Johnson & Johnson Looks to Buy Alza

Drug giant Johnson & Johnson may buy Alza Corp. for about $10 billion in stock to gain an attention-deficit disorder treatment and timed-release medicines, people familiar with the companies’ discussions said Monday.

Alza stockholders would exchange each of their shares for about a half-share of Johnson & Johnson, sources said.

The deal talks, first reported in the Wall Street Journal and the Financial Times on Monday, sent Alza’s shares soaring $8.70, or 29%, to close at $38.75 on the New York Stock Exchange.

The companies’ boards planned to meet Monday to discuss the transaction, sources said.

Based on the rumored stock swap terms, the deal would value Mountain View, Calif.-based Alza at about $42.70 a share. The stock traded as high as $47 in recent months before heavy profit-taking hit drug stocks this year.

Alza forecasts sales of Concerta, a daily drug for attention deficit disorder that Johnson & Johnson helps market, will reach $200 million this year, about one-fifth of its revenue.

Johnson & Johnson seeks products to make up for slowing sales of its two biggest sellers, the schizophrenia drug Risperdal and anemia medicine Procrit, analysts said.

“It would definitely boost Johnson & Johnson’s growth, but the flip side is how much are they willing to pay for it,” said Sarah Ross, an analyst with Edward Jones.

Johnson & Johnson shares fell $2.83, or 3%, to close at $85.38 on the New York Stock Exchange. An Alza acquisition could reduce the company’s per-share profit by 15 cents to 17 cents in the first 12 months after the transaction closed, said David Lothson, an analyst with UBS Warburg.

The acquisition would add $700 million to Johnson & Johnson’s pharmaceutical sales, which accounted for $12 billion, or 41%, of its 2000 revenue, making prescription drugs its largest and fastest growing business. Johnson & Johnson also makes consumer products such as Tylenol and Band-Aids and devices used in cardiovascular and orthopedic surgery.

New Brunswick, N.J.-based Johnson & Johnson would assume about $1.2 billion of Alza debt, and Alza would retain its name as a separate unit, the sources said. Johnson & Johnson has done this before, letting acquired businesses keep their names and much of the management.

The Alza acquisition probably would be the largest for Johnson & Johnson. Its largest to date was the 1999 purchase of Centocor Inc. for $4.9 billion to expand its biotechnology holdings.

Johnson & Johnson won a hostile takeover in 1996 to buy medical device maker Cordis.

“We have viewed the mergers and acquisitions as an important part of our growth strategy,” said Chairman and Chief Executive Ralph Larsen in an interview. “You have to go back and look at our history. You’ve seen a steady stream of well-placed acquisitions.”

He declined to comment on Alza. An Alza spokeswoman also declined comment.

Alza specializes in drug-delivery systems, including skin patches and timed-release medicines. Those include its E-Trans fentanyl system for postoperative pain, which uses electricity to push drugs through the skin, and its Viadur implant for prostate cancer.

Johnson & Johnson is probably more interested in gaining control of Concerta and adding experimental Alza drugs, including Flexeril XL for muscle spasms, analysts said.

Alza said last month that it plans annual earnings-per-share growth of more than 20%. The company called off a merger with Abbott Laboratories in 1999 because of concerns raised by the Federal Trade Commission.

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Mighty Boost

Teaming with a global-size partner would help Alza leverage its drug-delivery technologies. Its stock, which has slumped in recent weeks, got a big boost Monday on speculation

that Johnson & Johnson might be a pursuer.

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Alza, weekly closes and latest on the New York Stock Exchange

Monday: $38.75, up $8.70