Alza merges with Johnson and Johnson Alza merges with Johnson and Johnson (March 30, 2001)

Mountain View-based pharmaceutical acquired for $10.5 million
By Justin Scheck

Alza Corporation, a Mountain View-based pharmaceutical company, is merging with drug giant Johnson and Johnson in a transaction worth an estimated $10.5 million.

The merger will make Alza "a free-standing subsidiary" of Johnson and Johnson, said John Liu, Alza's director of corporate communications.

Both companies are publicly traded corporations.

Alza shareholders will receive .49 share of Johnson and Johnson stock for every Alza share they own, said Liu, adding that while both companys' boards of directors have approved the deal, it awaits approval from Alza's shareholders.

Liu said Alza has no plans to change its Mountain View operations and hopes the merger will help boost Alza's marketing efforts here and abroad.

"Right now our only international presence is in Canada, and that's new. Johnson and Johnson has an international presence. If you look at the size of Johnson and Johnson, you've got a very large sales force out there," Liu said.

Alza, which sold $432 million in drugs last year, is best known for the development of drug delivery systems, including the Nicoderm patch and Concerta, a stimulant administered through a time-release pill for treating attention deficit hyperactivity disorder.

Bob Andrews, a corporate spokesman for Johnson and Johnson, said that, while he did not know the technical aspects of the merger, Johnson and Johnson sees the transaction "as an opportunity to further our marketing in the pharmaceutical area."

Andrews said that Alza CEO Ernest Mario will retire at the end of the year, but he did not know what specific changes would be made in the Mountain View offices.

"There will be some restructuring during the integration, but I can't say what shape it will take," said Andrews.

Bob Locke, Mountain View's financial and administrative services director, said Tuesday that he had heard about the merger but did not know what specific effects the deal would have on the city.

Locke said that since Alza does not sell many of its products on the retail market, they bring in little conventional sales tax. But their purchases of manufacturing supplies and equipment bring a use tax to the city, which is essentially a sales tax on goods bought outside of Mountain View.

Locke said that while the amount of money Alza brings in with the use tax is confidential, it is a substantial amount of money.

"Alza contributes six figures of sales tax annually. They're certainly a substantial sales tax producer, but most of their products are not sold retail," Locke said. "We'd hate to see any reorganization that would decrease their presence here.

Council member Ralph Faravelli said he is glad to have Johnson and Johnson come to Mountain View.

"Alza was a great corporation. But getting Johnson and Johnson to buy it is a great thing for Mountain View," said Faravelli.

According to Liu, Alza's most popular products are Concerta, the incontinence drug Ditropan XL, and Doxil, a chemotherapy treatment for ovarian cancer.

Alza has become known for creating innovative drug delivery systems, including patches to treat chronic pain and nicotine addiction, as well as the time-release system in Concerta that prevents abuse of the stimulant while allowing users to take one daily dose, rather than two or three.

According to a report from Alza, Johnson and Johnson expects the merger to result in slightly lower earnings for the next two years; in 2003 the company expects the Alza acquisition, Johnson and Johnson's largest to date, to result in higher earnings for shareholders.

As of New York Stock Exchange closing time Tuesday, Alza stock was up $0.25 a share to $39.00, while Johnson and Johnson was down $2.13 to $83.25 a share.