Switzerland-based Ciba-Geigy Ltd. said Monday it will acquire a49.9 percent interest in Chiron Corp. in a deal that is worth $2.1billion and that represents a continuing consolidation of thepharmaceutical and biotechnology industries.

"There's been a tectonic shift in the global biopharmaceuticalindustry," observed Mark Simon, an analyst with Robertson,Stephens & Co. in San Francisco. "Size and scale are essential forsurvival and it is virtually impossible for any biotechnologycompany to achieve that size and scale on its own. No biotechnologycompany going forward can survive without collaborations andwithout access to other products, technologies and cash."

Ciba-Geigy agreed to pay $117 per share for 11.9 million Chironshares, which is 37.3 percent of the California biotechnology firm'sstock not owned by Ciba. The Basel, Switzerland, pharmaceuticalcompany already has 1.4 million Chiron shares.

The deal gives Ciba-Geigy the opportunity to boost its ownership inChiron to 55 percent after five years through purchase of shares onthe open market. However, if Ciba-Geigy wants to acquire more than55 percent, the acquisition would be subject to approval by Chiron'sboard of directors, meaning Ciba probably would end up paying apremium to market price, analysts said.

The alliance also gives Chiron, which currently has about $430million in cash, access to as much as $1.2 billion in additional fundsthrough direct cash contributions from Ciba-Geigy and loanguarantees. Chiron received from Ciba-Geigy a commitment of up to$300 million over the next five years for research, another $500million in cash for other projects and a pledge to guarantee $425million of new debt for Chiron.

Analysts said they expect Chiron to use the additional cash fortakeovers as well as purchases of products and new technologies.

Chiron's stock (NASDAQ:CHIR) Monday responded to the Ciba-Geigy buy-in by jumping $2 to $80.25, or 2.5 percent. However, the$117 per share price offered by Ciba-Geigy is nearly double theamount Chiron was trading for Nov. 10, the day before Wall Streetspeculation of an expanded alliance sent Chiron's stock on anupward march. (See BioWorld Today, Nov. 14, 15 and 16)

In addition to paying $1.4 billion in cash for the stock, Ciba-Geigygave Chiron full ownership in Massachusetts-based Ciba CorningDiagnostics Corp. and 100 percent of Biocine Co. and Biocine SpA,which were 50-50 joint venture companies formed by Chiron andCiba-Geigy in 1987 to develop vaccines.

In exchange for receiving Ciba Corning and the Biocine companies,Chiron will issue 6.6 million shares to Ciba-Geigy, giving it 49.9percent of a total of 40 million outstanding Chiron shares. Cibavalued the transaction involving the diagnostics and vaccinecompanies at $870 million, including $100 million in debt thatChiron assumes in taking over Ciba Corning.

Ciba-Geigy and Chiron expect the full deal to be completed by early1995.

Chiron joins Genentech Inc., of South San Francisco, GeneticsInstitute, of Cambridge, Mass., and Immunex Corp., of Seattle, asmajor biotechnology companies that have allied themselves with bigpharmaceutical companies.

Among biotechnology's top tier, only Amgen Inc., Biogen Inc. andGenzyme Corp. remain independent and analysts identify bothAmgen, of Thousand Oaks, Calif., and Biogen, of Cambridge, Mass.,as potential targets of big drug companies.

"Genzyme [of Cambridge, Mass.] is more difficult to speculateabout," said Meg Malloy, an analyst with Needham & Co. in NewYork. "Its business face is more diversified."

Malloy said the trend of big pharma-biotech consolidations likelywill continue next year.

Chiron said the partnership gives it access to Ciba-Geigy's globalsales and marketing expertise. In return, Ciba gets the benefit ofChiron's new technologies and research and developmentcapabilities in the areas of diagnostics, vaccines and potential drugs.

Only 25 percent of Ciba-Geigy's annual sales are in the field ofbiopharmaceuticals and without access to new technologies, analystssaid, the company was in danger of becoming obsolete in the drugindustry.

While the $117 per share price is good news for Chiron shareholders,Simon said it will be several years before Ciba-Geigy's investors seethe benefit. He also suggested that although Wall Street analystshave long considered Chiron's product pipeline attractive, Ciba-Geigy's buy-in price indicates it must be aware of "some hiddenjewels."

Among other terms of the Chiron and Ciba-Geigy agreement are areciprocal right of first negotiation for manufacturing new productsand a reciprocal right of first offer in marketing new products.Chiron's eight-member board will be expanded to 11 with Ciba-Geigy getting three new appointments. Also, Ciba-Geigy will haveapproval rights for major capital transactions and acquisitions byChiron.

Ciba-Geigy said the deal will result in a minimal dilution to earnings.Chiron said it anticipates a charge to earnings related to thetransaction, but it did not specify the amount. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.

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