- The Washington Times - Wednesday, October 20, 2004

SAN FRANCISCO (AP) — Chiron Corp.’s aggressive plan to dominate the U.S. flu-vaccine market is in tatters and the company’s financial future is clouded as the public health crisis it caused continues to mount.

Earlier this month, British regulators barred the Emery-ville, Calif., company from shipping to the United States some 48 million flu shots called Fluvirin made in its Liverpool, England, factory because of contamination concerns.

Chiron’s failure cost the United States nearly half of its expected vaccine supply for the flu season, prompting health officials to ask healthy people to forgo shots this year.

Yesterday, Chiron said it wrote off its entire flu-vaccine inventory, costing the company $91 million in the third quarter.

Of larger concern, though, is the company’s ability to fix the production problems and restore its tarnished credibility with investors and regulators in time for next year’s flu season and beyond.



“Regardless if the problem is incompetence or deception, if Chiron can’t get Fluvirin going again, they will miss a very important engine driver,” said Jennifer Chao, an analyst with Deutsche Bank North America.

Chiron’s setback came a little more than a year after it purchased the British vaccine maker Powderject for $878 million and entered the flu-shot market.

After the acquisition, Chiron announced ambitious plans to increase production from 26 million shots made in 2002 to 50 million for this flu season.

The company vowed to spend $100 million to upgrade the Liverpool factory, and analysts were optimistic that the company would be able to cut production costs, raise prices and sell more vaccine as the U.S. government continued its campaign to inoculate nearly 200 million Americans.

Its flu vaccine accounted for about $220 million of Chiron’s $1.66 billion in sales in 2003. It expected more than $300 million in sales this year.

The company also hoped to capture a significant share of the flu-vaccine market to put it in a dominant position once it rolled out a new manufacturing process in the next several years. The new technology Chiron is developing would create vaccines in giant brewers’ vats, replacing the millions of chicken eggs that vaccine makers needed each year.

Chiron and Aventis Pasteur are the only two major suppliers of flu vaccine in the country — a duopoly Chiron and analysts had counted on to boost profits.

“They were positioning themselves nicely,” said Alexander Hittle, an analyst with A.G. Edwards & Sons. “That’s effectively blown up in their face.”

Chiron’s failure has become fodder in the presidential campaign and has prompted calls to reform the manufacturing process by encouraging more companies to make the flu vaccine

“This invokes a public-policy crisis,” Mr. Hittle said. “It invites competition.”

Yesterday, Chiron’s chief executive officer, Howard Pien, told analysts that the company would hire outside experts and consult closely with U.S. and British regulators in fixing the problems at the Liverpool plant.

Mr. Pien said he hoped the factory would be ready to meet demand for flu shots next year, but couldn’t make any guarantees.

Mr. Pien refused to take questions during the conference call, citing pending litigation concerns.

“The situation remains fluid,” Mr. Pien said.

Congress, a federal grand jury in New York and the Securities and Exchange Commission all have opened investigations. What’s more, shareholders have filed several lawsuits that accuse company executives of fraudulently withholding information about problems at the Liverpool factory.

Since Chiron announced on Oct. 5 that its flu vaccine wouldn’t be shipped, the company’s share price has fallen by more than 30 percent.

What’s more, Mr. Pien said the company might not make any more public statements about its vaccine woes until January, when the temporary suspension of it British manufacturing license is expected to expire.

Chiron reported yesterday that third-quarter earnings rose to $23.5 million, or 13 cents per share, from a loss of $19 million, or 10 cents per share, in the period last year. The loss last year was attributed to its purchase of Powderject.

Excluding special charges from the acquisition this year and last, Chiron said it would have earned $48.6 million, or 26 cents per share, a decline from $118.6 million, or 61 cents per share, from last year.

Chiron shares closed yesterday down 73 cents, or 2.3 percent, at $31.13 on the Nasdaq Stock Market. They gained 29 cents in after-hours trading.

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