Metaphors of Chiron's
The vaccine maker's stock took ill on the news, tumbling 16% yesterday, while some competitors received a shot in the arm. Roche Pharmaceuticals is picking up production of its Tamiflu vaccine while MedImmune
As Alyce Lomax reported yesterday, investors had their first whiff of the problem in late August when California-based Chiron said it was halting production of 6-8 million doses of the vaccine after it detected contamination caused by human error and failed a sterility test. The Liverpool, England, manufacturing facility supplies 46-48 million doses of the flu vaccine -- half the U.S. supply -- while Aventis
British regulators did not seem to agree with Chiron's view that the problem was only with a specific lot of the vaccines. They believed there was a systemwide problem and revoked the company's license to manufacture the vaccine for three months. There is little prospect for a change of heart by the regulators, and Chiron said the doses already produced were slated to be destroyed.
That leaves the U.S. with a massive vaccine shortage on its hands. Influenza kills 36,000 people a year in this country and causes 200,000 people to be hospitalized. Some 10% to 20% of the population contracts the flu each year, and while health regulators can't be certain, they believe this year's strain will be similar to last year's, and it tends to cause more hospitalizations than most.
Other pharmaceuticals also got socked by the Chiron flu. Swiss drug maker Novartis
Rationing of the vaccine seems to be the way health officials here will handle the crisis. Newly revised guidelines have given priority to those most at risk: the elderly, pregnant women, nursing home residents, and health care workers. While flu shots are also recommended for infants, they receive special formulations not produced by Chiron.
Analysts are pondering the long-term effects on the pharmaceutical company. Management credibility has been brought low by this. Distributors seek reliable supplies and they may look elsewhere in the future. Still, it could be a relatively short-lived crisis that ought to have value investors closely following the stock. If management can respond in a forthright manner, resolve the problems, and resume production, this may in fact be an opportunity to scoop up a beleaguered stock at fire sale prices. It's strong medicine for an ailing company.
Fool contributor Rich Duprey has never gotten a flu shot or contracted the flu. He does not own any of the stocks mentioned in this article.