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Chiron to Acquire Pathogenesis

LOS ANGELES — Chiron Corp. (CHIR.O), a maker of drugs to treat infectious diseases and cancer, announced plans on Monday to buy PathoGenesis Corp. (PGNS.O),

which makes an antibiotic used by cystic fibrosis patients, for about $700 million in cash.

Chiron said the acquisition would expand its franchises in biopharmaceuticals, vaccines and blood testing, but the deal was greeted tepidly on Wall Street and Chiron's shares fell 1-15/16 to close at 46-11/16 on Nasdaq.

Shares of Seattle-based PathoGenesis rose 5-7/32, or 16 percent, to close at 37-31/32, just shy of Chiron's all-cash tender offer of $38.50 per share.

"It is very unusual that a company like Chiron would use essentially half of their cash to purchase a speculative company like PathoGenesis,'' said Charles Engelberg, an analyst at AmeriCal Securities.

He described PathoGenesis' sole commercial product, TOBI, or tobramycin solution for inhalation, as a "niche drug'' that so far has proven ineffective as a treatment for other types of lung infection, such as chronic bronchitis.

Chiron, based in Emeryville, Calif., said the deal gives it an expanded therapeutic focus in infectious diseases, a theme that threads through the company's three business units: biopharmaceuticals, vaccines and blood testing.

"The unified research and commercial focus of the combined company provides Chiron an opportunity to leverage our infectious disease franchises in biopharmaceuticals, vaccines and blood testing while augmenting our already established oncology presence,'' said Sean Lance, Chiron's chief executive officer.

Chiron's flagship product is Proleukin, the first treatment approved for metastatic kidney cancer and melanoma. The company's other major product is Betaseron, a treatment for multiple sclerosis.

Last month, Chiron pulled the plug on testing of rhIGF-I, its experimental treatment for osteoarthritis after weak results from two mid-stage clinical trials.

Although TOBI is PathoGenesis' only commercial product, the company has a rich preclinical pipeline and is still exploring expanding the label for TOBI for other indications, said Chiron spokeswoman Shelley Schneiderman.

"They may have some promising products in early-stage development, but we like to be able to really kick the tires of new products,'' Engelberg said. "We are unwilling to put our clients' money on the line without substantial clinical activity.''

Chiron said the deal boosts the number of its clinical development programs to 15 and gives it enhanced research and development capability in bacterial genomics and small molecule therapeutics to allow development of anti-infectives.

Schneiderman also noted that Chiron will be able to use PathoGenesis' proprietary technology for inhaleable therapeutics as a platform to grow its other products.

"With TOBI, we can expand our presence in products to fight infectious diseases,'' she added.

Chiron currently has a product for sepsis and another for HIV in late stage clinical development.

The acquisition is expected to close in the third or fourth

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