Any potential here?...
Chiron to Use Deal Proceeds to Acquire Drugs in Late Stages of Development
By RALPH T. KING JR.
Staff Reporter of THE WALL STREET JOURNAL
Chiron Corp. said it plans to use proceeds from the $1.1
billion sale of its diagnostics business to Bayer AG
Thursday to buy something it has long lacked: promising,
late-stage drugs.
The sale is timely since it gives the nation's
second-largest biotechnology company a war chest to
purchase other biotech companies, or the fruits of their
research, at a time when the industry is out of favor with
investors. But Chiron, which will sacrifice about half its
$1.1 billion revenue base in the deal, may be bidding
against pharmaceutical companies with rich stock prices
and cash hordes of their own.
The transaction is the first
major step by Chiron's
newly appointed chief
executive officer, Sean
Lance, to refocus the
company after years of poor
performance from clinical-trial failures, product delays
and ill-conceived expansion. Mr. Lance said he will shop
for cancer and cardiovascular drugs that Chiron can
bring to market within 18 months and wouldn't rule out a
hostile takeover of a biotech company, if need be.
Mr. Lance, a drug-industry veteran who is a native of
South Africa, said he believed in spending "more money
on later stages of product development." He plans to
announce further changes in strategy within a month,
which might include selling Chiron's vaccine business, he
said.
"This is a guy who is bearing down and a company that
is finally on the move, focusing on its own internal
strengths," said Michael Sheffrey, a biotech analyst with
OrbiMed Advisors in New York.
Looking for 'Product Bargains'
But several analysts questioned the approach of buying
cheap yet attractive drugs as a way to help reverse
Chiron's fortunes. "Everyone is out there looking for
advanced-stage product bargains," said Matthew Geller,
an analyst with CIBC Oppenheimer, adding that it could
take at least five years to turn Chiron around. "This
company is paying for past sins, and repentance comes
at a high price in biotech," Mr. Geller said.
In Nasdaq Stock Market trading Thursday, Chiron's
stock closed at $17.4375, up 56.25 cents but
significantly below the $29 per share, or $2.1 billion,
price Novartis AG paid for nearly half the company in
1994.
One big question facing Chiron, Emeryville, Calif., is
how its strategic moves will be viewed by Novartis. The
Swiss drug giant has the right to increase its stake to
55% in January 2000 but for now is subject to a
standstill agreement. In the past Novartis executives
have said they are pleased with Chiron, but analysts say
they have privately expressed frustration with the
company's progress.
Mr. Lance said he hopes to persuade Novartis to invest
more in Chiron. "We want them to increase their holding
because they believe in us, but we also want to keep our
autonomy," he said.
Royalties on Applications
The sale of the diagnostics division to Bayer should be
final by the end of the year, Chiron said. Chiron will also
collect royalties from the German pharmaceutical
company on diagnostic applications related to hepatitis
C and HIV, the virus that causes AIDS.
Craig Parker, an analyst with Donaldson Lufkin &
Jenrette, cheered the price and speed of the sale and
said he is now considering upgrading Chiron's stock to a
buy. "With someone like Sean Lance, changes could
take place quite rapidly, maybe not in the company's
culture but in its income statement."
Chiron has traditionally resembled an academic
laboratory, reflecting the style of its chairman, William
Rutter. Dr. Rutter guided a string of innovations as a
biochemistry professor at the University of California at
San Francisco in the 1970s but proved less successful as
a manager of a large corporation. He funded too many
basic-research projects at once, didn't focus on
commercial issues like manufacturing, and tended to
micromanage senior executives, analysts say.
But since Mr. Lance joined Chiron last May, Dr. Rutter
has remained largely on the sidelines. In a symbolic
gesture, he surrendered his corner office to Mr. Lance
and moved into the office occupied by Mr. Lance's
predecessor, Edward Penhoet. Dr. Penhoet, who had
announced intentions to stay at Chiron to manage
relations with regulators and research collaborators,
resigned in July to become dean of the School of Public
Health at the University of California at Berkeley. |
