Washington Editor

Flu vaccine manufacturing missteps continue to weigh on Chiron Corp., which reported second-quarter earnings that were impacted by production problems.

The Emeryville, Calif.-based company said its adjusted income totaled $16 million, or 8 cents per share, a drop from $39 million, or 20 cents per share, for the corresponding year-ago period. The 8 cents per share was half the consensus estimate.

"The suspension of license in the Liverpool facility [where Fluvirin is made] and related remediation expenses, and the write-off of our Begrivac product inventory, had a 15-cent impact on the results for the quarter," explained David Smith, the company's chief financial officer, during a conference call. On a non-adjusted basis, Chiron's income totaled $49,000, less than 1 cent per share.

Underlying its net income was a revenue increase of 10 percent to $419 million, primarily due to increases in sales and royalty and license fees. Chiron posted an 8 percent increase in net product sales to $304 million, compared to last year's second quarter, a gain the company attributed primarily to increased sales of travel vaccines, meningococcal vaccines, Betaseron (interferon beta-1b), Procleix NAT products and TOBI tobramycin inhalation solution. Also, foreign exchange rates resulted in a 1 percent increase in total revenues.

Chiron also reported financial statements for its separate divisions. Its blood testing business revenues were $133 million, a 16 percent increase; net product sales for the vaccines unit totaled $97 million, up 12 percent; and net product sales for its biopharmaceuticals business were $132 million, a 4 percent gain.

But admittedly, those gains were offset by the drop in flu vaccine sales, which dragged down Chiron's financial results, as well as declines in pediatric and other vaccines, and Proleukin (aldesleukin) for injection.

The costs associated with remediation of Chiron's Fluvirin manufacturing facility in the UK resulted in an increase in idle facility costs of $14 million due to limited vaccine production last quarter and remediation costs of $8 million. Also, the company incurred Fluvirin-associated legal costs of $5 million, and Chiron expects all such costs to continue to impact its financial results in successive quarters this year. The problems arose last fall when contamination issues caused the company to abandon its delivery plans for about 50 million doses to the U.S. market. (See BioWorld Today, Oct. 6, 2004.)

Last week, the FDA completed its inspection of the Fluvirin facility, after which Chiron received a list of observations. The company expects to complete its response to these observations early next month, but in the conference call, CEO Howard Pien declined to characterize the inspection's results until the FDA delivers its final conclusion. Nevertheless, he added that he remains comfortable with plans to produce 18 million to 26 million doses for this year.

"We continue to progress in our Fluvirin remediation," Pien added, "and we are determined in our efforts to return to the U.S. flu vaccine market."

A setback for a European flu vaccine, Begrivac, also impacted the company's second-quarter results. Because of a product sterility issue, Chiron wrote off the entire inventory, resulting in a $15 million charge to cost of sales. The company will not supply any Begrivac this flu season, but will continue to work with German authorities to return to the market next year. (See BioWorld Today, July 21, 2005.)

Chiron ended the quarter with about $584 million in cash and short-term investments, as well as about 187.5 million shares outstanding.

Going forward, the company stuck with previously reported full-year income projections to range between $1.20 and $1.45 per share on an adjusted basis, and between 86 cents and $1.11 per share on a non-adjusted basis. Analysts have projected full-year earnings to total $1.26 per share. But Smith cautioned that such a forecast remains dependent on getting Fluvirin back into the U.S. market.

On Thursday, its shares (NASDAQ:CHIR) gained 41 cents to close at $36.49.