Chiron Creeps From Shadows
Updated from 11:34 a.m. EST
British regulators lifted their ban on a Liverpool factory where
Chiron
( CHIR) manufactures its flu vaccine, offering hope that the U.S. can avoid another winter of shortage. Stock analysts greeted the news cheerfully, although they stopped short of euphoria.
The decision will allow Chiron to provide the treatment, Fluvirin, in the U.S. for the next flu season, subject to approval from the Food and Drug Administration. In October, British regulators cited "sterility failures" in barring production from the plant.
Chiron's
stunning announcement on Oct. 5 that its Liverpool plant's license had been suspended caused both financial and public health turmoil. Chiron had been expected to provide nearly half of the U.S. flu vaccine during the current season.
The announcement, which came at the beginning of the U.S. flu season, led U.S. health officials to recommend a rationing of vaccine provided by the two other flu vaccine makers. The U.S. flu season usually runs from October through March.
In congressional testimony last month, a top FDA official said "the most important single factor that will determine the adequacy of the U.S. flu vaccine supply for the coming year will be whether Chiron can correct its manufacturing problems ... and supply vaccine for the U.S. market."
After a trading halt of about 90 minutes on Wednesday, Chiron shares opened at $39 before rising to $41.10. Recently, they were up $3.27, or 9.2%, to $38.69. The stock fell from $45.42 to $37.98 the day the plant was closed.
Chiron Comments
"We are grateful for the guidance and effort from the regulatory agencies as we have navigated a path toward remediation," said Howard Pien, CEO of Chiron. "In this new beginning we remain focused on continuing to remediate and improve so Chiron can successfully deliver on the results required to supply influenza vaccine for the 2005-2006 season."
Pien said he expects the FDA will conduct its own review of the plant's operations and processes, too.
Chiron recently announced several changes in its corporate structure, including the
hiring of a new vaccines division chief, to help the company accelerate its return to making flu vaccine.
On Wednesday, the British Health Department said regulators had "concluded that satisfactory progress has been made in the manufacturing areas which had previously caused concern. ... The company has been informed, and is now free to recommence full manufacturing of the vaccine."
Britain's Medicines and Healthcare Products Regulatory Agency, or MHRA, ordered the plant closed in October after finding violations of sterility standards. This agency is similar to the FDA.
"MHRA inspectors have been working closely alongside the company since the manufacturing license required to produce the vaccine was suspended toward the end of 2004, following problems with the manufacturing plant and process," the health department said. "The MHRA inspectors have concluded that satisfactory progress has been made in the manufacturing areas which had previously caused concern."
The British health regulators' action in October subsequently triggered congressional and government investigations of Chiron, including a formal inquiry from the
Securities and Exchange Commission
.
Wall Street Reacts
Although Chiron's stock bolted Wednesday, financial analysts greeted the news warmly but cautiously. They noted that Chiron must still secure FDA approval and must still ramp up production. It takes about five months to produce the flu vaccine.
The British regulators' decision "signals a higher probability that Chiron will be able to re-enter the flu vaccine market for the 2005-2006 season," said Sapna Srivastava, of Morgan Stanley, in a research note Wednesday. But that re-entry will be "late, as we initially expected, with reduced market share."
Srivastava, who has an equal weight rating on the stock, said Wednesday's news is "incrementally positive" for Chiron. "However, we expect long-term Fluvirin market share to be impacted as we believe the debacle will lead to the approval of additional flu vaccine suppliers," she said. She doesn't own shares; her firm has an investment banking relationship with Chiron.
Another qualified comment cames from Maykin Ho, of Goldman Sachs, who told clients Wednesday that the renewal of the Chiron vaccine plant license is "a positive step." However, she warned, "it is not clear" how many doses Chiron can produce for the upcoming flu season. That depends on how fast the FDA give the go-ahead, how fast Chiron can start production and how much vaccine will be produced from current suppliers as well as potential suppliers. She is neutral on the stock. (She doesn't own shares; her firm has an investment banking relationship).
The company desperately needed the manufacturing license back to raise its revenues as well as repair its reputation on Wall Street and among drug wholesalers and medical institutions.
In its fourth quarter, Chiron lost $23 million, or 12 cents a share, reversing a year-ago profit of $122 million, or 61 cents a share. Revenue fell 23% from a year ago in the quarter to $429 million.
During the third quarter, which ended Sept. 30, Chiron wrote off its Fluvirin inventory and took a $91 million charge. Chiron reported flu vaccine sales of $332 million in 2003 vs. $154 million in 2004. Chiron sells several other flu vaccines to other countries.
Other Suppliers
The other authorized flu-vaccine makers for the U.S. market --
Sanofi-Aventis
(SNY) - Get Report
and
MedImmune
( MEDI) -- were able to boost production of their products slightly. But the extra production came nowhere near the amount of vaccine that was produced during the previous flu season.
For this flu season, U.S. health regulators had been expecting manufacturers to provide about 100 million doses of flu vaccine, including 48 million to 50 million doses from Chiron. During the previous flu season, approximately 83 million doses were distributed.
According to the FDA, approximately 61 million doses were made available during the current season. Sanofi-Aventis provided about 58 million doses for U.S. consumers.
MedImmune's FluMist, a nasal spray vaccine, accounted for about 2 million doses. In addition, the U.S. government purchased on an emergency basis 1.2 million doses from
GlaxoSmithKline
(GSK) - Get Report
, even though the company isn't licensed to sell flu vaccine in the U.S.
GlaxoSmithKline will seek approval from the Food and Drug Administration to enter the U.S. market during the next flu season. The Canadian flu vaccine manufacturer,
ID Biomedical
(IDBE)
, also is seeking to enter the U.S. market.
But it is unclear if the GlaxoSmithKline and/or ID Biomedical flu vaccines will be approved for the 2005-06 season.
Shares of ID Biomedical were down $1.68, or 9.5%, to $15.93 and shares of MedImmune were off 37 cents, or 1.5%, $24.26. Shares of GlaxoSmithKline were up 5 cents to $49.27 and shares of Sanofi-Aventis were up 20 cents to $40.90.