Chiron Corporation (NASDAQ: CHIR) today reported financial results
for the year ended December 31, 2005. OVERVIEW -- Chiron's
FLUVIRIN(R) influenza virus vaccine returned to the U.S. market in
2005. The company sold approximately 13 million doses of the
vaccine to its customers in 2005. -- Total revenues for the year
ended December 31, 2005, increased 11 percent compared to the year
ended December 31, 2004. -- Chiron continues to build on the
company's promising pandemic influenza vaccine program. The company
announced preliminary data from a clinical study of an
investigational vaccine candidate, both with and without Chiron's
adjuvant MF59, against an H9N2 avian influenza strain, as well as a
contract to supply the U.S. government with candidate pre-pandemic
influenza vaccines for a stockpile to protect against an H5N1 avian
influenza virus strain. In the fourth quarter of 2005, Chiron also
advanced clinical studies in the United States and Europe of cell
culture-derived vaccine for seasonal influenza, which could also
prove beneficial in a pandemic. -- Completion of the Novartis AG
(Novartis) acquisition of Chiron, as announced on October 31, 2005,
is expected in the first half of 2006, subject to approval by
Chiron's stockholders and other customary closing conditions.
Chiron reported adjusted income from continuing operations of $259
million, or $1.34 per share, for the year ended December 31, 2005,
compared to adjusted income from continuing operations of $127
million, or $0.67 per share, for the year ended December 31, 2004.
Chiron reported GAAP income from continuing operations of $187
million, or $0.97 per share, for the year ended December 31, 2005,
compared to GAAP income from continuing operations of $54 million,
or $0.28 per share, for the year ended December 31, 2004. "We are
pleased with our achievements in the past year, particularly our
return to the U.S. influenza vaccine market and advancements in our
key programs such as pandemic influenza virus vaccines,
cell-culture derived influenza vaccines and tifacogin. Thanks to
the dedication and hard work of Chiron employees, we finished the
year a much stronger company," said Howard Pien, chief executive
officer of Chiron. The following factors had significant impact on
the annual comparison of financial results: return of FLUVIRIN
vaccine to the U.S. market in the fourth quarter of 2005; lost
contribution from sales of BEGRIVAC(R) influenza virus vaccine in
2005; and a decrease in the effective tax rate to 11 percent on an
adjusted and GAAP basis for the year ended December 31, 2005.
Foreign exchange rates resulted in an approximate $0.01 decrease in
adjusted earnings per share and an approximate $0.01 decrease in
GAAP earnings per share for the year ended December 31, 2005.
Chiron uses adjusted financial information to gain an understanding
of the company's operating performance on a comparative basis.
Adjusted amounts exclude special items relating to certain
acquisitions and impairment losses on acquired intangible assets,
which may not be indicative of the company's trends or potential
future performance. Please refer to the tables at the end of this
press release for more detail on these items and a reconciliation
of the adjusted financial information to GAAP financial
information; this information is also located at www.chiron.com in
the Investors section under Financial Reports. All references to
per-share amounts are per diluted share. -0- *T SELECTED FINANCIAL
RESULTS Selected financial results, on an adjusted and GAAP basis,
except where noted ($ millions) Year 2005 Year 2004 Change
----------------------------------------------------------------------
Net product sales $1,423 $1,268 12% Total revenues 1,921 1,723 11%
Cost of sales 726 676 7% Gross profit margin 49% 47% Research and
development 434 431 1% Selling, general and administrative 502 460
9% Income from continuing operations (adjusted) 259 127 104% Net
income (adjusted) 259 152 71% Income from continuing operations
(GAAP) 187 54 245% Net income (GAAP) 187 79 136%
----------------------------------------------------------------------
*T Net product sales for the year ended December 31, 2005,
increased 12 percent, or $155 million, compared to the year ended
December 31, 2004, primarily due to $96 million in sales of
FLUVIRIN vaccine in 2005, compared to $2 million in sales of
FLUVIRIN vaccine in 2004, which related to late sales from the
2003-2004 influenza season. In addition, net product sales
increased due to higher sales of travel vaccines, PROCLEIX(R) NAT
products, TOBI(R) tobramycin inhalation solution, meningococcal
vaccines, and BETASERON(R) interferon beta-1b. These increases were
partially offset by no sales of BEGRIVAC vaccine in 2005, compared
to $53 million of sales in 2004. Total revenues increased 11
percent, or $198 million, primarily due to the increase in net
product sales, and increases in both royalty and license fee
revenues and revenues from the joint business contractual
arrangement with Ortho-Clinical Diagnostics. Royalty and license
fee revenues increased, primarily due to various settlements in
2005, including a favorable settlement with Centocor relating to
certain patents, which resulted in the recognition of upfront
payments and royalties, and a settlement with the Scottish National
Blood Transfusion Service regarding certain Chiron hepatitis C
(HCV) and HIV patents. BETAFERON(R) interferon beta-1b royalties
increased primarily due to higher demand and price increases.
Royalties related to NAT blood screening received from F.
Hoffmann-La Roche Ltd. (Roche) increased due to higher applicable
royalty rates as certain countries entered the EU and an increase
in reported donations. Revenues from the joint business contractual
arrangement with Ortho-Clinical Diagnostics increased primarily due
to higher profitability realized by the joint business arrangement.
Gross profit margin increased to 49 percent primarily due to the
return of FLUVIRIN vaccine to the U.S. market in 2005. As
previously reported, in the year ended December 31, 2004, the
entire FLUVIRIN vaccine product inventory was written off,
resulting in a $91 million charge to cost of sales. The increase in
gross profit margin was partially offset by FLUVIRIN remediation
costs in 2005, no sales of BEGRIVAC influenza virus vaccine in 2005
due to a product sterility issue, and inventory write-offs in 2005.
Research and development expenses increased primarily due to the
cost of development efforts in Chiron's oncology and meningococcal
vaccine franchises, tifacogin, and cell culture-derived influenza
vaccine. This increase was partially offset by decreases from a
variety of research and development programs that were discontinued
prior to 2005. Selling, general and administrative expenses
increased due to a broad range of activities, including Novartis
transaction-related costs, the pre-launch program for CUBICIN(R)
daptomycin in Europe, higher employee-related costs, compliance
with the Sarbanes-Oxley Act and higher FLUVIRIN vaccine-related
legal costs. The effective tax rate was 11 percent on an adjusted
and GAAP basis for the year ended December 31, 2005, compared to 25
percent on an adjusted basis and 28 percent on a GAAP basis for the
year ended December 31, 2004. The decrease was primarily due to
lower profits in certain ex-U.S. locations and the transfer of
certain product rights in 2004. Chiron does not consider this tax
rate to be indicative of the company's effective tax rate going
forward. BLOOD TESTING Total Blood Testing revenues were $556
million for the year ended December 31, 2005, an increase of 12
percent compared to the year ended December 31, 2004. -0- *T
Selected Blood Testing Revenues ($ millions) Year 2005 Year 2004
Change
----------------------------------------------------------------------
Ortho-Clinical Diagnostics $31 $28 12% PROCLEIX(R) NAT products 273
250 9% ------------------------------- Blood Testing net product
sales 305 278 10% Revenues from joint business contractual
arrangement 137 118 16% Royalty and license fee revenues 106 89 19%
Total Blood Testing revenues (1) $556 $494 12%
----------------------------------------------------------------------
(1) Total Blood Testing revenues consist of net product sales from
Chiron's joint business contractual arrangement with Ortho-Clinical
Diagnostics and from Chiron's PROCLEIX NAT products, revenues from
Chiron's joint business contractual arrangement with Ortho-Clinical
Diagnostics, collaborative agreement revenues, royalty and license
fee revenues, and other revenues. Totals may not sum due to
rounding and the inclusion of only selected financial information.
*T -- PROCLEIX NAT products: The increase in sales was primarily
due to continued geographic expansion and the introduction of the
PROCLEIX(R) ULTRIO(R) Assay and PROCLEIX(R) TIGRIS(R) System into a
number of markets outside of the United States. -- Joint business
contractual arrangement with Ortho-Clinical Diagnostics: The
increase in revenues was primarily due to increased profitability
realized by the joint business. -- Royalty and license fee revenues
related to NAT blood screening: The increase was primarily due to
increased royalties from Roche due to an increase in applicable
royalty rates as certain countries entered the EU and an increase
in reported donations. In addition, royalties increased due to
various licensing agreements and settlements with entities such as
the Scottish National Blood Transfusion Service, the German Red
Cross, and LabCorp. Royalty and license fee revenues also increased
due to payments recognized in 2005 relating to the Blood Testing
share of a settlement entered into in 2004 with Roche regarding
Chiron's HIV patent in the United States for use in clinical
diagnostics and blood screening (the 2004 Roche settlement). This
was partially offset by recognition in 2004 of a lump-sum payment
and deferred amounts related to the 2004 Roche settlement. The
gross profit margin for Blood Testing products was 41 percent for
the year ended December 31, 2005, compared to 42 percent for the
year ended December 31, 2004. The decrease was primarily due to the
cost of additional PROCLEIX TIGRIS System support and service.
VACCINES Vaccines net product sales were $582 million for the year
ended December 31, 2005, an increase of 22 percent compared to the
year ended December 31, 2004. -0- *T Selected Vaccines Revenues ($
millions) Year 2005 Year 2004 Change
----------------------------------------------------------------------
Influenza vaccines $225 $153 47% Meningococcal vaccines 43 28 56%
Travel vaccines 148 97 52% Pediatric and other vaccines 166 201
(17%) ------------------------------- Vaccines net product sales
582 479 22% Total Vaccines revenues (1) $604 $510 18%
----------------------------------------------------------------------
(1) Total Vaccines revenues consist of net product sales,
collaborative agreement revenues, royalty and license fee revenues,
and other revenues. Totals may not sum due to rounding and the
inclusion of only selected financial information. *T -- Influenza
vaccines: The increase in influenza vaccines sales was due to the
return of FLUVIRIN vaccine to the U.S. market. Sales of FLUVIRIN
vaccine were $96 million in 2005, compared to $2 million in 2004,
which related to sales from the 2003-2004 influenza season. Sales
of other influenza vaccines were $129 million in 2005, a decrease
of 15 percent compared to 2004, primarily due to no sales of
BEGRIVAC vaccine in 2005, compared to $53 million of sales in 2004.
This decrease was partially offset by increased sales of other
influenza vaccines. -- Meningococcal vaccines: The increase in
meningococcal vaccines was primarily due to increased sales of
MENZB(TM) meningococcal B vaccine to the Ministry of Health in New
Zealand and an increase in tender sales of MENJUGATE(R)
meningococcal C vaccine. -- Travel vaccines: The increase in travel
vaccines sales was primarily due to an increase in sales of
ENCEPUR(R) tick-borne encephalitis vaccine and
RABAVERT(R)/RABIPUR(R) rabies vaccines. The increase in ENCEPUR
vaccine sales was due to overall market growth and marketing
initiatives that increased the company's market share. In addition,
ENCEPUR vaccine sales in 2004 were lower due to sales that took
place in the fourth quarter of 2003. Sales of RABAVERT/RABIPUR
rabies vaccines increased in 2005, primarily due to an increase in
demand driven by a product recall from another supplier, a price
increase, and an increase in tender sales in Europe and Asia. --
Pediatric and other vaccines: The decrease in pediatric and other
vaccines sales was primarily due to a decline in polio vaccine
sales and mumps, measles and rubella vaccine sales due to product
unavailability as a result of manufacturing upgrades. In addition,
certain other vaccine sales declined due to remediation efforts at
Chiron's Liverpool manufacturing facility, which resulted in an
interruption of production. These decreases were partially offset
by an increase in sales of diphtheria, pertussis and tetanus
vaccine concentrate. The gross profit margin for Vaccines products
was 32 percent for the year ended December 31, 2005, compared to 23
percent for the year ended December 31, 2004. The increase was
primarily due to the return of FLUVIRIN vaccine to the U.S. market
in 2005. As previously reported, in the year ended December 31,
2004, the entire FLUVIRIN vaccine product inventory was written
off, resulting in a $91 million charge to cost of sales. The
increase in gross profit margin was partially offset by FLUVIRIN
remediation costs, no sales of BEGRIVAC vaccine in 2005, inventory
write-offs, and decreased sales of pediatric vaccines.
BIOPHARMACEUTICALS BioPharmaceuticals net product sales were $536
million for the year ended December 31, 2005, an increase of 5
percent compared to the year ended December 31, 2004. -0- *T
Selected BioPharmaceuticals Revenues ($ millions) Year 2005 Year
2004 Change
----------------------------------------------------------------------
TOBI(R) tobramycin inhalation solution $233 $213 9% PROLEUKIN(R)
(aldesleukin) for injection 124 129 (5%) BETASERON(R) interferon
beta-1b 142 131 9% BioPharmaceuticals net product sales (1) 536 512
5% BETAFERON(R) interferon beta-1b royalties 60 52 16% Total
BioPharmaceuticals revenues (2) $629 $596 6%
----------------------------------------------------------------------
(1) Net product sales include sales from TOBI, PROLEUKIN, BETASERON
and other products. (2) Total BioPharmaceuticals revenues consist
of net product sales, collaborative agreement revenues, royalty and
license fee revenues, and other revenues. Totals may not sum due to
the inclusion of only selected financial information. *T -- TOBI:
The increase in TOBI product sales was primarily due to price
increases and increased patient demand in both the United States
and Europe, partially offset by wholesaler ordering patterns. --
PROLEUKIN: The decrease in PROLEUKIN product sales was primarily
due to decreased patient demand in the United States and Europe,
partially offset by price increases. -- BETASERON: The increase in
BETASERON product sales to Berlex Inc. (and its parent company
Schering AG) for marketing and resale was primarily due to price
increases and a shift from third-party to in-house production,
partially offset by a reduction in shipments to Berlex and
inventory ordering patterns. -- BETAFERON royalties: The increase
in BETAFERON royalties was due to an increase in demand and price,
partially offset by a shift from third-party to in-house
production. The gross profit margin for BioPharmaceuticals products
was 72 percent for the year ended December 31, 2005, consistent
with the year ended December 31, 2004. ROYALTY AND LICENSE FEE
REVENUES Total royalty and license fee revenues include royalties
and license fees attributed to the Blood Testing, Vaccines and
BioPharmaceuticals businesses. These revenues also include other
royalty and license fee revenues, which consist primarily of
royalties from Roche and Bayer HealthCare AG for clinical
diagnostic products. -0- *T Selected Royalty and License Fee
Revenues ($ millions) Year 2005 Year 2004 Change
----------------------------------------------------------------------
Blood Testing $106 $89 19% Vaccines 5 5 (1%) BioPharmaceuticals 73
72 2% Other 133 124 7% ------------------------------- Total
royalty and license fee revenues (1) $317 $290 9%
----------------------------------------------------------------------
(1) Totals may not sum due to rounding. *T -- Total royalty and
license fee revenues: In addition to the variances in Blood
Testing, Vaccines and BioPharmaceuticals royalty and license fee
revenues for 2005 compared to 2004 as explained above, other
royalty and license fee revenues increased. The increase was
primarily due to a 2005 settlement with Centocor relating to
certain patents, which resulted in the recognition of upfront
payments and royalties, and increased royalties from Roche due to
an increase in reported sales. The increase was partially offset by
recognition in 2004 of a lump-sum payment and deferred amounts
related to the 2004 Roche Settlement. FINANCIAL GUIDANCE The
company will not provide 2006 financial guidance at this time.
RECENT NOVARTIS-RELATED EVENTS -- On October 31, 2005, Chiron
announced that the company had entered into a definitive merger
agreement with Novartis under which Novartis would acquire all of
the shares of Chiron that it does not currently own for $45.00 per
Chiron share, or a total of approximately $5.1 billion, in cash.
The non-Novartis board of directors of Chiron determined that the
merger is fair and in the best interests of Chiron's stockholders
and unanimously recommend that the stockholders of Chiron adopt the
merger agreement. The company's proxy statement, which contains
detailed information about the merger, including the background and
reasons for the non-Novartis directors' recommendation, is expected
to be mailed to Chiron stockholders in the near future, subject to
completion of review by the U.S. Securities and Exchange
Commission. -- On December 6, 2005, Chiron announced that the U.S.
Federal Trade Commission approved early termination of the
antitrust waiting period under the Hart-Scott-Rodino Act for the
proposed acquisition of the company by Novartis. -- Under
provisions of the 1994 Subscription Agreement with Novartis, as
amended, on October 30, 2005, Chiron exercised its right to have
Novartis purchase newly issued shares of Chiron common stock. On
December 8, 2005, Chiron announced that the company sold 6,896,552
newly issued shares of its common stock at a price of $43.50 per
share to a subsidiary of Novartis, for $300 million in the
aggregate, following receipt of necessary regulatory approvals. --
On January 23, 2006, the Committee on Foreign Investments in the
United States (CFIUS) advised Chiron that it had concluded its
review of the proposed acquisition of Chiron by Novartis and
determined that there are no issues of national security sufficient
to warrant an investigation under the Defense Production Act.
RECENT PRODUCT AND PIPELINE-RELATED EVENTS Blood Testing -- The
U.S. Food and Drug Administration (FDA) approved the PROCLEIX(R)
West Nile Virus Assay for use on the PROCLEIX(R) System to screen
whole blood donations. The assay, which was developed in
collaboration with Gen-Probe Incorporated, has been used to screen
more than 29 million units of blood on an investigational-use-only
basis since June 2003 and has intercepted more than 1,500 West Nile
virus-positive donations. Vaccines -- Chiron initiated a Phase
1/Phase 2 study of an investigational cell culture-derived vaccine
for seasonal influenza in the United States. The company also
completed enrollment of a second Phase 3 study of investigational
cell culture-derived influenza vaccine in Europe. A first pivotal
Phase 3 study of cell culture-derived influenza vaccine in Europe,
conducted in 2004, met the safety and immunogenicity endpoints of
the study. -- Chiron won a contract to supply the U.S. government
with a candidate pre-pandemic influenza vaccine for a stockpile to
protect against an H5N1 avian influenza virus strain. Under the
agreement with the Department of Health and Human Services (HHS),
Chiron will provide a bulk stockpile of the candidate H5N1
influenza vaccine. The amount payable to Chiron under the agreement
depends upon the amount of bulk vaccine actually delivered, which
is subject to manufacturing factors such as yield, throughput and
total manufacturing time. -- Chiron announced preliminary promising
data from a clinical study of its investigational vaccine against
an H9N2 avian influenza strain. The trial was supported by the
National Institute of Allergy and Infectious Diseases (NIAID), part
of the U.S. National Institutes of Health (NIH). The study explored
the safety and immunogenicity of four different doses of the
investigational vaccine with and without Chiron's adjuvant MF59.
All vaccine formulations containing the adjuvant MF59 proved highly
immunogenic, inducing antibody levels believed to confer protection
against the influenza strain, including at the lowest antigen dose
tested, 3.75 micrograms. BioPharmaceuticals -- The European
Commission granted marketing approval for CUBICIN(R) (daptomycin)
in the 25 member states of the European Union, Iceland,
Liechtenstein and Norway. Under the approval, CUBICIN is a
first-in-class intravenous antibiotic indicated for the treatment
of complicated skin and soft-tissue infections (cSSTI) caused by
Gram-positive bacteria. -- An independent Data Monitoring Committee
(DMC) recommended the continuation of Chiron's CAPTIVATE study, an
ongoing Phase 3 clinical trial of tifacogin for the treatment of
patients with severe community-acquired pneumonia. The DMC made its
recommendation following a planned interim analysis of clinical
data from the study. The study data remains blinded to Chiron, and
a detailed analysis will not be available until the trial has been
completed. The committee identified no safety concerns, confirming
safety assessments conducted when patient enrollment reached 300
and 600. EARNINGS CONFERENCE CALL Chiron will hold a conference
call and webcast on Tuesday, January 31, 2006, at 4:45 p.m. EST to
review its 2005 results of operations and business highlights. In
addition, the company may address forward-looking questions
concerning business and financial matters and trends affecting the
company. To access either the live call or the one-year webcast
archive, please log on to www.chiron.com/webcast. Please connect to
the website at least 15 minutes prior to the conference call to
ensure adequate time to download any necessary software.
Alternatively, please call (800) 819-7026 from the United States or
Canada or (706) 643-7768 from other locations. Replay by phone is
available approximately two hours after the completion of the call
through 11:55 p.m. EST, Tuesday, February 7, 2006. To access the
replay, please call (800) 642-1687 from the United States or Canada
or (706) 645-9291 from other locations. The conference ID number is
4436756. ABOUT CHIRON Chiron delivers innovative and valuable
products to protect human health by advancing pioneering science
across the landscape of biotechnology. The company works to deliver
on the limitless promise of science and make a positive difference
in people's lives. For more information about Chiron, please visit
www.chiron.com. FINANCIAL INFORMATION 2005 financial information in
PDF format
http://www.chiron.com/investors/8701/chiron_financial.pdf 2005
financial information online
http://www.chiron.com/investors/finreports/index.html This news
release contains forward-looking statements, including statements
regarding product development initiatives, new product indications,
new product marketing, and clinical trials, that involve risks and
uncertainties and are subject to change. A discussion of the
company's operations and financial condition, including factors
that may affect its business and future prospects that could cause
actual results and developments to differ materially from those
expressed or implied by these forward-looking statements, is
contained in documents the company has filed with the SEC,
including the Form 10-K for the year ended December 31, 2004, and
the Form 10-Q for the quarter ended September 30, 2005, and will be
contained in all subsequent periodic filings made with the SEC.
These documents identify important factors that could cause the
company's actual performance to differ from current expectations,
including, among others, additional adverse developments resulting
from the previous suspension of Chiron's UK license to manufacture
FLUVIRIN(R) influenza virus vaccine, the announcement of such
suspension and the litigation and investigations relating to those
matters, the outcome of clinical trials, regulatory review and
approvals, manufacturing capabilities, competition, intellectual
property protections and defenses, litigation, stock-price and
interest-rate volatility, and marketing effectiveness. There can be
no assurance that Chiron will successfully develop and receive
approval to market new products or achieve market acceptance for
such new products. No assurance can be given that the transaction
contemplated by the merger agreement with Novartis AG will be
consummated. In addition, the company may engage in business
opportunities, the successful completion of which is subject to
certain risks, including approval by Novartis AG, stockholder and
regulatory approvals, and the integration of operations. Chiron
does not undertake an obligation to update the forward-looking
information the company is giving today. 2005 financial results
included in this press release are preliminary and quarterly
information is unaudited. NOTE: BEGRIVAC, ENCEPUR, FLUVIRIN,
MENJUGATE, MENZB, PROCLEIX, PROLEUKIN, RABAVERT, RABIPUR, TOBI and
ULTRIO are trademarks of Chiron. BETASERON and BETAFERON are
trademarks of Schering AG. TIGRIS is a trademark of Gen-Probe
Incorporated. CUBICIN is a trademark of Cubist Pharmaceuticals. -0-
*T CHIRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited) (In thousands, except per share data) Three
Months Ended December 31, --------------------------------------
2005 -------------------------------------- Adjusted (1)
Adjustments Actual ------------ ------------ ------------ Revenues:
Product sales, net $ 475,267 $ - $ 475,267 Revenues from joint
business arrangement 33,547 - 33,547 Collaborative agreement
revenues 1,955 - 1,955 Royalty and license fee revenues 89,697 -
89,697 Other revenues 15,173 - 15,173 ------------ ------------
------------ Total revenues 615,639 - 615,639 ------------
------------ ------------ Operating expenses: Cost of sales 215,116
- 215,116 Research and development 109,271 - 109,271 Selling,
general and administrative 125,777 - 125,777 Amortization expense -
(11,969) 11,969 Impairment loss on acquired intangible assets -
(1,136) 1,136 Other operating expenses 7,692 - 7,692 ------------
------------ ------------ Total operating expenses 457,856 (13,105)
470,961 ------------ ------------ ------------ Income (loss) from
operations 157,783 13,105 144,678 Loss on disposal of assets (319)
- (319) Interest expense (7,683) - (7,683) Interest and other
income, net 19,644 - 19,644 Minority interest (498) - (498)
------------ ------------ ------------ Income (loss) from
continuing operations before income taxes 168,927 13,105 155,822
Provision for (benefit of) income taxes 5,085 (6,552) 11,637
------------ ------------ ------------ Income (loss) from
continuing operations 163,842 19,657 144,185 ============
============ ============ Net income (loss) $ 163,842 $ 19,657 $
144,185 ============ ============ ============ Basic earnings
(loss) per share: Income (loss) from continuing operations $ 0.86 $
0.76 ============ ============ Net income (loss) $ 0.86 $ 0.76
============ ============ Diluted earnings (loss) per share: Income
(loss) from continuing operations $ 0.81 $ 0.71 ============
============ Net income (loss) $ 0.81 $ 0.71 ============
============ Shares used in calculating basic earnings (loss) per
share 190,679 190,679 ============ ============ Shares used in
calculating diluted earnings (loss) per share 205,008 205,008
============ ============ Three Months Ended December 31,
-------------------------------------- 2004
-------------------------------------- Adjusted (2) Adjustments
Actual ------------ ------------ ------------ Revenues: Product
sales, net $ 330,467 $ - $ 330,467 Revenues from joint business
arrangement 25,336 - 25,336 Collaborative agreement revenues 3,577
- 3,577 Royalty and license fee revenues 68,177 - 68,177 Other
revenues 6,838 - 6,838 ------------ ------------ ------------ Total
revenues 434,395 - 434,395 ------------ ------------ ------------
Operating expenses: Cost of sales 177,136 - 177,136 Research and
development 129,392 - 129,392 Selling, general and administrative
137,727 - 137,727 Amortization expense - (21,426) 21,426 Impairment
loss on acquired intangible assets - - - Other operating expenses
4,804 - 4,804 ------------ ------------ ------------ Total
operating expenses 449,059 (21,426) 470,485 ------------
------------ ------------ Income (loss) from operations (14,664)
21,426 (36,090) Loss on disposal of assets (2,092) - (2,092)
Interest expense (6,653) - (6,653) Interest and other income, net
14,390 - 14,390 Minority interest (385) - (385) ------------
------------ ------------ Income (loss) from continuing operations
before income taxes (9,404) 21,426 (30,830) Provision for (benefit
of) income taxes (2,351) 5,356 (7,707) ------------ ------------
------------ Income (loss) from continuing operations (7,053)
16,070 (23,123) ============ ============ ============ Net income
(loss) $ (7,053) $ 16,070 $ (23,123) ============ ============
============ Basic earnings (loss) per share: Income (loss) from
continuing operations $ (0.04) $ (0.12) ============ ============
Net income (loss) $ (0.04) $ (0.12) ============ ============
Diluted earnings (loss) per share: Income (loss) from continuing
operations $ (0.04) $ (0.12) ============ ============ Net income
(loss) $ (0.04) $ (0.12) ============ ============ Shares used in
calculating basic earnings (loss) per share 186,813 186,813
============ ============ Shares used in calculating diluted
earnings (loss) per share 186,813 186,813 ============ ============
(1) Adjusted amounts exclude (a) the amortization expense on
acquired intangible assets related to the acquisitions of
PathoGenesis, Chiron Behring, Pulmopharm and PowderJect
Pharmaceuticals and (b) an impairment loss of $1.1 million on
acquired intangible assets from our acquisition of PowderJect
Pharmaceuticals related to a contract manufacturing agreement. (2)
Adjusted amounts exclude the amortization expense on acquired
intangible assets related to the acquisitions of PathoGenesis,
Chiron Behring, Pulmopharm and PowderJect Pharmaceuticals. CHIRON
CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share data) Year Ended
December 31, -------------------------------------- 2005
-------------------------------------- Adjusted (3) Adjustments
Actual ------------ ------------ ------------ Revenues: Product
sales, net $ 1,423,180 $ - $ 1,423,180 Revenues from joint business
arrangement 136,701 - 136,701 Collaborative agreement revenues
13,084 - 13,084 Royalty and license fee revenues 317,006 - 317,006
Other revenues 31,394 - 31,394 ------------ ------------
------------ Total revenues 1,921,365 - 1,921,365 ------------
------------ ------------ Operating expenses: Cost of sales 726,121
- 726,121 Research and development 433,891 - 433,891 Selling,
general and administrative 501,579 - 501,579 Purchased in-process
research and development - - - Amortization expense - (66,206)
66,206 Impairment loss on acquired intangible assets - (15,658)
15,658 Other operating expenses 20,515 - 20,515 ------------
------------ ------------ Total operating expenses 1,682,106
(81,864) 1,763,970 ------------ ------------ ------------ Income
from operations 239,259 81,864 157,395 Loss on disposal of assets
(1,108) - (1,108) Interest expense (30,615) - (30,615) Interest and
other income, net 86,692 - 86,692 Minority interest (2,221) -
(2,221) ------------ ------------ ------------ Income from
continuing operations before income taxes 292,007 81,864 210,143
Provision for income taxes 32,710 9,170 23,540 ------------
------------ ------------ Income from continuing operations 259,297
72,694 186,603 ============ ============ ============ Gain from
discontinued operations, net of taxes - - - ------------
------------ ------------ Net income $ 259,297 $ 72,694 $ 186,603
============ ============ ============ Basic earnings per share:
Income from continuing operations $ 1.38 $ 0.99 ============
============ Net income $ 1.38 $ 0.99 ============ ============
Diluted earnings per share: Income from continuing operations $
1.34 $ 0.97 ============ ============ Net income $ 1.34 $ 0.97
============ ============ Shares used in calculating basic earnings
per share 188,448 188,448 ============ ============ Shares used in
calculating diluted earnings per share 199,280 198,704 ============
============ Year Ended December 31,
-------------------------------------- 2004
-------------------------------------- Adjusted (4) Adjustments
Actual ------------ ------------ ------------ Revenues: Product
sales, net $ 1,268,303 $ - $ 1,268,303 Revenues from joint business
arrangement 118,246 - 118,246 Collaborative agreement revenues
18,044 - 18,044 Royalty and license fee revenues 289,561 - 289,561
Other revenues 29,201 - 29,201 ------------ ------------
------------ Total revenues 1,723,355 - 1,723,355 ------------
------------ ------------ Operating expenses: Cost of sales 675,944
- 675,944 Research and development 431,128 - 431,128 Selling,
general and administrative 459,502 - 459,502 Purchased in-process
research and development - (9,629) 9,629 Amortization expense -
(84,503) 84,503 Impairment loss on acquired intangible assets - - -
Other operating expenses 12,844 - 12,844 ------------ ------------
------------ Total operating expenses 1,579,418 (94,132) 1,673,550
------------ ------------ ------------ Income from operations
143,937 94,132 49,805 Loss on disposal of assets (3,247) - (3,247)
Interest expense (26,093) - (26,093) Interest and other income, net
56,797 - 56,797 Minority interest (1,968) - (1,968) ------------
------------ ------------ Income from continuing operations before
income taxes 169,426 94,132 75,294 Provision for income taxes
42,357 21,126 21,231 ------------ ------------ ------------ Income
from continuing operations 127,069 73,006 54,063 ============
============ ============ Gain from discontinued operations, net of
taxes 24,854 - 24,854 ------------ ------------ ------------ Net
income $ 151,923 $ 73,006 $ 78,917 ============ ============
============ Basic earnings per share: Income from continuing
operations $ 0.68 $ 0.29 ============ ============ Net income $
0.81 $ 0.42 ============ ============ Diluted earnings per share:
Income from continuing operations $ 0.67 $ 0.28 ============
============ Net income $ 0.80 $ 0.41 ============ ============
Shares used in calculating basic earnings per share 187,545 187,545
============ ============ Shares used in calculating diluted
earnings per share 190,202 190,202 ============ ============ (3)
Adjusted amounts exclude (a) the amortization expense on acquired
intangible assets related to the acquisitions of PathoGenesis,
Chiron Behring, Pulmopharm and PowderJect Pharmaceuticals, (b) an
impairment loss of $14.5 million on acquired intangible assets from
our acquisition of PowderJect Pharmaceuticals related to a yellow
fever vaccine and (c) an impairment loss of $1.1 million on
acquired intangible assets from our acquisition of PowderJect
Pharmaceuticals related to a contract manufacturing agreement. (4)
Adjusted amounts exclude (a) the amortization expense on acquired
intangible assets related to the acquisitions of PathoGenesis,
Chiron Behring, Pulmopharm and PowderJect Pharmaceuticals and (b)
Purchased in-process research and development related to the Sagres
acquisition. CHIRON CORPORATION CONDENSED CONSOLIDATED BALANCE
SHEETS (Unaudited) (In thousands) December 31, December 31, 2005
2004 ------------- ------------- Assets
------------------------------------------- Current assets: Cash,
cash equivalents and short-term investments $ 680,128 $ 603,621
Accounts receivable, net of allowances 477,402 402,094 Inventories,
net of reserves 237,636 221,154 Other current assets 195,096
167,154 ------------- ------------- Total current assets 1,590,262
1,394,023 Non-current investments in marketable debt securities
728,663 409,421 Property, plant, equipment and leasehold
improvements, net 860,928 799,415 Other non-current assets
1,546,114 1,702,644 ------------- ------------- Total assets $
4,725,967 $ 4,305,503 ============= ============= Liabilities and
stockholders' equity -------------------------------------------
Current liabilities $ 516,714 $ 434,444 Long-term debt 939,233
936,652 Long-term portion of capital lease 156,661 156,952
Non-current unearned revenue 27,359 26,175 Other non-current
liabilities 84,829 140,226 Minority interest 10,904 9,350
Stockholders' equity 2,990,267 2,601,704 -------------
------------- Total liabilities and stockholders' equity $
4,725,967 $ 4,305,503 ============= ============= CHIRON
CORPORATION SUPPLEMENTAL SCHEDULE OF COMPUTATION OF EARNINGS (LOSS)
PER SHARE (Unaudited) (In thousands, except per share data) Three
Months Ended December 31, 2005 2004 -------------------
------------------- Adjusted Actual Adjusted Actual
------------------- ------------------- Computation for earnings
(loss) per share -- continuing operations Income (loss)
(Numerator): Income (loss) from continuing operations $163,842
$144,185 $ (7,053) $(23,123) Plus: Interest on 1.625% convertible
debentures, net of taxes 1,586 1,586 - - Plus: Interest on Liquid
Yield Option Notes, net of taxes 147 147 - - --------- ---------
--------- --------- Income (loss) from continuing operations, plus
impact from assumed conversions $165,575 $145,918 $ (7,053)
$(23,123) ======================================= Shares
(Denominator): Weighted-average common shares outstanding 190,679
190,679 186,813 186,813 Additional shares from exercise of right
under an agreement with Novartis (5) 3,448 3,448 - - Effect of
dilutive securities: Stock options and equivalents 3,001 3,001 - -
1.625% convertible debentures 7,306 7,306 - - Liquid Yield Option
Notes 574 574 - - --------- --------- --------- ---------
Weighted-average common shares outstanding, plus impact from
assumed conversions 205,008 205,008 186,813 186,813
======================================= Basic earnings (loss) per
share from continuing operations $ 0.86 $ 0.76 $ (0.04) $ (0.12)
========= ========= ========= ========= Diluted earnings (loss) per
share from continuing operations $ 0.81 $ 0.71 $ (0.04) $ (0.12)
========= ========= ========= ========= Computation for earnings
(loss) per share -- net income (loss) Income (loss) (Numerator):
Net income (loss) $163,842 $144,185 $ (7,053) $(23,123) Plus:
Interest on 1.625% convertible debentures, net of taxes 1,586 1,586
- - Plus: Interest on Liquid Yield Option Notes, net of taxes 147
147 - - --------- --------- --------- --------- Net income (loss),
plus impact from assumed conversions $165,575 $145,918 $ (7,053)
$(23,123) ======================================= Shares
(Denominator): Weighted-average common shares outstanding 190,679
190,679 186,813 186,813 Additional shares from exercise of right
under an agreement with Novartis (5) 3,448 3,448 - - Effect of
dilutive securities: Stock options and equivalents 3,001 3,001 - -
1.625% convertible debentures 7,306 7,306 - - Liquid Yield Option
Notes 574 574 - - --------- --------- --------- ---------
Weighted-average common shares outstanding, plus impact from
assumed conversions 205,008 205,008 186,813 186,813
======================================= Basic earnings (loss) per
share from net income $ 0.86 $ 0.76 $ (0.04) $ (0.12) =========
========= ========= ========= Diluted earnings (loss) per share
from net income $ 0.81 $ 0.71 $ (0.04) $ (0.12) ========= =========
========= ========= (5) On October 30, 2005 we exercised our right
under an agreement with Novartis (as successor to Ciba-Geigy),
dated as of November 20, 1994, as amended, to require Novartis or
its affiliate to purchase shares of our common stock for an
aggregate purchase price of $300.0 million at a per share purchase
price of $43.50. On December 8, 2005, we closed on a sale of $300.0
million in newly issued shares of our common stock at a price of
$43.50 per share to a subsidiary of Novartis. For purposes of
calculating diluted earnings per share, the issued shares of this
transaction are considered outstanding from October 30, 2005. As a
result, the calculation of diluted earnings per share for the
fourth quarter of 2005 included an additional 3.4 million shares.
CHIRON CORPORATION SUPPLEMENTAL SCHEDULE OF COMPUTATION OF EARNINGS
PER SHARE (Unaudited) (In thousands, except per share data) Year
Ended December 31, 2005 2004 -------------------
------------------- Adjusted Actual Adjusted Actual
------------------- ------------------- Computation for earnings
per share -- continuing operations Income (Numerator): Income from
continuing operations $259,297 $186,603 $127,069 $ 54,063 Plus:
Interest on 1.625% convertible debentures, net of taxes 6,357 6,357
- - Plus: Interest on Liquid Yield Option Notes, net of taxes 586 -
- - --------- --------- --------- --------- Income from continuing
operations, plus impact from assumed conversions $266,240 $192,960
$127,069 $ 54,063 ======================================= Shares
(Denominator): Weighted-average common shares outstanding 188,448
188,448 187,545 187,545 Additional shares from exercise of right
under an agreement with Novartis (6) 1,061 1,061 - - Effect of
dilutive securities: Stock options and equivalents 1,887 1,887
2,657 2,657 1.625% convertible debentures 7,308 7,308 - - Liquid
Yield Option Notes 576 - - - --------- --------- ---------
--------- Weighted-average common shares outstanding, plus impact
from assumed conversions 199,280 198,704 190,202 190,202
======================================= Basic earnings per share
from continuing operations $ 1.38 $ 0.99 $ 0.68 $ 0.29 =========
========= ========= ========= Diluted earnings per share from
continuing operations $ 1.34 $ 0.97 $ 0.67 $ 0.28 =========
========= ========= ========= Computation for earnings per share --
net income Income (Numerator): Net income $259,297 $186,603
$151,923 $ 78,917 Plus: Interest on 1.625% convertible debentures,
net of taxes 6,357 6,357 - - Plus: Interest on Liquid Yield Option
Notes, net of taxes 586 - - - --------- --------- ---------
--------- Net income, plus impact from assumed conversions $266,240
$192,960 $151,923 $ 78,917 =======================================
Shares (Denominator): Weighted-average common shares outstanding
188,448 188,448 187,545 187,545 Additional shares from exercise of
right under an agreement with Novartis (6) 1,061 1,061 - - Effect
of dilutive securities: Stock options and equivalents 1,887 1,887
2,657 2,657 1.625% convertible debentures 7,308 7,308 - - Liquid
Yield Option Notes 576 - - - --------- --------- ---------
--------- Weighted-average common shares outstanding, plus impact
from assumed conversions 199,280 198,704 190,202 190,202
======================================= Basic earnings per share
from net income $ 1.38 $ 0.99 $ 0.81 $ 0.42 ========= =========
========= ========= Diluted earnings per share from net income $
1.34 $ 0.97 $ 0.80 $ 0.41 ========= ========= ========= =========
(6) On October 30, 2005, we exercised our right under an agreement
with Novartis (as successor to Ciba-Geigy), dated as of November
20, 1994, as amended, to require Novartis or its affiliate to
purchase shares of our common stock for an aggregate purchase price
of $300.0 million at a per share purchase price of $43.50. On
December 8, 2005, we closed on a sale of $300.0 million in newly
issued shares of our common stock at a price of $43.50 per share to
a subsidiary of Novartis. For purposes of calculating diluted
earnings per share, the issued shares of this transaction are
considered outstanding from October 30, 2005. As a result, the
calculation of diluted earnings per share for the year included an
additional 1.1 million shares. CHIRON CORPORATION SUPPLEMENTAL
REVENUE SUMMARY (Unaudited) (In thousands, except percentages)
----------------------------------------------------------------------
Current Prior Change Quarter Quarter from Change Q4 2005 Q3 2005
Prior QTR %
----------------------------------------------------------------------
Product Sales Blood Testing Ortho $ 9,825 $ 7,023 $ 2,802 40% NAT
72,195 70,677 1,518 2% ---------------------------------------
Total Blood Testing 82,020 77,700 4,320 6% Vaccines Influenza
vaccines 161,955 60,321 101,634 168% Meningococcal vaccines 8,968
11,635 (2,667) (23)% Travel vaccines (TBE, Rabies, Arilvax and
Dukoral) 23,722 35,012 (11,290) (32)% Pediatric/Other vaccines
50,574 45,800 4,774 10% ---------------------------------------
Total Vaccines 245,219 152,768 92,451 61% Biopharmaceuticals
Proleukin 31,259 31,028 231 1% TOBI 65,199 57,890 7,309 13%
Betaseron (7) 40,545 36,927 3,618 10% Other 11,025 10,862 163 2%
--------------------------------------- Total Biopharmaceuticals
148,028 136,707 11,321 8% TOTAL PRODUCT SALES, NET $475,267
$367,175 $108,092 29% =======================================
Revenues from joint business arrangement $ 33,547 $ 36,093 $
(2,546) (7)% Collaborative agreement revenues 1,955 3,149 (1,194)
(38)% Royalty and license fee revenues 89,697 70,726 18,971 27%
Other revenues 15,173 2,470 12,703 514%
--------------------------------------- TOTAL REVENUES $615,639
$479,613 $136,026 28% ======================================= Gross
Margins Blood Testing 38% 42% (4)% Vaccines 48% 45% 3%
Biopharmaceuticals 76% 71% 5% ----------------------------- TOTAL
GROSS MARGINS 55% 54% 1% =============================
----------------------------------------------------------------------
(7) Excludes Betaferon Royalty $ 14,122 $ 13,413 $ 709 5%
----------------------------------------------------------------------
Change Prior from Year Prior Change Q4 2004 Year %
------------------------------------------------------------
Product Sales Blood Testing Ortho $ 7,904 $ 1,921 24% NAT 63,705
8,490 13% ----------------------------- Total Blood Testing 71,609
10,411 15% Vaccines Influenza vaccines 44,015 117,940 268%
Meningococcal vaccines 9,309 (341) (4)% Travel vaccines (TBE,
Rabies, Arilvax and Dukoral) 21,159 2,563 12% Pediatric/Other
vaccines 57,656 (7,082) (12)% ----------------------------- Total
Vaccines 132,139 113,080 86% Biopharmaceuticals Proleukin 30,713
546 2% TOBI 53,276 11,923 22% Betaseron (7) 33,639 6,906 21% Other
9,091 1,934 21% ----------------------------- Total
Biopharmaceuticals 126,719 21,309 17% TOTAL PRODUCT SALES, NET
$330,467 $144,800 44% ============================= Revenues from
joint business arrangement $ 25,336 $ 8,211 32% Collaborative
agreement revenues 3,577 (1,622) (45)% Royalty and license fee
revenues 68,177 21,520 32% Other revenues 6,838 8,335 122%
----------------------------- TOTAL REVENUES $434,395 $181,244 42%
============================= Gross Margins Blood Testing 40% (2)%
Vaccines 28% 20% Biopharmaceuticals 70% 6% -------------------
TOTAL GROSS MARGINS 46% 9% ===================
------------------------------------------------------------ (7)
Excludes Betaferon Royalty $ 12,798 $ 1,324 10%
------------------------------------------------------------ CHIRON
CORPORATION SUPPLEMENTAL YTD REVENUE SUMMARY (Unaudited) (In
thousands, except percentages) Year Ended December 31, Change from
Change 2005 2004 Prior Year %
----------------------------------------------------------------------
Product Sales Blood Testing Ortho $ 31,298 $ 27,844 $ 3,454 12% NAT
273,407 249,809 23,598 9%
----------------------------------------------- Total Blood Testing
304,705 277,653 27,052 10% Vaccines Influenza vaccines 225,355
153,413 71,942 47% Meningococcal vaccines 43,361 27,739 15,622 56%
Travel vaccines (TBE, Rabies, Arilvax and Dukoral) 147,507 96,864
50,643 52% Pediatric/Other vaccines 165,994 200,948 (34,954) (17)%
----------------------------------------------- Total Vaccines
582,217 478,964 103,253 22% Biopharmaceuticals Proleukin 123,549
129,377 (5,828) (5)% TOBI 232,624 212,876 19,748 9% Betaseron (8)
142,238 130,572 11,666 9% Other 37,847 38,861 (1,014) (3)%
----------------------------------------------- Total
Biopharmaceuticals 536,258 511,686 24,572 5% TOTAL PRODUCT SALES,
NET $1,423,180 $1,268,303 $ 154,877 12%
=============================================== Revenues from joint
business arrangement $ 136,701 $ 118,246 $ 18,455 16% Collaborative
agreement revenues 13,084 18,044 (4,960) (27)% Royalty and license
fee revenues 317,006 289,561 27,445 9% Other revenues 31,394 29,201
2,193 8% ----------------------------------------------- TOTAL
REVENUES $1,921,365 $1,723,355 $ 198,010 11%
=============================================== Gross Margins Blood
Testing 41% 42% (1)% Vaccines 32% 23% 9% Biopharmaceuticals 72% 72%
0% ----------------------------------- TOTAL GROSS MARGINS 49% 47%
2% ===================================
----------------------------------------------------------------------
(8) Excludes Betaferon Royalty $ 59,955 $ 51,564 $ 8,391 16%
----------------------------------------------------------------------
*T
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