Novartis Bids $4.5 Billion for Rest of Chiron
The consolidation of the drug industry continued Thursday as Swiss drug maker Novartis bid $4.5 billion for the shares of Chiron Corp. that it doesn’t already own.
Novartis offered $40 a share for 58% of Emeryville, Calif.-based Chiron, which is struggling to relaunch its U.S. flu vaccine business. Investors drove Chiron’s shares up nearly 18% to $42.93, signaling that Novartis might have to sweeten its bid.
Chiron said its board would evaluate the offer.
The proposed deal comes two months after British drug giant GlaxoSmithKline acquired Corixa Corp., a Seattle biotechnology company, and Shire Pharmaceuticals Group, another British company, purchased Transkaryotic Therapies Inc. of Cambridge, Mass.
Analysts expect more acquisitions as companies face slowing sales growth on existing drugs and high-cost research and development. Successful drugs carry impressive profit margins, but development costs run into the hundreds of millions and the failure rate is high.
Novartis rapidly is becoming one of the most acquisitive companies in the sector. This year, the company bolstered its position in generic drugs by purchasing Hexal of Germany and its U.S. affiliate, Eon Labs Inc. Novartis, whose leading product is the heart drug Diovan, closed its acquisition of Bristol-Myers Squibb Co.’s over-the-counter drug business this week.
Novartis, formed by the 1996 combination of Swiss drug companies Ciba-Geigy and Sandoz, said it wanted Chiron to diversify into the global vaccine business. Besides flu vaccine, Chiron produces shots for childhood diseases, meningitis, rabies and other diseases.
Novartis said the acquisition would also benefit Chiron, whose flu vaccine problems last year triggered investigations by the Justice Department and the Securities and Exchange Commission. Bacterial contamination at Chiron’s plant in Liverpool, England, forced the company to scrap its entire production slated for the U.S., prompting authorities to ration shots. The factory passed a Food and Drug Administration inspection this week, clearing the way for it to reenter the U.S. market this year.
“We believe Chiron, as a wholly owned subsidiary of Novartis, would be better positioned to deal with the legal, regulatory and business issues that it is facing,” Novartis Chairman and Chief Executive Daniel Vasella said in a letter to Chiron.
Chiron said its board, excluding three representatives of Novartis, would review the offer with advice from Morgan Stanley and Credit Suisse First Boston.
Novartis spokesman John Gilardi said the offer came after Chiron’s board asked the Swiss company about its plans for its investment in Chiron. The question prompted Novartis to conduct a close examination of Chiron’s books. Founded in 1981, Chiron ranks as one of the nation’s oldest biotechnology companies. Known as a research powerhouse -- it discovered the gene for hepatitis C -- Chiron has struggled with little success to turn its discoveries into strong-selling drugs. But analysts said Chiron had some cancer drugs in the early stages of development that could be attractive to Novartis.
Chiron had sales of $1.7 billion last year. It has 5,300 employees.
The jewel of Chiron’s operations is its blood-testing business. Revenue could swell to $500 million by 2009 from $280 million last year with the introduction of three blood-testing products. Geoffrey Porges, an analyst with Sanford C. Bernstein & Co., said the blood-testing unit could be worth $3 billion to $4 billion -- almost equal to Novartis’ bid for all of Chiron.
Novartis could sell the blood-testing unit, a highly specialized area that does not complement its other businesses, he said.
Porges said a fair price for Chiron was in $43 to $45 a share.
Novartis cautioned that it might not complete a deal for Chiron. Novartis fell $5 to $880.
