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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
Commission file No. 0-12798
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CHIRON CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2754624
(State of Incorporation) (IRS Employer Identification No.)
4560 HORTON STREET
EMERYVILLE, CALIFORNIA 94608
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 655-8730
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK, $0.01 PAR VALUE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
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The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of February 28, 1997, was $1.9 billion.
The number of shares outstanding of each of the Registrant's classes of
common stock as of February 28, 1997:
TITLE OF CLASS NUMBER OF SHARES
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Common Stock, $0.01 par value 172,027,422
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Consolidated Financial Statements for the fiscal year ended
December 29, 1996, are incorporated by reference into Parts II and IV of this
Form 10-K Report and are filed as Exhibit 13 to this Form 10-K Report. Portions
of the Proxy Statement to be filed in connection with the solicitation of
proxies for the Annual Meeting of Stockholders to be held on May 15, 1997, are
incorporated by reference into Part III of this Report.
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PART I
ITEM 1. BUSINESS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES RELATING TO THE FUTURE FINANCIAL PERFORMANCE OF CHIRON CORPORATION
(THE "COMPANY" OR "CHIRON"), AND ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY.
IN EVALUATING SUCH STATEMENTS, STOCKHOLDERS AND INVESTORS SHOULD SPECIFICALLY
CONSIDER THE VARIOUS FACTORS IDENTIFIED UNDER THE CAPTION "FACTORS THAT MAY
AFFECT FUTURE OPERATING RESULTS" CONTAINED IN THE MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN CHIRON'S
CONSOLIDATED FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K,
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY
SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING
STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCES OF UNANTICIPATED EVENTS.
Chiron is a diversified, science-driven, market-directed healthcare company
that applies biotechnology and other techniques of modern biology and chemistry
to develop, produce and sell products intended to improve the quality of life by
diagnosing, preventing and treating human disease. Chiron participates in four
human healthcare markets: (i) diagnostics, including blood screening tests,
automated immunodiagnostic systems, critical blood analyte systems and new
quantitative probe tests; (ii) therapeutics, with an emphasis on oncology,
serious infectious diseases and critical care diseases; (iii) adult and
pediatric vaccines; and (iv) ophthalmic surgical products, including instruments
and devices used for the surgical correction of vision and intraocular implants
to deliver drugs to the eye. Chiron also develops or acquires new technologies,
employing these technologies to discover new products for the Company or for its
partners.
Effective January 1, 1995, Chiron began a biotechnology alliance with
Ciba-Geigy Ltd., of Basel, Switzerland, ("Ciba"), which in December 1996 merged
with Sandoz Limited ("Sandoz") to form Novartis AG ("Novartis"). Novartis
increased its ownership interest in Chiron common stock to 49.9 percent (now
approximately 46 percent as a result of subsequent stock issuances to parties
other than Novartis). In addition, Chiron and Novartis have an agreement to
cooperate in research, development, manufacturing and marketing of biotechnology
products on an arms-length basis while remaining independent to pursue other
opportunities. The two companies have a separate agreement to collaborate in
combinatorial chemistry. For a further description of the alliance with
Novartis, see Part II, Item 8., Note 2 of Notes to Consolidated Financial
Statements.
Chiron operates through the following business units: Chiron Diagnostics,
which includes immunodiagnostic and critical care instrument systems,
quantitative probe tests and an interest in a joint immunodiagnostic business;
Chiron Vaccines, which includes a fully integrated vaccine business in Italy and
a vaccine joint venture in Germany; Chiron Therapeutics, which provides products
for use primarily by oncologists and manufactures the therapeutic product,
Betaseron-TM-; and Chiron Vision, the Company's ophthalmic business. A fifth
business unit, Chiron Technologies, manages the Company's research and
development programs, principally those that pertain to the development of new
pharmaceutical products, and develops new technologies with potential utility
throughout Chiron.
Chiron is a global organization with facilities on four continents. Chiron's
corporate headquarters is located at 4560 Horton Street, Emeryville, California,
94608-2916, and its telephone number at that address is (510) 655-8730.
CHIRON DIAGNOSTICS
Chiron, through its Chiron Diagnostics business unit, is one of the world's
largest providers of critical blood analyte systems used to measure blood gases,
blood electrolytes and metabolites. These systems are used by hospitals to
diagnose and monitor patients in critical care settings. Chiron Diagnostics also
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markets the ACS:180-TM- and ACS:180 Plus-TM-, which are automated,
high-throughput random access immunodiagnostic instrument systems used by
hospital and reference laboratories to detect and measure thyroid, anemia,
fertility, cancer and STAT cardiac indicators. Two new instrument systems are
scheduled for introduction in 1997: the Rapidpoint-TM- 400, a critical care
system designed specifically for critical care settings in hospitals, and the
ACS:Centaur-TM-, a more powerful immunoassay system designed to markedly
increase laboratory productivity and provide a platform for unique analytes that
will help clinicians manage disease progression.
Chiron Diagnostics develops branched DNA ("bDNA") probe tests to quantify
levels of virus and other indicators of disease. Research suggests that Chiron's
bDNA probe tests may have utility in predicting disease progression, selection
of patients for treatment based on probability of response and monitoring
response to therapy. Chiron is selling bDNA probe tests for human
immunodeficiency virus ("HIV"), hepatitis C virus ("HCV"), and hepatitis B virus
("HBV") for research use only in the U.S. Chiron's bDNA probe test for HIV has
been approved for use in France and Australia. The U.S. Food and Drug
Administration ("FDA") is reviewing Chiron's application to market its bDNA
probe test for HIV in the U.S. Chiron has licensed rights to sell bDNA probe
tests in Japan and Taiwan to Daiichi Pure Chemicals Co., Ltd. ("Daiichi").
Daiichi currently markets Chiron's Quantiplex-TM- bDNA tests for HCV and HBV in
Japan.
Chiron has a joint business with a significant worldwide presence in the
immunodiagnostic market with Ortho Diagnostic Systems, Inc. ("Ortho"), a Johnson
& Johnson ("J&J") company, based largely on sales of tests used to screen blood
for the potential presence of HCV. The joint business sells a full line of tests
required to screen blood for hepatitis viruses and retroviruses, and provides
confirmatory tests and microplate-based instrument systems to automate test
performance and data collection. Chiron and Ortho share equally in the pretax
profit generated by the joint business. In early 1997, the Chiron-Ortho joint
business reached an agreement to supply the American Red Cross with its entire
requirements for blood screening tests and reagents. The joint business holds
the immunodiagnostic rights to Chiron's hepatitis and retrovirus technology and
receives royalty payments for the sale of HCV and HIV tests by Abbott
Laboratories ("Abbott") and HCV tests by Pasteur Sanofi Diagnostics. Chiron and
Ortho are presently seeking, through arbitration, resolution of certain
disagreements with respect to the manner in which one or both companies will
market certain clinical diagnostics products using intellectual property which
is the subject of the 1989 agreement between them creating the joint business.
While the result of arbitration is uncertain, the Company believes that the
parties ultimately will reach a satisfactory conclusion, consistent with
Chiron's best interests.
CHIRON VACCINES
Chiron Vaccines, headquartered in Emeryville, California, with operations in
Siena, Italy, and a joint venture in Marburg, Germany, develops and markets
adult and pediatric vaccines. Chiron Vaccines' present business is based
primarily on the sale of traditional pediatric and flu vaccines in Italy and, to
a lesser extent, in the Middle East, the Far East, Africa, South America, and to
international health services such as the World Health Organization. Among its
products is a new genetically engineered acellular pertussis (whooping cough)
vaccine, combined with diphtheria and tetanus ("DTaP"), currently marketed in
Italy and exported to other countries. Chiron Vaccines is preparing an
application to market the DTaP vaccine in Europe. Its application to market this
vaccine under the trade name Pertugen-TM- is under review at the FDA. These
applications are based on the results of large-scale U.S. government-sponsored
trials in Italy that demonstrated that the Chiron acellular pertussis vaccine is
safer and more effective than a current U.S. licensed whole-cell pertussis
vaccine. Chiron Vaccines is also preparing an application to market an
adjuvanted flu vaccine in Europe.
Chiron Vaccines is developing a new generation of vaccines for serious adult
infections. These vaccines utilize genetically engineered antigens which are
displayed in a manner that mimics the appearance of the actual agent, combined
in a formulation with adjuvants that amplify the immune response. In
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November 1996, Chiron Vaccines announced that its preliminary analysis of data
available from prophylactic genital herpes vaccine trials did not indicate
efficacy for the product. Based upon these results, Chiron Vaccines decided not
to pursue a Product License Application for the product. With respect to other
vaccine trials, a Phase 1 trial of an HIV antigen is on-going in the U.S., a
Phase 1 trial of an HIV vaccine is underway in Thailand, in collaboration with
the Thai Royal Army and the U.S. Department of the Army, and additional trials
of HIV vaccines are also planned to be conducted by the National Institutes of
Health. A vaccine for HCV is in preclinical trials. Chiron Vaccines is also
collaborating with North American Biologicals, Inc. in the development of a new
family of human immunoglobulin products, using Chiron's vaccines as the
stimulating agent and initially focused on the development of a hyperimmune
globulin product to prevent and treat CMV infections.
In July 1996, Chiron purchased a 49 percent interest in the human vaccine
business of Behringwerke AG, a subsidiary of Hoechst AG, for approximately
$120.0 million in cash. Under the terms of the purchase agreement, Chiron has an
option to purchase the remaining 51 percent in March 1998, 1999, 2000 or 2001,
and Behringwerke AG has the option to require Chiron to acquire the remaining 51
percent interest in March 2001. During the period of mutual ownership, Chiron
and Behringwerke AG will operate the vaccine business as a joint venture which
has been named Chiron Behring GmbH & Co. ("Chiron Behring").
Chiron Behring, one of the largest vaccine suppliers in Germany,
manufactures and markets vaccines for flu, diphtheria, tetanus, pertussis,
rabies, tick-borne encephalitis, tuberculosis, cholera, an oral vaccine for
polio, and, under license from other companies, distributes vaccines in Germany
for measles, mumps, rubella, HBV, typhoid fever, pneumonia, haemophilus
influenza as well as an inactivated polio vaccine. Chiron Behring also provides
an outlet for Chiron's vaccines in the German market and expands Chiron's
presence in the European vaccine market.
In addition to its Chiron Vaccines activities, Chiron has received royalty
payments since 1986 from the sales of Recombivax-TM- HB, a vaccine against HBV
developed, manufactured and marketed by Merck & Co., Inc. ("Merck"), using
technology developed by Chiron. Recombivax-TM- HB was the first vaccine using
genetic engineering to be licensed by the FDA for human use.
CHIRON THERAPEUTICS
Chiron Therapeutics, Chiron's hospital and large clinic-based business in
the U.S. and Europe, markets products for use principally by oncologists. Its
leading product is Proleukin-TM- (aldesleukin), interleukin-2, the first
treatment approved for metastatic kidney cancer. Proleukin is also being
developed for additional indications, including metastatic melanoma and HIV
infection. In addition, on behalf of Novartis, Chiron promotes in the U.S.
Aredia-TM- (pamidronate disodium for injection), a drug to treat hypercalcimia
of malignancy, Paget's disease and osteolytic bone lesions of multiple myeloma.
In November 1996, Novartis and the Company agreed to a modification of Chiron's
contract, which expires in March 1997, for sole promotional rights for
Aredia-TM-. Under the new arrangements, Chiron, through a co-promotion
arrangement with Novartis, will promote Aredia-TM- for two years after a
six-month transitional period. Chiron is also co-developing DepoCyt for the
treatment of neoplastic meningitis. In May 1996, Chiron sold its 50 percent
interest in a generic cancer chemotherapeutics business to its partner, Ben
Venue Laboratories, Inc.
Chiron Therapeutics manufactures Betaseron-TM- (interferon beta-1b) for
Berlex Laboratories, Inc., a U.S. affiliate of Schering AG of Germany
("Schering"), which markets the product primarily in the U.S. and Canada. In
Europe, Schering is marketing the product under the trade name Betaferon-TM-,
manufactured by Boehringer Ingelheim, for which Chiron receives a royalty.
3
CHIRON VISION
Chiron Vision, headquartered in Claremont, California, is the Company's
business in ophthalmic surgical products, with sales in the U.S. and more than
20 other countries. Chiron Vision's line of products for the surgical correction
of vision includes both hard and foldable intraocular lenses for cataract
replacement surgeries, phacoemulsification instruments for small-incision
cataract surgeries, and refractive surgical instruments, including corneal
shapers and excimer lasers.
In March 1996, Chiron Vision received FDA approval to begin marketing the
Vitrasert-TM- Implant to deliver ganciclovir for the treatment of CMV retinitis
in people with AIDS. Recently, the Vitrasert-TM- Implant was approved in Europe
for the same indication. In Phase 3 clinical trials, the Vitrasert-TM- Implant
demonstrated a clinically important improvement over intravenously administered
ganciclovir in delaying the progression of CMV retinitis in these individuals.
Chiron Vision is co-marketing the Vitrasert-TM- Implant worldwide, including in
the U.S. and Europe, with Hoffmann-La Roche, Inc. ("Roche"), which manufactures
and markets ganciclovir.
CHIRON TECHNOLOGIES
Chiron Technologies applies enabling technologies in combinatorial
chemistry, gene therapy and recombinant proteins to develop products intended
for use as therapeutics, and develops new technologies with potential utility
throughout the Company. Chiron Technologies combines the Company's own
proprietary technologies in combinatorial chemistry, robotic screening and
selection and molecular biology with the knowledge and participation of a select
group of leading academic scientists in the fields of structural biology and
bio-organic chemistry. Chiron also engages in collaborations to create libraries
of compounds for characterization and screening with other pharmaceutical
companies, including Janssen Pharmaceutica NV, a J&J company, Novartis, Japan
Tobacco and Organon Teknika N.V. ("Organon"), as well as with organizations in
other fields such as Dow Elanco, an agricultural company.
Chiron is developing gene therapy and gene transfer products, and drug
activation technology for the prevention and treatment of a broad range of human
diseases. Chiron's gene therapy program includes collaborations with Baxter,
Inc., Green Cross of Japan, Ribozyme Pharmaceuticals, Inc. and the Virus
Research Institute.
Chiron, in collaboration with J&J, is developing a growth factor to treat
topical wounds. In December 1996, Chiron and J&J submitted applications to the
FDA to manufacture and market their wound healing agent Regranex-TM-
(becaplermin), a formulation containing recombinant human platelet-derived
growth factor (rhPDGF). Chiron manufactures rhPDGF in bulk for final formulation
into Regranex-TM-. J&J is responsible for clinical development, regulatory
matters, product formulation, marketing and sales.
Chiron is collaborating with Cephalon, Inc. ("Cephalon") to develop and
market products for the treatment of neurological disorders. In June 1996, an
advisory committee to the FDA recommended that, based on results from two
clinical trials, Myotrophin-TM- (rhIGF-1 or mecasermin [recombinant DNA origin])
Injection be made available to patients with amyotrophic lateral sclerosis (ALS,
or Lou Gehrig's Disease), on a compassionate-use basis while it undergoes
further regulatory review. The FDA granted treatment IND status for
Myotrophin-TM- in August 1996, and a small number of ALS patients are receiving
the drug. At the June 1996 meeting, the advisory committee expressed the view
that the second trial, which was conducted in Europe, did not determine a
positive effect for Myotrophin-TM-, and that conducting another controlled trial
was advisable. In February 1997, Chiron and Cephalon submitted a new drug
application to the FDA seeking to market Myotrophin-TM-. In May 1997, the same
FDA advisory committee will review the application.
In the area of cardiovascular disease and critical care, Chiron has a
collaboration with G.D. Searle & Co. ("Searle"), to develop tissue factor
pathway inhibitor ("TFPI"), a coagulation inhibitor
4
with potential applications in thrombotic and inflammatory diseases, trauma and
critical care. Chiron and Searle have started a Phase 2 clinical trial studying
the use of TFPI in sepsis.
Chiron is engaged in development of a number of products and businesses in
collaboration with third parties. The success of these collaborations will
depend upon contributions by each collaborator of existing and future
intellectual property and of activities and other resources. Success will also
depend upon the continuing agreement of the collaborators as to their joint and
separate rights and obligations with respect to opportunities in and relating to
the subject matter of the collaboration as such opportunities arise and evolve
over time.
COMPETITION
Chiron competes against a large number of other biotechnology and
pharmaceutical companies in the U.S. and internationally, and although no single
company competes in every area of Chiron's interests, the competition is intense
and expected to increase. Biotechnology and drug discovery are rapidly evolving
fields in which new developments frequently result in product obsolescence and
price competition. To compete effectively, Chiron's direct and joint businesses
invest heavily in research and development, maintain multiple sales forces that
concentrate efforts on individual classes of customers, and spend significant
amounts on advertising, promotion and selling. Substantial consolidation is
underway in the global healthcare industry, and is expected to produce greater
efficiencies and even more intense competition.
In the diagnostic market, the major competitor to both the Chiron-Ortho
joint business and to the Chiron Diagnostics business is Abbott. In addition,
although initial patents for the Chiron HCV invention have been issued and are
being upheld through litigation, other companies in Japan and Europe have
introduced, or may be preparing to introduce, competing HCV tests. In addition
to Abbott, Chiron faces competition in the immunoassay market from several
companies, including Boehringer Mannheim and J&J, which purchased the diagnostic
and clinical chemistry business of Eastman Kodak. Chiron's bDNA probe tests
compete with products from affiliates of Roche (which markets tests based on
polymerase chain reaction-PCR), Abbott, Organon and Digene and may compete with
Gene-Trak Systems and Gen-Probe Incorporated. In the critical blood analyte
market, Chiron Diagnostics faces competition in large systems from Radiometer
Medical A/S and Instrumentation Laboratory Company and in the point-of-care
segment from I-STAT, which has a collaboration with Hewlett-Packard.
Four large companies hold the greatest share of the worldwide vaccine
market: Merck and SmithKline Beecham Biologicals ("SmithKline"), both of which
market the only widely sold recombinant vaccines for hepatitis B infection;
Wyeth Lederle Vaccines & Pediatrics ("Lederle"), a division of American Home
Products; and Pasteur Merieux Connaught ("PMC") (which separately has a
strategic alliance with Merck). All four of these companies have substantial
businesses and development programs in pediatric vaccines. SmithKline, Lederle
and PMC have been granted licenses to market in the U.S. acellular pertussis
vaccines that demonstrated superiority compared to whole-cell pertussis
vaccines, in combination with diphtheria and tetanus. North American Vaccines
has regulatory applications for its DTaP vaccine in review in Europe and by the
FDA. The vaccine will be marketed in the U.S. by Abbott and, subject to
successful regulatory approvals, by Chiron Behring in Germany and Austria. In
addition, SmithKline, Lederle, PMC and North American Vaccines are conducting
clinical trials studying combinations of DTaP with other pediatric vaccines.
These companies, as well as other biotechnology companies, are researching and
developing vaccines using proteins and DNA for adult infectious diseases and
cancers.
In the therapeutics market, Proleukin-Registered Trademark- competes with
alpha interferon sold by Schering Plough Corporation and Roche as a treatment
for metastatic kidney cancer. Several other biotechnology companies are
developing IL-2 or other interferons as immune-system-based therapies for
cancers and infectious diseases, including Roche, Genentech, Inc. ("Genentech"),
and Amgen Inc. Chiron's therapeutic products in development for cancer,
infectious diseases and cardiovascular disease face competition from companies
5
such as Genetics Institute, Immunex Corporation, Genentech and many other
biotechnology companies. Novartis' Aredia-TM-, which Chiron promotes in the
U.S., may face competition from companies with other bone growth factor
products.
Betaseron-TM-, licensed in the U.S. to treat relapsing-remitting multiple
sclerosis, began usage by patients in October 1993. Avonex, a recombinant beta
interferon from Biogen, Inc., was licensed in the U.S. in May 1996, has gained
significant market share, and was approved in early 1997 for marketing in
Europe. Late in 1996, Copaxone from Teva Pharmaceuticals was approved in the
U.S. for treatment of multiple sclerosis. Other companies have entered, or are
preparing to enter, products into clinical trials for multiple sclerosis. In
certain European countries, Schering's product, Betaferon-TM-, faces competition
from Ares Serono, who sells an extracted form of beta interferon which is used
for, among other purposes, treatment of multiple sclerosis, and holds licenses
for other indications in several European countries.
Chiron Vision competes against numerous healthcare, pharmaceutical and
biotechnology companies in the research, development and marketing of devices
and therapeutic products for the ophthalmic surgery market. Chiron Vision's
competition in its largest product line, intraocular lenses, includes Alcon
Laboratories, Inc., a division of Nestle SA; Allergan, Inc.; Pharmacia AB; Storz
Instrument Company, a subsidiary of American Home Products; and Staar Surgical
Co. Gilead Sciences, Inc., markets a systematically injectable pharmaceutical
that competes against Chiron Vision's ganciclovir Vitrasert-TM- Implant. Summit
Technology, Inc. and VISX, Inc. are marketing FDA-approved excimer lasers in the
U.S. to correct vision. Additionally, Nidek, Inc. and LaserSight Technologies,
Inc. are marketing excimer lasers in non-U.S. markets.
A significant amount of research in biotechnology is performed in
universities and nonprofit research organizations. These entities are becoming
more active in seeking patent protection and licensing revenues for their
discoveries. The competition among large pharmaceutical companies and smaller
biotechnology companies to acquire technologies from these entities also is
intensifying. While Chiron actively collaborates with such entities in research
and has and will continue to license their technologies for further development,
these institutions also compete with Chiron to recruit scientific personnel and
to establish proprietary technology positions.
MANUFACTURING
Chiron has licensed manufacturing facilities in Emeryville, California for
the production of biologicals and clinical grade materials for clinical trials
of certain products in development. Chiron also has manufacturing facilities in
St. Louis, Missouri; Vacaville, California; Puerto Rico; and Amsterdam, The
Netherlands. Due to lower than expected domestic commercial demand for
Betaseron-TM-, the Puerto Rico facility was idled in 1995.
Following the acquisition of IOLAB in 1995, Chiron Vision consolidated the
majority of its domestic operations at IOLAB's facilities in Claremont,
California. Chiron Vision also leases additional manufacturing facilities in
Irvine, California; Lyon, France; and Munich, Germany.
Chiron Vaccines leases manufacturing and administrative facilities in Siena,
Italy, and owns manufacturing facilities in Rosia, Italy. Chiron Diagnostics
owns manufacturing facilities in Oberlin, Ohio and Walpole, Massachusetts. Other
manufacturing sites are leased including Irvine, California; Alameda,
California; Medfield, Massachusetts; and Sudbury, England.
Regulatory approvals for each of the facilities described above are
necessary before Chiron can begin any new commercial production. Failure to
obtain all necessary approvals and permits would materially and adversely affect
the continued development and introduction of Chiron products.
6
MAJOR CUSTOMERS
During 1996, no single customer contributed ten percent or more to total
revenues. Novartis is a related party and contributed less than ten percent of
total revenues in 1996 and 1995, and 11 percent in 1994. J&J and its affiliates
are also related parties and collectively contributed less than ten percent of
total revenues in 1996 and 1995, and 22 percent in 1994. Sales of Betaseron-TM-
to Chiron's marketing partner accounted for less than ten percent of total
revenues in 1996 and 1995, and 23 percent in 1994.
For a discussion of revenues by geographic area, see Part II, Item 8., Note
11 of Notes to Consolidated Financial Statements.
RESEARCH AND DEVELOPMENT
The Company's two primary sources of new product candidates are internal
research and development and collaboration and licensing with other healthcare
companies. Research and development expense for the years ended December 31,
1996, 1995 and 1994, including payments to collaborative partners, was $371.1
million, $343.8 million and $166.2 million, respectively. The increase in
research and development expenditures in 1995 over 1994 was primarily due to the
acquisition of Chiron Diagnostics, Chiron S.p.A. and Viagene in 1995. Under
contracts where reimbursement is based upon work performed, the related research
and development expenses were $103.8 million, $51.8 million and $72.4 million in
1996, 1995 and 1994, respectively.
RAW MATERIALS
Raw materials and laboratory supplies utilized in the Company's research are
generally available from several commercial sources. In certain projects, sample
tissues and cell strains used for the Company's research and development may be
difficult to obtain. The Company relies upon its good relations with other
researchers and institutions to obtain the majority of such strains and samples.
Sources include blood banks, hospitals, universities and national laboratories.
Most raw materials necessary for process development, production scale-up and
commercial manufacturing are generally available from multiple commercial
sources. However, certain processes require materials from sole sources or
materials that are difficult for suppliers to produce and certify to the
Company's specifications or for which the raw materials may be in short supply.
Although Chiron maintains an awareness of the condition of these suppliers,
their ability to supply the Company's needs and the market conditions for these
materials, there is a risk that material shortages could impact production
efforts. The Company believes that its relationships with its commercial
suppliers are good.
GOVERNMENT REGULATION
Regulation by governmental agencies in the U.S. and other countries is a
significant and changing factor in Chiron's research and development effort, and
in the Company's plans to produce and market both approved products and those
nearing approval. Intent to market products in Europe brings an added regulatory
burden, as the role of the European Economic Community has increased
significantly in recent years.
The Company's products (both marketed and investigational) in the U.S.
include biologicals, drugs, diagnostic tests and instruments and ophthalmic
devices. All are regulated under the Food, Drug, and Cosmetic Act ("FDCA") and
supporting regulations. The biological products are additionally regulated under
the Public Health Service Act ("PHSA") and supporting regulations. Licensing of
a biological product in the U.S. not considered well-characterized is
accompanied by a requirement to simultaneously license the manufacturing
establishment.
Licensing of the establishment includes a requirement that all facilities
used to manufacture, fill, test and distribute the product in interstate
commerce be inspected and approved by the FDA's Center for
7
Biologics Evaluation and Research. The review and inspection process includes a
review of all labeling, including the vial, carton, box and packers, as well as
promotional and advertising materials.
The FDA has amended the biologics regulation to eliminate the establishment
license application requirement for well-characterized biotechnology products
licensed under the PHSA. The rule exempts well-characterized biotechnology
products, licensed under the PHSA, from certain biologics regulations and
harmonize the requirements applicable to these products with those applicable to
similar drug products approved under the FDCA. One submission, Biologics
Licensing Application, is now required, which covers both product and
establishment information.
Since every FDA decision requires submission of an application and
substantial supporting documentation (such as a New Drug Application, Premarket
Approval Application, Product License Application, or Establishment License
Application), the preparation of the documentation, its submission and audit
review determines the speed with which a research program is translated into a
marketed product.
Licensing procedures in the European Union ("EU") were revised in 1995
leading to the establishment of the following two new registration procedures: a
Centralized Procedure for licensing of medicinal products derived from the use
of high technology/biotechnology processes, and a Decentralized Procedure
whereby a license granted in one Member State of the EU is mutually recognized
by other Member States, leading to the granting of equivalent licenses in those
Member States recognizing the original license.
The Centralized Procedure is mandatory for those medicinal products derived
from genetic engineering/monoclonal antibody technologies and optional for other
high technology-derived medicinal products and any drug with a new chemical
entity as an active substance, a new delivery system of significant innovation,
or an entirely new indication of significant therapeutic interest. This
procedure leads to the granting of a single license for the entire EU by the
newly established European Medicines Evaluation Agency based in London.
For existing national licensing procedures, a transition period to January
1, 1998 will exist. At that time, the Decentralized Procedure will replace
independent national licensing of products in the EU.
Experience to date with the Centralized Procedure indicates an average time
period of 15 to 18 months from the filing of a license application to the
receipt of a marketing authorization. In contrast, under the Decentralized
Procedure, once mutual recognition has been agreed, which usually takes between
four to five months from the receipt of an initial marketing authorization, the
national approval from other member states has been lengthy and highly variable.
PATENTS AND PROPRIETARY RIGHTS
Intellectual property (e.g., patents, trade secrets and trademarks) is
important to the business of the Company. Chiron and its subsidiaries have a
substantial number of pending patent applications and granted patents in the
U.S. and in foreign countries. It is not known how many of these pending patent
applications will be granted as patents, and some of the pending applications
may be abandoned. A number of patents and patent applications owned by third
parties have been licensed exclusively, semi-exclusively or nonexclusively to
Chiron and its subsidiaries for one or more fields of use. Chiron and its
subsidiaries also own a number of trademarks in the U.S. and foreign countries.
Due to unresolved issues regarding the scope of protection provided by such
patents, as well as the possibility of patents being granted to others, there
can be no assurance that the patents owned or licensed to Chiron and its
subsidiaries will provide substantial protection or commercial benefit. The
rapid rate of development and the intense research efforts throughout the world
in biotechnology, the significant time lag between the filing of a patent
application and its review by appropriate authorities and the lack of
significant legal precedent involving biotechnology inventions make it difficult
to predict accurately the breadth or degree of protection that patents will
afford Chiron's or its subsidiaries' biotechnology products or their underlying
technology. It is also difficult to predict whether valid patents will be
granted based on
8
biotechnology patent applications or, if such patents are granted, to predict
the nature and scope of the claims of such patents or the extent to which they
may be enforceable.
Important legal questions remain to be resolved as to the extent and scope
of available patent protection in the U.S. and abroad. Under U.S. law, although
a patent has a statutory presumption of validity, the issuance of a patent is
not conclusive as to validity or as to the enforceable scope of its claims.
Accordingly, there can be no assurance that Chiron's patents will afford legal
protection against competitors with similar inventions, nor can there be any
assurance that the patents will not be infringed or designed around by others or
that others will not obtain patents that Chiron would need to license or design
around.
Trade secrets and confidential information are likely to be important to
Chiron's commercial success. Although Chiron and its subsidiaries seek to
protect trade secrets and confidential information they believe to be
significant, there can be no assurance that others will not either develop
independently the same or similar trade secrets or confidential information or
obtain access to such trade secrets or confidential information. Furthermore,
there can be no assurance that others have not obtained or will not obtain
patent protection that will preclude Chiron or its subsidiaries from using their
trade secrets or confidential information.
Most countries limit the enforceability of patents against government
agencies or government contractors. Generally, the patent owner may be limited
to monetary relief and may be unable to enjoin infringement. This can be of
particular importance in countries where a major customer of Chiron or its
licensees is a governmental agency. The inability to enjoin such infringement
and the necessity of relying exclusively on monetary compensation could
materially diminish the value of a particular patent. Furthermore, many
countries (including European countries) have compulsory licensing laws under
which third parties may compel the grant of non-exclusive licenses under certain
circumstances (for example, failure to "work" the invention in the country,
patenting of improvements by a third party or failure to supply a product
related to health and safety). The mere existence of such limits on injunctive
relief and compulsory licensing systems could force Chiron to grant a license it
would not have otherwise granted.
Chiron is aware that others, including various competitors, educational
institutions and governmental organizations, have intellectual property,
particularly patents and pending patent applications, in the U.S. and other
countries potentially useful or necessary to Chiron's and its subsidiaries'
businesses including vaccines, diagnostics, therapeutics and ophthalmics. Some
of these patents and applications claim only specific products or methods of
making such products, while others claim more general processes or techniques.
There may be similar third-party intellectual property important to the business
of Chiron or its subsidiaries of which the Company is not currently aware. It is
likely that in the future others will obtain patents or develop proprietary
rights that might be necessary or useful for the manufacture, use or sale of
some products by Chiron or its subsidiaries. Certain of these patents or rights
may be sufficiently broad to prevent or delay Chiron or its subsidiaries from
practicing necessary technology, including the manufacture and/or marketing of
products important to Chiron's current and future business. The scope, validity
and enforceability of such patents, if granted, the extent to which Chiron or
its subsidiaries may wish or need to obtain licenses thereunder and the cost and
availability of such licenses are not susceptible to accurate prediction. If
Chiron or its subsidiaries do not obtain such licenses, products may be
withdrawn from the market, or delays could be encountered in market introduction
while an attempt is made to design around such patents. Alternatively, Chiron or
its subsidiaries could find that the development, manufacture or sale of such
products is foreclosed. Chiron or its subsidiaries could also incur substantial
costs in challenging the validity or scope of such patents.
Chiron is currently involved in legal proceedings involving patents and
expects that litigation relating to the validity and scope of its patents and
proprietary rights and those of third parties will continue to arise in the
future. Substantial costs could be incurred in defending the validity or scope
of patents owned by or licensed to Chiron or its subsidiaries. If Chiron and its
subsidiaries are unable to obtain strong
9
proprietary rights to protect a product after the expenditure of funds to obtain
regulatory approval, competitors may be able to market competing products
without being required to undertake the same lengthy and expensive development
efforts that Chiron and its subsidiaries already have completed. In these cases,
it is possible that price competition could become a principal factor in the
marketing of such products. If Chiron or any of its subsidiaries should lose
litigation with respect to third party intellectual property rights, Chiron and
its subsidiaries could be precluded from manufacturing or marketing certain
products and incur substantial liability for damages and attorney fees.
EMPLOYEES
At December 31, 1996, Chiron and its subsidiaries employed 7,434 people on
four continents.
ITEM 2. PROPERTIES
Chiron's operations are conducted in owned and leased facilities located
throughout the world. Chiron's principal facilities are located in Emeryville,
California, and are used for research and development, manufacturing and
administrative activities. Although the Company leases the majority of these
facilities, Chiron owns certain facilities as well as land held for future
expansion. In June 1996, Chiron entered into a seven-year agreement with a group
of financial institutions to rent a research and development facility that is
currently under construction in Emeryville, California.
The Company also owns manufacturing facilities located in Vacaville,
California; St. Louis, Missouri; and Amsterdam, The Netherlands. Certain of
these facilities have available capacity due to lower than expected domestic
demand for certain of the Company's products. Chiron also owns a manufacturing
facility in Puerto Rico which was idled in 1995 due to lower than expected
demand for Betaseron-TM-. Chiron Vaccines leases and owns manufacturing
facilities in Italy for the production of pediatric and adult vaccines.
Additionally, Chiron owns manufacturing facilities in Oberlin, Ohio and
Walpole, Massachusetts, which are used for the development and manufacture of
diagnostic products. The Company also owns a sales and administrative facility
in Norwood, Massachusetts, and a sales office and warehouse in Halstead,
England. Chiron leases manufacturing facilities relating to its diagnostic
products in Irvine and Alameda, California; Medfield, Massachusetts; and
Sudbury, England.
The Company owns administrative and manufacturing facilities in Claremont,
California, and leases manufacturing facilities in Irvine, California; Lyon,
France; and Munich, Germany, which are used in the Company's ophthalmic
business.
Chiron leases additional facilities in several cities across the U.S. These
properties are primarily sales and service offices. The Company also leases
additional facilities in Canada, Mexico, Italy, Belgium, The Netherlands, Spain,
Sweden, Switzerland, Austria, England, France, Germany, Japan, Korea, Hong Kong,
Singapore, Taiwan and Australia, primarily for sales and service offices.
The Company believes its present facilities are adequate for its current
needs. The Company continually evaluates future requirements for its facilities.
ITEM 3. LEGAL PROCEEDINGS
BRADLEY. On December 20, 1994, Dr. Daniel W. Bradley, formerly with the U.S.
Centers for Disease Control, brought suit in the United States District Court
for the Northern District of California against Chiron, Ortho, certain employees
of Chiron, and the United States government. Subsequently, Bradley dismissed the
United States government as a defendant. Bradley, who collaborated with Chiron
scientists on the research that led to the discovery of HCV, alleged he has been
wrongly excluded as an inventor of HCV. He requested various forms of relief,
including declarations that he was an inventor of Chiron's patents related to
HCV and that these patents were unenforceable. Bradley further sought monetary
10
damages and a constructive trust on all past and future profits, as well as
penalties under federal and state Racketeering and Corrupt Organization (RICO)
statutes. On July 15, 1996, the Court dismissed Bradley's second amended
complaint with prejudice. Bradley is in the process of appealing the District
Court's decision to the United States Court of Appeals for the Federal Court.
The Company is opposing that appeal.
BRILLIANT TRADING CO., Wolfson. Following the announcement by Chiron of the
acquisition of Viagene, two lawsuits purporting to be class actions were filed
on April 24 and May 1, 1995, respectively, in the Court of Chancery of the State
of Delaware, against named directors and officers of Viagene and against Viagene
and Chiron. In one case, Chiron is sued on the theory that it aided and abetted
alleged breaches of fiduciary duty by Viagene's directors and officers in
approving the proposed acquisition by Chiron. In the other case, Chiron is sued
for alleged breaches of fiduciary duty as a controlling stockholder of Viagene.
Plaintiffs seek declaratory and injunctive relief, an accounting and costs and
disbursements. Defendants have received an open extension of time to answer or
otherwise respond in both of these matters. Chiron believes these suits are
without merit.
EVANS. Evans Medical Limited (a division of Medeva plc)("Evans") owns
European Patent 0 162 639 (the " '639 patent") which Evans claims relates to the
p69 antigen of Bordetella Pertussis. Chiron S.p.A. had opposed the '639 patent
before the European Patent Office ("EPO") and, along with other parties, has
appealed the EPO Opposition Division decision which maintained the patent in
amended form. Chiron is involved in litigation with Evans, Medeva plc and its
exclusive licensee, SmithKline in several jurisdictions concerning the '639
patent and various of its national counterparts. Those jurisdictions include the
UK (where a trial is set to begin in November 1997), Italy (where a
court-appointed technical consultancy is underway), The Netherlands and the
U.S., (in the U.S. District Court, Eastern District of Texas, Marshall Division,
where the U.S. counterparts of the '639 patent, U.S. Patent Nos. 5,237,052 and
5,438,120 are at issue and where Chiron has not yet responded to the complaint).
In each of these jurisdictions, Chiron/Chiron S.p.A. are challenging the
validity of the patents at issue and seeking findings that Chiron S.p.A.'s
Acelluvax-TM- and TriAcelluvax-TM- DTaP vaccines do not infringe any valid claim
of either the '639 patent or its U.S. counterparts. Evans, for its part, seeks
findings of infringement and declarations of validity. In the first quarter of
1997, Medeva brought suit against Chiron in The Netherlands seeking a
pan-European injunction under EP 0 471 726 (the " '726 patent"), a patent
allegedly relating to p69 and filamentous hemagglutinin ("FHA"). Chiron believes
that the Chiron S.p.A. vaccines do not infringe any valid claim of the '726
patent, or the '639 patent or its counterparts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were brought to a vote of Chiron's stockholders in the quarter
ended December 31, 1996.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, who serve at the discretion of the
Board of Directors, are as follows, in alphabetical order:
NAME AGE TITLE
- ---------------------------------------- --- -----------------------------------------------------------------
Richard W. Barker, Ph.D................. 48 Senior Vice President; President, Chiron Diagnostics
Rajen K. Dalal.......................... 43 Vice President, Corporate Development
William G. Green, Esq................... 52 Senior Vice President, General Counsel and Secretary
William J. Link, Ph.D................... 50 Vice President; Chairman and Chief Executive Officer, Chiron
Vision
Magnus Lundberg......................... 41 Vice President; President, Chiron Therapeutics and Chiron
Vaccines
Edward E. Penhoet, Ph.D................. 56 President and Chief Executive Officer
William J. Rutter, Ph.D................. 68 Chairman
Pablo D.T. Valenzuela, Ph.D............. 55 Senior Vice President, Biologicals Research and Development
Lewis T. Williams, M.D., Ph.D........... 47 Senior Vice President; President, Chiron Technologies
Dennis L. Winger........................ 49 Senior Vice President, Finance and Administration, and Chief
Financial Officer
DR. BARKER joined the Company in May 1996, as Senior Vice President, and
President of Chiron Diagnostics. From 1994 to 1996, he was General Manager of
IBM Worldwide Healthcare Solutions, and also headed the IBM Consulting Group's
healthcare activities. From 1980 to 1983, Dr. Barker led the European Healthcare
Practice for McKinsey & Company, an international consulting firm, also serving
healthcare clients in North America and Asia, on issues of corporate strategy
and alliances, organizational change and international marketing. He has a Ph.D.
in biophysics.
MR. DALAL joined the Company in December 1991 as Vice President, Corporate
Development. From 1983 until joining the Company, he was employed by the
international consulting firm of McKinsey & Company, where he performed general
management consulting in the firm's pharmaceuticals, medical devices and
diagnostics industries practice.
MR. GREEN joined the Company as Vice President and General Counsel in
October 1990, having served as Secretary or Assistant Secretary since the
Company's inception in 1981. In February 1992, he became Senior Vice President,
General Counsel and Secretary. From 1981 to 1990, he was a partner in the San
Francisco law firm of Brobeck, Phleger & Harrison.
DR. LINK joined the Company as President of Chiron Vision in February 1986
and held that title until 1995. In November 1990 he became Vice President of the
Company, in January 1992 he became Chief Executive Officer of Chiron Vision, and
in April 1995 he became Chairman of Chiron Vision.
MR. LUNDBERG joined the Company in September 1996, as Vice President; and
President of Chiron Therapeutics, and was appointed President of Chiron Vaccines
in January 1997. From 1981 until joining the Company, Mr. Lundberg held sales,
marketing, clinical development and general management positions in various
divisions of Pharmacia, including diagnostics, dermatology, drug delivery,
urology and cardiovascular products. Recently, he was the General Manager of
Pharmacia AB, Biopharmaceuticals, and Peptide Hormones, where he was responsible
for both international consolidation, pharmaceutical development and global
marketing, including the development of a growth hormone product. From January
1996 to August 1996, he was head of metabolic diseases with global
responsibility for all growth hormone, thrombosis and diabetes products.
12
DR. PENHOET, a co-founder of the Company, has been Chief Executive Officer
and a Director since the Company's inception in 1981, and was President from
1981 to 1989 and Vice Chairman from 1989 until 1993. Dr. Penhoet reassumed the
title of President, effective April 1, 1993. He has been a faculty member at the
University of California, Berkeley for 24 years.
DR. RUTTER, a co-founder of the Company, has served as its Chairman since
the Company's inception in 1981. He was Director of the Hormone Research
Institute at the University of California, San Francisco Medical Center, from
1983 to May 1989 and has been on the faculty at the University of California,
San Francisco, since 1969, becoming a Professor Emeritus in 1991. He has served
as a director of Novartis since 1995. Since 1992, Dr. Rutter has served on the
Board of Overseers, Harvard University. He has also served on the Board of
Trustees, Carnegie Institution of Washington since 1995.
DR. VALENZUELA, a co-founder of the Company, became Senior Vice President in
March 1989, having served as Vice President and Director of Research since the
Company's inception in 1981. He was associated with the University of
California, San Francisco, and also has held adjunct faculty positions at
Catholic University in Santiago, Chile.
DR. WILLIAMS joined the Company in August 1994 as Senior Vice President and
President of Chiron Technologies. From 1988 until joining the Company, he was a
professor of medicine at the University of California, San Francisco. Prior to
joining UCSF, he was on the faculty of Harvard Medical School. In addition, he
was a co-founder and director of COR Therapeutics, Inc. from 1988 until joining
the Company.
MR. WINGER joined the Company in August 1989 as Vice President, Finance and
Administration, and Chief Financial Officer. He became Senior Vice President,
Finance and Administration, and Chief Financial Officer, in February 1992. From
1982 to 1989, he was with The Cooper Companies and served as its vice president
and chief financial officer from 1987 to 1989.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information under the caption "Market Price of Common Stock" included in
the 1996 Consolidated Financial Statements, which is included as Exhibit 13 to
this Form 10-K Report, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Consolidated Statement of Operations Data:
Total revenues.................................... $ 1,312,844 $ 1,100,582 $ 453,979 $ 317,535 $ 246,260
Income (loss) from operations..................... 90,382 (482,428) 42,400 15,138 (95,544)
Other income (expense), net....................... (10,408) (8,346) (10,403) 7,949 6,973
Income (loss) before extraordinary item........... 55,145 (512,463) 18,325 18,384 (92,595)
Net income (loss)................................. 55,145 (512,463) 18,325 18,384 (99,252)
Income (loss) per share before extraordinary
item............................................ 0.31 (3.15) 0.13 0.14 (0.77)
Net income (loss) per share....................... 0.31 (3.15) 0.13 0.14 (0.82)
Weighted average shares outstanding............... 177,052 162,442 137,172 134,724 120,800
DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------ ----------- -----------
(IN THOUSANDS, EXCEPT EMPLOYEE DATA)
Consolidated Balance Sheet Data:
Working capital................................... $ 223,599 $ 268,408 $ 314,174 $ 256,419 $ 250,874
Total assets...................................... 1,688,670 1,489,847 1,049,742 968,597 701,115
Long-term debt.................................... 419,589 413,248 338,061 332,991 110,681
Accumulated deficit............................... (1,032,554) (1,087,699) (575,236) (593,561) (611,945)
Stockholders' equity.............................. 764,855 672,061 572,631 522,289 478,681
Number of employees................................. 7,434 6,894 2,668 2,179 1,867
During 1996, Chiron's Board of Directors declared a 4-for-1 stock split
effected in the form of a dividend on the Company's common stock that was
distributed on August 2, 1996. All references to share data above have been
restated to reflect the effect of the stock split.
On May 10, 1994, Chiron acquired Laboratoires Domilens S.A. ("Domilens"), in
a transaction accounted for by the purchase method; therefore, the operating
results of Domilens are included from the date of the acquisition.
Effective January 1, 1995, under a series of agreements between Chiron and
Novartis, Chiron acquired Chiron Diagnostics and Novartis' interest in Chiron
Vaccines and Chiron S.p.A. The acquisition of those entities was accounted for
by the purchase method; therefore, the operating results for those entities are
included for the entire year. On March 31, 1995, Chiron Vision acquired the
surgical division of IOLAB from J&J in a transaction accounted for by the
purchase method; therefore, the operating results of IOLAB are included from the
date of the acquisition. On September 29, 1995, Chiron acquired Viagene, Inc.
("Viagene") in a transaction accounted for by the purchase method; therefore,
the operating results of Viagene are included from the date of the acquisition.
14
The 1992 extraordinary loss is the result of the redemption of the Company's
7.25 percent convertible subordinated debentures.
The Company has not paid cash dividends on its common stock and does not
expect to do so in the foreseeable future.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in the 1996 Consolidated
Financial Statements, which is included as Exhibit 13 to this Form 10-K Report,
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data included in the 1996
Consolidated Financial Statements, which is included as Exhibit 13 to this Form
10-K Report, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers has been omitted from
this Report since the Company intends to file with the Securities and Exchange
Commission, not later than 120 days after the close of its fiscal year, a
definitive proxy statement prepared pursuant to Regulation 14A, which
information is hereby incorporated by reference.
Information as to Chiron's executive officers appears at the end of Part I
of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation has been omitted from this
Report since the Company intends to file with the Securities and Exchange
Commission, not later than 120 days after the close of its fiscal year, a
definitive proxy statement prepared pursuant to Regulation 14A, which
information is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership has been omitted from this Report
since the Company intends to file with the Securities and Exchange Commission,
not later than 120 days after the close of its fiscal year, a definitive proxy
statement prepared pursuant to Regulation 14A, which information is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions has
been omitted from this Report since the Company intends to file with the
Securities and Exchange Commission, not later than 120 days after the close of
its fiscal year, a definitive proxy statement prepared pursuant to Regulation
14A, which information is hereby incorporated by reference.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) 1. FINANCIAL STATEMENTS
The 1996 Consolidated Financial Statements and Notes to Consolidated
Financial Statements and Independent Auditors' Report, which are included as
Exhibit 13 to this Report, are incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted, since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements and notes thereto.
The Independent Auditors' Report on the Consolidated Financial Statement
Schedule appears on page 29 of this Report.
b) REPORTS ON FORM 8-K
On December 17, 1996, Chiron filed a current report on Form 8-K, dated
December 17, 1996, reporting under Item 5 the issuance of a press release
announcing it has agreed to grant royalty-bearing licenses involving Chiron's
patent rights for HSV-tk (herpes simplex virus thymidine kinase), in conjunction
with a consent and agreement that resolves the Federal Trade Commission review
of the merger between Ciba and Sandoz, creating Novartis. Also filed under Item
7 of the Form 8-K report was an agreement dated as of November 27, 1996 between
Ciba and Chiron containing as Annex A an Agreement containing Consent Order
before the United States Federal Trade Commission in the matter of Ciba, et. al.
c) EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
2.01 Agreement and Plan of Merger, made as of February 6, 1987, incorporated by reference to Exhibit
2.01 of the Registrant's Form 10-Q report for the period ended September 30, 1994.
3.01 Restated Certificate of Incorporation of the Registrant, as filed with the Office of the
Secretary of State of Delaware on August 17, 1987.
3.02 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, as filed
with the Office of the Secretary of State of Delaware on December 12, 1991.
3.03 Bylaws of the Registrant, as amended, incorporated by reference to Exhibit 3.03 of the
Registrant's Form 10-K report for fiscal year 1994.
3.04 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, dated May
21, 1996, incorporated by reference to Exhibit 3.04 of the Registrant's Form 10-Q report for
the period ended June 30, 1996.
4.01 Indenture, dated as of May 21, 1987, between Cetus Corporation and Bankers Trust Company,
Trustee, incorporated by reference to Exhibit 4.01 of the Registrant's Form 10-Q report for the
period ended September 30, 1994.
17
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
4.02 First Supplemental Indenture, dated as of December 12, 1991, by and among Registrant, Cetus
Corporation, and Bankers Trust Company, incorporated by reference to Exhibit 4.02 of the
Registrant's Form 10-K report for fiscal year 1992.
4.03 Second Supplemental Indenture, dated as of March 25, 1996, by and among the Registrant, Cetus
Oncology Corporation (formerly Cetus Corporation), and Bankers Trust Company, incorporated by
reference to Exhibit 4.03 of the Registrant's Form 10-Q report for the period ended June 30,
1996.
4.04 Indenture, dated as of November 15, 1993, between Registrant and The First National Bank of
Boston, as Trustee, incorporated by reference to Exhibit 4.03 of the Registrant's Form 10-K
report for fiscal year 1993.
4.05 $1,000,000 County of Lorain, Ohio Variable Rate Industrial Revenue Bonds dated as of July 1,
1984, due July 1, 2014, incorporated by reference to Exhibit 4.06 of the Registrant's Form 10-Q
report for the period ended April 2, 1995. The Registrant agrees to furnish to the Commission
upon request a copy of such agreement which it has elected not to file under the provisions of
Regulation 601(b)(4)(iii).
4.06 $1,000,000 Walpole Industrial Development Authority 6.75% Industrial Revenue Bonds dated as of
July 1, 1979, due July 1, 2004, incorporated by reference to Exhibit 4.07 of the Registrant's
Form 10-Q report for the period ended April 2, 1995. The Registrant agrees to furnish to the
Commission upon request a copy of such agreement which it has elected not to file under the
provisions of Regulation 601(b)(4)(iii).
10.01 Lease between Registrant and BGR Associates, a California limited partnership, dated May 26,
1989, incorporated by reference to Exhibit 10.01 of the Registrant's Form 10-Q report for the
period ended September 30, 1994.
10.02 First Amendment to Lease between Registrant and BGR Associates, a California limited
partnership, incorporated by reference to Exhibit 10.02 of the Registrant's Form 10-K report
for fiscal year 1995.
10.03 Second Amendment to Lease, dated as of May 9, 1996, between BGR Associates, a California
limited partnership, as lessor and Registrant, as lessee [BGR I Property Building NQ Lease].
10.04 Third Amendment to Triple Net Lease, dated as of January 31, 1997, between BGR Associates, a
California limited partnership, as lessor and Registrant, as lessee [BGR I Property Building NQ
Lease].
10.05 Lease between Registrant and BGR Associates II, a California limited partnership, dated May 26,
1989, incorporated by reference to Exhibit 10.02 of the Registrant's Form 10-Q report for the
period ended September 30, 1994.
10.06 First Amendment to Lease between Registrant and BGR Associates II, a California limited
partnership, dated as of March 15, 1995, incorporated by reference to Exhibit 10.04 of the
Registrant's Form 10-K report for fiscal year 1995.
10.07 Second Amendment to Lease, dated as of May 9, 1996, between BGR Associates II, a California
limited partnership, as lessor and Registrant, as lessee.
10.08 Third Amendment to Triple Net Lease, dated as of January 31, 1997, between BGR Associates II, a
California limited partnership, as lessor and Registrant, as lessee [BGR II Property Lease].
18
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
10.09 Lease made and entered into December 17, 1984 between BGR Associates, a California limited
partnership, and Cetus Corporation and Amendment to Lease dated December 17, 1984, entered into
effective February 1, 1986, incorporated by reference to Exhibit 10.69 of the Registrant's Form
10-Q report for the period ended April 2, 1995.
10.10 Second Amendment to Lease, dated as of March 15, 1995, between BGR Associates, a California
limited partnership, and Registrant, incorporated by reference to Exhibit 10.73 of the
Registrant's Form 10-K report for fiscal year 1995.
10.11 Third Amendment to Lease, dated as of May 9, 1996, between BGR Associates, a California limited
partnership, as lessor and Registrant, as lessee [BGR I Property Building R Lease].
10.12 Fourth Amendment to Triple Net Lease, dated as of January 31, 1997, between BGR Associates, a
California limited partnership, as lessor and Registrant, as lessee [BGR I Property Building R
Lease].
10.13 Triple Net Lease, dated as of January 20, 1989, between Cetus Corporation and BGR Associates
III, a California limited partnership, and Marin County Exchange Corporation, incorporated by
reference to Exhibit 10.34 of the Registrant's Form 10-Q report for the period ended September
30, 1994.
10.14 First Amendment to Triple Net Lease, dated as of September 10, 1996, between BGR Associates
III, a California limited partnership, as lessor and Registrant, as lessee.
10.15 Second Amendment to Triple Net Lease, dated as of January 31, 1997, between BGR Associates III,
a California limited partnership, as lessor and Registrant, as lessee [BGR III Lease].
10.16 Assignment of Lessor Claims, dated as of January 31, 1997, between BGR Associates III, a
California limited partnership, as assignor and Registrant, as assignee.
10.17 Agreement and Plan of Merger dated as of April 23, 1995 between Viagene, Inc., a Delaware
corporation, and Chiron Corporation, incorporated by reference to Exhibit 10.67 of the
Registrant's current report on Form 8-K dated April 24, 1995.
10.18 Stockholders' Agreement dated as of April 23, 1995 among certain stockholders of Viagene, Inc.,
a Delaware corporation, and Chiron Corporation, incorporated by reference to Exhibit 10.68 of
the Registrant's current report on Form 8-K dated April 24, 1995.
10.19 Stock and Asset Purchase Agreement dated as of March 6, 1995, by and among Johnson & Johnson, a
New Jersey corporation, Site Microsurgical Systems, Inc., a Pennsylvania corporation, and
Chiron Corporation and Amendment No. 1 to Stock and Asset Purchase Agreement, entered into
March 31, 1995 by and among Johnson & Johnson, Site Microsurgical Systems, Inc. and Chiron
Corporation, incorporated by reference to Exhibit 10.05 of the Registrant's Form 10-Q report
for the period ended April 2, 1995.
10.20 Revolving Credit Facility dated as of March 24, 1995, between Chiron Corporation and Swiss Bank
Corporation, San Francisco Branch, incorporated by reference to Exhibit 10.06 of the
Registrant's Form 10-Q report for the period ended April 2, 1995.
19
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
10.21 Agreement between the Registrant and Ortho Diagnostic Systems, Inc., a New Jersey corporation,
dated August 17, 1989, and Amendment to Collaboration Agreement between Ortho Diagnostic
Systems, Inc. and Registrant, dated December 22, 1989 (with confidential information deleted),
incorporated by reference to Exhibit 10.14 of the Registrant's Form 10-Q report for the period
ended September 30, 1994.
10.22 License and Supply Agreement between Ortho Diagnostic Systems, Inc., a New Jersey corporation,
the Registrant and Abbott Laboratories, an Illinois corporation, dated August 17, 1989 (with
certain confidential information deleted), incorporated by reference to Exhibit 10.15 of the
Registrant's Form 10-Q report for the quarter ended June 30, 1994.
10.23 Chiron 1991 Stock Option Plan, as amended, incorporated by reference to Annex 2 of the
Registrant's Proxy Statement dated April 11, 1996.*
10.24 Forms of Option Agreements, Chiron 1991 Stock Option Plan, as amended, incorporated by
reference to Exhibit 10.17 of the Registrant's Form 10-K report for fiscal year 1993.*
10.25 Form of Automatic Share Right Agreement, Chiron 1991 Stock Option Plan, as amended,
incorporated by reference to Exhibit 10.19 of Registrant's Form 10-Q report for the period
ended September 29, 1996.
10.26 Forms of Option Agreements, Cetus Corporation Amended and Restated Common Stock Option Plan,
incorporated by reference to Exhibit 10.33 of Registrant's Form 10-K report for fiscal year
1991.*
10.27 Forms of Supplemental Letter concerning the assumption of Cetus Corporation options by the
Registrant.*
10.28 Indemnification Agreement between the Registrant and Dr. William J. Rutter, dated as of
February 12, 1987 (which form of agreement is used for each member of Registrant's Board of
Directors), incorporated by reference to Exhibit 10.21 of the Registrant's Form 10-Q report for
the period ended September 30, 1994.
10.29 Stock Purchase Agreement by and between the Registrant and Johnson & Johnson Development
Corporation, a corporation organized and existing under the laws of the State of New Jersey,
dated as of October 3, 1986, incorporated by reference to Exhibit 10.22 of the Registrant's
Form 10-Q report for the period ended September 30, 1994.
10.30 Revolving Credit Agreement, dated as of July 12, 1996, between Registrant and Bank of America
National Trust and Savings Association, incorporated by reference to Exhibit 10.24 of the
Registrant's Form 10-Q report for the period ended June 30, 1996.
10.31 Form of Debenture Purchase Agreement between the Registrant and Ciba-Geigy, Limited, a Swiss
corporation, dated June 22, 1990, incorporated by reference to Exhibit 10.25 of the
Registrant's Form 10-K report for fiscal year 1994.
10.32 Chiron Corporation 1.90% Convertible Subordinated Note due 2000, Series B, incorporated by
reference to Exhibit 10.25 of the Registrant's Form 10-K report for fiscal year 1993.
10.33 Investment Agreement dated as of November 20, 1994 among Ciba-Geigy Limited, Ciba-Geigy
Corporation, Ciba Biotech Partnership, Inc. and Chiron Corporation, incorporated by reference
to Exhibit 10.54 of the Registrant's current report on Form 8-K dated November 20, 1994.
20
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
10.34 Governance Agreement dated as of November 20, 1994 among Ciba-Geigy Limited, Ciba-Geigy
Corporation and Chiron Corporation, incorporated by reference to Exhibit 10.55 of the
Registrant's current report on Form 8-K dated November 20, 1994.
10.35 Subscription Agreement dated as of November 20, 1994 among Ciba-Geigy Limited, Ciba-Geigy
Corporation, Ciba Biotech Partnership, Inc. and Chiron Corporation, incorporated by reference
to Exhibit 10.56 of the Registrant's current report on Form 8-K dated November 20, 1994.
10.36 Cooperation and Collaboration Agreement dated as of November 20, 1994, between Ciba-Geigy
Limited and Chiron Corporation, incorporated by reference to Exhibit 10.57 of the Registrant's
current report on Form 8-K dated November 20, 1994.
10.37 Registration Rights Agreement dated as of November 20, 1994 between Ciba Biotech Partnership,
Inc. and Chiron Corporation, incorporated by reference to Exhibit 10.58 of the Registrant's
current report on Form 8-K dated November 20, 1994.
10.38 Market Price Option Agreement dated as of November 20, 1994 among Ciba-Geigy Limited,
Ciba-Geigy Corporation, Ciba Biotech Partnership, Inc. and Chiron Corporation, incorporated by
reference to Exhibit 10.59 of the Registrant's current report on Form 8-K dated November 20,
1994.
10.39 Amendment dated as of January 3, 1995 among Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba
Biotech Partnership, Inc. and Chiron Corporation, incorporated by reference to Exhibit 10.60 of
the Registrant's current report on Form 8-K dated January 4, 1995.
10.40 Supplemental Agreement dated as of January 3, 1995 among Ciba-Geigy Limited, Ciba-Geigy
Corporation, Ciba Biotech Partnership, Inc. and Chiron Corporation, incorporated by reference
to Exhibit 10.61 of the Registrant's current report on Form 8-K dated January 4, 1995.
10.41 Amendment with Respect to Employee Stock Option Arrangements dated as of January 3, 1995 among
Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech Partnership, Inc. and Chiron
Corporation, incorporated by reference to Exhibit 10.62 of the Registrant's current report on
Form 8-K dated January 4, 1995.*
10.42 Agreement, dated November 27, 1996, between Ciba-Geigy Limited and the Registrant, incorporated
by reference to Exhibit 10.92 of the Registrant's Form 8-K report filed with the Commission on
December 17, 1996.
10.43 Letter Agreement, dated May 6, 1996, as to consent to assignment of contracts to Novartis
Limited, among the Registrant, Ciba-Geigy Limited, Ciba-Geigy Corporation and Ciba Biotech
Partnership, Inc.
10.44 Letter Agreement, dated December 19, 1996, regarding compensation paid by the Registrant for
director services performed by employees of Ciba-Geigy Limited.*
10.45 Supplemental Benefits Agreement, dated July 21, 1989, between the Registrant and Dr. William J.
Rutter, incorporated by reference to Exhibit 10.27 of the Registrant's Form 10-Q report for the
period ended September 30, 1994.*
10.46 Lease commencing March 1, 1987, between EuroCetus B.V. and the Municipal Land Company of the
City of Amsterdam (Translation), incorporated by reference to Exhibit 10.40 of the Registrant's
Form 10-K report for fiscal year 1995.
21
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
10.47 Form of Option Agreement (with Purchase Agreements attached thereto) between Cetus Corporation
and each former limited partner of Cetus Healthcare Limited Partnership, a California limited
partnership, incorporated by reference to Exhibit 10.31 of the Registrant's Form 10-Q report
for the period ended September 30, 1994.
10.48 Form of Option Agreement (with forms of Purchase Agreements attached thereto), dated December
30, 1986, between Cetus Corporation and each former limited partner of Cetus Healthcare Limited
Partnership II, a California limited partnership, incorporated by reference to Exhibit 10.32 of
the Registrant's Form 10-Q report for the period ended September 30, 1994.
10.49 License Agreement between the Registrant and the Board of Trustees of the Leland Stanford
Junior University, dated December 15, 1981, incorporated by reference to Exhibit 10.07 of the
Registrant's Form 10-Q report for the period ended September 30, 1994.
10.50 Stock Purchase and Warrant Agreement dated May 9, 1989, between Cetus Corporation and
Hoffmann-La Roche Inc., incorporated by reference to Exhibit 10.36 of the Registrant's Form
10-Q report for the period ended September 30, 1994.
10.51 Letter Agreement, dated as of December 12, 1991, relating to Stock Purchase and Warrant
Agreement between Registrant and Hoffmann-La Roche Inc.
10.52 Letter Agreement dated September 26, 1990 between the Registrant and William G. Green,
incorporated by reference to Exhibit 10.41 of the Registrant's Form 10-K report for fiscal year
1992.*
10.53 Letter Agreement dated December 18, 1991 between Registrant and Jack Schuler, incorporated by
reference to Exhibit 10.42 of the Registrant's Form 10-K report for fiscal year 1992.*
10.54 Lease between Sclavo S.p.A. and Biocine Sclavo S.p.A., dated January 7, 1992, incorporated by
reference to Exhibit 10.49 of the Registrant's Form 10-Q report for the period ended April 2,
1995.
10.55 Agreement made as of November 11, 1993 by and between Kodak Clinical Diagnostics Limited, a
company registered in England, and Ciba Corning Diagnostics Corp., a Delaware corporation, and
Letter dated October 7, 1994 from Kodak Clinical Diagnostics Limited to Ciba Corning
Diagnostics Corp., incorporated by reference to Exhibit 10.50 of Amendment No. 1 to the
Registrant's Form 10-Q report for the period ended April 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by Registrant for confidential treatment
pursuant to Rule 24b-2.]
10.56 Regulatory Filing, Development and Supply Agreement between the Registrant, Cetus Oncology
Corporation, a wholly-owned subsidiary of the Registrant, and Schering AG, a German company,
dated as of May 10, 1993 (with certain confidential information deleted), incorporated by
reference to Exhibit 10.50 of the Registrant's current report on Form 8-K dated February 9,
1994.
10.57 Letter Agreement dated December 30, 1993 by and between Registrant and Schering AG, a German
company (with certain confidential information deleted), incorporated by reference to Exhibit
10.51 of the Registrant's Form 10-K report for fiscal year 1993.
10.58 Description of Executive Officer Variable Compensation Program.*
22
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
10.59 Chiron Corporation 1995 Executive Officer Variable Cash Compensation Plan, incorporated by
reference to Annex 2 of the Registrant's Proxy Statement dated April 18, 1995.*
10.60 Amended and Restated License Agreement effective April 1, 1996 between Ciba Corning Diagnostics
Corp., a Delaware corporation, and Bioanalysis Limited, a corporation organized under the laws
of the United Kingdom of Great Britain and Northern Ireland, incorporated by reference to
Exhibit 10.56 of the Registrant's Form 10-Q for the period ended September 29, 1996. [Certain
confidential information has been omitted from the Agreement and filed separately with the
Securities and Exchange Commission pursuant to a request by Registrant for confidential
treatment pursuant to Rule 24b-2.]
10.61 Guaranty, dated as of September 29, 1994, made by Registrant, in favor of Bankers Trust
Company, as trustee, incorporated by reference to Exhibit 10.52 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.
10.62 Guaranty, dated as of September 29, 1994, made by Cetus Corporation, in favor of The First
National Bank of Boston, as trustee, incorporated by reference to Exhibit 10.53 of the
Registrant's Form 10-Q report for the period ended September 30, 1994.
10.63 Letter Agreements dated September 11, 1992, July 15, 1994 and September 14, 1994 between the
Registrant and Lewis T. Williams, incorporated by reference to Exhibit 10.54 of the
Registrant's Form 10-Q report for the period ended September 30, 1994.*
10.64 Letters dated May 6, 1996 and May 25, 1996 to Magnus Lundberg, incorporated by reference to
Exhibit 10.61 of Registrant's Form 10-Q Report for the period ended September 29, 1996.*
10.65 Letter dated January 8, 1997 to Magnus Lundberg.*
10.66 Letter to Dino Dina dated April 24, 1984, incorporated by reference to Exhibit 10.66 of the
Registrant's Form 10-K report for fiscal year 1994.*
10.67 Research Agreement, dated as of July 15, 1985, between Ciba-Geigy Limited, a Swiss corporation,
and Ciba Corning Diagnostics Corp., a Delaware corporation, incorporated by reference to
Exhibit 10.64 of the Registrant's Form 10-Q report for the period ended April 2, 1995.
10.68 Licensing Agreement, effective December 18, 1986, by and between Miles Laboratories, Inc., a
Delaware corporation, and Ciba Corning Diagnostics Corp., a Delaware corporation, and Letter
dated December 18, 1992 from Ciba Corning Diagnostics Corp. to Miles Laboratories, Inc.,
incorporated by reference to Exhibit 10.65 of Amendment No. 1 to the Registrant's Form 10-Q
report for the period ended April 2, 1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for confidential treatment pursuant to Rule
24b-2.]
10.69 Magnetocluster Binding Assay Technology Agreement, dated as of January 21, 1983, by and between
Bioclinical Group, Inc., a Delaware corporation, and Corning Glass Works, a New York
corporation, incorporated by reference to Exhibit 10.66 of Amendment No. 1 to the Registrant's
Form 10-Q report for the period ended April 2, 1995. [Certain information has been omitted from
the Agreement pursuant to a request by Registrant for confidential treatment pursuant to Rule
24b-2.]
23
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
10.70 Turn-back License Agreement, dated as of May 30, 1986, by and between Ciba Corning Diagnostics
Corp., a Delaware corporation, and Advanced Magnetics, Inc., a Delaware corporation,
incorporated by reference to Exhibit 10.67 of the Registrant's Form 10-Q report for the period
ended April 2, 1995. [Certain information has been omitted from the Agreement pursuant to a
request by Registrant for confidential treatment pursuant to Rule 24b-2.]
10.71 Settlement Agreement, dated August 30, 1989, between Ciba Corning Diagnostics Corp. and
Advanced Magnetics, Inc., incorporated by reference to Exhibit 10.68 of the Registrant's Form
10-Q report for the period ended April 2, 1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for confidential treatment pursuant to Rule
24b-2.]
10.72 Agreement, effective as of December 21, 1988, by and between Hoffmann-La Roche Inc., a New
Jersey corporation, and Cetus Corporation, incorporated by reference to Exhibit 10.70 of the
Registrant's Form 10-Q report for the period ended April 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by Registrant for confidential treatment
pursuant to Rule 24b-2.]
10.73 Agreement, effective as of December 21, 1988, by and among F. Hoffmann-La Roche Ltd., a Swiss
corporation, Cetus Corporation, and EuroCetus International, B.V., a Netherlands Antilles
corporation, incorporated by reference to Exhibit 10.71 of the Registrant's Form 10-Q report
for the period ended April 2, 1995. [Certain information has been omitted from the Agreement
pursuant to a request by Registrant for confidential treatment pursuant to Rule 24b-2.]
10.74 Agreement, by and between Cetus Oncology Corporation, EuroCetus International, N.V., and F.
Hoffmann-La Roche Ltd., incorporated by reference to Exhibit 10.72 of the Registrant's Form
10-Q report for the period ended April 2, 1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for confidential treatment pursuant to Rule
24b-2.]
10.75 Agreement commencing January 1, 1991, between EuroCetus B.V. and the Municipal Development
corporation (Translation), incorporated by reference to Exhibit 10.41 of the Registrant's Form
10-K report for fiscal year 1994.
10.76 Settlement Agreement on Purified IL-2, made as of April 14, 1995, by and between Cetus Oncology
Corporation, dba Chiron Therapeutics, a Delaware corporation, and Takeda Chemical Industries,
Ltd., a Japanese corporation, incorporated by reference to Exhibit 10.74 of the Registrant's
Form 10-Q report for the period ended July 2, 1995. [Certain information has been omitted from
the Agreement pursuant to a request by Registrant for confidential treatment pursuant to Rule
24b-2.]
10.77 License Agreement made and entered into December 1, 1987, by and between Sloan Kettering
Institute for Cancer Research, a not-for-profit New York corporation, and Cetus Corporation,
incorporated by reference to Exhibit 10.75 of the Registrant's Form 10-Q report for the period
ended July 2, 1995. [Certain information has been omitted from the Agreement pursuant to a
request by Registrant for confidential treatment pursuant to Rule 24b-2.]
24
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
10.78 Chiron Funding L.L.C. Limited Liability Company Agreement, entered into and effective as of
December 28, 1995, among the Registrant, Chiron Biocine Company and Biocine S.p.A. and
Ciba-Geigy Corporation, incorporated by reference to Exhibit 10.80 of the Registrant's Form
10-K report for fiscal year 1995. [Certain information has been omitted from the Agreement and
filed separately with the Securities and Exchange Commission pursuant to a request by
Registrant for confidential treatment pursuant to Rule 24b-2. The omitted confidential
information has been identified by the following statement: "Confidential Treatment
Requested".]
10.79 Agreement between Ciba-Geigy Limited and the Registrant made November 15, 1995, incorporated by
reference to Exhibit 10.81 of the Registrant's Form 10-K report for fiscal year 1995. [Certain
information has been omitted from the Agreement and filed separately with the Securities and
Exchange Commission pursuant to a request by Registrant for confidential treatment pursuant to
Rule 24b-2. The omitted confidential information has been identified by the following
statement: "Confidential Treatment Requested".]
10.80 Reimbursement Agreement dated as of March 24, 1995, between Ciba-Geigy Limited, a Swiss
corporation, and the Registrant, incorporated by reference to Exhibit 10.76 of the Registrant's
Form 10-Q report for the period ended July 2, 1995.
10.81 Promissory Note, as amended and restated, dated January 1, 1995 by Ciba Corning Diagnostics
Corp., incorporated by reference to Exhibit 10.83 of the Registrant's Form 10-K report for
fiscal year 1995.
10.82 Commercial lease between Domilyon Corporation and Domilens Laboratories and Amendment No. 1 to
Commercial Lease dated May 9, 1994, incorporated by reference to Exhibit 10.84 of the
Registrant's Form 10-K report for fiscal year 1995.
10.83 Agreement between the Registrant and Cephalon, Inc. dated as of January 7, 1994, and Letter
Agreements between the Registrant and Cephalon dated January 13, 1995 and May 23, 1995,
incorporated by reference to Exhibit 10.85 of the Registrant's Form 10-K report for fiscal year
1995. [Certain information has been omitted from the Agreements and filed separately with the
Securities and Exchange Commission pursuant to a request by Registrant for confidential
treatment pursuant to Rule 24b-2. The omitted confidential information has been identified by
the following statement: "Confidential Treatment Requested".]
10.84 Reimbursement Agreement, dated as of June 28, 1996, between Ciba-Geigy Limited, a Swiss
corporation, and the Registrant, incorporated by reference to Exhibit 10.94 of the Registrant's
Form 10-Q report for the period ended June 30, 1996.
10.85 Reimbursement Agreement, dated as of May 20, 1996, between Ciba-Geigy Limited, a Swiss
corporation, and the Registrant, incorporated by reference to Exhibit 10.95 of the Registrant's
Form 10-Q report for the period ended June 30, 1996.
10.86 Letter Agreement between the Registrant and Dr. Richard W. Barker dated May 1, 1996,
incorporated by reference to Exhibit 10.88 of the Registrant's Form 10-Q report for the period
ended June 30, 1996.*
10.87 Revolving Credit Agreement, dated as of March 23, 1996, between the Registrant and Morgan
Guaranty Trust Company of New York, incorporated by reference to Exhibit 10.89 of the
Registrant's Form 10-Q report for the period ended June 30, 1996.
25
EXHIBIT
NUMBER EXHIBIT
------- -----------------------------------------------------------------------------------------------
10.88 Purchase and Assignment Agreement between Behringwerke Aktiengesellschaft, on the one side, and
31. CORSA Verwaltungsgesellschaft mbH and the Registrant, on the other side, dated February 17,
1996, Closing Agreement, by and among Behringwerke Aktiengesellschaft, on the one side, and the
Registrant and 31. CORSA Verwaltungsgesellschaft mbH, on the other side, dated June 29, 1996
and Letter Agreement dated June 29, 1996 between the Registrant, 31. CORSA
Verwaltungsgesellschaft mbH and Behringwerke Aktiengesellschaft, incorporated by reference to
Exhibit 10.86 of the Registrant's Form 10-Q report for the period ended September 29, 1996.
[Certain confidential information has been omitted from the Agreements and filed separately
with the Securities and Exchange Commission pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2.]
10.89 Royalty Projects Agreement by and between Ciba Corning Diagnostics Corp., a Delaware
corporation, and Ciba-Geigy Limited, a Swiss corporation, incorporated by reference to Exhibit
10.87 of the Registrant's Form 10-Q report for the period ended September 29, 1996. [Certain
confidential information has been omitted from the Agreement and filed separately with the
Securities and Exchange Commission pursuant to a request by Registrant for confidential
treatment pursuant to Rule 24b-2.]
10.90 Purchase Agreement between BNP Leasing Corporation and the Registrant, dated June 28, 1996,
incorporated by reference to Exhibit 10.90 of the Registrant's Form 10-Q report for the period
ended June 30, 1996.
10.91 Lease Agreement between BNP Leasing Corporation and the Registrant, dated June 28, 1996,
incorporated by reference to Exhibit 10.91 of the Registrant's Form 10-Q report for the period
ended June 30, 1996.
10.92 Ground Lease between BNP Leasing Corporation and the Registrant, dated June 28, 1996,
incorporated by reference to Exhibit 10.92 of the Registrant's Form 10-Q report for the period
ended June 30, 1996.
10.93 Reimbursement Agreement, dated as of July 12, 1996, between Ciba-Geigy Limited, a Swiss
corporation, and the Registrant, incorporated by reference to Exhibit 10.93 of the Registrant's
Form 10-Q report for the period ended June 30, 1996.
10.94 Form of Performance Unit Agreement, Chiron 1991 Stock Option Plan, as amended.*
11 Statement of Computation of Earnings per Share.
13 Consolidated Financial Statements.
21 List of Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors. The consent set forth on page 30 is
incorporated herein by reference.
24 Power of Attorney. The Power of Attorney set forth on pages 27 and 28 incorporated herein by
reference.
27 Financial Data Schedule.
- ------------------------
* Management contract, compensatory plan or arrangement.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 31, 1997
CHIRON CORPORATION
By /s/ EDWARD E. PENHOET
--------------------------------------
Edward E. Penhoet, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Chiron Corporation do hereby
constitute and appoint Edward E. Penhoet, Ph.D., and William J. Rutter, Ph.D.,
and each of them, the lawful attorney and agent or attorneys and agents with
power and authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, determine may be
necessary or advisable or required to enable Chiron Corporation to comply with
the Securities Exchange Act of 1934, as amended, and any rules or regulations or
requirements of the Securities and Exchange Commission in connection with this
Form 10-K Report. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names
of the undersigned officers and directors in the capacities indicated below to
this Form 10-K report or amendments or supplements thereto, and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents or
either of them, shall do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.
27
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his name.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------------- -----------------
/s/ EDWARD E. PENHOET
---------------------------- President and Chief Executive Officer March 31, 1997
Edward E. Penhoet, Ph.D.
/s/ DENNIS L. WINGER Senior Vice President, Finance and Administration,
---------------------------- Chief Financial Officer, and Principal March 31, 1997
Dennis L. Winger Accounting Officer
/s/ WILLIAM J. RUTTER
---------------------------- Chairman March 31, 1997
William J. Rutter, Ph.D.
/s/ LEWIS W. COLEMAN
---------------------------- Director March 31, 1997
Lewis W. Coleman
/s/ PIERRE E. DOUAZE
---------------------------- Director March 31, 1997
Pierre E. Douaze
DONALD A. GLASER
---------------------------- Director March 31, 1997
Donald A. Glaser, Ph.D.
/s/ PAUL L. HERRLING
---------------------------- Director March 31, 1997
Paul L. Herrling, Ph.D.
/s/ ALEX KRAUER
---------------------------- Director March 31, 1997
Alex Krauer, Ph.D.
/s/ HENRI SCHRAMEK
---------------------------- Director March 31, 1997
Henri Schramek, Ph.D.
/s/ JACK W. SCHULER
---------------------------- Director March 31, 1997
Jack W. Schuler
PIETER J. STRIJKERT
---------------------------- Director March 31, 1997
Pieter J. Strijkert, Ph.D.
28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Chiron Corporation:
Under date of January 31, 1997, we reported on the consolidated balance
sheets of Chiron Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
San Francisco, California
January 31, 1997
29
CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(File Numbers 33-20181, 33-35182, 2-90595, 33-23899, 33-58305, 33-44477,
33-65024, 33-65177, 333-10419, 33-45822 and 33-63297 on Form S-8 and File Number
33-43574 on Form S-3) of Chiron Corporation of our reports dated January 31,
1997, relating to the consolidated balance sheets of Chiron Corporation and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996 and the related schedule,
which reports appear in the December 31, 1996 annual report on Form 10-K of
Chiron Corporation.
KPMG PEAT MARWICK LLP
San Francisco, California
March 31, 1997
30
CHIRON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
PAGES OF 1996
CONSOLIDATED FINANCIAL
STATEMENTS INCORPORATED
BY REFERENCE FORM 10-K PAGE
----------------------- ---------------
Financial Statements and Notes..................................... 47-84 --
Report of KPMG Peat Marwick LLP.................................... 85 29
Schedule II--Valuation and Qualifying Accounts..................... -- 32
31
CHIRON CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS RECLASSIFICATIONS YEAR
- ----------------------------------- ----------- ----------- ------------ ----------- --------------- ---------
(IN THOUSANDS)
1996:
Accounts receivable................ $ 18,524 $ 8,848 $ -- $ (6,680) $ -- $ 20,692
1995:
Accounts receivable................ 7,210 8,815 6,680(1) (4,181) -- 18,524
1994:
Accounts receivable................ 5,194 5,880 2,424(1) (4,880) (1,408)(2) 7,210
- ------------------------
(1) Represents accounts receivable allowances as of the acquisition date related
to acquired businesses.
(2) Represents amounts reclassified to other current liabilities.
32