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Chiron slashes profit outlook after vaccine license pulled

By PAUL ELIAS
The Associated Press

Howard Pien, chief executive officer of Chiron

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SAN FRANCISCO — Chiron cut its profit forecast by more than half yesterday after British health officials unexpectedly pulled the company's license, citing manufacturing problems. The snag, just as flu season was about to begin, underscores the risky nature of making vaccines.

The Emeryville, Calif.-based company was expected to deliver half the U.S. flu-vaccine stockpile this year, and analysts said the business makes up about 25 percent of Chiron's annual sales. Chiron's shares plunged more than 16 percent.

British health officials notified Chiron executives overnight yesterday that the company could not ship some 48 million flu shots from its Liverpool factory because of sterility concerns. Chiron said it has not shipped any of its Fluvirin vaccine and no recall was necessary.

Chiron cut its expected 2004 earnings from $1.50 to $1.60 a share to between 35 cents and 45 cents a share yesterday. Analysts estimated the missed flu season would cost Chiron $400 million in sales.

"This will absolutely hammer earnings," said Banc of America Securities analyst Mike King.

In August, the company said several million flu shots were tainted, but it only expected a slight delay in providing the United States with protection against this year's flu season. The British government's action yesterday caught company and U.S. health officials by surprise because they believed Chiron had remedied its manufacturing problem in time to ship vaccines this year.

In conference calls with analysts and reporters yesterday, Chiron Chief Executive Officer Howard Pien said "human error" apparently led to the tainted shots, but he declined to give more details. Food and Drug Administration officials headed to Britain yesterday to investigate.

Last year, Chiron reported profits of $1.19 a share. Its flu vaccine accounted for about $220 million of Chiron's $1.66 billion in sales in 2003, the first year Chiron made the vaccine dubbed Fluvirin. Chiron acquired the vaccine when it purchased PowderJect Pharmaceuticals for about $878 million last year.

Chiron has a small operation in Seattle with about 80 employees, including some who work on refining drug-manufacturing processes.
 
Flu-vaccine makers use millions of chicken eggs and require almost a full year to get shots from the lab and into Americans' arms. Anticipating which flu strains to protect against and how many doses to make is as much an art as a science. The flu-vaccine industry has consolidated in recent years, leaving only Chiron and the French-owned Aventis Pasteur as the two main U.S. suppliers.

Some drug companies and academic researchers are working to reduce the lead time and prepare more effective vaccines by incubating the virus in monkey cells rather than eggs — and by using genetic engineering to remove much of the guesswork of preventing a disease that kills an average of 36,000 Americans and hospitalizes 114,000 more a year.

U.S. health officials ordered 100 million flu shots to be produced this year and expected Chiron to supply about half the nation's flu vaccine.

Aventis supplies most of the rest. Aventis officials said earlier that federal officials had asked it to make additional vaccine but that it was at capacity and couldn't produce more until after November, when existing orders are filled.

The Centers for Disease Control and Prevention (CDC) is working with Aventis to alter its distribution plan so that shipments go to parts of the country that need them most for high-risk patients.

A third manufacturer, MedImmune, which makes FluMist, a new nasal-spray flu vaccine for use in healthy 5- to 49-year-olds, said it couldn't produce more than the 1.5 million doses it had planned to make for this year.

But those needing flu vaccines the most — babies and the elderly — can't take MedImmune's FluMist because it's made from a modified live virus.

A flu treatment called Tamiflu also can protect against infection if swallowed daily during an outbreak. Manufacturer Roche Pharmaceuticals said yesterday it would step up production in anticipation of greater demand this winter.

Last year's flu season had an unusually early and harsh start, which raised fears and caused demand for vaccines to outstrip supply for the first time.

Health officials expect a record number of people to request vaccinations this year because of the publicity generated by last year shortage. The CDC ordered 100 million doses to be made for this season, about 17 million does more than last year.

Chiron's shares tumbled $7.44, or more than 16 percent, to close at $37.98. MedImmune shares gained $1.41, or nearly 6 percent, to close at $25.78. U.S.-traded shares of Aventis parent Sanofi-Aventis rose 36 cents to $37.14.

Material from Seattle Times business reporter Luke Timmerman is included in this report.