Wyeth

(WYE)

got a shot in the arm Tuesday on news it would stop making injectable flu vaccines. But some analysts think the move could yet come back to needle the big pharmaceutical maker.

Wyeth stock rose 4% Tuesday, in part because Wall Street took the decision as a vote of confidence for an experimental nasal flu vaccine dubbed FluMist, developed with biotech partner

Medimmune

(MEDI)

. With a key regulatory hearing coming up next month, observers say the shift shows Wyeth is confident it can have FluMist -- whose development has suffered numerous setbacks in the past -- on the market in time for next flu season.

Wall Street likes FluMist because the experimental drug stands to be far more lucrative for Wyeth than the widely used injectable vaccines. But in shutting down production of its injectable vaccines, Wyeth, some analysts think, risks raising the ire of health authorities who will view the move as boosting profits at the expense of public health.

"Last year we had a shortage of vaccine because of production issues. Now Wyeth appears to be creating an artificial supply issue for next year," says Mike King, biotech analyst at Banc of America Securities, who rates Medimmune market perform. "This is going to raise some eyebrows. I don't think it will go quietly."

Trying Harder?

Wyeth is the second-largest maker of injectable flu vaccines, responsible this year for more than one-third of the nation's supply, according to the

Food and Drug Administration

. But Tuesday the company said it was shutting production of its two vaccines, FluShield and Pnu-Imune, in order to focus future efforts on FluMist, which should be approved in the U.S. in the first half of next year and ready for the 2003-2004 flu season. Medimmune is Wyeth's partner in developing and marketing FluMist.

As the first nasal vaccine (literally, a squirt up the nose), FluMist is supposed to be a less painful and more convenient way to get immunized, according to the company. But FluMist will also carry a price tag double or triple that of conventional flu vaccines. This has led to questions about the product's sales potential: Will budget-minded insurance companies agree to reimburse for the extra cost of FluMist? And will there really be a heavy consumer demand for a pain-free flu vaccine?

Analyst forecasts vary widely, but it's clear the drug could have a substantial impact on the company's financial health. Wall Street projections for peak annual sales of FluMist generally range from around $300 million-$400 million to as much as $1 billion. Wyeth's 2001 revenue was $14.1 billion.

Forcing the Issue?

Now, with Wyeth now out of the injectable flu vaccine business, the picture gets more complicated. Health care professionals and consumers could be forced to use FluMist if a vaccine shortage crops up next year. Vaccine supplies are in abundance this year, but there was a serious supply shortfall in 2001.

"I think you can look at Wyeth's decision as an effort to force some conversion to FluMist," says Robert Hazlett, pharmaceutical analyst at SunTrust Robinson-Humphrey. "It's a solid business decision for Wyeth, but one with risks if the other vaccines makers step up their manufacturing to fill the void" and consumers don't take to FluMist in great numbers. Hazlett rates Wyeth neutral. He doesn't own the stock, and his firm has no banking relationship with the company.

Wyeth spokesman Doug Petkus says the company's decision to shutter production of FluShield and Pnu-Imune was made with the expectations that other injectable vaccine makers could, and would, take up any slack in supply. In fact, the company made its announcement regarding the 2003-2004 flu season this early so that other manufacturers would have sufficient time to prepare.

"The was a strategic business decision to gain access to internal resources so that we could focus on FluMist and other

proprietary products," says Petkus. "Injectable flu vaccines are readily available from other makers, but there are no other products like FluMist."

Plagued by Setbacks

Shares of Medimmune have taken a hit this year because of the long delays in getting FluMist to market. The company acquired the novel vaccine last year when it bought

Aviron

for $1.5 billion. Aviron tried and failed to get FluMist to market in 2001. Medimmune tried to get the vaccine approved in time for the current flu season, but again, it was unsuccessful. An FDA advisory panel is set to review FluMist on Dec. 17. Medimmune said last month that it doesn't expect a final FDA decision before March 2003.

But shares of Wyeth and Medimmune shares were stronger Wednesday, mainly because investors saw the Wyeth decision to ditch its old flu vaccine business as a strong vote of confidence for FluMist. Both companies also likely know just what sort of questions they will face at the Dec. 17 advisory panel meeting, since the FDA generally sends its briefing documents to companies one month before the meeting. (Those documents are only made public by the FDA 24 hours before the panel meeting begins.) Manufacturing and safety issues have dogged FluMist for a long time.

"I'm surmising that Wyeth saw something in the

FDA briefing documents that made them think positively about FluMist," says B of A's King, whose firm hasn't done banking for Medimmune. He still expects FluMist approval in the second quarter of 2003.