In the wake of slower nicotine patch sales, Alza Corp.announced Thursday that it will "vigorously" defend itselfagainst a securities class-action lawsuit that the companyconsiders "completely without merit."

The lawsuit, filed in U.S. District Court in San Jose, Calif., claimsthat Alza issued, and allowed to be issued, statements thatwere false or misleading with respect to the financial prospectsof its smoking-cessation patch, Nicoderm, a market leader thatis considered the third most important product for the 25-year-old drug delivery company.

Alza's stock (ASE:AZA) dropped $5.25 a share to $28.63 onApril 22 after the company announced that it shipped fewerNicoderm patches to Marion Merrell Dow in the first quarterthan during the previous nine months. Alza's stock closed at$27.75 a share on Thursday, down 75 cents.

Alza of Palo Alto, Calif., considers the calcium channel blockerProcardia XL, which it manufactures for Pfizer, the keycontributor to earnings, spokeswoman Bonnie Burdett said.

She also said expanded manufacturing capacity in Vacaville,Calif., should bode well for future revenues. In the long term,the company also plans to manufacture its own products inVacaville, developed through its Therapeutic Discovery Corp.,as well as to continue producing pills and patches for corporateclients.

Burdett said the company has 50 products in its pipeline and10 awaiting decisions by the FDA, including a slow-releaseformulation of Pfizer's Glucotrol for Type II diabetes andSandoz's calcium channel blocker DynaCirc for hypertensionand angina. She could not predict which of the products isclosest to market.

Alza is "always extremely cautious in what they tellshareholders," said analyst Alex Zisson of Hambrecht & Quist."Most shareholder lawsuits are frivolous," he added.

Zisson dropped his earnings estimates for 1993 to $1.15 pershare from $1.26 after the Nicoderm announcement, but hemaintained a "buy" recommendation and said he considers thelower share price an opportunity.

He also raised his earnings per share estimate for 1994 from$1.55 to $1.60, based on Procardia XL, a treatment forhypertension and angina.

However, analyst David Steinberg of Volpe, Welte & Co. saidAlza is moving toward becoming a one-product company assales flatten or decline for its second product, a nitroglycerinepatch, and Nicoderm. Last year, demand for Nicoderm exceededmanufacturing capacity, but this year, the inventory isbacklogged.

One problem with the nicotine patch, Steinberg said, is that it ismore of a consumer product than a disease treatment, andtherefore more vulnerable to fickleness. Many of the nation's52 million smokers appeared to realize that quitting smokingrequires a behavioral change, while the patch only addresses abiological dependence.

Procardia XL is projected to ring up $1.3 billion in sales thisyear, however, and with Alza receiving a 7 percent royalty,that single product should contribute $90 million in revenuesin 1993.

In the long term, Steinberg said he views Alza as a "terrific"investment with an "excellent" pipeline one year or more in thefuture, but he only recommends buying the stock upon newapprovals. While the company does have a $2.2 billion marketcapitalization, he said, "they really need new productapprovals. Some applications have been at the FDA more thanthree years."

-- Nancy Garcia Associate Editor

(c) 1997 American Health Consultants. All rights reserved.

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