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Alza Takes Independence Road to Acquisition

Executive Summary

Alza's acquisition by Abbott reflects, in part, Alza CEO Ernie Mario's belief in the near-impossibility of a mid-sized pharmaceutical company retaining a sustainable growing business. But Mario recognized that to get a high-value acquisition bid, he needed to do everything possible to create an independent, sustainable business. His strategy succeeded.

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Angiotech: Specialty Pharma in the Device World

Angiotech positions itself as the first specialty pharmaceutical company dedicated to the drug/device interface. Best known as Boston-Scientific's pharmaceutical partner on the Taxus drug-eluting stent, Angiotech has created a large body of intellectual property around drug-device combinations. Focusing on the essential biological mechanisms involved in device failures, the company develops existing drugs for new applications in combination products for surgical markets, and it also owns a broad-based portfolio of drug eluting biomaterials. Now, as it looks to life after drug-eluting stents, Angiotech has plans to offer drug plus device combinations in peripheral vascular disease, orthopedics, ob/gyn surgery, and anti-infective coatings. It will thus face the challenge of managing, as a small to mid-sized company, a great variety of projects with limited resources. To lessen reliance on partners, going forward, it aims to capture an increasing proportion of revenues from product sales, taking some products from preclinical stage to market itself. But as a mid-sized company, it might have to choose between sacrificing a percentage of product sales to partners that provide development or distribution expertise that it doesn't have, or narrowly focusing on markets that it can address itself, but limiting its opportunities in a niche specialty.

Inhale Chooses the Service Path

Drug delivery has seen plenty of acquisitions-but they represent two basic philosophical approaches, represented most recently by Johnson & Johnson's purchase of Alza and Inhale's acquisition of two privately-held firms, Bradford and Shearwater. The basic question: can a service model bring significant returns to a large shareholder base or will Alza's evolution into a product company define the way forward for the industry?

J&J's $13 Billion Gamble on Alza

J&J is paying a lot to buy Alza, nearly twice what Abbott had been willing to pay two years before. It's convinced that Alza's current drugs--mid-sized products today--can be blockbusters. Its gamble: that it can make Alza's modest sized drugs into blockbusters; and--for the first time in the drug industry--to make a captive drug delivery capability into a productive R&D engine.

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