Q2 2004 Chiron Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon. My name is Tracy and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Chiron second-quarter 2004 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star and the number 1 on your telephone keypad. If you would like to withdraw your question press star and the number two on your telephone keypad. Thank you. I would like to turn conference over to Martin Forrest, Vice President of Corporate Communications. Please go ahead, sir.

MARTIN FORREST, VICE PRESIDENT OF CORPORATE COMMUNICATIONS, CHIRON: Thank you, Tracy. Good afternoon, everyone, welcome to Chiron's second-quarter 2004 conference call. On behalf of the Chiron team, I would like to introduce to you our principal speakers. Howard Pien, Chiron CEO and President and David Smith, Chiron's CFO. I am Martin Forrest from the Corporate Communications and Investor Relations group. I and the rest of the Investor Relations team will be available after the call to answer your questions.

Before I turn the call over to Howard for his discussion of Chiron's results, I would like to remind you that the remarks will contain forward-looking statements relating to future events and the financial performance of the Company. Actual events and performance may differ materially from our expectations. We refer you to documents that the Company has filed with the Securities and Exchange Commission including our most recent 10-K and 10-Q for discussion of important factors that could cause the Company's actual performance to differ from those expressed or implied in today's remarks. We do not undertake any obligations to update the forward-looking information we are giving today. Please note that where we indicate a number to be pro forma in today's discussion, we have made available a reconciliation of pro forma to GAAP in the condensed consolidated statement of operations, attached to our press release issued today, and on our web site in the investor section under financial reports. Finally, please note that this call is being electronically recorded and is copyrighted by Chiron. No reproductions, copies or transcripts of this conference call can be made without the written permission of Chiron. With that as a preface, I turn the call over to you, Howard.

HOWARD PIEN, PRESIDENT, CEO, DIRECTOR, CHIRON: Thanks, Martin. Good afternoon and welcome to our call. Today Chiron announced our second-quarter earnings results, and in this call I will talk to you about the progress we have made over the past quarter and provide you with a preview of the progresses that we intend to achieve in the quarters to come. We believe that a picture of Chiron as a successful and vibrant company will continue to be enhanced.

Let me begin by briefly highlighting our Analyst Day held in New York a few weeks back. We described in some detail Chiron's strategy for value creation and our plans for turning that strategy into results. We thank everyone who attended either in person or via webcast. We are especially grateful to the many of you who gave us pieces of feedback on how we have progressed and how we should progress further in obtaining our goals.

On the Analyst Day, we outlined four themes for value creation, and briefly they are, first, acquiring adjacent technologies that complement our existing strength, parenthetically the Sagres acquisition announced since Analyst Day is an example of this theme. Second, leveraging our platforms, products and skills into new geographies. Parenthetically the PowderJect Acquisition to enter the U.S. market exemplified the theme, and I will have some remarks on the upcoming flu season in a few minutes. And third, taking calculated risks that have the potential to pay great rewards. And finally, fourth, implementation, that is advancing our strategy through consistent execution.

The Analyst Day was also the opportunity for us to disclose some specific information on several important programs. Along with our partner Sun Quest we provided the aligns of the registration plan for the technology and in the system that will convert type A and type B and type AB red blood cells to universal donor type O. We also disclosed the preliminary findings from our Phase II meningitis ACWY Vaccine study, that suggested the heightened prospect that we will have efficacy in toddlers and the older age groups. We also showed the pharmacokinetic and target modulation data for Chiron 258, the gross oxykinaise inhibiter that gives us increased confidence that we will have a very promising candidate for a wide range of cancers. And in a month, since the Analyst Day, we have seen additional progress.

Our Blood Testing business has continued to demonstrate our ability to execute on the geographic expansion theme. The first phase of our marketing approach will be Procleix Ultrio Assay is to convert at least 30% of our insolvates particularly in the 7 European countries as quickly as we can. We are moving toward that goal with 13 customers in four major European countries having signed on in Italy, in Germany, in Spain, and in Portugal. Vaccines has also made -- marked the milestone in the past month with the start of a poly immunization program for the MeNB vaccine in New Zealand. The program, which will initially target the area of the highest prevalence of MeNB is aimed at more than 1 million children and young adults age 6 months to 20 years, 1/5 of the country's population, demonstrating the potential impact of a MeNB Vaccine to address a significant public health challenge.

Let me now turn to the flu vaccine business in the U.S. As you know, last season, flu vaccination rates in the U.S. hit a record level. The flu season began early and hit hard. As a result, Americans saw protection from flu vaccines at an unprecedented rate with 80 million doses sold in total. More people were vaccinated than ever before, a major public health milestone. That number is an important step toward the CDC's goal of 150 million people receiving flu vaccinations by the yar 2010. And because of the heightened awareness from last year's flu season, we believe that the upcoming season will generate strong interest, people increasingly recognize the value of vaccination in preventing influenza and its attendant, very serious complications. This is true not only for those individuals who wish to avoid the flu themselves, but also for those who have regular contact with small children, with the elderly, or with other high-risk groups and who wish to reduce the chances of transmitting infection to these groups.

This month marks the one-year anniversary of the completion of our acquisition of [HadOject]. In this year we have made great strides toward enhancing the value of the opportunities that are represented by the flu vaccine business. Based on the experience over the past three months of manufacturing this season's vaccine, we now project we can exceed a total output by about 8% relative to our previous expectation. We had previously expected that we would produce 50 million doses of Fluviron,of which about 48 million doses would be shipped to the U.S. We now anticipate that for the U.S., we can deliver 50 million doses of Fluviron during the season, and furthermore we expect to produce another 2 million doses for CDC stockpile at the end of the season. This will allow the CDC to prepare for the possibility of another dramatic flu season. For Chiron, all of this would represent an increase of about one-third in the number of doses over last year's production.

This flu season will also mark the inauguration of our direct marketing capability in the U.S. vaccine business. Our strategy is to move towards a blend of sales capability, both throughout distributors and through our own direct marketing. In an effort to increase our flexibility on the commercialization of Fluviron. Our intent is to work largely with distributors with whom we have built a great…