By Matthew Willett
Chiron Corp. said the decision to raise $400 million through an offering of 30-year liquid yield option notes (LYONs) was one of opportunism.
Emeryville, Calif.-based Chiron¿s vice president and treasurer, Jim Kent, the deal was too good to pass up.
¿Obviously, if the market is hot to the point where people are willing to lend us money at 2 percent we¿ll sit up and take notice,¿ Kent told BioWorld Today. ¿The other point is that with a strong balance sheet before the offering there¿s necessarily a bit of an opportunistic flavor to the deal, but when the terms get this aggressive in the market it¿s hard not to think of taking advantage of it, and that¿s what we¿ve done.¿
The zero-coupon senior notes carry the equivalent of a 2 percent annual interest rate, and are convertible into Chiron stock. An overallotment option connected to the offering could raise the company an additional $100 million. Proceeds from the offering will be for general corporate purposes.
¿We¿ve not been specific other than to say general corporate purposes,¿¿ Kent said. ¿What that really means is that it¿s available for any needs of the company. I think it¿s well known and articulated by the company that we¿re very active in the business development area, and so building a war chest may be a useful tool for us in terms of being able to accomplish additional deals.¿
Prior to the offering, Kent said, Chiron had about $870 million in cash and investments. Though it may seem the company didn¿t need additional funding ¿ Chiron, a top-tier company in the biotechnology industry, has operated at a profit for most of the past decade ¿ Kent explained that Chiron¿s needs are different than other biotechnology companies.
¿It¿s also important to note that when we compete for opportunities in business development we compete against [large pharmaceutical companies],¿ he said. ¿If you look at our cash against other biotechnology companies it¿s comparable with some of the strongest biotechnology companies such as Amgen [Inc.], but it could be viewed more in the mode of our balance sheet competing with big pharma, so to that extent we¿re competing with big pharma this helps us do that.¿
The offering will add about 5.2 million shares, about 3 percent more shares, to the company¿s 190 million shares outstanding if all the noteholders redeem their options for shares and not cash, Kent said.
Chiron markets Proleukin (aldesluekin), a recombinant form of interleukin-2, for treatment of metastatic renal cell carcinoma or metastatic melanoma, and DepoCyt (cytarabine liposome injection) for treatment of lymphomatous meningitis.
Chiron manufactures both recombinant human platelet-derived growth factor, the active ingredient in Ortho-McNeil Pharmaceutical Inc.¿s Regranex (becaplermin) for treatment of diabetic foot ulcers, and Betaseron (interferon beta-1b), Berlex Laboratories Inc.¿s treatment for multiple sclerosis.
The company also markets a line of pediatric and adult vaccines including Menjugate, approved in the UK for meningococcal C disease, and RabAvert, a pre- and post-exposure rabies vaccine.
Its research pipeline includes potential therapeutics for infectious diseases, cancer, cardiovascular diseases, gene therapies, vaccines, small-molecule therapeutics and genomics-derived treatments.
Chiron reported total revenues of $239.6 million in the first quarter and pro-forma income from operations of $38 million, or 19 cents per share.
Its stock (NASDAQ:CHIR) closed Thursday at $51.43, down $1.58.