Chiron Corp. reported full-year and fourth-quarter earnings growth in line with consensus estimates, driven in large measure by its mid-year acquisition of a major vaccine maker.
The Emeryville, Calif.-based company recorded pro-forma income of $297 million for the year ended Dec. 31, with fourth-quarter pro-forma income totaling $56 million. A year ago, Chiron's pro-forma earnings totaled $248 million for the full year and $63 million in the quarter. On a per-share basis, the company's 2003 pro-forma EPS was $1.54, up from $1.29 a year earlier. Chiron's fourth-quarter pro-forma EPS totaled 29 cents per share, equal to estimates on The Street, but lower than last year's fourth-quarter EPS of 33 cents.
On a GAAP (generally accepted accounting principles) basis, Chiron's 2003 income reached $220 million, or $1.15 per share, compared to $181 million, or 94 cents per share, a year ago. Chiron's fourth-quarter GAAP income was $118 million, or 59 cents per share, compared to income of $67 million and 35 cents per share a year earlier.
The full-year figures were supported by total revenues of $1.8 billion, up from $1.3 billion in 2002, though Chiron said foreign exchange rates resulted in an 8 percent increase in total revenues. Net product sales were $1.3 billion, compared to $914 million a year ago.
The increase in revenue didn't go unnoticed by observers.
"Revenues were way up, but they took all kinds of enormous charges as well," Thomas Shrader, an analyst with Harris Nesbitt Gerard in New York, told BioWorld Today. "A lot of them are one-time, related to the acquisition and R&D - everything under the sun. All kinds of things are going well at Chiron in the base business, but I think they are very much trying to increase the therapeutic pipeline, and that's expensive."
The company, which reported about 200 million diluted shares outstanding and $538.5 million in cash and short-term investments at the end of 2003, recorded about $480 million in pro-forma total operating expenses during the fourth quarter. A year earlier, fourth-quarter operating expenses totaled about $271 million. Full-year pro-forma operating expenses reached about $1.4 billion, up from about $968 million a year earlier.
Shrader pointed to current and upcoming highlights from Chiron's vaccine and blood testing divisions, both of which he believes will contribute to expanded research and development in its biopharmaceuticals division, which he labeled the company's weakest area.
The vaccine division generated net product sales of $678 million for the year, well ahead of the $357 million produced a year ago. Total revenues from PowderJect Pharmaceuticals plc, which Chiron acquired during the third quarter, were $245 million, a figure supported by $243 million in product sales. Chiron paid about $880 million in purchasing the Oxford, UK-based vaccine business. Fourth-quarter vaccine product sales at Chiron were $262 million, compared to $101 million in the corresponding year-ago quarter.
Such totals were bolstered largely by flu vaccine sales, which reached $332 million in 2003, compared to $90 million a year earlier. Flu vaccine sales totaled $141 million for the fourth quarter, much more than the $19 million in last year's fourth quarter. Sales of Fluvirin, a flu vaccine acquired through PowderJect, were $219 million for the year, representing a full season of revenues. For the 2003-2004 flu season, Chiron said it increased Fluvirin's production for the U.S. market by about 50 percent over the last flu season, producing more than 40 million Fluvirin doses worldwide - about 38 million doses for the U.S.
For the 2004-2005 flu season, Chiron expects to increase capacity to about 50 million doses, with most destined for the U.S. To that end, the company has committed about $100 million to expand its UK manufacturing facility. Shrader labeled such plans one of two primary positives related to Chiron's continued growth, as he said flu vaccine prices should be rising.
"Chiron is broadening this at a time when flu shot prices are going to go way up," he said. "So I think in two years, when their current pricing contracts run out, they're not only going to have greatly increased capacity but flu vaccines are going to be much more expensive."
Chiron's blood testing division produced $422 million in revenues, compared to $316 million for 2002. Shrader labeled growth in that area as important to the company's future as well.
"They compete with Roche around the world, and Roche has the dominant market share in a lot of places," he said, noting two recent deals including one with Beverly, Mass.-based ZymeQuest Inc. focused on a technology to turn all kinds of blood into Type O as integral to such plans. "I think the only way to push Roche off is to have other blood services that Roche doesn't have, and Chiron is investing in a lot of those, and I see that as important in a five-year plan."
Chiron's biopharmaceuticals division reported net product sales and Betaferon interferon beta-1b royalties of $503 million for 2003, compared to $456 million a year earlier. Fourth-quarter biopharmaceutical product sales and royalties were $137 million, up from $122 million a year earlier.
Primary sales drivers included TOBI tobramycin solution for inhalation, which generated $172 million in 2003 sales, compared to last year's $147 million figure. TOBI sales reached $49 million in the fourth quarter, $10 million better than last year. The product is approved for use against Pseudomonas aeruginosa, a Gram-negative bacteria, in patients with cystic fibrosis.
Other high-selling products included Proleukin (aldesleukin) interleukin-2, with year-end sales of $115 million, consistent with $114 million last year. Proleukin sales were $30 million for the fourth quarter, compared to $31 million a year earlier. Sales of Betaseron interferon beta-1b for injection, marketed in Europe as Betaferon, were $125 million in 2003, compared to $118 million for 2002. The product is sold to Montville, N.J.-based Berlex Inc. for marketing and resale. Fourth-quarter Betaseron sales figures were $36 million, compared to $34 million a year earlier.
In the coming year, Chiron plans to file a new drug application for its aerosolized cyclosporine product for lung transplant rejection. Also, Chiron plans to begin a Phase III trial of tifacogin in patients with severe community-acquired pneumonia this spring.
"That's really kind of a disguised sepsis trial, and that's high risk," Shrader said. "Sepsis trials are hard, and this drug has failed before . . . But Chiron is really focused on trying to come up with big therapeutics any way they can."
On Thursday, the company's stock (NASDAQ:CHIR) gained $1.32 to close at $52.55.