Well, that didn't take long. Just days after announcing its first shipment of 1.5 million doses of Fluvirin flu vaccine, Chiron (NASDAQ:CHIR) lowered its estimate for the total number of doses it would be making this season. Instead of the heady 18 million to 26 million doses it had previously specified, the company declined to name a number, merely saying it wouldn't be quite so much.
Chiron blamed the reduction on the length of time it took to remediate its Liverpool (England) factory. Contamination discovered there last year limited the amount of vaccine it could produce in eggs. Back in April, Chiron said it could produce as many as 30 million doses; in June, it cut that number to 26 million. Shouldn't the company have known its true capacity before flu season began? In any case, Chiron's net income is expected to fall below the company's July low-end estimates of $0.86 a share.
In light of the setback, Novartis (NYSE:NVS) might refuse to increase the $4.5 billion bid it made for the biotech. When Chiron appeared to be ramping up successful production, its board of directors could easily reject that offer as "unworthy." Fumbling its flu vaccine for the second year running could weaken its bargaining position. Chiron did say that production capacity for next year's flu season would be about 40 million doses -- barring any further glitches.
Once again, Chiron's stumble presents an opportunity for its competitors. Sanofi-Aventis (NYSE:SNY), GlaxoSmithKline (NYSE:GSK), and MedImmune (NASDAQ:MEDI) are all expected to produce their own versions of a vaccine to fight influenza, a virus that surprisingly kills 36,000 Americans every year. Together, their vaccine supply should exceed 71 million doses, more than was available during last year's shortage. While they might not be able to further increase production, Chiron's shortfall could help them make inroads with distributors eager for a more reliable source of vaccine.
Both Henry Schein (NASDAQ:HSIC) and McKesson (NYSE:MCK) are distributors of Chiron's Fluvirin vaccines, and both took a hit last year when Chiron was forced to shut down production and destroy its existing flu vaccine inventory. They may have given Chiron a pass the first time it stumbled, but they might not be so forgiving now.
With its earnings release due next week, perhaps Chiron was simply preparing investors for a jolt that no vaccine can cure.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.
