Updated from 10:17 a.m. EDT

Chiron

(CHIR) - Get Report

served up another dose of disappointment to patients, public health officials and investors on Wednesday when it said it wouldn't provide as much vaccine for the upcoming U.S. flu season as it had originally planned.

Chiron's announcement, which included a cut in earnings-per-share guidance, knocked down the stock by $2.20, or 5%, to $35.75. The stock dropped as low as $34. In just two hours of trading, more than 3.9 million shares were exchanged. The average daily trade for the last three months is 1.24 million shares.

The Emeryville, Calif., biotechnology company said it expected to provide 18 million to 26 million doses of its Fluvirin vaccine, down from its

previous prediction of 25 million to 30 million doses.

That previous forecast already represented a markdown from the 48 million to 50 million doses that had been expected for the 2004-2005 season until Chiron announced that it would sell nothing. In early October, just as the U.S. flu season was about to begin, British health regulators suspended the license of a Chiron manufacturing plant that had supplied vaccine for the U.S. market. The license was suspended because of manufacturing problems and contamination of some products.

In early March, the British counterpart of the Food and Drug Administration said the plant could resume operations. But the vaccine won't be approved for sale in the U.S. until the FDA inspects the plant and its products. The FDA is supposed to visit the plant in July to see if problems it cited in December have been fixed.

"If Chiron fails to adequately address the matters ... the FDA may take further action that could reduce Chiron's ability to market Fluvirin vaccine," the company said. Chiron blamed its lower-than-expected vaccine estimates on "delays in start-up procedures for ramping up to full production and normal manufacturing issues inherent to the complexity of influenza vaccine production."

Chiron now expects 2005 income from continuing operations to be between $1.20 and $1.45 a share, excluding one-time events.

Chiron previously predicted a profit from continuing operations in a range of $1.40 to $1.50. The consensus estimate among analysts polled by Thomson First Call was $1.44.

Chiron reduced its EPS prediction on a GAAP basis to a range of 86 cents to $1.11, down from a previous estimate of $1.06 to $1.16.

"While it remains possible that we will reach our previously announced

vaccine dose range, the delays and other manufacturing issues have had an adverse impact on our ramp-up to full production, so we are updating our dose expectations and guidance range," said CEO Howard Pien in a prepared statement.

The company also hedged its bets against possible future setbacks. "The revised dose and EPS estimates assume that demand is sufficient to allow Chiron to sell Fluvirin vaccine through the end of November," it said. "The number of doses Chiron will produce will depend upon the success of its remediation efforts, upon encountering no further adverse manufacturing or regulatory developments, and upon the major factors that determine production."

Demand and supply can be unpredictable. Last year, for example, U.S. health officials had expected about 100 million flu vaccine doses to be available, but fewer than 60 million were sold after Chiron failed to provide its share. Most of the flu vaccine was provided by

Sanofi-Aventis

(SNY) - Get Report

, with smaller amounts from

MedImmune

(MEDI)

and

GlaxoSmithKline

(GSK) - Get Report

.

Analysts expect Sanofi-Aventis to provide 60 million flu shot doses for the upcoming U.S. flu season, and MedImmune is expected to offer 3 million doses of its nasal spray vaccine FluMist. GlaxoSmithKline provided just over 1 million doses on an emergency basis last year. This year, the company is seeking FDA approval to enter the U.S. market. Analysts expect GlaxoSmithKline to sell about 10 million doses of vaccine.

Another question for Chiron is whether its recent track record will provide much comfort to health agencies and physicians who buy flu vaccine -- or to investors and analysts. Chiron has few fans on Wall Street these days. Thomson First Call says six analysts have sell recommendations, 10 have hold ratings, and only three recommend buying the stock.

"Looking beyond next flu season, we note that increasing competition in the flu vaccine market is likely to depress Fluvirin demand and margins," says Mark Augustine of Credit Suisse First Boston, in a report to clients on Wednesday.

Although Chiron does more than make flu vaccine, it "has a thin

research and development pipeline with few upcoming catalysts," Augustine added as he reaffirmed his underperform rating. He doesn't own shares, but his firm has an investment-banking relationship.

A slightly more positive view -- or at least a neutral stock rating -- comes from Aaron Geist of Robert W. Baird & Co. "We anticipate Chiron's flu vaccine franchise has long-term potential as governments focus on protecting their citizens," Geist tells clients in a Wednesday research report. "We see the flu franchise growing 5% to 20% per year with increased profitability from higher prices and manufacturing efficiencies."

Geist says other lines of business, such as blood screening products, as well as R&D efforts toward infectious diseases, will give the company a balanced portfolio of products. He doesn't own shares, but his firm says it does, or seeks to do, business with companies mentioned in research reports.