Chiron Reports 2004 Pro-Forma Earnings Results of 70 Cents Per Share;

Chiron Reports 2004 Pro-Forma Earnings Results of 70 Cents Per Share; GAAP Results of 32 Cents Per Share

    Business Editors/Health/Medical Writers
    BIOWIRE2K

    EMERYVILLE, Calif.--(BUSINESS WIRE)--Jan. 26, 2005--Chiron Corporation (Nasdaq:CHIR) today reported pro-forma income from continuing operations of $133 million, or $0.70 per share, for the year ended December 31, 2004, compared to $297 million, or $1.54 per share, for the year ended December 31, 2003. On a GAAP basis, Chiron reported income from continuing operations of $60 million, or $0.32 per share, for the year ended December 31, 2004, compared to income from continuing operations of $220 million, or $1.15 per share, for the year ended December 31, 2003. Foreign exchange rates resulted in an approximate $0.07 decrease in pro-forma earnings per share and an approximate $0.08 decrease in GAAP earnings per share for the year ended December 31, 2004.
    For the fourth quarter of 2004, Chiron reported a pro-forma loss from continuing operations of $7 million, or a loss of $0.04 per share, compared to $56 million, or $0.29 per share, for the fourth quarter of 2003. On a GAAP basis, Chiron reported a loss from continuing operations of $23 million, or a loss of $0.12 per share, for the fourth quarter of 2004, compared to $118 million, or $0.59 per share, for the fourth quarter of 2003. For the fourth quarter of 2004, foreign exchange rates, on a pro-forma and GAAP basis, resulted in a $0.01 decrease in earnings per share, compared to the fourth quarter of 2003.
    As a result of the October 5, 2004 action by the UK Medicines and Healthcare products Regulatory Agency (MHRA) suspending Chiron's license to manufacture FLUVIRIN(R) influenza virus vaccine at the company's Liverpool facility, Chiron has recorded no FLUVIRIN vaccine sales for the third or fourth quarters of 2004. In addition, the entire FLUVIRIN vaccine product inventory was written off in the third quarter of 2004, resulting in a $91 million charge to cost of sales.
    In December 2004, the MHRA notified Chiron that it proposed to continue the suspension of the company's license to manufacture influenza vaccines in Liverpool for a further period of three months, effective January 4, 2005, the same date as the expiration of the initial three-month suspension. Furthermore, also in December 2004, the U.S. Food and Drug Administration (FDA) issued a warning letter to Chiron in connection with the agency's October 2004 inspection of Chiron's Liverpool facility. Chiron is cooperating fully with the FDA and has submitted a response to the warning letter.
    Chiron is implementing a comprehensive remediation plan directed at restoring the license for its Liverpool manufacturing facility. The MHRA has agreed to conduct a series of work-in-progress inspections as Chiron executes this plan, and the FDA is expected to participate in these inspections as observers. Satisfactory results from these inspections, which will take place during the current license-suspension period, could lead to the restoration of Chiron's license by the MHRA in time for the company to supply influenza vaccine for the 2005-2006 influenza season. Failure to establish substantial compliance with current good manufacturing practices (cGMP) through these inspections would result in a further extension of the license suspension by the MHRA, beyond the current end date. In such a case, the MHRA could lift any further extension at any time that it found that the remediation had been completed satisfactorily. Following a restoration of Chiron's license by the MHRA, the FDA is expected to then conduct a full cGMP inspection. Chiron expects that satisfactory results from this inspection would close out the FDA warning letter.
    "Looking back, 2004 was a year marked by both achievement and adversity for Chiron. We made notable progress in all of our businesses, achieving commercial, regulatory and phase advancement milestones. Yet, these successes have come alongside our inability to deliver FLUVIRIN(R) influenza vaccines to customers, which has led to our subsequent substantial effort to remediate our Liverpool facility," said Howard Pien, president and chief executive officer of Chiron.
    "As we enter 2005, our immediate outlook for FLUVIRIN is yet unclear. Following input from both the U.S. and UK regulatory authorities, we have embarked upon an ambitious remediation plan, and we are working toward our goal of supplying FLUVIRIN for the 2005-2006 influenza season. This objective is one among 17 milestones we have set for ourselves for 2005. Our execution on these milestones is driven by our commitment to long-term value creation and our mission of protecting human health."

    Guidance

    Chiron will not provide full 2005 EPS guidance until the company has more clarity surrounding the license suspension of its Liverpool facility. The following guidance is limited to revenue expectations for some portions of the Chiron business. BioPharmaceuticals revenues are expected to experience mid single-digit percentage growth in 2005 over 2004, anchored by sales of TOBI(R) tobramycin solution for inhalation. Vaccines product sales, excluding FLUVIRIN(R) influenza virus vaccine, are expected to grow by a high single-digit percentage growth rate, with growth driven by travel vaccines. Total Blood Testing revenues are expected to grow by a high single-digit growth rate for 2005. Blood Testing nucleic acid testing (NAT) product sales growth is expected to be in the mid teen percentage growth for 2005, primarily as a result of geographic expansion and conversion to the PROCLEIX(R) ULTRIO(TM) Assay and the TIGRIS(R) System outside of the United States. Royalty and license fee revenues are expected to be approximately 10 percent lower than 2004 due to the one-time effect of various settlements in 2004.
    Chiron management uses pro-forma financial statements to gain an understanding of the company's operating performance on a comparative basis. Pro-forma amounts exclude certain revenue items and special items relating to certain acquisitions, which may not be indicative of the company's trends or potential future performance. Please refer to the tables at the end of this document for more detail on these items and a reconciliation of the pro-forma information to GAAP financial statements. All references to per-share amounts are per diluted share.

    Product Sales and Revenues

    Total revenues were $1.7 billion for the year 2004, compared to $1.8 billion for the year 2003. Net product sales were $1.3 billion for the year 2004 and $1.3 billion for the year 2003. No FLUVIRIN(R) influenza virus vaccine sales were recorded in the third or fourth quarters of 2004. Sales of FLUVIRIN vaccine were $219 million in the third and fourth quarters of 2003. Excluding sales of FLUVIRIN vaccine, the company's product sales increased by 13 percent for the year 2004. For the year, foreign exchange rates resulted in a 3 percent increase in total revenues. Total revenues were $429 million for the fourth quarter of 2004, compared to $555 million for the fourth quarter of 2003.

    Gross Profit Margin

    Total gross profit margins were 47 percent for the year 2004, compared to 58 percent for the year 2003. The decline was due primarily to a decrease in the Vaccines gross profit margin, as discussed below, under the heading "Vaccines."

    Operating Expenses

    Total research and development expenses were $431 million for the year 2004, compared to $410 million for the year 2003, an increase of 5 percent. The increase was primarily related to the development of tifacogin, Chiron's oncology and meningococcus vaccine franchises, and Chiron's influenza cell-culture program. These increases were partially offset by the discontinuation of certain development projects in 2003. In addition, 2003 included expenses related to the in-licensing of CUBICIN(R) (daptomycin for injection) and technology from ZymeQuest Inc. and Infectio Diagnostics Inc.
    Total sales, general and administrative expenses were $461 million for the year 2004, compared to $380 million for the year 2003, an increase of 21 percent. The increase was partially due to an approximate $18 million increase from the effect of foreign exchange rates, approximately $12 million of additional 2004 expenses from the acquisition of PowderJect in the third quarter of 2003, and approximately $11 million in legal expenses related to the suspension of Chiron's Liverpool license. The remaining increase is due to, among other items, additional costs associated with the defense of the company's patents and technology, on-going marketing and pre-launch programs, investment in geographic penetration, and corporate governance.

    Blood Testing

    Total Blood Testing revenues were $494 million for the year 2004, compared to $422 million for the year 2003. Blood Testing revenues primarily include revenues from the sales of products related to Chiron's PROCLEIX(R) HIV-1/HCV Assay; revenues related to Chiron's joint business arrangement for immunodiagnostics with Ortho-Clinical Diagnostics Inc. (Ortho), a Johnson & Johnson company; and royalties and license fees related to NAT blood screening. Total Blood Testing revenues were $122 million for the fourth quarter of 2004, compared to $114 million for the fourth quarter of 2003.
    The gross profit margin on Blood Testing products was 42 percent for the year 2004, compared to 41 percent for the year 2003.

--	Sales related to the PROCLEIX(R) NAT product line were $250 million for the year 2004, compared to sales of $200 million for the year 2003. The increase was primarily due to the introduction of the PROCLEIX(R) West Nile Virus Assay on an investigational use-only basis in the United States in March 2003, continued penetration for the PROCLEIX HIV-1/HCV Assay into several markets abroad, the introduction of the PROCLEIX(R) ULTRIO(TM) Assay outside of the United States, and market share gains in the United States. PROCLEIX NAT product sales were $64 million for the fourth quarter of 2004, compared to $58 million for the fourth quarter of 2003.
--	Revenues from Chiron's joint business arrangement with Ortho were $118 million for the year 2004, compared to $108 million for the year 2003. The increase was primarily due to an increase in royalties and higher profits from Ortho's operations in the United States and its foreign affiliates, partially offset by a one-time benefit in the first quarter of 2003 due to a change in estimate relating to Ortho's foreign affiliate sales. Revenues from the joint business arrangement were $25 million for the fourth quarter of 2004, compared to $28 million for the fourth quarter of 2003.
--	Royalty and license fee revenues related to NAT blood screening were $89 million for the year 2004, compared to $75 million for the year 2003. Contributing to the increase were three factors: approximately $10 million was recognized under the September 2004 settlement with F. Hoffmann-La Roche Ltd. (Roche) and Roche Molecular Systems for NAT methods for HIV; approximately $7 million was recognized from the settlement with the Blood Transfusion Centers of the German Red Cross (Blutspendediensten des Deutsche Rotes Kreuz, or DRK); and approximately $7 million was recorded under the licensing agreement with Laboratory Corporation of America Holdings (LabCorp) and its affiliates. The 2004 increases were partially offset by a license fee that Chiron received from Baxter in 2003. Royalties and license fees related to NAT blood screening were $22 million for the fourth quarter of 2004, compared to $16 million for the fourth quarter of 2003.

    Vaccines

    Vaccines net product sales were $481 million for the year 2004, compared to $678 million for the year 2003. Excluding FLUVIRIN(R) influenza virus vaccine sales, Vaccines product sales increased 4 percent over 2003. Vaccines net product sales were $126 million for the fourth quarter of 2004, compared to $262 million for the fourth quarter of 2003.
    The gross profit margin on Vaccines products was 25 percent for the year 2004, compared to 53 percent for the year 2003. The decrease was primarily due to the write-off of the company's entire FLUVIRIN vaccine inventory in the third quarter. In addition, 2004 included approximately $3 million of remediation costs for Chiron's Liverpool facility, which were charged to cost of sales. Excluding these two items, the gross profit margin on Vaccines products was 44 percent for the year 2004, compared to 53 percent for the year 2003. The decrease was primarily due to the loss of FLUVIRIN vaccine sales and decreased volume of and lower margin on MENJUGATE(R) meningococcus C vaccine sales, which were partially offset by effects to the 2003 gross profit margin from additional costs reflected in 2003 associated with the fair value of inventory acquired during the acquisition of PowderJect.

    -- Sales of influenza vaccines were $154 million for the year
    2004, compared to $332 million for the year 2003. The decrease
    was primarily due to no sales of FLUVIRIN vaccine in the third
    and fourth quarters of 2004, compared to $219 million in sales
    of FLUVIRIN vaccine in the third and fourth quarters of 2003.
    Excluding FLUVIRIN vaccine, sales of Chiron's other influenza
    vaccines, AGRIPPAL(R) S1, BEGRIVAC(TM) and FLUAD(R), increased
    34 percent due to price increases and the benefit of foreign
    exchange rates. Sales of influenza vaccines were $45 million
    for the fourth quarter of 2004, compared to $141 million for
    the fourth quarter of 2003.

    -- Sales of meningococcus vaccines were $28 million for the year
    2004, compared to $66 million for the year 2003. The decrease
    was primarily due to lower sales of MENJUGATE vaccine due to
    significant price erosion, partially offset by the
    commencement of sales of MENZB(TM) meningococcus B vaccine to
    New Zealand. Sales of meningococcus vaccines were $9 million
    for the fourth quarter of 2004, compared to $34 million for
    the fourth quarter of 2003.

    -- Sales of Chiron's travel vaccines were $99 million for the
    year 2004, compared to $88 million for the year 2003. The
    increase was driven largely by increased sales of RABAVERT(R)
    rabies vaccine in the United States, partially offset by lower
    sales of ENCEPUR(TM) tick-borne encephalitis vaccine, which
    were due to a 2003 shipment (per customer request) that had
    been expected in early 2004. Sales of Chiron's travel vaccines
    were $15 million for the fourth quarter of 2004, compared to
    $28 million for the fourth quarter of 2003.

    -- Sales of Chiron's pediatric and other vaccine products were
    $200 million for the year 2004, compared to $192 million for
    the year 2003. The increase was primarily due to the timing of
    tender sales for polio vaccines and diptheria, tetanus, and
    pertussis vaccines, partially offset by the previously
    announced divestiture of certain operations in Sweden acquired
    via the acquisition of PowderJect. Sales of Chiron's pediatric
    and other vaccine products were $57 million for the fourth
    quarter of 2004, compared to $59 million for the fourth
    quarter of 2003.

    BioPharmaceuticals

    The BioPharmaceuticals division reported net product sales and BETAFERON(R) interferon beta-1b royalties of $563 million for the year 2004, compared to $503 million for the year 2003. Net product sales and BETAFERON royalties were $140 million for the fourth quarter of 2004, compared to $137 million for the fourth quarter of 2003.
    The gross profit margin on BioPharmaceuticals products was 72 percent for the year 2004, consistent with 72 percent for the year 2003.

    -- Sales of TOBI(R) tobramycin solution for inhalation were $213
    million for the year 2004, compared to $172 million for the
    year 2003. The increase was primarily due to increased patient
    demand in the United States, wholesale ordering patterns,
    price increases and the benefit of foreign exchange rates.
    Sales of TOBI were $53 million for the fourth quarter of 2004,
    compared to $49 million for the fourth quarter of 2003.

    -- Sales of PROLEUKIN(R) (aldesleukin) interleukin-2 were $129
    million for the year 2004, compared to $115 million for the
    year 2003. The increase was primarily due to wholesaler
    ordering patterns and price increases. Sales of PROLEUKIN were
    $31 million for the fourth quarter of 2004, compared to $30
    million for the fourth quarter of 2003.

    -- Sales of BETASERON(R) interferon beta-1b to Berlex Inc. (and
    its parent company, Schering AG) for marketing and resale were
    $131 million for the year 2004, compared to $125 million for
    the year 2003. The increase was primarily due to price
    increases, the favorable impact of foreign exchange rates,
    increased patient demand and inventory ordering patterns.
    These factors were partially offset by decreased revenue due
    to a decline in the royalty rate pursuant to Chiron's
    contractual agreement with Schering. Sales of BETASERON to
    Berlex Inc. and Schering AG were $34 million for the fourth
    quarter of 2004, compared to $36 million for the fourth
    quarter of 2003.

    -- Royalties from Schering's European sales of BETAFERON were $52
    million for the year 2004, compared to $64 million for the
    year 2003. Royalties declined pursuant to Chiron's contractual
    agreement with Schering. This decrease was partially offset by
    the benefit of foreign exchange rates and increased patient
    demand. Royalties from Schering's European sales of BETAFERON
    were $13 million for the fourth quarter of 2004, compared to
    $17 million for the fourth quarter of 2003.

    Total Royalty and License Fee Revenues

    Total royalty and license fee revenues include royalties and license fees relating to the Blood Testing, Vaccines and BioPharmaceuticals business units. It also includes other royalty and license fees, which consist primarily of royalties from Roche, Roche Molecular Systems and Bayer HealthCare AG for clinical diagnostic products. Total royalty and license fee revenues were $290 million for the year 2004, compared to $250 million for the year 2003. The increase was primarily due to revenues from the settlement with Roche relating to Chiron's HIV patent in the United States for use in clinical diagnostics and blood screening. The settlement included a lump-sum payment to Chiron of $78 million, of which $14 million was recognized as royalty and license fee revenues in 2004. In addition, the settlement also resulted in $32 million of previously deferred royalty and license fee payments being recognized as royalty and license fee revenues in 2004. Total royalty and license fee revenues were $68 million for the fourth quarter of 2004, compared to $64 million for the fourth quarter of 2003.

    Pipeline and Products Update

    The fourth quarter of 2004 was highlighted by the following pipeline and product events.

    Blood Testing

    -- Chiron and Gen-Probe Incorporated announced that the
    PROCLEIX(R) ULTRIO(TM) Assay for use on the PROCLEIX(R)
    TIGRIS(R) System was granted the Conformite Europeene (CE)
    Mark. With the CE Mark, the companies can now commercialize
    the PROCLEIX TIGRIS System in the European Union, as well as
    in other parts of the world that accept the CE Mark.

    -- Chiron signed a licensing agreement with Laboratory
    Corporation of America Holdings (LabCorp). The agreement gives
    LabCorp a semi-exclusive license to use Chiron's patented
    hepatitis C virus NAT technology in screening plasma donations
    in the United States.

    Vaccines

    -- Chiron successfully concluded its Phase III trial for
    MENJUGATE(R) meningococcus C vaccine in the United States.
    Chiron decided not to file a Biologics License Application
    (BLA) for the vaccine, instead focusing its resources on
    advancing the company's quadrivalent meningococcus vaccine
    candidate for serogroups A, C, W and Y.

    BioPharmaceuticals

    -- The FDA accepted Chiron's New Drug Application (NDA) for
    marketing approval of PULMINIQ(TM) (cyclosporine, USP)
    inhalation solution. The FDA has been reviewing Chiron's NDA
    submission and has requested additional analysis of the
    pivotal study. Chiron believes that, as a result, the
    company's action letter date will be extended to July. The FDA
    has given clearance to Chiron to provide PULMINIQ through an
    early access program.

    -- Chiron and Cubist Pharmaceuticals, Inc. announced that Chiron
    submitted a Marketing Authorization Application (MAA) to the
    European Medicines Agency (EMEA) under the European Union's
    Centralized Procedure for approval to market CUBICIN(R)
    (daptomycin for injection).

    Fourth-Quarter 2004 Earnings Conference Call

    Chiron will hold a conference call and webcast on Wednesday, January 26, 2005, at 4:45 p.m. EST to review its fourth-quarter and full-year 2004 results of operations and business highlights. In addition, the company may address forward-looking questions concerning business, financial matters and trends affecting the company.
    To access either the live call or the one-week 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 is available approximately two hours after the completion of the call through 11:55 p.m. EST, Wednesday, February 2, 2005. 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 3315882.

    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, please visit www.chiron.com.

    This news release contains forward-looking statements, including statements regarding revenue growth, clinical development, product approvals, restoration of Chiron's Liverpool manufacturing license, resolution of issues noted in the FDA's warning letter and the supply of FLUVIRIN(R) influenza virus vaccine that Chiron expects to deliver to the U.S. market in future influenza seasons. These forward-looking statements involve risks and uncertainties and are subject to change. No assurances can be given that additional issues with respect to FLUVIRIN or Chiron's manufacturing generally will not arise in the future or that the MHRA will restore Chiron's FLUVIRIN license in time for the 2005-2006 influenza season. Many factors could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including, among others, additional adverse developments resulting from investigations or discussions with or actions taken or required by the MHRA, FDA, U.S. Department of Health and Human Services, or U.S. Centers for Disease Control and Prevention. In addition, a full discussion of the company's operations and financial condition, including factors that may affect its business and future prospects, is contained in documents the company has filed with the SEC, including the form 10-Q for the quarter ended September 30, 2004, and the form 10-K for the year ended December 31, 2003, and will be contained in all subsequent periodic filings made with the SEC. These documents identify other important factors that could cause the company's actual performance to differ from the expectation expressed or implied by these forward-looking statements, including regulatory review and approvals, manufacturing capabilities, pricing pressures, litigation, stock-price volatility, and marketing effectiveness. In particular, there can be no assurance that Chiron will reach anticipated levels of revenue growth, successfully develop and receive approval to market new products, or achieve market acceptance for such new products. In addition, the company may engage in business opportunities, the successful completion of which are subject to certain risks, including shareholder approvals and the integration of operations.
    Chiron does not undertake an obligation to update the forward-looking information the company is giving today.

    NOTE: AGRIPPAL, BEGRIVAC, ENCEPUR, FLUVIRIN, FLUAD, MENJUGATE, MENZB, PROCLEIX, PROLEUKIN, PULMINIQ, RABAVERT, TOBI and ULTRIO are trademarks of Chiron Corporation. BETASERON and BETAFERON are trademarks of Schering AG. CUBICIN is a trademark of Cubist Pharmaceuticals. TIGRIS is a trademark of Gen-Probe Incorporated.

    -- Unaudited Condensed Consolidated Balance Sheets and Statements of Operations and Pro-forma-to-GAAP Reconciliation, Revenue Summary Sheets, Earnings Per Share Table, and Non-FLUVIRIN(R) Influenza Virus Vaccine-Related Reconciliation follow --

CHIRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)

Three Months Ended December 31, ----------------------------------- 2004 ----------------------------------- Pro Forma Pro Forma Adjusted(1) Adjustments Actual ------------ ------------ ---------

Revenues: Product sales, net $ 324,691 $ - $324,691 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 428,619 - 428,619 ------------ ------------ ---------

Operating expenses: Cost of sales 174,318 - 174,318 Research and development 128,882 - 128,882 Selling, general and administrative 135,027 - 135,027 Purchased in-process research and development - - - Amortization expense - (21,426) 21,426 Other operating expenses 4,804 - 4,804 ------------ ------------ ---------

Total operating expenses 443,031 (21,426) 464,457 ------------ ------------ ---------

(Loss) income from operations (14,412) 21,426 (35,838)

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) ------------ ------------ ---------

(Loss) income from continuing operations before income taxes (9,152) 21,426 (30,578) Provision for (benefit of) income taxes (2,288) 5,356 (7,644) ------------ ------------ ---------

(Loss) income from continuing operations (6,864) 16,070 (22,934) ============ ============ =========

Gain from discontinued operations - - - ------------ ------------ ---------

Net (loss) income $ (6,864) $ 16,070 $(22,934) ============ ============ =========

Basic (loss) earnings per share: (Loss) income from continuing operations $ (0.04) $ (0.12) ============ ========= Net (loss) income $ (0.04) $ (0.12) ============ =========

Diluted (loss) earnings per share: (Loss) income from continuing operations $ (0.04) $ (0.12) ============ ========= Net (loss) income $ (0.04) $ (0.12) ============ =========

Shares used in calculating basic (loss) earnings per share 186,813 186,813 ============ =========

Shares used in calculating diluted (loss) earnings per share 186,813 186,813 ============ =========

Three Months Ended December 31, ----------------------------------- 2003 ----------------------------------- Pro Forma Pro Forma Adjusted(2) Adjustments Actual ------------ ------------ ---------

Revenues: Product sales, net $ 448,611 $ - $448,611 Revenues from joint business arrangement 28,313 - 28,313 Collaborative agreement revenues 3,008 - 3,008 Royalty and license fee revenues 63,605 - 63,605 Other revenues 11,044 - 11,044 ------------ ------------ ---------

Total revenues 554,581 - 554,581 ------------ ------------ ---------

Operating expenses: Cost of sales 214,508 - 214,508 Research and development 140,242 - 140,242 Selling, general and administrative 121,302 - 121,302 Purchased in-process research and development - 77,400 (77,400) Amortization expense - (21,230) 21,230 Other operating expenses 3,803 - 3,803 ------------ ------------ ---------

Total operating expenses 479,855 56,170 423,685 ------------ ------------ ---------

(loss) income from operations 74,726 (56,170) 130,896

Loss on disposal of assets (25) - (25) Interest expense (6,581) - (6,581) Interest and other income, net 7,523 - 7,523 Minority interest (329) - (329) ------------ ------------ ---------

(Loss) income from continuing operations before income taxes 75,314 (56,170) 131,484 Provision for (benefit of) income taxes 18,828 5,307 13,521 ------------ ------------ ---------

(Loss) income from continuing operations 56,486 (61,477) 117,963 ============ ============ =========

Gain from discontinued operations 3,837 - 3,837 ------------ ------------ ---------

Net (loss) income $ 60,323 $ (61,477) $121,800 ============ ============ =========

Basic (loss) earnings per share: (Loss) income from continuing operations $ 0.30 $ 0.63 ============ ========= Net (loss) income $ 0.32 $ 0.65 ============ =========

Diluted (loss) earnings per share: (Loss) income from continuing operations $ 0.29 $ 0.59 ============ ========= Net (loss) income $ 0.31 $ 0.61 ============ =========

Shares used in calculating basic (loss) earnings per share 187,393 187,393 ============ =========

Shares used in calculating diluted (loss) earnings per share 200,567 205,795 ============ =========

(1) Pro Forma Adjusted amounts exclude (a) the amortization expense on acquired intangible assets related to the acquisitions of PathoGenesis, Chiron Behring, Pulmopharm and PowderJect Pharmaceuticals.

(2) Pro Forma 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 PowderJect Pharmaceuticals acquisition. Note that in Q4'03, there was a purchase price allocation adjustment to the purchased in-process research and development related to the PowderJect Pharmaceuticals acquisition, upon completion of strategic assessments of the value of certain research and development projects. The adjustment reduced purchased in-process research and development by $77.4 million.

CHIRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)

Year to Date December 31, ------------------------------------- 2004 ------------------------------------- Pro Forma Pro Forma Adjusted(3) Adjustments Actual ------------ ------------ -----------

Revenues: Product sales, net $ 1,270,829 $ - $1,270,829 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 1,725,881 - 1,725,881 ------------ ------------ -----------

Operating expenses: Cost of sales 669,366 - 669,366 Research and development 430,618 - 430,618 Selling, general and administrative 461,155 - 461,155 Purchased in-process research and development - (9,629) 9,629 Amortization expense - (84,503) 84,503 Other operating expenses 12,844 - 12,844 ------------ ------------ -----------

Total operating expenses 1,573,983 (94,132) 1,668,115 ------------ ------------ -----------

Income from operations 151,898 94,132 57,766

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 177,387 94,132 83,255 Provision for income taxes 44,347 21,126 23,221 ------------ ------------ -----------

Income from continuing operations 133,040 73,006 60,034 ============ ============ ===========

Gain from discontinued operations 24,854 - 24,854 ------------ ------------ -----------

Net income $ 157,894 $ 73,006 $ 84,888 ============ ============ ===========

Basic earnings per share: Income from continuing operations $ 0.71 $ 0.32 ============ =========== Net income $ 0.84 $ 0.45 ============ ===========

Diluted earnings per share: Income from continuing operations $ 0.70 $ 0.32 ============ =========== Net income $ 0.83 $ 0.45 ============ ===========

Shares used in calculating basic earnings per share 187,545 187,545 ============ ===========

Shares used in calculating diluted earnings per share 190,202 190,202 ============ ===========

Year to Date December 31, ------------------------------------- 2003 ------------------------------------- Pro Forma Pro Forma Adjusted(4) Adjustments Actual ------------ ------------ -----------

Revenues: Product sales, net $ 1,345,833 $ - $1,345,833 Revenues from joint business arrangement 108,298 - 108,298 Collaborative agreement revenues 18,562 - 18,562 Royalty and license fee revenues 250,142 - 250,142 Other revenues 29,113 (14,413) 43,526 ------------ ------------ -----------

Total revenues 1,751,948 (14,413) 1,766,361 ------------ ------------ -----------

Operating expenses: Cost of sales 571,897 - 571,897 Research and development 409,806 - 409,806 Selling, general and administrative 380,388 - 380,388 Purchased in-process research and development - (45,300) 45,300 Amortization expense - (56,365) 56,365 Other operating expenses 11,532 - 11,532 ------------ ------------ -----------

Total operating expenses 1,373,623 (101,665) 1,475,288 ------------ ------------ -----------

Income from operations 378,325 87,252 291,073

Loss on disposal of assets (224) - (224) Interest expense (19,104) - (19,104) Interest and other income, net 38,892 - 38,892 Minority interest (1,753) - (1,753) ------------ ------------ -----------

Income from continuing operations before income taxes 396,136 87,252 308,884 Provision for income taxes 99,034 10,488 88,546 ------------ ------------ -----------

Income from continuing operations 297,102 76,764 220,338 ============ ============ ===========

Gain from discontinued operations 6,975 - 6,975 ------------ ------------ -----------

Net income $ 304,077 $ 76,764 $ 227,313 ============ ============ ===========

Basic earnings per share: Income from continuing operations $ 1.59 $ 1.18 ============ =========== Net income $ 1.63 $ 1.22 ============ ===========

Diluted earnings per share: Income from continuing operations $ 1.54 $ 1.15 ============ =========== Net income $ 1.58 $ 1.19 ============ ===========

Shares used in calculating basic earnings per share 186,835 186,835 ============ ===========

Shares used in calculating diluted earnings per share 199,143 193,915 ============ ===========

(3) Pro Forma 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) the purchased in-process research and development related to the Sagres acquisition.

(4) Pro Forma Adjusted amounts exclude: (a) the Biogen and Serono settlements in connection with the McCormick patents owned by Schering's U.S. subsidiary, Berlex Laboratories, (b) purchased in-process research and development related to the PowderJect Pharmaceuticals acquisition and (c) the amortization expense on acquired intangible assets related to the acquisitions of PathoGenesis, Chiron Behring, Pulmopharm and PowderJect Pharmaceuticals.

Note: Due to rounding, quarterly earnings (loss) per share amounts may not sum fully to yearly earnings per share amounts.

CHIRON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)

December 31, December 31, 2004 2003 ------------- -------------

Assets ------------------------------------------ Current assets: Cash and short-term investments $ 603,621 $ 538,482 Accounts receivable, net 392,154 382,933 Current portion of notes receivable - 1,479 Inventories, net 221,646 199,625 Other current assets 173,093 135,130 ------------- ------------- Total current assets 1,390,514 1,257,649 Noncurrent investments in marketable debt securities 409,421 560,292 Property, plant, equipment and leasehold improvements, net 799,415 689,750 Other noncurrent assets 1,700,794 1,687,478 ------------- ------------- Total assets $ 4,300,144 $ 4,195,169 ============= =============

Liabilities and stockholders' equity ------------------------------------------ Current liabilities $ 441,367 $ 436,913 Long-term debt 936,652 926,709 Capital lease 156,952 157,677 Noncurrent unearned revenue 26,175 45,564 Other noncurrent liabilities 121,250 176,944 Minority interest 9,350 7,002 Stockholders' equity 2,608,398 2,444,360 ------------- ------------- Total liabilities and stockholders' equity $ 4,300,144 $ 4,195,169 ============= =============

CHIRON CORPORATION SUPPLEMENTAL SCHEDULE OF COMPUTATION OF EARNINGS (LOSS) PER SHARE (Unaudited) (In thousands, except per share data)

Three Months Ended December 31, 2004 2003 ------------------- ------------------- Pro Forma Pro Forma Adjusted Actual Adjusted Actual --------- --------- --------- ---------

Computation for earnings (loss) per share - continuing operations Income (loss) (Numerator): Income (loss) from continuing operations $ (6,864) $(22,934) $ 56,486 $117,963 Plus: Interest on 1.625% convertible debentures, net of taxes - - 1,574 1,574 Plus: Interest on Liquid Yield Option Notes, net of taxes - - - 1,767 --------- --------- --------- --------- Income (loss) from continuing operations, plus impact from assumed conversions $ (6,864) $(22,934) $ 58,060 $121,304 ========= ========= ========= =========

Shares (Denominator): Weighted-average common shares outstanding 186,813 186,813 187,393 187,393 Effect of dilutive securities: Stock options and equivalents - - 5,868 5,868 1.625% convertible debentures - - 7,306 7,306 Liquid Yield Option Notes - - - 5,228 --------- --------- --------- --------- Weighted-average common shares outstanding, plus impact from assumed conversions 186,813 186,813 200,567 205,795 ========= ========= ========= =========

Basic earnings (loss) per share from continuing operations $ (0.04) $ (0.12) $ 0.30 $ 0.63 ========= ========= ========= ========= Diluted earnings (loss) per share from continuing operations $ (0.04) $ (0.12) $ 0.29 $ 0.59 ========= ========= ========= =========

Computation for earnings (loss) per share - net income (loss) Income (loss) (Numerator): Net income (loss) $ (6,864) $(22,934) $ 60,323 $121,800 Plus: Interest on 1.625% convertible debentures, net of taxes - - 1,574 1,574 Plus: Interest on Liquid Yield Option Notes, net of taxes - - - 1,767 --------- --------- --------- --------- Net income (loss), plus impact from assumed conversions $ (6,864) $(22,934) $ 61,897 $125,141 ========= ========= ========= =========

Shares (Denominator): Weighted-average common shares outstanding 186,813 186,813 187,393 187,393 Effect of dilutive securities: Stock options and equivalents - - 5,868 5,868 1.625% convertible debentures - - 7,306 7,306 Liquid Yield Option Notes - - - 5,228 --------- --------- --------- --------- Weighted-average common shares outstanding, plus impact from assumed conversions 186,813 186,813 200,567 205,795 ========= ========= ========= =========

Basic earnings (loss) per share $ (0.04) $ (0.12) $ 0.32 $ 0.65 ========= ========= ========= ========= Diluted earnings (loss) per share $ (0.04) $ (0.12) $ 0.31 $ 0.61 ========= ========= ========= =========

CHIRON CORPORATION SUPPLEMENTAL SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE (Unaudited) (In thousands, except per share data)

Year to Date December 31, 2004 2003 ------------------- ------------------- Pro Forma Pro Forma Adjusted Actual Adjusted Actual --------- --------- --------- ---------

Computation for earnings per share - continuing operations Income (Numerator): Income from continuing operations $133,040 $ 60,034 $297,102 $220,338 Plus: Interest on 1.625% convertible debentures, net of taxes - - 2,638 2,638 Plus: Interest on Liquid Yield Option Notes, net of taxes - - 7,027 - --------- --------- --------- --------- Income from continuing operations, plus impact from assumed conversions $133,040 $ 60,034 $306,767 $222,976 ========= ========= ========= =========

Shares (Denominator): Weighted-average common shares outstanding 187,545 187,545 186,835 186,835 Effect of dilutive securities: Stock options and equivalents 2,657 2,657 4,339 4,339 1.625% convertible debentures - - 2,740 2,740 Liquid Yield Option Notes - - 5,228 - Put options - - 1 1 --------- --------- --------- --------- Weighted-average common shares outstanding, plus impact from assumed conversions 190,202 190,202 199,143 193,915 ========= ========= ========= =========

Basic earnings per share from continuing operations $ 0.71 $ 0.32 $ 1.59 $ 1.18 ========= ========= ========= ========= Diluted earnings per share from continuing operations $ 0.70 $ 0.32 $ 1.54 $ 1.15 ========= ========= ========= =========

Computation for earnings per share - net income Income (Numerator): Net income $157,894 $ 84,888 $304,077 $227,313 Plus: Interest on 1.625% convertible debentures, net of taxes - - 2,638 2,638 Plus: Interest on Liquid Yield Option Notes, net of taxes - - 7,027 - --------- --------- --------- --------- Net income $157,894 $ 84,888 $313,742 $229,951 ========= ========= ========= =========

Shares (Denominator): Weighted-average common shares outstanding 187,545 187,545 186,835 186,835 Effect of dilutive securities: Stock options and equivalents 2,657 2,657 4,339 4,339 1.625% convertible debentures - - 2,740 2,740 Liquid Yield Option Notes - - 5,228 - Put options - - 1 1 --------- --------- --------- --------- Weighted-average common shares outstanding, plus impact from assumed conversions 190,202 190,202 199,143 193,915 ========= ========= ========= =========

Basic earnings per share $ 0.84 $ 0.45 $ 1.63 $ 1.22 ========= ========= ========= ========= Diluted earnings per share $ 0.83 $ 0.45 $ 1.58 $ 1.19 ========= ========= ========= =========

CHIRON CORPORATION Supplemental Revenue Summary (Pro Forma) USD $ (in thousands)

Current Prior Change Quarter Quarter from Change Q4 2004 Q3 2004 Prior QTR % --------- --------- --------- ------- Product Sales Blood Testing Ortho $ 7,904 $ 7,098 $ 806 11.4% NAT 63,705 63,629 76 0.1% --------- --------- --------- ------- Total Blood Testing 71,609 70,727 882 1.2%

Vaccines Flu Vaccines 44,721 93,486 (48,765) (52.2)% Meningococcus Vaccines 9,309 8,865 444 5.0% Travel Vaccines (TBE, Rabies, Arilvax and Dukoral) 14,678 20,865 (6,187) (29.7)% Pediatric/Other Vaccines 57,655 44,491 13,164 29.6% --------- --------- --------- ------- Total Vaccines 126,363 167,707 (41,344) (24.7)%

Biopharmaceuticals Proleukin 30,713 31,739 (1,026) (3.2)% TOBI 53,276 55,734 (2,458) (4.4)% Betaseron(a) 33,639 35,171 (1,532) (4.4)% Other 9,091 8,902 189 2.1% --------- --------- --------- ------- Total Biopharmaceuticals 126,719 131,546 (4,827) (3.7)%

TOTAL PRODUCT SALES $324,691 $369,980 $(45,289) (12.2)% ========= ========= ========= =======

Revenues From Joint Business Arrangement $ 25,336 $ 34,017 $ (8,681) (25.5)% Collaborative Agreement Revenues 3,577 4,124 (547) (13.3)% Royalty and License Fees 68,177 111,396 (43,219) (38.8)% Other Revenues 6,838 4,450 2,388 53.7% --------- --------- --------- ------- TOTAL REVENUES $428,619 $523,967 $(95,348) (18.2)% --------- --------- --------- -------

Gross Margins Blood Testing 40% 43% (3)% Vaccines 27% 8% 19% Biopharmaceuticals 70% 67% 3% --------- --------- --------- ------- TOTAL GROSS MARGINS 46% 36% 10% --------- --------- --------- -------

--------- --------- --------- ------- (a) Excludes Betaferon Royalty $ 12,798 $ 13,374 $ (576) (4.3)% --------- --------- --------- -------

Year Ago Change Quarter from Change Q4 2003 Prior Year % --------- ---------- --------- Product Sales Blood Testing Ortho $ 8,625 $ (721) (8.4)% NAT 58,299 5,406 9.3% --------- ---------- --------- Total Blood Testing 66,924 4,685 7.0%

Vaccines Flu Vaccines 141,142 (96,421) (68.3)% Meningococcus Vaccines 33,672 (24,363) (72.4)% Travel Vaccines (TBE, Rabies, Arilvax and Dukoral) 27,850 (13,172) (47.3)% Pediatric/Other Vaccines 58,974 (1,319) (2.2)% --------- ---------- --------- Total Vaccines 261,638 (135,275) (51.7)%

Biopharmaceuticals Proleukin 29,852 861 2.9% TOBI 49,307 3,969 8.0% Betaseron(a) 36,148 (2,509) (6.9)% Other 4,742 4,349 91.7% --------- ---------- --------- Total Biopharmaceuticals 120,049 6,670 5.6%

TOTAL PRODUCT SALES $448,611 $(123,920) (27.6)% ========= ========== =========

Revenues From Joint Business Arrangement $ 28,313 $ (2,977) (10.5)% Collaborative Agreement Revenues 3,008 569 18.9% Royalty and License Fees 63,605 4,572 7.2% Other Revenues 11,044 (4,206) (38.1)% --------- ---------- --------- TOTAL REVENUES $554,581 $(125,962) (22.7)% --------- ---------- ---------

Gross Margins Blood Testing 38% 2% Vaccines 49% (22)% Biopharmaceuticals 66% 4% --------- ---------- --------- TOTAL GROSS MARGINS 52% (6)% --------- ---------- ---------

--------- ---------- --------- (a) Excludes Betaferon Royalty $ 16,658 $ (3,860) (23.2)% --------- ---------- ---------

CHIRON CORPORATION Supplemental Revenue Summary (Pro Forma) USD $ (in thousands)

Change Twelve Months Ended from December 31, Prior Change 2004 2003 Year % ----------- ----------- ---------- ------- Product Sales Blood Testing Ortho $ 27,844 $ 28,391 $ (547) (1.9)% NAT 249,809 200,066 49,743 24.9% ----------- ----------- ---------- ------- Total Blood Testing 277,653 228,457 49,196 21.5%

Vaccines Flu Vaccines 154,119 332,428 (178,309) (53.6)% Meningococcus Vaccines 27,739 65,548 (37,809) (57.7)% Travel Vaccines (TBE, Rabies, Arilvax and Dukoral) 98,685 87,831 10,854 12.4% Pediatric/Other Vaccines 200,947 192,511 8,436 4.4% ----------- ----------- ---------- ------- Total Vaccines 481,490 678,318 (196,828) (29.0)%

Biopharmaceuticals Proleukin 129,377 115,075 14,302 12.4% TOBI 212,876 172,047 40,829 23.7% Betaseron(a) 130,572 124,936 5,636 4.5% Other 38,861 27,000 11,861 43.9% ----------- ----------- ---------- ------- Total Biopharmaceuticals 511,686 439,058 72,628 16.5%

TOTAL PRODUCT SALES $1,270,829 $1,345,833 $ (75,004) (5.6)% =========== =========== ========== =======

Revenues From Joint Business Arrangement $ 118,246 $ 108,298 $ 9,948 9.2% Collaborative Agreement Revenues 18,044 18,562 (518) (2.8)% Royalty and License Fees 289,561 250,142 39,419 15.8% Other Revenues 29,201 29,113 88 0.3% ----------- ----------- ---------- ------- TOTAL REVENUES $1,725,881 $1,751,948 $ (26,067) (1.5)% ----------- ----------- ---------- -------

Gross Margins Blood Testing 42% 41% 1% Vaccines 25% 53% (28)% Biopharmaceuticals 72% 72% 0% ----------- ----------- ---------- ------- TOTAL GROSS MARGINS 47% 58% (11)% ----------- ----------- ---------- -------

----------- ----------- ---------- ------- (a) Excludes Betaferon Royalty $ 51,564 $ 63,768 $ (12,204) (19.1)% ----------- ----------- ---------- -------

CHIRON CORPORATION Non-FLUVIRIN(R) Influenza Virus Vaccine-Related Reconciliation for 2004 press release USD $ (in thousands, except percentages)

Current Year Change Year Ago from Change 2004 2003 Prior Year % ----------- ----------- ---------- ------

TOTAL PRODUCT SALES $1,270,829 $1,345,833 $ (75,004) (6)% Fluvirin vaccine sales 2,445 219,240 (216,795) (99)% ----------- ----------- ---------- ------ TOTAL PRODUCT SALES, Excluding Fluvirin vaccine sales $1,268,384 $1,126,593 $ 141,791 13% =========== =========== ========== ======

TOTAL VACCINES PRODUCT SALES $ 481,490 $ 678,318 $(196,828) (29)% Fluvirin vaccine sales 2,445 219,240 (216,795) (99)% ----------- ----------- ---------- ------ TOTAL VACCINES PRODUCT SALES, Excluding Fluvirin vaccine sales $ 479,045 $ 459,078 $ 19,967 4% =========== =========== ========== ======

FLU VACCINES PRODUCT SALES $ 154,119 $ 332,428 $(178,309) (54)% Fluvirin vaccine sales 2,445 219,240 (216,795) (99)% ----------- ----------- ---------- ------ FLU VACCINES PRODUCT SALES, Excluding Fluvirin vaccine sales $ 151,674 $ 113,188 $ 38,486 34% =========== =========== ========== ======

Vaccines Gross Margin Vaccines product sales $ 481,490 Cost of sales 362,943 ----------- Gross Margin $ 118,547 =========== Gross Margin % 25%

Vaccines Gross Margin, excluding Fluvirin charge of $91,300 and remediation costs of $2,600 Vaccines product sales $ 481,490 Cost of sales, excluding Fluvirin charge of $91,300 and remediation costs of $2,600 269,043 ----------- Gross Margin $ 212,447 =========== Gross Margin % 44%

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CONTACT: Chiron Corporate Communications & Investor Relations Media, 510-923-6500 Investors, 510-923-2300

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: PHARMACEUTICAL MEDICAL BIOTECHNOLOGY EARNINGS CONFERENCE CALLS SOURCE: Chiron Corporation

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