Medical Device Daily Associate

A day after reporting the suspension of U.S. shipments of the popular ReNu with MoistureLoc contact lens care products from its Greenville, South Carolina, facility (Medical Device Daily, April 12, 2006), executives at Bausch & Lomb (B&L; Rochester, New York) offered very little in the way of comfort to analysts during its Wednesday morning conference call addressing a possible link between the product and an outbreak of fungal keratitis.

Indeed, the company said it has not been able to determine what the problem with the product is at this time and whether the issue will impact sales of the company's other products, including its lucrative contact lens line.

“We have not begun to estimate the ripple effect this will take on other ReNu products,“ said Ronald Zarrella, the company's chairman and CEO during the call.

Zarrella said the company will start an aggressive brand-building campaign to help contain the impact of the problem, but the damage already may have been done.

Major retail chains Wal-Mart and Walgreens said they were removing the product from store shelves. Walgreens took the added measure of removing all products under the ReNu brand.

In an apparent attempt to placate these large customers, Zarrella said the company might be inclined to take back product if the situation is not resolved soon, reversing its stated intent to simply halt shipment of new product and not reclaim those supplies already in stores.

“Frankly, if it's not resolved in a reasonable amount of time, we'll take the product back,“ he said.

Adding to analyst misgivings, the company said it is again delaying the filing of its 2005 annual report, which has been plagued by accounting problems.

Last month the company said it would delay the annual report filing by six weeks, until around April 30, to make adjustments following internal investigations at foreign subsidiaries (MDD, March 22, 2006).

It said at the time that delay in the filing resulted in part from the reported investigation by its audit committee concerning allegations of misconduct at the company's Brazil subsidiary. The company said it expected to restate financial results for the fiscal years ended 2001 through 2004, as well as for 1Q05 and 2Q05, in order to account for the impact of tax matters identified in connection with the investigation.

Another independent investigation into alleged improper sales practices at the company's Korea vision care joint venture, BL Korea, is ongoing. B&L acknowledged that that investigation has found evidence that from 2002 to 2005, BL Korea engaged in improper vision care sales practices in violation of company policies. In March it cut revenue by $9.3 million after finding that the Korean unit engaged in improper practices from 2002 to 2005.

Questioned by med-tech analyst Joanne Wuensch of Harris Nesbitt during yesterday's conference call concerning the filing delay, Zarella said, “I wish I could give you the answer to that,“but “I just can't say anything more.“

In a research report, Wuensch called the company's decision not to elaborate on the delay “somewhat disconcerting.“

The product suspension had followed release of a report by the Centers for Disease Control and Prevention (CDC; Atlanta) that it is reviewing reports of 109 cases in 17 states since June 2005 of suspected fungal keratitis, caused by the fusarium fungus.

The CDC said that the majority of cases have yet to be reviewed, but of the 30 cases reviewed so far, 28 involved contact lens wearers. Twenty-one reported using ReNu contact lens care products; five reported using a combination of ReNu and products manufactured by Advanced Medical Optics (Santa Ana, California) and Alcon (Fort Worth, Texas).

While he admitted that there could be a link between the ReNu product and the fungal infection, Zarrella said that no problems, thus far, have been found by investigators either with the MoistureLoc's formula or its manufacturing process.

To illustrate the manufacturing point, Zarrella disclosed that an FDA investigation of the Greenville, South Carolina, facility for nearly three weeks has found no problems. He said agency inspectors will finish their investigation by the end of the week.

“Every additional test indicates the [lens care] formulation is as safe and effective as anything else on the market,“ said Zarrella, particularly in regard to dealing with fusarium and killing it “at rates that are as high or higher than anything else a consumer can use.“

While the company defended its product, it seemed to acknowledge that the MoistureLoc brand – and even similar products – may never recover from the negative publicity.

The company, Zarrella said, has already begun weighing the possibility of ramping up production of a next-generation solution, originally slated for release in late 2007, that could replace MoistureLoc.

Concern about an increased incidence of the fungal infection among users of B&L products first arose in Singapore, where health officials noticed an increase in reports of infection in January and discovered 39 cases involving contact lens users from 2005 to February of this year. Cases have also been reported in Malaysia and Hong Kong.

The company said that the problems in the U.S. do not affect other markets. There are no reported incidents of fungal eye infections in Europe or China, and the company has been in contact with health authorities in those regions, the company said.

The company last month said the issues with ReNu would reduce first-quarter vision care revenue in the Asia region by as much as $10 million vs. internal expectations. The company also recently disclosed that the product had U.S. sales of roughly $45 million in 2005.

Zarrella said that the company had no insight into how long the FDA and CDC investigations will take and whether it will eventually have to recall all of ReNu with MoistureLoc products from the U.S. market.