Novartis to Buy Rest of Chiron
California biotech company Chiron Corp. said Monday that it agreed to accept a sweetened buyout offer of $5.1 billion from Swiss drug giant Novartis in a deal that reflects the global vaccine market’s growing importance.
Novartis, which already owns 42% of the Emeryville, Calif.-based flu vaccine maker, was rebuffed in September when it bid $4.5 million, or $40 a share, for the balance of Chiron’s shares. The latest bid is $45 a share.
Both companies’ stock rose Monday. Chiron gained 74 cents to $44.14. Basel, Switzerland-based Novartis was up 42 cents to $53.82.
Chiron’s non-Novartis directors unanimously approved the all-cash deal, which the company said could be completed in the first half of next year if approved by Chiron shareholders and U.S. and European regulators.
Novartis was formed by the 1996 merger of Sandoz and Ciba-Geigy, two Swiss health and drug giants. It reported net income of $5.8 billion on sales of $28.2 billion last year.
Founded in 1981 as one of the nation’s first biotech companies, Chiron has long been regarded as a research powerhouse that was less effective at commercializing its discoveries. It posted net income last year of $78.9 million on sales of $1.7 billion.
The company, whose shares traded above $55 in late 2003, has been hurt by production problems that forced it to shut down its British flu vaccine plant last year, causing a shortage and raising questions about Chiron’s management.
Although the plant has been cleared to resume production, and the company’s stock has partially recovered, Chiron said last month that it would not meet its earnings forecast for the year.
Chiron said the deal was “in the best interests of shareholders” and would allow the business to grow and bring new products to market.
Novartis may have viewed Chiron as a good value after its share price plunged well below $35 in the wake of its flu vaccine problems, analysts said. The European pharmaceutical maker also may have believed that by taking control of Chiron it could better protect its stake, they said.
Novartis said it valued the biotech company’s vaccine business, viewing it as an entree to a growing global market that analysts say could surpass $10 billion within two years. Fears of a bird flu pandemic have driven many governments to order drug stockpiles.
“Novartis is very interested in getting a foothold in vaccines, which they see as an attractive long-term business proposition right now,” said Alexander A. Hittle, an analyst at A.G. Edwards & Sons Inc. “Chiron enables them to do that.”
Analysts said the deal was expected and reasonable.
“We are not at all surprised by the merger and believe the $45 offer better reflects Chiron’s intrinsic value than the previous bid of $40,” Banc of America Securities analyst Lei Zhong said in a note to investors. “With limited growth outside of Chiron’s flu vaccine business ... we view $45 as an attractive offer for Chiron shareholders.”
Novartis said it would create a division encompassing Chiron’s vaccine and growing diagnostics business.
“Our plan is to turn around the Chiron vaccines business, which will require investments in R&D; and manufacturing to increase quality and capacity, so that we can better meet customer demand and address public health needs,” Novartis Chairman Daniel Vasella said in a statement.
Chiron employs about 5,300 workers worldwide, including 2,000 in Emeryville and as many as 100 in a Vacaville, Calif., production plant. Company spokesman David Weiskopf said it was too early to know how the takeover would affect California operations.
Novartis said it expected to make $200 million in cuts at Chiron, which analysts said probably would come in the smaller company’s biopharmaceutical operations, which include its non-vaccine drugs. Analysts also said they expected Novartis to attach its name to its acquisition because Chiron held little brand value.
The deal shows how the vaccine market is changing in response to the specter of an influenza epidemic and concerns about the bird flu, analysts said. Other producers have quit the vaccine business because of low margins, frequent production problems and inherent high risk.
“As a result of market forces and public health concerns, pricing is actually improving,” said Hittle, the A.G. Edwards analyst. “That’s a trend across the board in vaccines.”
Just last week, Chiron won a substantial government contract to produce a stockpile of avian flu vaccine. Analysts said the contract reinforced the notion that the government was willing to pay to safeguard public health.
Novartis has been on a bargain-hunting binge of late. In the last year the company improved its position in generic drugs by purchasing Hexal of Germany and its U.S. affiliate, Eon Labs Inc. The Swiss company, whose leading product is the heart drug Diovan, also closed its acquisition of Bristol-Myers Squibb Co.’s over-the-counter drug business in September.
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Profiles
Chiron Corp.
Headquarters: Emeryville, Calif.
Founded: 1981
Employees: 5,332
CEO: Howard H. Pien
Top products: Fluvirin for flu and other vaccines for polio, rabies, meningitis and yellow fever. Other drugs include TOBI, an antibiotic for treatment of cystic fibrosis; Proleukin, for skin and kidney cancer; and Betaseron, for multiple sclerosis.
2004 sales: $1.7 billion
2004 net income: $79 million
Market capitalization: $8 billion
Ranking: No. 1,123 in 2005 Forbes global ranking. No. 29 in drugs and biotechnology category.
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Novartis
Headquarters: Switzerland
Founded: 1996 (merger of Ciba-Geigy Ltd. and Sandoz Ltd.)
Employees: 81,392
CEO: Daniel L. Vasella
Products: Prescription drugs, including Diovan for hypertension, infant and baby foods, contact lenses and vision care, and veterinary medicines. Consumer brands include Ex-Lax, Maalox, Theraflu, Gerber and CIBA Vision.
2004 sales: $28.2 billion
2004 net income: $5.8 billion
Market capitalization: $130 billion
Ranking: No. 64 in 2005 Forbes global ranking. Fourth-largest firm in drugs and biotechnology.
Compiled by Times Research Librarian Scott J. Wilson
Los Angeles Times
