Piper: CHIR :Further Concerns For Fluvirin Franchise
2004-12-10 14:47 (New York)
Thomas Wei, Senior Research Analyst
(CHIR - $31.04)
Market Perform
Volatility: Low
Rating -- MarketPerform
Price Tgt -- $31.00
FY05E Rev -- $2,132.3
Price: $31.04
52 Week High: $57.29
52 Week Low: $29.00
Shares Out (mil): 191.0
Market Cap. (mil): $5,928.6
Avg Daily Vol (000): 2,625
Book Value/Share: $12.93
Cash Per Share: $5.31
Debt to Total Capital: 28%
KEY POINTS:
* FDA Warning Letter Likely Routine Procedure. Chiron announced this morning the receipt of a warning letter from the FDA in connection with the agency's October inspection. This warning letter is likely a routine follow up in response to the FDA's recent inspection and Chiron's November submission of its remediation
plan, and serves to document action by an agency under increased scrutiny for several recent failures. We note that the warning letter also asks Chiron for additional information about its manufacturing practices beyond what Chiron submitted in its remediation plan.
* MHRA Continuing License Suspension Also Routine. Chiron earlier this week also announced the continuing suspension of its manufacturing license by the Medicines and Healthcare Products Regulatory Agency (MHRA) for an additional 3 months beyond the original January 4 th deadline. As the MHRA spokesperson noted that the further suspension was routine and not due to new findings, we believe that this action was also undertaken as part of a formalized regulatory response. However, the MHRA can reinstate Chiron's license before April if/when Chiron's facility is in compliance with licensing requirements.
* Stock Overhang Likely To Continue Through August. We believe it is possible that Chiron will be allowed to begin the manufacturing process for Fluvirin by March, a timeframe which we believe is necessary to initiate flu vaccine production. However, initiation of vaccine manufacturing is not a guarantee that the regulatory agencies will allow Chiron to reenter the market for 2005-2006. We expect the MHRA and the FDA to continue close inspection of the plant throughout the manufacturing process.
* Concern Over Fluvirin Competition. GSK has indicated its intentions to enter the US flu vaccine market, indicating that it expects to produce 10-15 million doses for the 2005-2006 season. To this end, GSK has initiated a pivotal Phase III trial for its Flaurix flu vaccine, and will use this data for a BLA submission in 2005. However, entry into the market for the 2005-2006 season depends on accelerated FDA approval. In addition, IDBE could also become a player in the US market as early as next year if it too can get accelerated approval. IDBE has indicated it is ready to produce 10-15 million doses for 2005-2006 season and 20 million doses for 2006-2007 season. Furthermore, IDBE has secured distributor contracts for some 38 million doses of its injectable flu vaccine for the 2007-2014 seasons. Given GSK's and IDBE's 20-30 million dose supply, combined with Aventis' minimum 60 million dose capacity for next year, we have increased concerns that Chiron will be able to sell the majority of our 50 million dose estimate for next year. |
