Health-care giant Johnson & Johnson reportedly will buy drug-delivery specialist Alza Corp. in an $11.8 billion stock deal analysts say would make it cheaper for J&J to find the most effective ways for patients to take its drugs.
Alza, based in Mountain View, Calif., developed the technology for the best-selling Nicoderm nicotine patches sold by GlaxoSmithKline. It also makes time-released capsules that allow people to take fewer pills and systems that use electricity to push drugs through skin.
Alza had operations in Lawrence from 1969 to 1972, in laboratories built for the company on Kansas University's West Campus. The building most recently had been occupied by Oread Inc.
Alza's Lawrence operations had been developed by Takeru Higuchi, a late KU professor who had been an international leader in pharmaceutical chemistry.
The boards of both companies approved the deal Monday afternoon but held off on making a formal announcement so members could iron out final details.
Alza spokesman John Liu said the company would "not comment publicly on rumors and speculation." A J&J spokesman did not return telephone messages.
The purchase by New Brunswick, N.J.-based maker of Band-Aids and Tylenol had been rumored for weeks.
Alza stock rose $8.70, or 29 percent, to close at $38.75 Monday on the New York Stock Exchange amid reports a deal was imminent. J&J shares dropped $2.83, or 3 percent, to $85.38, also on the NYSE.
Under terms of the transaction, J&J has offered a fixed exchange ratio of 0.49 of its shares for each share of Alza, the Journal reported. Based on J&J's closing price Monday, that would value Alza at $41.8362 a share.
The deal is J&J's biggest ever, surpassing in value its 1999 purchase of biotechnology firm Centocor Corp. of Malvern, Pa., for $4.9 billion.
Alza's sales of its own drugs and its drug delivery work with drug makers will benefit from J&J's strong worldwide marketing presence. But analysts said some pharmaceutical companies might be reluctant to work with Alza on drug-delivery methods in the future because the company would be owned by a direct competitor.
"Obviously that's a long-term issue," said Sandra Hollenhorst, an analyst with Prudential Securities Inc. "But if the drugs are currently marketed, it would be tough for them to switch to other drug-delivery platforms."
Alza had been considered fair game since it called off a deal to be bought for $7.3 billion by North Chicago-based Abbott Laboratories, the country's largest maker of medical diagnostic tests. The purchase was halted after the companies could not come to terms with antitrust concerns raised by the Federal Trade Commission.
Alza officials also may have been reluctant to go forward because Abbott in late 1999 signed a consent decree with the Food and Drug Administration to pay a $100 million fine and stop selling more than 100 of its products pending correction of federal quality rules violations.
"It just didn't look like the place you would want a quality company going," Hollenhorst said.
An Alza-J&J combination probably will not be hindered by regulatory problems because Alza is much smaller and the companies' operations don't overlap much, said Girish Tyagi, an analyst with ABN Amro Inc.
"This is not a blockbuster merger of two powerhouses coming together," he said.
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