Chiron Ready to Fly

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Roll up your sleeves, and grit your teeth. Flu season is upon us, and the first batches of the vaccine are on the way. Pharmaceutical company Chiron (Nasdaq: CHIR) has said it will begin shipping the first 1.5 million doses of what will be a total supply of between 18 million to 26 million doses for the entire flu season.

Distributors like McKesson (NYSE: MCK) and Henry Schein (Nasdaq: HSIC) will be the recipients of Chiron's first three FDA-approved lots, who in turn will ship it on to doctors and health-care professionals for administration to the public. There will be as many as an estimated 97 million flu vaccine doses available this year, with Sanofi-Aventis (NYSE: SNY) providing the lion's share, followed by GlaxoSmithKline (NYSE: GSK) and MedImmune (Nasdaq: MEDI).

The Centers for Disease Control has taken to rationing the vaccine, as it did last year when Chiron discovered contamination at its Liverpool, England, facility and had its license to manufacture temporarily suspended by British and American authorities. It regained the privilege earlier this year and has set about bringing production on line to meet demand. Even so, it has yet to fully recover from the debacle that saw it lose some $300 million in sales and take a $91 million charge related to the inventory it needed to destroy. Its production capacity this year is about half of what it was at its peak.

Chiron's faltering steps presented Novartis (NYSE: NVS) with an opportunity to step in and make a $4.5 billion offer to buy the company. Chiron was selling at a discount to its previous highs, and Novartis' offer to acquire the remaining outstanding shares it doesn't already own, while not cheap, was less expensive than it might otherwise have been. Chiron's board has rejected Novartis' bid as unworthy, and Novartis has said it is prepared to walk away if the board is intractable in its demands. But there are few who expect the merger will not occur. Glaxo is moving strongly into the vaccine market, making an offer to purchase ID Biomedical. Novartis may need a similar arm to remain competitive.

Although flu vaccines represent a significant portion of Chiron's revenues, they're by no means its only source. Biopharmaceuticals and blood testing comprise two-thirds of the pharma's sales, and an avian flu vaccine has become a top national priority. Chiron's management met recently with President Bush and pharmaceutical executives to discuss the country's response to the avian flu threat. With Turkey confirming that the virus it found was indeed the H5N1 virus, Chiron's work to develop a vaccine becomes much more important. There is currently no cure for avian flu. And while it's not been scientifically proven that the virus spreads from human to human, phraseology like "pandemics" tend to raise mass hysteria. For now, prevention seems to be the name of the game.

Barring any jolts to the system like last year's shortage, getting your flu vaccine should be a relatively painless procedure this time out.

Take a shot at reading this related Foolishness:

• Is Chiron Worth It?
• A Shot of Reality for Chiron
• Will Flu Vaccine Catch Cold?
• Chiron's Tragic Quarter

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Motley Fool has an ironclad disclosure policy.