Novartis Seeks to Take Over a Drug Maker for $4 Billion
GENEVA, Sept. 1 - With the demand for flu vaccines set to grow sharply over the next decade, the Swiss pharmaceutical company Novartis said Thursday that it had offered to pay $4.5 billion to take over the rest of Chiron, a troubled American biotechnology company.
Novartis already owns 42 percent of Chiron, which is the world's second-largest producer of flu vaccines. The leader is Sanofi Pasteur, a joint venture of Sanofi Aventis and Merck. The offer values Chiron at $40 a share.
The news sent Chiron's shares up 18 percent, to close at $42.93 in New York trading on Thursday, while Novartis's American depository receipts rose 44 cents, to close at $49.19.
"This transaction could be completed promptly, but there can be no assurance that an agreement will be reached," Novartis said.
Chiron, based in Emeryville, Calif., said on its Web site that it had received the offer and would pass it to the board for evaluation. The three Novartis directors who sit on Chiron's board will not take part, the statement added.
The market for flu vaccines is expanding, spurred by fears of new strains that could cause global pandemics. GlaxoSmithKline, a British pharmaceutical company, estimates the flu vaccine market could double in value to $3.6 billion by 2010. Novartis has been trying to diversify away from its core business of making patented therapeutic drugs, but some analysts questioned Novartis's strategy in this case, given Chiron's recent problems.
In 2004, British regulators forced the closing of Chiron's factory in Liverpool because of quality problems.
That closing, which remains in force, led to a shortfall in flu vaccine in the United States last year. Chiron was supposed to sell about 50 million doses of vaccine to the United States, or about half the total expected.
Independent directors of Chiron earlier opened the possibility of a takeover by asking Novartis to take a closer look at the company after the factory closing.
But even though the flu market is growing, some analysts said Chiron's production problems could cause it to lose market share to rivals. As this year's flu season approaches, American regulators approved GlaxoSmithKline's flu vaccine, Fluarix, this week for use in the United States. Glaxo said on Thursday that it would buy a Marrieta, Pa., vaccine production and research operation for an undisclosed sum from the drug maker Wyeth to expand its capacity for making flu vaccines.
"There's no guarantee Chiron will ever recover the strength of franchise they had in the United States," said David Beadle, an analyst with UBS in London.
Chiron said Wednesday that the United States Food and Drug Administration had provisionally approved the changes it has made at the Liverpool factory. But it is not clear when the factory will begin operations and if it will supply flu vaccine this year.
Other analysts say Chiron is attractive to Novartis as it tries new areas of business.
Daniel Vasella, chief executive of Novartis, is betting that the market for cheaper drugs and vaccines will rise in coming years as health care providers in the United States and Europe face financial constraints.
This year, Novartis closed a deal making it the world's largest producer of generic drugs, which are copies of medicines that have lost their patent protection.
Some analysts said Novartis might now look at acquiring companies that produce vaccines for diseases other than influenza, like the American company Acambis, the leader in smallpox vaccines.
Chiron's other businesses, which include blood testing and diagnostics, are also attractive, said Eric Schmidt, an analyst with S. G. Cowen.
"I think Novartis is interested in Chiron's diagnostics business," Mr. Schmidt said in an e-mail message. "This unit is top notch, unlike the rest of Chiron, and in our view as a stand-alone business could be worth $5 billion to $6 billion."
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