Chiron falls big after closing bell; Biogen, Elan gain; Cephalon up

By Ronda Fears

Nashville, Oct. 17 - Chiron Corp. late Monday said its U.S. influenza vaccine production, and its financial results, will fall short of expectations this year due to production delays at its British manufacturing plant. In reaction, the stock was off sharply in after-hours trade.

Emeryville, Calif.-based Chiron said it won't ship as many flu shots as it initially had hoped, which will cause it to miss its previous 2005 earnings forecast, because of production delays and decreased outputs at its Liverpool manufacturing plant. The same plant was knocked out of last year's flu season when British regulators prohibited it from shipping 50 million of its Fluvirin shots because of contamination concerns.

Chiron, which resumed deliveries of Fluvirin on Monday, did not immediately provide further details. In July, the company forecast 2005 earnings of 86 cents to $1.11 per share, or adjusted earnings of $1.20 to $1.45 per share from continuing operations.

The stock closed off by a nickel, or 0.12%, at $43.30 and in after-hours trading was seen as low as $42.69, a 1.41% drop. One buyside market source said there is still hope that Novartis AG, the majority holder of Chiron shares, will come back with a sweetened offer to buy the company.

"I am hoping that the impact [of the news] will be a new buyout offer from Novartis by the end of this week," he said, speculating that the new offer would be "probably in the mid to high $40s." Chiron has rejected a $40-per-share offer from Novartis, which has expressly stated that a union of the companies could help Chiron's flu shot troubles.

Tamiflu tugs vaccine alliances

With the threat of an avian flu pandemic, Gilead Sciences Inc. and Roche Holdings AG - partners in the flu vaccine Tamiflu - have gotten a lot of attention, and the Chiron news will likely boost interest in those two flu names, the aforementioned buysider continued.

But he also said there are many like himself who are not yet certain how to play the flu story, as Gilead and Roche are still at odds over the marketing of Tamiflu. Gilead developed the vaccine and out-licensed the marketing of it to Roche, but recently has demanded those rights be returned to it because Gilead feels Roche was not aggressive enough in marketing Tamiflu.

Now, with Tamiflu considered the front line defense against the avian flu, although there have been reports that it is not entirely effective against that strain of flu, the World Health Organization is in talks with Roche about boosting output of the vaccine. The Swiss firm has already announced plans to double production this year, and again in 2006, as governments worldwide are placing bulk orders for stockpiles.

Another complication, the buysider noted, is that on Sunday, Cipla Ltd., India's second-biggest drugmaker, said it plans to become the first company to sell a generic version of Tamiflu by the end of the year. Cipla said worldwide demand for Tamiflu, which was approved in the United States in 1999, have skyrocketed sevenfold in the eight weeks to Oct. 7 from a year earlier.

"There's not a clear-cut way to play this story," the buysider said, but added that Gilead is due to report third-quarter earnings after Tuesday's close so there may be some late-breaking news on the Tamiflu front.

Gilead shares closed Monday up 31 cents, or 0.65%, at $47.73.

Cephalon convertibles active, up

On a couple of positive reports about Cephalon Corp.'s attention deficit hyperactivity disorder drug Sparlon, formerly known as Attenace, Cephalon saw a good deal of action in its securities. The stock rose 45 cents, or 1%, to $45.31 and its convertibles - the 2% issue and the zero-coupon issue added 1 to 2 points on the day.

Cephalon expects an FDA action on its NDA for Sparlon on Oct. 20. Analysts believe that a nod in some form from the Food and Drug Administration is the most likely and expect the stock to spike in that scenario, especially as some investors are skeptical about the product.

Merrill Lynch analyst Gregory Gilbert noted in a report Monday that for some investors, safety is more an issue than efficacy. Some believe that a significant delay is possible because the FDA has become more conservative on safety matters in general, but he said Cephalon seems confident that safety will not be an issue.

Johnson & Johnson's willingness to co-promote the product "provides at least some additional credibility" to Sparlon's approvability, Gilbert said. Too, he noted that the ADHD market has been receptive to new therapies as the current market is dominated by stimulants like Adderall XR and Concerta.

Jefferies & Co. also had a piece out on Cephalon, after hosting a conference call Friday to discuss the ADHD market and emerging therapies with Dr. Judith A. Owens, associate professor of pediatrics at Brown Medical School and an expert in sleep disorders with extensive experience in the area of pediatric ADHD, as a guest.

Stimulants have been the cornerstone of ADHD treatment for over 50 years, and they are effective in 60% to 70% of the cases, stated Jefferies analyst David Windley in a report Monday. Thus, these stimulants are likely to remain the first-line therapy despite the commercial availability of several new drugs in the next couple of years. However, he noted that side-effects such as insomnia, appetite suppression, and mood and anxiety disorders make stimulants an unpleasant treatment option.

Cephalon's Attenace, the first in a series of four new development-stage ADHD therapies, has proved effective in clinical trials with low incidence of insomnia and appetite suppression, the report said. Jefferies expects four new drugs for treating ADHD are likely to be introduced over the next couple of years, including Sparlon. These address some of the major concerns with stimulants but will require an investment in physician and parent education for broad acceptance.

Biogen, Elan up on Tysabri news

Biogen Idec and Elan Corp. plc said jointly early Monday that an extensive safety review of patients who had taken their drug Tysabri showed no new cases of the deadly brain disease that earlier this year brought about the recall of the drug. Biogen shares rose 1.5% on the news while Elan shares in the United States gained 2.5%.

In a joint statement, the two companies said that a review of the medical records of patients who took Tysabri for the treatment of rheumatoid arthritis or Crohn's disease showed no new cases of the rare brain condition.

The brain condition arose in two multiple sclerosis patients using Tysabri in February, and Biogen and Elan pulled it from the market. A third patient, who had taken the drug for Crohn's, was also later identified as having been infected with PML. Two of the three PML patients have died. Later, the FDA issued a formal recall for the drug.

Biogen and Elan reported on Aug. 9 that a review of MS patients who took the drug also showed no new cases of the brain disease. As a result, in late September, the companies announced they had filed to have the drug re-approved by U.S. regulators for the treatment of MS.

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