Considering the debacle with the flu vaccine, Chiron's
On a pro forma basis, the company earned $0.26 a share, but that number includes a $78 million lump-sum payment from Hoffman-LaRoche for a patent lawsuit settlement and $32 million in deferred royalty and license fee payments. Those earnings were off 56% from last year's $0.60 results but were ahead of analyst expectations of $0.06 per share.
While some analysts think that Chiron now represents a value play, considering that its stock has taken a hit of more than 30% since problems with the vaccine supply first surfaced, investors may still be in for further spankings.
As expected, trial lawyers are circling like carrion birds, filing class-action lawsuits on shareholders' "behalf." Yet equally important is the damage wrought to Chiron's image and credibility, and it is still uncertain how deep the problems run with the manufacturing facility. It was initially believed only a few million doses of vaccine were contaminated before U.K. authorities shut down the plant, saying the entire inventory was hopelessly tainted. Nor is it certain whether the company will be back on line for the 2005 flu season, though hopes are that manufacturing can begin again early in the year. The full cost of the remediation plan remains a big unknown right now.
Other companies are taking the opportunity to profit from Chiron's mess. MedImmune
The U.S. is also involved in negotiations with other companies in Canada, France, and elsewhere in Europe in hopes of obtaining surplus supplies. Also, new technologies may soon appear as well. A number of companies are developing methods of creating a vaccine from cells rather than chicken eggs. Crucell
What this means is that Chiron's future is not certain. Assuredly, if management confronts this crisis in an up-front, timely fashion and is able to not only regain the wherewithal to begin production again but also convince distributors and investors that it was only a momentary problem not completely of its own making, then Chiron may once again regain its former luster.
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Management does indeed appear to be confronting it head-on. It acknowledges it is in for some tough times. And even after writing off the $91 million, it's still able to be comfortably profitable, admittedly with some help from settlements and deferred payments. The real test will be to see whether Chiron loses out to other manufacturers that step up to the plate to fill the company's void. For the immediate future, at any rate, my crystal ball is too cloudy to tell.
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Fool contributor Rich Duprey apparently used a cloudy crystal ball to predict the Yankees winning the World Series this year. He does not own any of the stocks mentioned in this article.