Editor

Just as flu shot "clinics" started popping up in the Northern Hemisphere's grocery stores and pharmacies, Chiron Corp. - which last year embarrassed itself by botching half the U.S. supply of flu vaccine - took delivery of a new buyout proposal from Novartis AG, which upped the amount to $5.1 billion from the $4.5 billion previously offered.

Not bad. Even if some observers never took the first offer seriously, Novartis' persistence and second bid meant a much-needed endorsement of Chiron. "I wouldn't rule out other acquisitions," Jennifer Chao, analyst with Deutsche Bank Securities Inc., told BioWorld Financial Watch when Novartis' definitive agreement with Chiron was disclosed.

Sure enough, later in the week, Novartis made known that it would be looking for more firms to gobble. The company gave no specifics, but Novartis' Swiss neighbor Berna Biotech AG and Altana AG, of Bad Homburg, Germany, were among those mentioned in the ensuing buzz.

Meanwhile, Novartis appointed Joerg Reinhardt, currently global head of pharma development, as CEO of a new division that will combine Chiron's vaccines and diagnostics efforts.

Thanks to the avian flu threat, the season is proving lively for vaccines, as news of the Chiron deal came just more than a month after word about GlaxoSmithKline plc's plan to buy out ID Biomedical for $1.4 billion. GSK recently won approval for its flu vaccine, Fluarix, and IDB, of Vancouver, British Columbia, has another, Fluviral, already marketed in Canada and waiting for FDA clearance in the U.S.

GSK came away from the table with the more satisfying slice of pie, and IDB "could have gotten a better valuation if their runway had been a little longer," Chao said, citing not only the looming bird flu but also a dire shortage of manufacturing capability in general.

IDB has provided the Canadian public market with upwards of 75 percent of its flu vaccine, and the firm has started expanding the manufacturing site for Fluviral. For its part, GSK recently won FDA approval for Fluarix.

But, once again, Chiron took center stage last week. Novartis, which wants to pay $45 each for about 113 million Chiron shares that make up the 58 percent that Novartis does not already own, trumpeted its ideas for "unlocking Chiron's potential" and "creating a global vaccines platform." The pharma giant's buyout is approved by the boards of both companies and expected to close in the first half of next year.

Even before Novartis made its first offer, things were looking up somewhat for Chiron, which operates blood testing and biopharmaceutical units as well as the vaccines department. The FDA cleared the Liverpool, UK facility - where contamination trouble had caused the screw-up with last year's vaccine - to reopen, and the government put some of its chips on the company, granting a $62.5 million contract for pre-pandemic vaccine to be part of a stockpile against the H5N1 strain. (The French firm Sanofi Pasteur got a grant for avian-flu work valued at $100 million.)

President Bush's plan for dealing with a possible bird flu pandemic was revealed last week and gained mixed reaction from Capitol Hill. Among other things, Bush wants $7.1 billion appropriated, with $100 million going to state and local health departments for their own preparations. He also wants to force state governments to buy 31 million of the 81 million doses of antivirals intended for the national stockpile.

Avian flu broke out in Vietnam and Thailand last year, killing 30 people. Since then, it has been racing through the bird population and has stricken about 150 people worldwide, resulting in the deaths of about half that number.

As the skirmish in Washington goes on, troubles with vaccine sterility hardly have gone away for Chiron. The firm expects to provide 18 million to 26 million doses of Fluvirin to the U.S. for the approaching flu season but will not provide any Begrivac flu vaccine to the UK or Germany, resulting in a $15 million charge to write off the entire inventory because of what the company described as trouble with a small number of lots made in Marburg, Germany.

Companies, Chao pointed out, are almost "desperate to find more manufacturing capacity." Location could be important, too, at least to nervous Americans - all of whom have been urged by federal officials to get flu shots. Sanofi-Aventis Group owns the only vaccine plant in the U.S., with Chiron operating a site in Italy, as well as the UK and Germany. Novartis management has said in published reports that the firm might build a plant in the U.S.

"There's no reason for anyone to delay or to go without their annual flu shot," said Mike Leavitt, secretary of the Department of Health and Human Services, during a conference call in late October. Seasonal influenza kills about 36,000 people in the U.S. every year and results in about 200,000 annual hospitalizations.

The vaccine's efficacy ranges from 70 percent to 90 percent in healthy adults under 65 years old, according to the National Institute of Allergy and Infectious Diseases.

Another compound to benefit from the storm around flu vaccines is Tamiflu (oseltamivir) from Gilead Sciences Inc. and F. Hoffmann-La Roche Ltd., noted Andrew McDonald with ThinkEquity Partners LLC.

"The avian-flu [concern] has increased awareness of Tamiflu to where it's almost a household name," he told BioWorld Financial Watch. "They're not going to have to invest a whole lot in developing that market."

Said Chao: "The whole landscape is intensifying."