May 29 (Bloomberg) -- Shares of Advanced Medical Optics Inc. plunged the most in eight months after the company recalled a contact lens solution linked to a cause of blindness and withdrew its earnings forecast.

Bausch & Lomb Inc. shares also declined as analysts said the recall would jeopardize Advanced Medical's plan to enter a bidding war for the company, a rival maker of eye products. Advanced Medical, based in Santa Ana, California, lost 14 percent today, and Bausch & Lomb lost 3.7 percent.

Advanced Medical will issue a new earnings forecast next week after withdrawing a projection of $1.40 to $1.55 a share in adjusted 2007 profit, Chief Financial Officer Randy Meier said on a conference call. The recall will make it harder for Advanced Medical to bid for Bausch & Lomb, analysts said.

``The recall increases their financing costs,'' said Mark Mullikin, an analyst with Piper Jaffray & Co. in Minneapolis, in a telephone interview today. ``I don't know that Advanced Medical shareholders will be willing to swallow that, and Bausch & Lomb shareholders are less likely to want to take Advanced Medical stock as part of the deal.''

At least 21 people using Advanced Medical's Complete MoisturePlus multipurpose eye solution to clean their soft contact lenses were infected with a waterborne organism that can lead to blindness, U.S. regulators said. The recalled cleaner for contact lenses accounted for 11 percent of the company's 2006 sales.

Shares Decline

Shares of Bausch & Lomb, based in Rochester, New York, fell $2.59 to $67.90 at 4:01 p.m. in New York Stock Exchange composite trading. The stock had jumped above $70 after Advanced Medical said it was considering an offer to compete with the $3.67 billion, or $65 a share, bid by Warburg Pincus LLC.

Advanced Medical shares dropped $5.51 to $34.69. The stock lost 5.5 percent last week after management disclosed plans to bid for Bausch & Lomb. Today's fall was the biggest since a 16 percent drop Sept. 26, after the company cut its earnings forecast.

Bausch & Lomb's chief executive officer, Jim Mazzo, declined today to comment on Advanced Medical's plans to make an offer. Adding Bausch & Lomb would help the smaller Advanced Medical expand in the eye-care market and eliminate a 154-year- old rival, company executives said May 24.

Other Possible Bidders

``The biggest hurdle will be management resources,'' said Joanne Wuensch, an analyst with BMO Capital Markets in New York, in a telephone interview. ``A lot of people are focused right now on the recall and can't spend time on due diligence for Bausch & Lomb.''

If Advanced Medical doesn't mount a bid for Bausch & Lomb, several other companies may step in, Mullikin said. He said three European eye-product companies are possible bidders: Essilor International SA, based in Paris; Luxottica Group SpA, of Milan; and Alcon Inc., of Hunenberg, Switzerland.

Spokesmen for Essilor and Alcon didn't immediately respond to calls for comment.

Bausch & Lomb is recovering from its own recall last year of the ReNu with MoistureLoc solution because of a link to a different kind of eye infection. The company eventually withdrew its product entirely after it was tied to the potentially blinding fusarium fungus. After first appearing in Singapore and Hong Kong, the illness affected more than 150 people in the U.S.

MoistureLoc, introduced in the fall of 2004, was used by about 2.3 million of the 34 million contact lens wearers in the U.S. and was Bausch & Lomb's fastest-growing product. Federal investigators determined it was the only solution linked to the infection, although they were never able to find the fungus at the factory where it was made or in unopened bottles.

Acanthamoeba Keratitis

The action resulted in charges of $25 million and $19 million in lost revenue from returns and rebates.

Advanced Medical's solution was linked to 138 cases of acanthamoeba keratitis, according to the U.S. Centers for Disease Control and Prevention. The agency found cases in 35 states going back to January 2005, with 9 patients receiving or scheduled for cornea transplants because of the infection, said spokeswoman Lola Russell.

Chris Cooley, an analyst at FTN Midwest Securities in Cleveland, cut his 2007 earnings estimate by 14 cents to $1.36, estimating $48 million in lost sales because of the recall.

The recalled lens solution met U.S. Food and Drug Administration standards, Advanced Medical said on today's conference call. Officials said user mishandling or contaminated water may cause the infections.

Medical Devices

The company also produces medical devices, including products for cataract surgery, lens implant procedures and laser vision correction. Advanced Medical bought IntraLase Corp. of Irvine, California, in April to add a laser device used in vision-correction surgery.

Advanced Medical was spun out of Allergan Inc. in 2002 and has grown by acquiring Pfizer Inc.'s eye-surgery business and Vizx Inc., a laser eye-surgery company. In 2006, Bausch & Lomb had 13,000 employees worldwide and $2.3 billion in sales. Advanced Medical had 3,300 employees at the end of last year and $998 million in sales, according to its annual report.

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net.

Last Updated: May 29, 2007 17:55 EDT