U.S. Probe of Chiron Advances

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http://www.latimes.com/business/la-fi-chiron31dec31,1,4196551.story?coll=la-

headlines-business

December 31, 2004

CALIFORNIA

U.S. Probe of Chiron Advances

Investigators interview several employees of its suspended flu vaccine

business, a source says.

By Gellene, Times Staff Writer

The Justice Department has interviewed several mid-level employees of

Chiron Corp.'s flu vaccine operations, a knowledgeable source said

Thursday, a sign that the federal probe of the Emeryville, Calif., company

is moving ahead.

Investigators have talked in recent weeks with fewer than a dozen employees

of Chiron's vaccine business, which is based in Britain, but interviews

with other executives are planned, the source said.

Gaffney, a spokeswoman for the U.S. attorney's office in New York,

declined to comment. , the Washington attorney who represents

Chiron, couldn't be reached. Chiron has said in the past that it would

cooperate with investigators.

Chiron came under scrutiny in October after British regulators shut down

its factory in Liverpool, which had produced 50% of the flu vaccine slated

for the U.S. British authorities said they found numerous manufacturing

lapses and bacterial contamination.

The closure prevented Chiron from shipping its flu shots, and U.S. public

health authorities had to ration scarce vaccine.

Chiron said in mid-October that federal prosecutors in New York had

subpoenaed documents related to the company's Fluvirin flu vaccine and its

Liverpool factory.

Investigators are looking at, among other things, disclosures that Chiron

made before Oct. 5, when British authorities suspended the license of

Chiron's Liverpool plant. Experts say prosecutors could be seeking evidence

that Chiron lied to the government or to investors about its ability to

supply vaccine.

In the days before the suspension, Chiron offered no public hints that its

U.S. vaccine supply was in danger. Chiron Chief Executive Pien told

a congressional committee Sept. 28 that the company expected to ship

vaccine in a matter of days.

Chiron's shares have fallen 27% since the suspension was announced, an

action that caught U.S. public health authorities off-guard. Pien has

called the shutdown " completely unexpected. "

Lost flu vaccine sales have reduced Chiron's cash flow, and lingering

problems at the Liverpool plant could hurt next year's sales, according to

Moody's Investors Service, which recently lowered some of Chiron's debt

ratings. Chiron's problems leave it vulnerable to new competitors for the

flu vaccine market, Moody's said.

Besides the federal probe, the company faces several shareholder lawsuits

and an informal inquiry from the Securities and Exchange Commission. In

addition, the House Energy and Commerce Committee has requested that Chiron

produce documents on the factory contamination as it investigates whether

the vaccine shortage was preventable.

Chiron's shares closed Thursday at $33, up 5 cents on Nasdaq.

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