<PAGE>

                                          
                                     FORM 10-Q
                                          
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
                                          
      (MARK ONE)
      [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934.

      FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998

                                          OR

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

           FOR THE TRANSITION PERIOD FROM ____________ TO ____________

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.

        TITLE OF CLASS                    OUTSTANDING AT JULY 31, 1998

 Common Stock, $0.01 par value                    177,808,473                 


<PAGE>

                                  CHIRON CORPORATION
                                  TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                     PAGE NO.
                                                                     --------

PART I.      FINANCIAL INFORMATION
<S>                                                                  <C>
     ITEM 1. FINANCIAL STATEMENTS

             Condensed Consolidated Balance Sheets as of
             June 30, 1998 and December 31, 1997. . . . . . . . . . . . .3

             Condensed Consolidated Statements of Operations for
             the three and six months ended June 30, 1998 and 1997. . . .4

             Condensed Consolidated Statements of Comprehensive Income
             for the three and six months ended June 30, 1998 and 1997. .5

             Condensed Consolidated Statements of Cash Flows for
             the six months ended June 30, 1998 and 1997. . . . . . . . .6

             Notes to Condensed Consolidated Financial Statements . . . .7

     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . .16

     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .27


PART II.     OTHER INFORMATION

     ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . .27

     ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . .28

     ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . .29


SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

</TABLE>

                                          2
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS.
                                 CHIRON CORPORATION
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                     JUNE 30,         DECEMBER 31,
                                                                       1998               1997   
                                                                   -----------        ------------
                                                                   (UNAUDITED)
<S>                                                                <C>                <C> 
                                       ASSETS
Current assets:
  Cash and cash equivalents                                        $   158,120        $     98,483
  Short-term investments in marketable debt securities                  99,211              84,588
                                                                   -----------        ------------
        Total cash and short-term investments                          257,331             183,071
  Accounts receivable                                                  328,132             344,044
  Inventories                                                          170,231             165,652
  Assets held for sale (Note 4)                                         29,854                   -
  Other current assets                                                  62,879              77,285
                                                                   -----------        ------------
        Total current assets                                           848,427             770,052
Noncurrent investments in marketable debt securities                   155,648              75,401
Property, plant, equipment and leasehold improvements, at cost:
  Land and buildings                                                   187,451             218,509
  Laboratory, production and office equipment                          406,491             422,278
  Leasehold improvements                                               108,342             123,379
  Construction in progress                                              63,080              67,355
                                                                   -----------        ------------
                                                                       765,364             831,521
  Less accumulated depreciation and amortization                      (283,432)           (277,623)
                                                                   -----------        ------------
        Net property, plant, equipment and leasehold improvements      481,932             553,898
Purchased technology, net                                               30,351              45,903
Other intangible assets, net                                           163,753              79,955
Investments in equity securities and affiliated companies               47,786             176,851
Other assets                                                            74,943              66,418
                                                                   -----------        ------------
                                                                   $ 1,802,840        $  1,768,478
                                                                   -----------        ------------
                                                                   -----------        ------------

                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                 $    90,864        $     79,339
  Accrued compensation and related expenses                             52,937              59,405
  Short-term borrowings                                                 17,529             154,700
  Current portion of unearned revenue                                   25,896              13,361
  Taxes payable                                                         53,547              37,191
  Other current liabilities                                            137,315             127,190
                                                                   -----------        ------------
        Total current liabilities                                      378,088             471,186
Long-term debt                                                         402,312             397,217
Other noncurrent liabilities                                            33,050              26,130
                                                                   -----------        ------------
        Total liabilities                                              813,450            894,533 
                                                                   -----------        ------------
Commitments and contingencies
Stockholders' equity:
  Common stock                                                           1,775               1,757
  Additional paid-in capital                                         1,894,807           1,853,591
  Accumulated deficit                                                 (882,118)           (961,986)
  Accumulated other comprehensive loss                                 (25,074)            (18,808)
  Notes receivable from stock sales                                          -                (609)
                                                                   -----------        ------------
        Total stockholders' equity                                     989,390             873,945
                                                                   -----------        ------------
                                                                   $ 1,802,840        $  1,768,478
                                                                   -----------        ------------
                                                                   -----------        ------------
</TABLE>

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


                                          3
<PAGE>

                                  CHIRON CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                     (UNAUDITED)
                        (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                         THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                      -------------------------     -------------------------
                                                                        JUNE 30,       JUNE 30,       JUNE 30,       JUNE 30,
                                                                          1998           1997           1998           1997  
                                                                      ----------     ----------     ----------     ----------
<S>                                                                   <C>            <C>            <C>             <C>
Revenues:
     Product sales, net                                               $  237,570     $  203,645     $  442,042     $  404,436
     Equity in earnings of unconsolidated joint businesses                17,364         28,772         30,238         53,986
     Collaborative agreement revenues                                     24,458         29,128         48,864         55,976
     Other revenues                                                       26,140         19,493         53,293         46,585
                                                                      ----------     ----------     ----------     ----------
       Total revenues                                                    305,532        281,038        574,437        560,983
                                                                      ----------     ----------     ----------     ----------
                                                                                                   
Expenses:                                                                                          
     Cost of sales                                                       102,437         81,281        191,418        166,052
     Research and development                                             93,530         94,259        184,376        182,220
     Selling, general and administrative                                  87,827         78,822        161,505        154,871
     Write-off of purchased in-process technologies                        1,645              -          1,645              -
     Restructuring and reorganization charges (Note 3)                    (1,852)             -         22,346              -
     Other operating expenses                                              3,224          1,251          3,856          2,367
                                                                      ----------     ----------     ----------     ----------
       Total expenses                                                    286,811        255,613        565,146        505,510
                                                                      ----------     ----------     ----------     ----------
                                                                                                   
Income from operations                                                    18,721         25,425          9,291         55,473
                                                                                                   
Gain on sale of assets (Note 5)                                            6,241              -          6,241              -
Interest expense                                                          (6,301)        (7,773)       (13,347)       (16,278)
Other income, net                                                          8,534          3,437         16,969          5,207
                                                                      ----------     ----------     ----------     ----------
                                                                                                   
Income from continuing operations                                                                  
     before income taxes                                                  27,195         21,089         19,154         44,402
                                                                                                   
Provision for income taxes                                                 1,808          6,276          4,618         13,214
                                                                      ----------     ----------     ----------     ----------
                                                                                                   
Income from continuing operations                                         25,387         14,813         14,536         31,188
                                                                      ----------     ----------     ----------     ----------
                                                                                                   
Discontinued operations (Note 2):                                                                  
     Income (loss) from discontinued operations                                -            929              -           (110)
     Gain on disposal of discontinued operations                               -              -         65,332              -
                                                                      ----------     ----------     ----------     ----------
                                                                                                   
Net income                                                            $   25,387     $   15,742     $   79,868     $   31,078
                                                                      ----------     ----------     ----------     ----------
                                                                      ----------     ----------     ----------     ----------
                                                                                                                      
Basic earnings per share:                                                                                             
     Income from continuing operations                                $     0.14     $     0.09     $     0.08     $     0.18
                                                                      ----------     ----------     ----------     ----------
                                                                      ----------     ----------     ----------     ----------
     Net income                                                       $     0.14     $     0.09     $     0.45     $     0.18
                                                                      ----------     ----------     ----------     ----------
                                                                      ----------     ----------     ----------     ----------
                                                                                                                      
Diluted earnings per share:                                                                                           
     Income from continuing operations                                $     0.14     $     0.08     $     0.08     $     0.18
                                                                      ----------     ----------     ----------     ----------
                                                                      ----------     ----------     ----------     ----------
     Net income                                                       $     0.14     $     0.09     $     0.44     $     0.18
                                                                      ----------     ----------     ----------     ----------
                                                                      ----------     ----------     ----------     ----------
</TABLE>

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


                                          4
<PAGE>

                                  CHIRON CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                     (UNAUDITED)
                                    (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                THREE MONTHS ENDED            SIX MONTHS ENDED
                                                            --------------------------     -----------------------
                                                              JUNE 30,       JUNE 30,       JUNE 30,      JUNE 30,
                                                                1998           1997           1998          1997  
                                                            ------------   -----------     ----------    ----------
<S>                                                         <C>            <C>             <C>           <C>
Net income                                                  $   25,387     $   15,742     $   79,868     $  31,078
                                                            ----------     ----------     ----------     ---------

Other comprehensive income (loss):

  Foreign currency translation adjustment:
     Change in foreign currency translation 
       adjustment during the period                              1,430            446          (983)       (11,524)
     Plus:  reclassification adjustment for loss
       included in discontinued operations                           -              -          2,087             -
                                                            ----------     ----------     ----------     ---------
     Net foreign currency translation adjustment                 1,430            446          1,104       (11,524)
                                                            ----------     ----------     ----------     ---------


  Unrealized loss from investments:
     Unrealized holding losses arising during  
       the period                                              (10,244)       (11,438)        (4,935)       (5,450)
     Less:  reclassification adjustment for net 
       gains included in net income                               (635)             -         (2,435)            -
                                                            ----------     ----------     ----------     ---------
     Net unrealized loss from investments                      (10,879)       (11,438)        (7,370)       (5,450)
                                                            ----------     ----------     ----------     ---------

Other comprehensive loss                                        (9,449)       (10,992)        (6,266)      (16,974)
                                                            ----------     ----------     ----------     ---------

Comprehensive income                                        $   15,938     $    4,750     $   73,602     $  14,104
                                                            ----------     ----------     ----------     ---------
                                                            ----------     ----------     ----------     ---------
</TABLE>


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


                                          5
<PAGE>

                                  CHIRON CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (UNAUDITED)
                                    (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                         SIX MONTHS ENDED 
                                                                                    ----------------------------
                                                                                    JUNE 30,          JUNE 30,
                                                                                      1998              1997  
                                                                                    ----------       -----------
<S>                                                                                 <C>              <C>
Net cash provided by operating activities                                           $   46,698       $   61,387
                                                                                    ----------       ----------
Cash flows from investing activities:                                                                   
  Purchases of investments in marketable debt securities                              (222,316)         (27,911)
  Proceeds from sale and maturity of investments in marketable debt securities         127,620           39,760
  Capital expenditures                                                                 (35,548)         (36,383)
  Proceeds from disposal of discontinued operations                                    298,939                -
  Proceeds from sale of assets                                                          18,482                -
  Business acquired, net of cash acquired                                              (54,770)               -
  Other, net                                                                            (7,084)          (7,976)
                                                                                    ----------       ----------
    Net cash provided by (used in) investing activities                                125,323          (32,510)
                                                                                    ----------       ----------
                                                                                                        
Cash flows from financing activities:                                                                   
  Proceeds from issuance of short-term debt                                                  -           16,014
  Repayment of short-term debt                                                        (137,025)               -
  Repayment of notes payable and capital leases                                         (1,319)         (30,818)
  Proceeds from issuance of common stock                                                25,960           29,740
                                                                                    ----------       ----------
    Net cash (used in) provided by financing activities                               (112,384)          14,936
                                                                                    ----------       ----------
                                                                                                        
    Net increase in cash and cash equivalents                                           59,637           43,813
Cash and cash equivalents at beginning of the period                                    98,483           68,114
                                                                                    ----------       ----------
Cash and cash equivalents at end of the period                                      $  158,120       $  111,927
                                                                                    ----------       ----------
                                                                                    ----------       ----------
</TABLE>


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


                                          6
<PAGE>

                                  CHIRON CORPORATION
                 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    JUNE 30, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     The information at June 30, 1998, and for the three and six months ended
June 30, 1998 and 1997, is unaudited, but includes all normal recurring
adjustments which the management of Chiron Corporation (the "Company" or
"Chiron") believes to be necessary for fair presentation of the periods
presented.  In addition, in the second quarter of 1998, a $6.0 million reduction
in cost of sales was recognized due to a change in estimated property tax
accruals created in prior periods; a $3.6 million reduction in restructuring and
reorganization charges was recognized due to a revised estimate of property and
other tax-related accruals recorded in 1995 in connection with the idling of the
Puerto Rico facility (see Note 3); and a $3.6 million reduction in selling,
general and administrative expenses was recognized due to changes in estimated
accruals created in prior periods.  In the second quarter of 1997, a $6.6
million reduction in cost of sales was recognized due to a revised estimate of
royalties to be paid on sales of certain diagnostic products; a $4.7 million
reduction in selling, general and administrative expenses was recognized due to
changes in estimated accruals created in prior periods; and $0.9 million of
other revenues was recognized as a result of a reduction in estimated royalty
reserves created in the first quarter of 1997.  

     The condensed consolidated balance sheet amounts at December 31, 1997 have
been derived from audited financial statements.  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 28, 1997, which are included in the Annual Report on
Form 10-K filed by the Company with the Securities and Exchange Commission.

     In the first quarter of 1998, Chiron completed the sale of its ophthalmic
business unit, Chiron Vision Corporation ("Chiron Vision"), to Bausch & Lomb
Incorporated (see Note 2).  The accompanying Condensed Consolidated Statements
of Operations for all periods presented reflect the after-tax results of Chiron
Vision, and the gain on disposal thereof, as discontinued operations. 
     
     In the second quarter of 1998, Chiron acquired Hoechst AG's 51 percent
interest in Chiron Behring GmbH & Co KG ("Chiron Behring") in an acquisition
accounted for under the purchase method of accounting (see Note 6). Beginning
March 31, 1998, the financial position and results of operations of Chiron
Behring are consolidated with those of the Company.

     FISCAL YEAR

     The fiscal year of the Company is a 52 or 53-week year ending on the Sunday
nearest the last day in December of each year.  As a result, the second quarters
of 1998 and 1997 represent the thirteen-week periods ended June 28, 1998 and
June 29, 1997, respectively.  For presentation purposes, dates used in the
condensed consolidated financial statements and notes refer to the fiscal month
end.


                                          7
<PAGE>

                                  CHIRON CORPORATION
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   JUNE 30, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     INVENTORIES

     Pharmaceutical inventories are stated at the lower of cost or market using
the average cost method or, in the case of certain vaccine products, using the
last-in, first-out ("LIFO") method. Diagnostic, ophthalmic (see Note 2), and
certain other vaccine products are valued at cost, using the first-in, first-out
("FIFO") method which is less than market value.  Inventories consist of the
following:

<TABLE>
<CAPTION>

                                                JUNE 30,    DECEMBER 31,
                                                  1998          1997  
                                               ----------   ------------
                                                    (IN THOUSANDS)
                    <S>                        <C>          <C>
                    Finished goods             $  61,513     $   82,896
                    Work in process               73,870         47,417
                    Raw materials                 34,848         35,339
                                               ---------     ----------
                                               $ 170,231       $165,652
                                               ---------     ----------
                                               ---------     ----------
</TABLE>

     INCOME TAXES

     The 1998 estimated annual tax provision is expected to be 25 percent of
pretax income from continuing operations, excluding restructuring and
reorganization charges, a financial reporting gain on sale of assets (see Note
5), and $6.0 million of financial reporting income recognized in the second
quarter of 1998 due to a change in estimated property tax accruals. The
provision may be affected in future periods by changes in management's estimates
with respect to the Company's deferred tax assets and other items affecting the
overall tax rate. Restructuring and reorganization charges recorded during the
six months ended June 30, 1998 are expected to create a current additional
income tax benefit of approximately $1.2 million in 1998.  The Company does not
anticipate an income tax benefit from these charges for the three months ended
June 30, 1998. The $1.2 million benefit is lower than the estimated annual tax
rate applied to the restructuring and reorganization charges in the first half
of 1998 due to the timing of the deduction of a certain portion of the charges
for income tax purposes, and because a substantial portion of the charge offsets
income of certain subsidiaries which, without regard to such charges, is already
taxed at a low effective rate due to the use of certain net operating loss
carryforwards.  The sale of the Company's Puerto Rico facility, for which a
financial reporting gain on sale of assets was recorded during the three and six
months ended June 30, 1998, resulted in a tax deductible loss for which a
current additional income tax benefit of approximately $1.5 million was
recognized.  These income tax benefits offset income tax expense attributable to
pretax income from continuing operations and, accordingly, reduce the effective
rate of tax on continuing operations.  Financial reporting income of $6.0
million was recognized during the three and six months ended June 30, 1998 from
a change in estimated property tax accruals; such accruals were not tax
deductible and, accordingly, the change of estimate resulted in no income tax
provision.  As they more likely than not will be realized, net deferred tax
assets of $2.5 million and $3.5 million and corresponding credits to deferred
tax expense, were recognized during the three and six months ended June 30,
1998, respectively, for U.S. federal and state tax purposes.  The recognition of
such net deferred tax assets is based on management's estimates of future
taxable income in the United States and for certain foreign jurisdictions in
which the Company's operations have historically been profitable.  Such
estimates are subject to change based on future events and, accordingly, the
amount of deferred tax assets recognized may increase or decrease from period to
period.   

     Income tax expense for the three and six months ended June 30, 1997 was
based on an estimated annual effective tax rate on pretax income from continuing
operations of approximately 30 percent.  The actual 1997 annual effective tax
rate of 24 percent, exclusive of the impact of an impairment loss in the third
quarter, reflects a change in estimate during the second half of 1997 of the mix
of foreign versus domestic profits, benefits of certain tax credits and loss
carryforwards, and anticipated foreign sales corporation benefits.


                                          8
<PAGE>

                                  CHIRON CORPORATION
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   JUNE 30, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     PER SHARE DATA

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" ("SFAS 128"), basic earnings per share data is based
on the weighted-average number of common shares outstanding during the period. 
Diluted earnings per share data is based on the weighted-average number of
common and dilutive potential common shares outstanding.  Dilutive potential
common shares result from (i) the assumed exercise of outstanding stock options,
warrants and equivalents thereof that have a dilutive effect when applying the
treasury stock method; and (ii) performance units to the extent that dilutive
shares are assumed to be issuable if the contingency and reporting periods ended
on the same date.  All prior-period per share data has been restated to conform
with the provisions of SFAS 128 subsequent to its adoption by the Company in the
fourth quarter of 1997.

     Income from continuing operations as reported and available to common
stockholders was $25.4 million and $14.5 million for the three and six months
ended June 30, 1998, respectively, and $14.8 million and $31.2 million for the
three and six months ended June 30, 1997, respectively.  A reconciliation of the
denominators of Chiron's earnings per common share computations is as follows:

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                ----------------------------   -------------------------
                                                                   JUNE 30,       JUNE 30,       JUNE 30,       JUNE 30,
                                                                     1998           1997           1998           1997  
                                                                ------------    ------------   ------------  ------------
                                                                                      (IN THOUSANDS)
          <S>                                                   <C>             <C>            <C>           <C>
          Weighted-average common shares outstanding                 177,308         172,996        176,725       172,270
          Effect of dilutive securities:                      
            Options and equivalents                                    2,585           3,771          2,703         4,149
            Warrants                                                     187             188            188           192
            Performance units                                              -              56              -            36
                                                                ------------    ------------   ------------  ------------
          Weighted-average common shares outstanding 
            plus assumed conversions                                 180,080         177,011        179,616       176,647
                                                                ------------    ------------   ------------  ------------
                                                                ------------    ------------   ------------  ------------
</TABLE>

     A total of 12,026,000 shares of common stock issuable upon conversion of
the Company's convertible subordinated debentures, having a weighted-average
conversion price of $29.43 per share, has been excluded from the computations of
diluted earnings per common share for all periods presented since its inclusion
would be antidilutive.

     For the three and six months ended June 30, 1998, options to purchase
13,500,000 and 13,456,000 shares, respectively, of common stock were outstanding
on a weighted-average basis but were excluded from the computation of diluted
earnings per common share because the options' exercise prices were greater than
the respective average market price of the underlying stock of $19.07 in the
second quarter of 1998 and $19.06 in the first half of 1998.  An insignificant
number of performance units contingently payable in shares of common stock was
also excluded from the computation of diluted earnings per common share based on
the performance goals which were then unmet at June 30, 1998. 

     For the three and six months ended June 30, 1997, options to purchase
11,435,000 and 11,129,000 shares, respectively, of common stock were outstanding
on a weighted-average basis but were excluded from the computation of diluted
earnings per common share because the options' exercise prices were greater than
the average market price of the underlying stock of $19.10 in the second quarter
of 1997 and $19.27 in the first half of 1997.  An insignificant number of
performance units contingently payable in shares of common stock was also
excluded from the computation of diluted earnings per common share based on the
performance goals which were then unmet at June 30, 1997.  


                                          9
<PAGE>

                                  CHIRON CORPORATION
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                    JUNE 30, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     COMPREHENSIVE INCOME

     In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes standards for reporting
and display of comprehensive income and its components.  In accordance with SFAS
130, the Company has displayed the components of "Other comprehensive loss" and
"Comprehensive income," net of their related tax effects, in the accompanying
Condensed Consolidated Statements of Comprehensive Income.  The net foreign
currency translation adjustment and components thereof have no tax effect as the
Company makes no provision for U.S. income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations.  All prior-period data has been reclassified to conform with the
provisions of SFAS 130.  

     SEGMENT INFORMATION

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997. 
SFAS 131 establishes standards for reporting financial and descriptive
information about an enterprise's operating segments in its annual financial
statements and selected segment information in interim financial reports.
Although SFAS 131 need not be applied to interim financial statements in the
initial year of application, comparative information for interim periods of
fiscal 1998 will be reported in the Company's interim financial statements in
fiscal 1999.  Further, all comparative information for prior periods will be
restated to conform with the provisions of SFAS 131.  Application of the
disclosure requirements of SFAS 131 will have no impact on the Company's
consolidated financial position, results of operations or earnings per share
data as currently reported.

     NEW ACCOUNTING STANDARD
     
     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is effective for all quarters of fiscal years beginning after June 15,
1999.  SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities.  In accordance with SFAS 133, an entity
is required to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. 
SFAS 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.  The Company has not determined the
timing or method of adoption and is currently evaluating the effect that
implementation of SFAS 133 will have on its results of operations and financial
position.
   
NOTE 2--DISCONTINUED OPERATIONS

     On December 29, 1997, Chiron completed the sale of all of the outstanding
capital stock of Chiron Vision, a wholly owned subsidiary, to Bausch & Lomb
Incorporated ("B&L") for approximately $300.0 million in cash, subject to
certain post-closing adjustments.  The sale was completed under the terms of a
Stock Purchase Agreement (the "Agreement"), dated as of October 21, 1997,
between Chiron and B&L.  In accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," Chiron Vision is reported as a discontinued
operation for all periods presented in the accompanying Condensed Consolidated
Statements of Operations.  Chiron Vision's cash and cash equivalents totaling
$2.7 million, certain Chiron Vision real estate assets (the "real estate
assets") with a carrying value of $25.1 million and Chiron Vision's future
noncancelable operating lease costs totaling $1.1 million were retained by the
Company upon completion of 


                                          10
<PAGE>

                                  CHIRON CORPORATION
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   JUNE 30, 1998
   
NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)

the sale.  Additionally, the Company agreed to provide customary indemnities
under the terms of the Agreement. 

     For a period of three years following the completion of the sale, Chiron
Vision has the right to use the currently occupied portion of the real estate
assets on a rent-free basis.  The real estate assets are recorded in the
accompanying Condensed Consolidated Balance Sheet at June 30, 1998 as a
component of "Assets held for sale" (see Note 4).  In the first quarter of 1998,
the Company recorded a $13.6 million adjustment to record the real estate assets
at their estimated fair value, determined on the basis of independent
appraisals, less cost to sell.  This adjustment was recorded as a reduction to
the "Gain on disposal of discontinued operations" in the accompanying Condensed
Consolidated Statement of Operations for the six months ended June 30, 1998.

     The accompanying Condensed Consolidated Balance Sheets include the net
assets of discontinued operations, including the real estate assets, as follows:

<TABLE>
<CAPTION>
 
                                                                       JUNE 30,    DECEMBER 31,
                                                                        1998           1997    
                                                                     -----------    ----------
                                                                            (IN THOUSANDS)
       <S>                                                           <C>           <C>
       Accounts receivable, net                                      $         -    $   48,073
       Inventories                                                             -        37,944
       Assets held for sale                                               11,500             -
       Property, plant, equipment and leasehold improvements, net              -        47,634
       Purchased technology, net                                               -        25,068
       Other intangible assets, net                                            -        41,567
       Accounts payable and other current liabilities                          -       (38,343)
       Other assets and liabilities, net                                       -         5,025
                                                                     -----------    ----------
                                                                     $    11,500    $  166,968
                                                                     -----------    ----------
                                                                     -----------    ----------
 

</TABLE>

     Chiron Vision recognized total revenues of $52.7 million and $103.1 million
for the three and six months ended June 30, 1997, respectively.  "Income (loss)
from discontinued operations" in the accompanying Condensed Consolidated
Statement of Operations for both the three and six months ended June 30, 1997 is
reported net of a provision for income taxes of $0.8 million. "Gain on disposal
of discontinued operations" in the accompanying Condensed Consolidated Statement
of Operations for the six months ended June 30, 1998 is reported net of a
provision for income taxes of $31.2 million.  

     For the three months ended June 30, 1998, basic and diluted earnings per
common share from discontinued operations was $0.00.  For the three months ended
June 30, 1997, basic and diluted earnings per common share from discontinued
operations were $0.00 and $0.01, respectively.  For the six months ended 
June 30, 1998, basic and diluted earnings per common share from discontinued 
operations were $0.37 and $0.36, respectively.  For the six months ended 
June 30, 1997, basic and diluted loss per common share from discontinued 
operations was ($0.00).

NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES

     In the first half of 1998, Chiron recognized net restructuring and
reorganization charges of $22.3 million, which include a second-quarter net
benefit of $1.9 million and a first-quarter charge of $24.2 million. The net
restructuring and reorganization benefit in the second quarter of 1998 consists
of a $3.6 million benefit due to a revised estimate of property and other
tax-related accruals recorded in 1995 in connection with the idling of the
Puerto Rico facility, and charges of $1.7 million consisting primarily of
facility and employee termination costs. At June 30, 1998, the liability
associated with second-quarter restructuring and reorganization charges was $0.4
million.  


                                          11
<PAGE>

                                  CHIRON CORPORATION
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   JUNE 30, 1998

NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES (CONTINUED)

     Of the $24.2 million restructuring and reorganization charge in the first
quarter of 1998, $21.0 million was due to termination and other employee-related
costs in connection with the planned elimination of 403 positions in sales,
marketing and other administration, manufacturing, and research and development
functions. The elimination of these positions is due primarily to the Company's
ongoing rationalization of business operations, particularly within its
diagnostics business, the consolidation of blood gas instrument manufacturing
and the closure of the Company's St. Louis manufacturing facility.  In
connection with the plan of termination, 283 employees were terminated during
the first half of 1998 and benefits of $6.2 million were paid and charged
against the accrual.  The remaining $3.2 million of first-quarter restructuring
and reorganization charges resulted primarily from facility-related costs.  Of
this amount, approximately $1.3 million was charged against the liability during
the first half of 1998.  At June 30, 1998, the liability associated with
first-quarter restructuring and reorganization charges was $16.7 million.  This
liability is expected to be substantially settled through the first quarter of
1999.  

     The Company anticipates that it will incur future restructuring and
reorganization expenses in the second half of 1998 as it continues to create a
simpler, more efficient cost structure for the organization.

NOTE 4--ASSETS HELD FOR SALE

     Assets held for sale at June 30, 1998 consist of the Company's St. Louis
facility and the real estate assets from discontinued operations, described in
Note 2.  In March 1998, the Company committed to plans to sell its manufacturing
facility in St. Louis, Missouri and its related machinery and equipment assets.
These plans were made in response to Chiron's ongoing analysis of manufacturing
capacity relative to its projected needs.  The carrying amount of the St. Louis
facility and related machinery and equipment assets (collectively, the "St.
Louis facility") was $18.3 million at June 30, 1998.  Operating expenses of the
St. Louis facility of $0.9 million and $3.1 million for the three and six months
ended June 30, 1998, respectively, and $3.3 million and $6.6 million for the
three and six months ended June 30, 1997, respectively, are included in "Income
from operations" in the accompanying Condensed Consolidated Statements of
Operations. The Company is currently in negotiations for sale of the St. Louis
facility in the third quarter of 1998. 

NOTE 5--GAIN ON SALE OF ASSETS 
          
     In March 1998, the Company committed to plans to sell its idle
pharmaceutical fill and finishing facility in Puerto Rico and related machinery
and equipment assets (collectively, the "Puerto Rico facility") in response to
Chiron's ongoing analysis of manufacturing capacity relative to its projected
needs. The resulting adjustment in the first quarter of 1998 to record the
assets held for sale at the lower of their aggregate carrying amount or
estimated fair value, determined on the basis of independent appraisals, less
cost to sell, was insignificant. The Company sold the Puerto Rico facility in
June 1998 to IPR Pharmaceuticals, Inc. for $18.5 million in cash. The sale of
the Puerto Rico facility resulted in a net gain of $6.2 million, which is
reflected as "Gain on sale of assets" in the accompanying Condensed Consolidated
Statements of Operations for the three and six months ended June 30, 1998.  At
the time of sale, the carrying amount of the Puerto Rico facility was $11.1
million.  Operating expenses of the Puerto Rico facility for the second quarter
and first half of 1998, through the date of disposal, were $0.6 million and $2.1
million, respectively.  For the second quarter and first half of 1997, these
expenses were $2.1 million and $4.2 million, respectively. These operating
expenses are included in the Company's "Income from operations" in the
accompanying Condensed Consolidated Statements of Operations for all periods
presented.

NOTE 6--AGREEMENT WITH HOECHST AG

     Effective July 1, 1996, Chiron purchased a 49 percent interest in the human
vaccine business of Behringwerke AG, which subsequently merged into its parent
company, Hoechst AG.  During the period of mutual ownership and through the
first quarter of 1998, Chiron and Hoechst AG operated the vaccine business as a
joint venture. Chiron accounted for its interest under the equity method and
recognized $2.4 million for the three months ended March 


                                          12
<PAGE>

                                  CHIRON CORPORATION
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   JUNE 30, 1998

NOTE 6--AGREEMENT WITH HOECHST AG (CONTINUED)

31, 1998, and $6.2 million and $6.3 million for the three and six months ended
June 30, 1997, respectively, as components of "Equity in earnings of
unconsolidated joint businesses" in the accompanying Condensed Consolidated
Statements of Operations.

     Summarized statement of operations information for Chiron Behring during
the period of mutual ownership and through the first quarter of 1998, which
excludes Chiron's amortization of intangible assets recorded in the July 1996
acquisition, is as follows:

<TABLE>
<CAPTION>
  
                                                     Three Months   Three Months     Six Months
                                                        Ended          Ended           Ended
                                                      March 31,       June 30,        June 30,
                                                        1998           1997             1997
                                                    -------------  --------------   -------------
                                                                (IN THOUSANDS)
      <S>                                           <C>            <C>              <C>
      Net sales                                     $    36,356    $    41,913      $   84,038
      Gross profit                                  $    21,075    $    26,778      $   54,389
      Income from continuing operations before      
         extraordinary items and cumulative effect  
         of a change in accounting principle        $     6,213    $     9,326      $   19,177
      Net income                                    $     6,213    $     9,326      $   19,177
</TABLE>

     Prior to December 1997, Chiron's share of the joint venture's results were
reported on a one-month lag.  As a result, Chiron's equity in earnings of Chiron
Behring for the second quarter and first half of 1997 was calculated based, in
part, on the joint venture's net income for the three and six months ended May
31, 1997 of $13.6 million and $14.2 million, respectively, rather than the net 
income of $9.3 million and $19.2 million for the three and six months ended 
June 30, 1997, respectively, reflected above. 

     On March 31, 1998, Chiron acquired Hoechst AG's 51 percent interest in
Chiron Behring.  The acquisition was accounted for under the purchase method 
of accounting. The purchase price of approximately $113.1 million was 
allocated to the acquired assets and liabilities assumed based upon their 
estimated fair value on the acquisition date. In connection with the 
acquisition, liabilities were assumed as follows:

<TABLE>
<CAPTION>
                                                                 (IN THOUSANDS)
     <S>                                                          <C>
     Fair value of assets acquired                                $    264,041
     Carrying value of original investment in Chiron Behring          (117,157)
     Cash paid                                                        (111,889)
     Acquisition costs                                                  (1,180)
                                                                  ------------
     Liabilities assumed                                          $     33,815
                                                                  ------------
                                                                  ------------
</TABLE>

     Chiron recognized as an expense the amount of the purchase price allocated 
to purchased in-process technologies, resulting in a charge against earnings of 
approximately $1.6 million in the second quarter of 1998. Other purchased 
intangible assets of approximately $135.0 million, including goodwill, 
trademarks, patents and customer list, are being amortized over their 
estimated useful lives of 4 to 18 years on a straight-line basis. The results 
of operations of Chiron Behring are included in Chiron's consolidated 
operating results beginning in the second quarter of 1998.

     The following unaudited pro forma information presents the results of
continuing operations of Chiron and Chiron Behring for the three months ended
June 30, 1997 and the six months ended June 30, 1998 and 1997, with pro forma
adjustments as if Chiron's acquisition of the remaining 51 percent interest in
Chiron Behring had been consummated as of January 1, 1997.  Given the Company's
acquisition of the remaining 51 percent interest in, and consolidation of,
Chiron Behring effective March 31, 1998, pro forma information for the three
months ended June 30, 1998 is not applicable. The pro forma information does not
purport to be indicative of what would have occurred had the acquisition been
made as of those dates or of results which may occur in the future.  In
addition, the pro forma information for the three months ended June 30, 1997 and
the six months ended June 30, 1998 and 1997, does not include the write-off of
purchased in-process technologies of $1.6 million (the "non-recurring charge")
related to the acquisition of the remaining 51 percent interest in Chiron
Behring, which is reflected in the Company's results as reported for the three
months ended June 30, 1998. 


                                          13
<PAGE>

                                  CHIRON CORPORATION
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   JUNE 30, 1998

NOTE 6--AGREEMENT WITH HOECHST AG (CONTINUED)

The unaudited pro forma information is as follows:  

<TABLE>
<CAPTION>
                                                       Three Months    Six Months     Six Months
                                                          Ended          Ended           Ended 
                                                         June 30,       June 30,        June 30,
                                                           1997           1998            1997 
                                                       ------------    -----------    -----------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
          <S>                                          <C>             <C>            <C> 
          Total revenues                               $  316,813      $  608,398     $  638,770
          Income from continuing operations                                               
            before the non-recurring charge            $   25,616      $   16,881     $   48,175
          Pro forma income per share from continuing                                      
            operations before the non-recurring charge:                                    
            Basic                                      $     0.15      $     0.10     $     0.28
            Diluted                                    $     0.14      $     0.09     $     0.27
</TABLE>

     As discussed in Note 1, the fiscal year of the Company is a 52 or 53-week
year ending on the Sunday nearest the last day in December of each year.  Chiron
Behring, however, is accounted for on a calendar year basis, which may not
coincide with the Company's quarter-end and year-end periods.
     
NOTE 7--CONTINGENCIES

     The Company is party to various claims, investigations and legal
proceedings arising out of the normal course of its business.  These claims,
investigations and legal proceedings relate to intellectual property rights,
contractual rights and obligations, employment matters, shareholder derivative
claims, claims of product liability, and other issues. While there can be no
assurance that an adverse determination of any such matters could not have a
material adverse impact in any future period, management does not believe, based
upon information known to it, that the final resolution of these matters will
have a material adverse effect upon the Company's consolidated financial
position and annual results of operations and cash flows.   

NOTE 8--SUBSEQUENT EVENTS

     AGREEMENT WITH GEN-PROBE, INC. ("GEN-PROBE")

     In the third quarter of 1998, Chiron and Gen-Probe, a wholly owned 
subsidiary of Chugai Pharmaceutical Co., Ltd., signed an agreement to form a 
strategic alliance to develop, manufacture and market nucleic acid probe 
assay systems for blood screening and certain areas of diagnostics.  Under 
the terms of the agreement, Chiron will market and sell products that utilize 
the Company's intellectual property relating to hepatitis C (HCV) and human 
immunodeficiency virus (HIV) and Gen-Probe's patented transcription-mediated 
amplification (TMA), target capture, hybridization protection assay (HPA) and 
dual kinetic assay (DKA) technologies.  In exchange for the rights to 
Gen-Probe's technology, Chiron paid $10.0 million upon signing the agreement, 
which will be recorded as a component of "Other intangible assets, net" in 
the Company's consolidated balance sheet at September 30, 1998. This asset 
will be utilized across a broad base of technology within the Company's blood 
screening and nucleic acid diagnostic businesses.  In addition, Chiron is 
obligated to pay an additional $15.0 million 30 days after Gen-Probe's 
submission of an investigational new drug application to the Food and Drug 
Administration ("FDA") and another $10.0 million upon Gen-Probe's receipt of 
marketing approval from the FDA.  The agreement also provides certain 
provisions for additional cost sharing and royalties upon the 
commercialization of specified products.  

                                          14
<PAGE>

                                  CHIRON CORPORATION
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                    JUNE 30, 1998

NOTE 8--SUBSEQUENT EVENTS (CONTINUED)

     AGREEMENT WITH INTERNATIONAL BUSINESS MACHINES CORPORATION ("IBM")

     Effective July 1, 1998, Chiron and IBM executed a ten-year information
technology services agreement.  Under this agreement, IBM will provide Chiron
with a full range of information services, including designing and deploying a
company-wide distributed network system, establishing a comprehensive help-desk
operation, and developing a standardized desk-top platform using IBM
workstations. Chiron may terminate this agreement beginning July 1, 1999, with
no less than 180 days prior notice to IBM, subject to certain termination
charges. Through July 1, 1999, Chiron's payments to IBM will total $19.3
million. If Chiron does not terminate this agreement prior to expiration, 
payments to IBM will approximate $138.8 million in aggregate. Payments to IBM
are subject to adjustment depending upon the levels of services and
infrastructure equipment provided by IBM. 

     PURCHASE OF MANUFACTURING AND ADMINISTRATIVE FACILITIES

     On July 16, 1998, the Company completed the purchase of manufacturing and
administrative facilities in Siena, Italy, which were previously under lease. 
The net purchase price of 35.3 billion Italian lira (approximately $20.2
million), will be recorded as a component of "Land and buildings" in the
Company's consolidated balance sheet at September 30, 1998.

     LICENSE ISSUANCE FEE REVENUES

     In July 1998, the Company entered into a non-exclusive license agreement
with respect to certain of its technologies.  Under this agreement, Chiron
expects to recognize one-time non-refundable license issuance fee revenues of
$24.0 million in the third quarter of 1998. 


                                          15
<PAGE>

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

                                  CHIRON CORPORATION

OVERVIEW

     THE DISCUSSION BELOW CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES RELATING TO THE FUTURE FINANCIAL PERFORMANCE OF CHIRON
CORPORATION (THE "COMPANY" OR "CHIRON"), AND ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY.  IN EVALUATING SUCH STATEMENTS, STOCKHOLDERS AND INVESTORS SHOULD
SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED UNDER THE CAPTION "FACTORS
THAT MAY AFFECT FUTURE OPERATING RESULTS" WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCES OF
UNANTICIPATED EVENTS.

     THE DISCUSSION BELOW SHOULD BE READ IN CONJUNCTION WITH PART I, ITEM 1,
"FINANCIAL STATEMENTS," OF THIS QUARTERLY REPORT ON FORM 10-Q AND PART II, ITEMS
7, 7A AND 8, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK" AND "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA," RESPECTIVELY, OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1997.

     Chiron develops, manufactures and markets human healthcare products for the
prevention, diagnosis and treatment of disease utilizing innovations in biology
and chemistry.  Chiron participates in three human healthcare markets: (i)
diagnostics, including blood screening tests, automated immunodiagnostic
systems, critical blood analyte systems and nucleic acid probe tests; (ii) adult
and pediatric vaccines; and (iii) therapeutics, with an emphasis on oncology,
serious infectious diseases and critical care diseases.  Chiron also develops or
acquires new technologies, employing these technologies to discover new products
for the Company or for its partners.  On December 29, 1997, Chiron completed the
sale of its ophthalmic business unit, Chiron Vision Corporation ("Chiron
Vision"), to Bausch & Lomb Incorporated ("B&L").  The Company's condensed
consolidated statements of operations reflect the after-tax results of Chiron
Vision, and the gain on disposal thereof, as discontinued operations for all
periods presented. In addition, Chiron is currently examining various strategic
transactions, including a possible joint venture arrangement, involving
significant portions of its diagnostics business.  

RESULTS OF OPERATIONS

REVENUES

     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:

<TABLE>
<CAPTION>

                                        THREE MONTHS ENDED             SIX MONTHS ENDED
                                     -------------------------     -----------------------
                                     JUNE 30,        JUNE 30,      JUNE 30,       JUNE 30,
                                       1998            1997          1998           1997  
                                     ---------      ----------     ---------     ---------
                                                         (IN THOUSANDS)
          <S>                        <C>            <C>            <C>           <C>
          Diagnostic products        $146,607       $154,929       $286,309       $303,951
          Vaccine products             43,973         17,191         58,441         35,710
          Therapeutic products         46,990         31,525         97,292         64,775
                                     --------       --------       --------       --------
                                     $237,570       $203,645       $442,042       $404,436
                                     --------       --------       --------       --------
                                     --------       --------       --------       --------

</TABLE>

     Sales of the Company's diagnostic products are moderately seasonal, with
lower sales in the first and third quarters and higher sales in the second and
fourth quarters of the year.  Sales of certain of the Company's vaccine
products, particularly flu vaccine, also are seasonal, with higher sales in the
fourth quarter of the year.  As a result, Chiron's results in any one quarter
are not necessarily indicative of results to be expected for a full year.


                                          16
<PAGE>

     The Company markets most 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 in the second quarter of
1998 and 1997 were approximately $146.6 million and $114.6 million,
respectively. For the first half of 1998 and 1997, foreign product sales were
$253.7 million and $228.1 million, respectively. The overall increase in foreign
product sales between periods was primarily due to Chiron's acquisition of the
remaining 51 percent interest in, and consolidation of, Chiron Behring GmbH & Co
KG ("Chiron Behring"), effective March 31, 1998. See additional discussion under
AGREEMENT WITH HOECHST AG herein. Changing currency exchange rates have had, and
will continue to have, an impact on Chiron's results.  For the second quarter
and first half of 1998, product sales would have been higher by $6.8 million and
$15.2 million, respectively, had currency exchange rates in 1998 remained
constant with those in 1997. In addition, Chiron's product sales in the
Asia/Pacific area, consisting largely of diagnostic products, are subject to
fluctuation due to the economic crises that are occurring throughout that
region.  There can be no assurances that these economies will recover in the
near term or that the Asian financial crisis will not have a material adverse
impact on the Company's results of operations in future periods.  The Company's
non-product revenues, discussed below, are largely denominated in U.S. dollars
but are affected by the Company's joint partners' and collaborators' non-U.S.
operations. 

     DIAGNOSTIC PRODUCTS Diagnostic product sales include sales and sales-type
leases of immunodiagnostic testing systems (ACS:180-Registered Trademark- and
ACS:Centaur-TM- automated chemiluminescence systems), reagents and supplies for
these systems and revenues from instruments, reagents and supplies under related
operating leases; sales of critical care systems, clinical chemistry products
and manual immunodiagnostic systems; sales of branched DNA ("bDNA") probe
systems and kits for human immunodeficiency virus ("HIV"), hepatitis C virus
("HCV") and hepatitis B virus ("HBV"), which are available in the U.S. for
research use only; and sales of blood screening antigens and kits. Sales of
diagnostic products decreased by $8.3 million and $17.6 million in the second
quarter and first half of 1998, respectively, as compared with the same periods
in 1997, primarily due to the December 1997 sale and closure of the worldwide
Quality Controls business and electrophoresis business, respectively, which
contributed an aggregate of $6.4 million and $12.8 million to diagnostic product
sales in the second quarter and first half of 1997, respectively.  In addition,
had exchange rates in the second quarter and first half of 1998 remained
constant with those in the same periods of 1997, particularly in Japan, Germany,
Australia, France and Korea, diagnostic product sales in the second quarter and
first half of 1998 would have been higher by $5.9 million and $12.6 million,
respectively. Diagnostic product sales in the second quarter and first half of
1998, as compared with the corresponding periods in 1997, reflect increased
sales of ACS:180-Registered Trademark- immunodiagnostic products, despite
competitive pricing pressure on certain assays, and increased sales of critical
blood gas instruments.  The increase in sales of ACS:180-Registered Trademark-
immunodiagnostic products reflects increased sales volume of reagents resulting
from the compounding effect of increased ACS:180-Registered Trademark- system
placements as compared with the prior year.  The increase in sales of critical
blood gas instruments reflects strong domestic sales as well as a shift in the
mix of sales from operating leases to capital sales.

     VACCINE PRODUCTS  Vaccine product sales consist principally of sales by
Chiron Behring and by Chiron's Italian subsidiary of pediatric and flu vaccines
in Germany, Italy and certain international markets.  Vaccine product sales in
the second quarter and first half of 1998 increased by $26.8 million and $22.7
million, respectively, as compared with the corresponding periods in 1997, due
to Chiron's acquisition of the remaining 51 percent interest in, and
consolidation of, Chiron Behring effective March 31, 1998.  Decreased sales of
the Company's oral polio vaccine in the second quarter and first half of 1998 as
compared with the same periods of the prior year were largely offset by
increased vaccine sales of haemophilus influenzae type B (HIB) and adult
influenza vaccines.  The supply constraints related to the Company's oral polio
vaccine experienced in 1997 and through much of the second quarter of 1998 have
been resolved, and sales in the third and fourth quarter of 1998 are expected to
increase over their current level.

     THERAPEUTIC PRODUCTS  Sales of Proleukin-Registered Trademark-
(aldesleukin, interleukin-2) increased $7.7 million and $10.7 million in the 
second quarter and first half of 1998, respectively, as compared with the 
corresponding periods in 1997, due to (i) a domestic sales price increase in 
January 1998, and (ii) volume increases attributable to continued growth in 
existing indications and the expanded use of Proleukin-Registered Trademark- 
for the new indication of metastatic melanoma.  Also contributing to the 
overall increase in Proleukin-Registered Trademark- sales was an increase in 
vials sold in European markets. On an annual basis, Proleukin-Registered 
Trademark- revenues in 1998 are not expected to increase at the current rate. 

     Under the terms of a development and supply agreement with Schering AG,
Germany ("Schering AG"), and its U.S. affiliate, Berlex Laboratories, Inc.
("Berlex"), Chiron manufactures Betaseron-Registered Trademark- (interferon
beta-1b) for Berlex and Schering AG.  Under the terms of the agreement, Chiron
earns an initial partial payment for Betaseron-Registered Trademark- upon
shipment 


                                          17
<PAGE>

to Berlex and Schering AG and a subsequent secondary payment for
Betaseron-Registered Trademark- upon net sales of the product to patients.
Beginning July 1997, the terms of payment changed, with a larger portion due
when sales are realized rather than at the time of initial shipment.  The
increase in Betaseron-Registered Trademark- product sales in the second quarter
and first half of 1998 of $2.8 million and $3.2 million, respectively, reflects
the change in payment terms described above and an increase in vials sold to
Berlex and Schering AG. Secondary revenues earned by Chiron represent only part
of the total revenues derived from Betaseron-Registered Trademark- sales by
Berlex and Schering AG.  The timing of future shipments to Berlex and the
related revenue may vary based upon the inventory management practices of
Berlex.  A contractual decrease in the total payments received by Chiron for the
manufacture of Betaseron-Registered Trademark- will occur in October 1998.  This
contractual decrease is not anticipated to impact Betaseron-Registered
Trademark- product sales until December 1998 when the secondary revenues are
recognized. 

     Revenues derived from platelet-derived growth factor ("PDGF"), which were
first recognized in the third quarter of 1997, contributed $4.6 million and
$17.9 million to Chiron's net product sales in the second quarter and first half
of 1998, respectively. PDGF is the active ingredient in Johnson & Johnson's
Regranex-Registered Trademark- (becaplermin) Gel (recombinant human
platelet-derived growth factor -rhPDGF-BB), a treatment for diabetic foot
ulcers.  Of the total PDGF revenues recognized during the first half of 1998,
$8.0 million resulted from a contractual price adjustment to Chiron's 1997
sales, which was recognized during the first quarter of 1998, and approximately
$9.9 million was attributable to 1998 shipments.  Revenues from sales of PDGF
are expected to fluctuate significantly in future periods subject to the
inventory management practices of Ortho-McNeil Pharmaceutical, Inc., a Johnson &
Johnson ("J&J") company, and to the development of the market for
Regranex-Registered Trademark-.

     DIAGNOSTIC JOINT BUSINESS  Equity in earnings of unconsolidated joint
businesses consists substantially of Chiron's one-half interest in the pretax
operating earnings of its joint blood screening business with Ortho Diagnostic
Systems, Inc. ("Ortho"), a J&J company. The joint business sells a full line of
tests required to screen blood for hepatitis viruses and retroviruses, and
provides supplemental tests and microplate-based instrument systems to automate
test performance and data collection.  The joint business also holds the
immunodiagnostic rights to Chiron's hepatitis and retrovirus technology and
receives royalties from several companies, including Abbott Laboratories,
Pasteur Sanofi Diagnostics and Genelabs Diagnostic, Inc., for their sales of
certain tests. Chiron and Ortho separately are developing new immunodiagnostic
instrument systems expected to contain broad menus of immunodiagnostic tests to
serve their respective clinical diagnostic businesses.  Chiron must obtain
Ortho's agreement in order that hepatitis and retrovirus tests may be developed
and marketed for use on Chiron Diagnostics' new systems.  There can be no
assurance that Chiron can obtain such agreement on acceptable terms or at all. 
Refer to Part II, Item 1, "Legal Proceedings--Ortho Diagnostic Systems, Inc." in
this Quarterly Report on Form 10-Q and Part I, Item 3, "Legal Proceedings--Ortho
Diagnostic Systems, Inc." of Chiron's Annual Report on Form 10-K for the fiscal 
year ended December 28, 1997.

     In the second quarter and first half of 1998, Chiron's share of the pretax
operating earnings of the joint business decreased by $5.2 million and $18.8
million, respectively, as compared with the same periods in the prior year.
These earnings are recorded by Chiron on a one-month lag based upon estimates
supplied by Ortho, which are subject to a final adjustment 90 days after the end
of each calendar year (the "final annual accounting").  In the second quarter of
1998, the decrease in joint business revenues as compared with the second
quarter of 1997 resulted from decreased foreign profits of the joint business,
including the adverse impact of changes in foreign currency exchange rates
between years, and joint business asset write-offs related to the implementation
of certain processes to comply with stricter Food and Drug Administration
("FDA") guidelines mandated throughout the industry.  With respect to the first
half of 1998, the final annual accounting for 1997 resulted in a $4.1 million
charge as compared with $0.8 million of income in 1997.  In addition, certain
other items recorded by Chiron in the first quarter of 1998 related to (i)
foreign profits of the joint business, (ii) certain one-time contract
termination fees, and (iii) joint business asset write-offs, contributed $6.9
million to the decrease in joint business revenues in the first half of 1998 as
compared with the first half of 1997. 

     AGREEMENT WITH HOECHST AG  From the date of acquisition and through the 
first quarter of 1998, equity in earnings of unconsolidated joint businesses 
included Chiron's 49 percent share of the after-tax operating results of 
Chiron Behring, which was acquired in July 1996. Chiron's share of earnings 
of the joint venture, including amortization of intangibles, was $2.4 million 
in the first quarter of 1998 and $6.2 million and $6.3 million in the second 
quarter and first half of 1997, respectively. Refer to Note 6 of NOTES TO 
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

     In the second quarter of 1998, Chiron acquired Hoechst AG's 51 percent 
interest in Chiron Behring. The acquisition was accounted for under the 
purchase method of accounting. The purchase price of approximately $113.1 
million, which included approximately $1.8 million of acquisition costs, was 
allocated to the acquired assets and liabilities assumed based upon their 
estimated fair value on the acquisition date. Chiron recognized as an expense 
the amount of the purchase price allocated to purchased in-process 
technologies, resulting in a charge against earnings of approximately $1.6 
million in the second quarter of 1998. Other purchased intangible assets of 
approximately $135.0 million, including goodwill, trademarks, patents and 
customer list, are being amortized over their estimated useful lives of 4 to 
18 years on a straight-line basis. The results of operations of Chiron 
Behring are included in Chiron's consolidated operating results beginning in 
the second quarter of 1998.


                                          18
<PAGE>

     COLLABORATIVE AGREEMENT REVENUES  Collaborative agreement revenues consist
of fees received for research services as they are performed, proceeds from
sales of product rights, proceeds from sales of biological materials to research
partners for preclinical and clinical testing, and fees received upon attainment
of benchmarks specified in the related research agreements.  Collaborative
agreement revenues for the second quarter and first half of 1998 decreased $4.7
million and $7.1 million, respectively, as compared with the same periods of
1997, due largely to decreased revenues recognized under collaborative 
agreements with Green Cross of Japan for HIV gene therapy research and clinical 
development, and with Janssen Pharmaceutica, N.V. for the development and use 
of combinatorial libraries.  In view of these decreases, management does not 
expect future collaborative agreement revenues to be at levels commensurate 
with that in 1997, unless new collaborative arrangements are made. 

     Collaborative agreement revenues also include research and development
funding from Novartis AG ("Novartis"). Under a December 1995 limited liability
company agreement, as amended, Novartis agreed to provide $250.0 million (which
may be increased to $300.0 million subject to certain conditions) through 1999
in support of research and development at Chiron, subject to certain aggregate
annual funding limitations.  In connection with this funding arrangement, Chiron
recognized collaborative agreement revenues of $15.6 million and $18.0 million
for the second quarters of 1998 and 1997, respectively.  For the first half of
1998 and 1997, Chiron recognized $31.6 million and $33.8 million, respectively. 
Chiron anticipates receiving substantial additional funding from Novartis in
future periods under this funding arrangement.  Under the December 1995 limited
liability company agreement, as amended, Novartis' funding obligation will not
exceed $62.3 million in 1998 and $50.3 million (plus any unused portion of the
funding limit for 1998) in 1999.  

     OTHER REVENUES  Other revenues consist principally of product royalties, 
including royalty revenues resulting from Schering AG's European sales of 
Betaferon-Registered Trademark-, revenues generated from promotion and 
co-promotion of Novartis' product Aredia-Registered Trademark- (pamidronate 
disodium for injection), and, beginning in the second quarter of 1998, 
royalty revenues and sales fees generated by Chiron Behring.  Other revenues 
recognized by Chiron in the second quarters of 1998 and 1997 were $26.1 
million and $19.5 million, respectively.  For the first half of 1998 and 
1997, Chiron recognized $53.3 million and $46.6 million, respectively.  The 
overall increase in other revenues in the second quarter of 1998 as compared 
with the corresponding period in 1997 is largely due to $9.3 million of other 
revenues generated by Chiron Behring, consisting primarily of royalties and 
sales fees from HBV vaccines.  In addition, royalty revenues resulting from 
Schering AG's European sales of Betaferon-Registered Trademark- increased by 
$1.1 million in the second quarter of 1998 as compared with the same period 
in 1997.  Partially offsetting the increase in other revenues in the second 
quarter of 1998 as compared with the second quarter of 1997 were decreased 
revenues related to Aredia-Registered Trademark- (see discussion below) and 
the sale of certain oncology-related marketing rights for $2.0 million in the 
second quarter of 1997.  The overall increase in other revenues in the first 
half of 1998 as compared with the first half of 1997 is primarily due to 
royalties and sales fees related to HBV vaccines generated by Chiron Behring, 
an increase of $3.2 million in royalty revenues resulting from Schering AG's 
European sales of Betaferon-Registered Trademark- and a one-time $5.0 million 
license fee received from Pharmacia & Upjohn Company (see discussion below). 
Partially offsetting the increase in the first half of 1998 as compared with 
the corresponding period of 1997 were decreased revenues from 
Aredia-Registered Trademark- (see discussion below) and an aggregate decrease 
of $3.1 million from royalties on sales by Merck & Co., Inc. of HBV vaccines 
and by Novo Nordisk of insulin and glucagon.  A significant contractual 
decrease in royalties related to insulin will occur in January 1999. 
  
     A November 1996 agreement with Novartis, executed primarily in connection
with a consent and agreement that resolved the Federal Trade Commission's review
of the Ciba-Geigy Ltd. and Sandoz Ltd. merger that created Novartis, provided
that Chiron, through a co-promotion arrangement with Novartis, would promote
Aredia-Registered Trademark- for two 


                                          19
<PAGE>

years after a six-month transitional period beginning April 1997.  In 
December 1997, the co-promotion arrangement with Novartis was modified such 
that Chiron would no longer promote Aredia-Registered Trademark- after April 
3, 1998. In the second quarter and first half of 1998, Chiron recognized $0.6 
million and $9.8 million, respectively, of other revenues related to 
Aredia-Registered Trademark-co-promotion services as compared with $6.6 
million in both the second quarter and the first half of 1997.  Prior to 
April 1997, Chiron recognized other revenues from sales fees earned under an 
agreement with Novartis which provided Chiron with sole promotional rights in 
the U.S. to Aredia-Registered Trademark-.  Under this exclusive agreement 
which expired in March 1997, Chiron recognized Aredia-Registered Trademark- 
sales fees of $12.5 million in the first quarter of 1997.

     In January 1998, Chiron recognized $5.0 million of other revenues from a
one-time license fee under an exclusive collaboration with Pharmacia & Upjohn
Company to research, develop, manufacture and commercialize therapeutic and
prophylactic products for the treatment of HCV in humans.  Subject to certain
limitations and cancellation clauses, Chiron and Pharmacia & Upjohn will share
equally in the funding of research activities performed under the collaboration
agreement.  The term of the collaboration is three years, subject to extension
by mutual consent.

COSTS AND EXPENSES

     GROSS PROFIT  Gross profit as a percentage of net product sales for the
quarters ended June 30, 1998 and 1997 was 57 percent and 60 percent,
respectively. For the first six months of 1998 and 1997, gross profit as a
percentage of net product sales was 57 percent and 59 percent, respectively. In
the second quarter of 1998, a $6.0 million reduction in cost of sales was
recognized due to a change in estimated property tax accruals created in prior
periods. In the second quarter of 1997, a $6.6 million reduction in cost of
sales was recognized within Chiron Diagnostics due to a revised estimate of
royalties to be paid on sales of certain products.  Gross profit margin
excluding these items would have been 54 percent and 57 percent for the quarters
ended June 30, 1998 and 1997, respectively, and 55 percent and 57 percent for
the first six months of 1998 and 1997, respectively. 

     The overall decrease in gross profit margin in the second quarter of 
1998 as compared with the corresponding period in 1997 primarily resulted 
from high fixed manufacturing costs related to the launch of the 
ACS:Centaur-TM-, a more powerful immunodiagnostic system designed to markedly 
increase laboratory productivity, and an unfavorable mix of vaccine product 
sales which, beginning with the consolidation of Chiron Behring in the second 
quarter of 1998, includes a significant portion of in-licensed products with 
lower gross margins. The overall decrease in gross profit margin in the 
second quarter of 1998 as compared with the second quarter of 1997 was 
partially offset by improvements in gross profit margins on domestic sales of 
Proleukin-Registered Trademark- due to a January 1998 price increase; sales of 
PDGF in the second quarter of 1998; and the impact of an adverse sales mix of 
diagnostic products in international markets in the second quarter of 1997. 

     In addition to the factors affecting gross profit margin in the second
quarters of 1998 and 1997 discussed above, the overall decline in gross profit
margin in the first half of 1998 as compared with the same period in 1997 is due
to certain nucleic acid diagnostic ("NAD") inventory adjustments and lower
average selling prices of NAD products, particularly in international markets,
in the first quarter of 1998.  This decrease in gross profit margin was
partially offset by improvements in gross profit margin resulting from the
impact of charges recorded in the first quarter of 1997 related to vaccine
inventory reserves and temporarily idled manufacturing facilities in Italy.
Gross profit margin percentages may fluctuate significantly in future periods as
the Company's product mix continues to evolve.

     RESEARCH AND DEVELOPMENT  Chiron recognized research and development 
expenses of $93.5 million and $94.3 million in the second quarters of 1998 
and 1997, respectively.  For the first half of 1998 and 1997, Chiron 
recognized research and development expenses of $184.4 million and $182.2 
million, respectively.  Generally, the Company's research and development 
expenses fluctuate from period to period depending upon the extent of 
clinical trial-related activities, including the manufacturing of clinical 
material; the number of products under development and their progress; and 
the acquisition of companies and new technology and licensing rights.  In the 
second quarter and first half of 1998, research and development expenses 
remained fairly constant despite the consolidation of Chiron Behring in the 
second quarter of 1998, which increased research and development expenses by 
$4.3 million.  Decreases in research and development spending in the second 
quarter and first half of 1998 were primarily related to 
Myotrophin-Registered Trademark- (mecasermin) Injection, and research and 
development costs related to PDGF, HBV vaccine and NAD products. 
Myotrophin-Registered Trademark- Injection is being 

                                          20
<PAGE>

developed by the Company in collaboration with Cephalon, Inc. ("Cephalon") as 
a treatment for amyotrophic lateral sclerosis ("ALS" or Lou Gehrig's 
disease).  On May 8, 1997, an FDA advisory committee found that there was not 
sufficient evidence of efficacy in the use of Myotrophin-Registered 
Trademark- Injection for the treatment of ALS to warrant FDA approval.  In 
November 1997, Chiron and Cephalon withdrew and resubmitted their application 
to the FDA; this was done at the request of the FDA to allow more time for 
review of the new drug application. In May 1998, the FDA issued a letter 
stating that Myotrophin-Registered Trademark- is "potentially approvable," 
subject to the submission of additional information demonstrating that 
Myotrophin-Registered Trademark- is effective in the treatment of ALS. There 
can be no assurance as to whether this information will satisfy the FDA with 
respect to Myotrophin-Registered Trademark-. Although Chiron and Cephalon are 
continuing their discussions with the FDA and intend to provide this 
information, the Company is unable to predict when resolution of this issue 
will occur. In the second quarter and first half of 1998, the Company 
incurred additional research expenses related to certain vaccine research, 
biologics research and cancer targets and mechanisms research.  In addition, 
in connection with a May 1997 agreement with Hyseq, Inc. to collaborate in 
the identification of genetic targets for the development of pharmaceutical 
treatments for cancer, Chiron is obligated to fund allowable research costs, 
in amounts not less than $8.5 million in the first year and $5.5 million in 
each of the second and third years of the collaboration term, incurred by 
Hyseq in performing research requested by the Company. 

     OTHER OPERATING EXPENSES  Selling, general and administrative ("SG&A") 
expenses as a percentage of net product sales in the second quarters of 1998 
and 1997 were 37 percent and 39 percent, respectively.  For the first six 
months of 1998 and 1997, SG&A expenses as a percentage of net product sales 
were 37 percent and 38 percent, respectively.  In the second quarters of 1998 
and 1997, Chiron recognized $3.6 million and $4.7 million, respectively, as 
reductions in SG&A expenses due to changes in estimated accruals created in 
prior periods.  Selling and marketing expenses continued to represent the 
largest portion of total SG&A expenses, as Chiron devoted significant 
resources to support sales volumes in its existing product lines as well as 
new products.  The overall increase in SG&A expenses in the second quarter 
and first half of 1998 as compared with the corresponding periods in 1997 was 
due primarily to the consolidation of Chiron Behring in the second quarter of 
1998, which contributed $13.4 million to SG&A expenses.  In addition, SG&A 
expenses in the second quarter and first half of 1997 included an aggregate 
of $2.0 million and $4.2 million, respectively, of operating expenses 
incurred by Chiron Diagnostics' Quality Controls and electrophoresis 
businesses, which were sold and closed, respectively, in the fourth quarter 
of 1997. 

     In the first half of 1998, Chiron recognized net restructuring and
reorganization charges of $22.3 million, which include a second-quarter net
benefit of $1.9 million and a first-quarter charge of $24.2 million. The net
restructuring and reorganization benefit in the second quarter of 1998 consists
of a $3.6 million benefit due to a revised estimate of property and other
tax-related accruals recorded in 1995 in connection with the idling of the
Puerto Rico facility, and charges of $1.7 million consisting primarily of
facility and employee termination costs.  At June 30, 1998, the liability
associated with second-quarter restructuring and reorganization charges was $0.4
million.  

     Of the $24.2 million restructuring and reorganization charge in the first
quarter of 1998, $21.0 million was due to termination and other employee-related
costs in connection with the planned elimination of 403 positions in sales,
marketing and other administration, manufacturing, and research and development
functions.  The elimination of these positions is due primarily to the Company's
ongoing rationalization of business operations, particularly within its
diagnostics business, the consolidation of blood gas instrument manufacturing
and the closure of the Company's St. Louis manufacturing facility. In connection
with the plan of termination, 283 employees were terminated during the first
half of 1998 and benefits of $6.2 million were paid and charged against the
accrual.  The remaining $3.2 million of first-quarter restructuring and
reorganization charges resulted primarily from facility-related costs.  Of this
amount, approximately $1.3 million was charged against the liability during the
first half of 1998.  At June 30, 1998, the liability associated with
first-quarter restructuring and reorganization charges was $16.7 million.  This
liability is expected to be substantially settled through the first quarter of
1999. The first-quarter restructuring plans are expected to result in reduced
cost of sales, and SG&A and research and development expenses in future 
periods.

     The Company anticipates that it will incur future restructuring and
reorganization expenses in the second half of 1998 as it continues to create a
simpler, more efficient cost structure for the organization.


                                          21
<PAGE>

NON-OPERATING INCOME AND EXPENSE

     In June 1998, Chiron completed the sale of its fill and finishing facility
in Puerto Rico to IPR Pharmaceuticals, Inc. which resulted in a gain on sale of
assets of $6.2 million.  Interest expense in the second quarter and first half
of 1998 decreased $1.5 million and $2.9 million, respectively, from the
corresponding periods of 1997. These decreases were due primarily to the January
1998 repayment of $100.0 million of borrowings outstanding under the Company's
U.S. credit facilities utilizing a portion of the proceeds received from the
sale of Chiron Vision.  Other income, net, consists primarily of investment
income on the Company's cash and investment balances and other non-operating
gains and losses.  Interest income in the second quarter and first half of 1998
increased by $3.9 million and $8.5 million, respectively, as compared with the
same periods in 1997, due primarily to increased average cash and investment
balances attributable to net cash proceeds received from the sale of Chiron
Vision.  In addition, during the second quarter and first half of 1998, Chiron
recognized gains of $0.9 million and $4.5 million, respectively, attributable to
the sale of certain equity securities.  In the first quarter of 1998, the
Company recognized a loss of $3.0 million attributable to the 
other-than-temporary impairment of certain equity securities.  In the second
quarter and first half of 1997, no gains or losses were recognized related to
equity securities.

     The 1998 estimated annual tax provision is expected to be 25 percent of
pretax income from continuing operations, excluding restructuring and
reorganization charges, a financial reporting gain on sale of assets (see Note
5), and $6.0 million of financial reporting income recognized in the second
quarter of 1998 due to a change in estimated property tax accruals. The
provision may be affected in future periods by changes in management's estimates
with respect to the Company's deferred tax assets and other items affecting the
overall tax rate. Restructuring and reorganization charges recorded during the
six months ended June 30, 1998 are expected to create a current additional
income tax benefit of approximately $1.2 million in 1998. The Company does not
anticipate an income tax benefit from these charges for the three months ended
June 30, 1998. The $1.2 million benefit is lower than the estimated annual tax
rate applied to the restructuring and reorganization charges in the first half
of 1998 due to the timing of the deduction of a certain portion of the charges
for income tax purposes, and because a substantial portion of the charge offsets
income of certain subsidiaries which, without regard to such charges, is already
taxed at a low effective rate due to the use of certain net operating loss
carryforwards.  The sale of the Company's Puerto Rico facility, for which a
financial reporting gain on sale of assets was recorded during the three and six
months ended June 30, 1998, resulted in a tax deductible loss for which a
current additional income tax benefit of approximately $1.5 million was
recognized.  These income tax benefits offset income tax expense attributable to
pretax income from continuing operations and, accordingly, reduce the effective
rate of tax on continuing operations.  Financial reporting income of $6.0
million was recognized during the three and six months ended June 30, 1998 from
a change in estimated property tax accruals; such accruals were not tax
deductible and, accordingly, the change of estimate resulted in no income tax
provision.  As they more likely than not will be realized, net deferred tax
assets of $2.5 million and $3.5 million and corresponding credits to deferred
tax expense, were recognized during the three and six months ended June 30,
1998, respectively, for U.S. federal and state tax purposes.  The recognition of
such net deferred tax assets is based on management's estimates of future
taxable income in the United States and for certain foreign jurisdictions in
which the Company's operations have historically been profitable.  Such
estimates are subject to change based on future events and, accordingly, the
amount of deferred tax assets recognized may increase or decrease from period to
period.   

     Income tax expense for the three and six months ended June 30, 1997 was
based on an estimated annual effective tax rate on pretax income from continuing
operations of approximately 30 percent.  The actual 1997 annual effective tax
rate of 24 percent, exclusive of the impact of an impairment loss in the third
quarter, reflects a change in estimate during the second half of 1997 of the mix
of foreign versus domestic profits, benefits of certain tax credits and loss
carryforwards, and anticipated foreign sales corporation benefits.

NEW ACCOUNTING STANDARD
     
     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is effective for all quarters of fiscal years beginning after June 15,
1999.  SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities.  In accordance with SFAS 133, an entity
is required to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. 
SFAS 133 requires that changes in the derivative's fair value 


                                          22
<PAGE>

be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.  The Company has
not determined the timing or method of adoption and is currently evaluating the
effect that implementation of SFAS 133 will have on its results of operations
and financial position.

LIQUIDITY AND CAPITAL RESOURCES

     Chiron's capital requirements have been generally funded from operations,
cash and investments on hand, debt borrowings and sales of equity.  In addition
to these sources of capital, future capital requirements may be financed through
a combination of research and development funding provided by Novartis, possible
off-balance-sheet financing and cash provided by operations.  Chiron's cash and
investments in marketable debt securities, which totaled $413.0 million at June
30, 1998, are invested in a diversified portfolio of investment grade financial
instruments, including money market instruments, corporate notes and bonds,
government or government agency securities, and 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.  

     SOURCES AND USES OF CASH  Chiron had cash and cash equivalents of $158.1 
million and $111.9 million at June 30, 1998 and 1997, respectively.  Cash 
provided by operating activities was $46.7 million in the first half of 1998 
as compared with $61.4 million in the first half of 1997.  Primary sources of 
the decrease in cash from operating activities were the income from 
continuing operations of $14.5 million in the first half of 1998 (as compared 
with $31.2 million in the first half of 1997), and an increase in accounts 
receivable in the first half of 1998 as compared with a decrease in the first 
half of 1997, excluding the decrease in accounts receivable from the sale of 
Chiron Vision. 

     Cash provided by (used in) investing activities was $125.3 million in the
first half of 1998 as compared with ($32.5) million in the first half of 1997. 
In the first half of 1998, the primary sources of cash from investing activities
were proceeds of $298.9 million from the sale of Chiron Vision, $127.6 million
from the sale and maturity of investments in marketable debt securities and
$18.5 million from the sale of the Puerto Rico facility. These sources of cash
in the first half of 1998 were partially offset by the purchase of $222.3
million of investments in marketable debt securities, $54.8 million (net of cash
acquired) for the purchase of Chiron Behring and acquisitions of property and
equipment totaling $35.5 million.  In the first half of 1997, the primary source
of cash from investing activities was $39.8 million of proceeds from the sale
and maturity of investments in marketable debt securities.  This source of cash
in the first half of 1997 was offset by acquisitions of property and equipment
totaling $36.4 million and the purchase of $27.9 million of investments in
marketable debt securities.

     Cash (used in) provided by financing activities was ($112.4) million in the
first half of 1998 as compared with $14.9 million in the first half of 1997.  In
the first half of 1998, the primary use of cash was the repayment of $137.0
million of short-term debt, $100.0 million of which was outstanding under the
Company's U.S. credit facilities and was repaid utilizing a portion of the
proceeds from the sale of Chiron Vision.  In the first half of 1997, the primary
use of cash was Chiron's purchase of a previously leased manufacturing facility
and related buildings in Emeryville, California for $29.8 million.  Also
contributing to cash provided by financing activities were proceeds of
$26.0 million and $29.7 million in the first half of 1998 and 1997,
respectively, from issuance of common stock under the Company's stock option and
employee stock purchase plans.     

     In January 1998, the Company's Board of Directors authorized the purchase
of up to 2.5 million shares of Chiron common stock from time to time on the open
market in order to offset the dilution associated with the operation of the
Company's stock option and employee stock purchase plans and the granting of
share rights.  The Board of Directors has authorized such purchases through
January 1999.  To date, no shares have been purchased. 

     In July 1998, the Company entered into a non-exclusive license agreement
with respect to certain of its technologies.  Under this agreement, Chiron
expects to recognize one-time non-refundable license issuance fee revenues of
$24.0 million in the third quarter of 1998. 

     Chiron believes that its cash and investments, funds provided by operations
and capital market transactions will 


                                          23
<PAGE>

be sufficient to meet its cash requirements during the upcoming twelve months
and through the foreseeable future.

     BORROWING ARRANGEMENTS  Under two separate revolving, committed, unsecured
credit agreements with major financial institutions, Chiron can borrow up to
$200.0 million in the U.S.  These agreements, guaranteed by Novartis, which
allow for borrowings of up to $100.0 million each, mature in March 1999 and
February 2003. No borrowings were outstanding under these credit agreements at
June 30, 1998.  Under Chiron's credit arrangements outside the U.S., borrowings
of $17.5 million were outstanding at June 30, 1998.  

     OTHER COMMITMENTS  In the third quarter of 1998, Chiron and Gen-Probe, Inc.
("Gen-Probe"), a wholly owned subsidiary of Chugai Pharmaceutical Co., Ltd., 
signed an agreement to form a strategic alliance to develop, manufacture and 
market nucleic acid probe assay systems for blood screening and certain areas 
of diagnostics.  Under the terms of the agreement, Chiron will market and 
sell products that utilize the Company's intellectual property relating to 
HCV and HIV and Gen-Probe's patented transcription-mediated amplification 
(TMA), target capture, hybridization protection assay (HPA) and dual kinetic 
assay (DKA) technologies.  In exchange for the rights to Gen-Probe's 
technology, Chiron paid $10.0 million upon signing the agreement, which will 
be recorded as a component of "Other intangible assets, net" in the Company's 
consolidated balance sheet at September 30, 1998. This asset will be utilized 
across a broad base of technology within the Company's blood screening and 
nucleic acid diagnostic businesses. In addition, Chiron is obligated to pay 
an additional $15.0 million 30 days after Gen-Probe's submission of an 
investigational new drug application to the FDA and another $10.0 million 
upon Gen-Probe's receipt of marketing approval from the FDA.  The agreement 
also provides certain provisions for additional cost sharing and royalties 
upon the commercialization of specified products.

     Effective July 1, 1998, Chiron and International Business Machines 
Corporation ("IBM") executed a ten-year information technology services 
agreement.  Under this agreement, IBM will provide Chiron with a full range 
of information services, including designing and deploying a company-wide 
distributed network system, establishing a comprehensive help-desk operation, 
and developing a standardized desk-top platform using IBM workstations. 
Chiron may terminate this agreement beginning July 1, 1999, with no less than 
180 days prior notice to IBM, subject to certain termination charges. Through 
July 1, 1999, Chiron's payments to IBM will total $19.3 million. If Chiron 
does not terminate this agreement prior to expiration, payments to IBM will 
approximate $138.8 million in aggregate. Payments to IBM are subject to 
adjustment depending upon the levels of services and infrastructure equipment 
provided by IBM. 

     On July 16, 1998, the Company completed the purchase of manufacturing and
administrative facilities in Siena, Italy, which were previously under lease. 
The net purchase price of 35.3 billion Italian lira (approximately $20.2
million), will be recorded as a component of "Land and buildings" in the
Company's consolidated balance sheet at September 30, 1998.

     Chiron's liquidity may be further affected in future periods by its
decision to fund its share of expenses in certain of its joint ventures and
collaboration arrangements. Over the next several years, Chiron anticipates
funding collaborations with a number of its research partners, and may make
additional investments in collaborative partners.  The Company also expects to
incur substantial capital spending in future periods.

     MARKET RISK MANAGEMENT  The Company's cash flow and earnings are subject 
to fluctuations due to changes in foreign currency exchange rates, interest 
rates, and fair value of equity securities held.  The Company attempts to 
limit its exposure to some or all of these market risks through the use of 
various financial instruments, as more fully described in Part II, Item 7A., 
"Quantitative and Qualitative Disclosures About Market Risk," of Chiron's 
Annual Report on Form 10-K for the fiscal year ended December 28, 1997.  To 
manage foreign currency exchange risks, Chiron enters into forward foreign 
currency contracts ("forwards") and cross currency interest rate swaps 
("swaps"), and purchases foreign currency option contracts ("options").  
Chiron does not use any of these derivative instruments for trading or 
speculative purposes.  

     On April 1, 1998, the Company entered into a series of swaps to modify the
interest and currency characteristics of certain assets and liabilities
denominated in a nonfunctional currency.  The objective of the swaps entered
into by the Company is to fix the interest rate and currency rate exposures
associated with the Company's wholly owned German subsidiary.  The exposures are
denominated in Deutsche marks and have a notional amount of $114.2 million at
June 30, 1998.


                                          24
<PAGE>

     The Company has exposure to changes in interest rates in both its 
investment portfolio and certain floating rate liabilities and real estate 
commitments.  The Company maintains investment portfolio holdings of various 
issuers, types and maturities.  These securities are generally classified as 
available-for-sale and consequently, are recorded on the balance sheet at 
fair value with unrealized gains or losses reported as a separate component 
of stockholders' equity. Other-than-temporary losses are recorded against 
earnings in the same period the loss was deemed to have occurred.  The 
Company does not currently hedge this exposure and there can be no assurance 
that other-than-temporary losses will not have a material adverse impact on the 
Company's results of operations in the future. The Company also has 
short-term debt obligations and certain real estate lease commitments with 
interest rates or payments tied to the London Interbank Offered Rate (LIBOR).

     YEAR 2000  Chiron is dependent on a number of computer systems and 
applications to conduct its business.  In the past, many computer programs 
were written using two digits rather than four to identify the relevant year. 
 These programs may not be able to distinguish between 21st and 20th century 
dates (for example, "00" may be read as the year 1900 when the year 2000 is 
intended). This could result in significant system failures or 
miscalculations. Accordingly, the Company is currently developing a 
comprehensive risk-based plan designed to make its computer systems, 
applications, facilities and instruments installed in customer facilities 
Year 2000 compliant.  The plan covers three phases including (i) planning, 
(ii) assessment, and (iii) implementation. The Company has substantially 
completed the planning phase and is currently in the assessment phase, which 
is targeted to be completed in the third quarter of 1998.  The implementation 
phase is targeted to be completed by mid-1999. The Company is utilizing both 
internal and external resources to prepare for the year 2000.  The Company 
believes that it should be able to substantially complete the implementation 
of critical internal aspects of its Year 2000 plan prior to the commencement 
of the year 2000. Even with substantial completion of internal remediation 
plans, the Company's customers, suppliers and distributors also present risk 
of their own year 2000 compliance over which the Company has no control. 
Accordingly, there can be no assurance that such Year 2000 issues will be 
resolved in 1999.  If not resolved, these issues could have a material 
adverse impact on the Company's operations.  

     The Company has initiated communications with its critical suppliers 
and other external relationships to determine the extent to which the Company 
may be vulnerable to such parties' failure to resolve their own Year 2000 
issues.  Where practicable, the Company will assess and attempt to mitigate 
its risks with respect to the failure of these entities to be Year 2000 
compliant.  The effect, if any, on the Company's results of operations from 
the failure of such parties to be Year 2000 compliant, cannot be reasonably 
estimated.

     The Company may incur significant costs in identifying and resolving Year
2000 issues, including internal staff costs as well as consulting and other
expenses.  In addition, the appropriate course of action may include replacing
or upgrading systems or equipment at a substantial cost to the Company.  Failure
of the Company to successfully complete its implementation of an integrated
information system, which is a key element in the Company's Year 2000
remediation program, may have a material adverse impact on the Company's
operations. The Company is currently evaluating the costs associated with
preparing for the Year 2000 and expects these costs to be reasonably estimable
upon the completion of the assessment phase.  Currently, all costs are
anticipated to be funded through operations.  

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

     Chiron wishes to caution stockholders and investors that the following
important factors, among others, in some cases have affected, and in the future
could affect, Chiron's actual results and could cause Chiron's actual
consolidated results for the third quarter of 1998, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, Chiron.  The statements under this caption are intended to serve as
cautionary statements within the meaning of the Private Securities Litigation
Reform Act of 1995.  The following information is not intended to limit in any
way the characterization of other statements or information under other captions
as cautionary statements for such purpose:


                                          25
<PAGE>

-    The financial and operational impacts of the establishment of a joint
     venture or other transaction involving significant portions of Chiron's
     diagnostics business, and the restructuring and realignment of Chiron's
     remaining operations.

-    Delays, difficulties or failure in obtaining regulatory approval (including
     approval of its systems, procedures and facilities for production) for the
     Company's products.  These may include, for example, approval of the
     Company's Italian manufacturing facilities and processes as satisfying U.S.
     regulatory requirements for production of the Company's diphtheria, tetanus
     and genetically engineered acellular pertussis and adjuvanted flu vaccines,
     approval for Myotrophin-Registered Trademark- for which additional clinical
     trials may be required by the FDA, approval for DepoCyt-TM- (injectable
     sustained-release cytarabine), and approval for Quantiplex-Registered
     Trademark- assays for HIV and follow-on bDNA probe products, for which the
     FDA may require substantial additional process and systems validation.
     
-    Charges that may be incurred or accrued as a result of the implementation
     of restructuring plans, including possible disposal of excess manufacturing
     and other general facilities, or as a result of the underutilization of
     manufacturing and other general facilities, including facility expansions. 
     
-    The ability of the Company to successfully complete its implementation of
     an integrated information system, which is a key element in the Company's
     Year 2000 remediation program.

-    Costs of remediation related to issues that may be identified or incurred
     as a result of the Company's ongoing evaluation of its Year 2000
     compliance, and the potential exposure to failures by third parties to
     properly remediate their own Year 2000 issues. 

-    Inability to maintain or initiate third party arrangements which generate
     revenues, in the form of license fees, research and development support,
     royalties, sales fees and other payments, in return for rights in
     technology or products under development or promotional or other services
     provided by the Company.

-    The issuance and use of patents and proprietary technology by Chiron and
     its competitors, including the possible negative effect on the Company's
     ability to develop, manufacture and sell its products if it is unable to
     obtain licenses to patents which may be required for such products.

-    Failure of corporate partners to successfully commercialize the Company's
     products or to retain and expand the markets served by the commercial
     collaborations; conflicts of interest, priorities and commercial strategies
     which may arise between the Company and such corporate partners, including
     conflicts as to the strategy for realizing value arising from evolving
     opportunities.

-    Delay, difficulty or inability on acceptable terms to resolve conflicts
     with partners, including resolution of litigation initiated by Chiron
     against Ortho seeking to compel arbitration regarding access to hepatitis
     and retrovirus immunodiagnostic tests for use on Chiron's ACS:Centaur-TM-
     immunoassay system.
     
-    Delays or difficulties in developing and acquiring technology and technical
     and managerial personnel to manufacture and/or deliver the Company's
     products in commercial quantities at reasonable costs and in compliance
     with applicable quality assurance and environmental regulations and
     governmental permitting requirements.

-    Possible changes in laws, regulations and guidelines of regulatory
     agencies, which may affect the development, manufacture and sale of the
     Company's products.

-    The ability and willingness of customers to substitute competitive products
     for the Company's products if other products for similar indications are
     approved for marketing.

-    Difficulties in obtaining key raw materials and supplies of acceptable
     quality used in the manufacture of the Company's products.


                                          26
<PAGE>

-    Increased costs of development, regulatory approval, manufacture, sales,
     and marketing associated with the introduction of novel products and
     fluctuation of such costs between periods.

-    Difficulties in launching or marketing the Company's products, many of
     which are novel products based on biotechnology, and unpredictability of
     customer acceptance of such products.

-    The impact of competing products, and inventory management practices,
     pricing, promotional and marketing decisions by the Company's partners,
     Schering AG for Betaseron-Registered Trademark- and Johnson & Johnson for
     PDGF.

-    Changes in the product mix of the Chiron-Ortho joint business, whereby the
     proportion of higher margin HCV tests sold relative to other lower margin
     products decreases; continued margin erosion of HCV tests. 

-    Continued increases in research and development spending in order to
     develop new products and increase market share.

-    Continued or increased pressure to reduce selling prices of the Company's
     products.

-    The cost of acquiring in-process technology, either by license,
     collaboration or purchase of another entity.
     
-    The impact of unusual or infrequent charges resulting from Chiron's ongoing
     evaluation of its business strategies and organizational structures,
     including the continued costs of integration of acquired businesses.
     
-    Revaluation of assets, including, among others, the Company's investments
     in the equity securities of other companies with whom it collaborates, or
     related expenses.

-    Changes to tax rates or possible future changes to conditions of certain
     tax rulings obtained by the Company or its subsidiaries, or outcomes of
     present or future examinations by tax authorities.

-    The costs and other effects of legal and administrative cases and
     proceedings (whether civil, such as product-related or environmental, or
     criminal); settlements and investigations; developments or assertions by or
     against Chiron relating to intellectual property rights and licenses.

-    Seasonal fluctuations in product sales and resulting gross margin amounts.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.  

     A discussion of the Company's exposure to, and management of, market risk
appears in Part 1, Item 2 of this Quarterly Report on Form 10-Q under the
heading "Market risk management."

                                      PART II

ITEM 1.   LEGAL PROCEEDINGS.

     The Company is party to certain lawsuits and legal proceedings, which are
described in Part I, Item 3, "Legal Proceedings," of the Company's Annual Report
on Form 10-K for the year ended December 28, 1997.  No material developments 
in the area of legal proceedings have occurred since such Form 10-K was filed 
except as described in the Company's Form 10-Q for the three months ended 
March 29, 1998 and except as follows:
   
F. HOFFMANN-LAROCHE

     As described below, Chiron is involved in certain litigation in the 
United States, The Netherlands, Japan, and Germany with F. Hoffmann-LaRoche 
AG and several of its affiliated companies concerning infringement and/or 
validity of certain Chiron patents related to HCV technology. It is not known 
when nor on what bases any of these litigation matters will be concluded.

     On January 27, 1998, Chiron initiated an action against F. 
Hoffmann-LaRoche, Ltd., several of its affiliated companies (collectively, 
"Roche") and Daniel Bradley in the United States District Court for the 
Northern District of California. The Company asserts that Roche's manufacture 
and sale of Amplicor HCV-TM- Test and Amplicor HCV Monitor-TM- Test 
constitutes infringement of Chiron's U.S. Patent Nos. 5,712,088 (the "'088 
patent") and 5,714,596 (the "'596 patent").  The action also asserts that 
Bradley breached a settlement agreement, that Roche wrongfully induced this 
breach, and that Bradley committed slander of title with respect to Chiron's 
HCV 

                                          27
<PAGE>

technology.  The action seeks damages, injunctive relief, and a declaratory 
judgment that Chiron is the sole and exclusive owner of its HCV technology. 
Roche filed a counterclaim requesting a declaratory judgment of 
non-infringement and invalidity and also alleging infringement of U.S. Patent 
No. 5,580,718 (the "'718 patent"), owned by Hoffmann-LaRoche, Inc., which 
allegedly relates to nucleic acid-based assays for the detection of HCV. The 
counterclaim of infringement seeks damages and injunctive relief. Chiron is 
defending on the basis of invalidity and non-infringement of the '718 patent, 
and seeks a declaration of invalidity of U.S. Patent No. 5,527,669 (the "'669 
patent"), a related patent also owned by Hoffmann-LaRoche.

     On February 3, 1998, Chiron filed an action in The District Court of The 
Hague, The Netherlands against F. Hoffmann-LaRoche AG, several of its 
affiliated companies (collectively, "Roche AG"), and one of Roche AG's Dutch 
customers asserting Roche AG's infringement of the Company's European Patent 
0 318 216 (the "'216 patent") relating to HCV nucleic acid technology.  
Chiron seeks a cross-border injunction with effect in a number of European 
countries, prohibiting the sale of Roche AG's Amplicor HCV-TM- Test and 
Amplicor HCV Monitor-TM- Test. Trial of this matter is set for October 1998.  
In a separate proceeding, Roche AG and Chiron are appealing the European 
Patent Office's Opposition Division's decision upholding the '216 patent in 
amended form.

     On April 16, 1998, Chiron filed suit against Nippon Roche K.K. in the 
Tokyo District Court in Japan for infringement of Japanese patent number 
2,656,995 (the "'995 patent"), relating to HCV nucleic acid technology.  The 
suit seeks injunctive relief preventing the sale of Roche AG's Amplicor 
HCV-TM- Test and Amplicor HCV Monitor-TM- Test by Nippon Roche and damages.

     On January 9, 1997, Chiron, together with Ortho Diagnostic Systems, 
Inc., filed suit against F. Hoffmann-LaRoche AG in the Regional Court, 4th 
Civil Division, Dusseldorf, Germany, for infringement of the '216 patent. The 
suit seeks damages and injunctive relief preventing further manufacture or 
sale of infringing HCV immunoassay kits by Roche.

CONNAUGHT LABORATORIES, LIMITED
   
     On June 17, 1997, Chiron S.p.A. filed an action in the Tribunale di 
Milano, Italy, against Connaught challenging the validity of the Italian 
counterpart of Connaught's European Patent 0 527 753 (the "'753 patent").  
The '753 patent claims allegedly relate to the pertactin protein of 
BORDETELLA PERTUSSIS. Connaught counterclaimed for infringement of the '753 
patent and seeks an injunction and damages.  On February 25, 1998, Chiron 
S.p.A. filed a second action in the Tribunale di Milano, Italy, against 
Connaught challenging the validity of the Italian counterpart of Connaught's 
European Patent 0 322 115 (the "'115 patent") which allegedly relates to 
pertussis toxin mutants. These two proceedings are expected to be 
consolidated at a hearing on November 10, 1998.  It is not known when nor 
under what basis these matters will be concluded. 
   
     On July 17, 1997, Connaught filed suit in the Landgericht Dusseldorf,
Germany, against Chiron Behring GmbH, Chiron S.p.A., and Behringwerke AG
asserting imminent infringement of the '115 patent.  Connaught seeks to prevent
introduction of TriAcelluvax-TM- in Germany.  Also, Connaught seeks damages and
an order from the German court enjoining Chiron S.p.A. from manufacturing and
selling TriAcelluvax-TM- in both Germany and Italy. It is not known when nor
under what basis litigation will be concluded. 
   
     On December 3, 1997, Chiron filed an action in the District Court of The
Hague, The Netherlands, against Connaught to revoke the Dutch counterpart of the
'115 patent on grounds of invalidity.  It is not known when nor under what basis
the litigation will be concluded.
   
ORTHO DIAGNOSTIC SYSTEMS, INC.  
   
     On February 17, 1998, Chiron filed a lawsuit against Ortho Diagnostic 
Systems, Inc. in the United States District Court for the Northern District 
of California.  The suit concerns certain issues relating to the conduct of 
the parties' joint business and seeks to compel arbitration of those issues.  
A motion to compel arbitration is scheduled in September 1998.  It is not 
known when nor on what basis this matter will be concluded.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
                    
     The Annual Meeting of Stockholders of Chiron Corporation was held on May
14, 1998.  The following items were voted upon by the stockholders:
               
(a)  A proposal to elect directors of the Company for the term of office
specified below.

     The persons listed below were the only nominees, and each of such persons
was elected, as indicated below:


                                          28
<PAGE>

     (i)  Three directors were elected to hold office for three years until
     2001, and (ii) one director was elected to hold office for two years until
     2000.  Each of such persons received the following number of votes:

<TABLE>
<CAPTION>

                                      For                Withheld
     DIRECTORS                       -----               --------
     ----------                    
     <S>                          <C>                   <C>
     Mr. Vaughn D. Bryson         163,621,859          2,716,111

     Mr. Pierre E. Douaze         164,281,817          2,056,153

     Dr. Edward E. Penhoet        164,280,611          2,057,359

     Mr. Sean P. Lance            164,272,583          2,065,387
</TABLE>

b)  A proposal to ratify the selection of KPMG Peat Marwick LLP as 
independent auditors for the Company for the fiscal year ending January 3, 
1999, was approved by the stockholders.  The following votes were cast as to 
such proposal:  For:  165,788,928; Against:  352,755; Abstain:  196,287; 
Broker Non-Votes:  0.
     
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.  

(a)  EXHIBITS. 

<TABLE>
<CAPTION>

        Exhibit
         Number                        Exhibit
        ---------                     ----------
        <S>         <C>
          3.01      Restated Certificate of Incorporation of the
                    Registrant, as filed with the Office of the
                    Secretary of State of Delaware on August 17, 1987,
                    incorporated by reference to Exhibit 3.01 of the
                    Registrant's Form 10-K report for fiscal year
                    1996.

          3.02      Certificate of Amendment of Restated Certificate
                    of Incorporation of the Registrant, as filed with
                    the Office of the Secretary of State of Delaware
                    on December 12, 1991, incorporated by reference to
                    Exhibit 3.02 of the Registrant's Form 10-K report
                    for fiscal year 1996.

          3.03      Bylaws of the Registrant, as amended. 

          3.04      Certificate of Amendment of Restated Certificate
                    of Incorporation of the Registrant, as filed with
                    the Office of the Secretary of State of Delaware
                    on May 22, 1996, incorporated by reference to
                    Exhibit 3.04 of the Registrant's Form 10-Q report
                    for the period ended June 30, 1996.

          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
                    Registrant's Form 10-K report for fiscal year
                    1997.

          4.03      Second Supplemental Indenture, dated as of March
                    25, 1996, by and among the Registrant, Cetus
                    Oncology Corporation (formerly Cetus Corporation),
                    and Bankers Trust Company, incorporated by 


                                          29
<PAGE>

                    reference to Exhibit 4.03 of the Registrant's Form 10-Q
                    report for the period ended June 30, 1996.

          4.04      Indenture, dated as of November 15, 1993, between
                    Registrant and The First National Bank of Boston,
                    as Trustee, incorporated by reference to Exhibit
                    4.03 of the Registrant's Form 10-K report for
                    fiscal year 1993.

          4.05      $1,000,000 County of Lorain, Ohio Variable Rate Industrial
                    Revenue Bonds dated as of July 1, 1984, due July 1, 2014,
                    incorporated by reference to Exhibit 4.06 of the
                    Registrant's Form 10-Q report for the period ended April 2,
                    1995. The Registrant agrees to furnish to the Commission
                    upon request a copy of such agreement which it has elected
                    not to file under the provisions of Regulation
                    601(b)(4)(iii).

          4.06      $1,000,000 Walpole Industrial Development Authority 6.75%
                    Industrial Revenue Bonds dated as of July 1, 1979, due July
                    1, 2004, incorporated by reference to Exhibit 4.07 of the
                    Registrant's Form 10-Q report for the period ended April 2,
                    1995. The Registrant agrees to furnish to the Commission
                    upon request a copy of such agreement which it has elected
                    not to file under the provisions of Regulation
                    601(b)(4)(iii). 

          11        Statement of Computation of Earnings per Share.

          27        Financial Data Schedule for Six Months ended June 28, 1998.
</TABLE>

(b)   REPORTS ON FORM 8-K.
     
          On June 3, 1998, Chiron Corporation ("Chiron") filed an Amendment No.1
     to its Current Report on Form 8-K reporting under Item 2 the financial
     statements and information relating to Chiron's acquisition of Hoechst AG's
     51 percent interest in Chiron Behring GmbH & Co KG, as required under Rule
     3-05(b)(2)(ii) of Regulation S-X. 


                                          30
<PAGE>

                                 CHIRON CORPORATION

                                   June 28, 1998




                                     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



DATE:  August 7, 1998                             BY:  /s/  SEAN P. LANCE
     ----------------------                           ----------------------
                                                       Sean P. Lance
                                                       President and Chief 
                                                       Executive Officer


DATE:  August 7, 1998                             BY:  /s/  JAMES R. SULAT
     ----------------------                           ----------------------
                                                       James R. Sulat
                                                       Chief Financial Officer
     


                                          31