Sales Slide at Chiron

Update from 5:01 p.m. EDT

Chiron ( CHIR), the company that's been struggling to get sales of its flu vaccine back up and running, issued third-quarter financial results Tuesday that missed Wall Street's estimates by a wide margin.

Before items, the Emeryville, Calif., biotechnology company reported an adjusted profit of $72.9 million, or 38 cents a share, on sales of $479.6 million. Analysts polled by Thomson First Call were expecting a profit of 45 cents a share on revenue of $508.3 million.

For the same period last year, Chiron earned $52.1 million, or 27 cents a share, on revenue of $529.5 million. A comparison between the two periods is difficult because both quarters were filled with one-time items.

Calculated according to generally accepted accounting principles, Chiron's latest third-quarter profit was $51.3 million, or 27 cents a share.

Both the 2004 and 2005 quarters were affected by failures and delays involving flu vaccines. For the prior-year third quarter, Chiron took a $91 million charge for its failure to sell any Fluvirin vaccine in the U.S. The company's Liverpool, England, plant was cited by British health authorities for manufacturing problems. The license was suspended, and all the vaccine was deemed unusable by the Food and Drug Administration. The license was reinstated in March.

In the most recent quarter, Chiron didn't produced any Begrivac flu vaccine for foreign markets because of manufacturing problems at a plant in Germany. For the same period last year, Begrivac contributed $41 million in sales.

Chiron also has been delayed in getting regulatory approval for Fluvirin. The company recently started shipping some vaccine for the U.S. market, but it warned just days ago that it will produce less than the 18 million to 26 million doses that it had previously expected.

Chiron didn't provide any guidance last week on the number of doses it would make, even though it said the reduction would lower its financial forecast. The company wasn't ready to give a specific earnings outlook, either, but its last prediction was a range of $1.20 to $1.45 a share, excluding items.

Last week, the Wall Street EPS consensus was $1.22. Currently, it's $1.13, according to Thomson First Call.

On Tuesday, Chiron provided no additional guidance on the EPS and sales impact of Fluvirin. Howard Pien, the chief executive, would only say that Chiron would produce fewer than 18 million doses.

Repeating last week's comment that Chiron will provide more information "in the weeks ahead," Pien said he wants to be comfortable with the Liverpool plant's revised production process before he offers a specific figure.

He likened Chiron's review of production activities to breaking in a new Maserati. "You don't step on the gas too hard for the first 1,000 miles," he said. "We want a dose number to be the right number."

Pien expects Chiron will have shipped 5 million doses of Fluvirin by the end of this week. So far, the FDA has cleared 3.4 million doses, he said.

Sanofi-Aventis ( SNY) is due to produce 60 million doses for the U.S. flu season, while GlaxoSmithKline ( GSK) is slated to make 8 million doses. MedImmune ( MEDI) is expected to provide 3 million doses of its nasal spray vaccine.

Pien reiterated comments made last week that the Liverpool plant should have manufacturing capacity for 40 million Fluvirin doses for the 2006-07 season.

Chiron delivered its financial report after the markets had closed. In regular trading, the stock gained 14 cents to $44.09. After hours, shares fell $1.12, or 2.5%.

The stock continues to trade in a narrow range ever since Novartis ( NVS) made a $40-a-share bid in early September for the 58% of Chiron's shares that the Swiss drug giant doesn't own. Chiron's board rejected the offer as inadequate. The stock has traded in the low- to mid-$40s, prompting analysts to speculate that Novartis would raise its offer or, less likely, that another Big Pharma company might make a competing bid.

Most analysts have hold ratings on Chiron, reflecting the frustration over the Fluvirin saga and the company's resistance to a buyout offer. Noting that Novartis has a history of making conservative bids, even as it buys many companies, Alex Hittle of AG Edwards says it might be persuaded to pay $46 a share for Chiron. He doesn't own the company's shares.

Another possibility is that pieces of Chiron would be worth more than the whole, Hittle wrote in a research report before the latest earnings release. Hittle says the upper estimate of his breakup calculations suggest Chiron could fetch $43 a share, near its current trading price.

Hittle says it's hard to evaluate Chiron's potential to develop, for example, a vaccine for avian flu, when it has performed so poorly in making traditional flu shots. Additionally, Chiron's vaccines, blood-testing and pharmaceuticals divisions don't fit comfortably under the roof of a single company, Hittle says.

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