CHIRON CORP, 10-Q, 1995-11-15

CHIRON CORP
10-Q, 1995-11-15
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES

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<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Check One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For Quarterly Period Ended October 1, 1995 Commission File Number: 0-12798

CHIRON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 94-2754624
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4560 Horton Street, Emeryville, California 94608
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)

(510) 655-8730
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Class Outstanding at October 1, 1995
----- ------------------------------

Common Stock, $0.01 par value 41,556,655

<PAGE>

CHIRON CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

PAGE NO.
--------

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Balance Sheet as of
September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . 3

Consolidated Statement of Operations for the
three months and nine months ended September 30, 1995 and 1994 . . . 4

Consolidated Statement of Cash Flows for the
nine months ended September 30, 1995 and 1994 . . . . . . . . . . . 5

Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . .14

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . .23

ITEM 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . . . .23

ITEM 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . .23

ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS . . . . . . .23

ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .23

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . .23

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

2
<PAGE>

CHIRON CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 69,046 $ 84,876
Short-term investments in marketable debt securities 79,991 137,619
------------ ------------
Total cash and short-term investments 149,037 222,495
Accounts receivable 247,948 140,476
Inventories 161,518 47,592
Other current assets 43,486 23,252
------------ ------------
Total current assets 601,989 433,815
Noncurrent investments in marketable debt securities 88,129 171,328
Property, equipment and leasehold improvements, at cost:
Land and buildings 202,425 60,930
Laboratory, production and office equipment 271,335 140,438
Leasehold improvements 97,561 82,145
Construction in progress 55,354 78,998
------------ ------------
626,675 362,511
Less: accumulated depreciation and amortization 125,784 76,337
------------ ------------
Net property, equipment and leasehold improvements 500,891 286,174
Intangible assets, net 161,143 85,803
Investments in equity securities and affiliated companies 44,449 51,425
Other assets 45,393 21,197
------------ ------------
$ 1,441,994 $ 1,049,742
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 66,911 $ 27,778
Accrued compensation and related expenses 50,914 24,010
Short-term borrowings 60,181 --
Current portion of unearned revenue 20,604 1,544
Current portion of long-term debt 5,843 3,461
Taxes payable 28,759 10,060
Other current liabilities 127,513 52,788
------------ ------------
Total current liabilities 360,725 119,641
Long-term debt 412,322 338,061
Other noncurrent liabilities 35,276 19,409
Commitments and contingencies
Stockholders' equity:
Common stock 407 334
Common stock to be issued 9 --
Additional paid-in capital 1,633,769 1,161,942
Additional paid-in capital-common stock to be issued 82,850 --
Accumulated deficit (1,105,292) (575,236)
Cumulative foreign currency translation adjustment (99) (1,719)
Unrealized gain (loss) from investments 22,027 (12,690)
------------ ------------
Total stockholders' equity 633,671 572,631
------------ ------------
$ 1,441,994 $ 1,049,742
------------ ------------
------------ ------------
</TABLE>

THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.

<PAGE>

CHIRON CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 230,311 $ 81,837 $ 662,553 $ 187,653
Equity in earnings of unconsolidated
joint businesses 16,898 24,591 56,436 55,699
Collaborative agreement revenues 18,346 16,453 28,868 57,288
Other revenues 9,133 5,326 26,828 19,059
------------ ------------ ------------ ------------
Total revenues 274,688 128,207 774,685 319,699

Expenses:
Research and development 88,689 44,055 259,649 119,554
Cost of sales 102,513 36,361 301,343 86,814
Selling, general and administrative 85,280 27,972 258,539 77,547
Write-off of purchased in-process technologies 132,535 -- 364,951 --
Costs related to Ciba transaction -- -- 49,478 --
Restructuring and reorganization costs -- -- 39,055 --
Other operating expenses 3,536 1,183 9,323 3,198
------------ ------------ ------------ ------------
Total expenses 412,553 109,571 1,282,338 287,113
------------ ------------ ------------ ------------

Income (loss) from operations (137,865) 18,636 (507,653) 32,586

Other income (expense), net (2,781) 248 (6,281) 957
------------ ------------ ------------ ------------

Income (loss) before income taxes (140,646) 18,884 (513,934) 33,543

Provision for income taxes 4,461 6,317 16,122 11,049
------------ ------------ ------------ ------------

Net income (loss) $ (145,107) $ 12,567 $ (530,056) $ 22,494
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Net income (loss) per share $ ( 3.59) $ 0.37 $ (13.18) $ 0.66
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of shares
used in computing per share amounts 40,429 34,110 40,210 34,251
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

</TABLE>

THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.

4
<PAGE>

CHIRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (530,056) $ 22,494
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Write-off of purchased in-process technologies 364,951 --
Reserves and other adjustments 30,670 12,663
Depreciation and amortization 67,761 33,541
Undistributed earnings of affiliates (2,355) (4,350)
Changes, excluding effects of acquisitions, to:
Accounts receivable 42,300 (30,629)
Inventories (36,720) (7,873)
Other current assets (4,005) (9,958)
Accounts payable (7,151) (10,340)
Current portion of unearned revenue 5,727 (11,050)
Accrued compensation and related expenses (1,021) (1,152)
Taxes payable 10,961 11,042
Payable to Biocine -- (2,040)
Other current liabilities 26,352 (3,174)
Other noncurrent liabilities (20,428) 2,517
------------ ------------
Net cash provided by (used in) operating
activities (53,014) 1,691
Cash flows from investing activities:
Purchase of investments in marketable debt securities (122,177) (150,886)
Sale of investments in marketable debt securities 278,919 183,920
Capital expenditures (70,559) (81,411)
Acquisition of IOLAB, net of cash acquired (96,013) --
Cash acquired from the Ciba acquisitions,
net of cash paid 14,225 --
Acquisition of Viagene, net of cash acquired (28,590) --
Acquisition of Technolas, net of cash acquired (2,255) --
Acquisition of Domilens, net of cash acquired -- (17,407)
Investments in equity securities and affiliates (5,650) (18,862)
Distributions from affiliates -- 947
Increase in other assets (547) (12,029)
------------ ------------
Net cash used in investing activities (32,647) (95,728)
Cash flows from financing activities:
Borrowings under line of credit arrangements 16,769 --
Repayment of notes payable and capital leases (3,017) (4,004)
Proceeds from capital contribution from Ciba 24,845 --
Proceeds from issuance of common stock 30,630 15,758
------------ ------------
Net cash provided by financing activities 69,227 11,754
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents 604 --
------------ ------------
Net decrease in cash and cash equivalents (15,830) (82,283)
Cash and cash equivalents at beginning of the period 84,876 156,516
------------ ------------
Cash and cash equivalents at end of period $ 69,046 $ 74,233
------------ ------------
------------ ------------

</TABLE>

THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.

<PAGE>

CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1995
- -------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The information at September 30, 1995, and for the periods ended September
30, 1995 and 1994, is unaudited, but includes all normal recurring
adjustments which Chiron's management believes to be necessary for fair
presentation of the periods presented. The consolidated balance sheet
amounts at December 31, 1994 have been derived from audited financial
statements. Certain 1994 balances have been reclassified to conform to the
1995 presentation. Interim results are not necessarily indicative of
results for a full year. This information should be read in conjunction
with Chiron's audited consolidated financial statements for the year ended
December 31, 1994, and with Amendment No. 1 to the Company's filing on Form
8-K dated January 4, 1995.

The consolidated financial statements include the accounts of the Company
and its subsidiaries. Investments in joint ventures, partnerships and
interests in other companies in which Chiron has an equity interest of 50
percent or less are accounted for by the equity method or cost method, as
appropriate. All significant intercompany balances and transactions have
been eliminated.

FISCAL YEAR

Effective for fiscal year 1995, the Company adjusted its fiscal year end
from December 31 to the 52 or 53-week period that ends on the Sunday
nearest December 31. As a result, the third quarter of 1995 represents the
thirteen-week period ended October 1, 1995. For presentation purposes,
dates used in the consolidated financial statements and notes refer to the
calendar month end.

INVENTORIES

Pharmaceutical inventories are stated at the lower of cost or market using
the average cost method or, in the case of vaccine products, using the
last-in, first-out ("LIFO") method. Diagnostic and ophthalmic products are
valued at cost, using the first-in, first-out ("FIFO") method which is less
than fair value. Inventories consist of the following:

SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -------------
(IN MILLIONS)
<S> <C> <C>
Finished goods $ 90 $ 24
Work in process 31 9
Raw materials 41 15
--------- ---------
$ 162 $ 48
--------- ---------
--------- ---------

</TABLE>

INCOME TAXES

Income tax expense for the quarters ended September 30, 1995 and 1994
includes a provision for federal, state and foreign taxes based on the
annual estimated effective rates applicable to certain of the Company's
subsidiaries.

<PAGE>

PER SHARE DATA

Per share information is based on the weighted average number of common
shares and dilutive common share equivalents outstanding. Shares issuable
upon the exercise of stock options and certain warrants are included in the
calculations, utilizing the treasury stock method, to the extent they are
dilutive. Shares assumed to be issued upon conversion of the Company's
convertible debentures and certain warrants are not included since their
inclusion would be antidilutive. Fully diluted per share data has not been
presented as the amount would not differ materially from primary per share
data.

REVENUE RECOGNITION

Revenue from product sales consists of shipments of diagnostic materials
and instruments, ophthalmic products, therapeutics and other biologicals
and is generally recognized upon shipment. Revenue from service contracts
is recognized ratably over the life of the contract. Revenue from the sale
of equipment under sales-type leases is recognized at the inception of the
lease. All of the above revenues are included in "Product sales, net" in
the Consolidated Statement of Operations.

2. BUSINESS COMBINATIONS

TRANSACTION WITH CIBA-GEIGY LTD. AND AFFILIATES ("CIBA")

On January 1, 1995, Chiron entered into a series of agreements with Ciba,
including an investment agreement, a cooperation and collaboration
agreement and a governance agreement (collectively "Agreements"). Ciba
acquired a 49.9 percent ownership interest in Chiron common stock (now
approximately 48 percent), partially through a tender offer for
approximately 38 percent of Chiron's outstanding common stock for $117 per
share. At the same time, Chiron acquired all of the outstanding common
stock of Ciba Corning Diagnostics Corp. ("CCD") and Ciba's interests in
The Biocine Company (subsequently renamed "Chiron Biocene Company,"
hereinafter referred to as "Chiron Biocene Company") and JV Vax B.V.
(a Netherlands company which owns Biocine S.p.A.) in exchange for 6.6
million newly-issued Chiron common shares and a cash payment of $24
million. These two acquisitions of Chiron common stock by Ciba, together
with Ciba's prior holdings of approximately 1.4 million shares, result in
the aforementioned 49.9 percent ownership of the Company's common stock.

Under the terms of the Agreements, Ciba is entitled to name three new
members to Chiron's Board of Directors and has limited rights to review and
approve certain Chiron transactions. In connection with the Agreements,
Ciba has agreed to guarantee $425 million of new debt for Chiron and has
agreed to provide $250 million (which may be increased up to $300 million
subject to certain reductions in the debt guarantee) over five years in
support of research at Chiron, and Chiron has the option of issuing up to
$500 million of new equity to Ciba.

The acquisitions of CCD and Ciba's interests in Chiron Biocine Company and
JV Vax B.V. (the "Acquisitions") were accounted for under the purchase
method of accounting. The purchase price of approximately $433 million was
allocated to the acquired assets and assumed liabilities based upon their
estimated fair value on the acquisition date. The fair value of the net
assets acquired in the Acquisitions, including in-process technology, was
estimated based on an independent valuation of the acquired net assets.
The aggregate purchase price of approximately $433 million was less than
the fair value of the net assets acquired by approximately $58 million.
This amount was ratably allocated as a reduction of the noncurrent assets
of the acquired companies. In connection with the Acquisitions,
liabilities were assumed as follows:

<PAGE>

(IN MILLIONS)
<S> <C>
Fair value of assets acquired $ 696
Common stock issued (408)
Cash paid (24)
Acquisition costs (1)
-------
Liabilities assumed $ 263
-------
-------

</TABLE>

As required under generally accepted accounting principles, Chiron
recognized as an expense the amount allocated to in-process technology in
the first nine months of 1995. This resulted in a noncash charge against
earnings of $223 million. Other transaction-related charges totaling $50
million related to employee payments and the related taxes, and legal and
investment advisor fees were also recognized as expenses in the first nine
months of 1995. Ciba agreed to reimburse the Company $25 million for a
portion of the employee payments and such reimbursement has been recorded
as a capital contribution. Other purchased intangible assets of
approximately $34 million consisting of a customer list and base technology
are being amortized over their estimated useful lives of 10 to 15 years,
using the straight-line method.

The results of operations of CCD, JV Vax B.V. and Chiron Biocine Company
are included in Chiron's consolidated operating results from January 1,
1995 forward. Chiron's interest in the operating results of JV Vax B.V.
and Chiron Biocine Company were included in the Company's 1994 operating
results under the equity method of accounting.

During the third quarter, Chiron and Ciba entered into an investment,
research support and marketing agreement to utilize research funding
provided by Ciba, as discussed above. Under the terms of the agreement,
Ciba will fund from time to time, at Chiron's request, research and
development efforts for certain adult vaccines currently under
development. In return, Ciba will receive an interest in a stream of
variable royalties in potential worldwide sales and also in promotional
rights in countries other than those in North America and Europe, for such
vaccines. The interests in royalties are to be acquired by Ciba
through ownership of a newly organized subsidiary of Chiron. Royalties
will be paid, on a country by country basis, for the later of ten years or
to the date of expiration of applicable product patents. Royalties
received prior to the year 2000 will be reinvested in funding ongoing
research and development of the vaccines.

Under the terms of the agreement, Chiron was granted an option to
repurchase Ciba's interest, at cost plus an agreed-upon return. In
addition, if Chiron chooses to exercise the option, Ciba will be granted
certain marketing rights in countries other than those in North America
and Europe with respect to the adult vaccines developed from the funding.
Pursuant to the agreement, Chiron received $12 million of funding from
Ciba during the third quarter, which Chiron recorded as collaborative
agreement revenues. Prior to further funding by Ciba, however, Chiron and
Ciba have agreed to negotiate a restructuring of the agreement to include
royalty rights for one or more additional Chiron products.

ACQUISITION OF IOLAB

On March 31, 1995, Chiron Vision acquired the surgical division of IOLAB
from Johnson & Johnson. The acquisition was accounted for under the
purchase method of accounting. The purchase price of approximately $96
million was allocated to the acquired assets and assumed liabilities based
upon their estimated fair value on the acquisition date. The fair value of
the net assets acquired, including in-process technology, was estimated
based on independent valuations of the acquired net assets. In connection
with the acquisition, liabilities were assumed as follows:

<PAGE>

(IN MILLIONS)
<S> <C>
Fair value of assets acquired $ 109
Cash paid (95)
Acquisition costs (1)
-------
Liabilities assumed $ 13
-------
-------

</TABLE>

The amount allocated to in-process technology of $10 million was charged
against earnings in the first quarter of 1995. Other purchased intangible
assets of approximately $46 million consisting of base technology,
goodwill, trade name and a customer list are being amortized over their
estimated useful lives of 10 to 15 years using the straight-line method.
IOLAB's results of operations are included in Chiron's results of
operations from March 31, 1995, forward.

Also, the Company recorded additional charges for restructuring and
integration-related expenses totaling $17 million in the first quarter of
1995. Of this amount, approximately $8 million was related to write-downs
of assets. The remaining $9 million consists primarily of $6 million in
employee costs and $3 million for the cost of lease terminations. The
majority of the accrued costs are expected to be paid over the next two
years.

ACQUISITION OF VIAGENE, INC. ("VIAGENE")

On September 29, 1995, Chiron acquired all the outstanding common stock of
Viagene in exchange for approximately $36 million in cash and 916,000
shares of Chiron common stock. Additionally, on September 29, 1995,
unexercised options to purchase Viagene common stock were converted into
options to purchase approximately 132,000 shares of Chiron common stock.
Viagene is a biotechnology company involved in the discovery, development
and commercialization of gene transfer products for the treatment or
prevention of severe viral infections, cancers and other diseases. Prior
to the acquisition, Chiron had an ongoing collaboration with Viagene in the
area of gene therapy and, pursuant to the collaboration arrangement, held
an investment in the outstanding voting stock of Viagene with a carrying
value, net of unrealized gain, of approximately $14 million as of September
29, 1995.

The Viagene acquisition has been accounted for under the purchase method of
accounting. The purchase price of approximately $144 million was allocated
to the acquired assets and assumed liabilities based upon their estimated
fair value on the acquisition date. In connection with the acquisition,
liabilities were assumed as follows:

(IN MILLIONS)
<S> <C>
Fair value of assets acquired $ 158
Carrying value of original
investment in Viagene (14)
Common stock and options issued (91)
Cash paid (36)
Acquisition costs (3)
-------
Liabilities assumed $ 14
-------
-------

</TABLE>

As required under generally accepted accounting principles, Chiron
recognized as an expense the amount allocated to in-process technology in
the third quarter of 1995. This resulted in a noncash charge against
earnings of approximately $130 million.

The results of operations of Viagene are included in Chiron's consolidated
operating results from September 29, 1995 forward. As discussed
previously, the results of operations of CCD, JV Vax

<PAGE>

B.V. and Chiron Biocine Company are included in Chiron's operating results
from January 1, 1995 forward. The following unaudited pro forma
information presents the results of operations of Chiron, CCD, JV Vax
B.V., Chiron Biocine Company and Viagene businesses for the three and nine
months ended September 30, 1995 and 1994, with pro forma adjustments as if
the acquisitions had been consummated as of the beginning of the periods
presented. This pro forma information does not purport to be indicative of
what would have occurred had the acquisitions been made as of those dates
or of results which may occur in the future. The pro forma information
does not include the write-off of purchased in-process technology of $223
million or other transaction-related costs totaling $50 million (related to
employee payments and the related taxes, and investment advisor and legal
fees) which were recognized as expense in the first nine months of 1995,
relating to the acquisition of CCD, JV Vax B.V. and Chiron Biocine Company.
Also, the pro forma information does not include the write-off of purchased
in-process technology related to the Viagene acquisition of $130 million.

THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total revenues $ 276,930 $ 251,231 $ 781,643 $ 680,281
Income (loss) before
non-recurring
charges (20,263) 18,147 (145,070) 24,226
Income (loss) before
non-recurring
charges per share (0.49) 0.44 (3.53) 0.58

</TABLE>

3. RESTRUCTURING AND REORGANIZATION COSTS

Costs totaling $39 million related to restructuring and reorganization
plans, including $17 million arising from the acquisition and integration
of IOLAB (Note 2), represent the expected costs of integrating the acquired
businesses (Note 2) with Chiron's existing businesses, as well as costs
related to the idling of the Company's Puerto Rico manufacturing facility
and the scale-back of manufacturing operations at the Company's Amsterdam
facility, the write-down of duplicate facilities and the change in plans to
expand the Company's research and administrative facilities.

Of the approximately $22 million in charges for actions other than the
integration of IOLAB, approximately $15 million related to write-downs of
assets. The remaining costs of approximately $7 million consist primarily
of employee costs of $1 million and $6 million related to additional tax
obligations, lease termination costs and the costs of the change in plans
for expansion of the Company's research and administrative facilities.
The majority of the accrued costs are expected to be paid over the next
two years. The current status of the accrued restructuring charges is
summarized below:

<PAGE>

AMOUNT AMOUNT TO
TOTAL UTILIZED BE UTILIZED IN
RESTRUCTURING THROUGH FUTURE
CHARGE SEPTEMBER 30, 1995 PERIODS
------------- ------------------ --------------
(IN MILLIONS)

<S> <C> <C> <C>
Chiron Vision restructuring charges:
Employee-related costs $ 6 $ (3) $ 3
Facility and lease termination costs 6 -- 6
Duplicate and excess inventory 3 -- 3
Other 2 -- 2
----- --------- -------
17 (3) 14

Puerto Rico manufacturing facility 8 (4) 4
Postponement of Emeryville facility
expansion 8 (8) --
Amsterdam manufacturing facilities 1 (1) --
Other facility related 3 (3) --
Other 2 (1) 1
----- --------- -------
$ 39 $ (20) $ 19
----- --------- -------
----- --------- -------

</TABLE>

4. COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS

GENERAL

The Company has entered into a number of collaborative arrangements with
other pharmaceutical and biotechnology companies for the development and
marketing of certain technologies and products. The majority of these
collaborations are in the development or clinical trial phase. Chiron and
its collaborative partners generally contribute certain technologies and
research efforts to the collaboration. In addition, Chiron and its
collaborative partners commit, subject to certain limitations and
cancellation clauses, to share in the funding of the collaborations'
ongoing research and clinical trial costs. Chiron, under certain of the
arrangements, has purchased equity securities, including common and
preferred stock and warrants to purchase common and preferred stock, of the
collaborative partner. Among the new collaborations entered into by the
Company during the first nine months of 1995 are the following:

PROGENITOR, INC. ("PROGENITOR")

In March 1995, the Company reached an agreement with Progenitor, a
subsidiary of Interneuron Pharmaceuticals, Inc., to collaborate in the
development and commercialization of therapeutic and vaccine products
incorporating Progenitor's proprietary gene therapy technology. Under the
agreement, Chiron received a license to Progenitor's nonviral gene
expression system for use in the development of products for the treatment
of certain cancers and cardiovascular disorders, development of infectious
disease vaccines and for development of certain other gene therapy
products. Chiron will have the right to manufacture and market any
resulting products of the collaboration. In return for the license and
other rights, Chiron made an initial license payment of $2.5 million to
Progenitor, which was expensed in the first quarter of 1995, and agreed to
make an additional funding payment of $0.5 million and make additional
license payments totaling $1 million to retain certain rights to
development of infectious disease vaccines. Also, Chiron has agreed to pay
to Progenitor various product development milestone payments which could
total approximately $3 million per product plus certain other milestone
payments which would be treated as prepaid

<PAGE>

royalties. In addition, Progenitor will receive a royalty from any
commercial sales of products resulting from the collaboration.

GENELABS TECHNOLOGIES, INC. ("GENELABS")

In March 1995, the Company reached an agreement with Genelabs, whereby
Chiron and Genelabs cross-licensed certain rights to hepatitis C virus
("HCV"); hepatitis G virus ("HGV"), a hepatitis virus discovered by
Genelabs; human T-cell leukemia virus - I ("HTLV-I") and human T-cell
leukemia virus - II ("HTLV-II") diagnostic tests. Under the agreement,
Chiron acquired certain rights to develop and market diagnostic products
for the detection of HGV, HTLV-I and HTLV-II. In return, Genelabs acquired
development and marketing rights in Asia, except Japan, for certain
products incorporating Chiron's HCV technology. Ortho, Chiron's joint
diagnostic business partner, has agreed to participate as Chiron's equal
partner in the collaboration with Genelabs and therefore will share equally
in all payments under the agreement, including equity investments. Chiron
and Ortho agreed to pay $5 million in up front license fees and up to $9
million in HGV development milestones. Chiron and Ortho also agreed to
invest a total of $10 million in equity securities of Genelabs at the
closing. Also, under the terms of the Agreement, Chiron and Ortho have the
option to acquire substantially all of the diagnostics business of Genelabs
in the year 2000 through the conversion of the $10 million equity
investment for approximately one-half the business and an additional
payment equal to the then fair market value of the remaining half. Of an
initial payment of $5 million made in the first quarter of 1995,
approximately $4.2 million was expensed while the remainder was recorded as
an investment in securities of Genelabs. In the second quarter of 1995,
an additional payment of $2.5 million was made of which $1.2 million was
expensed and the remainder was recorded as an investment in securities of
Genelabs. Under a separate agreement, Chiron agreed to pay Genelabs $1
million in cash in exchange for a right of first refusal to obtain an
exclusive license to Genelabs' HGV technology for use in vaccines. This
payment was expensed in the second quarter of 1995.

NEW YORK UNIVERSITY ("NYU")

In March 1995, the Company reached an agreement with NYU for the license of
optical mapping technology for use by Chiron and its sublicensee, Ciba, in
development of diagnostics, therapeutics and vaccines, and Chiron also
acquired the right to commercialize a potential optical mapping instrument.
Under the terms of the agreement, Chiron made a $5 million initial payment
to NYU, which was expensed in the first quarter of 1995, for the license
and for funding certain research facilities at NYU. If Chiron decides to
continue development of the instrument, Chiron will be obligated to make a
$4 million milestone payment to NYU and will make royalty payments to NYU
based upon any future product sales of the instrument, subject to certain
minimum royalties. In addition, Ciba has agreed to make certain further
research payments to NYU in connection with development of the instrument
in exchange for the sublicense and in exchange for royalty payments by
Chiron to Ciba based upon sales of the instrument.

5. DEBT OBLIGATIONS

ACQUIRED DEBT OF CCD

As part of the Acquisitions, the Company assumed approximately $96 million
in debt of CCD. This debt consists primarily of short-term borrowings
under revolving foreign line of credit arrangements totaling $39 million at
September 30, 1995, and a note payable to Ciba in the amount of $53 million
which is due in the year 2000. The foreign line of credit arrangements
bear interest at local interest

<PAGE>

rates ranging from approximately 2 percent to 16 percent. The note payable
to Ciba bears interest at a variable rate (approximately 6 percent at
September 30, 1995).

LINE OF CREDIT ARRANGEMENT

On March 24, 1995, the Company entered into a revolving, unsecured line of
credit arrangement with an international bank under which the Company may
borrow up to $50 million. This credit facility is guaranteed by Ciba and
bears interest at a rate based on LIBOR (approximately 6 percent on the $10
million outstanding at September 30, 1995).

6. CONTINGENCIES

SICOR. In April 1991, Alco Chemicals, Ltd. ("Alco") and Sicor,
SpA ("Sicor"), Cetus Ben Venue Therapeutics' ("CBVT") former suppliers
of bulk doxorubicin, filed suit in the United States District Court
for the Northern District of California against Cetus Corporation
("Cetus"), Ben Venue Laboratories, Inc. ("Ben Venue"), CBVT and
Erbamont, Inc. ("Erbamont") and its affiliates. Sicor had been
prevented from manufacturing product for CBVT since September 1990,
when Sicor's facilities in Italy were ordered closed by the government
in connection with trade secret litigation in Italy. In March 1991,
CBVT entered into an agreement with Erbamont which provided for, among
other things, the settlement of several legal proceedings then pending
relating to Erbamont's alleged doxorubicin proprietary rights, and the
exclusive supply of doxorubicin to CBVT by Erbamont. The Sicor
complaint alleges breach of the CBVT contract to purchase bulk
doxorubicin from Sicor, as well as antitrust violations and
interference with contract and prospective advantage, and seeks
unspecified damages. Cetus has denied any entitlement to recovery in
this lawsuit and has filed a counterclaim against the plaintiffs for
fraud and breach of contract based on Sicor's failure to deliver the
bulk product. In an order filed on January 11, 1993, the judge
granted summary judgment motions in favor of the Cetus parties and
Erbamont with respect to the Sicor and Alco claims. Sicor appealed
the summary judgment and, in August 1993, dismissed its claims against
Erbamont. In an opinion issued April 3, 1995, the Ninth Circuit Court
of Appeals affirmed the summary judgment on the antitrust claims, but
reversed and remanded to the District Court for further proceedings
the claims of breach of contract and interference with prospective
advantage. The Cetus parties filed a motion for rehearing by the
Ninth Circuit Court of Appeals, which was denied on July 10, 1995.
Sicor's petition for writ of certiorari to the United States Supreme
Court was also denied. The Company believes it has substantial
defenses to the remanded claims. A related arbitration before the
International Chamber of Commerce brought by Sicor against Chiron,
Cetus and Ben Venue has been stayed pending the resolution of the
Cetus parties' counterclaims in the above described litigation.

In February 1995, Sicor and Alco filed a further action in the
United States District Court for the Northern District of California
against CBVT for amounts allegedly owed by CBVT to Sicor and Alco for
the supply of doxorubicin, plus interest and attorneys' fees. This
case has been assigned to the same judge as the above referenced
District Court case. Internal investigation of the claim is under
way.

SUMMIT. On September 29, 1994, Summit Technology Ireland B.V., a
subsidiary of Summit Technology, Inc., a manufacturer of ophthalmic
lasers, filed a patent infringement action in the Regional Court of
Dusseldorf, Germany, against two German subsidiaries of Chiron Vision,
Chiron Technolas and Chiron Adatomed, and their respective managing
directors. The suit alleged that the manufacture and sale in Germany
of the Technolas-Trademark- Keracor-Trademark- 116 excimer laser infringe
the class of a patent held by Summit. Summit sought injunctive relief and
damages which it estimated at DM 2 million. On August 3, 1995, the German
court granted judgment in favor of Summit, granted an injunction
against defendants' further infringement and awarded damages for past
infringement in an amount to be determined. On September 1, 1995,
Summit enforced the judgment and the injunction by posting security in
the amount of DM 2 million. The Company has appealed the Regional
Court's decision. Chiron Technolas, Chiron Vision's sole source of
ophthalmic lasers, continues to manufacture ophthalmic excimer lasers
which are distributed by Chiron Vision and its subsidiaries. The
Company believes these activities are outside the scope of the
judgment and injunction of the German Regional Court. The Company has
also initiated a separate judicial action in Germany seeking to
invalidate Summit's patent.

CARNEGIE-MELLON UNIVERSITY. On August 20, 1994, Carnegie Mellon
University and Three Rivers Biologicals, Inc. brought a lawsuit in
the United States District Court for the Western District of
Pennsylvania against Hoffmann-La Roche, Inc., Roche Molecular Systems,
Inc., the Perkin-Elmer Corporation, Chiron and Cetus Oncology
Corporation, claiming that the defendants infringed certain United
States patents relating to plasmids for the expression of an enzyme
which may be useful in connection with polymerase chain reaction
("PCR") processes and products. Cetus sold its PCR business to F.
Hoffmann-La Roche Ltd. and Hoffmann-La Roche, Inc. ("Roche") in 1991.
Carnegie Mellon and Three Rivers Biologicals are seeking a finding
that the defendants willfully infringed the patents at issue,
injunctive relief and damages according to proof. All defendants have
answered the complaint. Discovery recently began. Venue of the case
was recently changed to the Northern District of California on motion
by Chiron. The facts of the case, including any indemnification
rights or obligations among the defendants, are currently under
review. However, Chiron believes that it, and its wholly owned
subsidiary, Cetus Oncology, have significant defenses.

MUREX DIAGNOSTICS, LTD. In a series of actions, the first of
which was brought on March 2, 1992, Chiron together with Ortho
Diagnostic Systems, Inc. ("Ortho") and Ortho Diagnostic Systems,
Ltd. ("Ortho Ltd."), filed suit in the High Court for England and Wales
against Murex Diagnostics, Ltd. ("Murex"), alleging infringement of
Chiron's U.K. Patent No. 2,212,511 ("the '511 patent") as a result of
Murex's manufacture and sale of HCV immunoassay kits in the U.K.
Murex is a subsidiary of International Murex Technologies Corp., a
Canadian company. Chiron and Ortho sought injunctive relief and
unspecified damages. On May 27, 1994, the court granted judgment for
Chiron and Ortho, holding the '511 patent valid and infringed, and
ordered Murex to pay damages in an amount to be determined. Chiron's
and Ortho's request for an injunction was granted on November 30,
1994. A damages inquiry is scheduled for July 1996. Both Murex and
the Chiron/Ortho parties appealed various aspects of the High Court's
judgment. In a series of rulings on November 2 and 7, 1995, the U.K.
Court of Appeal held that, with the exception of one claim, the '511
patent is valid, that Chiron could amend the patent and proceed with
the damages inquiry, and that, contrary to the High Court's ruling,
Murex did not have a defense with respect to Ortho Ltd. for damages
prior to October 13, 1993. The parties may apply for leave to appeal
to the House of Lords. Chiron is informed that officials within the
British Ministry of Health have in the past raised the possibility of
authorizing Murex's infringement of the `511 patent under the "Crown
use" provisions of British law, with respect to the sale of HCV
immunoassay kits to the British National Health Service. Further,
Murex has stated that it will apply for a compulsory license under the
'511 patent. Infringement proceedings against Murex on German and
European patents corresponding to the '511 patent have also been filed
by Chiron and Ortho in Germany, Italy, The Netherlands and Belgium.
On January 23, 1995, Chiron and Ortho were granted an injunction in
Germany. On May 8, 1995, Chiron was granted a cross-border
preliminary injunction by the Dutch court preventing infringement by
Murex and certain of its affiliates covering The Netherlands, Belgium,
France, Spain and Luxembourg. Murex has brought an action in
Australia seeking the revocation of the Australian counterpart of the
'511 patent. Chiron has counterclaimed for infringement.

ORGANON TEKNIKA, LTD. On May 4, 1994, Chiron instituted summary
legal proceedings against Organon Teknika, B.V., Akzo Pharma, B.V.,
Akzo Pharma International, B.V., Organon Teknika, N.V. [all
subsidiaries of Akzo N.V. (collectively referred to as "Organon")],
and United Biomedical, Inc. ("UBI"), the supplier of Organon's HCV
antigens and kits, in the District Court of the Hague, The
Netherlands, alleging infringement of European Patent No. 318,216
("the '216 patent") as a result of the defendants' manufacture and
sale of HCV immunoassay kits. On July 22, 1994, Chiron was granted a
cross-border preliminary injunction against further infringement,
including sale of the UBI kit, by Organon in Austria, Belgium,
Switzerland, Germany, Spain, France, Italy, Liechtenstein, Luxembourg,
The Netherlands and Sweden. Organon and UBI appealed the injunction.
The '216 patent is a counterpart of the British '511 patent.
Infringement proceedings brought by Chiron and Ortho were also pending
against Organon in Italy and Belgium (based on the '216 patent), and
in the U.K. (based on the British '511 patent), in proceedings
consolidated with the actions against Murex, described above. Chiron,
Ortho and Organon settled all European HCV litigation on October 9,
1995, and Chiron and Ortho were compensated for past infringement.
UBI did not participate in the settlement, and has been ordered to pay
Ortho Ltd. damages by the U.K. Court of Appeal, along with Murex, as
described above.

DANIEL W. BRADLEY. On December 20, 1994, 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. Subsequently, Bradley
dismissed the United States as a defendant. Bradley, who collaborated
with Chiron scientists on the research that led to the discovery of
HCV, alleges he has been wrongly excluded as an inventor of HCV. He
requests various forms of relief, including declarations that he is an
inventor of Chiron's patents related to HCV and that these patents are
unenforceable. Bradley further seeks monetary damages and a
constructive trust on all past and future profits derived from
Chiron's HCV invention, which are estimated by Bradley to be in excess
of $1 billion, as well as penalties under federal and state
Racketeering and Corrupt Organization (RICO) statutes. Chiron
believes Bradley's claims to inventorship and his suit are without
merit, and that substantial defenses exist. In 1990, Bradley and the
CDC entered into a settlement agreement regarding his claims of
inventorship in which any rights either might have were assigned to
Chiron. Chiron believes that the settlement agreement is valid and
bars nearly all of the claims in the subject litigation. Chiron and
the other defendants have filed a motion to dismiss. In a hearing on
November 3, 1995, the court stated that it will grant the motion to
dismiss Bradley's suit, but that Bradley will be given a limited leave
to file an amended complaint.

ABBOTT LABORATORIES. On December 13, 1993, Chiron filed a patent
infringement action against Abbott Laboratories ("Abbott") in the
United States District Court for the Northern District of California.
The suit, which alleges infringement of Chiron's U.S. Patent No.
5,156,949 ("the '949 patent"), claiming the use of recombinant
envelope antigens in immunoassays for HIV antibodies, is based on
Abbott's sale of unlicensed HIV immunoassay tests which are believed
to fall within the scope of one or more patent claims. Abbott is
defending this suit on the basis of invalidity and non-infringement.
Chiron is requesting unspecified damages and injunctive relief. Cross
motions for summary judgment on Abbott's defenses of inequitable
conduct and prior invention are currently pending. The court had
issued a tentative decision granting Abbott's motion for summary
judgment on invalidity due to prior invention. Subsequently, the
court heard further arguments on this issue and reversed itself,
denying Abbott's motion for summary judgment. Subsequently, the
United States Patent & Trademark Office declared an interference
between the '949 patent and an application owned by Centocor and the
U.S. government. Chiron is the junior party.

On April 26, 1994, Abbott filed suit against Chiron in the United
States District Court for the Northern District of Illinois, Eastern
Division, alleging that the Company has, by making, using and selling
nucleic acid hybridization assays, infringed three U.S. patents owned
by third parties and licensed to Abbott. Abbott is seeking injunctive
relief and damages in an unspecified amount. The Company believes
that it has substantial defenses and is defending this suit
vigorously.

STOCKHOLDER LITIGATION. In November 1994, Chiron, its directors,
and certain of its officers were sued in three essentially identical
actions filed as class actions on behalf of Chiron stockholders,
alleging that the directors had violated their fiduciary duty by
failing to maximize stockholder value in connection with the series of
transactions affected with Ciba-Geigy which were announced on November
20, 1994, by, among other things, not taking all possible steps to
seek out and encourage the best offer for the Company once the Company
had been put in play. Two of the actions filed respectively on
November 14, 1994 and November 22, 1994 (HANNA V. CHIRON CORP. ET AL.,
C.A. No. 13874, and DEZUBE V. CHIRON CORPORATION ET AL., C.A. No.
13896) were filed in the Court of Chancery of the State of Delaware in
and for New Castle County. The complaints in both cases ask for
injunctive relief, rescission and attorneys' fees. Plaintiff in the
HANNA action additionally seeks damages in an unspecified amount.
Plaintiff in the DEZUBE action additionally seeks an accounting. The
complaints have been answered by all defendants, who deny the material
allegations of the complaints. The third action was filed in the
Superior Court of California, Alameda County, Northern Division, on
December 1, 1994 (PERERA ET AL. V. CHIRON CORPORATION ET AL., Case
Action No. 744522-2). Plaintiff sought injunctive and declaratory
relief, and accounting, costs and disbursements, including attorneys'
and experts' fees, and other relief. The PERERA action has been
dismissed by stipulation and the plaintiffs have filed, on October 17,
1995, a new action against the same defendants and Ciba-Geigy, Ltd. in
the U.S. District Court for the Northern District of California. The
defendants intend to defend vigorously these matters.

The Company is party to certain other lawsuits, each of which is
described in Item 3, Legal Proceedings, on page 9 of the Company's
report on Form 10-K for the period ended December 31, 1994, in Item 1,
Legal Proceedings, on page 24 of the Company's report on Form 10-Q for
the period ended April 2, 1995, and in Item 1, Legal Proceedings on
page 24 of the Company's report on Form 10-Q for the period ended July
2, 1995, and as to which lawsuits there have been no material
developments since such Form 10-K and Forms 10-Q were filed.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------

GENERAL

Chiron Corporation (the "Company" or "Chiron") is a diversified, science-driven
healthcare company that applies biotechnology and other techniques of modern
biology and chemistry to develop, produce and sell products intended to improve
the quality of life by diagnosing, preventing and treating human disease. Chiron
participates in four global healthcare markets: diagnostics, including
immunodiagnostics, critical care diagnostics and new quantitative probe tests;
therapeutics, with an emphasis on oncology and infectious disease; pediatric and
adult vaccines; and ophthalmic surgical products for the correction of vision.

ACQUISITIONS

As discussed further in Note 2 of Notes to Consolidated Financial Statements,
on January 1, 1995, Chiron entered into a series of agreements with
Ciba-Geigy Limited of Basel, Switzerland ("Ciba"), including an investment
agreement, a cooperation and collaboration agreement and a governance
agreement (collectively the "Agreements"). Ciba acquired a 49.9 percent
ownership interest in Chiron common stock (now approximately 48 percent). At
the same time, Chiron acquired all of the outstanding common stock of Ciba
Corning Diagnostics Corp. ("CCD") and Ciba's interests in The Biocine Company
(subsequently renamed "Chiron Biocine Company," hereinafter referred to as
"Chiron Biocine Company") and JV Vax B.V. (a Netherlands company which owns
Biocine S.p.A.) in exchange for 6.6 million newly-issued Chiron common shares
and a cash payment of $24 million. The acquisitions of CCD and Ciba's
interests in Chiron Biocine Company and JV Vax B.V. (the "Acquisitions") were
accounted for under the purchase method of accounting and resulted in a $223
million charge to earnings in the first nine months of 1995 to expense
purchased in-process technology. The results of operations of CCD, Biocine
S.p.A. and Chiron Biocine Company are included in Chiron's consolidated
operating results from January 1, 1995, forward. Chiron's share of the
operating results of Biocine S.p.A. and Chiron Biocine Company were included
in the Company's 1994 operating results under the equity method of accounting.

In connection with the Agreements, Ciba has agreed to guarantee $425 million
of new debt for Chiron and has agreed to provide $250 million (which may be
increased up to $300 million subject to certain reductions in the debt
guarantee) over five years in support of research at Chiron, and Chiron has the
option of issuing up to $500 million of new equity to Ciba.

During the third quarter of 1995, Chiron and Ciba entered into an investment,
research support and marketing agreement to utilize research funding provided
by Ciba, as discussed above. Under the terms of the agreement, Ciba will
fund from time to time, at Chiron's request, research and development efforts
for certain adult vaccines currently under development. In return, Ciba will
receive an interest in a stream of variable royalties in potential worldwide
sales and also in promotional rights in countries other than those in North
America and Europe, for such vaccines. The interests in royalties are to be
acquired by Ciba through ownership of a newly organized subsidiary of Chiron.
Royalties will be paid, on a country by country basis, for the later of ten
years or to the date of expiration of applicable product patents. Royalties
generated from product sales prior to the year 2000 will be reinvested in
funding ongoing research and development of the vaccines.

<PAGE>

collaborative agreement revenues. Prior to further funding by Ciba, however,
Chiron and Ciba have agreed to negotiate a restructuring of the agreement to
include royalty rights for one or more additional Chiron products. Chiron
anticipates receiving additional funding from Ciba in future periods, pursuant
to the terms of the restructured agreement.

As discussed further in Note 2 of Notes to Consolidated Financial Statements, on
March 31, 1995, Chiron Vision acquired the surgical division of IOLAB from
Johnson & Johnson for approximately $96 million. The acquisition was accounted
for under the purchase method of accounting, and resulted in a $10 million
charge to earnings in the first quarter of 1995 to expense purchased in-process
technology. The Company recorded additional charges for restructuring and
integration-related expenses totaling $17 million. IOLAB's results of
operations are included in Chiron's consolidated operating results from March
31, 1995, forward.

As discussed further in Note 2 of Notes to Consolidated Financial Statements, on
September 29, 1995, Chiron acquired all the outstanding common stock of Viagene
in exchange for approximately $36 million in cash and 916,000 shares of Chiron
common stock. Additionally, on September 29, 1995, unexercised options to
purchase Viagene common stock were converted into options to purchase
approximately 132,000 shares of Chiron common stock. The acquisition was
accounted for under the purchase method of accounting and resulted in an
approximately $130 million charge to earnings in the third quarter of 1995 to
expense purchased in-process technology. Viagene's results of operations are
included in Chiron's consolidated operating results from September 29, 1995,
forward.

RESULTS OF OPERATIONS

REVENUES

PRODUCT SALES

The Company's revenues are derived from a variety of sources, including product
sales, joint business arrangements, collaborative agreements and product royalty
agreements. Product sales, Chiron's largest revenue category, consists of the
following product lines for the three-month and nine-month periods ended
September 30:

THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Diagnostic products $ 131.2 $ 6.3 $ 396.5 $ 15.6
Ophthalmic products 45.9 28.0 122.6 74.7
Betaseron-Registered
Trademark- sales 18.5 33.2 42.7 61.4
Vaccine products 18.2 -- 53.7 --
Oncology products 15.8 12.4 43.8 31.9
Other products 0.7 1.9 3.3 4.1
---------- ---------- ---------- ----------
$ 230.3 $ 81.8 $ 662.6 $ 187.7
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

</TABLE>

As a result of the January 1995 acquisition of CCD, diagnostic product sales now
represent the largest component of product sales. CCD had sales of $125.3
million and $374.6 million for the three and nine months ended September 30,
1995, respectively. CCD's product sales for the three and nine months ended
September 30, 1994, which are not included in Chiron's 1994 results, were $110.9
million and $317.4 million, respectively. CCD product sales include direct
sales and sales-type leases of CCD's fully-automated random-access
immunodiagnostic (ACS) testing systems and reagents for these systems, as well
as sales of critical blood analyte systems, clinical chemistry products and
manual immunodiagnostic systems. Both of CCD's major product lines (ACS
diagnostic systems and critical blood analyte systems)

<PAGE>

experienced increased sales when compared to the prior year, particularly as
favorable foreign currency rates added to reported revenues. Sales of
diagnostic systems often include the sale of service and maintenance contracts.
Revenue from these contracts is included in product sales revenue and is
recognized ratably over the life of the contracts.

Diagnostic product sales also include sales of nucleic acid probe products and
instrumentation and sales of antigens and RIBA-Registered Trademark- tests.
Nucleic acid probe products are sold at cost to Daiichi Pure Chemical Co., Ltd.
("Daiichi"), which markets the product in Japan and pays Chiron a royalty based
upon its sales of the product. Nucleic acid probe products are also sold by
Chiron on a research-use only basis in the United States and Europe. Antigens
and RIBA-Registered Trademark- test kits are sold at cost to Ortho Diagnostic
Systems, Inc. ("Ortho"), Chiron's partner in a joint diagnostic business.

Sales of ophthalmic surgical products increased between years largely due to the
impact of the May 1994 acquisition of Laboratoires Domilens S.A. ("Domilens")
and the March 1995 acquisition of the surgical division of IOLAB. As a result
of these acquisitions, total intraocular lens sales have increased by 36 percent
and 59 percent in 1995 over the respective three-month and nine-month periods of
1994, while phacoemulsification and new viscoelastic products have added
significant incremental revenues in those product lines.

Betaseron-Registered Trademark- sales decreased between years for the third
quarters of 1994 and 1995, and on a year-to-date basis. These fluctuations
occurred primarily due to a change in the supply agreement between Chiron and
its marketing partner, Berlex Laboratories, Inc. ("Berlex"). During 1994,
Chiron operated under an amended supply agreement whereby Chiron recognized
substantially all of its Betaseron-Registered Trademark- revenue at the time of
shipment to Berlex. Chiron exercised its option to revert to the terms of an
original supply agreement effective January 1, 1995. Under those original
terms, Chiron earns a partial payment for Betaseron-Registered Trademark- upon
shipment to Berlex and a subsequent final payment based upon Berlex's net sales
of the product. Additionally, total vials sold to Berlex during the third
quarter of 1995 are 15 percent lower than the third quarter of 1994. On a year-
to-date basis, total vials sold to Berlex in 1995 increased slightly over the
prior year; however, reported revenues declined due to the change in the supply
agreement with Berlex. Chiron anticipates that total 1995 vials sold to Berlex
will be slightly below 1994 levels, but reported Betaseron-Registered Trademark-
revenues will be approximately $30 million lower than in 1994 due to the change
in the supply agreement.

Vaccine product sales consist of sales of pediatric and adult vaccines primarily
in Italy and to public health organizations by the Company's Biocine S.p.A.
subsidiary. Biocine S.p.A.'s vaccine products include Acelluvax-Registered
Trademark-, a recombinant acellular pertussis vaccine; Agrippal-Registered
Trademark-, a flu vaccine; and Polioral-Registered Trademark-, an oral polio
vaccine. Sales of Biocine S.p.A.'s flu vaccine are seasonal, with strong sales
generally occurring during the pre-flu season in the fourth quarter of the year.
Biocine S.p.A.'s product sales for the three and nine months ended September 30,
1994, which are not included in Chiron's 1994 results, were $12 million and $37
million, respectively.

Sales of oncology products, principally Proleukin-Registered Trademark-,
increased between 1994 and 1995 for both the three-month and nine-month periods
due to an increase in vials sold in both the European and domestic markets as
well as a change in the European market mix resulting in increased sales in
markets with higher unit selling prices.

The Company markets many of its commercial products internationally. As a
result, product revenues in almost all product lines are affected by fluctuating
foreign currency exchange rates. Foreign product sales were approximately
$125.6 million and $373.0 million for the three-month and nine-month periods
ended September 30, 1995, versus $20.4 million and $46.6 million for the three-
month and nine-month periods ended September 30, 1994. International sales of
diagnostic products by CCD and vaccine sales by

<PAGE>

Biocine S.p.A. accounted for substantially all of the increase in foreign
product sales. Product sales would have been approximately four percent lower in
1995 for each of the respective three-month and nine-month periods if currency
exchange rates had remained the same as the comparable periods of 1994. For the
three-month and nine-month periods ended September 30, 1995, 55 percent and 56
percent, respectively, of Chiron's total product sales are denominated in
foreign currencies as opposed to 25 percent for each of the same periods of
1994. The Company's other revenues, discussed below, are largely denominated in
U.S. dollars.

EQUITY IN EARNINGS OF JOINT BUSINESSES

As of September 30, 1995, Chiron holds a 50 percent interest in two joint
businesses: a joint diagnostic business with Ortho and a generic cancer
chemotherapeutics business with Ben Venue Laboratories, Inc. Chiron's interest
in the pretax operating earnings of its joint diagnostic business with Ortho
represents the largest component of joint business revenues. Approximately
80 percent of the sales of the Chiron-Ortho joint business arise from sales of
HCV blood screening tests. The joint business also receives a royalty from
Abbott Laboratories ("Abbott") for Abbott's sales of HCV tests which use Chiron
technology and which compete directly with tests marketed by Ortho. Chiron's
share of the profits of the joint business on a year-to-date basis in 1995 was
slightly above that of 1994. On a quarterly basis, profits from the joint
business decreased in 1995 compared to 1994 due to reduced sales to foreign
affiliates.

COLLABORATIVE AGREEMENT REVENUES

Collaborative agreement revenues consist of fees received for research services
as they are performed, fees received for completed research or technology, fees
received upon attainment of benchmarks specified in the related research
agreements, and proceeds of sales of biological materials to research partners
for clinical and preclinical testing. Collaborative agreement revenues
decreased from the prior year periods due to the January 1995 acquisition of
Ciba's interest in Chiron Biocine Company, Chiron's joint vaccine venture with
Ciba. Prior to the acquisition, Chiron received reimbursement for its vaccine
research expenses from Chiron Biocine Company and recorded such reimbursement as
collaborative agreement revenue. After the acquisition, Chiron Biocine Company
became a wholly-owned subsidiary of Chiron and thus no longer provides research
revenues to Chiron. In the three-month and nine-month periods ended September
30, 1994, Chiron recognized revenues of $8.5 million and $32.5 million,
respectively, from Chiron Biocine Company. Further contributing to the decrease
in collaborative agreement revenues was the completion of a nucleic acid probe
development program with Daiichi and a payment received as reimbursement from a
collaborative research partner, each of which provided first quarter 1994
revenues of $3 million.

As discussed previously, during the third quarter of 1995, Chiron and Ciba
entered into an investment, research and marketing agreement to utilize the
research funding provided by Ciba. Under the terms of this agreement,
Chiron received $12 million of funding from Ciba which was recorded as
collaborative agreement revenues. Chiron anticipates that this funding
source will be utilized for research programs in future periods as well,
pursuant to the terms of the restructured agreement discussed previously.

OTHER REVENUES

Other revenues consist principally of product royalties, service fees,
government grants and sales fees earned by the Company for sales and marketing
services rendered on behalf of its generic chemotherapeutics joint venture and
on behalf of Ciba. Increased royalty revenues for the sale of recombinant human
insulin and Japanese sales of nucleic probe products accounted for most of the
increase in other revenues for the third quarter of 1995. For the nine-month
period of 1995, in addition to the items

<PAGE>

noted previously, the increase was also due to sales fees received from Ciba for
sales of Aredia-Registered Trademark-, for which Chiron began earning sales fee
revenue in late 1994.

COST AND EXPENSES

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased significantly between 1994 and 1995,
largely due to the acquisitions of CCD and Biocine S.p.A. CCD and Biocine
S.p.A. together added $22.8 million and $65.1 million in incremental research
and development expenses for the three-month and nine-month periods ended
September 30, 1995, respectively. Also included in the third quarter of 1995 is
a payment of $16.4 million related to the funding of certain collaboration
expenses and the purchase of additional program rights from Cephalon Inc., an
existing collaboration partner. During the first nine months of 1995, the
Company entered into several new collaboration arrangements and funded
development expenses in a number of its existing collaborative arrangements with
other pharmaceutical and biotechnology companies for the research, development
and marketing of certain technologies and products. As part of these
collaborative arrangements, Chiron has made various investments in the equity
securities of the collaborative partners and, in some cases, agreed to provide
specified levels of funding to the collaboration. As discussed further in Note 4
of Notes to Consolidated Financial Statements, new collaborative arrangements
entered into by Chiron during the first nine months of 1995 include the
following:

- - In March 1995, the Company reached an agreement with Progenitor, Inc.
("Progenitor"), a subsidiary of Interneuron Pharmaceuticals, Inc., to
collaborate in the development and commercialization of therapeutic and
vaccine products incorporating Progenitor's proprietary gene therapy
technology. Under the agreement, Chiron received a license to Progenitor's
nonviral gene expression system for use in the development of products for
the treatment of certain cancers, cardiovascular disorders, development of
infectious disease vaccines and for development of certain other gene
therapy products. Chiron will have the right to manufacture and market any
resulting products of the collaboration. In return for the license and
other rights, Chiron made certain financial commitments to Progenitor. In
addition, Progenitor will receive a royalty from any commercial sales of
products resulting from the collaboration.

- - In March 1995, the Company reached an agreement with Genelabs Technologies,
Inc. ("Genelabs"), whereby Chiron and Genelabs cross-licensed certain
rights to hepatitis C virus ("HCV"), hepatitis G virus ("HGV"), human T-
cell leukemia virus - I ("HTLV-I") and human T-cell leukemia virus - II
("HTLV-II") diagnostic tests. Under the agreement, Chiron acquired certain
rights to develop and market diagnostic products for the detection of HGV,
HTLV-I and HTLV-II. In return, Genelabs acquired development and marketing
rights in Asia, except Japan, for certain products incorporating Chiron's
HCV technology. Ortho, Chiron's joint diagnostic business partner, has
agreed to participate as Chiron's equal partner in the collaboration with
Genelabs and therefore will share equally in all payments under the
agreement, including equity investments.

- - In March 1995, the Company reached an agreement with New York University
("NYU") under which Chiron acquired rights to optical mapping technology
for use by Chiron and its sublicensee, Ciba, in development of diagnostics,
therapeutics and vaccines. Chiron also acquired the right to commercialize
a potential optical mapping instrument. In exchange for these rights,
Chiron and Ciba made certain financial commitments to NYU.

Incremental research and development expense recognized as a result of the
Company's funding of its third party collaborations, including the new
agreements with Genelabs, Progenitor and NYU, during the third quarter and first
nine months of 1995 totaled $16 million and $53 million, respectively.

<PAGE>

With respect to Chiron's in-house research and development programs, Chiron
continued to devote substantial resources to its vaccine programs, growth factor
and nucleic acid therapeutics programs and internal biological and chemical
therapeutics programs. During the remainder of 1995, the Company expects that
research and development expense will remain significantly higher than prior
years due to the impact of the acquisitions and continued expenses in all of its
collaborations. Product development, manufacturing start-up, and regulatory
expenses may also increase in future periods as Chiron's products in development
advance towards commercialization.

COST OF SALES

Cost of sales increased consistent with the increase in product sales between
years. The gross profit margin of 55 percent for both the third quarter and the
first nine months of 1995 was comparable to the gross profit margins for the
same periods in 1994. The gross profit margin was affected negatively
throughout 1995 as a result of a reversion to the original Betaseron-Registered
Trademark- supply agreement discussed previously and operating expenses
associated with the idled Puerto Rico facility. Offsetting this downward
pressure was the addition of CCD's and Biocine S.p.A.'s product sales in 1995.
Gross profit margin percentages may fluctuate significantly in future periods as
the Company's product mix continues to evolve.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A expenses") increased between
1994 and 1995 for both the three-month and nine-month periods ended September
30, 1995, largely due to the impact of the acquisitions of CCD and Biocine
S.p.A., which together added $50 million and $146 million of primarily selling
and marketing expenses for the three-month and nine-month periods, respectively.
SG&A expenses in the ophthalmic business were also significantly higher on a
year-to-date basis in 1995 due to the acquisitions of Domilens and IOLAB and
increased costs related to the ophthalmic sales force arising from the
integration of Chiron Vision's operations with IOLAB.

OTHER EXPENSES

In the third quarter of 1995, the write-off of purchased in-process technology
consists primarily of $130 million related to the acquisition of Viagene. In
the first nine months of 1995, the write-off of purchased in-process technology
also includes $223 million for the acquisitions of CCD, Biocine S.p.A. and
Chiron Biocine Company, $10 million for the acquisition of IOLAB and $2 million
for the acquisition of Technolas GmbH.

Costs related to the Ciba transaction consist primarily of employee payments and
related tax liabilities and legal and investment advisor fees. Under the
agreements reached with Ciba, Ciba has reimbursed the Company $25 million for a
portion of the employee payments and such reimbursement has been recorded as a
capital contribution.

Restructuring and reorganization costs in the first nine months of 1995
represent certain accrued costs of integrating the acquired businesses with
Chiron's existing businesses, costs related to the idling of the Company's
Puerto Rico manufacturing facility and the scaling-back of manufacturing
operations at the Company's Amsterdam facility, and costs related to the write-
down of duplicate facilities at the Company's Emeryville, California,
headquarters. Also included is a charge related to the change in plans to
expand the Company's Emeryville research and administrative facilities. Of the
$39 million in total charges in the first nine months of 1995, approximately $23
million related to write-downs of assets. The remaining charges of $16 million
consist of employee costs of $7 million and other accrued costs of $9 million
primarily for

<PAGE>

lease termination costs, additional tax obligations and the costs of the
change in plans for expansion of the Company's research and administrative
facilities. The majority of the accrued costs are expected to be paid through
1996.

Other income (expense), net, consists primarily of investment income on the
Company's cash and investment balances, interest expense related to debt and
capital leases, and a gain of $3 million on the sale of property. Other income
(expense) decreased between 1994 and 1995 on both a quarterly and year-to-date
basis due to increased interest expense resulting from the acquired debt of CCD
and Biocine S.p.A. and a reduction of interest capitalization on the Company's
capital projects.

The provision for income taxes in the third quarter and the first nine months of
1995 consists primarily of foreign taxes on certain foreign operations of the
Company. Substantially all of the write-off of purchased in-process
technologies is not deductible for income tax purposes and thus does not create
a tax benefit in 1995. The provision for income taxes in 1994 was based on the
estimated annual effective income tax rate. The income tax provision changed
between periods primarily due to the acquisition of foreign operations which
were not included in 1994 results.

OUTLOOK

Profitability of the Company depends upon a number of factors. These factors
include: successful integration of newly acquired businesses with Chiron;
continued profit contribution from CCD and the newly integrated ophthalmic
business; continuation of substantial profit contribution from the
Chiron-Ortho joint business; continued product sales of Betaseron-Registered
Trademark- in the United States and Proleukin-Registered Trademark-
worldwide; and the successful completion of clinical trials and subsequent
FDA approval for commercialization of additional vaccines, diagnostics and
pharmaceuticals under development. There can be no assurance whether any
combination of these factors can be achieved, or that any such combination
will result in profitability of the Company. The integration of CCD, Chiron
Biocine Company, Biocine S.p.A., IOLAB and Viagene will have a material
impact on the results of operations of the Company going forward. Although
the Company has recorded the majority of the expected cost of these
integrations in the first quarter of 1995, the Company expects to incur
additional charges in subsequent quarters as these integrations are
completed. Profitability of the Company is also dependent on the continued
utilization of research funding available from Ciba.

Achievement and maintenance of profitability are substantially dependent upon
the success of Chiron's collaborations with others. Under the joint business
agreement with Ortho, Chiron and Ortho together determine strategy and
budgets for their joint diagnostics business, but Ortho conducts all
commercial activities, except research and antigen manufacturing, and
exercises broad control over the conduct of day-to-day operations. The
Company is also dependent upon Schering AG, Germany, and its U.S. affiliate,
Berlex, for development, marketing and distribution of Betaseron-Registered
Trademark-. There can be no assurance that the corporate interests of Berlex
and Ortho, or any other corporate partners, are or will remain consistent
with those of Chiron or that any collaborator will succeed in developing new
markets or retaining and expanding the markets served by the commercial
collaborations.

In addition, Chiron's 50 percent share of the operating earnings of the
Chiron-Ortho joint business has been a significant source of Chiron's
revenues. The market for immunodiagnostic viral screening tests has evolved
rapidly since the introduction of HCV tests by the Chiron-Ortho joint
business and by Abbott. The joint business may be adversely affected in
future periods by increasing margin pressures, the overall demand for current
tests and new diagnostic products, and by the introduction of competing tests
by unlicensed third parties.

Furthermore, other Chiron programs will require substantial additional
investment including the cost of funding collaborative research arrangements
with third parties, the cost of clinical trials, the completion of commercial
scale manufacturing facilities, and marketing and sales expenses associated
with product introductions. Chiron is required to fund 50 percent of the
joint expenses of its collaboration with Cephalon and expects these expenses
to increase as the parties accelerate efforts to gain regulatory approval and
prepare to commercialize Myotrophin-Trademark- in the United
States. Also, the acquisition and integration of Viagene will result in
increased research and development expenses in future periods. Chiron has
significantly expanded its manufacturing capability to support both approved
products and products in development which has resulted in higher levels of
operating expenses and depreciation, and may result in even higher levels of
operating expenses in future periods. The research, development and market
introduction of new products will require the application of considerable
technical and financial resources by Chiron, while revenues generated from
such products, assuming they are successfully developed, may not be realized
for several years. Other material and unpredictable factors which could
affect operating results include the uncertainty, timing and costs associated
with product approvals and commercialization; the issuance and use of patents
and proprietary technology by Chiron or its competitors; the effect of
technology and other business acquisitions or transactions; the increasing
emphasis on controlling healthcare costs and potential legislation or
regulation of healthcare pricing; and actions by collaborators, customers and
competitors.

Chiron exercised its option to revert to the terms of the original
Betaseron-Registered Trademark- supply agreement effective January 1,
1995. Under those original terms, Chiron earns a partial payment for
Betaseron-Registered Trademark- upon shipment to Berlex and a subsequent
final payment based upon Berlex's net sales of the product. Total 1995
shipments of Betaseron-Registered Trademark- are expected to be slightly
below 1994 levels. Total 1995 revenues from Betaseron-Registered Trademark-
shipments are expected to be lower than 1994 revenues by approximately
$30 million as a result of the reversion to the original supply agreement.
Due to issues of inventory management, it is anticipated that vials shipped by
Chiron to Berlex may decrease between 1995 and 1996. There may also be royalties
from European sales during 1996.

In March 1995, the Company decided to idle its Puerto Rico facility and
scale-back the manufacturing operations at the Company's Amsterdam facility.
This decision was based on the belief that current demand for
Betaseron-Registered Trademark- can be adequately supplied with the expanded
manufacturing capacity at the Company's Emeryville, California, facility.
Utilization of this idled manufacturing capacity will require a significant
increase in Betaseron-Registered Trademark- demand and/or the introduction of
new products which would require significant similar manufacturing capacity.

The market price of the Company's common stock is subject to significant
volatility, particularly on a quarterly basis. Any shortfall in revenue or
earnings from levels expected by securities analysts could have an immediate
and significant adverse effect on the trading price of the Company's stock in
any given period. Additionally, announcements of technological innovations by
the Company or its competitors, developments concerning proprietary rights,
public concern as to the safety of biotechnology and economic or other
external factors may have a significant impact on the market price of the
Company's common stock. The Company does not currently believe that inflation
has a significant impact upon its business.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Chiron's capital requirements are funded from public and private sales of equity
and convertible debt and cash provided by operations. In addition to these
sources of capital, future capital requirements will be financed through a
combination of debt, utilization of funding from Ciba, possible
off-balance-sheet financing (such as R&D limited partnerships), cash generated
from operations and the use of existing cash and investment balances. Until
required for operations, Chiron's policy is to keep its cash and investments in
a diversified portfolio of investment grade financial instruments, including
money market instruments, corporate notes and bonds, government or government
agency securities, or other debt securities. By policy, the amount of credit
exposure to any one institution is limited. These investments are generally not
collateralized and primarily mature within three years. Investments with
maturities in excess of one year are presented on the balance sheet as
noncurrent investments. To the extent that Chiron has balance sheet exposure
resulting from completed transactions denominated in foreign currency, the
Company's policy is to mitigate exposure to exchange rate changes by entering
into forward currency contracts. These contracts are settled quarterly. At
September 30, 1995, the Company had outstanding forward currency contracts
totaling approximately $56 million.

Over the next several years, Chiron anticipates funding collaborations with a
number of its research partners. During the first nine months of 1995, the
Company funded $53 million related to third party collaborations structured in
the form of additional equity investments and/or development expenses.

In future periods, Chiron expects to incur substantial capital spending as the
Company begins expansion of its administrative, research and development
facilities in Emeryville. This expansion is projected to occur in stages over
the next thirty years. Additionally, capital expenditures for manufacturing
facilities outside of Emeryville will continue, consistent with the Company's
commitment to expand manufacturing capacity.

During the nine months ended September 30, 1995, cash and cash equivalents
decreased by approximately $16 million. Approximately $53 million was used in
the Company's operating activities, compared to $2 million provided by operating
activities in the first nine months of 1994.

Investing activities consumed cash of $33 million during the first nine months
of 1995, versus $96 million in 1994. The first nine months of 1995 included the
acquisition of IOLAB and Viagene for $125 million in cash (net of cash acquired
of $7 million) and net sales of marketable debt securities of $157 million,
compared to net sales of marketable debt securities of $33 million in the first
nine months of 1994. Capital expenditures on plant and equipment were
$71 million during 1995 versus $81 million in 1994. The Company also made
investments in the equity securities of collaborative partners totaling $6
million in the first nine months of 1995 and $19 million in the corresponding
period of 1994.

Cash provided by financing activities in the first nine months of 1995 of $69
million includes a $25 million capital contribution by Ciba to fund certain
payments to employees which resulted from the agreements with Ciba and $31
million from the issuance of common stock under the Company's employee benefit
plans. In March 1995, the Company borrowed $40 million under a line of credit
arrangement, representing the first utilization of the debt guarantee provided
by Ciba. During September 1995, Chiron repaid $30 million of borrowings under
the line of credit. In addition, as part of the acquisitions, Chiron assumed
approximately $96 million in debt of CCD. This debt consists primarily of
short-term borrowings under foreign line of credit arrangements and a long-term
loan with Ciba.

<PAGE>

Chiron believes that its cash and cash equivalents and short and long-term
investments, together with funds provided by operations and funding arrangements
with Ciba will be sufficient to meet its cash requirements during the upcoming
twelve months.

<PAGE>

ITEM 1. LEGAL PROCEEDINGS

SUMMIT. On September 29, 1994, Summit Technology Ireland B.V., a
subsidiary of Summit Technology, Inc., a manufacturer of ophthalmic
lasers, filed a patent infringement action in the Regional Court of
Dusseldorf, Germany, against two German subsidiaries of Chiron Vision,
Chiron Technolas and Chiron Adatomed, and their respective managing
directors. The suit alleged that the manufacture and sale in Germany
of the Technolas-Trademark- Keracor-Trademark- 116 excimer laser
infringe the class of a patent held by Summit. Summit sought
injunctive relief and damages which it estimated at DM 2 million. On
August 3, 1995, the German court granted judgment in favor of Summit,
granted an injunction against defendants' further infringement and
awarded damages for past infringement in an amount to be determined.
On September 1, 1995, Summit enforced the judgment and the injunction
by posting security in the amount of DM 2 million. The Company has
appealed the Regional Court's decision. Chiron Technolas, Chiron
Vision's sole source of ophthalmic lasers, continues to manufacture
ophthalmic excimer lasers which are distributed by Chiron Vision and
its subsidiaries. The Company believes these activities are outside
the scope of the judgment and injunction of the German Regional Court.
The Company has also initiated a separate judicial action in Germany
seeking to invalidate Summit's patent.

MUREX DIAGNOSTICS, LTD. In a series of actions, the first of
which was brought on March 2, 1992, Chiron together with Ortho
Diagnostic Systems, Inc. ("Ortho") and Ortho Diagnostic
Systems, Ltd. ("Ortho Ltd."), filed suit in the High Court for
England and Wales against Murex Diagnostics, Ltd. ("Murex"),
alleging infringement of Chiron's U.K. Patent No. 2,212,511
("the '511 patent") as a result of Murex's manufacture and
sale of HCV immunoassay kits in the U.K. Murex is a subsidiary
of International Murex Technologies Corp., a Canadian company.
Chiron and Ortho sought injunctive relief and unspecified
damages. On May 27, 1994, the court granted judgment for
Chiron and Ortho, holding the '511 patent valid and infringed,
and ordered Murex to pay damages in an amount to be
determined. Chiron's and Ortho's request for an injunction
was granted on November 30, 1994. A damages inquiry is
scheduled for July 1996. Both Murex and the Chiron/Ortho
parties appealed various aspects of the High Court's judgment.
In a series of rulings on November 2 and 7, 1995, the U.K.
Court of Appeal held that, with the exception of one claim,
the '511 patent is valid, that Chiron could amend the patent
and proceed with the damages inquiry, and that, contrary to
the High Court's ruling, Murex did not have a defense with
respect to Ortho Ltd. for damages prior to October 13, 1993.
The parties may apply for leave to appeal to the House of
Lords. Chiron is informed that officials within the British
Ministry of Health have in the past raised the possibility of
authorizing Murex's infringement of the `511 patent under the
"Crown use" provisions of British law, with respect to the
sale of HCV immunoassay kits to the British National Health
Service. Further, Murex has stated that it will apply for a
compulsory license under the '511 patent. Infringement
proceedings against Murex on German and European patents
corresponding to the '511 patent have also been filed by
Chiron and Ortho in Germany, Italy, The Netherlands and
Belgium. On January 23, 1995, Chiron and Ortho were granted an
injunction in Germany. On May 8, 1995, Chiron was granted a
cross-border preliminary injunction by the Dutch court
preventing infringement by Murex and certain of its affiliates
covering The Netherlands, Belgium, France, Spain and
Luxembourg. Murex has brought an action in Australia seeking
the revocation of the Australian counterpart of the '511
patent. Chiron has counterclaimed for infringement.

ITEM 2. CHANGES IN SECURITIES. None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.

ITEM 5. OTHER INFORMATION. None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS.

2.01 Agreement and Plan of Merger, made as of
February 6, 1987, incorporated by reference to
Exhibit 2.01 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.

3.01 Restated Certificate of Incorporation of the
Registrant, dated August 18, 1987, incorporated
by reference to Exhibit 3.01 of the Registrant's
Form 10-K report for fiscal year 1991.

3.02 Certificate of Amendment of Restated Certificate
of Incorporation of the Registrant, dated
December 12, 1991, incorporated by reference to
Exhibit 3.01 of the Registrant's Form 10-K
report for fiscal year 1991.

3.03 Bylaws of the Registrant, as amended,
incorporated by reference to Exhibit 3.03 of the
Registrant's Form 10-K report for fiscal year
1994.

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,
incorporated by reference to Exhibit 4.02 of the
Registrant's Form 10-K report for fiscal year
1992.

<PAGE>

4.03 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.

4.04 Rights Agreement, dated as of August 25, 1994,
between the Company and Continental Stock
Transfer & Trust Company, which includes the
Certificate of Designations for the Series A
Junior Participating Preferred Stock as Exhibit
A, the form of Right Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred
Shares as Exhibit C, incorporated by reference
to Exhibit 4.04 of the Registrant's current
report on Form 8-K dated August 25, 1994.

4.05 Amendment No. 1 to Rights Agreement dated as of
November 20, 1994, between Chiron Corporation
and Continental Stock Transfer & Trust Company,
incorporated by reference to Exhibit 4.05 of the
Registrant's current report on Form 8-K, dated
November 20, 1994.

4.06 $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).

4.07 $1,000,000 Walpole Industrial Development
Authority 6.75% Industrial Revenue Bonds dated
as of July 1, 1979, due July 1, 2004,
incorporated by reference to Exhibit 4.07 of the
Registrant's Form 10-Q report for the period
ended April 2, 1995. The Registrant agrees to
furnish to the Commission upon request a copy of
such agreement which it has elected not to file
under the provisions of Regulation
601(b)(4)(iii).

10.01 Lease between Registrant and BGR Associates, a
California limited partnership, dated May 26,
1989, incorporated by reference to Exhibit 10.01
of the Registrant's Form 10-Q report for the
period ended September 30, 1994.

10.02 Lease between Registrant and BGR Associates II,
a California limited partnership, dated May 26,
1989, incorporated by reference to Exhibit 10.02
of the Registrant's Form 10-Q report for the
period ended September 30, 1994.

10.03 Agreement and Plan of Merger dated as of April
23, 1995 between Viagene, Inc., a Delaware
corporation, and Chiron Corporation,
incorporated by reference to Exhibit 10.67 of
the Registrant's current report on Form 8-K
dated April 24, 1995.

<PAGE>

10.04 Stockholders' Agreement dated as of April 23,
1995 among certain stockholders of Viagene,
Inc., a Delaware corporation, and Chiron
Corporation, incorporated by reference to
Exhibit 10.68 of the Registrant's current report
on Form 8-K dated April 24, 1995.

10.05 Stock and Asset Purchase Agreement dated as of
March 6, 1995, by and among Johnson & Johnson, a
New Jersey corporation, Site Microsurgical
Systems, Inc., a Pennsylvania corporation, and
Chiron Corporation and Amendment No. 1 to Stock
and Asset Purchase Agreement, entered into March
31, 1995 by and among Johnson & Johnson, Site
Microsurgical Systems, Inc. and Chiron
Corporation, incorporated by reference to
Exhibit 10.05 of the Registrant's Form 10-Q
report for the period ended April 2, 1995.

10.06 Revolving Credit Facility dated as of March 24,
1995, between Chiron Corporation and Swiss Bank
Corporation, San Francisco Branch, incorporated
by reference to Exhibit 10.06 of the
Registrant's Form 10-Q report for the period
ended April 2, 1995.

10.07 Lease between Acorn Development, Inc., a West
Virginia corporation, and IntraOptics, Inc., a
Delaware corporation, dated September 12, 1991,
incorporated by reference to Exhibit 10.06 of
the Registrant's Form 10-K report for fiscal
year 1992.

10.08 Joint Venture Agreement by and between Chiron
Biocine Corporation, a California corporation,
and CIBA-GEIGY Biocine Corporation, a Delaware
corporation, dated April 15, 1987 (with certain
confidential information deleted), incorporated
by reference to Exhibit 10.23 of the
Registrant's Form 8 filed with the Commission on
February 14, 1992.

10.09 Amendment to Biocine Joint Venture Agreement by
and between Chiron Biocine Corporation, a
California corporation, and CIBA-GEIGY Biocine
Corporation, a Delaware corporation, effective
as of January 1, 1992, incorporated by reference
to Exhibit 10.63 to Registrant's Form 10-Q
report for the period ended June 30, 1992.

10.10 Research and License Agreement by and between
Registrant and The Biocine Company, a Delaware
partnership, dated April 15, 1987 (with certain
confidential information deleted), incorporated
by reference to Exhibit 10.24 of the
Registrant's Form 8 filed with the Commission on
February 14, 1992.

<PAGE>

10.11 License Agreement by and between CIBA-GEIGY
Biocine Corporation, a Delaware corporation, and
The Biocine Company, a Delaware partnership,
dated April 15, 1987 (with certain confidential
information deleted), incorporated by reference
to Exhibit 10.25 of the Registrant's Form 8
filed with the Commission on February 14, 1992.

10.12 License Agreement by and between Chiron Biocine
Corporation, a California corporation, and The
Biocine Company, a Delaware partnership, dated
April 15, 1987 (with certain confidential
information deleted), incorporated by reference
to Exhibit 10.26 of the Registrant's Form 8
filed with the Commission on February 14, 1992.

10.13 Letter Agreement signed by CIBA-GEIGY
Corporation, dated April 15, 1987, incorporated
by reference to Exhibit 10.13 of the
Registrant's Form 10-Q report for the period
ended September 30, 1994.

10.14 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.

10.15 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.

10.16 Chiron Corporation 1991 Stock Option Plan, as
amended, incorporated by reference to Annex 1 of
the Registrant's Proxy Statement dated April 18,
1995.*

10.17 Forms of Option Agreements, Chiron 1991 Stock
Option Plan, as amended, incorporated by
reference to Exhibit 10.17 of the Registrant's
Form 10-K report for fiscal year 1993.*

10.18 Forms of Option Agreements, Cetus Corporation
Amended and Restated Common Stock Option Plan,
incorporated by reference to Exhibit 10.33 of
Registrant's Form 10-K report for fiscal year
1991.*

<PAGE>

10.19 Forms of Supplemental Letter concerning the
assumption of Cetus Corporation options by
Chiron, incorporated by reference to Exhibit
10.34 of Registrant's Form 10-K report for
fiscal year 1991.*

10.20 Agreement and Plan of Reorganization dated as of
October 11, 1991 by and among the Registrant,
Chiron Ophthalmics, Inc., COI Acquisition Corp.,
IntraOptics, Inc. and James R. Cook, M.D.,
incorporated by reference to Exhibit 28.2 of
Registrant's current report on Form 8-K dated
October 14, 1991.

10.21 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.

10.22 Stock Purchase Agreement by and between the
Registrant and Johnson & Johnson Development
Corporation, a corporation organized and
existing under the laws of the State of New
Jersey, dated as of October 3, 1986,
incorporated by reference to Exhibit 10.22 of
the Registrant's Form 10-Q report for the period
ended September 30, 1994.

10.23 Stock Purchase Agreement between the Registrant
and CIBA-GEIGY, Limited, a corporation organized
and existing under the laws of Switzerland,
dated November 14, 1988, incorporated by
reference to Exhibit 10.23 of the Registrant's
Form 10-Q report for the period ended September
30, 1994.

10.24 Form of Debenture Purchase Agreement between the
Registrant and CIBA-GEIGY, Limited, a
corporation organized and existing under the
laws of Switzerland, dated June 22, 1990,
incorporated by reference to Exhibit 10.25 of
the Registrant's Form 10-K report for fiscal
year 1994.

10.25 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.

10.26 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.

<PAGE>

10.27 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.

10.28 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.

10.29 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.

10.30 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.

10.31 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.

10.32 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.

10.33 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.

10.34 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.*

<PAGE>

10.35 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.*

10.36 Lease dated as of July 1, 1983 between Cetus
Corporation and H.B. Chapman, Jr., incorporated
by reference to Exhibit 10.28 of the
Registrant's Form 10-Q report for the period
ended September 30, 1994.

10.37 Amendment to Lease, made as of March 20, 1990,
amending Lease dated July 1, 1983, between
Harold B. Chapman, Jr. and Cetus Corporation,
incorporated by reference to Exhibit 10.37 of
the Registrant's Form 10-Q report for the period
ended April 2, 1995.

10.38 Lease commencing March 1, 1987, between
EuroCetus B.V. and the Municipal Land Company of
the City of Amsterdam (Translation),
incorporated by reference to Exhibit 10(k) of
Cetus Corporation's Form 10-K report for its
fiscal year 1987 (Commission File No. 0-10003).

10.39 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.

10.40 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.

10.41 Big-O Property Purchase and Leaseback Agreement,
dated as of October 31, 1988, between Cetus
Corporation and Richard K. Robbins, incorporated
by reference to Exhibit 10.33 of the
Registrant's Form 10-Q report for the period
ended September 30, 1994.

10.42 Triple Net Lease dated as of January 20, 1989,
between Cetus Corporation and BGR Associates
III, a California limited partnership, and Marin
County Exchange Corporation, incorporated by
reference to Exhibit 10.34 of the Registrant's
Form 10-Q report for the period ended September
30, 1994.

<PAGE>

10.43 License Agreement between the Registrant and the
Board of Trustees of the Leland Stanford Junior
University, dated December 15, 1981,
incorporated by reference to Exhibit 10.07 of
the Registrant's Form 10-Q report for the period
ended September 30, 1994.

10.44 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.

10.45 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 10.59 of
Registrant's Form 10-K report for fiscal year
1991.

10.46 Agreement and Plan of Merger dated as of July
21, 1991, by and among Registrant, Chiron
Acquisition Subsidiary, Inc. and Cetus
Corporation, incorporated by reference to
Exhibit 28.2 of Registrant's Form 8-K report
dated July 22, 1991.

10.47 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.*

10.48 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.*

10.49 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.

10.50 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.]

10.51 Letter Agreement dated September 9, 1991 between
the Registrant and Walter Moos, incorporated by
reference to Exhibit 10.47 of the Registrant's
Form 10-K report for fiscal year 1992.*

<PAGE>

10.52 Letter Agreement between the Registrant and
Walter Moos, dated February 1, 1993,
incorporated by reference to Exhibit 10.48 of
the Registrant's Form 10-K report for fiscal
year 1992.*

10.53 Letter Agreement between Registrant and Renato
Fuchs, dated May 13, 1993, incorporated by
reference to Exhibit 10.47 of the Registrant's
Form 10-K report for fiscal year 1993.*

10.54 Agreement made as of December 6, 1984, by and
between Corning Glass Works, a New York
corporation, and Bioanalysis Limited, a company
incorporated in England and Wales, and Letter
dated July 26, 1985 from Bioanalysis Limited to
Corning Glass Works, incorporated by reference
to Exhibit 10.54 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.]

10.55 Description of Executive Variable Compensation
Program, incorporated by reference to Exhibit
10.58 of the Registrant's Form 10-K report for
fiscal year 1994.*

10.56 Chiron Corporation Executive Bonus Plan,
incorporated by reference to Annex 2 of the
Registrant's Proxy Statement dated April 18,
1995.*

10.57 Regulatory Filing, Development and Supply
Agreement between the Registrant, Cetus Oncology
Corporation, a wholly owned subsidiary of the
Registrant, and Schering AG, a German company,
dated as of May 10, 1993 (with certain
confidential information deleted), incorporated
by reference to Exhibit 10.50 of the
Registrant's current report on Form 8-K dated
February 9, 1994.

10.58 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.

10.59 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.

10.60 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.

<PAGE>

10.61 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.*

10.62 Letter dated January 4, 1995 to C. William
Zadel, incorporated by reference to Exhibit
10.65 of the Registrant's Form 10-K report for
fiscal year 1994.*

10.63 Letter to Dino Dina dated April 24, 1984,
incorporated by reference to Exhibit 10.66 of
the Registrant's Form 10-K report for fiscal
year 1994.*

10.64 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.

10.65 Licensing Agreement, effective December 18,
1986, by and between Miles Laboratories, Inc., a
Delaware corporation, and Ciba Corning
Diagnostics Corp., a Delaware corporation, and
Letter dated December 18, 1992 from Ciba Corning
Diagnostics Corp. to Miles Laboratories, Inc.,
incorporated by reference to Exhibit 10.65 of
Amendment No. 1 to the Registrant's Form 10-Q
report for the period ended April 2, 1995.
[Certain information has been omitted from the
Agreement pursuant to a request by Registrant
for confidential treatment pursuant to
Rule 24b-2].

10.66 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].

10.67 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].

<PAGE>

10.68 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].

10.69 Lease made and entered into December 17, 1984
between BGR Associates, a California limited
partnership, and Cetus Corporation and Amendment
to Lease dated December 17, 1984 entered into
effective February 1, 1986, incorporated by
reference to Exhibit 10.69 of the Registrant's
Form 10-Q report for the period ended April 2,
1995.

10.70 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].

10.71 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].

10.72 Agreement, by and between Cetus Oncology
Corporation, EuroCetus International, N.V., and
F. Hoffmann-La Roche Ltd., incorporated by
reference to Exhibit 10.72 of the Registrant's
Form 10-Q report for the period ended April 2,
1995. [Certain information has been omitted from
the Agreement pursuant to a request by
Registrant for confidential treatment pursuant
to Rule 24b-2].

10.73 Agreement commencing January 1, 1991, between
EuroCetus B.V. and the Municipal Development
Corporation (Translation), incorporated by
reference to Exhibit 10.41 of the Registrant's
Form 10-K report for fiscal year 1994.

<PAGE>

10.74 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.]

10.75 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.]

10.76 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.

10.77 Promissory Note dated January 1, 1995 by Ciba
Corning Diagnostics Corp, incorporated by
reference to Exhibit 10.77 of the Registrant's
Form 10-Q report for the period ended July 2,
1995.

10.78 Investment, Research Support and Marketing Agree-
ment made as of September 29, 1995 by and between the
Registrant and Ciba-Geigy Limited, a Swiss
Corporation. [Certain information has been omitted
from the Agreement pursuant to a request by Regis-
trant for confidential treatment pursuant to
Rule 24b-2.]

10.79 Letter Agreement between Ciba-Geigy Limited and the
Registrant dated September 29, 1995. [Certain
information has been omitted from the Agreement
pursuant to a request by Registrant for confidential
treatment pursuant to Rule 24b-2.]

11 Statement of Computation of Earnings per Share.

27 Financial Data Schedule.

---------------------------
*Management contract, compensatory plan or arrangement.

(b) Reports on Form 8-K

Chiron filed a current report on Form 8-K, dated September 29,
1995, reporting under Item 2 the acquisition of Viagene, Inc.

34
<PAGE>

CHIRON CORPORATION

September 30, 1995

SIGNATURES

Pursuant to the requirements 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.

CHIRON CORPORATION

BY: /s/Edward E. Penhoet
------------------------------
DATE: November 15, 1995 Edward E. Penhoet
--------------------------- President and Chief
Executive Officer

BY: /s/Dennis L. Winger
------------------------------
DATE: November 15, 1995 Dennis L. Winger
--------------------------- Senior Vice President, Finance
and Administration

<PAGE>

EXHIBIT 10.78

[CONFIDENTIAL TREATMENT REQUESTED]

[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]

INVESTMENT, RESEARCH SUPPORT AND MARKETING AGREEMENT

This Agreement is made as of September 29, 1995, by and between Chiron
Corporation, a Delaware corporation ("Chiron") and Ciba-Geigy Limited, a Swiss
corporation ("Ciba"), and Chiron Funding Corporation, a Delaware Corporation
("Newco").

RECITALS:

A. Ciba previously has agreed to provide funding and support for research and
development activity conducted at Chiron pursuant to the terms of that certain
Investment Agreement dated as of November 20, 1994, among Ciba, Chiron, Ciba-
Geigy Corporation and Ciba Biotech Partnership, Inc. (the "Investment
Agreement").

B. Ciba and Chiron now wish to implement such support through a newly
organized corporation ("Newco") wholly-owned by Chiron, to which Chiron shall
contribute royalty interests and promotional rights relating to specified
products now under development by Chiron, all as provided below herein.

C. Chiron from time to time will sell and Ciba agrees to buy from Chiron
shares of common stock of Newco as and when requested by Chiron, subject to the
limitations contained herein, and Chiron will use the proceeds of such sales to
fund the research and development of such products.

D. Chiron will have an option to repurchase such shares, which option, if
exercised, will commit Chiron to offer to Ciba certain marketing rights with
respect to such products.

AGREEMENTS:

1. NEWCO.

1.01 INCORPORATION. Chiron has caused Newco to be organized as a Delaware
corporation.

(a) ARTICLES OF INCORPORATION. The Articles of Incorporation are attached
hereto as Schedule 1.01.

(b) BYLAWS. The Bylaws of Newco shall be adopted by the Board of
Directors once fully constituted, and will be in standard form, with limits
on

1
<PAGE>

Board of Director action as to specific matters without supermajority
approval, consistent with the provisions of Section 1.01(e) below.

(c) DIRECTORS. The Board of Directors shall consist of three members, two
of which shall be appointed by the majority shareholder, with the remaining
Director appointed by the minority shareholder. Unless otherwise agreed by
the parties, one Director appointed by each shareholder will have
appropriate scientific background.

The initial Directors will be William Green and Dennis Winger; provided
that as soon as practicable following the execution of this Agreement,
Chiron and Ciba shall elect directors in accordance with the preceding
paragraph.

(d) OFFICERS. Unless otherwise agreed, Newco shall have three officers,
with the President and one other officer appointed by the Directors
designated by the majority shareholder, and the remaining office appointed
by the Directors designated by the minority shareholder.

The initial officers of Newco shall be Dennis Winger, President, and
William Green, Secretary; provided that as soon as practicable following
execution of this Agreement, the Directors designated by Ciba shall appoint
a third officer of Newco.

(e) ADDITIONAL AGREEMENTS. Chiron and Ciba further agree as follows:

(i) Neither Chiron nor Ciba shall transfer any shares of Newco stock,
and Newco shall not issue any shares, to any third party without the
prior written consent of both Chiron and Ciba.

(ii) Newco shall not enter into any agreements or conduct any
transactions, other than those specifically authorized in this
Agreement or the Royalty Agreement, without the approval of both
Chiron and Ciba.

(iii) Ciba shall have the right to require that Newco exercise its
rights under this Agreement, including without limitation the co-
promotion option, and under the Royalty Agreement. Each of Chiron and
Ciba shall be authorized to enforce against the other any and all
rights of Newco against such other party.

2
<PAGE>

(iv) In the event that Ciba acquires a majority interest in Newco, the
parties agree to hold a shareholders meeting within thirty (30) days
following the date on which such majority interest is acquired. At
such meeting, new Directors shall be elected pursuant to Section
1.01(c), and new officers shall be appointed pursuant to Section
1.01(d).

(v) At any time, Ciba or Chiron may notify the other party of changes
in the Directors or officers designated by the notifying party
hereunder. Both parties agree promptly to take and to cause Newco to
take such actions as may be required to implement such changes in
Directors or officers.

1.02 CAPITAL. The authorized capital stock of Newco consists of 300,000
shares of Common Stock (par value $0.01 per share) (the "Newco Stock").

1.03 INITIAL SHARE ISSUANCE; CONTRIBUTION. 240,000 shares of Newco Stock
have been or promptly shall be issued to Chiron and are or shall be validly
issued, fully paid and non-assessable. In consideration thereof, Chiron has or
promptly shall effectively contribute to Newco as a capital contribution the
following.:

(a) CASH. Cash in an amount equal to the par value of the Newco
Stock ($2400.00).

(b) ROYALTY. A royalty agreement in the form of Schedule 1.03B (the
"Royalty Agreement") with respect to royalties on Adult Vaccines, as
defined therein.

(c) CO-PROMOTION OPTION. The option to co-promote all Adult Vaccines
in all countries of the world other than North America and Europe in which
Newco, directly or indirectly, through Ciba or otherwise, reasonably has
the field sales force and other promotional infrastructure necessary to
successfully promote the Adult Vaccines. In determining such adequacy, the
capabilities of Ciba's sales force and promotional infrastructure shall be
deemed to be the field sales force and promotional infrastructure of Newco,
in all countries where Ciba elects to undertake co-promotion activities.
Such option shall be exercisable by Newco, on a country by country basis,
by written notice to Chiron, at any time until 180 days following the
granting of the first regulatory approval in North America or Europe to
market and sell the first Adult Vaccine for which such regulatory approval
is obtained. This option shall terminate automatically as to all Adult
Vaccines, in any country, with respect to which the option is not exercised
by Newco within the time limit set forth above, it being understood that it
may be

3
<PAGE>

in the interests of the parties to explore, without obligation, a
broadening and/or extension of such co-promotion.

(i) Upon exercise of the option by Newco, the parties shall
negotiate in good faith a co-promotion agreement for the
Adult Vaccines in the countries as to which Newco has exercised its
co-promotion option, on commercially reasonable terms, which shall
include (A) a pre-tax co-promotion profit to Newco of not less than
[CONFIDENTIAL TREATMENT REQUESTED] of Net Sales of Adult Vaccines in
such countries, (B) an obligation of reasonable diligence, (C) a
reservation in favor of Chiron of the right to market to international
public organizations such as UNICEF and W.H.O, with an appropriate
compensation to be paid to Newco for any co-promotional activity
agreed to be provided by Newco supporting such international sales,
and (D) such other terms as the parties may then agree. The
co-promotion right shall expire as to each Adult Vaccine six (6) years
after the first commercial sale, on a country by country and product
by product basis.

(ii) Newco agrees to exercise such option only in the event that
Newco is able to contract with Ciba (or other entity acceptable to
Ciba and Chiron) to perform the co-promotion activities.

(iii) Newco, and in the event that Newco has granted co-
promotion rights hereunder to Ciba, Newco and Ciba shall keep accurate
books and records as to its co-promotion, which books and records
shall be subject to audit by Chiron, in the same manner as set forth
in Section 3.05.

1.04 FUTURE SHARE ISSUANCE; CONTRIBUTION. At any time, upon request of
Chiron, and subject to the approval of Ciba pursuant to Section 2.04, Newco
agrees to issue additional shares to Chiron, up to a maximum of the total
authorized capital of Newco. In return for such shares, Chiron agrees to
contribute the following:

(a) CASH. Cash in an amount equal to the par value of the shares
issued.

(b) PRODUCT RIGHTS. Chiron shall grant to Newco the right to
participate in marketing opportunities with respect to additional products
other than Adult Vaccines, based on one or more of the following
structures, to be determined at Chiron's election, but subject to approval
by Ciba:

4
<PAGE>

(i) ROYALTY INTEREST. Chiron may grant to Newco the right to receive
a royalty on net sales of such products, subject to acceptable terms and
conditions, such as those set forth in the Royalty Agreement.

(ii) MARKETING OR PROMOTION RIGHTS. Chiron may grant to Newco the
right to participate in the marketing and/or selling in selected markets of
the identified product(s). In such event, the parties would agree upon a
supply arrangement under which Chiron would manufacture the products for
sale through Newco or upon co-promotion arrangements under which Newco
would market products sold through Chiron. Such rights would be subject to
acceptable terms and conditions, such as stated in Section 1.03 (c) above.

(iii) PROFITS INTEREST. Chiron may grant to Newco the right to
receive a stated percentage of pre-tax profits and losses from the sale of
products developed, manufactured and marketed by Chiron arising from the
contributed project or products subject to acceptable terms and conditions.

2. SUBSCRIPTION.

2.01 CIBA OBLIGATION. From time to time at Chiron's request, subject to
the limitations set forth in this Article 2, during the period commencing with
the date hereof (the "Effective Date") and ending on December 31, 1999 (such
period referred to herein as the "Funding Period"), Ciba agrees to purchase from
Chiron and Chiron Agrees to sell to Ciba shares of Newco Stock at a price of One
Thousand Dollars ($1000.00) per share.

2.02. AGGREGATE PURCHASE LIMITATIONS. Ciba's obligation to purchase
Newco Stock hereunder shall be subject to the following limitations:

(a) The Net Purchased Amount, as defined below, shall not exceed Two
Hundred Fifty Million Dollars (U.S. $250,000,000); provided, however, that
such amount may be increased, at Chiron's request, to a maximum of Three
Hundred Million Dollars (U.S. $300,000,000) pursuant to the Section 5.12 of
the Investment Agreement. "Net Purchased Amount" shall mean, at any time,
the aggregate amount paid to Chiron by Ciba for the purchase of Newco Stock
pursuant to this Agreement, plus Ciba's share (in proportion to Ciba's
percentage ownership interest in Newco) of royalties reinvested by Newco
pursuant to Section 5.01. The Net Purchased Amount will be reduced by the
aggregate amount of any dividends or other capital distributions actually
paid by Newco to Ciba and any profits to Ciba from co-promotion or
marketing activity

5
<PAGE>

by Ciba pursuant to Section 1.03(c), in each case, through the date of any
required purchase of Newco Stock.

(b) The Net Purchased Amount shall not exceed at any time one hundred
percent (100%) of the R&D Costs, as defined below, of research and
development projects at Chiron as to which royalty or other interests have
been granted to Newco pursuant to this Agreement including, initially the
Adult Vaccines and, subsequently, new projects as contemplated by Sections
1.04 and 2.04(the "Funded Projects"). As used herein, the "R&D Costs" of
any Funded Project for a given period shall mean the fully burdened, fairly
allocated costs of Chiron, on a consolidated basis, as determined under
Chiron's normal project accounting practices, including reasonable and
customary allocations of indirect and overhead expenses and charges in the
nature of depreciation and amortization of capitalized cost, general and
administrative expenses, and out-of-pocket expenses, to the extent that any
of the foregoing were or are incurred after January 1, 1995, in connection
with activities performed pursuant to a Funded Project during the period in
question.

2.03 TIMING LIMITATIONS. In no event shall Ciba be obligated to purchase
Newco Stock such that the purchase price paid exceeds

a) Fifty Million Dollars (U.S. $50,000,000) in 1995;

b) In 1996, One Hundred Million Dollars (U.S. $100,000,000), plus
any unused portion of the funding limit for 1995 pursuant to section
2.03(a); and

c) For subsequent calendar years, equal annual portions of the
remaining unexpended aggregate amount under Section 2.02 above.

2.04 FUNDED PROJECTS. Chiron agrees to use the proceeds of sales of Newco
Stock to Ciba hereunder solely for the purpose of research and development
activities with respect to Funded Projects, determined in accordance with this
Section 2.04.

(a) In conjunction with any request by Chiron for the issuance of
additional Newco Stock pursuant to Section 1.04, Chiron shall provide to
Ciba proposals for research and development programs which Chiron desires
to fund or partially fund as Funded Projects through the sale of such
additional Newco Stock to Ciba. No limitation shall be placed upon the
number of Funded Projects that Chiron may present to Ciba during the
Funding Period.

6
<PAGE>

(b) Upon acceptance by Ciba of a proposal pursuant to Section
2.04(a), Newco shall be authorized to issue additional Newco Stock pursuant
to Section 1.04, and the proposed project shall become a Funded Project. A
Funded Project shall remain a Funded Project for purposes of this Agreement
unless or until Chiron elects, in its sole discretion, to discontinue
research and development with respect to such project. Chiron will manage
the research with respect to Funded Projects in its sole discretion.

(c) Chiron will prepare, in consultation with Ciba, annual and
quarterly forecasts of the R&D Costs for each Funded Project.

2.05 SALES OF NEWCO STOCK. From time to time, not more frequently than
once per fiscal quarter and prior to the conclusion of the fiscal quarter,
Chiron shall provide Ciba with a written notice of the amount of Newco Stock
that it wishes to sell to Ciba, and the associated purchase price, all in
accordance with the provisions of this Article 2. Such purchase price shall not
exceed the lesser of (i) 100% of R&D Costs of the Funded Projects incurred on
or after January 1, 1995 and not previously funded through sales of Newco Stock
hereunder; or (ii) the maximum funding obligation of Ciba pursuant to Section
2.03 for the period in question. Ciba shall purchase the requested amount of
Newco Stock, by paying the purchase price in U.S. dollars in immediately
available funds, by wire transfer, unless otherwise mutually agreed. The
purchase price of the initial Newco Stock to be sold pursuant to Section 2.06
shall be due and payable upon execution of this Agreement. As to all subsequent
sales of Newco Stock, the purchase price shall be due and payable within thirty
(30) days following the notice delivered by Chiron to Ciba pursuant to this
Section 2.05.

2.06 INITIAL PURCHASE. As of the date hereof, Chiron agrees to sell and
Ciba agrees to purchase Twelve Thousand (12,000) shares of Newco Stock and in
consideration thereof Ciba shall promptly pay to Chiron by wire transfer Twelve
Million Dollars (U.S.$12,000,000).

3. CHIRON RESEARCH AND DEVELOPMENT ACTIVITY.

3.01 DILIGENCE. Chiron shall use reasonable commercial diligence to pursue
and complete the research and to develop, test, gain regulatory approval for,
market and sell the products of the Funded Projects. In the event that less than
100% of the R & D Costs of a Funded Project is provided to Chiron hereunder,
Chiron nevertheless shall spend its own portion of such R & D Costs in
conducting activities related to the Funded Project

7
<PAGE>

3.02. ALLOCATION OF FUNDING. Where a Funded Project includes more than
one product under development, and in the event that more than one Funded
Project is subject to funding pursuant to Section 2.04, funds received by Chiron
through sales of Newco Stock or from Newco as reinvested net income shall be
allocated, on a quarterly basis, as follows. First, such funds shall be
allocated to Funded Projects, in accordance with the R&D Costs of each Funded
Project actually incurred during the most recently completed fiscal quarter, as
a percentage of the total R&D Costs of all Funded Projects incurred during such
period. Second, the funds allocated to each Funded Project will be further
allocated to each product within such Funded Project, in accordance with the
R&D Costs of such product actually incurred during such period, as a percentage
of the R&D Costs of the entire Funded Project incurred during such period. In
the event that funds received by Chiron exceed the R&D Costs incurred in such
most recently completed quarter, the excess shall be allocated, prorata, to R&D
Costs incurred after the Effective Date and not previously funded or reimbursed
hereunder, whether through the sale of Newco Stock to Ciba or the reinvestment
of Newco net income.

3.03 NO WARRANTY OF SUCCESS. CHIRON MAKES NO WARRANTIES OR GUARANTEES OF
ANY KIND THAT THE RESEARCH AND DEVELOPMENT ACTIVITIES FUNDED HEREUNDER WILL BE
SUCCESSFUL OR WILL ACTUALLY RESULT IN ANY MARKETED PRODUCTS.

3.04 RIGHTS TO INVENTIONS. Nothing in this Agreement will cause Ciba or
Newco to obtain any ownership or license rights in any patent or other
intellectual property rights of Chiron in connection with any Funded Project; or
any other right or license not specifically granted herein or in the Royalty
Agreement. Chiron will own the right, title and interest in and to any new
inventions arising in the course of any Funded Project, to the extent such
inventions are made by Chiron, its employees, agents or assignors.

3.05 AUDIT RIGHTS. Chiron agrees to keep accurate books and records of the
funding received through sales of Newco Stock hereunder, the R & D Costs
incurred with respect to Funded Projects, and the allocation of such funding
pursuant to Section 3.02. Ciba shall have the right, at its own expense, for a
period of three (3) years after the end of the Funding Period, to have an
independent certified public accountant ("CPA") reasonably acceptable to Chiron
examine the relevant books and records Chiron, during normal business hours, at
the principal offices of Chiron, upon two (2) weeks advance written request, to
verify the R & D Costs or the allocation thereof to Funded Projects; provided,
however, that such audits shall not occur more than once per year. Said CPA
shall be under confidentiality obligations to Chiron, to reveal only

8
<PAGE>

whether there is an error in the R & D Costs or allocation reported to Ciba, and
if so, the amount of such error.

4. REPURCHASE RIGHT.

4.01 RIGHT TO REPURCHASE NEWCO STOCK. Chiron shall have the right (the
Buy-Out Right") to repurchase from Ciba all Newco Stock sold to Ciba under this
Agreement upon tender by Chiron to Ciba of payment in the amount of the Buyout
Amount (as hereinafter defined) in effect at the time of such tender; provided
that such right shall expire if such tender is not made prior to January 1,
2002.

As used herein, "Buyout Amount" shall mean an amount equal to (i) the sum
of all stock purchase payments made by Ciba prior to the date of such tender
pursuant to this Agreement, PLUS (ii) interest thereon from the date of payment
until the date of such tender at a rate equal to LIBOR determined and compounded
on a quarterly basis, LESS (iii) the aggregate amount of any dividends or
other capital distributions received or receivable by Ciba from Newco and any
pre-tax profits received by Ciba from co-promotion or marketing activity by Ciba
pursuant to Section 1.03(c), to the date of such tender, which exceed the pre-
tax profits which would ordinarily be payable to a third party conducting such
co-promotion or marketing activity, LESS (iv) interest on the amounts referenced
in (iii) above from the date of actual receipt of such amount by Ciba until the
date of such tender at a rate equal to LIBOR determined and compounded on a
quarterly basis. Amounts reinvested in research and development at Chiron
pursuant to Section 5.01 shall not be deemed payments to Ciba subject to (iii)
above; but payments made to Ciba pursuant to Section 5.02 shall be subject to
(iii) above.

4.02 FORM OF PAYMENT. Chiron shall be entitled to make the payment of
the Buyout Amount in the form of cash, in immediately available funds, or Chiron
Common Stock ("Chiron Stock"), or a combination of the two. If Chiron shall
elect to employ Chiron Stock for the purposes of making such payment, such
Chiron Stock shall be valued at its Fair Market Value as of the date immediately
preceding the date on which such payment shall be made. As used herein, "Fair
Market Value" shall mean, as of any date of determination, the average of the
closing sale prices of Chiron Stock during the 10 trading day period immediately
preceding such date of determination on the principal United States securities
exchange registered under the Exchange Act on which Chiron Stock is listed, or,
if Chiron Stock is not listed on any such exchange, the average of the closing
sale prices or the closing bid quotations of the Chiron Stock during the 10
trading day period preceding such date of determination on the NASDAQ National
Market or any comparable system then in use, or, if no such quotations are
available, the fair market value of the Chiron Stock as of such date of
determination as determined in good faith by a majority of the Independent
Directors,

9
<PAGE>

as defined in that certain Governance Agreement among Ciba, Chiron and Ciba-
Geigy Corporation dated as of November 20, 1994.

4.03 EFFECT ON CO-PROMOTION RIGHT. If, at the time of repurchase by Chiron
of Newco Stock pursuant to this Article 4, Newco has exercised the option to co-
promote the Adult Vaccines in one or more countries, pursuant to Section
1.03(c), and has contracted with Ciba to perform such obligations, Ciba shall
have the right to continue to co-promote Adult Vaccines then subject to said
right in such countries for the remainder of the term of such co-promotion
rights, all on the terms set forth in Section 1.03(a), together with the
further rights set forth in Section 4.04..

4.04 RESIDUAL RIGHTS. In the event that Chiron exercises its right to
repurchase all of the Newco Stock pursuant to this Article 4, Chiron agrees to
grant to Ciba the option (the Residual Rights Option) to expand its marketing
rights, if any, with respect to all Adult Vaccines, as provided in this Section
4.04 (the "Residual Rights"). If exercised, Ciba would have the right to
convert its co-promotion right into the right to exclusively market and sell all
Adult Vaccines, in all countries of the world other than North America and
Europe, in which Ciba then has the right to co-promote any Adult Vaccine
pursuant to Section 1.03(c) and to extend such exclusive marketing for a period
of six (6) years from the later of the date of Ciba's exercise of the Residual
Rights Option or the first approval for commercial sale, on a product by product
basis.

(a) The Residual Rights Option shall be exercisable by Ciba, by
written notice to Chiron, during the 60 days following Chiron's exercise
of its Buy-out Right. Upon exercise of the Residual Rights Option by Ciba,
the parties shall negotiate in good faith an agreement under which Chiron
would manufacture and supply, and Ciba would market, sell and distribute,
the Adult Vaccines in the countries as to which Ciba has Residual Rights,
all on commercially reasonable terms, including reasonable and customary
distributor obligations to use diligence and to pursue and pay the cost of
regulatory approvals and other marketing, selling and product introduction
activities.

(b) Such agreement shall provide for a pre-tax distributor profit to
Ciba of not less than [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales by
Ciba of Adult Vaccines in such countries. In the event that the Net
Purchase Price, as defined in Section 2.02 is less than $250,000,000, such
minimum pre-tax distribution profit payable to Ciba hereunder will be
reduced by multiplying [CONFIDENTIAL TREATMENT REQUESTED] of net sales by
the following fraction:

NET PURCHASE PRICE
------------------------
$250,000,000

10
<PAGE>

(c) Ciba's exclusive rights pursuant to this Section 4.04 shall be
subject to the continuation of such promotional and sales activity as
Chiron may be permitted to conduct under any applicable co-promotion and
other marketing agreements entered into between Chiron and Newco or Ciba
prior to the exercise of Chiron's Buy-Out Right and to the negotiation of
equitable and reasonable terms for (i) the phase out such activity by
Chiron after the expiration of the original terms of such agreements and
(ii) compensating Ciba for the reduction of such exclusivity by reason of
Chiron's continued activity.

4.05 COOPERATION. Chiron and Ciba shall meet and confer from time to time
to consider whether and to what extent it is in their respective best interests
to permit Chiron to participate in marketing of Adult Vaccines on a county-by-
country basis. Nothing in this Section 4.05, however, shall obligate Newco or
Ciba either (i) to exercise the options to acquire co-promotion rights or
Residual Rights or (ii) if Ciba exercises the option to acquire the Residual
Rights, to permit Chiron to participate in such Residual Rights, other than as
provided in Section 4.04(c), except to the extent that Ciba determines it to be
in its best interest to do so in the reasonable exercise of its discretion.

5. REINVESTMENT OF INCOME BY NEWCO.

5.01 OBLIGATION TO REINVEST INCOME. During the Funding Period, Newco
agrees that it will invest all revenues it receives pursuant to the Royalty
Agreement or the co-promotion option or otherwise less payments to Ciba or
others for co-promotion services and any expenses of otherwise doing business,
as follows. Newco shall enter into a research and development funding agreement
with Chiron pursuant to which it will provide funding to Chiron for the R & D
Costs of the Funded Projects. In return for such funding, Newco shall receive
the right to increased royalties on products arising from the Funded Projects in
question, as provided in Section 1.01(b) of the Royalty Agreement. Chiron shall
use such funding to pay for the R&D Costs of the Funded Projects in the final
period in which they are received to the maximum extent possible and to pre-pay
the R&D Cost of the Funded Project forecast to be incurred over the remainder of
the Funding Period. To the extent so paid or prepaid, the R&D Costs shall not
be eligible for funding hereunder, and therefore, shall not be used to calculate
the limitation on the Net Purchased Amount under Section 2.02(b).

5.02 TERMINATION OF SUCH OBLIGATION. In the event that during the Funding
Period there are no unfunded R & D Costs of the Funded Projects; or in the event
that income is received by Newco following the end of the Funding Period, Chiron
and Ciba shall meet and confer as to the use of any income. If the parties
cannot agree on another resolution, following the end of the Funding Period, all
cash held or received by Newco in excess of its needs shall be distributed to
the stockholders of Newco by dividend, subject to applicable law.

11
<PAGE>

6. ACTION BY CIBA MEMBERS OF CHIRON BOARD.

Ciba agrees that the members of the Chiron Board of Directors which are
designated by Ciba pursuant to that certain Governance Agreement dated as of
November 20, 1994, shall refrain from voting, or otherwise acting to direct or
control Chiron, with respect to any matter relating to the Funded Projects or
Chiron's ownership of Newco Stock, or Chiron's exercise of its rights to
repurchase Newco Stock hereunder.

7. CONFIDENTIALITY.

During the term of this Agreement and for a period of five (5) years
following the expiration or termination of this Agreement, Newco and Ciba agree
to maintain in confidence all confidential or proprietary information of Chiron
("Confidential Information") which is disclosed to Newco or Ciba pursuant to
this Agreement. Newco and Ciba shall use such Confidential Information only as
permitted by this Agreement and shall not disclose the same to anyone other than
its employees, agents or consultants, as are necessary for the purposes of this
Agreement. Any such disclosure shall be on terms and conditions at least as
restrictive as those contained herein.

The foregoing obligation of confidentiality shall not apply to the extent
that (a) Newco and Ciba are required to disclose information by law, order or
regulation of a governmental agency or a court of competent jurisdiction, and
provides Chiron with reasonable notice prior to such disclosure, and cooperates
with Chiron in seeking such protection for such disclosed information as Chiron
may determine; or (b) Newco or Ciba can demonstrate that: (i) the information
was at the time of receipt already in the public domain or thereafter entered
the public domain other than as a result of actions of Newco, Ciba, or any of
their respective employees, consultants, or agents, in violation hereof; (ii)
the information was rightfully known by Newco and Ciba prior to the date of
receipt hereunder; or (iii) the information was disclosed to Newco or Ciba by a
third party source not under a duty of confidentiality to Chiron; or (iv) the
information was independently developed by Newco or Ciba by employees, agents or
consultants who had no access to the Confidential Information.

8. INDEMNIFICATION

Chiron agrees to indemnify, defend and hold Newco and Ciba harmless from
and against any and all claims, losses, damages, liabilities, costs and expenses
(including reasonable attorneys' fees) (collectively, "Claims") arising as a
result of

12
<PAGE>

Chiron's research and development activities which are funded pursuant to this
Agreement, or as a result of the manufacture, use or sale of any product arising
from a Funded Project, except to the extent that such Claims result from (i)
marketing, sale or promotion of the product by Newco, Ciba, or their respective
affiliates or licensees, in deviation from the approved labeling for the product
in question, or (ii) negligence or willful misconduct of Newco, Ciba, or their
respective employees, agents or consultants.

Newco and Ciba agree to notify Chiron promptly after receipt of notice of
any Claim, and to cooperate with Chiron in connection with the investigation and
defense of any Claim. Chiron shall have the right to control such defense,
using counsel selected by Chiron, provided that Newco and Ciba shall each have
the right to participate in such defense through its own counsel, at its sole
expense. Chiron shall have the sole right to control the settlement or
disposition of any such Claim, provided that Chiron shall not settle or
compromise any Claim in any manner which would materially adversely impact the
rights or activities of Newco or Ciba without prior written consent of Newco or
Ciba, as the case may be, which consent shall not be unreasonably withheld.

9. MISCELLANEOUS.

9.01 OBLIGATIONS UNDER OTHER AGREEMENTS. The promotional and marketing
options hereunder are in lieu of the application of Sections 3.02 and 4.02 of
that certain Cooperation and Collaboration Agreement between Chiron and Ciba
dated as of November 20, 1994, with respect to all products arising from the
Funded Projects. All obligations in such Sections are suspended during the term
of this Agreement, the Royalty Agreement and any co-promotion or marketing
agreements hereunder with respect to the products covered hereby and thereby.

9.02 ASSIGNMENT. Neither party shall have the right to assign any of its
rights or obligations hereunder to any unaffiliated third party without the
prior written consent of the other party hereto, which consent shall not be
unreasonably withheld. Subject to the foregoing, this Agreement shall be
binding on, and inure to the benefit of, the parties, their successors and
permitted assigns.

9.03 SEVERABILITY. If any provision of this Agreement should be
held invalid or unenforceable, the remaining provisions hereof shall be
unaffected and shall remain in full force and effect without regard to such
invalid or unenforceable provisions, provided that such remainder is consistent
with the intent of the parties as evidenced by this Agreement as a whole.

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<PAGE>

9.04 AMENDMENT. This Agreement may not be modified or amended except in
writing signed by both parties.

9.05 ENTIRE AGREEMENT. This Agreement and the Royalty Agreement
represent the entire agreement of the parties with respect to the subject matter
hereof, and supersedes all prior negotiations and agreements, including without
limitation Exhibit B to the Investment Agreement.

9.06. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.

9.07 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement.

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<PAGE>

9.08 INDEPENDENT CONTRACTORS. The parties hereto are independent
contractors. Nothing herein shall construed to constitute Chiron and Ciba or
Newco as joint venturers or partners with respect to the subject matter hereof.

Executed by the parties, effective as of the Effective Date.

CHIRON CORPORATION

By /s/ William G. Green
--------------------------------

Title Senior Vice-President and
General Counsel
--------------------------------

Date September 29, 1995
--------------------------------

CIBA-GEIGY LIMITED

By /s/ R. A. Meyer /s/ Dr. Herbert Gut
-------------------------------- --------------------------------

Title Member of the Executive
Committee/CFO Senior Division Counsel
-------------------------------- --------------------------------

Date
-------------------------------- --------------------------------

CHIRON FUNDING CORPORATION

By /s/ Dennis Winger
--------------------------------

Title President
--------------------------------

Date September 29, 1995
--------------------------------

<PAGE>

Schedule 1.01

CERTIFICATE OF INCORPORATION
OF
CHIRON FUNDING CORPORATION

* * * * *

[COPY - NOT FOR FILING]

1. The name of the corporation is Chiron Funding Corporation.

2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.

3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.

4. The total number of shares of stock which the corporation shall have
authority to issue is Three Hundred Thousand (300,000) and the par value of each
of such shares is Zero Dollars and One Cent ($0.01) amounting in the aggregate
to Three Thousand Dollars and No Cents ($3,000.00).

5. The board of directors is authorized to make, alter or repeal the by-
laws of the corporation. Election of directors need not be by written ballot.

6. The name and mailing address of the sole incorporator is:

Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801

7. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.

8. The corporation shall indemnify its officers, directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware.

I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this day of , 19 .
----- -------- ------

-------------------------
Sole Incorporator

Page 1
<PAGE>

SCHEDULE 1.03B

ROYALTY AGREEMENT

BIOCINE ADULT VACCINES

This Royalty Agreement is made effective as of September 29, 1995, by and
between Chiron Corporation ("Chiron"), a Delaware corporation, and Chiron
Funding Corporation, a Delaware Corporation ("Newco").

RECITALS.

Chiron, Newco and Ciba-Geigy Limited, a Swiss corporation ("Ciba") have
entered into a Subscription Agreement of even date herewith (the "Subscription
Agreement"). The parties wish to set forth the terms under which Chiron will
pay to Newco royalties on certain adult vaccine products of The Biocine Company
identified on Schedule A hereto (the "Adult Vaccines"), as contemplated in
Section 1.03 of the Subscription Agreement.

AGREEMENTS.

All capitalized terms not defined in this Agreement shall have the meanings set
forth in the Subscription Agreement.

1. ROYALTIES

1.01 OBLIGATION TO PAY ROYALTIES. In consideration of the Newco Stock
issued to Chiron pursuant to Section 1.03 of the Subscription Agreement, subject
to the terms and conditions set forth herein, Chiron hereby agrees to pay to
Newco royalties on the Adult Vaccines identified in Schedule 1.01 hereto as
follows.

(a) ROYALTY RATE. The royalty rate for each Adult Vaccine shall be a
percentage of worldwide Net Sales, as defined below, which rate shall be
calculated as of the date on which the Chiron or its Affiliates, as defined
below, first receive regulatory approval to market and sell such Adult
Vaccine in the first country in Europe or North America in which such
approval is obtained. If such approval is obtained during the Funding
Period, the royalty rate will be recalculated at the end of the Funding
Period as provided below.

Royalty Rate = [CONFIDENTIAL TREATMENT REQUESTED] x The
[CONFIDENTIAL TREATMENT REQUESTED] x The
[CONFIDENTIAL TREATMENT REQUESTED]

Wherein: The [CONFIDENTIAL TREATMENT REQUESTED] equals [CONFIDENTIAL
TREATMENT REQUESTED], when [CONFIDENTIAL TREATMENT REQUESTED] is the
prorata portion of [CONFIDENTIAL TREATMENT REQUESTED], as defined below,
attributable to such Adult Vaccine pursuant to Section 2.06 of the
Subscription Agreement and [CONFIDENTIAL TREATMENT REQUESTED] is the

1
<PAGE>

[CONFIDENTIAL TREATMENT REQUESTED] for such Adult Vaccine. The
[CONFIDENTIAL TREATMENT REQUESTED] equals [CONFIDENTIAL TREATMENT
REQUESTED], but not greater than one (1), when [CONFIDENTIAL TREATMENT
REQUESTED] is [CONFIDENTIAL TREATMENT REQUESTED] plus the amount of
[CONFIDENTIAL TREATMENT REQUESTED], and [CONFIDENTIAL TREATMENT REQUESTED]
is the [CONFIDENTIAL TREATMENT REQUESTED] for [CONFIDENTIAL TREATMENT
REQUESTED] of the Adult Vaccines. [CONFIDENTIAL TREATMENT REQUESTED]
means, on a [CONFIDENTIAL TREATMENT REQUESTED] basis for the [CONFIDENTIAL
TREATMENT REQUESTED], and on a [CONFIDENTIAL TREATMENT REQUESTED] basis for
the [CONFIDENTIAL TREATMENT REQUESTED], the [CONFIDENTIAL TREATMENT
REQUESTED] of the Adult Vaccine(s) in question incurred during the
[CONFIDENTIAL TREATMENT REQUESTED]. [CONFIDENTIAL TREATMENT REQUESTED]
for an Adult Vaccine means the [CONFIDENTIAL TREATMENT REQUESTED] incurred
by Chiron or its Affiliates with respect to such Adult Vaccine from
[CONFIDENTIAL TREATMENT REQUESTED]. The [CONFIDENTIAL TREATMENT REQUESTED]
incurred by Chiron [CONFIDENTIAL TREATMENT REQUESTED] for each Adult
Vaccine has been provided to and approved by Ciba prior to the date hereof.

For a royalty calculation made prior to the end of the Funding Period,
the [CONFIDENTIAL TREATMENT REQUESTED] will be deemed to be one (1). At
the end of the Funding Period, the royalty shall be recalculated based on
the actual [CONFIDENTIAL TREATMENT REQUESTED] determined at that time.

For example, if the amount of [CONFIDENTIAL TREATMENT REQUESTED]
hereunder for [CONFIDENTIAL TREATMENT REQUESTED] is [CONFIDENTIAL
TREATMENT REQUESTED] and the [CONFIDENTIAL TREATMENT REQUESTED] of
[CONFIDENTIAL TREATMENT REQUESTED] is [CONFIDENTIAL TREATMENT REQUESTED]
and if the [CONFIDENTIAL TREATMENT REQUESTED] of [CONFIDENTIAL TREATMENT
REQUESTED] is [CONFIDENTIAL TREATMENT REQUESTED], then the royalty payable
to Newco will be:

<TABLE>
<C> <C> <C> <S>
[CONFIDENTIAL x [CONFIDENTIAL x [CONFIDENTIAL = [CONFIDENTIAL
TREATMENT REQUESTED] TREATMENT REQUESTED] TREATMENT REQUESTED] TREATMENT REQUESTED]
-------------------- --------------------
[CONFIDENTIAL [CONFIDENTIAL
TREATMENT REQUESTED] TREATMENT REQUESTED]

[CONFIDENTIAL x [CONFIDENTIAL x [CONFIDENTIAL = [CONFIDENTIAL
TREATMENT REQUESTED] TREATMENT REQUESTED] TREATMENT REQUESTED] TREATMENT REQUESTED]
</TABLE>

(b) REINVESTMENT OF ROYALTIES. Pursuant to Section 4 of the
Subscription Agreement, Newco has agreed that it will reinvest its net
income, including royalties actually received pursuant to this Section
1.01 during the Funding Period, to pay or prepay R & D Costs of the Funded
Projects at Chiron. The amount of all such funding which is reinvested by
Newco will be included as part of the Aggregate Fraction, as provided in
Section 1.01(a) with respect to the Adult Vaccines to which such funding is
allocated.

(c) ADJUSTMENT FOR LACK OF PATENT PROTECTION. Royalties payable
hereunder shall be reduced by [CONFIDENTIAL TREATMENT REQUESTED] with
respect to Net Sales in any country in which the sale of the Adult Vaccine
in question is not covered by any patents or patent applications held by
Chiron or its Affiliates, whether due to the lack of patent applications,
adjudicated invalidity of patents, or expiration of patents prior to the
end of the royalty term.

2
<PAGE>

(d) "AFFILIATES." As used herein, Affiliates of Chiron shall include
all entities controlled by Chiron, but shall not include Newco and shall
not include Ciba or any entity controlled by or under common control with
Ciba which is not also controlled by Chiron. Affiliates of Chiron
specifically include The Biocine Company and Biocine S.p.A.

2. NET SALES. As used herein, "Net Sales" means the invoiced price of a
product sold by Chiron, its affiliates or licenses, less (i) discounts,
rebates, chargebacks and allowances; (ii) credits or refunds for returned
or damaged goods; (iii) sales, use, excise, value added and similar taxes;
(iv) customs, export and import duties and other governmental charges; (v)
transportation and insurance charges; (vi) royalties payable to third
parties; (vii) costs incurred by Chiron, including amounts payable in
damages or settlement, in defending claims by third parties that the
products infringe third party intellectual property rights.

In the event that a product is sold in combination with another active
ingredient, or with a delivery system not developed as part of the Funded
Project, or with instrumentation, or with other components in a kit, or
with services related to the use of the product (all collectively referred
to as "Other Components", and the resulting product referred to as a
"Combination Product"), the parties shall reasonably determine the portion
of Net Sales of the Combination Product which should be allocated to the
product arising from the Funded Project. If the product arising from the
Funded Project and the Other Components are sold separately, the Net Sales
for the purpose of this Agreement shall be determined by multiplying the
gross invoiced price of the Combination Product, less the deductions
specified above, by a the fraction A/(A+B), where A is the selling price of
the products arising from the Funded Project, and B is the selling price of
the Other Components. If no such separate sales are made, the appropriate
allocation shall be negotiated in good faith by the parties.

3. ROYALTY TERM. Royalties payable hereunder shall commence with the first
commercial sale of the Adult Vaccine in question, and shall continue, on a
country by country basis, until the later of the expiration of applicable
patent protection for the Adult Vaccine in such country, or ten (10) years
following the first commercial sale of such Adult Vaccine in such country.

4. ROYALTY PAYMENTS AND REPORTS

4.01. PAYMENTS. All royalties payable to Newco hereunder shall be paid in
U.S. Dollars, on a quarterly basis within ninety (90) days following the
close of Chiron's fiscal quarter, with respect to Net Sales of Adult
Vaccines during such fiscal quarter.

4.02. REPORTS. Each royalty payment shall be accompanied by a written
report setting forth in reasonable detail the Net Sales of Adult Vaccines
by

3
<PAGE>

Chiron, its affiliates and licensees during the applicable period and the
resulting calculation of the royalty payment due hereunder. For the
purposes of determining royalties hereunder, Net Sales shall be calculated
in the currency of the country of sale and then converted to U.S. Dollars
in accordance with Chiron's standard accounting practices.

4.03. TAXES. If law or regulation requires withholding of any taxes on
payments with respect to Net Sales in any given country to Chiron, its
affiliates or licensees, or on payments due to Newco hereunder, such taxes
will be deducted on a country-by-country basis from such remittable
payment, and the amounts due to Newco hereunder shall be remitted net of
such withheld taxes. Chiron shall provide Newco with documentation of any
such withholding or other taxes paid hereunder with respect to tax
liability of Newco.

4.04. BLOCKED CURRENCY. If, in any country, the transfer of payment to
Chiron, its affiliates or sublicensees with respect to Net Sales, or the
transfer of royalties to Newco hereunder, is prohibited by law or
regulation, the payment obligations to Newco hereunder with respect to the
amounts so restricted shall be fully satisfied upon payment of the amounts
due to Newco in local currency to a bank account in Newco's name in such
country. The parties agree to cooperate in their efforts to resolve any
such blocked currency situation.

5. AUDIT RIGHTS. Chiron agrees to keep accurate books and records of the sales
of all Adult Vaccines. Newco and Ciba shall have the right, at Ciba's expense,
for a period of three (3) years after each report delivered pursuant to Section
4.02 to have an independent certified public accountant ("CPA") reasonably
acceptable to Chiron examine the relevant books and records Chiron and its
affiliates, during normal business hours, at the principal offices of Chiron,
upon two (2) weeks advance written request, to verify the calculation of any
royalty payment; provided, however, that such

4
<PAGE>

audits shall not occur more than once per year. Said CPA shall be under
confidentiality obligations to Chiron, to reveal only whether there is an error
in the calculation of a royalty payment owed hereunder, and if so, the amount of
such error.

Executed by the parties as of the date first written above.

CHIRON CORPORATION

By
--------------------------------

Title
--------------------------------

CHIRON FUNDING CORPORATION

By
--------------------------------

Title
--------------------------------

5
<PAGE>

SCHEDULE A

ADULT VACCINES

Herpes Simplex Virus Vaccine (prophylactic and therapeutic use)

Hepatitis C Virus Vaccine (prophylactic and therapeutic use)

Cytomegalovirus Vaccine

Adjuvanted Hepatitis B Vaccine

Human Papilloma Virus Vaccine

Human Immunodeficiency Virus Vaccine

<PAGE>

EXHIBIT 10.79

[CONFIDENTIAL TREATMENT REQUESTED]

[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]

[letterhead]

September 29, 1995

Mr. John Cheesmond
Ciba-Geigy Limited
CH-4002 Basel

Re: Investment, Research Support and Marketing Agreement

Dear John:

This letter relates to the Investment, Research Support and Marketing
Agreement dated as of September 29, 1995 (the "Research Support Agreement").
Chiron Corporation ("Chiron") and Ciba-Geigy Limited ("Ciba") hereby confirm
that the obligation of Ciba to purchase Newco Stock under Article 2 of the
Research Support Agreement shall be limited to the initial purchase on
September 29, 1995, of 12,000 shares, at a purchase price of U.S.
$12,000,000, until such time as

(i) product rights to [CONFIDENTIAL TREATMENT REQUESTED] (or other
products), all as acceptable to Ciba, are added to Newco pursuant to
Section 1.04 of the Research Support Agreement, on terms which are mutually
approved by Chiron and Ciba; and

(ii) Ciba has completed its internal review and approval of the Research
Support Agreement, and the parties have made such adjustments to the
Research Support Agreement as are required as a result of such internal
review, on terms which are mutually agreed upon.

Chiron and Ciba expect to complete these steps within the next thirty (30) days.

Sincerely,

Chiron Corporation

By /s/ Dennis Winger
---------------------

Title President
-----------------

Agreed: Ciba-Geigy Limited

By /s/ R.A. Meyer /s/ Herbert Gut
---------------------- -------------------

Title Member of the Executive Committee/CFO Senior Division Counsel
------------------------------------- -----------------------

<PAGE>
EXHIBIT 11

CHIRON CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE

Nine Months Ended Three Months Ended
------------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
<S> ------------- ------------- ------------- -------------
<C> <C> <C> <C>
EARNINGS PER SHARE
Net earnings (loss) available for
common shares and common stock
equivalent shares deemed to have a
dilutive effect $(530,056,000) $22,494,000 $(145,107,000) $12,567,000
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------
Primary earnings (loss) per share $ (13.18) $ 0.66 $ (3.59) $ 0.37
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------
Fully diluted earnings (loss) per share $ (13.18) $ 0.66 $ (3.59) $ 0.37
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------

Shares used in primary earnings (loss)
per share computation:
Weighted average common shares
outstanding 40,210,000 32,937,000 40,429,000 33,055,000
Weighted average dilutive
incremental common shares
issuable from exercise of warrants - 66,000 - 45,000
Weighted average dilutive
incremental common shares
issuable under employee stock
option programs - 1,248,000 - 1,010,000
-------------- ----------- -------------- -----------
Total common shares and common
stock equivalent shares deemed to
have a dilutive effect 40,210,000 34,251,000 40,429,000 34,110,000
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------

Shares used in fully dilutive earnings
(loss) per share computation:
Weighted average common shares
outstanding 40,210,000 32,937,000 40,429,000 33,055,000
Weighted average dilutive
incremental common shares
issuable from exercise of warrants - 74,000 - 68,000
Weighted average dilutive
incremental common shares
issuable under employee stock
option programs - 1,322,000 - 1,232,000
-------------- ----------- -------------- -----------
Total common shares and common
stock equivalent shares deemed to
have a dilutive effect 40,210,000 34,333,000 40,429,000 34,355,000
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------
</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S CONSOLIDATED BALANCE SHEET DATED SEPTEMBER 30, 1995 AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 69,046
<SECURITIES> 168,120<F1>
<RECEIVABLES> 247,948
<ALLOWANCES> 0
<INVENTORY> 161,518
<CURRENT-ASSETS> 601,989
<PP&E> 626,675
<DEPRECIATION> 125,784
<TOTAL-ASSETS> 1,441,994
<CURRENT-LIABILITIES> 360,725
<BONDS> 478,346<F2>
<COMMON> 416<F3>
0
0
<OTHER-SE> 633,255<F4>
<TOTAL-LIABILITY-AND-EQUITY> 1,441,994
<SALES> 662,553
<TOTAL-REVENUES> 774,685
<CGS> 301,343
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 980,995<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,238
<INCOME-PRETAX> (513,934)
<INCOME-TAX> 16,122
<INCOME-CONTINUING> (530,056)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (530,056)
<EPS-PRIMARY> (13.18)
<EPS-DILUTED> (13.18)
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES, CAPITAL LEASES, NOTES PAYABLE
AND SHORT-TERM DEBT
<F3>CONSISTS OF COMMON STOCK AND COMMON STOCK TO BE ISSUED.
<F4>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT, CUMULATIVE FOREIGN
CURRENCY TRANSLATION ADJUSTMENT AND UNREALIZED GAIN ON INVESTMENTS
<F5>CONSISTS OF RESEARCH, DEVELOPMENT, SELLING, GENERAL, ADMINISTRATIVE, WRITE-OFF
OF PURCHASED IN-PROCESS TECHNOLOGY, COSTS RELATED TO THE CIBA TRANSACTION,
RESTRUCTURING AND REORGANIZATION COSTS, AND OTHER OPERATING EXPENSES.
</FN>

</TABLE>