Blinding Eye Fungus from Contact Lens Solution Options

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Bausch & Lomb taking it on chin over eye fungus

CHICAGO (Reuters) - Bausch & Lomb Inc.'s <BOL.N> handling of eye infections potentially associated with one of its contact lens solutions is giving the company more than just a black eye.

As U.S. health authorities struggle to find the cause of a spate of rare fungal infections afflicting contact lens users in 17 states, Bausch & Lomb has taken what many see as a self-destructively passive role in dealing with customers and investors — breaking rule No. 1 in crisis management.

"They couldn't have done a worse job. It's almost as if they looked at the handbook on crisis management and threw it out the window," said Paul Argenti, professor of corporate communications at Dartmouth College's Tuck School of Business.

On Monday, it stopped U.S. shipments of ReNu with MoistureLoc product to retailers. But it left it up to retailers to decide what to do with the lens product left on their shelves and largely to health authorities to communicate to its customers on precautions.

Although potential health problems associated with the product first arose in Asia two months ago, Bausch & Lomb has not recalled the product, and is only now talking about plans for a major public awareness advertising campaign.

Meanwhile, the stock hit a two-and-a-half year low this week.

"The fact that they are not recalling it is a huge issue. Even if there are only a handful of infected people, they should jump into action," Argenti said.

Prompt response helped Johnson & Johnson <JNJ.N> overcome a 1982 tampering scare with its Tylenol brand, in which the company became a champion of safety, leading the charge for tamper-resistant packaging.

Bausch & Lomb's situation is trickier as neither health authorities nor the company has been able to identify the source of the infection, known as Fusarium Keratitis, a rare condition that could cause permanent vision loss if untreated.

U.S. health officials are looking into 109 cases of the condition. Of the 30 analyzed so far, 26 patients have said they used ReNu products or generic versions made by Bausch & Lomb, and analysts believe that number will rise as more cases are evaluated.

Crisis management expert Mike Hotra of public relations firm APCO said he'd give the company a passing grade in dealing with the situation, but warned the crisis is still unfolding.

"The only shortcoming I see is some ambiguity around the key issue that concerns consumers, and that is,'Is the contact lens solution that I have on my shelf safe for me and my family to to use?' They don't answer that clearly. They just say 'check with your doctor."'

Swift consumer communication is critical, said branding expert Jack Trout of Trout & Partners.

"If you tarry, it will double back and people will say you are not on the case, and your brand gets irrevocably bruised," he said.

Bausch & Lomb spokeswoman Meg Graham said the company is working hard to develop a marketing campaign that will address consumer's concerns. "The conundrum we are in is there are no clear answers as to a cause and effect," she said.

But as questions linger, the stock has taken a drastic hit, losing more than 30 percent of its value since the beginning of this year.

The company was on shaky ground with investors even before the news hit. Last year, it unveiled an accounting investigation due to allegations of improper conduct by management of its Brazilian unit and also said there were questions over its sales and marketing practices in South Korea, which delayed regulatory filings.

Chief Executive Ronald Zarrella got off to a bumpy start when he took the top spot at Bausch & Lomb after a stint as a marketing executive at General Motors.

Zarrella forfeited a bonus of at least $1.1 million in 2002 for falsely claiming to have completed a masters degree from New York University. He has since been credited with turning around Bausch & Lomb's fortunes, but his biggest challenge may lay ahead.

Analysts say any fumbling of the lens solution crisis could reach far beyond the MoistureLoc brand.

"A lot of the damage has been done in terms of consumer psychology. That will take a lot of time to rebuild," said Piper Jaffray analyst Steven Hamill.

For Harris Nesbitt analyst Joanne Wuensch, the answer is pretty straightforward.

"Call it a day. Move on. It's a $45 million a year revenue business, and you are putting at risk $500 million a year in revenue. A cost-benefit analysis would tell me, call it," she said.