Chiron’s Net Income Falls on Vaccine Cost, Royalty Drop

Chiron Corp.’s second-quarter net income plunged 28% because of a drop in royalties and the cost of producing vaccine for the winter flu season, the company said Wednesday.

The Emeryville, Calif.-based maker of drugs, vaccines and blood-screening equipment said net income was $44.5 million, or 23 cents a share, compared with $62 million, or 33 cents, in the year-earlier period.

Revenue rose 12% to $393.9 million in the quarter from $350.3 million a year earlier.

Chiron entered the U.S. flu business in August with the acquisition of PowderJect Pharmaceuticals, a company based in Oxford, England.

The cost of producing flu shots hurt Chiron’s results when compared with the second quarter of 2003, before the acquisition. Chiron said it would receive most of its flu shot revenue in the second half of the year.

Earnings were also hurt by lower royalties on Betaseron, a multiple sclerosis drug that Berlin-based drug maker Schering markets in the U.S. and Europe under a license from Chiron. Payments decreased 35% to $11 million from $17 million, Chiron said.

Excluding costs related to the PowderJect purchase and other items, Chiron said it earned $48 million, or 25 cents a share, compared with $67.2 million, or 35 cents, a year earlier. Wall Street had expected 24 cents a share, according to a survey of analysts by Thomson First Call.

Chiron said its blood-screening business benefited from an experimental test that detects West Nile virus in donated blood. The test has not been approved by the Food and Drug Administration, but Chiron can charge blood banks fees that allow Chiron to recover its costs.

Revenue from Chiron’s gene-based blood-screening business rose 33% to $61 million from $46 million in the same period last year and was also helped by gains in market share.

In addition, Chiron said it would produce 52 million doses of flu vaccine for the U.S. market for the 2004-05 season, up from its earlier forecast of 48 million.

The total represents a 37% increase over the 38 million doses Chiron sold in the U.S. last winter, when an early and hard flu season resulted in shortages of vaccine. The demand for flu shots is expected to be high this year.

Chiron said this year’s entire production had been sold, including 2 million shots that are headed to a stockpile that will be maintained by the national Centers for Disease Control and Prevention.

Chiron announced its results after the market closed. The company’s shares dropped $1.80, or 4%, to $42.71 on Nasdaq.