Realizing Value from Intellectual Property Our broad HIV and HCV patent estate continued to drive growth in licensing and royalty income in 2001. In May, we were pleased to sign a definitive patent license agreement with F. Hoffmann-La Roche covering HIV-1 and HCV for NAT blood screening. This arrangement allows Roche to manufacture and sell probe-based HIV-1 and HCV blood screening tests worldwide in exchange for new royalty rates calculated on a per donation basis. By enabling two suppliers in the large and growing blood screening field, we are committed to ensuring a reliable source of NAT products to blood banks. In addition to Roche, we also have licensed our HCV and HIV intellectual property to other leading companies. Developing the Pipeline At the beginning of 2001, we set the realistic but challenging goal of achieving 10 clinical advances during the year, which we did not meet. We rigorously define an advance as either progressing from one clinical phase to another, or attaining marketing approval. During the past year, we began Phase II trials of PA-1806, a novel antibiotic, and Angiozyme™, an anti-angiogenic agent for cancer, and initiated Phase I testing of our H. pylori vaccine. We were disappointed in November to announce the unsuccessful results of our Phase III trial of tifacogin in severe sepsis, a very challenging indication. We are committed to expanding our product pipeline through organic development, acquisition, or in-licensing. One sign of that is our decision to acquire Matrix Pharmaceutical Inc. for the cancer compound tezacitabine. Currently in Phase II clinical trials, tezacitabine is a next-generation nucleoside analogue being developed to treat solid tumor cancers. We will continue to look for opportunities to expand our pipeline that fit with our strategic focus. We are maintaining the goal of 10 clinical program advances in the coming year. We believe this is a strong measure for achievement and is a sign of our commitment to move the pipeline forward. Among the advancements we expect in 2002 are the start of Phase I trials of our novel vaccines for meningococcal B disease, HIV and HCV, along with Proleukin in combination with Herceptin® (trastuzumab) for the treatment of breast cancer, as well as the start of a Phase II trial of Proleukin in combination with Rituxan for non-Hodgkin’s lymphoma. Strengthening Our Organization We were pleased to welcome several new members to our management team in the past year, including John Lambert, President of Chiron Vaccines, and Craig Wheeler, President of Chiron BioPharmaceuticals. John and Craig both have significant industry experience, and we look forward to their contributions in shaping Chiron for success in the years to come. We proceed into 2002 with strong goals and expectations, supported by a clear strategic roadmap. We remain committed to our long-term objectives of providing innovations that help people to live better, healthier lives, and achieving our target of a 25 percent EPS compound average growth rate. We are enthusiastic about our ability to inspire the best in our employees, deliver solid results to investors, and develop products that make a world of difference. We thank our stockholders, our customers, and our employees for their support and confidence as we work to achieve our goals.   Sincerely, Sean P. Lance Chairman of the Board, President and Chief Executive Officer March 1, 2002