Chiron Reports Third-Quarter 1997 Results; Exclusive of Facility Write-Down, Company Reports 33-Percent Increase in After-Tax Income From Continuing Operations.

EMERYVILLE, Calif.--(BW HealthWire)--Oct. 27, 1997--Chiron Corp. (NASDAQ:CHIR) today announced its results for the third quarter ended Sept. 30, 1997.

During the quarter, the company recognized a charge of $31 million for an impairment loss on its Puerto Rico manufacturing facility. As a result, the after-tax loss from continuing operations for the quarter was $14 million, or 8 cents per share. Excluding the impact of the charge, Chiron reported an increase of 33 percent in after-tax income from continuing operations to $17 million, or 10 cents per share, in 1997 from $13 million, or 7 cents per share, in the same period last year.

Chiron's reported results for the three and nine months ended Sept. 30, 1997, and 1996 reflect the after-tax results of Chiron's ophthalmic business unit, Chiron Vision Corp., as discontinued operations. On Oct. 21, 1997, Chiron and Bausch & Lomb jointly announced the signing of a definitive agreement under which Bausch & Lomb will acquire substantially all of the net assets of Chiron Vision for $300 million in cash.

Completion of the transaction, which is subject to regulatory approval, is expected early in 1998. Including the results of Chiron Vision, Chiron reported a net loss for the quarter of $13 million, or 7 cents per share.

"Our third-quarter performance was solid, due to new product sales as well as further penetration by certain existing products. Without the impairment loss, we achieved growth in our bottom-line numbers while increasing our investment in R&D," said Ed Penhoet, Ph.D., Chiron's president and chief executive officer. "We also made significant operational decisions that better position Chiron for the future, some of which led to the write-down of the Puerto Rico manufacturing facility and the more recently announced divestiture of the Vision business."

Total revenues from continuing operations increased to $290 million in the third quarter of 1997, from $272 million in the same quarter last year. Operating income, excluding the write-down of the Puerto Rico facility, decreased 8 percent to $23 million in the third quarter of 1997 from $25 million in the third quarter of 1996.

Net product sales for the third quarter increased $12 million, or 6 percent, to $205 million in 1997 from $193 million in 1996. Overall, product sales in the third quarter of 1997 were impacted by unfavorable changes in foreign currency exchange rates between years. Had exchange rates remained constant, product sales in the third quarter of 1997 would have increased an additional $13 million, or by a total of 13 percent, versus the prior year.

Revenue Contributions by Business Unit

- Diagnostic product sales for the third quarter increased to $148 million in 1997 from $138 million in 1996. The $10 million, or 8 percent, year-over-year increase was primarily due to increased sales of immunodiagnostic products and a 50-percent increase in research sales of branched-DNA probe kits. The overall increase in Diagnostic product sales was adversely impacted by changes in foreign currency exchange rates between years, particularly in Germany, France and Japan. Had exchange rates remained constant, Diagnostic product sales would have increased an additional $9 million in the third quarter of 1997, or by 14 percent between years.

- Technologies' inaugural sales of platelet-derived growth factor (rhPDGF-BB), the active ingredient in Johnson & Johnson's Regranex (R) (Becaplermin) Gel, a wound healing agent, contributed $8 million to Chiron's net product sales in the third quarter of 1997. On July 14, 1997, the Dermatologic and Ophthalmic Drugs Advisory Committee to the FDA recommended the approval of Regranex(R) as a safe and effective treatment for diabetic ulcers that occur on the lower limbs and feet. During the third quarter, sales of PDGF to Ortho Biotech Inc., a pharmaceuticals group of Johnson & Johnson, were made in preparation for Johnson & Johnson's commercial launch of Regranex (R), if and when the product is approved by the FDA. Chiron anticipates that ongoing sales of PDGF will likely decrease from third-quarter levels until FDA approval is granted.

- Therapeutics' Betaseron(R) (interferon beta-1b) product sales to Berlex Laboratories and Schering AG decreased in the third quarter to $14 million in 1997 from $17 million in 1996. The overall decrease in Betaseron(R) product sales in the third quarter of 1997 resulted from decreases in both contracted initial revenues per vial, and the number of commercial vials shipped to Berlex. As expected, this decrease was partially offset by an increase in average secondary revenues per vial as compared to the prior year. Betaseron(R) product sales recognized by Chiron represent a fraction of the total Betaseron(R) revenues recognized by Berlex and Schering AG. Including royalties earned on Schering's European sales of Betaferon (R), total revenues derived from Betaseron(R) sales in the third quarter increased from $20 million in 1996 to $21 million in 1997.

- Therapeutics' oncology product sales for the third quarter increased to $18 million in 1997 from $17 million in 1996, primarily due to an 8-percent increase in Proleukin(TM) (aldesleukin, interleukin-2) sales. The overall increase in oncology product sales during the third quarter of 1997 was reduced by unfavorable changes in foreign currency exchange rates between years. Had exchange rates remained constant, sales of Proleukin(TM) would have increased 16 percent over the prior year. Worldwide sales of Proleukin(TM) in the third quarter reflect a 7-percent increase from the prior year in the number of vials sold.

- Vaccine product sales from Chiron's Italian subsidiary decreased to $16 million in the third quarter of 1997 from $21 million in the third quarter of 1996. The strengthening of the U.S. dollar against the Lira resulted in more than half of the overall decrease in vaccine product sales between years. The remaining decrease resulted primarily from a reduction in sales of certain pediatric vaccines in the third quarter of 1997 due to supply constraints. Total revenues for the Vaccines business unit, including Chiron's share of earnings from the Chiron-Behring joint venture, remained roughly constant in the third quarters of 1997 and 1996.

Joint Businesses and Collaborative Revenues

Equity in earnings of unconsolidated joint businesses decreased $1 million in the third quarter of 1997 to $29 million from $30 million in 1996. In the third quarter of 1996, Chiron's share of pretax operating earnings in the Chiron-Ortho joint business included $7 million of royalties resulting from a settlement with Abbott related to sales of HIV immunodiagnostic tests.

Excluding the effect of the Abbott settlement, third-quarter profit in the joint business remained relatively constant between years. The overall decrease in equity in earnings of unconsolidated joint businesses was partially offset by a year-over-year increase in Chiron's third-quarter equity in earnings from its 49-percent interest in a joint venture with Behringwerke.

Collaborative agreement revenues in the third quarter increased to $36 million in 1997 from $31 million in 1996. During the third quarter of 1997, Chiron recognized revenues of $8 million from its collaboration with Japan Tobacco Inc. and $4 million related to an agreement with Novartis for certain HSV-tk patent rights. In partial consideration for Chiron agreeing to grant royalty-bearing licenses to Rhone-Poulenc Rorer and Novartis for certain HSV-tk patent rights, Novartis agreed to pay Chiron up to $60 million over the next 5 years, $15 million of which relates to 1997 and is being recognized evenly throughout the year.

The overall increase in collaborative agreement revenues in the third quarter was partially offset by a $4.5 million decrease in research funding from Novartis, from $21 million in 1996 to $16.5 million in 1997.

Growth in Other Revenues

Other revenues in the third quarter increased to $19 million in 1997 from $17 million in 1996. The increase was due largely to $7 million of royalties earned on Schering's European sales of Betaferon(R) during the third quarter of 1997, versus $4 million in the third quarter of 1996. Under a November 1996 agreement with Novartis, Chiron began to co-promote Aredia(TM) (pamidronate disodium for injection) in the U.S. for a 2-1/2 year period beginning April 1997.

During the third quarter of 1997, Chiron recognized $5 million of revenues related to Aredia(TM) co-promotion services. In the third quarter of 1996, Chiron recognized $6 million of Aredia(TM) sales fee income under an agreement with Novartis, which provided Chiron exclusive promotional rights to Aredia(TM) in the U.S. and expired in March 1997.

Gross Profit Margin Percentage Remains Constant

Gross profit margin remained constant at 56 percent of net product sales in the third quarters of 1997 and 1996. Improvements in gross profit margin which resulted from changes in the product mix were offset by the impact of declining average selling prices of ACS diagnostic assays, as well as a charge for inventory-related reserves.

Operating Expenses Include Continued R&D Investments

Research and development expenses in the third quarter increased to $98 million in 1997 from $85 million in 1996. This increase is due primarily to the continued development of branched-DNA probes and research involving recombinant proteins, gene therapies, pertussis and other vaccines.

Additionally, in July 1997, Chiron and Pharmacia & Upjohn Inc. entered into certain agreements under which Chiron was granted licenses related to the rhIGF-1 manufacturing process and a cardiovascular indication. In connection with these agreements, Chiron recorded research and development expenses of $5 million in the third quarter of 1997. The increase in research and development from the prior year also includes $2 million of research payments due to Hyseq Inc. to identify genetic targets for the development of pharmaceutical treatments for cancer.

Partially offsetting these increases were research and development expenses incurred in the third quarter of 1996 related to Chiron's effort to obtain FDA approval of Pertugen, a diphtheria, tetanus and genetically engineered acellular pertussis (DTaP) vaccine for infants and children.

Selling, general and administrative expenses as a percentage of product sales decreased in the third quarter to 37 percent in 1997 from 39 percent in 1996. Selling and marketing expenses continued to account for the largest portion of SG&A expenses as Chiron devoted significant resources to support sales volumes in its existing product lines as well as new products.

Puerto Rico Facility Write-Down

The $31 million impairment loss on long-lived assets in the third quarter of 1997 resulted from the reduction of the carrying value of Chiron's idle pharmaceutical fill and finishing facility in Puerto Rico to its estimated fair value. The Puerto Rico facility was originally outfitted by Chiron as a second manufacturing site of Betaseron. Manufacturing process improvements and the introduction of a competing product have eliminated the need for this facility. Chiron is currently investigating options concerning the Puerto Rico facility, including possible sale.

Net other income in the third quarter increased from $1 million in 1996 to $7 million in 1997. This increase primarily reflects realized gains of $4 million on sales of equity securities in the third quarter of 1997, as well as foreign exchange hedging gains realized during the quarter.

The provision for income taxes in the third quarters of 1997 and 1996 is based on estimated annual effective income tax rates. The charge for the write-down of the Puerto Rico facility did not create a corresponding current income tax benefit and therefore increased the effective tax rate for the 1997 year-to-date period. Without such charge, the annual estimated effective tax rate decreased to 26 percent from 31 percent in 1996 and the first two quarters of 1997. This decrease is principally due to changes in estimates of the mix of foreign versus domestic profits, changes in estimates of the benefits of certain tax credits and loss carryforwards, and anticipated foreign sales corporation benefits.

This news release contains forward-looking statements that involve risks and uncertainties relating to the future financial performance of Chiron, and actual events or results may differ materially. A full discussion of the company's operations and financial condition, including factors that may affect its business and future prospects, is contained in documents the company files with the SEC, such as Form 10-Q and 10-K reports. These documents identify important factors that could cause the company's actual performance to differ from current expectations. The company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.

Chiron Corp., headquartered in Emeryville, is a science-driven, market-directed healthcare company that combines diagnostic, vaccine and therapeutic strategies for controlling disease. -0-

                                  CHIRON CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
                     (In thousands, except per share data)

                                              Three Months Ended
                                          --------------------------
                                           Sept. 30,      Sept. 30,
                                             1997           1996
                                          -----------    -----------
Revenues:
 Product sales, net                       $  205,326     $  193,380
 Equity in earnings of unconsolidated
  joint businesses                            28,849         30,073
 Collaborative agreement revenues             36,398         31,231
 Other revenues                               19,331         16,954
                                          -----------    -----------
  Total revenues                             289,904        271,638
                                          -----------    -----------
Expenses:
 Cost of sales                                91,292         84,272
 Research and development                     97,540         85,232
 Selling, general and administrative          76,907         76,060
 Impairment loss on long-lived assets         31,300             --
 Other operating expenses                      1,124          1,050
                                          -----------    -----------
  Total expenses                             298,163        246,614
                                          -----------    -----------
Income (loss) from operations                 (8,259)        25,024

Gain on sale of interest in affiliated
 company                                          --            160
Interest expense                              (8,545)        (8,747)
Other income, net                              6,796          1,408
                                          -----------    -----------
Income (loss) from continuing operations
 before income taxes                         (10,008)        17,845

Provision for income taxes                     4,179          5,017
                                          -----------    -----------
Income (loss) from continuing operations     (14,187)        12,828
                                          -----------    -----------
Discontinued operations:
 Income (loss) from discontinued operations
  (net of income tax benefit of $685 for
  the three months ended Sept. 30, 1997
  and provision for income taxes of $177,
  $85 and $1,308 for the three months
  ended Sept. 30, 1996 and nine months
  ended Sept. 30, 1997 and 1996,
  respectively)                                1,506         (1,050)
                                          -----------    -----------
Net income (loss)                         $  (12,681)    $   11,778
                                          ===========    ===========
Net income (loss) per share:
 Income (loss) from continuing operations $    (0.08)    $     0.07
                                          ===========    ===========
 Net income (loss)                        $    (0.07)    $     0.07
                                          ===========    ===========
Weighted average number of shares
 used in computing per share amounts         174,221        175,848
                                          ===========    ===========
                                  CHIRON CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
                     (In thousands, except per share data)

                                              Nine Months Ended
                                          --------------------------
                                           Sept. 30,      Sept. 30,
                                             1997           1996
                                          -----------    -----------
Revenues:
 Product sales, net                       $  609,762     $  582,904
 Equity in earnings of unconsolidated
  joint businesses                            82,835         75,689
 Collaborative agreement revenues             92,374         85,792
 Other revenues                               65,916         44,285
                                          -----------    -----------
  Total revenues                             850,887        788,670
                                          -----------    -----------
Expenses:
 Cost of sales                               257,344        245,079
 Research and development                    279,760        252,206
 Selling, general and administrative         231,778        224,495
 Impairment loss on long-lived assets         31,300             --
 Other operating expenses                      3,491          2,440
                                          -----------    -----------
  Total expenses                             803,673        724,220
                                          -----------    -----------
Income (loss) from operations                 47,214         64,450

Gain on sale of interest in affiliated
 company                                          --         12,226
Interest expense                             (24,823)       (22,713)
Other income, net                             12,003          5,103
                                          -----------    -----------
Income (loss) from continuing operations
 before income taxes                          34,394         59,066

Provision for income taxes                    17,393         16,608
                                          -----------    -----------
Income (loss) from continuing operations      17,001         42,458
                                          -----------    -----------
Discontinued operations:
 Income (loss) from discontinued operations
  (net of income tax benefit of $685 for
  the three months ended Sept. 30, 1997
  and provision for income taxes of $177,
  $85 and $1,308 for the three months
  ended Sept. 30, 1996 and nine months
  ended Sept. 30, 1997 and 1996,
  respectively)                                1,396         (2,582)
                                          -----------    -----------
Net income (loss)                         $   18,397     $   39,876
                                          ===========    ===========
Net income (loss) per share:
 Income (loss) from continuing operations $     0.10     $     0.24
                                          ===========    ===========
 Net income (loss)                        $     0.10     $     0.22
                                          ===========    ===========
Weighted average           Sept. 30,      Dec. 31,
                                             1997           1996
        Total cash and short-term
   investments       r current assets                         72,292         57,455
                                          -----------    -----------
  Total current assets                       725,711        696,768

Noncurrent investments in marketable
 debt securities                              34,299         22,027
Property, plant, equipment and
 leasehold improvements, at cost:
 Land and buildings                          208,820        231,998
 Laboratory, production
  and office equipment                       415,622        381,421
 Leasehold improvements                      120,724        114,282
 Construction in progress                     62,383         69,120
                                          -----------    -----------
                                             807,549        796,821
 Less accumulated
  depreciation and amortization             (257,059)      (213,217)
                                          -----------    -----------
  Net property, plant, equipment
   and leasehold improvements                550,490        583,604
Purchased technology, net                     57,653         65,592
Other intangible assets, net                  77,128         76,669
Investments in equity securities
 and affiliated companies                    193,741        184,328
Other assets                                  62,740         59,682
                                          -----------    -----------
                                          $1,701,762     $1,688,670
                                          ===========    ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                         $   77,458     $   96,157
 Accrued compensation
  and related expenses                        50,823         56,695
 Short-term borrowings                       150,812        137,467
 Current portion of unearned revenue          23,787         19,638
 Taxes payable                                39,399         33,407
 Other current liabilities                   124,145        129,805
                                          -----------    -----------
  Total current liabilities                  466,424        473,169

Long-term debt     capital                1,826,603      1,774,406
      764,855
                                          -----------    -----------

hc/sf* gdr/jm/dc/rn

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