Ciba-Geigy Ltd. said Tuesday it is negotiating a potential deal withChiron Corp. that some Wall Street analysts suggested could beworth more than $2 billion to the California biotechnology company,including more than $1 billion in cash.
Switzerland-based Ciba-Geigy confirmed the discussions five daysafter Chiron, of Emeryville, Calif., moved to head-off takeoverrumors by acknowledging it was talking with an unidentifiedcompany about a "potential strategic alliance."
Ciba-Geigy, which already owns 4 percent of Chiron's 34 millionoutstanding shares, said the deal would include purchase of a"significant minority equity position." Analysts have speculated Cibawould end up owning 49 percent of Chiron.
In addition, Chiron would get full ownership of Ciba-Geigy'sMassachusetts-based Ciba Corning Diagnostics Corp. and 100percent of Biocine Co., the 50-50 joint venture formed by Chironand Ciba-Geigy in 1987 to develop vaccines.
Chiron's stock (NASDAQ:CHIR) closed Tuesday at $73, down$1.25, after surging $14.50 Friday and Monday on speculation aboutthe deal.
Neither Chiron nor Ciba-Geigy would provide specifics on thediscussions, nor would they disclose when talks will be complete.
However, David Molowa, an analyst with Bear Stearns Co., in NewYork, suggested the deal is "very close to being done and we wouldexpect to hear something in a week."
He speculated the partnership would be worth $2.05 billion toChiron, based on Ciba-Geigy paying about $1.1 billion in cash for 11million Chiron shares (33 percent) at $100 per share, plus the valueof Ciba Corning and Ciba's interest in Biocine.
The California biotechnology company in return would issue another8 million shares to bring Ciba's interest to 49 percent.
Molowa valued Ciba Corning at $800 million (one and a half timesprojected 1994 sales). Ciba-Geigy said sales through the first ninemonths of this year were $317 million.
He also suggested a 50 percent stake in Biocine, which has not yetgenerated revenues, was worth $150 million.
Analysts estimated Chiron's stock would be worth about $80 a shareafter the deal is complete.
The Ciba-Chiron alliance represents another move by bigpharmaceutical corporations to gain access to the latest technology innew drug discovery, and a realization by biotechnology companiesthat they can't bring their products to market on their own. (For moredetails on recent big pharma-biotech collaborations, see BioWorldFinancial Watch, Oct. 31 and Nov. 7.)
"The model for biotechnology companies is to focus on research anddevelopment and for the drug companies to view them as part oftheir pipelines," Molowa said.
The deal is not necessarily good news for biotechnology, said MaryAnn Gray, an analyst with Kidder Peabody & Associates in NewYork.
"Chiron is one of the most established and one of the most maturebiotechnology companies," she said. "You have to wonder why theyfeel they had to do this."
Chiron would join a growing list of biotechnology firms that havesold a substantial equity interest to major drug companies.
Switzerland-based Roche Holdings Ltd. owns 65 percent interest inGenentech, of South San Francisco, and has an option to buy the restof the company in June 1995. American Home Products, ofMadison, N.J., has a controlling interest in Genetics Institute, ofCambridge, Mass., and American Cyanamid Co., of Wayne, N.J.,has a 53.5 percent interest in Immunex Corp., of Seattle.
In addition, Amgen Inc., of Thousand Oaks, Calif., consideredbiotechnology's top company, has been rumored a takeover target ofBristol-Myers Squibb Co., of New York.
Other big drug companies with substantial equity positions inbiotechnology firms include Sandoz Ltd., of Basel, Switzerland, witha 60 percent interest in SyStemix Inc., of Palo Alto, Calif.; Rhone-Poulenc Rorer Inc., of Collegeville, Pa., with a 37 percent in AppliedImmune Sciences Inc., of Santa Clara, Ca.; and Eli Lilly and Co., ofIndianapolis, with a 100 percent buy-out in April of SphinxPharmaceuticals Corp., of Durham, N.C. n
-- Charles Craig
(c) 1997 American Health Consultants. All rights reserved.