By Mary Welch

Chiron Corp. posted a first-quarter net income of $54 million, or $0.31 per share, with adjusted figures showing the company on an even keel with last year — but analysts said the figures don't begin to tell what's happening with the company.

"This is a turnaround story," said Tony Butler, an analyst with Lehman Brothers, of New York. "Earnings per share are important, but with this company today, more important are the new management and the new course the company is taking. It's a whole new ballgame."

The Emeryville, Calif.-based company's earnings include the $65 million gained from the sale of Chiron Vision Corp. to Bausch & Lomb, of Rochester, N.Y. Adjusted income from continuing operations was $16 million or $0.09 per share, the same as last year.

Revenues for the quarter totaled $269 million, compared with $280 million for the first quarter of 1997. But Chiron's diagnostic quality controls and electrophoresis businesses, which were sold or closed during the fourth quarter of 1997, had contributed $6 million to the net product sales for that year's first quarter.

"We're satisfied with the results," said Jim Knighton, Chiron's vice president of investor relations and communications. "We're less wedded to quarter-to-quarter fluctuations than we are trying to do $0.50 (continuing operation costs per share) or better and we achieved that." Last year, that number was $0.41.

Chiron's restructuring and reorganization costs were $24 million, of which $21 million represents the cost of eliminating 403 positions — mostly by streamlining the diagnostic business and closing the company's St. Louis manufacturing facility.

Diagnostics Sales Down

Sales from diagnostics products totaled $140 million, down from $149 million of a year ago — a decline attributed to the 1997 divestment of the quality controls business, which added $5 million to the bottom line in 1997. The foreign exchange rates also affected the company.

Chiron Vaccines showed product sales of $15 million, as compared with $19 million in the first quarter of 1997. The slowdown was partly blamed on lower sales of polio, measles and other pediatric vaccines. The vaccine division's gross profit margin increased from 50 percent in the first quarter of 1997 to 63 percent in the 1998 period.

Also in the first quarter of this year, Chiron paid $115 million in its buyout of Chiron Behring GmbH & Co., from Frankfurt, Germany-based Hoechst AG. Chiron had held 49 percent of Behring, and bought the remaining 51 percent. (See BioWorld Today, April 2, 1998, p. 1.)

Chiron Therapeutics and Chiron Technologies, as combined biopharmaceutical business units, reported a 51 percent increase in product sales to $50 million — up from $33 million last year.

"Overall, I'd say we're on track," Knighton said. "But I think people are right when they say there's a lot of changes going on. We have a new CEO [Sean Lance, formerly of London-based Glaxo Wellcome plc] starting Friday. If you don't want a lot of changes, don't hire a guy like Sean Lance." (See BioWorld Today, March 24, 1998, p. 1.)

A new chief financial officer, James Sulat, joined the Chiron team April 1.

Peter Ginsberg, an analyst with Piper Jaffray Inc., of Minneapolis, said he was optimistic about the "transformation" of Chiron.

"Their results this quarter were lackluster, but starting now, they'll be some important changes — new management, more efficiencies, more focus," Ginsberg said. "You've got a commercial-oriented management, and I think the company will look better as time goes on."

In addition to selling its vision subsidiary last year, Chiron also sold part of its Diagnostic Quality Control assets to Bio-Rad Laboratories, of Hercules, Calif., for $18.6 million.

Having shed unwanted divisions, the company intends to focus more closely on diagnostics and pharmaceuticals, probably seeking a partner in the diagnostics division before the year's end. A spin-off there is "far less likely," Knighton said. The pharmaceuticals division will take aim at oncology and cardiovascular areas.

New Products Coming On LIne

Chiron launched Regranex (becaplermin) for diabetic foot ulcers in February with partner Ortho McNeil Pharmaceutical, of Raritan, N.J., a subsidiary of New Brunswick, N.J.-based Johnson & Johnson, and Phase III studies are under way to test the drug against pressure ulcers. The FDA is continuing its review of Myotrophin for Lou Gehrig's disease. And Chiron remains in discussions with the agency about Proleukin (an injectable recombinant form of the naturally occurring immunostimulatory interleukin-2) for HIV patients. The FDA already has granted a license to market Proleukin for metastatic renal cell carcinoma and metastatic melanoma.

Knighton said the company is "just launching several new products and the revenues from these products have yet to be realized."

Butler said the company, and investors, should be looking forward.

"I'm unfazed by their past," he said. "The focus isn't on what happened, it's on what will happen. We shouldn't be worrying about a two cents difference in the stock today. With this company, show me the earnings a year from now." *

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