By Mary Welch
Abbott Laboratories will acquire Alza Corp., a research-based pharmaceutical company, in an all-stock deal worth $7.3 billion.
Under the agreement, Abbott will acquire all of Alza's outstanding stock, with Alza shareholders receiving a fixed exchange ratio of 1.2 shares of Abbott common stock for each Alza share. Based on Monday's closing price, the deal valued Alza shares at about $53 each.
Alza, which has about 135 million shares on a fully diluted basis, will own about 9.6 percent of the combined company. Alza's stock (NYSE:AZA) closed Tuesday at $47.75, up $1.50. Abbott (NYSE:ABT) fell 68.75 cents, closing at $43.50.
The deal is expected to close by the end of the year. The acquisition will result in a one-time charge of about $100 million for Abbott this year. Abbott's 1998 sales were $12.5 billion; Alza's were $647 million.
"It's an amazing fit for both companies," said Anneke Cole, a spokeswoman for Palo Alto, Calif.-based Alza. "We have focused on building a commercial franchise for urology and oncology diseases, and those are two therapeutic areas that Abbott has stated it needs to concentrate more on. It's a tremendous fit with no issues of overlapping drugs or products. It makes a lot of sense."
Alza was rumored to be on the selling block for a couple of years, said David Steinberg, an analyst with Volpe, Brown, Whelan & Co. in San Francisco. "If you look at the larger pharmaceutical universe out there, this is the best fit in terms of products and strategy. It's close to a perfect fit. Abbott's pharmaceutical business has slowed down and this gives it some near-term product opportunities.
"We think it's a nice return on Alza shareholders' investment, but it's not a premium price," Steinberg said. "We didn't think Alza was going to make its earning objectives this year because it underestimated the cost of gearing up to launch products and was slow out of the gate with Ditropan."
Alex Zisson, senior analyst and managing director of Hambrecht & Quist LLC in New York, agreed.
"It's a very good deal for Abbott, a great fit for Abbott," Zisson said, "Abbott's flaw was a weak pharmaceutical division, not only of products on the market but in the pipeline. With their acquisition of Alza, along with the recent deals with Triangle, SangStat and others, I'd say they've beefed up. Alza shareholders probably could have gotten a better deal, either with another company, waiting a little while longer with Abbott or from Wall Street. But they've got a good piece of paper with Abbott stock. It really is great for Abbott."
Abbott, indeed, has been on a pharmaceutical-buying spree. Earlier this month it agreed to a deal worth up $335 million with Triangle Pharmaceuticals Inc., of Durham, N.C., for six antiviral products. In May the Abbott Park, Ill.-based company agreed to a deal worth up to $50 million with SangStat Medical Corp., of Menlo Park, Calif., for SangCya, an oral cyclosporine solution, as well as cyclosporine capsules (pending FDA approval). In January, the company again shelled out potentially $30 million with Idun Pharmaceuticals Inc., of San Francisco, to develop cancer treatments. (See BioWorld Today, June 4, 1999, p. 1; May 11, 1999, p. 1; and Jan. 13, 1999, p. 1.)
"It's a strategic fit, which is what Abbott wanted," said Sena Lund, an analyst with Mehta Partners LLP in New York. "It's a good fit for both sides, and Alza shareholders got a fair value. They could have gotten more value if they waited a year when their pipeline would be more mature, but that's taking a risk. Abbott may not have been a willing buyer then. It was the right time."
In terms of competing products, there seems to be only one obvious conflict. Later this year, Alza will file a new drug application (NDA) for Viadur (Duros leuprolide) for advanced prostate cancer. This once-yearly dosing regimen of leuprolide is being developed on behalf of Crescendo Pharmaceuticals Corp., of Palo Alto, Calif. Abbott has Lupron (leuprolide acetate), a palliative treatment for prostate cancer.
"These are competing products so Abbott just eliminated a potential competitor," Steinberg said.
Rhonda Luniak, a spokeswoman for Abbott, said the products technically will be competitors, "but Viadur is delivered with Alza's unique delivery system so we, at this point, view it as a different option on how patients want to get their treatment. We haven't decided yet how we will treat this asset."
Regardless, the two companies seem compatible in other ways as well. Abbott, though a global company, does not have dedicated sales staffs in either urology or oncology. Alza has specific sales personnel for both diseases, with its oncology staff being the sixth largest in the country.
On the other hand, Alza's overseas marketing agreements were done basically on a country-by-country basis with individual partners. "This gives us access to Abbott's tremendous global infrastructure. It also gives us access to Abbott's large primary care sales staff, a definite benefit for Alza," Cole said.
Lund agreed. "Abbott's international presence will greatly help Alza's products overseas. Alza lacked a sales force of its own overseas," he said.
In addition, Abbott will put its muscle behind Alza's products.
"Alza was a bit slow getting Ditropan XL for urinary incontinence out the gates and its competing against Pharmacia & Upjohn's product," Steinberg said. "Abbott will help Ditropan not be as outgunned by P&U as it was."
Pharmacia & Upjohn Inc., of Bridgewater, N.J., markets Detrol for stress incontinence.
Delivery Technologies Will Be Investigated
Alza, which will operate as a subsidiary of Abbott, will also apply its drug delivery techniques to at least 12 of Abbott's products, particularly in the areas of HIV, anti-infectives and neurology.
"Abbott has a couple of products that could be used by Alza's liposomal delivery technology that it acquired from Sequus. That will be very useful to Abbott," Steinberg said.
Alza acquired Sequus Pharmaceuticals Inc., of Menlo Park, in March. (See BioWorld Today, Special Bulletin, Oct. 5, 1998.)
Alza has several products close to market launch. Earlier this month, the Oncologic Drugs Advisory Committee recommended accelerated approval of a supplemental new drug application (NDA) for Doxil (doxorubicin HCI liposomal injection) for refractory ovarian cancer. Doxil already is on the market for AIDS-related Kaposi's sarcoma. Doxil is a liposomal formulation of doxorubicin, an intravenous chemotherapy agent that uses Alza's targeted delivery system called Stealth technology to help evade recognition and uptake by the immune system.
Another supplemental NDA was filed in the first quarter for Ethyol, and Alza will be filing soon for Duros leuprolide and Oros methylphenidate.