By Mary Welch
With a plan to focus more on therapeutics, vaccines and the blood-testing market, Chiron Corp. sold its in vitro diagnostics subsidiary to Bayer AG for $1.1 billion in cash, and — in exchange for future royalties — is licensing its hepatitis C virus (HCV) and HIV intellectual property to the German firm for use in nucleic acid diagnostics.
"Understanding the value of the [licensed] technology is the key," said Jim Knighton, spokesman for Emeryville, Calif.-based Chiron. "Analysts are challenged to understand and recognize the true value of this deal to Chiron overall."
Knighton set that value in excess of $2 billion. The up-front payment, after taxes, equals $800 million to $900 million. Completion of the sale of Chiron Diagnostics Corp., of Walpole, Mass., is expected by the year's end.
Analyst David Crossen, of Montgomery Securities, in San Francisco, said Chiron had been "trying to unload diagnostics for three years. It was an unproductive business, outmoded, and it wasn't going to take them anywhere."
Chiron retains the right to grant further licenses of the HCV and HIV property or use it internally. "We're calling it a 'semi-exclusive license,'" Knighton said.
Crossen said the company's next step will be critical.
"The blood screening business will go on for years to come, but how will Chiron proceed with the money [from this sale]?" he said. "The name of the game is innovative therapies, or DNA screenings. They have to pave a new path for themselves where the action is."
Matthew Geller, an analyst with CIBC Oppenheimer & Co., in New York, said the sales price was about 1.7 times the estimated 1998 diagnostics division revenues of $660 million, "a favorable price for this low-margin business. In the short term, the transaction should be modestly accretive," Geller wrote in a report.
In the longer run, Geller agreed with Crossen: The impact on the company's earnings per share will depend on "how Chiron deploys its cash as a strategic resource," he wrote. Possible uses, Geller noted, include stepping up Chiron's internal research and development spending; in-licensing early- or late-stage developmental stage products or technologies; acquiring rights to existing products; and/or buying back some shares.
The diagnostics firm handles in vitro diagnostics, focusing on critical blood analysis, clinical chemistry, endocrinology, infectious disease, allergy and oncology. It has operations in 20 countries and employs about 3,000.
For Bayer, of Leverkusen, Germany, the acquisition opens up a new area of blood-gas analysis and provides important technology. Bayer's Diagnostics Business Group is headquartered in Tarrytown, N.Y., and recorded 1997 sales of $1.1 billion, with 4,800 employees worldwide. The unit has three key segments: laboratory testing, point-of-care testing and self-testing.
Chiron Keeps J&J, Gen-Probe Diagnostics Deals
Excluding the blood-screening business — which Chiron keeps in this deal — the diagnostics unit posted second-quarter 1998 sales of $142 million, down from last year's $149 million. The blood screening side's revenues were $24 million, down from $31 million in the second quarter of 1997. Last year, the diagnostics side showed revenues of $607 million, up from $577 million in 1996.
The blood-screening business, a joint company with New Brunswick, N.J.-based Johnson & Johnson, is Ortho Clinical Diagnostics, which last year posted $93 million in profits.
Chiron also retains its collaboration with Gen-Probe Inc., of San Diego, to develop nucleic acid products for blood screening. Under the terms of the Gen-Probe deal, disclosed in July, Chiron will market and sell products that utilize intellectual property relating to HCV and HIV, and Gen-Probe's transcription-mediated amplification (TMA), target capture, hybridization protection assay (HPA) and dual kinetic assay (DKA) technologies.
The joint venture will provide blood banks with the capability to directly test for infectious agents through the use of nucleic acid diagnostic probe technology, which creates even more safety in the blood supply. Financial details were not released.
Chiron, along with Ortho, of Raritan, N.J., is a leading participant in testing blood for the potential presence of infectious agents through the use of immunoassay tests for hepatitis B, hepatitis C, and HIV.
In a streamlining effort during the past two years, Chiron has sold its vision business to Bausch & Lomb, of Rochester, N.Y., for $300 million; its controls business to BioRad Laboratories Inc., of Hercules, Calif.; and its electrophoresis business to Helena Labs, of Beaumont, Texas. Terms of the latter two deals were undisclosed. (See BioWorld Today, Oct. 23, 1997, p. 1.)
Chiron's stock (NASDAQ:CHIR) closed Thursday at $17.437, up $0.562. *