By Lisa Seachrist

Washington Editor

Chiron Corp. beat analysts' predictions for the second quarter to post income from continuing operations of $34 million, or 18 cents per share.

Those earnings compare to $12 million, or 7 cents per share, for the second quarter of 1998, and $26 million (14 cents per share) for the first quarter of 1999. The Emeryville, Calif.-based company beat the Street's consensus earnings expectations of 13 cents per share.

The company reported that total revenue for the second quarter of 1999 grew 16 percent to $189 million from the comparable period in 1998. Chiron reported a net 5 percent increase in product revenues, royalty revenues generated from Chiron's hepatitis C and HIV technologies, and a $10 million milestone payment earned from FDA approval of DepoCyt for the treatment of lymphomatous meningitis. Chiron also received $13 million in research and development funding from Novartis AG.

"Their earnings are a nice surprise," said Mike King, vice president and senior research analyst with BancBoston Robertson Stephens in New York. "But there are a couple of factors that are pulling them ahead of estimates, such as a milestone payment for DepoCyt approval and inflated revenues from Proleukin in anticipation of a price increase. They are likely to experience a down quarter in the third quarter."

Chiron reported biopharmaceutical segment product sales of $55 million in the second quarter, up from $47 million in the same period last year. Proleukin (interleukin-2 or IL-2), which is approved for renal cell carcinoma and metastatic melanoma garnered $37 million in sales while the company earned $14 million in sales of Betaseron (interferon beta-1b) to Berlex Laboratories Inc. for marketing and resale as a treatment for relapsing and remitting multiple sclerosis. The company also received $7 million in royalties form Schering AG's European sales of Betaferon.

King noted that the company estimated $8 million to $10 million in sales of Proleukin were taken from third-quarter revenues as wholesalers stocked up on the drug in anticipation of a 7.5 percent price increase. Chiron has fast-track status for the use of Proleukin in HIV-infected patients who are on highly active anti-retroviral therapy (HAART) and it is currently being tested in Phase III clinical studies. King doesn't expect the label to be expanded before 2000.

The company saw no revenues from Regranex, a recombinant platelet-derived growth factor, which is approved for diabetic foot sores, and is unlikely to see any revenues from the product as marketing partner Johnson & Johnson works through its current inventory of the drug.

"Those sales may increase after the recent publication of favorable phase II data for the use of Regranex in pressure ulcers," Matt Geller, an analyst with CIBC World Markets Corp. in New York, said in a research note.

The company reported vaccine segment product sales of $39 million for the quarter, as compared with $44 million in the similar period in 1998. The decrease was primarily the result of a reduction in tick-borne encephalitis vaccine sales and a change in timing of the financial reporting by Chiron's Italian vaccines subsidiary. Chiron has fast-track status in the United Kingdom for its group C meningococcal vaccine, and Geller predicted the company will file for approval in the third quarter of this year.

Chiron reported blood-testing revenues had increased in the second quarter 1999 to $26 million from $24 million during the same period last year. The increase was largely a result of $2 million in product sales in its nucleic acid testing business. Chiron's earning from its joint blood testing and immunodiagnostics business with Ortho-Clinical Diagnostics Inc., a Johnson & Johnson company, were $17 million in the second quarter as compared with $18 million in the second quarter of 1998.

King noted that the company, in a discussion with analysts, continued to emphasize its Phase II products: FGF (fibroblast growth factor) for non-surgical revascularization of coronary heart disease patients; IGF-1 (insulin-like growth factor-1) for osteoarthritis; and TFPI (tissue factor pathway inhibitor) for sepsis. However, he also noted the company made no mention of Myotrophin (IGF-1) for the treatment of amyotrophic lateral sclerosis and downplayed the prospects of DepoCyt in neoplastic meningitis.

"We continue to look for the catalyst that would cause us to upgrade the stock," King said. "The nucleic-acid [blood testing] technology may be that catalyst. But Chiron, for now, is a restructuring story."

Geller also noted the company is in transition, but pointed to products currently in the clinic as well as potential in-licensing deals to shore up gaps in the pipeline as positives for Chiron moving forward.

The company's stock (NASDAQ:CHIR) fell 37.5 cents Wednesday to close at $25.562.