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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.

Depending on how you do the calculation, Alza Corp. just sold itself to Johnson & Johnson [See Deal] for nearly twice what Abbott Laboratories Inc. had been willing to pay almost two years before [See Deal]—about $45 a share in J&J stock vs. a split-adjusted $22 a share in Abbott stock in June 1999. (See"Alza Takes Independence Road to Acquisition," IN VIVO, July 1999 [A#1999800166 and "The FTC Takes a Closer Look at Consolidation," IN VIVO, December 1999 [A#1999800249.) That works out to about $13 billion—or somewhere in the neighborhood of 45 times projected 2001 earnings.

Not that investors were particularly delighted at this extraordinary price. In the first place, analysts weren't overwhelmed by the doubling...

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