Novartis' first priority upon the completion of its acquisition of Chiron will be to resolve the flu vaccine maker's outstanding manufacturing issues, Novartis Head of Pharma Development Jörg Reinhardt said during an analyst call announcing the deal Oct. 31.

The Swiss drug maker said it plans to acquire the outstanding 57.8% stake in Chiron that it does not already own for roughly $5.1 bil., representing a sweetened offer over its bid for the Emeryville, Calif. company in August.

The acquisition provides Novartis with entry into the global vaccines market, a dynamically growing segment. Chiron is the fifth largest vaccines player with 2004 segment revenues of $510 mil. The company's total revenues in 2004 were $1.7 bil., according to Novartis.

"Our plan is to turn around the Chiron vaccines business, which will require investments in R&D and manufacturing to increase quality and capacity," Novartis stated.

Novartis plans to develop a global vaccines leader in Chiron, Reinhardt said. In the short term, Novartis will focus on assuring quality processes and procedures, and completing a new egg-based manufacturing facility at Chiron's Liverpool, U.K. production center.

Longer-term plans call for investing in cell-based flu vaccine manufacturing during a three to five year period, Reinhardt added.

Despite strong growth potential in the flu vaccines market, Chiron has struggled with its manufacturing. Earlier this year, the firm suspended delivery of the Begrivac influenza vaccine to non-U.S. markets due to sterility concerns at its Marburg, Germany facility.

The Begrivac production suspension came after production of Chiron's U.S. flu vaccine Fluvirin was halted last year due to good manufacturing practice deviations at its Liverpool facility. The company has since addressed GMP issues raised by FDA in a "Form 483." Chiron's sBLA for production of Fluvirin was approved Sept. 14.

Nonetheless, Chiron expects that less than 18 mil. doses of the vaccine will be manufactured for the 2005-2006 flu season. The firm had released 1.5 mil. doses of the vaccine as of Oct. 17, but expects production capacity of 40 mil. doses of Fluvirin for the 2006-2007 season.

The vaccine maker stands to benefit, however, from efforts to develop a national avian flu vaccine stockpile. The company announced Oct. 27 that it had signed a $62.5 mil. contract with HHS to provide an avian flu vaccine to the Strategic National Stockpile in 2006 (¹ [A#00670440019], p. 28).

President Bush announced a $7.1 bil. pandemic flu preparedness plan Nov. 1.

Novartis will create a new division for Chiron's blood testing and vaccine units to be headed by Reinhardt. The company will integrate Chiron's biopharmaceutical unit into its pharmaceutical division under Pharmaceuticals CEO Thomas Ebeling.

"We will run the vaccine and the diagnostic business separately as a division as we believe it is more important to have a very clear focus rather than a broad portfolio within pharmaceuticals," Novartis CEO Daniel Vasella said.

In addition to providing Novartis with its vaccines portfolio, the acquisition gives Novartis access to Chiron's blood testing and biopharmaceuticals units. Chiron's product portfolio includes the antibiotic TOBI (tobramycin solution), the oncologic Proleukin (aldesleukin), and the multiple sclerosis drug Betaseron (interferon beta-1b).

Novartis expects to achieve annual cost synergies of $200 mil. from the integration of Chiron within three years, the firm said.

Under the agreement, subject to shareholder and regulatory approval, Novartis would pay approximately $5.1 bil. in cash for Chiron's roughly 113 mil. outstanding shares. Novartis already owns a 42.2% stake in Chiron, stemming from a 1995 transaction.

The $45 per share bid represents a 23% premium over Chiron's Aug. 31 stock price, when Novartis made its original bid. Novartis had previously offered $40 per share - a 10% premium totaling $4.5 bil. That bid was rejected by Chiron's independent directors Sept. 5 as being "inadequate."

The deal marks the second high-profile acquisition of a vaccine manufacturer by a major pharma company this year. GlaxoSmithKline announced the acquisition of vaccine manufacturer ID Biomedical Sept. 7 (² Also see "GSK Vaccine Portfolio Gets A Shot In The Arm From ID Biomedical Buy" - Pink Sheet, 12 September, 2005., p. 22).

Novartis recently closed the mergers of Eon Labs and Hexal into its generics unit Sandoz (³ Also see "Novartis Seeks To Be Generics “Powerhouse” With Eon, Hexal Acquisitions" - Pink Sheet, 28 February, 2005., p. 21).

Novartis Catches Flu Fever: Second Bid Nets Chiron

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