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Fluvirin's Future Still Murky

Questions remain about just how much flu vaccine Chiron will get to the market this year.

As the flu season starts, it appears that


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will be slow in getting its vaccine to market.

How slow and how much product will be affected are still subjects of conjecture. The company is awaiting approval from the Food and Drug Administration to clear its Fluvirin vaccine, even as the agency has granted the go-ahead for three competitors to begin shipping some batches of their flu vaccines.

Manufacturing problems at its British plant caused Chiron to cancel its flu vaccine in the U.S. last year, and regulatory reviews have pushed back the deadline for Chiron's plans to sell a reduced amount of vaccine for the 2005-2006 season.

"Chiron is likely to make it back to the market this year, but it is likely to ship volume at the low end of their previous guidance range of 18 million to 26 million doses," says Geoffrey Porges of Sanford Bernstein in a Monday research report.

That range

represents a reduction from 25 million to 30 million doses that Chiron had predicted earlier this year and a big cut from the 48 million to 50 million doses that U.S. public health agencies had been expecting for the 2004-2005 flu season.

Porges interviewed distributors who told him that Chiron informed them it will provide only half the amount they had expected for October. Chiron also gave them the option to cancel their November shipments, he says. Porges says this "suggests a supply shortfall relative to Chiron's original expectations, rather than a contractual obligation or courtesy."

The analyst, who has a market-perform rating on the stock, expects distributors to ask for at least part of their November allotment, adding that Chiron's flu vaccine sales will depend on the severity of the season.

That's because most of Chiron's supply "will be available late in the season and subject to the most volatile demand," Porges says.

Waiting to Hear

Chiron has said little about its Fluvirin plans since it reported Aug. 31 that FDA inspectors had given its plant in Liverpool, England, a "generally acceptable" rating. The plant's

problems caused British health regulators to suspend its license last year. In March, Britain reinstated the license. Although the FDA gave the plant qualified clearance, the agency also said additional work was needed before Fluvirin could return to the market.

David V. Smith, Chiron's chief financial officer, told attendees at a UBS Securities conference last week that the company had made "tremendous strides" to produce its vaccine. He also said Fluvirin still faced a few hurdles in the regulatory process and that Chiron expects to produce a "meaningful supply" of vaccine for the current flu season.

The FDA hasn't approved any Chiron flu vaccine yet. The agency's latest survey, dated Sept. 21, shows that competitors have received clearance for some of their vaccines.

Porges, who doesn't own shares of Chiron, estimates that


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has received approval to sell about 20 million doses.


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, he says, can sell 4.5 million to 6 million doses, and



can sell 1.75 million doses of its product.

Thomas Wei of Piper Jaffray believes the FDA will clear Fluvirin soon. "As flu vaccine clinics open up around the country in October, we expect Chiron to provide an update on this final FDA sign-off in coming days to weeks," says Wei, who has a market perform rating on Chiron. He doesn't own its shares.

Supply Lines

Flu seasons are notoriously unpredictable. For example, the 2003-2004 season began early, was moderately severe and peaked in early to mid-December, according to the Centers for Disease Control and Prevention. The 2004-2005 season started mildly, and it peaked in mid-February.

For this season, the CDC expects Chiron to produce 18 million to 26 million doses, Sanofi-Aventis to provide as many as 60 million doses, GlaxoSmithKline to produce 8 million doses, and MedImmune to supply 3 million doses of its nasal spray vaccine FluMist.

Because of the uncertainty about the supply, the CDC recommends that healthy people wait until Oct. 24 to get their flu shots, enabling the most vulnerable to get their vaccine first. The agency says it set this date because flu-shot demand drops off quickly after November.

Under normal circumstances, the Fluvirin uncertainty might produce stock volatility, but analysts say a more important issue hanging over Chiron's shares is whether


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will improve its $40-a-share bid for the 58% of Chiron that it doesn't already own.

Chiron revealed Novartis' buyout bid on Sept. 1, then rejected the offer as inadequate. Because Novartis' announcement drove Chiron's share price above $40 -- the stock jumped to $42.93 from the previous day's closing of $36.44 -- some analysts figured Novartis would raise its offer.

Analysts don't agree on whether Novartis will raise its offer, even though investors are keeping Chiron's shares above $40. The stock closed Monday at $43.86.

Porges predicts that Novartis could raise its bid to $48 to $50 a share. However, Alex Hittle of A.G. Edwards says "a major sweetening" of the offer isn't likely. Hittle, who has a hold rating on Chiron, doesn't own the company's shares, and his firm doesn't have an investment-banking relationship.