SSB : Chiron (CHIR, Buy, High risk)
Reporting date: Wednesday, January 26th, after market close; Conference call at
4:45PM EST
For Chiron (CHIR), we expect the primary focus to remain an update on the
status for the company's Fluvirin manufacturing facility in Liverpool, UK.
With the shutdown of this facility in October 2004, we remind investors that
earnings in the fourth quarter of 2004 will be significantly lower on a
sequential basis due to the lack of Fluvirin shipments this season. Our EPS
estimate is $0.08 compared to consensus of $0.10 representing a wide range on
the Street from $(0.01)-$0.26 for Q4 2004. For fiscal 2004, our estimate is
$0.80 compared to the consensus of $0.82 (range of $0.70-$0.98). With no
Fluvirin sales this past quarter, our total product sales estimate is $305
million, representing a decrease of 32% year-over-year. This figure is
predominantly made up of the following: Proleukin sales of approximately $31.3
million; Betaseron revenues of $30.0 million; Vaccine sales of $105 million;
TOBI sales of $56.7 million; and Procleix or NAT (nucleic acid testing) system
sales of $64.3 million. Our fiscal 2004 product sales estimate is $1.25
billion. Our royalty revenue estimate is $56 million for Q4 2004 and $277
million for fiscal 2004.
Importantly, Chiron's Fluvirin manufacturing remediation plan is currently
underway. An inspection of the company's Fluvirin Liverpool facility occurred
just prior to the Christmas holiday with no additional material issues
highlighted. In November 2004, a US congressional hearing was held to review
the events leading up to the current flu vaccine shortage and plans for future
flu vaccine production. At that hearing, the Chairman of the House Government
Reform Committee, Tom Davis, expressed optimism in Chiron's ability to produce
its Fluvirin vaccine for the 2005/2006 flu season based on his meetings with
U.K. and U.S. regulatory authorities. As a result of these hearings, we
concluded that there was and continues to be a high probability that Chiron's
plant will be reinstated in time for the 2005/2006 flu season. The company has
indicated that production must begin no later than early spring of 2005.
Recently, the company indicated that the U.K. regulatory authorities
accompanied by the FDA will conduct a series of inspections of the Liverpool
manufacturing facility. With this process, the company indicated that
successive phases of the manufacturing process may pass inspection and receive
clearance for operation as other areas continue to undergo the remediation
plan. As a reminder, the 90-day suspension of Chiron's manufacturing license
for its Liverpool facility expired on January 4th, 2005. While the
manufacturing license suspension was extended for another 90 days immediately
following this expiration, we remind investors that the UK regulatory
authorities may lift the second suspension at any time pending the successful
completion of the remediation plan. In addition, the FDA has indicated that it
will make a final determination of Chiron's corrective measures during a
comprehensive inspection scheduled for February or March 2005.
For fiscal 2005, our EPS estimate is $1.54, which is below consensus of $1.74,
although Street estimates reflect a wide range from $1.35 to $2.11. Our
estimate assumes a modest level of Fluvirin production for the 2005/2006 season
(~30 million doses versus the company's 50 million doses targeted for the
2004/2005 season) available for the 2005/2006 season given the potential for a
late start in the production cycle. We believe our estimates for Fluvirin
sales may be more modest than others on the Street. The company is not
expected to provide 2005 financial guidance until it has clarified the status
of the Fluvirin Liverpool manufacturing facility.
We believe current stock levels already reflect the uncertainty of the company
being able to resolve its manufacturing problems at its Liverpool facility in
time to allow Fluvirin production for the 2005/2006 season. Therefore, we
believe there is limited downside and would be buyers at these levels as the
stock is trading at only 22.2x our 2005 EPS estimate of $1.54 and 19.0x our
2006 EPS estimate of $1.80.
CHIRON Q4 2004E 2004E
Proleukin Sales $31.3 million $130 million
Betaseron Sales $30.0 million $127 million
TOBI Sales $56.7 million $216 million
Vaccine Sales $105 million $460 million
NAT Systems Sales $64.3 million $250 million
Ortho Blood Testing $7.8 million $27.7 million
Other Product Sales $9.3 million $39.1 million
Royalty Revenue $56 million $277 million
Total Product Sales $305 million $1.25 billion
Total Revenues $398 million $1.70 billion
Cost of Sales $134 million $629 million
SG&A Expense $125 million $451 million
R&D Expense $112 million $414 million
Net Income $15.3 million $155 million
EPS $0.08 $0.80
Source: SB estimates. |
