Chiron Cuts Begrivac Supply Forecast

The company says some lots didn't meet product sterility specifications.
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Updated from 9:20 a.m. EDT

Chiron

(CHIR) - Get Report

cut the supply expectations for its Begrivac flu vaccine after an examination revealed that some of the doses failed to meet product sterility standards.

The company had expected to supply about 12 million doses of Begrivac to customers outside the U.S. for the upcoming flu season, but now that number has been reduced to around 4 million, and Chiron said it might delay shipments until early October. The vaccine is manufactured at Chiron's facility in Marburg, Germany.

Chiron shares were recently down $1.29, or 3.5%, to $35.98.

Friday's news comes a month after the Emeryville, Calif., company

lowered its forecast for Fluvirin production. The company currently expects to make 18 million to 26 million doses of Fluvirin vaccine for the 2005-06 flu season, with the vast majority of the supply going to the U.S.

"The comedy of errors continues," says Geoffrey Porges of Bernstein Research. "The news will continue to get worse before it gets better."

Chiron doesn't plan to record any sales of Begrivac in the third quarter but still expects to report earnings within the range of its updated financial guidance for the full year. Last month, the company predicted 2005 income from continuing operations of between $1.20 and $1.45 a share on an adjusted basis and 86 cents to $1.11 when calculated by generally accepted accounting principles.

While Chiron maintained its already lowered guidance for the year, Porges is skeptical about the company's ability to meet earnings expectations. His full-year estimate is $1.10 a share, vs. the consensus forecast of $1.31. He thinks there's a 25% chance Chiron can't supply the doses of Fluvirin the company expects.

At its Marburg plant, "Chiron has taken presumptive corrective action, and is working closely with the German regulatory agency, the Paul Ehrlich Institute (PEI), to complete additional testing in order to determine the full extent of the issue," the company said in a press release.

PEI is an independent adviser to the German government on the marketing approval and batch control of vaccines. Chiron says it won't release any Begrivac vaccine until tests are complete. The timing or the results of the additional tests, or any added manufacturing or regulatory developments, may prevent Chiron from supplying any of the vaccine doses outside the U.S. this flu season.

Separately, Chiron said the Food and Drug Administration is conducting a full current good manufacturing practices inspection of the company's Liverpool facility, which makes the Fluvirin vaccine. Following the on-site inspection, Chiron expects to respond to any observations noted by the FDA.

The company will discuss the outcome when this process has concluded and the FDA has issued formal results, which may be several weeks after the inspection has ended.

Russ Gilbertson, an analyst with Caris & Co., doesn't expect to hear an update on the FDA inspection during Chiron's earnings call slated for July 27. If Chiron can meet the top end of its production guidance in Liverpool, Gilbertson says, it may be able to reach its earnings projection. However, the analyst refrained from making his own estimate until after the earnings call. He expects a decision from the FDA in mid-August at the earliest.

Additionally, the company said it received an action letter from the FDA stating that its new drug application for Pulminiq is approvable, but that an added study is required to confirm the effectiveness of the product. Chiron is seeking approval for the drug to increase survival and prevent chronic rejection in lung transplant patients when used with standard immunosuppressive therapy.

Neither Bernstein nor Caris has an investment banking relationship with Chiron.