By Debbie Strickland
Chiron Corp. will get a $300 million jolt of cash early next year from the sale of its 11-year-old ophthalmic unit, Chiron Vision Corp., to Bausch & Lomb.
"It's something we've been waiting for," said David Molowa, an analyst with Bear Stearns Co., in New York. "[Chiron's] managment had made it clear this was no longer a core business for the company, that theirs is really a pharmaceutical and diagnostics business."
In a related acquisition this week, Bausch & Lomb also signed a definitive agreement to acquire Storz Instrument Co., a St. Louis subsidiary of American Home Products Corp., for $380 million in cash.
Though headquartered in Rochester, N.Y., Bausch & Lomb said there are no plans to relocate either Storz' or Claremont, Calif.-based Chiron Vision's operations, or to make management changes. Completion of both transactions, which are subject to regulatory approval, is expected in early 1998.
For Chiron, the deal will more than triple the company's June 30 cash level of $148 million. The Emeryville, Calif., company has "no direct plans" for the proceeds, said Edward Penhoet, president and CEO, "but we do have debt on our balance sheet, so it will certainly improve our balance sheet in the short term."
As of June 30, the company had $393.4 million in long-term debt.
"Longer term," added Penhoet, "as we focus on our other core businesses, it is not inconceivable that from time to time there would be acquisitions of interest to us, but we don't have any in mind at the moment."
While filling the coffers, the sale removes Chiron Vision's lackluster contribution to Chiron's bottom line.
"This business was break-even at best," said Molowa. "Probably having it gone will improve gross margins."
Analysts Eric Schmidt and Tim Wilson, of New York-based UBS Securities echoed the sentiment.
"Given the nature of the business we consider Chiron fortunate to receive a selling price of 1.4 times revenues," they wrote, in a note on the deal. "The division's sales stemmed chiefly from low-margin intraocular lenses and laser-based surgical equipment, and had not achieved original expectations due to the disappointing sales of Vitrasert."
An intraocular-implanted delivery vehicle for ganciclovir, Vitrasert generated sales of $12.2 million in its first partial year on the market, following FDA approval in March 1996. Co-marketed with Roche Holding Ltd., of Basel, Switzerland, Vitrasert is designed to treat AIDS-related cytomegalovirus retinitis. The drug faces competition from, among others, Foster City, Calif.-based Gilead Sciences Inc.'s Vistide, an FDA-approved injectable drug based on a nucleotide analogue called cidofovir.
For Bausch & Lomb, the acquistion of Chiron Vision offers a quick way to establish a business in ophthalmic surgical products and devices. In 1996, Bausch & Lomb's vision product lineup consisted primarily of glasses, contact lenses and related materials. The company, which posted sales of $2 billion in 1996, also operates a pharmaceuticals business centered on ophthalmic and generic drugs.
Chiron Vision Contributed $211M In '96 Sales
Chiron Vision's wares, sold in more than 20 countries, include both hard and foldable intraocular lenses for cataract replacement surgeries, phacoemulsification instruments for small-incision cataract surgeries, and refractive surgical instruments, including corneal shapers and excimer lasers.
The subsidiary recorded sales of $211 million in 1996, a 19 percent gain over 1995's total. The unit accounts for about 20 percent of all Chiron Corp. revenues, second only to the diagnostics business, which generates some 60 percent.
Despite the 1996 launch of four new products or product lines, including Vitrasert, sales flattened during the first six months of 1997, hitting $103.1 million, down from $104.5 million in the first half of 1996.
Chiron created the division in 1986 to develop growth factor-based wound-healing agents for the eye. That project never panned out, though it eventually did lead to the development of Regranex, which was recommended for approval in July by an FDA advisory panel as a treatment for diabetic foot ulcers.
In recent years, Chiron expanded the vision business, in part, through strategic acquisitions of its own, growing sales 67 percent in 1995 after paying $95 million to acquire a competitor--the ophthalmic surgical division of IOLAB, a division of New Brunswick, N.J.-based Johnson & Johnson. Chiron acquired France-based Laboratoires Domilens S.A., an ophthalmic products company, in 1994.
Chiron Trying To Push Share Value To $40
The divestiture fits in with a new Chiron initiative dubbed "Project 40," which involves focusing on core businesses and boosting shareholder value.
"Project 40 has a goal of generating greater than $150 million in annual savings by year 2000 and driving Chiron's stock price to the $40 per share range," wrote Schmidt and Wilson, who are maintaining their "hold" recommendation until Chiron "appears more capable of delivering increased high margin revenues on new or existing products."
Penhoet said the company is shedding unneeded assets, consolidating operations, and introducing higher-efficiency technology. Layoffs are "possible," said Penhoet, "although that's not the principle motivation for the project."
The Chiron Vision move, along with the write-off of a now-idle factory in Puerto Rico fits with the efforts to "streamline its operations and sharpen its focus on its core capabilities and its tripartite strategy--the prevention, diagnosis and treatment of targeted diseases," said Penhoet. (See BioWorld Today, Oct. 6, 1997, p. 1.)
Meanwhile, Chiron's quest for a new president and CEO--begun in January--continues. The company apparently made a choice last summer but the deal fell through, so now Chiron is having "to go back and start all over again," said Molowa, who suspects the company now has a short list of candidates.
Penhoet said interviews are ongoing, and that "we would like to see the transition occur in the not-too-distant future."
Chiron's shares (NASDAQ:CHIR) closed Wednesday at $21.938, down $0.125. Bausch & Lomb (NYSE:BOL) ended the day at $42.25, up $0.125. *