SEC Investigates Chiron Over Flu Vaccine Supply Failure
Officials for California-based Chiron Wednesday announced that the Securities and Exchange Commission has begun an informal investigation into issues of disclosure related to problems at Chiron's influenza vaccine manufacturing plant in Liverpool, England, after British regulatory officials last week suspended for three months the Liverpool plant's license, the New York Times reports (Dash, New York Times, 10/14). Chiron, which produces half of the U.S. flu vaccine supply, last week informed U.S. health officials that it would not ship any flu vaccines this year from the plant. Britain's Medicines and Healthcare Products Regulatory Agency said it was suspending the company's license because of the factory's "issues with systems and processes," according to Chiron Chair and CEO Howard Pien. The plant manufactures Chiron's entire supply of flu vaccine for the United States.
Prior to the announcement, the United States expected to have 100 million doses of flu vaccine, up from 87 million last winter. Now, federal health officials expect to have about 56 million doses produced by Aventis Pasteur, the United States' only other standard flu vaccine supplier, and another one to two million doses of nasal flu vaccine spray manufactured by Maryland-based MedImmune.
Chiron's officials on Tuesday announced that the Department of Justice also is investigating Chiron's supply failure. In the DOJ subpoena, New York District Attorney Zachary Carter requested documents relating to Chiron's flu vaccine and British regulatory officials' suspension of the company's license. Chiron officials would not comment on details of the investigation but said that they were cooperating fully (California Healthline, 10/13).
Meanwhile, Florida Attorney General Charles Crist (R) Wednesday filed a lawsuit alleging that a Ft. Lauderdale-based ASAP Meds attempted to sell flu vaccine for as much as 10 times its value, the Wall Street Journal reports. The suit, filed in Broward County's 17th Judicial Circuit court, accuses the company of violating the state's Deceptive and Unfair Trade Practices Act by allegedly charging $900 for a 10-dose vial of the vaccine. According to the complaint, the typical price of a vial is $63 to $85. Crist said, "This behavior is totally unacceptable raw exploitation, While millions of Americans will be forced to do without vaccines this year, some businesses are attempting to take advantage of children, the elderly and the frail" (McKay/Lueck, Wall Street Journal, 10/13). He added, "That is unconscionable exploitation of citizens in need" (AP/Florida Times-Union, 10/13).
The suit comes one day after Kansas Attorney General Phill Kline sued supplier Meds-Stat, an entity doing business with ASAP Meds (Wall Street Journal, 10/14). The Kansas lawsuit is seeking an injunction preventing the company from selling pharmaceuticals and also seeks a monetary reward (California Healthline, 10/13). Meds-Stat offered supplies of flu vaccine as late as last Friday, according to a fax obtained by the Washington Post (Flaherty, Washington Post, 10/14). Meds-Stat attorney Ricardo Reyes said, "I've reviewed both actions and believe the attorneys general do not have the accurate facts. I am confident that when we put forth our case, we will prevail" (Wall Street Journal, 10/14).
Aventis Vice President Phil Hosbach issued a statement saying that "the company does not control prices charged by distributors to their customers. However, the company does monitor pricing in the marketplace, and consults with the proper authorities on its findings" (Washington Post, 10/14). CDC spokesperson Llelwyn Grant said that the agency is working with the National Association of Attorneys General to determine if state penalties can be applied (Smith, Boston Globe, 10/14).
According to the AP/Boston Herald, "Federal prosecutors could use a variety of fraud, conspiracy and other charges to pursue individuals or companies thought to be engaging in price gouging" (AP/Boston Herald, 10/14). The Contra Costa Times reports, "Price gouging is not considered a federal offense, although laws governing it vary from state to state" (Vrana/Gellene, Contra Costa Times, 10/14). Sixteen states have anti-price-gouging laws (Appleby, USA Today, 10/14).
Attorney General Bill Lockyer (D) on Wednesday announced that his office would take action against anyone offering flu vaccinations at substantially inflated prices, the Sacramento Bee reports (Griffith, Sacramento Bee, 10/14).
A survey published Wednesday by the American Society of Health-System Pharmacists found that 55% of 650 hospital pharmacists surveyed reported that they had been contacted by "opportunistic vendors" of the vaccine. Of those, about 80% reported being offered vaccine for more than four times the original market price (California Healthline, 10/13). According to the Contra Costa Times, the survey "gave credence to scattered reports of market exploitation" (Contra Costa Times, 10/14).
Some pharmacists said the situation "spotlights a drug shortage problem that extends beyond flu vaccine and mostly goes unrecognized by the public," according to the Newark Star-Ledger (Taylor Seeman, Newark Star-Ledger, 10/14). Kasey Thompson, director of patient safety at ASHSP, said, "We're not dealing with automobiles and typical consumer goods. We're dealing with a pharmaceutical that saves lives every year and deals with the most vulnerable individuals: the elderly and children" (Boston Globe, 10/14).
Aventis on Tuesday announced a plan to distribute in two stages 22.4 million unshipped doses of the flu vaccine to areas that serve high-risk patients and areas with the most severe vaccine shortages. About 14.2 million doses will be shipped in the next six to eight weeks to hospitals, long-term care facilities, elder-care facilities and private pediatric health care providers. Meanwhile, the remaining 8.2 million doses will not be shipped until it becomes clear which areas of the country have the most severe shortages, which is partly dependent on which areas are hit hardest by the shortage. About 4.5 million doses have been committed to a CDC stockpile (California Healthline, 10/13).
William Schaffner, chair of preventative medicine at Vanderbilt University, said, "The new distribution plan ... will minimize price-gouging because it will keep the vaccine out of that rather diffuse distribution system of professional distributors and sub-distributors" (Yee, AP/Hartford Courant, 10/14).
Following Chiron's announcement, a panel of experts convened by CDC issued new, temporary guidelines for flu vaccinations that say those most in need of vaccination should be inoculated first. Under the new recommendations, high-priority groups include all people ages 65 years and older; people between the ages of two and 65 who have chronic illnesses; pregnant women; nursing home residents; children taking aspirin; health care workers; those who have close physical contact with infants younger than six months; and infants ages six months to 23 months. CDC data show that an estimated 95 million adults and children -- nearly one-third of the United States' population -- fall into the high-risk category (California Healthline, 10/13).
SEC officials would not comment on the inquiry, but some analysts said the investigation would "almost certainly" concentrate on how quickly Chiron disclosed its regulatory issues to the public "and whether the British action came as a surprise," the Los Angeles Times reports (Peterson/Gellene, Los Angeles Times, 10/14). SEC regulators also are expected to focus on when Chiron executives were made aware of British health regulators' decision to halt production, according to some analysts (New York Times, 10/14).
Chiron on Aug. 26 announced that a small number of flu vaccine lots might have been contaminated with bacteria, which it said would delay the delivery of up to 48 million doses to the United States until early October. In its statement, the company said, "No assurances can be given that additional tests on Fluvirin will yield satisfactory results or that Chiron will be able to release Fluvirin this season."
Pien on Sept. 28 told a congressional panel that the company was on schedule to deliver the vaccine by early October. However, the company also said in a statement at that time that "no assurances can be given that additional sterility or delivery issues with respect to Fluvirin will not arise in the future." On Oct. 5, Chiron -- "in a sharp reversal" -- announced it that regulators had suspended the Liverpool license, ending all shipments, USA Today reports (Hopkins, USA Today, 10/14).
Harris Nesbitt analyst Thomas Shrader said, "I suspect the SEC has asked Chiron, 'How could you testify in front of Congress one week that the problem was solved and the next that it wasn't.'" However, Shrader said it was "entirely plausible" that British health regulators found new problems after they investigated the original contamination complaint that could have led to the suspension (New York Times, 10/14). Jacob Frenkel, a former SEC lawyer and former federal prosecutor, said, "Anything that materially affects the business of the company is subject to disclosure. A simple question is why was it not disclosed sooner by the company, recognizing its importance to investors." Frenkel also said SEC will investigate any unusual trading activity in Chiron stock before the announcement, including overseas trades. "If there was trading with knowledge of the (impending) announcement, that's the kind of case that nowadays has 'go directly to jail' on the game card," Frenkel said (Los Angeles Times, 10/14).
Robert W. Baird analyst Aaron Geist said Chiron shares "have eroded 30 percent" since production of the flu vaccine was suspended on Oct. 5. "People are starting to call into question whether management was aware of these problems and did enough to disclose them," Geist said (New York Times, 10/14). Geoffrey Porges, an analyst with Sanford Bernstein, said, "I think it is increasingly likely that there will be a change in management." He added that many people believe that Chiron "was at the least naive and overly optimistic, and at the worst, it failed to fully disclose" the extent of its regulatory problems (Los Angeles Times, 10/14).
In an SEC filing, the company said, "Chiron intends to fully cooperate with the SEC in its informal inquiry" (USA Today, 10/14). Company officials also said they would voluntarily provide regulators with "certain documents and materials" related to the vaccine and the license suspension.
FDA officials on Wednesday also said that the agency would continue its joint investigation with British health regulators into Chiron's practices. FDA on Sunday began examining Chiron's internal investigation into the contamination problem and manufacturing concerns. FDA officials also said British health regulators were partnering with the agency to inspect the Liverpool plant.
FDA Acting Commissioner Lester Crawford said, "This effort will help to successfully address any significant issues before production for 2005 begins" (New York Times, 10/14). Chiron officials have said production of the flu vaccine must begin by March for the company to begin delivering flu shots in September 2005 (Los Angeles Times, 10/14).
In a letter to FDA officials, the Senate Health, Education, Labor and Pension committee on Wednesday requested copies of all correspondence related to the flu vaccine sent between the agency and Chiron. The House Government Reform Committee also requested that FDA make available for interviews the employees responsible for inspecting the Chiron plant in Liverpool (New York Times, 10/14). Both committees asked FDA to deliver all correspondence, notes and reports since June 2003 relating to inspections of the Liverpool plant (Los Angeles Times, 10/14).
The House committee also requested a "time line" -- beginning Aug. 1 -- that details the steps taken to remedy the contamination problem (Russell, San Francisco Chronicle, 10/14). The committees said they would question FDA about reports that CDC and FDA officials knew as early as Sept. 13 that the MHPRA could refuse to license the Liverpool plant (Reuters/Boston Globe, 10/14).
In a letter to Crawford, Sen. Edward Kennedy (D-Mass.) wrote, "It is imperative that Congress and the American people learn the steps that the FDA took -- or failed to take -- to provide early warning problems in the manufacture of the vaccine." He added, "The American people deserve a full accounting of the FDA's actions" (New York Times, 10/14). Kennedy also wrote, "The bottom line is that FDA failed in its basic duty to assure an adequate and safe supply of lifesaving flu vaccines. FDA allowed the health of the American people to depend on the word of a pharmaceutical company instead of independent scientific judgment" (Los Angeles Times, 10/14).
House Government Reform Committee Chair Tom Davis (D-Va.) and ranking member Rep. Henry Waxman (D-Calif.) said in the committee's letter, "[R]ecent news reports raise questions about whether CDC and FDA officials had knowledge of the impending suspension of Chiron's license as early as Sept. 13" (Nesmith, Atlanta Journal-Constitution, 10/14). Waxman said, "it is troubling the FDA is now playing catch up. They were very reliant on Chiron" (Los Angeles Times, 10/14). He added, "This kind of cooperation should have been undertaken before the U.S. lost half of its vaccine supply" (San Francisco Chronicle, 10/14).
FDA and MHPRA in a joint declaration issued Wednesday denied reports that officials knew about the extent of the problem earlier (Reuters/Boston Globe, 10/14). Kent Woods, MHPRA chief executive said, "Contrary to some reported statements, MHPRA, as the responsible regulatory authority in the United Kingdom, made the decision to suspend Chiron's license after an internal meeting on Oct. 4 and first informed the company and the FDA of this decision on Oct. 5" (Los Angeles Times, 10/14).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.