By Mary Welch
As Chiron Corp. continues its metamorphosis into a leaner, more focused company, third-quarter results are showing the benefits of this strategy. For the quarter ended Sept. 30, Chiron, of Emeryville, Calif., reported a net income of $84 million, or $0.47 per share. For the first nine months of 1998, its net income was $164 million, or $0.91 per share, which includes a $65 million first-quarter gain on the sale of Chiron Vision Corp. to Bausch & Lomb Inc., of Rochester, N.Y., for $300 million.
The third-quarter net includes a gain of about $46 million related to deferred tax assets from the planned sale of Chiron Diagnostics Corp., to Bayer Corp., of Pittsburgh, Pa. Bayer agreed to pay more than $1 billion in cash, plus future royalties on certain intellectual property relating to hepatitis C and HIV. The deal should be finalized by year-end. (See BioWorld Today, Sept. 18, 1998, p. 1.)
"We think it is a very solid quarter," said Jim Knighton, vice president of investor relations. "We beat the Street [Wall Street estimates] by a considerable margin. It's still obvious that Sean [Lance, Chiron's CEO, who was hired in March] is driving the operations toward more efficacy."
Chiron's total revenues for the quarter were $215.9 million, up from $146.4 million for the same period last year — a jump of 48 percent. Contributing to the gain was the $115 million purchase of the remaining 51 percent interest in, and consolidation of, Chiron Behring GmbH & Co. in the second quarter of this year.
Chiron Behring is the name of a joint venture formed in 1996 when Chiron first purchased its stake in the vaccine company Behringwerke AG, a subsidiary of Frankfurt-based Hoeschst AG. (See BioWorld Today, Feb. 21, 1996, p. 1, and BioWorld Today, April 2, 1998, p. 1.)
Excluding Chiron Behring's revenues, product sales for the quarter increased by $8 million, or 12 percent, for third-quarter 1998 over the year-earlier period.
Revenues for the first nine months of the year were $512.1 million, up from $413.5 million for the same period last year.
Chiron Vaccines reported product sales of $61 million in the quarter, up substantially from the same period last year, when sales totaled $16 million. The increase of $45 million largely can be attributed to the acquisition of the rest of Chiron Behring. Vaccines' gross profit margin remained constant at 49 percent for the third quarters of 1998 and 1997.
Chiron Therapeutics and Chiron Technologies as combined biopharmaceutical business units reported third-quarter sales of $47 million, as compared with $41 million in the same 1997 quarter. Proleukin (aldesleukin) accounted for about $22 million.
Research and development, an area that Lance has said needed trimming, cost $69.4 million in the third quarter of 1998, up marginally from last year's $68 million. For the first three quarters of 1998, Chiron spent $202.3 million in R&D — again, not much more than the $193.8 million for the same period of 1997.
"Our R&D efforts are more focused. We are really concentrating on between half a dozen to maybe a little less than a dozen R&D programs," Knighton said.
More cost-cutting — and perhaps a big announcement — should come as early as this quarter, he said.
"There are two big questions: 'What is the structural direction the company will take?' and 'What will the company do with the cash — almost $1.2 billion — it has on hand?' How will we maximize the money?"
Knighton, citing a favored quote from a business professor, said, "Structure follows strategy, and Chiron always has had multiple business units, as many as five. It's been very complicated and I would expect we might see a simpler configuration as we go forward."
Lance also has indicated he has some ideas about the company's structure and its hot cash position and will discuss the proposals at a board of directors meeting next month. "There will be a November board meeting and a regular December one [meeting]," Knighton said. "It will take approval by the board, but we expect an announcement or a roll-out of the direction [the company will be taking] in the fourth quarter."
He said the situation was "almost like a striptease . . . we've done some spin-offs and efficiency moves, but there's still more to come."
Chiron's stock (NASDAQ:CHIR) closed Thursday at $21.097, down $0.087. *