Not Seeing 20/20 at Advanced Medical Optics

Most contact lens wearers usually don't appreciate waking up after a night in their contacts with their eyes bloodshot and contacts dried out. Probably even fewer appreciate a serious eye infection. On Friday, Advanced Medical Optics (NYSE: EYE  ) issued a voluntary recall for its Complete MoisturePlus Multipurpose solution, based on a Centers for Disease Control and Prevention investigation that linked the solution to a rare eye infection.

Investors have seen a 14% drop in the stock's price since the recall. In all likelihood, the recall also will have implications across the entire eye-care industry. The short-term beneficiaries will be competitors such as Alcon (NYSE: ACL  ) and The Cooper Companies (NYSE: COO  ) . But they may not benefit as much as expected.

Advanced Medical has stood by its product and attributes the eye infections to improper use and care of contacts. If one subscribes to this theory, then contact lens users would benefit little from a switch in multipurpose solutions and any one of these companies would be susceptible to a recall.

If this recall is viewed as more of a widespread issue -- given Bausch & Lomb's (NYSE: BOL  ) decision to voluntarily stop U.S. shipments of its ReNu with MoistureLoc product last year -- then any potential market share gains by Advanced Medical's competitors could be negated by the general cloud these recalls cast over the industry. In the Bausch & Lomb recall, the decision was based on the Centers for Disease Control finding that the solution might have contributed to potentially serious fungal infections in some users. Bausch & Lomb's stock toppled more than 14% the day after the decision.

Fortunately, MoisturePlus makes up only a small fraction of Advanced Medical's consolidated sales. While it's likely the company's earnings will be hurt to some degree by this recall, what is more damaging is the timing. It came just a day after Advanced Medical said it might be able to top a buyout agreement from Warburg Pincus, a private equity firm, to acquire Bausch & Lomb. The buyout talks have now taken a back seat to this quandary, so we will have to wait and see if Advanced Medical has to shelve the Bausch & Lomb bid altogether.

Interested in health-care stocks recommended in Tom and David Gardner's newsletter? Then sign up for a free 30-day trial of Stock Advisor, which is beating the market by 38 percentage points.

Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Motley Fool has a disclosure policy.