After reporting a delay in shipments of its flu vaccine that will result in lower overall output, Chiron Corp.'s shares lost more than $4 Friday, a drop of about 8.6 percent.

News of the holdup, which the Emeryville, Calif.-based company blamed on a small number of Fluvirin lots that do not meet product sterility specifications, triggered Chiron to say its full-year pro-forma earnings guidance would come in at the low end of its previously forecast range of $1.80 to $1.90 per share. Its non-adjusted earnings are expected to range between $1.50 and $1.60 per share.

Chiron won't ship any Fluvirin doses before completing additional release tests, a process expected to delay shipments until early October. The company said its earnings forecast would hold true if it manages to release Fluvirin in that time frame.

"Frankly, this was very unexpected," Jennifer Chao, a research analyst with Deutsche Bank in New York, told BioWorld Today. "Chiron is the No. 5 flu vaccine player in the world, they are the No. 2 standard vaccine player in the U.S., and they have a very well known and well respected manufacturing operation for their vaccine business."

The company could not be reached for comment. On Friday, Chiron's stock (NASDAQ:CHIR) dropped $4.08 to close at $43.41.

This year's flu vaccine demand is expected to be relatively high, she added, though the full demand won't be known until the fourth quarter. Last month Chiron said it was on track to deliver about 50 million doses of Fluvirin to the U.S. market this season, an increase from earlier projections, and said it had delivered its first 1 million doses to U.S. distributors. The company won't hit its previously projected total now, although Chao added that the reduction in doses expected to enter the market is less meaningful than some secondary effects.

"No. 1, this could have been a very good season for Chiron to fully leverage its manufacturing capability and seize the opportunity to really become a contender for the market leader position in the flu vaccine market," she said. "Clearly, this is not going to happen this year, but I still think they're well positioned for next year. The good news is that what has happened on the manufacturing setback appears to be generally isolated to this year."

Chao noted that year-end expirations of pricing contracts inherited through last year's purchase of Powderject Pharmaceuticals plc would allow Chiron to increase prices next year, potentially raising Fluvirin's current per-dose price of about $5.50 to a range of between $6 and $6.80.

Nevertheless, her firm downgraded Chiron to a "hold" rating from "buy," given its present uncertainty.

Assuming satisfactory results from ongoing release testing, Chiron expects to deliver between 46 million and 48 million Fluvirin doses, beginning in October. Those figures exclude 2 million Fluvirin doses planned for late-season delivery to the Centers for Disease Control and Prevention in Atlanta as part of a national stockpile. There are fears that a severe flu pandemic could break out and possibly claim six times more lives than the regular flu. Chiron said its CDC stockpile plans remain on schedule.

"But they're not completely out of the woods yet," Chao cautioned. "Until we see the 46 million to 48 million doses fully distributed and deposited into the U.S. market in early October, there's going to be residual overhang and potential vulnerability on shares."

Competing flu vaccine maker Aventis Pasteur Inc. said it expects to supply more than 52 million doses of its Fluzone product to the U.S. market, which is 9 million more than last season. The company, a division of Sanofi-Aventis in Paris, said its customers began receiving shipments early this month and added that all would receive at least a partial shipment order by the end of next month. The balance would be completed as originally scheduled.

Aventis Pasteur added that due to Chiron's delays, it would work with the CDC to manage its own remaining supply once existing customer commitments are fulfilled. Aventis Pasteur, which plans to establish a waiting list of providers who request new or additional vaccine shipments, also is contemplating plans to increase production.

The delivery glitch also is having a ripple effect on Fluvirin distributors PSS World Medical Inc. in Jacksonville, Fla., and Henry Schein Inc. in Melville, N.Y., which both acknowledged the delays but maintained their prior earnings projections. Chiron said vaccine doses already held at distributors remain subject to the same release criteria as those still held at Chiron's manufacturing facility in Liverpool, UK. Those already in the distribution channel also are expected to be released in October.

Flu vaccines that initially enter the market in September and October are targeted at high-risk patients. Chiron's vaccine division, which is headquartered in Oxford, UK, also has meningitis, pediatric and travel vaccine franchises.

"We're seeing a level of vulnerability that we've not seen in the past with Chiron," Chao said. "I would say that there is a material psychological setback, but I think it's going to be overcome as they execute going forward on the Fluvirin distribution. But the market has to now absorb that."

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