Abbott Labs to Acquire Alza in $7.3-Billion Deal

Pharmaceutical giant Abbott Laboratories announced Monday that it will acquire Alza Corp., a Palo Alto company that has developed novel drug delivery products, including the NicoDerm skin patch for smokers who want to quit.

The $7.3-billion deal is one of several recently in which large drug companies have gobbled up smaller ones--particularly biotechnology firms--in an effort to expand their growth potential.

In this case, Abbott Park, Ill.-based Abbott, with 56,000 employees worldwide, is one of the oldest and largest drug companies in the country. It is acquiring a company started in 1968 that initially developed products for large clients and then made a successful transition to become an independent drug company with about 2,000 employees.

Under the terms of the acquisition, Alza stockholders will receive 1.2 shares of Abbott for every share of Alza--the equivalent of $53.03. That is 15% above Alza’s Monday closing price of $46.25. Abbott closed at $44.19, down 50 cents on the NYSE.

Abbott officials say the smaller company’s products and technology complement its own operations by expanding its product line in key areas of cancer treatment and urology and by offering new approaches to drug delivery.

Abbott intends to keep Alza intact as a fully owned subsidiary in California and is planning no reduction in work force, said Abbott Chairman and Chief Executive Miles D. White.

“We did not seek Alza as a cost-reduction opportunity,” White said. “We sought it as a growth opportunity.”

The smaller company has 17 marketed products, with projected sales growth of 15% or more and expected profit in excess of 30%, he said.

Moreover, the smaller company’s strengths are in areas where Abbott already has a presence of its own and will be able to capitalize on its global sales force, he said.

“We have concentrated on one goal: taking Abbott Laboratories to a higher level of performance and doing that by building on the strength we’ve established over the decades,” White said.

Alza officials also emphasized the strategic fit between the companies despite the disparity in size.

“The exceptional fit of these companies represents an exciting opportunity to fully realize the commercial value of our products and technologies,” said Ernest Mario, Alza’s chairman and chief executive.

Alza has a number of drug products in its pipeline that could expand the reach of Abbott. For example, one Alza drug now awaiting approval is used to treat extreme dry mouth that frequently accompanies cancer chemotherapy. The drug can be marketed along with oncology drugs already in Abbott’s portfolio.

Alza has developed a variety of skin patches that slowly release medications for pain and heart disease, currently marketed by other pharmaceutical companies, including Johnson & Johnson and Pfizer.

It is now seeking Food and Drug Administration approval for the drug Viadur, a prostate cancer treatment that needs to be given only once a year. Earlier this year, Alza completed its acquisition of Sequus Pharmaceuticals in Menlo Park. That company developed a technology for encapsulating a variety of drug products in fats for slow delivery to targets within the body.

Abbott has a diverse business that includes a variety of hospital products in addition to drugs, including disease testing and nutritional supplies.

It also makes monitoring devices that allow diabetics to test their blood. Abbott is considering ways in which Alza’s various drug delivery systems could be coordinated with its monitoring devices for improved control of diabetes, said an Abbott representative.

There has long been talk of consolidation within the biotechnology, medical device and pharmaceutical industries, and the pace appears to be accelerating.

New Jersey-based Warner-Lambert recently announced that it had completed the $2.1-billion acquisition of Agouron Pharmaceuticals, a San Diego biotech company, for $2.1 billion. When the deal was announced, Agouron had a single drug on the market--an anti-AIDS drugs that had become the best-selling product in its class with sales of more than $500 million a year.

Earlier this month, Pharmacia & Upjohn of Bridgewater, N.J., announced plans to acquire the much smaller Sugen, a South San Francisco biotech firm, for $650 million. That company has no products on the market but a number of anti-cancer drugs in the final stages of testing in patients.

The Abbott-Alza deal is subject to a vote by Alza’s stockholders and to regulatory approval, and is expected to close by the end of the year.