Chiron Corp. had an interruption in its earnings flow related mostlyto investment write-downs, as the biotechnology company reported anet fourth-quarter loss of $4.2 million, or 13 cents per share.
Chiron, however, reported record quarterly revenues of $134 million.In the fourth quarter of 1993, Chiron had net income of $5.5 million,or 16 cents per share, on revenues of $93 million.
In the quarter, and for the year ending Dec. 31, the Emeryville, Calif.,company wrote down, to current market value, $11.6 million inequity investments in Cephalon Inc. and Viagene Inc. Chiron alsotook a $2.1 million charge related to its partnership agreement withCiba-Geigy Ltd., announced in November and completed Jan. 4.
Without the write-down and Ciba expense, Chiron's net incomewould have been $9.6 million, or 28 cents per share for the quarter,and $32 million, or 93 cents for the year. That figure falls about 6cents short of consensus estimates of nearly $1 in earnings per share.
"There were no major surprises," Mark Simon, managing director ofRobertson Stephens & Co. of San Francisco, said of the earningsreport. "The company telegraphed to Wall Street with crystal claritythat there was going to be a transition, that the transition wouldinvolve charges, and would temporarily be disruptive to earnings.
"We view 1995 as a year of transition for Chiron," Simon toldBioWorld. "They will use this year to completely clear the deck inorder to resume their historical earnings-per-share growth in 1996and beyond."
Simon is projecting a profitable 1995 for Chiron, but said that's notwhat investors should be looking at. "The critical thing for investorsto focus on is 1996 and beyond," he said. "Because of its strongpipeline, Chiron has never been a near-term earnings story."
Chiron's stock (NASDAQ:CHIR) lost $2.81 Thursday, closing at$56, in trading of nearly 2 million shares.
Gregory Brown, an analyst with Vector Securities International, ofDeerfield, Ill., agreed that those looking long-term should includeChiron in their holdings. But investors interested in the short term, hesaid, may want to stay on the sidelines until the dust clears.
"If I'm a short-term investor, there's too much confusion anduncertainty to buy it," Brown said. "Many investors are choosing towait until we see what happens in 1995."
The "uncertainty" in Chiron's stock involves a number of factors.One is related to revenues from sales of Betaseron, of which Chirongot $100 million in 1994 from its agreement with BerlexLaboratories, the U.S. subsidiary of Germany-based Schering AG.Chiron has been receiving its revenues upon shipment to Berlex.Chiron will be getting part of its revenues upon shipment and partwhen Berlex records the sale. Chiron hasn't decided when thechangeover will take effect, but it may happen in the first quarter,said Larry Kurtz, the company's vice president, corporatecommunications.
Kurtz told BioWorld that Chiron will have charges of $275 million to$325 million this quarter related to the deal with Ciba. The majorityof that will be in write-offs concerning Chiron's full ownership ofCiba Corning Diagnostics Corp., and Biocine Co. and Biocine SpA,which were 50-50 joint venture companies formed by Ciba andChiron to develop vaccines.
Brown said, "Whenever you're integrating a multidivisionalacquisition, one healthy principle is to recognize that it always costsmore than the gloomiest projection."
Another issue, Brown said, is "that the management team at Chironhas done very well for investors. They have a somewhat European,long-term view of investment, as well as enjoying perhaps the richestpipeline in the industry. Last year they were under pressure to deliverearnings. This year they have a new function as the new businessdevelopment arm of Ciba-Geigy: to build the largest biotechconsortium in the world."
Chiron, which reported cash and marketable securities of $394million on Dec. 31, also has access to as much as $1.2 million inadditional funds through direct cash contributions and loanguarantees from Ciba, the Switzerland-based pharmaceuticalcompany that acquired a 49.9 percent interest in Chiron.
Simon said, "It's likely that some of that financing package will bedeployed this year. The opportunity today to bring in new revenuesor new technologies is probably unprecedented, considering there isno public financing available. $1.2 billion is quite a war chest.
"While the near-term earnings outlook is uncertain, the company'spipeline is robust, and upside surprises are quite possible this year interms of products already on the market as well as ones in Phase IIand III clinical trials," Simon said.
Kurtz said that Chiron always is looking to acquire additionaltechnologies and expand its market presence in each of its businesses.Also, he said, Chiron expects to gear up its vaccine business so theinfrastructure is in place when vaccines come to market in 1997 or1998.
"Our goal has been to build our earnings," Kurtz said. "Byintegrating both organizations, there is a digestion period required.This is an interruption to that progress." n
-- Jim Shrine
(c) 1997 American Health Consultants. All rights reserved.