EMERYVILLE, Calif. US | Jan 31, 2006 | Chiron Corporation (NASDAQ: CHIR) today reported financial results for the year endedDecember 31, 2005.

OVERVIEW

• Chiron's FLUVIRIN® 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® 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.

SELECTED FINANCIAL RESULTS

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® NAT products, TOBI® tobramycin inhalation solution, meningococcal vaccines, and BETASERON® 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® 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® 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.

• PROCLEIX NAT products: The increase in sales was primarily due to continued geographic expansion and the introduction of the PROCLEIX® ULTRIO® Assay and PROCLEIX® TIGRIS® 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.

• 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 MENZBT meningococcal B vaccine to the Ministry of Health in New Zealand and an increase in tender sales of MENJUGATE® meningococcal C vaccine.
  
  
• Travel vaccines: The increase in travel vaccines sales was primarily due to an increase in sales of ENCEPUR® tick-borne encephalitis vaccine and RABAVERT®/RABIPUR® 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.

• 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.

• 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® West Nile Virus Assay for use on the PROCLEIX® 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® (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

4Q05 Financial documents in PDF format >>

4Q05 financial documents online >>

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® 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. T here 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.

Contacts:
Chiron Corporate Communications &
Investor Relations
Media: (510) 923-6500
Investors: (510) 923-2300

SOURCE: Chiron Corporation