By Randall Osborne

West Coast Editor

Proving there's more than one way to skin a cat, or acquire a later-stage product for the pipeline, Chiron Corp. said it intends to do even better - adding an approved product to its arsenal, plus an entire anti-infectives program, by taking over Pathogenesis Corp. for about $700 million, or $38.50 per share.

Emeryville, Calif.-based Chiron would get TOBI (tobramycin solution for inhalation) in the deal, expected to close in the third or fourth quarter and already approved by the boards of both companies.

But the move wasn't just a strategy to gain the much sought-after pipeline item, said Vince Barella, Chiron's investor relations manager.

"Absolutely not," Barella told BioWorld Today. "It's a tremendous opportunity to get a marketed product that's complementary to our product set, and augments our already-established franchise" in blood testing, oncology and vaccines, he said.

The cash purchase also would give Chiron five major commercial products and 15 clinical development programs. Wall Street was less than enthusiastic on behalf of Chiron (NASDAQ:CHIR), which closed Monday at $46.687, down $1.94. Seattle-based Pathogenesis (NASDAQ: PGNS) ended the day at $37.968, up $5.22, or 16 percent.

Elise Wang, an analyst with PaineWebber Inc. in New York, said in a report that "although Chiron has a sufficient cash balance ($1.5 billion) to finance this transaction, we believe it may have been more optimal to leverage the stock, given the appreciation to date as opposed to the all-cash nature of the deal."

The buyout is not expected to be dilutive beyond 2001 and will be accretive starting in 2003. Michael King, of Robertson Stephens in San Francisco, noted in a report that Chiron paid an 18 percent premium over Friday's closing price of $32.50, which is more than six times the revenue estimate by King's firm for Pathogenesis in fiscal year 2001.

Sean Lance, CEO of Chiron, said in a conference call that enhanced research and development made possible by the Pathogenesis acquisition would be "an important component of our long-term growth." Lance noted Chiron has two infectious disease candidates in the works - one for sepsis and one for HIV.

King wrote that his firm's "feelings towards this acquisition are mixed, as we do not see any short-term marketing or [research and development] synergies from the acquisition." He was unavailable for comment.

Robertson Stephens' revenue projections for Pathogenesis, which has other antibiotics in earlier trials, are $89.4 million for this year and $117.6 million for 2001.

Chiron, for its part, fell a bit below earnings estimates last year, and its recombinant fibroblast growth factor-2 failed to meet its primary endpoint, improvement of exercise at 90 days, in a clinical trial involving symptomatic coronary artery disease patients. The drug seemed to work against chest pain, though, and Chiron is pursuing secondary endpoints. (See BioWorld Today, March 14, 2000, p. 1; and Feb. 10, 2000, p. 1.)

Last month, Chiron halted its program to develop insulin-like growth factor-1 (rhIGF-1) for osteoarthritis of the knee. (See BioWorld Today, July 26, 2000, p. 1.)

Sales of TOBI, the only inhaled antibiotic for Pseudomonas aeruginosa lung infections in cystic fibrosis patients, were $39.5 million in the first half of this year, mostly in the U.S., and it was approved last week for mutual-recognition marketing in 15 other European countries. It already was marketed in the U.S., UK, Canada and three other countries.

"There are a couple of trials going" in other indications, Barella said, including Phase II studies for severe chronic bronchitis (bronchiectasis) and for tuberculosis. A Phase III trial in the former indication, in which one Phase II trial already has been completed and published, is expected in 2001.

No Comments