Shares of

Chiron

(CHIR) - Get Report

slipped Monday, the first trading day after the company said it wouldn't seek government approval to market a vaccine for a type of meningococcal disease, a potentially deadly infectious affliction.

Chiron said the decision was based on the "changing landscape for meningococcal vaccines" in the U.S. Although it had successfully completed a late-stage clinical trial for one type of the disease called meningococcal C, the company said "our resources are better deployed" by developing a broader-based vaccine that fights four types of the disease -- C, W, A and Y.

The company started a phase II clinical trial for infants this year, and it plans to initiate a phase III study next year. Phase III is the final stage of clinical trials before a company seeks approval from the Food and Drug Administration.

Shares of the company, which announced its vaccine decision after markets had closed on Friday, lost 11 cents, or 0.3%, to $31.84 on Monday.

The market reaction was mild compared to the response two months ago when Chiron announced that it wouldn't be making any flu vaccine for the U.S. this year due to manufacturing problems at a plant in England. Chiron had been expected to provide nearly half the U.S. flu vaccine.

Deciding against pursuing FDA approval for the meningococcal C vaccine, called Menjugate, "has no effect on our model," said Thomas Shrader, of Harris Nesbitt, in a Monday report to clients, as he maintained his neutral rating.

"For a meningococcal vaccine to be widely recommended and make a significant impact on earnings, two criteria need to be met," Shrader said. "It must be effective in everyone from infants to adults, and it must be effective in multiple meningococcal groups -- A, C, W and Y. Menjugate would meet neither of the above criteria."

Menjugate is approved in the United Kingdom and Canada for people two years of age and older. Shrader said he agreed with Chiron's decision because a narrowly focused meningococcal C vaccine "does not have the mass-market potential to justify further development."

Another reason why Chiron decided against pursuing its Menjugate application in the U.S. is that a competitor,

Sanofi-Aventis,

(SNY) - Get Report

already sells a meningococcal vaccine in the U.S. that covers the A, C, W and Y forms of the disease. Sanofi-Aventis also recently received a favorable vote from an FDA advisory committee for a longer-acting version of the vaccine.

On Sept. 22, the advisory panel unanimously recommended approval of Menactra, an experimental vaccine developed by the Aventis Pasteur vaccine unit of Sanofi-Aventis. (Aventis Pasteur is the only other maker of the injectable flu vaccine for the U.S.) Although the FDA isn't bound by its advisory panel recommendations, it usually follows their suggestions. This vaccine is designed for people aged 11 to 55. Sanofi-Aventis now sells Menomune, a vaccine that protects against the four meningococcal disease groups. Its effectiveness lasts three to five years.

Shrader said Sanofi-Aventis' decision to seek FDA approval for a vaccine treating people between the ages of 11 and 55 provides an opening for Chiron. "The market spoils will likely go to the vaccine producer who is able to obtain the broadest label, especially the vulnerable population of infants and young children," he said.

Chiron's phase III clinical test strategy for 2005 seeks to test many age groups "so that they can pursue the broadest label possible." However, Shrader, who calls Chiron a "basket case," added that prior to this year's flu vaccine manufacturing fiasco, "Chiron was viewed as a very high quality vaccine producer that routinely out-hustled and out-executed its Big Pharma vaccine competitors." (He doesn't own shares in Chiron; his firm is a market maker in the stock.)

Meningococcal disease is a rare bacterial infection that affects 2,500 to 3,000 Americans every year, causing meningitis or sepsis in the majority of cases, according to Sanofi-Aventis. The disease is fatal in approximately 10% of the patients. Of survivors, up to one in five suffer long-term permanent disabilities such as hearing loss and brain damage. The disease can progress very rapidly and kill an otherwise healthy young person in 48 hours or less.