UNITED STATES |
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SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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SCHEDULE 14A |
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Proxy Statement
Pursuant to Section 14(a) of |
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Filed by the Registrant ý |
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Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
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CHIRON CORPORATION |
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(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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Proposed maximum aggregate value of transaction: |
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Total fee paid: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: |
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Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
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Searchable text section of graphics shown above
Agenda
1. Chirons Perspective on the Transaction
2. Questions & Answers
3. Session with Chiron Directors*
* Directors throughout this presentation refers to the Non-Novartis Directors. See Annex A for biographical material on the Directors.
[LOGO]
2
Fair Price and Better Than Status Quo
Novartis has had the right to acquire Chiron since 1994
Appropriate time
11 month process to allow time to address business challenges
No significant near-term milestones to drive value
Fair price: Determined by Directors following careful consideration of opportunities and risks
BioPharma - tifacogin significant opportunity but high risk; molecular oncology promising but very early
Vaccines - substantial opportunity but ongoing challenges and intensified competition
Blood Testing - strong commercial capabilities but key patents expiring and no proven development or manufacturing capabilities
Royalties - significant to earnings but expected to decline as key patents expire
Better than status quo: significant downside risk in absence of Novartis deal
Valuation of managements long range plan shows significant risk of lower value
Continued operational challenges and execution risks
Potentially protracted uncertainty may impact operations (including ability to hire and retain key personnel) and share price
3
Novartis Has the Right to Acquire Chiron
Under the 1994 Agreements, Novartis has the right to acquire Chiron in accordance with a specified process
Directors leveraged Chirons rights under Governance Agreement to achieve optimal outcome for Chiron stockholders
Governance Agreement enabled Directors to optimize outcome
4
11-Month Process Allowed Chiron to Address Business Challenges
The Directors conducted discussions with Novartis at a deliberate pace
11 months elapsed from first discussions to definitive merger agreement
During this period, Chiron achieved several significant milestones:
Re-entry to U.S. flu market
Completion of Phase 3 trial in EU for flu cell culture
Initiation of Phase 1 / Phase 2 trial in U.S. for flu cell culture
Positive data on MF59 adjuvant with potential pandemic strain
Steady progress on patient enrollment in tifacogin trial
Initiation of Phase 3 trial for TIP
Initiation of Phase 1 trials for CHIR-258 and CHIR-12.12
Geographic expansion and ex-U.S. Procleix Ultrio Assay penetration
These achievements were expected and well communicated to investors and marketplace
Directors managed process to increase value
6
No Compelling Reason to Further Extend Discussions
No significant value-enhancing milestones in the near term beyond those considered
While Chiron successfully addressed many critical challenges, significant issues still lie ahead, including:
Flu vaccine manufacturing challenges, including regulatory agencies interactions relating to Fluvirin and Begrivac, and increased competition
Heavy dependence of BioPharma business on tifacogin
Risks intrinsic to drug development and regulatory approval (e.g. Pulminiq approvable letter)
Slower growth and regulatory delay in Blood Testing business (Procleix Ultrio and Procleix Tigris)
Ongoing litigation relating to Fluvirin
Managerial and operational challenges of running complex, global business
Risk of Novartis invoking arbitration process, with unpredictable results
Discussions with Novartis concluded at appropriate time for Chiron
7
Better Than Status Quo: Significant Downside Risk If No Novartis Deal
Valuation of long range plan shows significant risk of lower value
Prepared by management and thoroughly reviewed by Directors
No milestones have been achieved since the date of the transaction that are not captured in the long range plan and reflected in the valuation
Continued operational challenges and execution risks
Earnings misses
MMR recall and withdrawal
Potentially protracted uncertainty may impact operations (including ability to hire and retain key personnel) and share price
Novartis veto power over certain strategic transactions, publicly stated intention not to sell its 44% stake, and right to initiate new buy-out proposal at any time
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Appropriate time |
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Better than status quo |
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Fair price |
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Determined by Directors with significant industry and financial expertise following careful consideration of opportunities and risks
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BioPharma Business is Challenging for Chiron
Scale of business: high levels of R&D spend relative to current sales
And current R&D spend is only a fraction of what will be required to advance promising early stage programs
Need to make significant investments in manufacturing and commercial capabilities pre-launch
Mixed record of internal product development most existing products have been obtained via acquisition or licensing, including Betaseron, Proleukin, TOBI, and Cubicin
Certain current products are under competitive pressure or subject to near-term patent expiration Proleukin, Betaseron
The molecular oncology program, while showing initial promise, is very early in development
Tifacogin is potentially a substantial opportunity but entails significant risk
Future growth and profitability of BioPharma is heavily dependent on tifacogin, which remains a high-risk program
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BioPharma Business Is Heavily Dependent on Tifacogin
Tifacogin Revenue Share
[CHART]
Source: Chiron Management Projections
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Business Considerations BioPharma
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Opportunities |
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Risks |
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Tifacogin |
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Large market opportunity and profitability potential |
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Clinical trial results subject to substantial uncertainty Commercialization not expected until 2008 or beyond and will require a partner to realize full potential (share profitability) Scale and timing to commercial manufacturing and potential capacity constraints |
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Molecular Oncology Program |
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Traction in small molecule research efforts and XOMA collaboration Innovative development approach (molecular oncology / translational medicine) |
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Very early stages of development Ability to resource development programs adequately, will need to partner Long timeline to commercialization Highly competitive field |
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TIP |
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Expansion of TOBI franchise Potential improvement in patient compliance |
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Limited incremental growth potential above TOBI Scale up to commercial manufacturing |
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Existing Products |
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Established market presence Divestiture of legacy product lines could provide cash for additional investment |
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Proleukin - rapidly losing market share Betaseron - significant competition and patent expiration in 2007/2008 |
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Vaccines Represents Substantial Opportunity But Has Risks
Traditional egg-based influenza vaccines, including Fluvirin vaccine and Begrivac vaccine, have fueled Chirons vaccines growth
While remediation efforts to date have been successful, financial and reputational costs to Chiron are substantial
GMP compliance will require continuous improvement to meet ever higher regulatory standards over time
Chirons competitive position in influenza market has declined with new market entrants, including GSK and CSL
Flu cell culture conversion, which is a significant opportunity for Vaccines segment, faces developmental, regulatory, and manufacturing hurdles
Pandemic flu is an important strategic opportunity, although incremental commercial value is uncertain and technical challenges must be overcome
Meningitis B program is promising and proprietary, but development, manufacturing, and commercial risks remain; MenACWY will be second to market
Vaccines business remains an attractive opportunity but key products and programs face intensifying competition and on-going challenges
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Competition in the Flu Vaccines Market Is Growing
Projected U.S. Market Share of Main Vaccine Companies
[CHART]
Source: Chiron Internal Marketing Projections
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Pandemic Influenza Vaccine Strategy Presents Challenges
PRIOR TO A PANDEMIC
Until there is an actual pandemic, opportunity may be limited to government stockpiling (manufacturing between seasonal campaigns) and government funding of R&D
Commercial potential for stockpiling is unclear
So far, limited demand government tenders have been small
Larger demand would require additional capacity
Narrow window between seasonal campaigns heightens capacity constraints
Each country has different specifications
Government pressure on pricing
Competition is intensifying
GSK, MedImmune and Sanofi-Pasteur have initiated or plan to initiate development
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Pandemic Influenza Vaccine Strategy Presents Challenges
DURING A PANDEMIC
An actual pandemic may lead to year-round production of pandemic strain in lieu of seasonal campaigns for a brief period
Proprietary adjuvant MF59 may reduce antigen requirements and increase supplies
Government pressure on pricing may lead to lower margins
But in order to produce a commercial pandemic vaccine, technical obstacles must first be addressed
Pandemic vaccine may require higher number of doses than seasonal vaccine
Adjuvants may be required to improve immunogenicity
Manufacturing yields expected to be relatively low
Unclear that these technical obstacles will be resolved before pandemic arrives
and the regulatory pathway is still not clear
No currently approved pandemic vaccines
FDA and EMEA may have different requirements
FDA has not approved any adjuvant other than alum
Flu cell culture production, which is not reliant on egg supply, may afford an advantage
Significant capital investment is required (U.S.: $350-$400MM, EU: $80-$100MM)
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Business Considerations Vaccines
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Opportunities |
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Risks |
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Flu |
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Regained Liverpool license and delivered product for 2005-2006 season Strong terms and relationships with distributors |
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Continued Liverpool manufacturing issues Begrivac must be re-launched Competitors entering market increasing supply |
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Flu Cell Culture |
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Production not reliant on egg supply Pricing opportunity |
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Regulatory approvals Capacity limitations Competition from increasing egg-based supply |
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Pandemic |
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Egg-based capacity may be utilized between annual campaigns for government stockpiling MF59 may reduce antigen requirements Increased sales in pandemic years |
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Government stockpiling: differing strains, specifications, timing, frequency, pricing, capacity limitations MF59: capacity constraints, unclear regulatory approval path, especially FDA Technical and regulatory hurdles to get an approved pandemic vaccine, pressure on pricing |
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Meningitis |
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Novel technology for MenB vaccine - major unmet medical need MenACWY infant data promising |
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MenB very early MenACWY competition (Sanofi-Aventis already on market) Manufacturing facility for MenB and MenACWY requires new FDA approval |
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Blood Testing Business is Strong But Has Limited Growth Potential
Strong commercial capabilities and solid intellectual property
Growth is slowing
Key patents are facing expiration
Chiron has no proven internal development or manufacturing capabilities for next generation platform
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Business Considerations Blood Testing
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Opportunities |
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Risks |
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General |
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Strong commercial capabilities in well defined market segment Geographic expansion |
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Slower growth (limited donations, limited assays) Uncertain adoption in developing countries Upcoming expiration of key patents |
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Assays |
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Procleix West Nile Virus (WNV) Assay Procleix Ultrio Assay U.S. vCJD Assay |
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WNV is U.S. only: no growth beyond move to commercial pricing Ultrio regulatory delays vCJD Assay in early stage |
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Procleix Tigris |
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Fully-automated NAT platform |
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Regulatory delay Issues of reliability |
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Development |
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Potential next-generation instrument combining NAT and immunoassay tests may afford protection post-patent expirations Enzyme conversion to universal blood group 0 (ECO) |
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Early stage; ability to internally develop or manufacture next gen. product unproven ECO is unproven technology with uncertain regulatory pathway |
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Directors Managed Process to Achieve Fair Price
Conducted by Directors with significant industry and financial expertise *
Independent, top-tier financial and legal advisors
Transaction timeline managed by Directors to achieve an optimal outcome
Threat of invoking additional procedural rights provided for in Governance Agreement, such as arbitration and delay, resulted in fair price for stockholders
Unanimous approval by Directors
* See Annex A
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$45 Offer Represents Fair Value for Chiron Stockholders
In assessing the transaction, Directors carefully considered the business risks and opportunities described above
The Directors required and relied on certain analyses, and also obtained fairness opinions from two independent financial advisors, Credit Suisse and Morgan Stanley
Industry-accepted methodologies and sensitivities to projected business performance
Historical trading ranges
Prior to initial offer, research analysts forward price targets of $32 -$42 per share
Selected companies analysis
Discounted cash flow analysis, consolidated and sum of the parts
Various sensitivity analyses and additional data
$45 value is supported by and attractive relative to ranges implied by analysis and Chirons intrinsic value and reflects a significant portion of synergy value available to Novartis
Value represents outcome of extensive negotiation and careful timing by Directors
$45 offer deemed by Directors to be fair and most attractive alternative available to Chiron
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Fair Price and Better Than Status Quo
Novartis has had the right to acquire Chiron since 1994
Appropriate time
11 month process to allow time to address business challenges
No significant near-term milestones to drive value
Fair price: Determined by Directors following careful consideration of opportunities and risks
BioPharma - heavily dependent on high risk tifacogin program
Vaccines - substantial opportunity but ongoing challenges and intensified competition
Blood Testing - strong commercial capabilities but key patents expiring and no proven development or manufacturing capabilities
Royalties - significant to earnings but expected to decline as key patents expire
Better than status quo
Managements long range plan would not produce higher value
Continued operational challenges and execution risks
Significant downside risk in absence of Novartis deal
Novartis veto power over certain strategic transactions, publicly stated intention not to sell its 44% stake, and right to initiate new buy-out proposal at any time
Potentially protracted uncertainty may impact operations (including ability to hire and retain key personnel) and share price
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Annex A: Independent Directors Biographies
Vaughn D. Bryson
Director since 1997; former President and CEO of Eli Lilly
Lewis W. Coleman
Director since 1991; former Chairman and CEO of Bank of America Securities
J. Richard Fredericks
Director since 2003; Chairman of Dionis Capital, a New York based-hedge fund focusing on the financial services industry
Howard H. Pien
Chairman and CEO Chiron; former President of Pharmaceuticals International at GSK
Denise O Leary
Director since 2002; former General Partner of Menlo Ventures, a private venture capital firm
Edward Penhoet, Ph.D.
Director since 1981; Co-Founder, Former President and CEO of Chiron
Peter J. Strijkert, M.D.
Director since 1987; Chairman of Crucell N.V., a biotechnology company focused on developing products that prevent and treat infectious diseases
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