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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
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
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.)
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4560 HORTON STREET
EMERYVILLE, CALIFORNIA 94608
(Address of principal executive offices) (Zip Code)
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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
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.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of February 27, 1998, was $1.9 billion.
The number of shares outstanding of each of the Registrant's classes of
common stock as of February 27, 1998:
TITLE OF CLASS NUMBER OF SHARES
Common Stock, $0.01 par value 176,294,384
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Consolidated Financial Statements for the fiscal year ended
December 28, 1997, are incorporated by reference into Parts II and IV of this
Report and are filed as Exhibit 13 to this 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 14, 1998, are incorporated by
reference into Part III of this Report.
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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.
OVERVIEW AND CERTAIN RECENT DEVELOPMENTS
Chiron develops, manufactures and markets human healthcare products for the
treatment, prevention and diagnosis of disease utilizing innovations in biology
and chemistry.
Chiron has a strong commitment to research as an essential component of its
product development effort. The Company focuses its research and development
activities primarily on areas in which it has particular strengths, including
infectious diseases, cancer and cardiovascular diseases. An important part of
the Company's research and development effort is undertaken in collaborations
with third parties who are able to contribute significant enabling technologies
and other resources to the development and commercialization of the product,
including in some cases marketing and sales expertise.
Among the products currently sold by the Company are Proleukin(R)
(aldesleukin), a recombinant form of interleukin-2, which the Company markets as
a treatment for metastatic renal cell carcinoma and metastatic melanoma; a line
of traditional pediatric and adult vaccines; and diagnostic systems and tests,
including automated immunodiagnostic systems, critical blood analyte systems and
quantitative nucleic acid tests. The Company has an interest in a number of
other products through collaborations and joint businesses.
In January 1995 the Company established an alliance with Novartis AG
("Novartis"), a life sciences company headquartered in Basel, Switzerland. As of
February 27, 1998, Novartis held shares representing approximately 45% of the
outstanding common stock of the Company. For more on the Novartis alliance, see
"Relationship With Novartis", below.
Chiron recently sold certain businesses as it moved to focus on its core
businesses. On December 29, 1997, the Company completed the sale of its
ophthalmic products business to Bausch & Lomb Incorporated for approximately
$300 million in cash. On December 5, 1997, the Company completed the sale of its
diagnostic quality controls business (other than certain blood gas and
immunodiagnostic controls) to Bio-Rad Laboratories, Inc. for approximately $30
million in cash.
The Company was incorporated in California in 1981 and was merged into a
Delaware corporation in November 1986. Chiron is a global organization with
facilities on four continents. The Company's principal executive offices are
located at 4560 Horton Street, Emeryville, California 94608, and its telephone
number at that address is (510) 655-8730.
PRODUCTS
TREATMENT
The Company's leading therapeutic product is Proleukin(R) (aldesleukin), a
recombinant form of interleukin-2 ("IL-2"). IL-2 is a protein produced naturally
in the body in very small quantities. IL-2 stimulates the immune system to
increase the production of lymphocytes (white blood cells) that help fight viral
infections and, in some cases, cancers. While the precise mechanism of
anti-tumor action of
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Proleukin(R) is unknown, research has demonstrated that it induces the
proliferation of immune cells-- natural killer and cytotoxic T cells--that can
recognize and mobilize against tumor-specific antigens on the surface of
malignant cells. Proleukin(R) is marketed by the Company directly or through
distributors in the United States, Canada, Europe, and South America for the
treatment of metastatic renal cell carcinoma (a type of kidney cancer). In
January 1998, the Company received FDA approval to market Proleukin(R) in the
United States for the treatment of metastatic melanoma (a form of skin cancer).
Chiron manufactures recombinant human platelet-derived growth factor
(rhPDGF-BB), the active ingredient in Regranex(R) (becaplermin), developed with
Ortho-McNeil Pharmaceutical, Inc., a Johnson & Johnson ("J&J") company through a
collaboration in growth factor research that began in 1984. Ortho-McNeil markets
Regranex(R) in the United States as a treatment for foot ulcers related to
diabetes. Regranex(R) works by enhancing the body's natural wound healing
processes. It stimulates the migration of cells to the site of the ulcer,
encouraging the patient's body to grow new tissue that helps heal these open
wounds. Regranex(R) is the first product demonstrated to assist in the healing
of diabetic foot ulcers.
Chiron manufactures Betaseron(R) (interferon beta-1b) for Berlex
Laboratories, Inc. ("Berlex") and its parent company, Schering AG of Germany.
Betaseron(R) is the result of a research collaboration initiated by the Company
in the early 1980's. Berlex markets Betaseron(R) primarily in the United States
and Canada to treat patients with multiple sclerosis. The Company also receives
royalties from the sale of a similar product in Europe, where it is manufactured
by Boehringer Ingelheim and marketed by Schering AG for the treatment of
multiple sclerosis under the trade name Betaferon(R). Multiple sclerosis is an
autoimmune disease in which the patient's immune system attacks and destroys an
element of the patient's own central nervous system.
On behalf of Novartis, Chiron has marketed and, since April 1997,
co-promotes in the United States Aredia(R) (pamidronate disodium for injection),
a drug to treat hypercalcimia of malignancy, Paget's disease and osteolytic bone
lesions of multiple myeloma. In December 1997, the Company and Novartis agreed
to an early termination of the Company's co-promotion services effective April
3, 1998.
No single therapeutic product or class of therapeutic products accounted for
10% or more of consolidated total revenues of the Company in any of the last
three fiscal years.
PREVENTION
Chiron's current vaccine portfolio consists primarily of traditional
vaccines. Through its subsidiary Chiron S.p.A., based in Siena, Italy, the
Company manufactures and markets vaccines, singly and in various combinations,
for diphtheria, tetanus, pertussis, meningococcus, haemophilus influenzae, flu,
measles, mumps, rubella, hepatitis A and an oral polio vaccine and, under
license, markets a vaccine for typhoid fever. These products are marketed in
Italy, the Middle East, the Far East, Africa and South America, and to
international health agencies such as the World Health Organization.
In July 1996, Chiron formed a joint venture with Behringwerke AG (which
subsequently merged into its parent company, Hoechst AG) under which the Company
purchased a 49% interest in the human vaccine business of Behringwerke. The
joint venture is based in Marburg, Germany and operates under the name Chiron
Behring GmbH & Co ("Chiron Behring"). In February 1998, the Company notified
Hoechst that Chiron intends to exercise its option to purchase the remaining 51%
interest in the joint venture. Chiron expects to close that acquisition in the
second fiscal quarter of 1998. Through Chiron Behring, the Company manufactures
and markets in Germany vaccines for diphtheria, tetanus, pertussis, flu, rabies,
tick-borne encephalitis, tuberculosis, cholera and an oral polio vaccine.
Certain of these products are marketed in other European countries and in the
Middle East, the Far East, Africa and South America, and to international health
agencies such as the World Health Organization. In 1997, the Company began
marketing Chiron Behring's rabies vaccine in the United States. Chiron Behring
also markets in Germany, under distribution agreements with other manufacturers,
traditional vaccines for hepatitis A, measles,
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mumps, rubella, typhoid fever, pneumococcal disease, haemophilus influenzae type
b and an inactivated polio vaccine and a recombinant vaccine for hepatitis B.
The Company has developed a genetically engineered acellular vaccine for
pertussis (whooping cough), which currently is marketed in Italy both as a
monovalent vaccine and in combination with diphtheria and tetanus ("DTaP").
Chiron has filed applications to market the DTaP vaccine in the United States
and Europe. These applications, which are under review, are based on the results
of large-scale U.S. government sponsored trials in Italy which demonstrated that
the Chiron acellular pertussis vaccine is safer and more effective than a U.S.
licensed whole-cell pertussis vaccine to which it was compared. The Company also
has developed an adjuvanted flu vaccine, which in 1997 received marketing
approval in Italy. The Company currently is considering its regulatory approval
strategy for this vaccine in Europe and elsewhere.
In addition to revenues from the sale of the vaccine products described
above, the Company receives royalties from the sale of Recombivax(R) HB, a
vaccine against hepatitis B developed, manufactured and marketed by Merck & Co.,
Inc. ("Merck") using technology developed by Chiron. Recombivax(R) HB was the
first vaccine produced using genetic engineering to be licensed by the FDA for
human use.
No single vaccine product or class of vaccine products accounted for 10% or
more of consolidated total revenues of the Company in any of the last three
fiscal years.
DIAGNOSIS
Chiron's diagnostic businesses include immunodiagnostics, critical care,
nucleic acid diagnostics, and (through a joint business with an affiliate of
J&J) blood screening.
The Company's principal immunodiagnostic products are the ACS:180(R),
ACS:180(R) Plus, and ACS:180(R) SE automated chemiluminescence systems and the
immunodiagnostic reagents and test kits that are performed on these systems.
These are high-throughput random access instruments used by hospitals and
reference laboratories to detect and measure thyroid, anemia, fertility, cancer
and cardiac indicators. The Company manufactures and sells the equipment as well
as the related reagents, test kits and other supplies. Over 3,700 systems are
placed worldwide.
Chiron's critical care products include the Rapidlab-TM- 800, a critical
blood analyte instrument system used to measure blood gases, blood electrolytes,
metabolites and co-oximetry. This system is used by hospitals to diagnose and
monitor patients in critical care settings. The laboratory product line also
includes the 200 and 300 series critical blood analyte instrument systems.
The Company's principal nucleic acid diagnostic products are the
Quantiplex(R) tests for human immunodeficiency virus ("HIV"), hepatitis C virus
("HCV") and hepatitis B virus ("HBV"). These tests, based on proprietary
technology called branched DNA signal amplification ("bDNA"), are used to
quantify the level of virus in blood and plasma samples. Research has suggested
that viral load testing may have utility in predicting disease progression,
selection of patients for treatment based on probability of response and
monitoring response to therapy. In the United States, Quantiplex(R) tests
currently are sold for research use only. The Quantiplex(R) HCV and HBV tests
have been approved for use in Japan, and the Quantiplex(R) HIV test has been
approved for use in certain countries in Europe and South America and in
Australia. In 1997 the Company launched in the United States the first
semiautomatic instrument platform for quantitative nucleic acid diagnostic
assays, the Quantiplex(R) bDNA 340 system. This system automates certain aspects
of performing bDNA probe assays and enhances operator efficiency and is
available for research use only.
Chiron's joint immunodiagnostics business with Ortho Diagnostic Systems,
Inc. ("Ortho"), a J&J company, is based largely on the screening of blood in
blood banks and other similar settings for the potential presence of HIV and
hepatitis viruses. The joint business sells a full line of tests required to
screen blood for hepatitis viruses and retroviruses, and provides supplemental
tests and microplate-based
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instrument systems to automate test performance and data collection. Chiron and
Ortho share equally in the pretax operating earnings generated by the joint
business. The joint business holds the immunodiagnostic rights to Chiron's
hepatitis and retrovirus technology and receives royalties from the sale of HCV
and HIV tests by Abbott Laboratories ("Abbott"), and from sales of HCV tests by
Pasteur Sanofi Diagnostics, International Murex Technologies Corporation and
Genelabs Diagnostic, Inc.
The ACS series of immunodiagnostic systems and related reagents and test
kits accounted for approximately 21%, 20% and 34% of the Company's consolidated
total revenues in fiscal years 1997, 1996 and 1995, respectively. The
Rapidlab-TM- 800 series of critical blood analyte systems accounted for
approximately 14%, 15% and 21% of the Company's consolidated total revenues in
fiscal years 1997, 1996 and 1995, respectively.
RESEARCH AND DEVELOPMENT
Chiron has a strong commitment to research as the essential component of its
product development effort. Technologies developed in collaboration with third
parties, as well as technologies licensed from outside parties, also are sources
of potential products.
TREATMENT
FUNCTIONAL GENOMICS. Genomics and other technologies are used to discover
new genes and to determine their role and the role of the encoded proteins in a
target disease. With this information, the Company then identifies and develops
potential products utilizing a variety of approaches, including recombinant
proteins, gene therapy and small molecule drug discovery for treatment of the
disease, vaccines with recombinant antigens for prevention of the disease, and
immunodiagnostic and bDNA probe assays for diagnosing and monitoring the
progress of the disease.
RECOMBINANT PROTEINS. Proteins produced naturally by the human body play a
variety of roles in controlling disease. When administered as therapeutic
agents, certain proteins can enhance the patient's natural ability to fight
disease. However, traditional methods of isolating or producing proteins can be
cost-prohibitive, particularly in the quantities needed for pharmaceutical use.
Through genetic engineering, certain proteins which might not otherwise be
available can be produced in relatively large quantities at reasonable cost.
The Company and its collaborators have a number of recombinant proteins in
clinical development. Proleukin(R), already approved for marketing as a
treatment for certain forms of kidney and skin cancer, is being clinically
evaluated for use to treat patients with HIV infection. Fibroblast Growth Factor
("FGF"), a growth factor which can stimulate the formation of new blood vessels,
is in clinical studies for use as a treatment for coronary artery disease.
Tissue Factor Pathway Inhibitor ("TFPI"), a coagulation inhibitor, is being
developed in collaboration with G.D. Searle & Co., a subsidiary of the Monsanto
Company; the Company and Searle are conducting clinical studies on the use of
TFPI as a treatment for patients with sepsis. Myotrophin(R) (mecasermin), a
recombinant form of Insulin-Like Growth Factor-1, is being developed by the
Company in collaboration with Cephalon, Inc. as a treatment for amyotrophic
lateral sclerosis (also known as ALS or Lou Gehrig's disease) and is being
developed by Chiron for other indications. On May 8, 1997 an FDA advisory
committee found that there was not sufficient evidence of efficacy to warrant
approval by the FDA as a treatment for ALS. In November 1997, Chiron and
Cephalon withdrew and resubmitted their application to the FDA to allow the FDA
additional time to review the application. The FDA has scheduled further
consideration of the application before the advisory committee on April 9, 1998.
GENE THERAPY. Traditional recombinant protein therapeutics are produced
outside the patient's body and administered to the patient, typically through
injection. Gene therapy enables the patient's own body to produce a desired
protein by inserting the gene for that protein into the patient's cells.
Currently there are no gene therapy products on the market; many studies suggest
that the technology is promising but
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considerable further study is required to determine whether this technology can
be safely and effectively utilized to treat disease. An example of a potential
application of gene therapy currently in preclinical development at the Company
is Factor VIII. Factor VIII is a protein that causes blood to clot.
Hemophiliacs, as a result of a hereditary defect, are born with faulty copies of
the gene that produces Factor VIII. Through gene therapy, it may be possible to
insert into a hemophiliac's cells the normal Factor VIII gene, so that the
patient's own cells can produce the blood clotting protein.
A key component of any gene therapy treatment will be the mechanism for
"inserting" the gene into the patient's cells. The Company is developing several
gene transfer systems, including retroviral and other viral vectors as well as
the Company's proprietary ELVS-TM- DNA vector system. Each gene transfer system
has different properties, including cell specificity (the type of cells it can
enter) as well as durability of expression (how long it will continue to make
the therapeutic protein). Different gene transfer systems are likely to be
required to meet different therapeutic needs. Viral vectors are derived from
viruses. The vectors have the "coat" of the original virus, which allows them to
enter the targeted cell. Certain viral genes are removed and therapeutic genes
are added so that the vector can no longer cause the disease characteristic of
the original virus and instead expresses the desired therapeutic protein. DNA
vectors include only the therapeutic gene and the control elements required to
express that gene. Studies have shown that certain types of cells, including
muscle cells, will take up the DNA and express the gene contained on the DNA.
The Company also is investigating whether gene therapy may be used as part
of a two-step treatment which combines gene therapy with more traditional
therapeutics. For example, HSV-tk is a gene encoding thymidine kinase derived
from herpes simplex virus. It may be possible to use a gene transfer system to
insert the HSV-tk gene into targeted cells (such as cancer cells), and then kill
the cells that have taken up the HSV-tk gene by treating the patient with
Gancyclovir, an antiviral for herpes. The Company is conducting clinical studies
on the use of HSV-tk gene therapy for the treatment of melanoma (a form of skin
cancer) and, in collaboration with Baxter Healthcare Corporation, for the
treatment of graft-versus-host disease.
The Company is also conducting clinical studies on the use of Gamma
Interferon in the treatment of melanoma. Gamma Interferon, like Betaseron(R) and
Proleukin(R) , is a cytokine, a class of messenger protein that controls the way
the cells of the immune system respond. Gamma interferon stimulates an immune
response, particularly that part of the immune response that kills tumor cells
and cells infected by viruses. The Company is conducting clinical studies to
determine whether expression of the gamma interferon gene in a tumor will
stimulate an immune response that will act not only against that primary tumor,
but also against any other sites in the body to which tumor cells may have
moved.
SMALL MOLECULE DRUG DISCOVERY. Chiron's small molecule drug discovery
program combines multiple disciplines, including combinatorial and computational
chemistry, robotic screening and selection and molecular biology, to screen,
identify and refine compounds which may be used as drugs for treating medical
conditions or disorders. In addition to drug discovery against specific disease
targets of interest to the Company, from time to time the Company enters into
collaboration agreements with third parties under which the Company utilizes its
proprietary technologies to identify drug candidates directed at specific
disease targets of interest to the partner. Certain compounds which may be of
interest have been identified and are being further optimized and tested prior
to moving into clinical development.
THERAPEUTIC VACCINES. The Company is investigating the potential use of
vaccines for therapeutic purposes, in which antigens are used to stimulate an
immune response against established infections and cancer. The Company is
collaborating with Biomira, Inc. in the development of Theratope-Registered
Trademark-, a therapeutic vaccine for breast cancer. This vaccine, which is in
clinical trials, consists of a synthetic mimic of a breast cancer-associated
antigen conjugated to a carrier protein.
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DEPOCYT-TM-. The Company is developing DepoCyt-TM- in collaboration with
DepoTech Corporation as a treatment for neoplastic meningitis. DepoCyt-TM-
consists of cytarabine (a generic chemotherapy product) encapsulated in a novel
delivery system, called Depofoam-TM-. The parties' application to market
DepoCyt-TM- is currently being reviewed by the FDA. In December 1997 an FDA
advisory committee declined to recommend approval of DepoCyt-TM-. Chiron and
Depotech subsequently agreed with the FDA to submit an amendment to the
application with certain additional clinical trial data.
PREVENTION
Chiron is developing a new generation of vaccines utilizing genetic
engineering and other techniques of modern biotechnology, including vaccines
based on recombinant antigens as well as DNA-based vaccines. The Company
currently is conducting clinical studies of a number of vaccine candidates,
including vaccines for HCV, HIV and meningococcus C, and is conducting
preclinical studies on vaccines for a number of other targets. The Company also
is developing novel adjuvants. Adjuvants are compounds that amplify the immune
response generated by vaccine antigens. One of Chiron's adjuvants, MF-59, is a
component of Chiron's new flu vaccine, which was launched in Italy in 1997, and
is also a component of a number of other candidate vaccines currently in
clinical development by Chiron. In addition, Chiron is conducting preclinical
investigations of alternative delivery systems for vaccines that may be used in
lieu of injection, such as nasally or orally delivered vaccines.
DIAGNOSIS
In diagnostics, the Company is focusing its efforts on developing innovative
technologies for specific disease panels that include qualitative and
quantitative assays, genotyping and resistance assays. Chiron is developing a
more powerful immunodiagnostic system, the ACS:Centaur-TM-, designed to markedly
increase laboratory productivity. In March 1998 the Company initiated a
controlled release of the ACS:Centaur-TM- system for commercial use beginning
with the Company's thyroid panel; additional panels (reproductive, oncology and
anemia) are expected to be released in the second quarter of 1998. The
Rapidpoint-TM- 400 is being developed as a critical care system designed
specifically for point-of-care settings in hospitals. This system is scheduled
for introduction in 1998. The Company is developing new versions of its
Quantiplex(R) bDNA probe tests for HIV, HCV and HBV that will be even more
sensitive and able to determine the presence of even smaller quantities of
virus. The Company expects to introduce an improved bDNA probe test for HIV in
the United States for research use only in 1998.
RESEARCH REVENUES AND EXPENSES
Collaborative arrangements with third parties are also a source of revenue
for the Company. The terms of collaborative agreements vary considerably; in
general, collaboration revenues include fees paid upon signing the agreement,
fees for research services as they are performed or completed and milestone
payments upon attainment of specified benchmarks.
Novartis and the Company have entered into an agreement under which Novartis
has agreed to provide research funding for certain projects. The funded projects
currently consist of adult and pediatric vaccines, Insulin Like Growth Factor
- -1, Factor VIII and HSV-tk Novartis has agreed to fund, at Chiron's request and
subject to certain annual and aggregate limits, 100% of the development costs of
these projects incurred between January 1, 1995 and December 31, 1999. In
exchange for providing this funding, Novartis has certain co-promotion rights
for certain vaccines as well as an interest in certain royalties on sales of
certain products resulting from the funded research.
Research and development expense for the years ended December 31, 1997, 1996
and 1995 for Company-sponsored research, including payments to collaboration
partners, was $376.0 million, $352.5 million and $327.9 million, respectively.
Of that, $79.5 million, $103.8 million and $51.8 million in 1997, 1996 and 1995,
respectively, was reimbursed by third parties.
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COMMERCIALIZATION
Technologies arising out of the Company's research and development efforts
are commercialized in a variety of ways. Certain products are marketed and
distributed by the Company, either directly or through distributors. See
"Distribution", below. Other technologies are developed by the Company in
collaboration with third parties, and under the collaboration agreement
marketing rights may be allocated to the Company or to the collaborator or
shared by both parties. In the event marketing rights are allocated to the
collaborator, the Company generally retains the right to manufacture and supply
key raw materials to the collaborator. Still other technologies are licensed by
the Company to third parties, with the licensee assuming responsibility for
further development and the Company receiving royalties on sales of the
resulting product. Agreements under which the Company currently derives revenues
for technologies licensed to third parties include an agreement with Merck
relating to a vaccine against hepatitis B and an agreement with Nova Nordisk
relating to technology used in the manufacture of recombinant human insulin.
DISTRIBUTION
To remain competitive in an intensely competitive environment, Chiron
maintains several specialized marketing and sales forces that concentrate on
individual classes of customers.
Chiron's diagnostic sales and marketing organization for the U.S. is based
in Norwood, Massachusetts. The Company has regional sales offices in more than
twenty countries overseas, adding four additional offices in 1997. Sales efforts
are focused on hospitals and reference laboratories. In general, products are
sold directly to hospitals and reference labs, although distributors are used in
certain smaller overseas markets. Chiron's Quantiplex(R) bDNA probe tests for
HCV and HBV are distributed in Japan by Daiichi Pure Chemicals Co., Ltd.
The Company's vaccine marketing organization is based in Siena, Italy and
Marburg, Germany. Direct sales efforts are focused on pediatricians and general
practitioners. Products are also sold to the public sector through tenders and
to private sector pharmacies through wholesalers and distributors.
Chiron's therapeutics marketing, sales and distribution organization for the
U.S. is based in Emeryville, California and for Europe is headquartered in
Marburg, Germany. Sales efforts are focused on specialist physicians,
principally oncologists, who are based in hospitals and large clinics. In
general, products are sold to wholesalers, distributors, and hospital
pharmacies.
RAW MATERIALS
Raw materials and other supplies used in the manufacture of the Company's
products (both commercial and investigational) generally are available from
multiple commercial sources. Certain processes, however, use materials that are
available from sole sources or that are in short supply or that are difficult
for the supplier to produce and certify in accordance with the Company's
specifications. The Company's vaccine and therapeutic products are biologics;
from time to time concerns are raised with respect to potential contamination of
biological materials that are supplied to the Company for use in various
production processes. These concerns can further tighten market conditions for
materials that may be in short supply or available from limited sources.
Moreover, regulatory approvals to market the Company's products may be
conditioned upon obtaining certain materials from specified sources; the
Company's ability to substitute material from an alternate source may be subject
to delay pending regulatory approval of such alternate source. Although the
Company monitors the ability of certain suppliers to meet the Company's needs
and the market conditions for these materials, there is a risk that material
shortages could impact production.
PATENTS
Patents are very important to the business of the Company. Chiron has a
policy of seeking patents on inventions arising from its extensive research and
development activities. The time and expense required to
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develop and obtain regulatory approval to market human healthcare products is
significant. Without the protection of patents or trade secrets, competitors may
be able to use the Company's inventions to manufacture and market competing
products without being required to undertake the lengthy and expensive
development efforts made by Chiron. Chiron has a substantial number of granted
patents and pending patent applications in the United States and other important
markets, and a number of patents and patent applications owned by third parties
have been licensed to Chiron.
There can be no assurance that patents and patent applications owned or
licensed to Chiron will provide substantial protection. Important legal
questions remain to be resolved as to the extent and scope of available patent
protection for biotechnology products and processes in the United States and
other important markets. It is not known how many of the Company's pending
patent applications will be granted, nor the effective coverage of those that
grant. In the United States and other important markets, the issuance of a
patent is not conclusive as to its validity or the enforceable scope of its
claims. The Company has engaged in significant litigation to determine the scope
and validity of certain of its patents, and expects to continue to do so in the
future.
Even if the Company is successful in obtaining and defending patents, there
can be no assurance that these patents will provide substantial protection.
Third parties may be able to design around the patents and develop competitive
products that do not use the inventions covered by the patents. Many countries,
including certain countries in Europe, have compulsory licensing laws under
which a patent owner may be compelled to grant licenses to third parties (for
example, the third party's product is needed to meet a threat to public health
or safety in that country, or the patent owner has failed to "work" the
invention in that country, or the third party has patented improvements.) And
most countries limit the enforceability of patents against government agencies
or government contractors. In these countries, the patent owner may be limited
to monetary relief and may be unable to enjoin infringement, which could
materially diminish the value of the patent. Furthermore, most countries do not
provide discovery so the Company may not be able to meet its burden of proving
infringement. Nor can it be guaranteed that the Company will even become aware
of infringement of its patents.
To a lesser extent, trade secrets and confidential information are important
to Chiron's commercial success. Although the Company seeks to protect trade
secrets and confidential information, there can be no assurance that others will
not obtain access to such information or develop the same or similar information
independently, or that third parties will not obtain patent protection that
precludes Chiron from using its trade secrets or confidential information.
Chiron is aware that third parties, including competitors, educational
institutions and governmental organizations, have patents and patent
applications in the United States and other significant markets that may be
useful or necessary for the manufacture, use or sale of certain of the Company's
products (commercial and investigational). There may be other such patents and
patent applications of which the Company is not currently aware. It is likely
that third parties will obtain other such patents in the future. Certain of
these patents may be sufficiently broad to prevent or delay Chiron from
practicing necessary technology, including manufacturing or marketing products
important to the Company's current and future business. The scope, validity and
enforceability of such patents, if granted, the extent to which Chiron may wish
or need to obtain licenses to such patents, and the cost and availability of
such licenses cannot be accurately predicted. If Chiron does 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 could find that the development, manufacture
or sale of such products is foreclosed. Chiron could also incur substantial
costs in challenging the validity and scope of such patents.
TRADEMARKS
ACS:180(R) , Quantiplex(R) and Proleukin(R) are registered trademarks of the
Company or its subsidiaries. ELVS-TM-, ACS:Centaur-TM-, Rapidlab-TM- and
Rapidpoint-TM- are trademarks of the Company or its subsidiaries. DepoCyt-TM- is
a trademark owned by Chiron and DepoTech. The following registered trademarks
are owned
9
by the indicated companies: Aredia(R) (Novartis AG), Betaseron(R) and
Betaferon(R) (Schering AG), Myotrophin(R) (Cephalon Inc.), Recombivax(R) HB
(Merck), Regranex(R) (J&J), and Theratope(R) (Biomira, Inc.).
SEASONALITY
Sales of the Company's diagnostic products are moderately seasonal, with
lower sales in the first and third quarters and higher sales in the second and
fourth quarters of the year. Sales of certain of the Company's vaccine products,
in particular flu vaccine, also are seasonal, with higher sales in the fourth
quarter of the year.
CERTAIN INVESTMENTS IN FIXED ASSETS
A majority of the Company's immunodiagnostic systems and a significant
number of the Company's critical care systems are placed with customers under
rental agreements. Under these agreements the Company retains title to the
equipment. As a result, the Company has a significant investment carried in
fixed assets related to these systems and, to remain competitive, the Company
must continue to make substantial investments in such assets.
MAJOR CUSTOMERS
The Company has a strategic alliance with Novartis and in connection
therewith has entered into a series of arrangements with Novartis. See
"Relationship With Novartis", below. These arrangements contributed 11% and 10%
of total revenues in 1997 and 1996, respectively, and less than 10% of total
revenues in 1995. The Company has a joint immunodiagnostics business with J&J.
See "Products-- Diagnosis", above. The J&J joint business, together with certain
other arrangements with J&J and its affiliates, contributed 12%, 11% and 11% of
total revenues in 1997, 1996 and 1995, respectively.
COMPETITION
Chiron operates in a highly competitive environment, and the competition is
expected to increase. Competitors include large pharmaceutical, chemical and
diagnostics companies, as well as biotechnology companies. Some of these
competitors, particularly large pharmaceutical and diagnostics companies, have
greater resources than the Company. The technologies applied by the Company and
its competitors are rapidly evolving, and new developments frequently result in
price competition and product obsolescence. Substantial consolidation is
underway in the global healthcare industry, and is expected to produce greater
efficiencies and even more intense competition.
To compete effectively, Chiron invests heavily in research and development,
maintains specialized sales forces that concentrate on individual classes of
customers, and spends significant amounts on advertising, promotion and selling.
Important biotechnology research 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
positions in technology.
TREATMENT
Proleukin(R) competes with alpha interferon sold by Schering Plough
Corporation and by F. Hoffman La-Roche, Ltd. ("Roche") as a treatment for
metastatic kidney cancer and metastatic melanoma, although many patients are
treated with both products. The Company estimates that Proleukin(R) has
approximately a 50% market share for these indications. The principal method of
competition is product performance.
10
Several other companies are developing interferons as immune-system-based
therapies for cancers and infectious diseases, including Roche, Genentech, Inc.
and Amgen, Inc.
Regranex(R) is the first product approved by the FDA for treatment of
diabetic foot ulcers. A product from Advanced Tissue Sciences & Smith and
Nephew, Dermagraft, recently received recommendation for approval by an FDA
advisory committee for treatment of diabetic foot ulcers. Apligraf, an
Organogenesis/ Novartis product, has received recommendation for approval by an
FDA advisory committee for treatment of venous leg ulcers and is in clinical
trials for treatment of diabetic foot ulcers.
Betaseron(R), as a treatment for multiple sclerosis, competes with Avonex, a
recombinant interferon beta sold by Biogen, Inc., and with Copaxone from Teva
Pharmaceuticals. In certain European countries, Schering AG's product,
Betaferon(R), faces competition from Ares Serono, who sells an extracted form of
beta interferon that is used for, among other purposes, treatment of multiple
sclerosis. Ares has filed an application with the FDA for approval to market its
product in the United States. Other companies have treatments for multiple
sclerosis in clinical development.
PREVENTION
Four large companies hold the greatest share of the worldwide vaccine
market: Merck, SmithKline Beecham Biologics ("SB"), Wyeth Lederle Vaccines &
Pediatrics, a division of American Home Products Corporation ("Lederle"), and
Pasteur Merieux Connaught ("PMC"). PMC separately has a strategic alliance with
Merck. All four of these companies, as well as other biotechnology companies,
have substantial research and development programs. The Company estimates that
it has approximately a 38% and 37% market share in Germany and Italy,
respectively, and an aggregate market share of approximately 8% outside of the
United States, Europe and Japan.
The principal methods of competition in the vaccine industry are price and
introduction of new products, including vaccines against diseases for which no
vaccine product was previously available as well as new combination vaccines
that combine existing vaccines for several diseases into a single product.
Combination vaccines frequently are favored by public health authorities,
medical practitioners and patients, particularly in the case of pediatric
vaccines, because they eliminate the need for multiple injections and may
increase overall compliance with recommended vaccination schedules. As new
combination vaccines are introduced, older combinations and single products
often become obsolete. The Company may be limited in its ability to develop and
market certain combination vaccines if one of the vaccines which would otherwise
be included in the combination is covered by valid and enforceable patent or
other proprietary rights held by third parties.
DIAGNOSTICS
The principal competition for the Company's ACS:180(R), ACS:180(R) Plus, and
ACS:180(R) SE systems is an immunodiagnostic system produced by Abbott. Other
competitors in immunodiagnostics include Roche (which is acquiring the
diagnostics business of Boehringer Mannheim), Dade Behring Inc., Bayer AG, and
J&J, which purchased the diagnostics and clinical chemistry businesses of
Eastman Kodak. Chiron's overall market share in immunodiagnostics is
approximately 5%, with shares of up to 15% in segments in which the Company
currently competes. The Company's immunodiagnostic systems currently do not
include assays for hepatitis viruses and retroviruses, which are an important
part of the diagnostic market, because the Company's patents and other rights to
develop such assays have been exclusively licensed to its joint business with
Ortho. Without such assays, the competitiveness of the Company's systems will be
impaired as against other automated random access systems that include such
assays. There can be no assurance that hepatitis or retrovirus assays will be
available for use on the Company's systems. See "Legal Proceedings-- Ortho
Diagnostic Systems, Inc."
The principal competition for the Rapidlab-TM- 800 are lab-based systems
from Radiometer Medical A/S and Instrumentation Laboratory Company. Chiron has a
worldwide market leadership position in the core laboratory. The Company
estimates that it has approximately a 35% market share in the global critical
care market. The Rapidlab-TM- 800 increasingly is facing competition from
point-of-care systems, such as the
11
system from I-STAT, which has a collaboration with Hewlett-Packard Company. The
Company expects to launch its own point-of-care system, the Rapidpoint-TM- 400,
in 1998.
Roche, which markets tests based on polymerase chain reaction ("PCR"), has
the largest share of the nucleic acid diagnostics market, followed by Gen-Probe
Incorporated and Chiron. Roche sells PCR tests for, among other things, HIV and
HCV that compete directly with the Company's Quantiplex(R) bDNA probe tests of
HIV and HCV. Gen-Probe's current portfolio is mainly limited to tests for
chlamydia and gonorrhea. Other competitors with nucleic acid diagnostic products
on the market (for research use only or, in some cases, commercial sale) include
Abbott (chlamydia/gonorrhea), Digene Corporation (human papilloma virus) and
Organon Teknika NV (HIV). The Company has approximately a 30% share in nucleic
acid diagnostic businesses in which it participates. In February 1998, Chiron
announced that it has been granted United States Patent Nos. 5,712,088 and
5,714,596 (the " '088 patent" and " '596 patent", respectively), which are
directed to oligonucleotides and PCR assays for the detection of HCV. Chiron
filed suit against Roche for infringement of the " '088 and the " '596 patents
in the United States and Europe; the suits ask for injunctions to prevent
further infringement by Roche. The Company's Quantiplex(R) bDNA system 340 is
the first semi-automated system for quantitative nucleic acid tests. Roche has a
system for qualitative assays which it is attempting to adapt for quantitative
assays.
In blood screening, the Chiron/Ortho joint business competes with Abbott,
with each having greater than 45% market share.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
important markets is a significant factor in the manufacture and sale of the
Company's products and in its research and development activities.
VACCINES AND THERAPEUTICS. In the United States, Chiron's therapeutic and
vaccine products (both commercial and investigational) are regulated primarily
under federal law and are subject to rigorous FDA approval procedures. No
product can be marketed in the United States until an appropriate regulatory
application is approved by the FDA. The approval procedures are applied on a
product-by-product basis and require, among other things, an extensive
three-phase human clinical testing program. In phase 1, studies are conducted
with a relatively small number of subjects to assess the safety of the product.
In phase 2, the product is evaluated in a larger group of subjects to begin to
assess efficacy. Phase 3 studies are conducted in the target population with a
number of subjects that is large enough to provide sufficient data to establish
statistically the safety and efficacy of the product. FDA approval of a product
is limited to treatment for specified medical conditions or disorders, and
further studies would be required to market the product for other indications.
All facilities used to manufacture, fill, test and distribute biologic products
are required to be inspected and approved by the FDA. If any change is made in
manufacturing facilities or processes after FDA approval is obtained, additional
regulatory review and possibly additional clinical studies may be required.
Licensing procedures in Europe are comparable to those in the United States.
In 1995, the European Union ("EU") established a centralized procedure for
licensing of products derived from the use of high technology/biotechnology
processes. This procedure leads to the grant of a single license for the entire
EU. Effective January 1, 1998, the EU has also adopted a decentralized procedure
under which a license granted in one member state is mutually recognized by the
other member states, leading to a grant of licenses in member states recognizing
the original license. This procedure is expected to replace independent national
licensing of products in the EU. In addition, each product must receive
individual country pricing approvals before it can be marketed in that country.
DIAGNOSTICS. U.S. regulatory requirements for Chiron's diagnostics products
range from premarket notification, in which new or modified products are
compared to products which are currently marketed, to premarket approval
applications or license applications, in which the product's safety and
effectiveness must be demonstrated through well controlled studies. Upon
clearance or approval of the regulatory
12
submission, the product may be marketed for the specific indications for use
which were identified in the approval. Facilities used for the manufacture,
testing, storage and distribution of Chiron's diagnostic products are subject to
FDA inspection.
For therapeutic, vaccine and diagnostic products, the time and expense
needed to complete the required clinical studies, prepare and submit the
required applications and supporting documentation, and respond to inquiries
generated by regulatory review can far exceed the time and expense of the
research and development initially required to create the product. These factors
largely determine the speed with which a successful research program is
translated into a marketed product.
ENVIRONMENT
Expenses for compliance with environmental laws have not had and are not
expected to have a material impact upon the Company's capital expenditures,
earnings or competitive position.
EMPLOYEES
On December 31, 1997, Chiron and its subsidiaries had 6,482 employees,
excluding employees of Chiron Vision Corporation which was sold on December 29,
1997.
RELATIONSHIP WITH NOVARTIS
As noted above, the Company has an alliance with Novartis. Novartis is a
life sciences company headquartered in Basel, Switzerland which was formed as a
result of the December 1996 merger between Ciba-Geigy Limited ("Ciba") and
Sandoz Limited. Through a series of transactions that became effective in
January 1995, Ciba acquired shares of the Company's common stock which, when
combined with shares already held by Ciba, represented 49.9% of the
then-outstanding common stock of the Company. As a result of dilution pursuant
to employer stock option and stock participation plans, as of February 27, 1998
Novartis held shares representing approximately 45% of the Company's outstanding
common stock.
In connection with these transactions, Chiron and Novartis entered into a
series of agreements which provide, among other things and subject to certain
conditions and exceptions, that Novartis will not increase its ownership
interest in the Company above 49.9% before January 15, 2000 and thereafter will
not increase its ownership interest above 55% unless it acquires all of the
outstanding capital stock of the Company, provided that Novartis may exceed
these standstill amounts and increase its ownership interest up to 79.9% if the
transaction is approved by a majority of the independent members of the
Company's Board of Directors; that Novartis has the right to nominate three
members to Chiron's eleven member Board of Directors; that Novartis will provide
certain funding to the Company for research services (see "Research and
Development--Research Revenues and Expenses" above) and will guarantee certain
bank lines of credit on behalf of the Company; that Chiron may require Novartis
to purchase shares of the Company's common stock directly from the Company at
fair market value, up to a maximum subscription amount (initially $500 million,
subject to adjustment); that Novartis has an option to purchase newly issued
shares of the Company's common stock directly from the Company at fair market
value, subject to the standstill restrictions described above; and that Chiron
and Novartis will cooperate in research, development, manufacturing and
marketing of biotechnology products on an arms'-length basis while remaining
independent to pursue other opportunities.
ITEM 2. PROPERTIES
EMERYVILLE CAMPUS. Chiron's principal executive offices are located in
Emeryville, California. The Emeryville facilities include research and
development, manufacturing and administrative facilities in 27 buildings, of
which 14 are leased and 13 are owned. The research and development and
manufacturing activities in these facilities relate primarily to the Company's
therapeutics and vaccines businesses as well as the nucleic acid diagnostics
business. In 1996, the Company began development of a new research and
13
development facility in Emeryville under an operating lease arrangement.
Completion of the facility is expected in 1998.
OTHER BIOPHARMACEUTICAL FACILITIES. The Company also owns manufacturing
facilities in Vacaville, California; St. Louis, Missouri; Amsterdam, The
Netherlands; and Puerto Rico used principally in connection with the Company's
therapeutics and vaccines businesses. Certain of these facilities have available
capacity due to lower than expected demand for certain of the Company's products
and improved production yields from other facilities. In March 1998 the Company
announced its intention to idle the St. Louis facility. The Puerto Rico facility
was idled in 1995. Both the St. Louis and the Puerto Rico facilities currently
are being marketed for sale.
The Company has research and development, manufacturing and administrative
facilities in Siena, Italy and Marburg, Germany and manufacturing facilities in
Rosia, Italy relating to its vaccine operations. The Rosia facility is owned and
the Marburg and Siena facilities are leased. The Company has entered into an
agreement to purchase the Siena facilities and expects to close that transaction
in 1998.
The Company leases research and development facilities in San Diego,
California in connection with its gene therapy activities.
DIAGNOSTICS FACILITIES. Chiron has research and development, manufacturing
and administrative facilities in Walpole, Massachusetts; Medfield,
Massachusetts; Oberlin, Ohio; and Sudbury, England relating to its diagnostics
business. The Walpole and Oberlin facilities are owned and the others are
leased.
CLAREMONT CAMPUS. The Company owns research and development, manufacturing
and administrative facilities in Claremont, California. The facilities were used
principally in connection with the Company's former ophthalmic products
business, which was sold to Bausch and Lomb Incorporated in December 1997.
Bausch & Lomb occupies a significant portion of the facilities under a three
year lease. The Claremont campus currently is being marketed for sale.
The Company leases a number of other facilities in North America, Europe,
Asia and Australia, primarily for sales and service offices.
The Company believes that its facilities are in good operating condition and
are adequate for its current needs. The Company continually evaluates future
requirements for its facilities.
ITEM 3. LEGAL PROCEEDINGS
BRADLEY
On February 20, 1998, the United States Court of Appeals for the Federal
Circuit affirmed a lower court decision, which dismissed with prejudice an
action filed against Chiron and others in 1994. In that action, Dr. Daniel W.
Bradley, a former scientist at the U.S. Centers for Disease Control (the "CDC"),
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. Bradley alleged he was wrongly excluded as an inventor of HCV
and that these patents are unenforceable. He requested various forms of relief,
including a declaration that these patents are unenforceable, monetary damages,
a constructive trust on all past and future profits, and penalties under federal
and state Racketeering and Corrupt Organization ("RICO") statutes. Chiron
successfully moved to dismiss the action on the grounds, among others, that all
claims were barred by a 1990 Settlement Agreement between Chiron, Bradley, and
the CDC. The decision is subject to appeal.
CONNAUGHT LABORATORIES, LIMITED
On June 17, 1997, Chiron S.p.A. filed an action in the Tribunale di Milano,
Italy, against Connaught challenging the validity of the Italian counterpart of
Connaught's European Patent 0 527 753 (the " '753
14
patent"). The '753 patent claims allegedly relate to the pertactin protein of
bordetella pertussis. Connaught has counterclaimed for infringement and seeks an
injunction and damages. It is not known when nor on what basis the litigation
will be concluded.
Connaught also owns EP 0 322 115 (the " '115 patent") relating to pertussis
toxin mutants. On July 17, 1997, Connaught filed suit in the Landgericht
Dusseldorf, Germany, against Chiron Behring, Chiron S.p.A., and Behringwerke AG
asserting imminent infringement of the '115 patent. Connaught seeks to prevent
introduction of Chiron's acellular pertussis vaccine in Germany. Also, Connaught
seeks damages and an order from the German court enjoining Chiron S.p.A. from
manufacturing and selling the Company's acellular pertussis vaccine in both
Germany and Italy. It is not known when nor on what basis litigation will be
concluded.
On December 3, 1997, Chiron filed an action in the District Court of The
Hague, The Netherlands, against Connaught to revoke the Dutch counterpart of the
'115 patent on grounds of invalidity. It is not known when nor on what basis the
litigation will be concluded.
EVANS
Evans Medical Limited (a division of Medeva plc) ("Evans") owns European
Patent 0 162 639 (the " '639 patent") which allegedly relates to the p69 antigen
of bordetella pertussis. Chiron was involved in litigation with Evans, Medeva
plc and its exclusive licensee, SmithKline Beecham Biologicals in several
jurisdictions concerning the '639 patent before the European Patent Office (the
"EPO"). The EPO's Technical Board of Appeal revoked the Evans '639 patent
throughout Europe on March 10, 1998. This final and unappealable decision
effectively renders the other pending matters (in Italy, the U.K., and The
Netherlands) moot.
An action was filed on April 4, 1996 by Evans against the Company in the
United States District Court for the Eastern District of Texas alleging
infringement of U.S. Patent Nos. 5,237,052 and 5,438,120, counterparts to the
'639 patent. Evans also seeks damages and injunctive relief. That matter was
transferred to the United States District Court for the District of Delaware in
April 1997. Chiron has counterclaimed alleging the invalidity of the two U.S.
patents in suit. It is not known when nor on what basis this litigation will be
concluded.
F. HOFFMANN-LA ROCHE
On January 27, 1998, Chiron initiated an action against Roche, several of
its subsidiary companies, and Bradley (see BRADLEY, above) in the United States
Court for the Northern District of California. The Company asserts that Roche's
manufacture and sale of Amplicor-TM- HCV Test and Amplicor-TM- HCV Monitor Test
constitutes infringement of Chiron's U.S. Patent Nos. 5,712,088 (the " '088
patent") and 5,714,596 (the " '596 patent"). The action also asserts that
Bradley has breached a settlement agreement (see BRADLEY, above) and committed
the tort of slander of title with respect to Chiron's HCV technology. The action
seeks damages, injunctive relief, and a declaratory judgment that Chiron is the
sole and exclusive owner of its HCV technology. It is not known when nor on what
basis this litigation will be concluded.
In February 1998, Chiron filed an action in The District Court of The Hague,
The Netherlands against Roche, several of its subsidiary companies, and one of
Roche's Dutch customers asserting Roche's infringement of the Company's European
Patent 0 318 216 (the " '216 patent") relating to HCV technology. Chiron seeks a
cross-border injunction prohibiting the manufacture and sale of Roche's
Amplicor-TM- HCV Test and Amplicor-TM- HCV Monitor Test. Roche and Chiron are
both currently appealing to the EPO's Technical Board of Appeals a decision
upholding the '216 patent in amended form. It is not known when nor on what
basis these matters will be concluded.
15
ORTHO DIAGNOSTIC SYSTEMS, INC.
In February 1998, Chiron filed a lawsuit against Ortho in the United States
District Court for the Northern District of California. The suit seeks to compel
arbitration regarding Ortho's obligation to maximize the profitability of the
joint immunodiagnostics business with Chiron by, among other things, accepting
Chiron's offer to contribute to the joint business the rights to develop and
market hepatitis and retrovirus assays for use on Chiron's immunodiagnostic
systems. It is not known when nor on what basis this matter will be concluded.
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 28, 1997.
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. 49 Senior Vice President; President, Chiron Diagnostics
Rajen K. Dalal 44 Vice President, Corporate Development
William G. Green, Esq. 53 Senior Vice President, General Counsel and Secretary
Sean P. Lance 50 Appointed President and Chief Executive Officer in March 1998,
effective no later than May 1, 1998
Magnus Lundberg 42 Vice President; President, Chiron Therapeutics and Chiron Vaccines
Philip K. Moody 46 Vice President, Financial Operations
Edward E. Penhoet, Ph.D. 57 President and Chief Executive Officer
William J. Rutter, Ph.D. 69 Chairman
Linda W. Short 52 Vice President, Human Resources
James R. Sulat 47 Appointed Chief Financial Officer in March 1998, effective April 1,
1998
Pablo D.T. Valenzuela, Ph.D. 56 Senior Vice President
Lewis T. Williams, M.D., Ph.D. 48 Chief Scientific Officer; President, Chiron Technologies
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 1993, 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. Dr. Barker joined the Board of Sunquest Information Systems in
August 1996.
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.
16
MR. LANCE was appointed President and Chief Executive Officer of the Company
in March 1998, effective no later than May 1, 1998. During the past twelve
years, Mr. Lance has held various executive positions with Glaxo Holdings plc,
London, England. In October 1996 he was appointed Managing Director of Glaxo
Wellcome plc and in January 1997 he was appointed Chief Operating Officer and
Chief Executive Designate of Glaxo. From 1993 to 1996, Mr. Lance was Executive
Director of Glaxo Holdings, responsible for commercial operations in the Middle
East, Africa, Europe and Latin America. Mr. Lance was also President of the
International Federation of Pharmaceutical Manufacturers Associations from
October 1996 to February 1998, an Executive Member of the International
Committee of Pharmaceutical Research and Manufacturers of America, and a
director of the British Pharma Group. He also serves on the Steering Committee
of Healthcare 2000.
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.
MR. MOODY joined the Company in February 1995, as Corporate Director,
Financial Planning. He was appointed Vice President, Financial Operations in
December 1997, and designated the principal financial accounting officer of the
Company in February 1998. Prior to joining the Company, Mr. Moody was the
Director of Corporate Planning of APL, Ltd., from May 1988 to February 1995.
DR. PENHOET, a cofounder of the Company and a director since 1981, has
served as Chief Executive Officer since the Company's inception. Dr. Penhoet
will assume the position of Vice Chairman of the Company upon the effectiveness
of Mr. Lance's appointment as President and Chief Executive Officer of the
Company. Dr. Penhoet has been a faculty member of the Biochemistry Department at
the University of California, Berkeley, for 24 years. Since 1983, he has been an
Adjunct Professor at that university. In 1997, Dr. Penhoet was appointed the
Chairman of California Healthcare Institute, a public policy research and
advocacy organization located in La Jolla, California, and a member of the board
of directors of Onyx Pharmaceuticals, Inc.
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
("UCSF"), from 1983 to May 1989, and has been on the faculty at UCSF 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.
MS. SHORT joined the Company in November 1997, as the Vice President, Human
Resources. Prior to that she was the Director of Human Resources of Industrial
Indemnity from 1994 to 1997. From 1989 to 1994, Ms. Short held various
managerial positions with the Bank of America, more recently in 1994, as Project
Manager in charge of the merger of Continental Bank into Bank of America, and as
Director of Human Resources for Wholesale Banking from 1993 to 1994, and
Director of Human Resources of the Asia Division from 1989 to 1993.
MR. SULAT was appointed Chief Financial Officer of the Company in March
1998, effective as of April 1, 1998. He was the Chief Financial Officer of
Stanford Health Services, the clinical healthcare delivery arm of the Stanford
University Medical Center, from 1993 to October 1997. In November 1997, Stanford
Health Services merged with the University of California at San Francisco, and
Mr. Sulat served as the Treasurer of the merged entity, UCSF Stanford Health
Care, until joining the Company. From 1990 to
17
1993, Mr. Sulat was the Chief Financial Officer and Vice President, Operations,
of Esprit de Corp, a privately-owned apparel manufacturer. Mr. Sulat is also a
director of Vans, Inc., a shoe manufacturer, and General Surgical Innovations,
Inc., a medical device manufacturer.
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 an Associate Professor at 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. In 1998, he was promoted to Chief Scientific
Officer of the Company. 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. From 1992 to 1994, Dr. Williams served on the Scientific Advisory Board
of Geron Corporation.
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" in Exhibit
13 to this Report is incorporated herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Consolidated Statements of Operations Data:
Total revenues............................ $ 1,162,058 $ 1,101,840 $ 924,271 $ 345,211 $ 232,828
Research and development.................. 375,955 352,472 327,887 156,522 134,230
Income (loss) from continuing
operations.............................. 50,838 56,603 (465,274) 18,613 18,014
Income (loss) per common share from
continuing operations................... 0.29 0.33 (2.86) 0.14 0.14
Income (loss) per common share from
continuing operations-- assuming
dilution................................ 0.29 0.32 (2.86) 0.14 0.13
Weighted average shares outstanding....... 173,524 169,347 162,442 131,888 128,376
Weighted average shares
outstanding--assuming dilution.......... 177,988 177,104 162,442 136,885 134,259
18
DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- -----------
(IN THOUSANDS, EXCEPT EMPLOYEE DATA)
Consolidated Balance Sheets Data:
Working capital........................... $ 298,866 $ 223,599 $ 268,408 $ 314,174 $ 256,419
Total assets.............................. 1,768,478 1,688,670 1,489,847 1,049,742 968,597
Long-term debt............................ 397,217 419,589 413,248 338,061 332,991
Accumulated deficit....................... (961,986) (1,032,554) (1,087,699) (575,236) (593,561)
Stockholders' equity...................... 873,945 764,855 672,061 572,631 522,289
Number of employees......................... 7,460 7,434 6,894 2,668 2,179
During 1995, the Company changed its fiscal year from a December 31 calendar
year-end to a 52 or 53-week year ending on the Sunday nearest the last day in
December of each year. Therefore, the 1997, 1996 and 1995 fiscal years ended on
December 28, 1997, December 29, 1996 and December 31, 1995, respectively. Each
fiscal year was 52 weeks long. For presentation purposes, dates used above refer
to the fiscal month end.
On December 29, 1997, Chiron completed the sale of all of the outstanding
capital stock of its wholly owned ophthalmic products subsidiary, Chiron Vision
Corporation ("Chiron Vision"), to Bausch & Lomb Incorporated ("B&L") for $300.0
million in cash, subject to certain post-closing adjustments. The sale was
completed under the terms of a Stock Purchase Agreement (the "Agreement"), dated
as of October 21, 1997, between Chiron and B&L. In accordance with Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," the results of operations
of Chiron Vision are reported in the Company's consolidated financial statements
as discontinued operations and, therefore, are excluded from the consolidated
statements of operations data above.
At December 31, 1997, the consolidated balance sheets data above includes
the following amounts attributable to discontinued operations: total assets of
$208.9 million and long-term debt of $0.4 million. In addition, the number of
employees at December 31, 1997, included in the table above, is inclusive of 978
employees of Chiron Vision.
Effective January 1, 1995, under a series of agreements between Chiron and
Novartis, Chiron acquired Chiron Diagnostics and Novartis' interests in Chiron
Vaccines Company 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 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.
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" in Exhibit 13 to this Report is
incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Market Risk Management" in
Exhibit 13 to this Report, is incorporated herein by this reference.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data included in the Consolidated
Financial Statements, Exhibit 13 to this Report, are incorporated herein by this
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the Company is
incorporated by reference to the sections entitled "Election of Directors" and
"Section 16(a) Beneficial Reporting Compliance" in the Company's definitive
Proxy Statement with respect to Chiron's 1998 Annual Meeting to be filed with
the Securities and Exchange Commission within 120 days of December 28, 1997 (the
"Proxy Statement"). Information as to the Company's executive officers appears
at the end of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information in the section entitled "Compensation of Directors and
Executive Officers" in the Proxy Statement is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the sections entitled "Certain Beneficial Owners" and
"Security Ownership of Directors and Executive Officers" in the Proxy Statement
is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section entitled "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements and Independent Auditors' Report, included in Exhibit
13 to this Report, are incorporated herein by this reference.
2. Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves
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 31 of this Report.
(b) Reports on Form 8-K
20
On October 22, 1997, the Company filed a Current Report on Form 8-K
reporting under Item 5 that it had signed an agreement to sell its ophthalmic
products business to Bausch & Lomb Incorporated. On January 13, 1998, the
Company filed a Current Report on Form 8-K reporting under Item 2 the closing of
the sale of its ophthalmic products business to Bausch & Lomb Incorporated. On
March 25, 1998, the Company filed a Current Report on Form 8-K reporting under
Item 5 the appointment of Sean P. Lance as President and Chief Executive
Officer, effective no later than May 1, 1998, and the appointment of James R.
Sulat as Chief Financial Officer, effective April 1, 1998.
(c) Exhibits
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
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, incorporated by reference to Exhibit 3.01 of the Registrant's Form
10-K report for fiscal year 1996.
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, incorporated by reference to Exhibit
3.02 of the Registrant's Form 10-K report for fiscal year 1996.
3.03 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, as filed with the
Office of the Secretary of State of Delaware on May 22, 1996, incorporated by reference to Exhibit 3.04
of the Registrant's Form 10-Q report for the period ended June 30, 1996.
3.04 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.
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.
4.02 First Supplemental Indenture, dated as of December 12, 1991, by and among Registrant, Cetus Corporation,
and Bankers Trust Company.
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).
10.001 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.
10.002 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.
21
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
10.003 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.
10.004 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.
10.005 through 10.099 Reserved
10.101 Revolving Credit Agreement, dated as of February 27, 1998, between Registrant and Bank of America
National Trust and Savings Association.
10.102 Revolving Credit Agreement dated as of March 23, 1998, between Chiron Corporation and Swiss Bank
Corporation.
10.103 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.
10.104 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.
10.105 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.
10.106 Letter Agreement, dated as of December 12, 1991, relating to Stock Purchase and Warrant Agreement
between Registrant and Hoffmann-La Roche Inc., incorporated by reference to Exhibit 10.51 of
Registrant's Form 10-K report for fiscal year 1996.
10.107 through 10.199 Reserved
10.200 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 certain 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.
10.201 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.
10.202 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.)
10.203 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.
22
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
10.204 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.
10.205 Amendment Agreement (HDS Fees and Deeply Discounted Vials) dated as of September 23, 1997 between
Registrant and Schering Aktiengesellschaft. (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".)
10.206 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".)
10.207 Letter Agreement dated as of December 4, 1997, between the Registrant and Ortho Pharmaceutical
Corporation and Ortho Biotech, Inc. (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".)
10.208 through 10.299 Reserved
10.301 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.)
10.302 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 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.)
10.303 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.)
23
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
10.304 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.)
10.305 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.)
10.306 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.)
10.307 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.)
10.308 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.)
10.309 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.)
10.310 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.)
10.311 through 10.399 Reserved
10.401 Stock Purchase Agreement, dated as of October 21, 1997, between Bausch & Lomb Incorporated and
Registrant, incorporated by reference to Exhibit 99.1 of the Registrant's current report on Form 8-K
dated January 12, 1998.
10.402 through 10.499 Reserved
10.501 Chiron 1991 Stock Option Plan, as amended, incorporated by reference to Annex 2 of the Registrant's
Proxy Statement dated April 11, 1997.*
10.502 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.*
24
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
10.503 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.*
10.504 Forms of Option Agreements, Cetus Corporation Amended and Restated Common Stock Option Plan,
incorporated by reference to Exhibit 10.27 of Registrant's Form 10-Q report for the period ended March
30, 1997.*
10.505 Forms of Supplemental Letter concerning the assumption of Cetus Corporation options by the Registrant,
incorporated by reference to Exhibit 10.27 of Registrant's Form 10-K report for fiscal year 1996.*
10.506 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.
10.507 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.
10.508 Description of Chiron Corporation's 1997 Executive Officers Variable Compensation Program.*
10.509 Form of Performance Unit Agreement, Chiron 1991 Stock Option Plan, as amended, incorporated by reference
to Exhibit 10.94 of the Registrant's Form 10-K report for fiscal year 1996.*
10.510 through 10.599 Reserved
10.601 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.
10.602 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.*
10.603 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.*
10.604 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.*
10.605 Letter Agreement dated January 27, 1998, between the Registrant and Lewis T. Williams.*
10.606 Letters dated May 6, 1996 and May 25, 1996 to Magnus Lundberg, incorporated by reference to Exhibit
10.61 of the Registrant's Form 10-Q report for the period ended September 29, 1996.*
10.607 Letter dated January 8, 1997 to Magnus Lundberg, incorporated by reference to Exhibit 10.65 of the
Registrant's Form 10-K report for fiscal year 1996.*
10.608 Letter dated March 17, 1998 to Magnus Lundberg.*
10.609 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.*
25
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
10.610 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.*
10.611 Letter Agreement dated March 18, 1998 between Registrant and Sean P. Lance.*
10.612 Letter Agreement dated March 19, 1998 between Registrant and James R. Sulat.*
10.613 through 10.699 Reserved
10.701 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.
10.702 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.
10.703 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.
10.704 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.
10.705 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.
10.706 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.
10.707 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.
10.708 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.
10.709 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.*
10.710 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.
10.711 Amendment dated March 26, 1997, to Agreement dated November 27, 1996, between Novartis Pharma AG and the
Registrant, incorporated by reference to Exhibit 10.44 of the Registrant's Form 10-Q report for the
period ended March 30, 1997.
10.712 Letter Agreement dated December 19, 1997, between Novartis Pharma AG and the Registrant.
26
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
10.713 Letter Agreement dated December 24, 1997, between Novartis Corporation and the Registrant. (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".)
10.714 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.,
incorporated by reference to Exhibit 10.43 of the Registrant's Form 10-K report for fiscal year 1996.
10.715 Letter Agreement, dated December 19, 1996, regarding compensation paid by the Registrant for director
services performed by employees of Ciba-Geigy Limited, incorporated by reference to Exhibit 10.44 of the
Registrant's Form 10-K report for fiscal year 1996.*
10.716 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.
10.717 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".)
10.718 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".)
10.719 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.
10.720 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.
10.721 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.
10.722 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.)
10.723 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.
27
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
10.724 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.
10.725 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.
10.726 through 10.799 Reserved
10.801 through 10.899 Reserved
11 Statement of Computation of Earnings (Loss) per Share.
13 Management's Discussion and Analysis of Financial Condition and Results of Operations and 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 32 is incorporated
herein by reference.
24 Power of Attorney. The Power of Attorney set forth on pages 29 and 30 is incorporated herein by
reference.
27.1 Financial Data Schedule for Fiscal Year ended December 28, 1997.
27.2 Financial Data Schedule for Fiscal Year ended December 29, 1996 (Restated).
27.3 Financial Data Schedule for Fiscal Year ended December 31, 1995 (Restated).
- ------------------------
* Management contract, compensatory plan or arrangement.
28
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 27, 1998
CHIRON CORPORATION
By /s/ EDWARD E. PENHOET
-----------------------------------------
Edward E. Penhoet, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of Chiron Corporation, a
Delaware 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 full power and authority to do any and all acts and
things and to execute any and all instruments which said attorneys and agents,
and any one of them, determine may be necessary or advisable or required to
enable said 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.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his name.
29
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
- ------------------------------ --------------------------- -----------------
President, Chief Executive March 27, 1998
Officer, Chief Financial
/s/ EDWARD E. PENHOET Officer and Director
- ------------------------------ (Principal Executive
Edward E. Penhoet, Ph.D. Officer and Principal
Financial Officer)
/s/ PHILIP K. MOODY Vice President, Financial March 27, 1998
- ------------------------------ Operations and Principal
Philip K. Moody Accounting Officer
/s/ WILLIAM J. RUTTER Chairman of the Board of March 27, 1998
- ------------------------------ Directors
William J. Rutter, Ph.D.
/s/ VAUGHN D. BRYSON Director March 27, 1998
- ------------------------------
Vaughn D. Bryson
/s/ LEWIS W. COLEMAN Director March 27, 1998
- ------------------------------
Lewis W. Coleman
/s/ PIERRE E. DOUAZE Director March 27, 1998
- ------------------------------
Pierre E. Douaze
/s/ DONALD A. GLASER Director March 27, 1998
- ------------------------------
Donald A. Glaser, Ph.D.
/s/ PAUL L. HERRLING Director March 27, 1998
- ------------------------------
Paul L. Herrling, Ph.D.
/s/ ALEX KRAUER Director March 27, 1998
- ------------------------------
Alex Krauer, Ph.D.
/s/ JACK W. SCHULER Director March 27, 1998
- ------------------------------
Jack W. Schuler
/s/ PIETER J. STRIJKERT Director March 27, 1998
- ------------------------------
Pieter J. Strijkert, Ph.D.
30
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Chiron Corporation:
Under date of January 30, 1998, we reported on the consolidated balance
sheets of Chiron Corporation and subsidiaries as of December 31, 1997 and 1996,
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,
1997. 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.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
January 30, 1998
31
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, 333-28257, 333-42469, 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 30, 1998, relating to the consolidated balance sheets of
Chiron Corporation and subsidiaries as of December 31, 1997 and 1996, 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, 1997 and
the related schedule, which reports appear in the December 31, 1997 annual
report on Form 10-K of Chiron Corporation.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
March 27, 1998
32
CHIRON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
PAGES OF EXHIBIT 13
INCORPORATED FORM 10-K
BY REFERENCE PAGE
----------------------- ---------
Consolidated Financial Statements and
Notes................................. 14-52 --
Report of KPMG Peat Marwick............. 53 31
Schedule II--Valuation and Qualifying
Accounts and Reserves................. -- 34
33
CHIRON CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS RECLASSIFICATIONS YEAR
- ---------------------------------------- ---------- ---------- -------- ---------- ----------------- ---------
(IN THOUSANDS)
1997:
Accounts receivable..................... $20,692 $10,227 $ -- $ (8,001) $-- $22,918
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
- ------------------------
(1) Represents accounts receivable allowances as of the acquisition date related
to acquired businesses.
34