As a two-day government-sponsored workshop on blood testing wrapped up yesterday in Washington,
was there, hoping to hear encouraging words that would assure Wall Street that its NAT blood-testing system would be approved by year-end, as the company has promised.
Whether Chiron got what it was looking for seems to depend on whom you ask.
At least two Wall Street analysts in attendance at the Food and Drug Administration-sponsored confab walked away believing approval of Chiron's NAT blood test would be delayed until next year. As a result, both analysts whacked some coin from their 2002 earnings estimates for the company.
They join a top blood-banking official who last week
that he also doesn't believe the FDA will get around to approving Chiron's blood test until next year.
But a Chiron spokesman, speaking after the workshop ended Wednesday, says the company is still hopeful that NAT, a supersensitive blood test for HIV and hepatitits C, also known by the brand name Procleix, will be approved by the end of the year. Yet another Wall Street analyst supports the company's bullish outlook, believing that the workshop, which focused on advances in blood testing, went very well for the company.
Investors, it seems, will remain caught in the middle of the debate until either the FDA issues a ruling or the clock strikes midnight on Dec. 31. Chiron shares were up $1.28, or almost 3%, to $44.78 in recent Thursday trading.
Robertson Stephens analyst Mike King believes investors will have put 2001 to rest long before Chiron gets its NAT test approved.
"After speaking with a number of individuals in the blood testing and regulatory worlds, we believe it is likely that FDA approval will be delayed by one or two quarters due to lingering quality-control issues," he writes in a research note.
King, who rates Chiron market perform, lowered his 2002 earnings estimates to $1.10 a share, from $1.13. This move is based on lower-than-expected blood-testing revenue of $91 million next year, down from his previous estimate of $117 million. The FDA actually allows Chiron to sell its NAT blood test to U.S. blood centers already, but because the test is unapproved, Chiron can sell it only at cost. (King's firm hasn't done underwriting for Chiron.)
Chiron expects to report 2002 earnings of between $1.10 and $1.20 a share, in line with consensus estimates of $1.16, according to Thomson Financial/First Call.
King says the FDA workshop highlighted nagging problems blood centers are having with the reliability of Chiron's NAT test. In about 5% of the tests, the results are indeterminate, King says, and this forces the blood centers to redo them at additional cost. In addition, Chiron still has some work to do making sure all blood centers use the test the same way, and to provide further evidence that the materials used in the test are designed within preset specifications.
UBS Warburg analyst Geoffrey Harris finds himself in the same camp. He believes Chiron's NAT test won't be approved until the middle of 2002 at the earliest. On Thursday he cut his 2002 earnings estimates for Chiron to $1.06 a share, from $1.14. Harris' revised Chiron earnings estimate is the lowest among those of all sell-side analysts.
"We re-examined our revenue model for Chiron and found that any delay in Procleix would pose substantial EPS downside risk for Chiron," Harris writes in a research note.
Harris also doesn't believe that the FDA will approve Procleix until it gets guidance from an advisory committee on blood products. The committee meets in December, but Chiron is not on the agenda. The next meeting doesn't take place until March.
If Procleix is delayed beyond the middle of next year -- a possibility, Harris contends -- the hit to Chiron's bottom line in 2002 could grow to between 12 cents a share and 17 cents. Harris rates Chiron hold, and his firm hasn't done underwriting for the company.
Chiron officials have so far refused to address publicly the possibility that approval for its NAT test will be delayed.
Deutsche Banc Alex Brown analyst Dennis Harp doesn't think they should. "We believe that the company remains on track to launch Procleix in the U.S. in
the first quarter 2002, and we are optimistic that approval could come by year-end 2001," he writes.
Harp believes that data discussed at this week's workshop indicated that the performance of Chiron's blood test has been excellent, and that the failure rate has improved significantly to the point that it's just as effective as current testing methods.
Harp reiterated his strong buy rating on Chiron and has a 2002 earnings estimate of $1.21 per share -- the highest such estimate among all sell-side analysts. His firm hasn't done underwriting for Chiron.