Alza Corp.'s stock had risen $4.63 a share to $35.13 sinceTuesday in anticipation of a positive announcement from thePalo Alto, Calif., drug delivery company at an analysts' meetingThursday.
The news turned out to be that Alza has formed a newcompany, Therapeutic Discovery Corp. (TDC). Alza stockholderswill get a special dividend of units in the new endeavor, witheach unit consisting of one share of TDC common stock and onewarrant to purchase one-eighth of one share of Alza class Acommon stock.
That wasn't quite the news the analysts had been hoping for ifthe stock market's reaction is any indication. Alza's stock(ASE:AZA) closed down $1.50 a share to $33.63 on Thursday .
Alza formed TDC to select and develop new humanpharmaceuticals combining Alza's drug delivery systems withdrug compounds. Alza will contribute $250 million in cash tothe new company.
The analysts don't see any short-term financial benefit toshareholders from TDC. Wertheim Schroder analyst JonathanGelles predicted that it might take 18 to 24 months before TDCgives Alza a boost, while Evan Sturza, editor of Sturza's MedicalInvestment Letter, said he expected nothing for five years.
Alza's current revenue comes mainly from royalties onreformulated versions of drugs it licenses from othercompanies. The two products gaining the watchful eye of theanalysts seem to be the nicotine patch Nicoderm and thecardiovascular drug Procardia XL. Martin Gerstel, Alza's chiefexecutive officer, said that the Street had overestimated theimpact of both of those products on earnings.
Gerstel told the analysts on Thursday that the 1993 outlook forNicoderm is uncertain, but that sales of Procardia XL aregrowing "dramatically." Gerstel said that although Nicoderm,which Alza licensed to Marion Merrell Dow, will be a "goodproduct" in 1993, its sales outlook in the U.S. is "very, veryunclear."
At estimated sales of anywhere from $150 million to $250million, Nicoderm is not a "primary determinant of earnings"out of the $2 billion sales base on which Alza earns royalties,Gerstel said.
Gerstel also said that the Street had placed too much emphasison Procardia sales' impact on Alza's earnings.
"Had there been absolutely no increase in Procardia XLroyalties last year, Alza's earnings would likely still have been35 percent higher than the prior year," he said.
-- Jennifer Van Brunt Senior Editor
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