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Executive Summary

J&J will be Chiron's partner in the development of wound healing agents including epidermal growth factor, Chiron said in a recent filing with the Securities and Exchange Commission detailing a public offering of 1.725 mil. shares. The agreement in principle provides that "Chiron will work with [J&J subsidiary] Ethicon to apply and develop growth factors for use in wound healing applications," Chiron said, adding that the agreement includes eipidermal growth factor (EGH), the firm's wound healing agent furthest along in development. INDs have been approved for EGH, for use in corneal transplants and ophthalmic burns. The product has been granted orphan drug status by FDA for those indications. Chiron indicated that other wound healing applications would be pursued. Under the agreement, "Chiron would issue approximately 550,000 shares of its common stock" to J&J "and would receive $8 mil. in cash, and certain research payments and royalties on any products developed," the registration filing states. Also included in the agreement is the development of "certain infectious disease diagnostics" through J&J's Ortho Diagnostic Systems, Chiron said. Consummation of the transaction, the registration notes, "is subject to certain conditions, including the negotiation of definitive agreements." Merck/Chiron DNA Hepatitis B Vaccine May Get FDA Approval In 1986: Hoechst Is tPA Partner At a proposed offering price of $12.25 per share, the firm is looking to raise approximately $21 mil. through its offering of 1.725 mil. shares. The filing notes that part of the proceeds will be used by Chiron "to further its development from a research company to an integrated pharmaceutical manufacturing and sales entity." The firm is reportedly planning a pharmaceutical ophthalmology business. Proceeds from the offering will also be used "for capital expenditures, including research and production equipment, for funding future collaborative arrangements for commercialization of products developed by the company, for proprietary research and development and for working capital," the registration says. Chiron reported that in fiscal 1985, ended April 30, R&D expenditures were $7.6 mil. compared to $5.6 mil. the year before. Of that money, $3 mil. was "company funded R&D" and $4.6 mil. was "customer sponsored R&D," the filing states. For the first half of 1986, Chiron said the company sponsored $1.7 mil. in R&D, while customer-sponsored R&D was $2.8 mil. Chiron revenue in fiscal 1985 consisted of $5 mil. from research contracts and $800,000 in other revenue, "principally roualty payments under licenses granted upon completion of research contracts," the filing states. Merck accounted for about 10% ($580,000) of the Emeryville, Calif.-based biotech firm's revenue in fiscal 1985, and 4% in the first half of 1986, through "license fees and minimum royalties" for Chiron's recombinant Hepatitis B vaccine. The filing notes that "Merck has advised the company that the vaccine, [currently in Phase III clinicals], has been administered to approximately 2,800 persons and has demonstrated both safety and immunogenicity." Merck "has indicated that it anticipates final FDA licensure of the vaccine in 1986," the filing adds. The largest portion of Chiron's revenues in 1985/86 came from the Danish firm Nordisk Gentofte, which provided 23% of the firm's income in 1985 and 22% in the first half of 1986. Nordisk has agreements with Chiron for the development of human insulin for diabetes and Factor VIII:C, a blood clotting factor for Hemophilia A. Both agents are in the development phase. Chiron says that for both products, it has begun "work after the gene has been expressed, primarily to improve yields and purities" Discussing its herpes research, Chiron states that it "has obtained several genes coding for surface antigens of the Herpes Simplex virus I and II and has produced Simplex II antigens using mammalian cell expression systems." The firm is currently "conducting pre-clinical testing of the Herpes Simplex virus II antigens in a guinea pig model system," the registration states. Chiron notes that "it is seeking an appropriate partner for a collaborative arrangement" for its herpes research and has "had preliminary discussions with a major pharmaceutical coompany with a view toward establishing such an arrangement as part of a broader program for several vaccines. Chiron's other products past the development stage include insulin-like growth factors, being delivered to Ciba-Geigy for pre-clinical evaluation, and superoxide dismutase (SOD). Chiron has three corporate partners for the commercialization of SOD, designated an orphan drug by FDA for certain uses in organ transplants. Under a supply and licensing agreement with the German company Gruenthal, Chiron is currently delivering its SOD to the firm for pre-clinical testing. Chiron has signed a letter of intent to form a joint venture with Pharmacia for the testing and marketing of SOD products ("The Pink Sheet" Sept. 16, T&G-8) and has an agreement with a Belgian affiliate of Petrofina SA for industrial uses of SOD. Other agreements include a partnership with Hoechst subsidiary Behringwerke for the development of tissue plasminogen activator (tPA), and an agreement with the Korean firm Lucky Ltd., for hepatitis B diagnostics and interferon research. Hoechst, who provided 12% of Chiron's revenues in 1985 and 6% in the first half of 1986, is "presently evaluating" tPA, the filing states. "Under the agreement, Chiron has given Behringwerke an option to an exclusive royalty-bearing license to manufacture and sell tPA in all countries except" Korea. Lucky, through its two research contracts, provided 18% of Chiron's revenue in 1985 and 12% in the first half of 1986, the registration filing states. Chart omitted.

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