Updated from Oct. 5
opened the door to a significant public health crisis Tuesday, saying it won't distribute any flu vaccine during the current flu season after British authorities suspended its manufacturing license. As a result, the company withdrew 2004 earnings guidance, and its stock cratered in heavy trading.
The decision halves the amount of flu vaccine available to U.S. residents this winter. Flu shots are usually administered in October or November.
By midafternoon, the Centers for Disease Control and Prevention had yet to comment on the Chiron case, but the vaccine math indicates the country will have to ration its flu shots, with top priority going to the elderly, children and the seriously ill.
"Clearly, the loss of the Chiron flu vaccine poses a serious challenge to our vaccine supply for the upcoming flu season," the Department of Health and Human Services said in a prepared statement "The department has begun pursuing contingencies for this loss of supply."
As a result of the license suspension, Chiron slashed full-year 2004 earnings guidance to 35 cents to 45 cents a share from $1.50 to $1.60 a share.
Chiron currently expects pro forma and GAAP earnings per share to be negatively affected by a range of $1.10-$1.15 as a result of Tuesday's announcement. Chiron currently expects full-year 2004 pro forma earnings of between 70 cents and 80 cents per share (a range of 35 cents to 40 cents per share on a GAAP basis).
Shares fell another 48 cents, or 1.3%, to $37.50 in premarket trading Wednesday, after plunging more than 16% Tuesday. About 25 million shares changed hands, compared with the daily average of 1.6 million.
The response by bond and equity analysts was swift and severe. At least two investment banking firms cut their ratings on Chiron's stock, while other analysts revised their earnings predictions and stock price targets. Standard & Poor's said it placed Chiron on its CreditWatch with negative implications.
Public Health Consequences
In its statement, the Department of Health and Human Services said its "immediate focus" will be on making sure that existing supplies reach those who are most vulnerable. The Centers for Disease Control and Prevention is convening its Advisory Committee on Immunization Practices to prioritize its recommendations on who should get the flu vaccine for this season based on the new vaccine supply information.
The department also said it is "exploring whether more flu vaccine can be manufactured for this flu season, which means working with
. At this point, however, it is not known whether it's possible to get more vaccine," the government said.
The vaccine shortage also will provoke questions as to why so few companies -- there are only three flu vaccine makers -- provide such an important product. "This will require a considerable amount of deliberation" among public policy makers, Howard Pien, chief executive of Chiron, said at a Tuesday press conference.
Because it takes five months to develop, prepare and package flu vaccine, Pien said Tuesday that even an immediate resolution of the license suspension issue would be too late for the current flu season. "This manufacturing season is over," he said. "Three months from now, the U.S. flu season will be essentially over. This season is gone."
Chiron provides about half the vaccine used annually in the U.S. Health regulators had been expecting more than 100 million doses of flu vaccine to be available from three suppliers, including Aventis Pasteur, the vaccine producing division at
, the maker of the inhaled flu vaccine called FluMist. Aventis Pasteur is expected to provide about the same amount as Chiron had been supposed to provide; MedImmune will be a very small contributor to this year's flu season.
Last year, a total of 87 million flu vaccine doses were sold.
Aventis Pasteur recently said it would provide 52 million doses for the current U.S. flu season, 9 million more than it had provided last year. MedImmune probably will be able to provide at best 2 million doses, a production decision made long ago after its initial year of FluMist proved to be a financial failure.
The U.S. Department of Health and Human Services said Tuesday that it anticipates that Aventis Pasteur could provide approximately 54 million doses while MedImmune could provide 1 million to 2 million doses.
The financial fallout from Chiron's decision provoked some extreme comments among analysts. Mark E. Augustine of Credit Suisse First Boston called Chiron a broken stock as he downgraded the stock to underperform from neutral. The vaccine debacle plus "an unimpressive pipeline" makes Chiron unattractive, Augustine said in a research note to clients.
"We recommended Chiron in 2003 as our top 'flu vaccine idea' at a time when many pundits favored MedImmune," he wrote. "This season, we have not recommended either stock." (He doesn't own shares of Chiron; his firm has had an investment banking relationship with Chiron.) "Few stock catalysts lie ahead," he said.
UBS analyst David Molowa called the manufacturing suspension "the worst case scenario" for this year. He already has a reduce rating on the stock.
"If Chiron is able to fix manufacturing issues, this could be a one season issue," he told clients in a research note. "However, if regulatory authorities find larger issues, this may affect future influenza seasons." (He doesn't own shares; his firm has had an investment banking relationship with Chiron.)
S&P said it was putting $965 million of Chiron's debt under review. "The effect on 2004 financial measures will be dramatic, as flu vaccines contributed about 20% of 2003 sales and a higher proportion of earnings," said David Lugg, an S&P credit analyst.
Trail of Trouble
Distribution of Chiron's flu vaccine was blocked by Britain's Medicines and Healthcare Products Regulatory Agency, or MHRA, which barred Chiron from selling the drug for three months, citing manufacturing concerns that first came to light in August. The company said it has yet to release any of its vaccine, called Fluvirin, anywhere, meaning no recall will be necessary.
Just last week, Pien told a Senate committee that this year's vaccine would be safe and on time. "We expect that in the next few days we can make shipment plans," Pien told the Senate Committee on Aging Sept. 28, repeating a 48 million-dose target that the company had identified in August.
"However, MHRA has asserted that Chiron's manufacturing process does not comply with U.K. good manufacturing practices regulations and has suspended the company's Liverpool facility license to manufacture influenza vaccine for three months," Chiron said Tuesday. Chiron said it initiated discussions with the agency to map out corrective measures.
At a press conference Tuesday, Pien said his company had identified "the probable cause" as "human error" during a "relatively late step" in the manufacturing process. He didn't provide details, adding that the company and British regulators would discuss all of the suspected reasons leading to Chiron's license suspension.
"Our manufacturing and quality staff have worked hard to resolve what we viewed as a problem limited in scope to a few batches, and we believe our quality assurance confirmatory testing demonstrates that the Fluvirin doses we anticipated releasing are safe," said John Lambert, president of Chiron Vaccines. "While the MHRA's conclusions are unexpected, we respect the regulatory authority's judgment, we apologize unreservedly to the public and our customers for being unable to meet our commitments this year."
Pien added Tuesday that Chiron intends "to utilize every day of this season so we can be a reliable supplier for the next season."
On Aug. 26, Chiron announced that it had found problems with the production of its Fluvirin influenza virus vaccine and said the product's market release would be delayed until early October. A quality control program detected "a small number" of products that failed to meet sterility specifications, Chiron said.
"Assuming satisfactory results from ongoing release testing," the company said at that time, Chiron expected to deliver between 46 million and 48 million Fluvirin doses to the U.S. market beginning in October. That was down from its estimate in July, when Chiron said it was on schedule to deliver 50 million doses of Fluvirin to the U.S. market this season and that it had delivered its first 1 million doses to U.S. distributors.