Talks between top executives from Chiron Corp. and Viagene Inc.concerning a possible merger of the two companies were terminatedover the weekend before an agreement was reached.
The discussions, which began after the stock market closed onFriday, and ended Saturday, were initiated by Chiron.
The failed talks came just months after Chiron CEO Edward Penhoettold attendees at a New York investment conference that his companyplanned to target undervalued small companies for possibleacquisition and to play an active role in the consolidation of the cash-starved biotechnology industry. (See BioWorld Today, Nov. 30,1994, p. 1.)
Chiron disclosed the Viagene acquisition talks in a March 17amendment to a Dec. 23, 1993, 13-D filing with the Securities andExchange Commission. The amendment stated that "the possibility ofChiron acquiring Viagene" was discussed by senior executives. As aresult, Chiron officials felt that the portion of the original 13-D filingconcerning the "purpose" of its stock ownership in Viagene _listedas "for the purposes of investment" _ should be amended.
In November 1993, Chiron and Viagene entered into a collaborationto develop gene transfer products for the prevention and treatment ofcancer and to work on gene therapy drug-activation technology. Aspart of that pact, Chiron agreed to purchase 1.6 million shares ofViagene's preferred stock for $17.6 million and warrants for $2.4million. The warrants, which give Chiron the option to buy anadditional 2.75 million shares of Viagene at $11 per share, vest overa four-year period, 18 months of which have already passed.
Chiron, based in Emeryville, Calif., currently owns about 1.956million shares of Viagene (NASDAQ:VIGN), which amounts toroughly 18 percent of the San Diego company's 11 millionoutstanding shares. The new 13-D filing states that Chiron "mayexplore, from time to time, a variety of alternatives available to it inconnection with its investment in Viagene including, withoutlimitation, the acquisition of some or all of the Viagene commonstock not owned by it or the disposition of some or all of the Viagenecommon stock and/or warrants held by it."
Chiron spokesman Larry Kurtz declined to comment beyond theinformation provided in the SEC filing. Robert Abbott, president andCEO of Viagene, told BioWorld that the talks were the first time thata possible acquisition had been discussed "directly with Chiron."
"Viagene values its collaboration with Chiron and looks forward tocontinuing its present relationship," said Abbott. " While a strategiccombination of Chiron and Viagene could potentially add value toboth companies, Viagene believes it can also continue to buildshareholder value through development and commercialization of itstechnology with strategic partners, including Chiron."
As of Dec. 31, 1994, Viagene had approximately $29 million in cash.Based on current projected annual burn rates of between $12 millionto $15 million, the company has enough in its coffers to last for twomore years. On Monday, Viagene stock closed at $6.38, up 63 centsper share, while Chiron stock (NASDAQ:CHIR) closed at $58, down50 cents per share.
Abbott speculated that the movement in Viagene's stock was due tothe belief held by some investors "that there may be furtherdiscussions," as well as to the fact that some interpreted lastweekend's negotiations "as an endorsement of the company[Viagene] and its technology." However, he hastened to add that "theweekend talks have been terminated."
As a condition of its 1993 Viagene equity purchase, Chiron hasagreed, except in limited circumstances (such as a merger oracquisition), not to purchase additional Viagene stock without theapproval of Viagene's board of directors for a period of five years,18 months of which have passed. Chiron also agreed not to exerciseits warrants at any time if it would increase its direct ownership inViagene above 19.9 percent prior to November 1995 and above 30percent prior to November 1998. n
-- Lisa Piercey Washington Editor
(c) 1997 American Health Consultants. All rights reserved.