ALZA Corporation - Company Profile, Information, Business Description, History, Background Information on ALZA Corporation

1900 Charleston Road
P.O. Box 7210
Mountain View, California 94039-7210

Company Perspectives:

ALZA's strategy is to target a number of specialty market opportunities in order to build a strong commercial presence, advance and broaden its product pipeline and maintain its technological leadership in drug delivery. The company has established a highly trained U.S. and Canadian sales and marketing organization. By developing, acquiring and marketing products in specialized therapeutic areas, ALZA is establishing strong relationships with key physicians while providing a range of therapies to treat the individual needs of patients.

History of ALZA Corporation

As one of the world's leading producers of drug delivery systems, ALZA Corporation develops and manufactures a variety of systems that make administration of medication more efficient and effective. The systems ALZA develops are used by other pharmaceutical companies as well as by ALZA itself for its own drug portfolio. A pioneer in the field of transdermal therapy, ALZA developed the Nicoderm patch marketed by Marion Merrell Dow as an aid to help smokers kick the habit. Other well-known products developed by ALZA include Procardia XL for both angina and hypertension, Duragesic for the management of cancer pain, and Glucotrol XL for the treatment of Type II diabetes. The company's sales and marketing efforts focus on urology, oncology, and the central nervous system/pediatrics areas.

Early History: Transdermal Systems

ALZA was founded in 1968 by Alejandro Zaffaroni, a cofounder of the major pharmaceutical company Syntex Corporation, based in Palo Alto, California. ALZA was to be unique in that its research and development activities would be directed not toward creating new drugs, but rather toward developing better delivery systems for existing medications. Specifically, the company's mission was to improve on the longstanding methods of injections and pills taken orally by introducing products and systems that would help to stabilize the amount of drug in a patient's bloodstream.

The fledgling company leased land in Stanford's Research Park for its first facility, and Martin Gerstel, who had recently graduated from Stanford's business school, became the company's second employee after Zaffaroni. In a 1989 interview for Business Journal-San Jose, Gerstel recalled that when he asked Zaffaroni about a title, the founder replied 'that I could be anything I wanted except president. He wanted that title.' So Gerstel became the vice-president in charge of planning, administration, and finances, and his first task was to find an architect to design the building that would become the company's headquarters.

Although the company was small, it pursued its mission diligently, filing a patent application for a transdermal system invented by Zaffaroni in 1969. The transdermal system was innovative because it would allow medicines to be absorbed through the skin for a controlled, continuous dosage. While waiting for Food and Drug Administration (FDA) approval, ALZA became a public company, with Syntex distributing its shares. In 1974, Ocusert Pilo-20/40, used in the treatment of glaucoma, became the first ALZA product to gain FDA approval.

In 1977, Ciba-Geigy Ltd., a pharmaceutical giant, acquired a controlling interest in ALZA. This was the beginning of a difficult five-year period for ALZA and its stockholders, who began losing money. Despite economic challenges, however, the company continued to improve its drug delivery systems, and in August 1981, the FDA approved ALZA's first transdermal product, the Transderm Scop for treatment of motion sickness. Two months later, Transderm-Nitro won FDA approval for use in the treatment of angina. Both transdermal treatments were administered via small patches that resembled adhesive bandages. Once the patches were applied, a steady dosage of the drugs they contained permeated the skin and entered the bloodstream at a regulated rate.

The benefits of transdermal drug therapy were numerous. In addition to providing consistent drug levels in the bloodstream, the transdermal system offered improved absorption. Unlike the medication in orally ingested pills--which was often destroyed or neutralized in the stomach, intestine, or liver before reaching the bloodstream--transdermal delivery allowed more of the medication to be absorbed, making lower dosages possible. The transdermal system also potentially reduced the incidence of side effects.

ALZA was nearly bankrupt when it split from Ciba-Geigy in 1982 and began working with other large players in the pharmaceutical industry. The company had its first profitable year in 1983 and was listed on the American Stock Exchange. The following year, ALZA purchased land in Vacaville, California, to build a 117,000-square-foot commercial manufacturing facility. The Vacaville facility became the center for the manufacture of several transdermal and oral products.

Late 1980s: The OROS System

ALZA flourished during the late 1980s. Transderm-Nitro became the first ALZA product to hit $100 million in combined licensee sales, and company revenues had reached $71 million by 1987, when Gerstel was named CEO and cochairman. The following year, the company opened new facilities in Mountain View, California, to accommodate its growing research and development team. In 1989, the FDA approved ALZA's Procardia XL tablets, and Pfizer Inc. began to market the drug for treatment of angina and hypertension under a royalty license from ALZA.

Procardia XL reflected ALZA's contribution to osmotic technology, which controlled the release rate of medication in capsule or tablet form. This technology, known as OROS, involved the osmotic design of the capsule's core and membrane, which contained both the drug and osmotic agent. When a patient swallowed an OROS tablet, water would be drawn from the membrane to saturate the drug, which would then be released in liquid form drop by drop through laser-drilled holes in the tablet. This permitted a gradual release of the drug and led to reduced side effects and predictable levels of the drug in the bloodstream.

ALZA's Acutrim--an appetite suppressant marketed over the counter by Ciba Consumer Pharmaceuticals--also utilized the OROS osmotic technology. In late 1989, ALZA filed a new drug application with the FDA for a nasal decongestant tablet that would use the OROS controlled-release technology. The product, designed for sufferers of colds and allergies, was a once-a-day tablet that continuously delivered pseudoephedrine for 24 hours. Called Efidac/24, the cold medication was sold over the counter and was used to relieve nasal congestion from colds, hay fever, and sinusitis.

Early 1990s: Glucotrol, Duragesic, Nicoderm, and More

By 1990, ALZA had about 40 products in development and 650 employees, more than half of whom comprised the research and development team. In January of that year, ALZA announced the development of an osmotic syringe pump for subcutaneous or intravenous delivery of medications. A wearable, disposable system, the pump consisted of two reservoirs--one for water and one for the drug being administered--and an osmotic tablet compartment. The tablet facilitated the workings of the syringe pump, so that a mixture of water and drug could be introduced into the patient's bloodstream. Unlike traditional intravenous devices, the osmotic syringe pump did not rely on gravity and permitted the patient to move about freely.

During this time, ALZA entered into several joint agreements intended to bolster its development of new technologies. A partnership with the Procter & Gamble Company, focusing on the development, manufacture, and marketing of treatments for periodontal disease, resulted in the July 1994 U.S. introduction of Actisite Periodontal Fiber, which delivered the antibiotic tetracycline directly to the affected site. Another joint effort, with Pfizer Inc., led to the development of Glucotrol XL, Pfizer's oral hypoglycemic medicine for non-insulin-dependent (or Type II) diabetics. With Pfizer, ALZA developed a once-daily form of the drug--cleared for marketing by the FDA--incorporating ALZA's OROS controlled-release technology.

Moreover, ALZA established a new company called Bio-Electro Systems Inc. This company, formed independent of ALZA in order to minimize risk to shareholders, explored the concept of electro transport, in which electrical currents propel drugs into the skin. Bio-Electro's mission also included the development of Alzamer, erodible polymers that could be filled with a drug and then injected or inserted into the body.

In 1990, the FDA approved ALZA's Duragesic transdermal system, designed to deliver fentanyl for the relief of chronic pain in cancer patients. Revenues for that year reached $109.4 million, up from $92.7 million in 1989. The considerable increase, due mainly to royalties from the sale of Procardia XL, was nothing new for ALZA; since the early 1980s, the company had enjoyed annual revenue growth of 48 percent and yearly profit growth of 220 percent. Analysts noted that ALZA had no real competition, since no other company concentrated exclusively on the development of a broad range of drug delivery systems covering various technologies.

In 1991, to consolidate its stake in electrotransport systems, the company announced that it would acquire Bio-Electro Systems as well as Medtronic Inc.'s electrotransport business unit. ALZA stock was trading at $80 a share in late 1991, double the price it garnered the year before. There were 11 ALZA products on the market, and a dozen more awaited FDA approval.

During the final months of 1991, ALZA and Marion Merrell Dow faced a patent lawsuit that threatened the introduction of Nicoderm, the first transdermal nicotine delivery system. Although the FDA approved Nicoderm in November, sales of the breakthrough technology were suspended by court order for one month, when an Irish pharmaceutical company, Elan Corp. plc, claimed that ALZA's nicotine patch infringed on one of its patents. Elan's American marketing partner, American Cyanamid, joined in the lawsuit, but by mid-1992 the suit was withdrawn and the parties reached an out-of-court settlement with no financial impact to those involved. Nicotine patch sales were quick to take off, and the product immediately became popular among the thousands of people trying to stop smoking. Due to the companies' inability to supply enough product to meet the extraordinary demand, however, sales dropped and stayed below original launch levels.

ALZA recovered its stride, and the company's stock began trading on the New York Stock Exchange in the summer of 1992. By the end of the year, Procardia XL became the first ALZA-developed product to hit $1 billion in annual sales. Moreover, Efidac/24, a nasal decongestant utilizing OROS technology, received FDA approval. Other ALZA innovations during this time included the development of MOTS (Mucosal Oral Therapeutic System) nystatin, a controlled-release lozenge designed to deliver nystatin for the treatment of oral candidiasis in AIDS patients.

In 1992, ALZA announced the development of two new systems based on its proprietary osmotic technology. One system, Chronset, was designed to deliver proteins and peptides orally. The second system was a veterinary implant called VITS. ALZA also continued its research into electrotransport, developing prototypes of small, reusable devices that delivered drug dosages through the skin. The mild electrical currents emitted by the system propelled controlled, consistent dosages into the bloodstream and allowed the patient direct control.

ALZA finished 1992 with $250.5 million in revenues and net income of $72.2 million. More than 50 new products were in development, including an oral form of an anti-epileptic drug, Dilantin. In addition, the company was working with G.D. Searle & Co. to develop a new hypertensive therapy based on the OROS system. The new therapy, Calan OROS, was designed to release medication early in the morning, when dangers from high blood pressure are greatest.

Mid-1990s and Beyond: Transitioning to a Fully Integrated Pharmaceutical Firm

The company celebrated its 25th anniversary in 1993. Fifty-seven patents were granted worldwide, and the company announced the development of its unique Human Implantable Therapeutic Systems (HITS). This new system was designed for long-term, subcutaneous delivery of drugs to patients suffering from such chronic diseases as Alzheimer's, hepatitis, and prostate cancer. That year, the company also formed Therapeutic Discovery Corporation in order to develop new human pharmaceutical products that would combine ALZA's proprietary drug delivery systems with various drug compounds. This move was a key part of the company's effort to shift from being strictly a licenser of drug delivery systems to becoming a fully integrated pharmaceutical firm that developed, manufactured, marketed, and sold its own drug products. Therapeutic Discovery was spun off to shareholders as a separate company in 1993 but ALZA retained all rights to the products it developed (ALZA reacquired Therapeutic in 1997). Another key development came late in 1993 when a new management team was installed to implement the company's new strategy. Hired to lead the team as CEO and cochairman was Dr. Ernest Mario, a former chief executive of Glaxo Holdings P.L.C. Mario became sole chairman at the end of 1997 upon Zaffaroni's retirement.

One of ALZA's first self-developed and self-marketed products was the Testoderm system, which was introduced early in 1994. This transdermal system was designed to deliver testosterone for hormone replacement therapy in hypogonadal males. ALZA had elected to focus its proprietary drug development efforts on two areas--urology and oncology--and Testoderm fell within the latter. Later in the 1990s ALZA developed another urological treatment called Ditropan XL, which was introduced in 1999 for the treatment of overactive bladder.

In the oncology realm, ALZA won FDA approval for Ethyol in 1995. Ethyol was initially approved for patients undergoing chemotherapy to treat kidney-related side effects, then in 1999 was approved to protect the salivary glands of head and neck cancer patients undergoing radiation therapy. Aiding the company's move into cancer-fighting drugs was the March 1999 acquisition of Menlo Park, California-based Sequus Pharmaceuticals, Inc. for approximately $580 million in stock. Sequus had won approval in 1995 for Doxil, which was designed to treat Kaposi's sarcoma, a cancerlike condition associated with AIDS; in 1999 Doxil was approved as a secondary remedy for certain ovarian cancer patients. ALZA also gained Sequus's Stealth drug-delivery system, which improved the effectiveness of cancer-fighting drugs and reduced side effects. It did so by encapsulating the medication in fat globules that were delivered to the body intravenously. The medication remained encapsulated until it reached the areas of disease within the body, thereby delivering higher concentrations of the drug to these areas while bypassing healthy tissue which resulted in reduced side effects. Doxil was the first medication delivered via the Stealth technology.

In June 1999 ALZA agreed to be acquired by Abbott Laboratories for $7.3 billion in stock, with ALZA slated to become a division of Abbott. The agreement was part of a general industry trend in which pharmaceutical giants were snatching up biotech firms; the drug companies desired the biotech firms' research into new drugs, while the biotech firms wanted access to the global sales forces of the drug giants. Being acquired by Abbott thereby appeared to be part of ALZA's move toward becoming a fully integrated drug firm. Nevertheless, ALZA called off the deal in December 1999 after the Federal Trade Commission raised antitrust objections to the merger.

An immediate consequence of the collapse of the merger was that ALZA retained a promising prostate-cancer drug, Viadur, which it would have had to divest because Abbott had its own prostate-cancer treatment, Lupron. In March 2000 the FDA approved Viadur for the palliative treatment of advanced prostate cancer. Viadur utilized a new ALZA technology called DUROS, which was a matchstick-sized pump made from titanium alloy that was implanted under the skin to continuously deliver medication--in this case leuprolide--for up to a year. ALZA entered into an agreement with Bayer Corporation, which would market Viadur in the United States. ALZA was also testing other drugs for delivery through the miniature pump.

ALZA showed remarkable growth in the second half of the 1990s, with revenues increasing from $261 million in 1994 to $795.9 million in 1999. Net income for 1999 was $91 million. Although the company's future was somewhat clouded by speculation that a merger with another drug giant would be pursued, ALZA continued to move new products and new applications of existing products through the pipeline. Nearing FDA approval in mid-2000 was Concerta, a once-daily treatment of attention deficit/hyperactivity disorder that used the OROS technology. Following final approval, Concerta would be copromoted in the United States by ALZA and McNeil Consumer Healthcare, a unit of Johnson & Johnson. Concerta was part of a new area of research for the company, that of central nervous system/pediatrics. Also in advanced development was E-TRANS fentanyl, which was slated to be ALZA's first commercial product to use the E-TRANS electrotransport system, a system using low-level electrical energy to transport drugs through the skin. E-TRANS fentanyl, which contained the same drug as Duragesic, was designed for the management of acute pain in postsurgery and emergency room situations. ALZA was also investigating Doxil for two new indicated uses: the treatment of breast cancer and multiple myeloma, a cancer of the bone marrow.

Principal Subsidiaries: ALZA Development Corporation; ALZA International, Inc.; ALZA Limited (U.K.); Therapeutic Discovery Corporation; ALZA Land Management, Inc.

Principal Operating Units: ALZA Pharmaceuticals; ALZA Technologies.

Principal Competitors: Abbott Laboratories; Amarin Corporation plc; Bausch & Lomb Incorporated; Becton, Dickinson & Company; Bristol-Myers Squibb Company; C.R. Bard, Inc.; Cygnus, Inc.; Elan Corporation, plc; Faulding Oral Pharmaceuticals; Merck & Co., Inc.; Minnesota Mining and Manufacturing Company; Noven Pharmaceuticals, Inc.; R.P. Scherer Corporation; TheraTech, Inc.


Additional Details

Further Reference

Abate, Tom, 'ALZA Deals Collapses--Stock Tumbles,' San Francisco Chronicle, December 17, 1999, p. B1.------, 'ALZA Gets Strong Backing for New Uses of Two Drugs,' San Francisco Chronicle, June 9, 1999, p. B2.------, 'FDA Approves ALZA's Tiny Drug Dispenser,' San Francisco Chronicle, March 7, 2000, p. E1.Abate, Tom, and Carol Emert, 'Abbott Labs to Buy Palo Alto Drugmaker ALZA for $7.3 Billion,' San Francisco Chronicle, June 22, 1999, p. A1.Adelson, Andrea, 'ALZA Has Taken the Wraps Off Its Drug Pipeline, Pleasing Analysts,' New York Times, February 16, 1996.Barry, David, and James S. Goldman, 'ALZA Opens Throttle on Expansion,' Business Journal-San Jose, May 6, 1991, p. 1.'Biotech's Father William,' Economist, June 26, 1999, p. 78.Burton, Thomas M., 'Abbott Laboratories and ALZA Call Off Their Deal,' Wall Street Journal, December 17, 1999, p. B10.Gengo, Lorraine, 'Martin Gerstel: Modesty Masks Highly Praised, Innovative Leader,' Business Journal-San Jose, January 9, 1989, p. 10.Goldman, James S., 'ALZA Buys Back a Firm, Agrees on Marketing Pact,' Business Journal-San Jose, November 18, 1991, p. 2.------, 'ALZA's Key Product Is Target of Patent Dispute,' Business Journal-San Jose, December 2, 1991, p. 2.Grzanka, Len, 'Drug Company Patches In to Growing World Market,' San Francisco Business Times, June 11, 1999, p. S6.King, Ralph T., Jr., 'ALZA Corp. Agrees to Purchase Sequus for $580 Million,' Wall Street Journal, October 6, 1998, p. B4.Marcial, Gene G., 'ALZA May Get Swallowed Up,' Business Week, March 13, 1995, p. 86.Miller, James P., 'Abbott Labs Agrees to Purchase ALZA,' Wall Street Journal, June 22, 1999, p. A3.Moukheiber, Zina, 'Putting a Spin on R & D,' Forbes, February 8, 1999, p. 111.Sloan, Allan, 'Miracle Drug for Earnings: ALZA Shooting Fish in a Barrel with Merrill Lynch's Arrow,' Newsday, April 11, 1993, p. 68.Smith, Rebecca, 'ALZA Buying Sequus for $580 Million,' San Francisco Chronicle, October 6, 1998, p. C1.

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