Chiron Corp. will acquire 50 percent of the vaccine business ofSclavo SpA of Italy for about $64.4 million, the Emeryville,Calif. company said Thursday.

Under the agreement in principle, Chiron's joint venturepartner, Ciba-Geigy Ltd., will acquire Sclavo's entire vaccinebusiness and form it into a new Dutch holding company inwhich Chiron (NASDAQ:CHIR) will acquire a half interest for 75billion lira.

In a related agreement, Chiron and Ciba will restructurefinancial aspects of their 50-50 joint venture, The Biocine Co.,aimed at developing genetically engineered vaccines.

In April, the companies announced they were negotiating tobuy a majority interest in Sclavo, with Chiron to acquireinitially only a 19.9 percent interest. Through the Biocineagreement, Chiron was to have equalized its share of Sclavoover a four- to five-year period.

The Italian company is breaking even, but its acquisition willshow up as a loss on Chiron's balance sheet, said Chironspokesman Larry Kurtz. Privately held Sclavo had 1990revenues of 50 billion lira (about $43.3 million) and revenuesthrough October 1991 of 55 billion lira ($47.6 million). Itsproduct line and revenues consist primarily of sales in Italy ofpediatric and adult vaccines.

However, Cowen & Co. analyst David Stone told BioWorld thatthe new arrangement "should improve Chiron's reportedprofitability." Half of Sclavo's revenues and profits will show upon Chiron's balance sheet, with Ciba absorbing the researchcosts of the Italian company, Stone said.

As part of the deal, portions of Sclavo's research anddevelopment program will be incorporated into a new researchentity, Instituto Recerche Immunobiologiche Siena S.r.I., whichwill be acquired by Ciba-Geigy SpA of Italy.

To further offset Chiron's loss, Ciba has agreed to invest up to$45 million more into Biocine than it otherwise would haveprovided over the next four years. The companies had beenequally splitting expenses of the venture, which is also locatedin Emeryville.

The additional investment, which will give Ciba a "preferredinterest" in Biocine's earnings, will fund a "significant" portionof the joint venture's activities through 1995, Chiron said.

Chiron has the option to restore its 50 percent share ofBiocine's earnings by paying Ciba half the cash amount of Ciba'sadditional investment plus interest. Chiron may "buy back theearnings stream" of Biocine at any time before March 31, 1996,Kurtz said.

Subject to Italian regulatory approval, Chiron will beginconsolidating its 50 percent share of Sclavo's financial resultsfrom the date of Ciba's purchase, expected to be in late January.Analyst Stone said, "I suspect Chiron in 1992 won't beprofitable anyway, so it can take advantage of a year when thebottom line will be pretty ugly.

"Basically, Ciba is paying Chiron's way through school, and Cibawill be paid back the loan, plus interest," Stone said. "Cibawants Chiron to be motivated and happy" to continue itsvaccine research. The only risk is if Chiron's research isunsuccessful, he added.

Stone predicted that Chiron could become profitable in 1993,after digesting its acquisition of Cetus Corp.

Chiron stock closed up 75 cents at $65 on Thursday.

-- Roberta Friedman, Ph.D. Special to BioWorld

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