Medical destroyed about 5 million bottles it had on hand.
Eye care solutions make up about a quarter of Advanced Medical’s $1 billion in yearly sales. Implantable lenses and eye surgery devices make up the bulk of sales.
The recall “was a big disappointment to us because it really (overshadowed) some of the positive things” about the company, Mazzo said.
Fallout
The episode proved costly.
Advanced Medical’s shares fell nearly 20% in the weeks after the news. After gaining back some ground, they were off about 7% last week with a market value of $2.3 billion.
For the fourth quarter, Advanced Medical lost $7.6 million, versus a profit of $2.3 million a year earlier, largely due to the recall. Sales were down 4% to $244 million.
Advanced Medical appears to have taken a cue from what some saw as missteps by rival Bausch & Lomb Inc., which recalled solution in early 2006.
The company has turned to several sources for help.
LexaMed Ltd., a Toledo, Ohio, consultant, is working with Advanced Medical on regulatory issues related to the recall.
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Complete MoisturePlus from Japan: company recently started shipping to country again |
The consultant is looking at the China plant from a regulatory and process standpoint and “completely tearing everything down and building it back up,” Mazzo said.
Public relations firm Edelman Worldwide was hired to help communicate with customers and the media. “We went out immediately to our customers, people like yourself, across the globe, which is no easy thing to do, to let them know exactly what occurred and how to continue the communication,” Mazzo said.
The company also hired Stericycle Inc., a medical waste company from Lake Forest, Ill., to get the tainted solution bottles off store shelves.
Stericycle and LexaMed still are working with the company. Edelman’s “pretty well winding down from a communications standpoint because I think everybody clearly understands,” Mazzo said.
“We did not have a formula problem, we had a manufacturing problem,” he said. “Our representatives across the globe, primarily Asia-Pacific and Japan, have continued to be in the doctor’s office, working with the doctors on any requirements they may have, making sure they have product, sample kits, etcetera.”
Analysts aren’t overly concerned about the recall. None asked questions about it during the company’s early February conference call on its fourth-quarter results.
Some have addressed the issue in reports and wonder whether Advanced Medical can regain lost market share.
“We also continue to believe it will take some time to regain share as losses in this market can be ‘sticky,'” said Andrew Swanson, a Citigroup analyst, in a report after the company’s fourth-quarter results.
Mazzo characterized the recall as a bump in Advanced Medical’s evolution. The company’s longer-term growth plan is on track, he said.
When Irvine-based Allergan Inc. spun off Advanced Medical in 2002, “We were somewhat of an enigma,can we survive? We had a somewhat depleted pipeline. We were only spending about 5% of sales on R & D;, which was about $30 million.”
Yearly research and development spending now is about $60 million, or about 6% of sales.
With growth and acquisitions, Advanced Medical has doubled revenue since the spinoff.
Advanced Medical came out with 10 new products last year and is on track to launch 10 more this year, Mazzo said.
By midyear, Advanced Medical plans to come out with a product to treat dry eyes.
Contact Lenses
Some analysts’ reports have hinted that Advanced Medical could be looking to get into the contact lenses themselves.
In a December report on Lake Forest-based Cooper Cos. and other companies, Larry Biegelsen of Prudential Equity Group noted that Advanced Medical and Nestl & #233; SA unit Alcon Inc., which has more than 600 workers in Irvine, have expressed interest in contact lenses.
“Cooper is the only major independent contact lens maker, so if the industry were to consolidate further, Cooper would be a likely acquisition target,” Biegelsen said.
Contact lenses “are definitely a medium we like. It fits our profile; it is a brand-loyal, doctor-driven business,” Mazzo said. “If we were to do it, it would have to be through an acquisition because for us to start it up would not make financial sense.”
Advanced Medical has struck a pair of recent deals.
The company plans to have IntraLase Corp., which it’s buying for $808 million, integrated by April 1, according to Mazzo. The Securities and Exchange Commission has reviewed the deal, which now is in the midst of Federal Trade Commission scrutiny and awaits shareholder approval.
Advanced Medical’s put together an integration team for IntraLase, run by its own Jane Rady, corporate vice president of strategic and business development, and Bernard Haffey, executive vice president and chief commercial officer of IntraLase.
The IntraLase deal stands to be Advanced Medical’s third sizable buy in its nearly five years as an independent company.
Two years ago, Advanced Medical paid $1.3 billion to buy Santa Clara-based Visx Inc. in its first major plunge into the eye laser market. Visx’s lasers reshape the cornea to correct vision.
In 2004, Advanced Medical spent $450 million for Pfizer Inc.’s eye surgery business.
Advanced Medical’s also made several other buys, including spending $20 million earlier this year for WaveFront Sciences Inc., an Albuquerque, N.M.-based maker of diagnostic systems for vision correction surgery and medical research.
