Chiron profit jumps sharply

Chiron profit jumps sharply: "

posted on Wed, Feb. 01, 2006

Chiron profit jumps sharply
RESULTS COULD SPUR OPPONENTS OF NOVARTIS DEAL
By Steve Johnson
Mercury News

Posted on Wed, Feb. 01, 2006

Chiron profit jumps sharply
RESULTS COULD SPUR OPPONENTS OF NOVARTIS DEAL
By Steve Johnson
Mercury News

Chiron reported a sharp increase in profit Tuesday from its last quarter, suggesting it has bounced back from flu-vaccine manufacturing problems that had weighed on it since late 2004.

But the biotechnology company's improved earnings could add to the unrest among some of its stockholders over its proposed sale to Swiss drug giant Novartis.

The Emeryville company said it earned $144 million in net income in the fourth quarter last year, or 71 cents a share. That's a major improvement from a year ago when it lost $23 million, or 12 cents a share, after having to discard all 50 million doses of its flu vaccine due to contamination at its manufacturing plant in England.

The flu-vaccine debacle was a major reason Novartis -- Chiron's biggest stockholder -- said it decided to take over the company.

The $144 million profit also is the highest the company has reported for any quarter since the fourth quarter of 1998.

``We finished the year a much stronger company,'' said Chief Executive Howard Pien. ``We're pleased with our achievements.''

If not for special expenses, Chiron said it would have earned $164 million, or 81 cents a share. On that basis, the results exceeded the per-share estimate among Wall Street analysts by 30 cents, according to research firm Thomson Financial.

Net product sales were $475 million, up from $330 million a year earlier.

Some analysts speculated before the earnings report was disclosed that a big increase in profit could spur more investor opposition to Chiron's proposed sale to Novartis. Novartis has offered to buy Chiron for $5.1 billion in a deal expected to be voted on by non-Novartis shareholders as early as March.

Some stockholders -- including CAM North America and ValueAct Capital, which together own 30 percent of all non-Novartis shares -- are fighting the sale. They have said Novartis' $45-a-share offer is too low.

Chiron's stock hit $45.60 at the close of trading Tuesday, before the company released its earnings. That's the highest the stock has closed since Sept. 21, 2004. In after-hours trading about 5 p.m., the stock rose 17 cents to $45.77.

Having 30 percent of eligible voters opposed to the sale could pose a problem for Chiron and Novartis, said John McCamant, editor of the Medical Technology Stock Letter based in Berkeley.

``That's a pretty significant amount of shares to say `We're not happy about this,' '' said McCamant, who doesn't own Chiron stock.

McCamant also noted ``there is reason to think this may be an undervalued acquisition'' because Chiron is one of the world's biggest vaccine manufacturers.

The company also appears likely to make a lot more money developing vaccines for a possible bird-flu outbreak. It won a $62.5 million federal bird-flu vaccine contract in October, and President Bush has said he wants to spend billions more on bird-flu vaccines or other medicines.

But other analysts said the sale to Novartis seems likely to be approved.

Even with ValueAct and CAM North America opposed to the deal, ``the question is will they convince others to join them,'' said David Lugg, Standard & Poor's director of rating services, who tracks Chiron. Based on Standard & Poor's analysis so far, he said, ``It's unlikely they will have enough shares'' to derail the sale.

The contamination problem at Chiron's Liverpool plant forced health officials in 2004 to scramble to find alternative sources of flu vaccine for that winter.

Pien said Chiron produced 13 million doses of the vaccine in 2005 and will probably have enough manufacturing capacity to make 40 million doses in 2006.


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Contact Steve Johnson at sjohnson@mercurynews.com or (408) 920-5043.





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