Vaccine Troubles Afflict Chiron

The company's results are short of estimates in the latest quarter.
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Chiron

(CHIR) - Get Report

posted its quarterly results as expected Wednesday, but at the same time the biotech company said the Food and Drug Administration has raised some questions after inspecting its U.K.-based flu vaccine plant.

The company expects to provide answers on the FDA matter "in early August." Fulfilling all the FDA's requirements is necessary for Chiron to begin shipping flu vaccine from this plant in Liverpool, England -- the same plant whose manufacturing problems last year forced Chiron to cancel all flu shot sales in the U.S.

U.K. health regulators, citing manufacturing and sterility problems, suspended the plant's license in early October, on the eve of the U.S. flu season.

British authorities reinstated the license in March, and Chiron began making flu shots again, but it needs FDA approval to sell the vaccine in the U.S. The company said Wednesday it "is not in the position to characterize the results of the inspection until the FDA delivers its final conclusion."

Chiron's flu shot comments were contained in the company's second-quarter financial report, in which adjusted earnings per share from continuing operations fell below Wall Street's consensus -- 8 cents vs. 16 cents, according to analysts surveyed by Thomson First Call. Second-quarter revenue of $418.8 million was just short of the consensus prediction of $419.9 million.

Using GAAP standards, Chiron earned $49,000, or less than 1 cent a share. For the same period last year, the company's GAAP profit was $23 million, or 12 cents a share, on revenue of $379.8 million.

Chiron reiterated that it continues to predict adjusted earnings per share from continuing operations in the range of $1.20 to $1.45 for the full year. The Thomson First Call estimate is $1.26.

Although Chiron makes more products than flu vaccine, this business has captured many of headlines linked to the company. And most of the recent headlines haven't been favorable.

The most immediate issue is the FDA inspection of the Liverpool plant that had been expected to produce 48 million to 50 million vials of vaccine for the previous U.S. flu season. Even if the FDA clears the plant,

Chiron has already cut its forecast for producing U.S. flu shots. Chiron expects to make 18 million to 26 million doses, most of which will go to the U.S.

Earlier this month, Chiron announced that manufacturing problems at a plant in Marburg, Germany, would force it to

drastically reduce its Begrivac flu vaccine for foreign markets, primarily Germany and the U.K.

A few days later, Chiron said it wouldn't produce any Begrivac vaccine at that plant for the current flu season.

Fixing up the Liverpool plant "had a material impact" on the results for the three months ended June 30, Chiron said. The company incurred extra "idle facility costs" plus additional remediation costs totaling $22 million, as well as $5 million in legal costs. Remediation and litigation related to the flu vaccine will "continue to impact financial results in successive quarters in 2005," the company said.

The Begrivac cancellation resulted in a $15 million charge to cost of sales for the quarter. Chiron said it is working with German health regulators and is hoping to resume vaccine production next year.

"While the loss of the Begrivac supply is a disappointment, we had a sound quarter with revenue up 10%," said Howard Pien, the chief executive, in a prepared statement. For example, blood testing revenue rose 16% to $133 million and biopharmaceuticals rose 4% to $132 million.

Chiron issued its financial results after markets had closed. In regular trading, shares of the Emeryville, Calif., company lost 33 cents to $36.08. In after-hours trading, the stock dropped another 6 cents.