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SEC Probes Disclosure at Chiron

Review may focus on timing of its announcement of its flu vaccine woes. The FDA also faces an inquiry.

October 14, 2004|Jonathan Peterson and Denise Gellene | Times Staff Writers

Chiron Corp., already facing a federal grand jury probe into its role in the flu vaccine shortage, said Wednesday that the Securities and Exchange Commission has begun an informal investigation.

In addition, two congressional committees have asked the Food and Drug Administration to provide information on how much the agency knew in advance about problems at Chiron's plant in England.

The suspension of Chiron's factory license in Liverpool by British regulators Oct. 5 eliminated almost half of the U.S.' anticipated supply of shots for the coming flu season. The Medicines and Healthcare Products Regulatory Agency, the British counterpart to the FDA, said Chiron had failed to follow good manufacturing practices and that some of the vaccine was contaminated with bacteria.

SEC officials would not describe the informal inquiry into Emeryville, Calif.-based Chiron, but others said it almost certainly would concentrate on the matter of how promptly the company disclosed its regulatory woes to the public and whether the British action came as a surprise.

The FDA has said that it relied on Chiron for information on the plant and that it had no idea that the facility was in danger of being shut down by authorities.

Chiron said Wednesday that it was cooperating with the SEC and had no further comment.

Chiron shares have plunged nearly 30% since Oct. 5, when the company announced that it could not deliver any of its expected 46 million to 48 million vaccine doses for the coming flu season.

"Anything that materially affects the business of the company is subject to disclosure," said Jacob S. Frenkel, a former SEC lawyer and former federal prosecutor. "A simple question is why was it not disclosed sooner by the company, recognizing its importance to investors."

The SEC also will look into any unusual trading activity in Chiron stock before the announcement, including overseas trades, Frenkel added. "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."

The probe came one day after the Justice Department opened a criminal investigation of Chiron, seeking documents similar to those requested by the SEC. Legal experts said the U.S. attorney's office in the Southern District of New York could be looking for evidence that Chiron lied to the government or to investors about its ability to supply vaccine.

On Wall Street, investors continued to dump Chiron stock, which fell $1.87, or 5.5%, to $31.87 on Nasdaq.

"I think it is increasingly likely that there will be a change in management," said Geoffrey Porges, an analyst with Sanford C. Bernstein & Co., adding that the belief in the financial community was that Chiron "was at the least naive and overly optimistic, and at the worst, it failed to fully disclose" the depth of its regulatory problems.

Growing recognition that millions of Americans will be affected by disruptions in the flu vaccine supply has created pressure on Capitol Hill.

The House Government Reform Committee asked the FDA to deliver by Wednesday all correspondence, notes and reports relating to inspections of the Liverpool plant since June 2003, when the agency first found contaminated vaccine. The Senate Health, Education, Labor and Pensions Committee asked for the same documents by Oct. 21.

"The bottom line is that FDA failed in its basic duty to assure an adequate and safe supply of lifesaving flu vaccines," Sen. Edward M. Kennedy (D-Mass.) said in a statement. "FDA allowed the health of the American people to depend on the word of a pharmaceutical company instead of independent scientific judgment."

The FDA said Wednesday that it was cooperating with the committees and had no further comment.

The question of when the FDA first knew that the vaccine supply was in jeopardy remains central to the congressional probes, and at least one news account suggested that British regulators told the FDA of a potential problem as early as Sept. 13. The FDA has disputed such accounts.

U.S. and British public health officials said in a joint statement Wednesday that the FDA first learned Oct. 5 that half of this nation's flu vaccine supply was lost.

Kent Woods, chief executive of the British regulatory agency said: "Contrary to some reported statements, MHRA, 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." British inspectors examined the Liverpool plant Sept. 29-30, Woods said.

Since Sunday, the FDA has been conducting its own inspection of the plant, accompanied by British regulators.

The FDA said the focus of its probe was to "evaluate Chiron's own internal investigation" as well as findings of contamination and the company's quality-control systems.

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