UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__X__ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1996
or
____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 1-6247
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ALZA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 77-0142070
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 Page Mill Road, P.O. Box 10950, Palo Alto, California 94303-0802
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 494-5000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No ___
Number of shares outstanding of each of the registrant's classes of common
stock as of October 31, 1996:
Common Stock, $.01 par value - 84,561,517 shares
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALZA CORPORATION
Condensed Consolidated Statement of Income (unaudited)
(In thousands, except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
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Revenues:
Royalties and fees $ 39,014 $ 35,506 $ 124,389 $ 103,698
Research and development 29,426 27,525 94,843 72,710
Net sales 29,444 16,377 83,756 54,383
Interest and other 16,979 6,190 36,743 18,052
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Total revenues 114,863 85,598 339,731 248,843
Costs and expenses:
Research and development 31,672 26,147 101,182 72,533
Costs of products shipped 21,413 15,422 66,971 48,582
General, administrative and marketing 11,609 7,862 33,746 24,762
Interest and other 12,876 6,774 30,269 17,949
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Total costs and expenses 77,570 56,205 232,168 163,826
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Income before income taxes 37,293 29,393 107,563 85,017
Provision for income taxes 14,186 11,170 40,917 32,307
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Net income $ 23,107 $ 18,223 $ 66,646 $ 52,710
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Net income per common and
common equivalent share* $ .27 $ .22 $ .78 $ .64
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Weighted average common and
common equivalent shares 97,263 82,843 93,092 82,548
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See accompanying notes.
*The net income per common and common equivalent share calculation uses
adjusted net income of $26,186 and $72,740 for the quarter and nine months
ended September 30, 1996, respectively.
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ALZA CORPORATION
Condensed Consolidated Balance Sheet (unaudited)
(In thousands)
September 30, December 31,
ASSETS 1996 1995
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Current assets:
Cash and cash equivalents $ 339,680 $ 87,987
Short-term investments 637,480 331,037
Receivables, net 120,203 108,020
Inventories, at cost:
Raw materials 15,624 15,786
Work in process 15,748 15,251
Finished goods 4,920 3,460
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Total inventories 36,292 34,497
Prepaid expenses and other current assets 24,361 16,527
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Total current assets 1,158,016 578,068
Property, plant and equipment 391,571 359,495
Less accumulated depreciation and amortization (95,443) (82,511)
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Net property, plant and equipment 296,128 276,984
Other assets 111,413 82,163
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Total assets $ 1,565,557 $ 937,215
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,445 $ 20,043
Accrued income taxes 11,944 2,146
Accrued compensation 17,447 13,404
Accrued interest 13,240 3,325
Deferred revenue 1,329 17,630
Other current liabilities 5,406 11,400
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Total current liabilities 64,811 67,948
5% convertible subordinated debentures 500,000 -
5 1/4% zero coupon convertible subordinated
debentures 377,365 362,944
Other long-term liabilities 57,309 51,770
Stockholders' equity:
Common stock and additional paid-in capital 358,473 311,276
Net unrealized (losses) gains on available-
for-sale securities, net of tax effect (438) 1,886
Retained earnings 208,037 141,391
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Total stockholders' equity 566,072 454,553
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Total liabilities and stockholders' equity $ 1,565,557 $ 937,215
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See accompanying notes.
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ALZA CORPORATION
Condensed Consolidated Statement of Cash Flows (unaudited)
(In thousands)
Nine Months Ended September 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 66,646 $ 52,710
Non-cash adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 15,821 10,957
Interest on 5 1/4% zero coupon convertible
subordinated debentures 14,421 13,712
Increase (decrease) in assets:
Receivables (12,183) (14,871)
Inventories (1,795) (567)
Prepaid expenses and other current assets (6,216) 246
(Increase) decrease in liabilities:
Accounts payable (4,598) (10,154)
Accrued income taxes 9,798 995
Accrued compensation 4,043 1,314
Accrued interest 9,915 (96)
Deferred revenue (16,301) 6,785
Other current and long-term liabilities 395 7,323
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Total adjustments 13,300 15,644
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Net cash provided by operating activities 79,946 68,354
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (32,076) (27,961)
Purchases of available-for-sale securities (736,459) (147,772)
Sales of available-for-sale securities 383,803 83,831
Maturities of available-for-sale securities 42,271 7,012
Increase in cash surrender value-life
insurance and prepaid premiums (12,102) (2,312)
(Increase) decrease in other assets (8,787) 1,730
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Net cash used in investing activities (363,350) (85,472)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (850) -
Net proceeds from 5% convertible
subordinated debentures 488,750 -
Issuances of common stock 47,197 7,324
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Net cash provided by financing activities 535,097 7,324
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Net increase (decrease) in cash and cash
equivalents 251,693 (9,794)
Cash and cash equivalents at beginning
of period 87,987 88,844
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Cash and cash equivalents at end
of period $ 339,680 $ 79,050
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See accompanying notes.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The information at September 30, 1996 and for the nine months ended
September 30, 1996 and 1995 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the management of ALZA
Corporation ("ALZA") believes necessary for fair presentation of the results
for the periods presented. Interim results are not necessarily indicative of
results for the full year. The condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 1995 included in ALZA's 1995
Annual Report to Stockholders.
2. LITIGATION
See Part II, Item 1 of this Quarterly Report on Form 10-Q.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NOTICE CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements made in this Form 10-Q are forward-looking in
nature, including but not limited to ALZA Corporation's product development
plans, plans concerning the commercialization of products, and other
statements that are not historical facts. Forward-looking statements in this
Form 10-Q include language in the form of one of the following words:
"intend", "believe", "will", "may", "anticipate", "expect" and similar terms.
The occurrence of the events described, and the achievement of the intended
results, are subject to the future occurrence of many events, some or all of
which are not predictable or within ALZA Corporation's control; therefore,
actual results may differ materially from those anticipated in any
forward-looking statements. Many risks and uncertainties which could affect
the possible results described in forward-looking statements are inherent in
the pharmaceutical industry; others are more specific to ALZA Corporation's
business. Risks related to ALZA Corporation's business are described in ALZA
Corporation's Annual Report on Form 10-K, including risks associated with
technology and product development, risks relating to clinical development
and medical acceptance of products, changes in the health care marketplace,
patent and intellectual property matters, regulatory and manufacturing
issues, and risks associated with competition.
ALZA CORPORATION
ALZA Corporation ("ALZA") develops and commercializes innovative
pharmaceutical products using advanced drug delivery technologies to add
medical and economic value to
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drug therapies. ALZA's therapeutic systems can often increase efficacy,
minimize unpleasant or harmful side effects and/or provide greater patient
compliance. ALZA's development activities currently are undertaken pursuant
to joint development and commercialization agreements with other companies.
Generally, these companies reimburse ALZA for its development costs
associated with the products and market the products developed, and ALZA
receives royalties on sales of the products.
ALZA formed Therapeutic Discovery Corporation ("TDC"), which commenced
operations in mid-1993, for the purpose of selecting and developing new human
pharmaceutical products combining ALZA's proprietary drug delivery
technologies with various drug compounds, and commercializing such products,
most likely through licensing to ALZA. ALZA and TDC currently are developing
a range of products which are in various stages of development, including a
number in clinical evaluation. TDC reimburses ALZA for ALZA's development
costs associated with these products. ALZA has the right to license any or
all of the products from TDC and an option to purchase all of the shares of
TDC as discussed below.
ALZA markets in the United States certain products it has developed,
including Testoderm-Registered Trademark- (testosterone transdermal system)
CIII, launched by ALZA Pharmaceuticals in 1994. ALZA Pharmaceuticals also
co-promotes in the United States Duragesic-Registered Trademark- (fentanyl
transdermal system) CII with Janssen Pharmaceutica, Inc. ("Janssen"), and
Glucotrol XL-Registered Trademark-(glipizide) with Pfizer Inc. ("Pfizer").
In April 1996, ALZA began promoting Ethyol-Registered Trademark- (amifostine)
and Mycelex-Registered Trademark- (clotrimazole) Troche in the United States.
Ethyol-Registered Trademark- is a unique agent, developed by U.S.
Bioscience, Inc. ("USB"), indicated for the reduction of cumulative
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renal toxicity associated with repeated administration of the
chemotherapeutic drug cisplatin in patients with advanced ovarian cancer or
non-small cell lung cancer. ALZA has exclusive rights to market
Ethyol-Registered Trademark- in the U.S. for five years, with an option to
extend for one additional year. ALZA will receive residual payments after
that period. USB co-promotes the product with ALZA. Mycelex-Registered
Trademark- Troche is an antifungal agent for the treatment of oral thrush
developed by Bayer Corporation ("Bayer"). Under the terms of the agreement
with Bayer, ALZA will promote Mycelex-Registered Trademark- Troche in the
United States for three years and will receive payments based on net sales of
the product above a specified base level.
During the quarter, ALZA began co-promoting with USB in the United States
two additional products developed by USB -- Hexalen-Registered Trademark-
(altretamine), a product used in the treatment of advanced ovarian cancer,
and NeuTrexin-Registered Trademark- (trimetrexate glucuronate), a product
indicated as an alternate therapy for the treatment of moderate-to-severe
PNEUMOCYSTIS CARINII pneumonia. Sales of Hexalen-Registered Trademark- and
NeuTrexin-Registered Trademark- are recorded by USB and, under the agreement,
ALZA receives payments based on net sales of the products. The term of the
co-promotion period is up to five years, and ALZA will receive residual
payments after that period. USB is responsible for product manufacturing and
distribution and will continue its marketing and clinical support for these
products.
ALZA manufactures all or a portion of certain clients' requirements for
products developed by ALZA, and also manufactures certain products marketed
by ALZA. Net sales include sales to clients and sales of ALZA-marketed
products.
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RESULTS OF OPERATIONS
ALZA's net income was $23.1 million or $0.27 per share for the quarter
ended September 30, 1996, compared to net income of $18.2 million or $0.22
per share for the quarter ended September 30, 1995. Net income for the nine
months ended September 30, 1996 was $66.6 million or $0.78 per share ($64.4
million or $0.76 per share before non-recurring items discussed below),
compared to net income of $52.7 million or $0.64 per share for the nine
months ended September 30, 1995.
ALZA's net income currently results primarily from royalties and fees from
client companies. Royalties and fees, which are generally derived from sales by
client companies of products developed jointly with ALZA, will vary from quarter
to quarter as a result of changing levels of product sales by client companies
and, occasionally, the receipt by ALZA of certain one-time fees. Because ALZA's
clients generally take responsibility for obtaining necessary regulatory
approvals and make all marketing and commercialization decisions regarding such
products, most of the variables that affect ALZA's royalties and fees are not
directly within ALZA's control. The introduction of newer competitive products
could also have an adverse effect on royalties and fees. In addition, with
increasing pressures for cost containment in the U.S. health care system, it can
be expected that pharmaceutical product prices, including those of products
developed by ALZA, will not increase as quickly as they have in the past, and
could decrease. During the next several years, ALZA intends to become less
dependent on royalties and fees by expanding ALZA's sales and marketing
activities and by directly marketing more products (including products developed
with TDC); however, there can be no assurance that these expanded activities
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will be successful, due to factors such as the risks of product development
and clinical activities, the length of the regulatory approval process,
acceptance of products by the intended markets, and the current health care
cost containment environment. ALZA expects that, in the near term, net
income will continue to result primarily from royalties on sales of currently
marketed products.
Royalties and fees for the quarter ended September 30, 1996 increased to
$39.0 million, compared to $35.5 million (after the $2 million in additions
to the reserve established to account for a potential reduction in royalty
income from Procardia XL-Registered Trademark- (nifedipine) discussed below)
for the same period in 1995. The increase in royalties and fees during the
quarter ended September 30, 1996, as compared with the same period in 1995,
resulted from increased sales of Duragesic-Registered Trademark- by Janssen
and of Glucotrol XL-Registered Trademark- by Pfizer. Despite lower sales of
Procardia XL-Registered Trademark- during the third quarter of 1996,
royalties on this product were essentially flat compared with the quarter
ended September 30, 1995 due to a higher effective royalty rate, as discussed
below.
Royalties and fees for the nine months ended September 30, 1996 increased
to $124.4 million ($115.3 million excluding non-recurring items discussed
below) compared to $103.7 million (after the $7 million in additions to the
reserve established to account for a potential reduction in royalty income
from Procardia XL-Registered Trademark- discussed below) for the same nine
months in 1995. Royalties and fees for the nine months ended September 30,
1996 include a non-recurring benefit of approximately $7 million from the
reversal of a portion of the reserve accrued in 1994 and 1995 to account for
a potential reduction in royalty income from Procardia XL-Registered
Trademark-. During the second quarter of 1996, Pfizer and ALZA entered into
an agreement under which the remainder of the reserve was utilized to satisfy
ALZA's obligations related to the resolution
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of this royalty issue. Under that agreement, the royalty payable by Pfizer
to ALZA on sales of Procardia XL-Registered Trademark- was reset to 7%,
retroactive to January 1, 1996. While ALZA's total royalties from Procardia
XL-Registered Trademark- increased as a result of the higher effective
royalty rate, sales of Procardia XL-Registered Trademark-, as reported by
Pfizer, decreased by 13% during the nine months ended September 30, 1996
compared to the same period in 1995. Including the non-recurring benefit of
approximately $7 million from the reserve reversal, royalties from Procardia
XL-Registered Trademark- accounted for approximately 45% of ALZA's royalties
and fees for the nine months ended September 30, 1996. Excluding
non-recurring items, Procardia XL-Registered Trademark- accounted for
approximately 40% of ALZA's royalties and fees for the nine months ended
September 30, 1996. Procardia XL-Registered Trademark- accounted for
approximately 40% of royalties and fees for the quarter ended September 30,
1996.
Royalties and fees for the nine months ended September 30, 1996 also
include a non-recurring benefit of approximately $6 million in connection
with the settlement of litigation relating to patent disputes concerning
transdermal nicotine patches. Also included in royalties and fees for the
nine months ended September 30, 1996 is a non-recurring charge to establish a
reserve of approximately $4 million representing the unamortized portion of a
$5 million advance payment made in 1988 to the former limited partners of the
ALZA OROS-Registered Trademark- Products Limited Partnership (the
"Partnership"). The advance payment was made in connection with ALZA's
exercise of its option to acquire all of the limited partners' interests in
the Partnership.
Research and development revenue of $29.4 million for the quarter and
$94.8 million for the nine months ended September 30, 1996 represents an
increase of 7% and 30%, respectively, over the same periods in 1995, due to
product development activities
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undertaken on behalf of TDC. Reducing research and development revenue for
the nine months ended September 30, 1996 were approximately $2.1 million of
non-recurring items consisting of a credit given by ALZA to one of its
clients for work that was previously billed and a charge for certain
potentially uncollectable receivables. Research and development revenue from
TDC was $22.4 million and $73.9 million for the quarter and nine months ended
September 30, 1996, respectively, and $18.4 million and $47.0 million for the
corresponding periods in 1995.
Research and development expenses for the quarter and nine months ended
September 30, 1996 increased approximately 21% and 39%, respectively, as
compared with the corresponding periods in 1995, primarily due to product
development activities on behalf of TDC. Certain TDC products have reached
later stages of development, and higher levels of expenditures are therefore
required. ALZA expects that its product development expense for TDC products
(and, correspondingly, ALZA's product development revenue from TDC) will
remain approximately at current levels during the remainder of 1996.
However, several factors may impact the level and timing of TDC expenditures,
including the discontinuation of the development of any TDC product, any
change in the number of products advancing to or continuing in later stages
of development, any adjustments in the rates of spending on products
currently in development, or any commercial arrangements with other companies.
ALZA has the option, exercisable at ALZA's sole discretion, to purchase,
in accordance with a predetermined formula set forth in TDC's Restated
Certificate of Incorporation, all (but not less than all) of the outstanding
shares of TDC Class A common stock (the "Purchase Option"). The purchase
price may be paid in cash, in ALZA common
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stock, or in any combination of the two, at the option of ALZA. If ALZA were
to exercise the Purchase Option, ALZA would incur a one-time charge due to
the acquisition of in-process technology.
If expenditures on product development by TDC continue at approximately
current levels, it can be expected that all TDC funds available for product
development will be exhausted during the second half of 1997. Once these
funds are exhausted, ALZA's research and development revenues can be expected
to decrease significantly unless the TDC revenues are replaced with research
and development revenues from other client companies. In addition, once TDC
has expended all of its funds available for product development, ALZA will be
required to determine whether or not to exercise the Purchase Option. If
ALZA were to exercise the Purchase Option, ALZA would need to fund the
continued development expenses for the TDC products. If ALZA were to choose
not to exercise the Purchase Option, but to license some or all of the TDC
products for commercialization in some or all countries, ALZA would need to
fund any additional product development necessary to commercialize each of
the licensed products in those countries. In either case, the product
development activities would result in research and development expenses
without the corresponding research and development revenues that were
previously provided by TDC.
Net sales of $29.4 million and $83.8 million for the quarter and nine
months ended September 30, 1996 increased 80% and 54% respectively, compared
to the corresponding periods in 1995, primarily due to shipments to ALZA's
client companies of launch quantities of Covera-HS-Registered Trademark-
(verapamil) and NicoDerm-Registered Trademark- CQ-TM-, the over-the-counter
version of
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Nicoderm-Registered Trademark- (nicotine transdermal system). The increase
in net sales was also due in part to sales of Ethyol-Registered Trademark-.
Excluding the non-recurring charge of $2.4 million discussed below, costs of
products shipped increased 39% and 33%, respectively, for the quarter and
nine months ended September 30, 1996 compared to the corresponding periods in
1995. Costs of products shipped for the nine months ended September 30, 1996
include approximately $2.4 million of non-recurring charges primarily related
to costs associated with a limited recall of two lots of the
Duragesic-Registered Trademark- product.
ALZA's gross margin as a percent of net sales increased to 27% for the
quarter ended September 30, 1996 compared to 6% for the quarter ended
September 30, 1995. Excluding the non-recurring charge of $2.4 million
discussed above, ALZA's gross margin as a percent of net sales increased to
23% for the nine months ended September 30, 1996 compared to 11% for the
corresponding period in 1995. The increases were due to higher contract
manufacturing activities associated with the manufacturing of launch
quantities and proportionately greater shipments of higher margin products.
When ALZA's clients prepare to launch an ALZA-developed product that is
manufactured by ALZA, the clients generally order significant quantities of
product in anticipation of the launch. ALZA's shipments to fill these orders
generally result in a significant increase in net sales for the periods in
which ALZA manufactures and ships such launch quantities. Because there are
many uncertainties involved in the launch of a new product, ALZA's net sales
of launch quantities of a new product are not necessarily indicative of
future ALZA net sales of that product. Net sales therefore can be expected to
fluctuate from period to period, sometimes very
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significantly, depending on the volume, mix and timing of orders received
from client companies, which are not within ALZA's control. ALZA expects its
gross margin on net sales to increase from historical rates over the longer
term, although quarter-to-quarter fluctuations, even significant ones, can be
expected to continue to occur for the reasons discussed above. A trend of
higher than historical gross margins may ultimately be achieved through
increased utilization of capacity, greater operating efficiencies and a
proportionate increase in the sales of ALZA-marketed products.
General, administrative and marketing expenses of $11.6 million for the
quarter and $33.7 million for the nine months ended September 30, 1996
increased 48% and 36%, respectively, compared to the corresponding periods in
1995. The increase was due in part to sales and marketing expenses related
to the launch of Ethyol-Registered Trademark-, amortization of the upfront
payment ALZA paid to USB for Ethyol-Registered Trademark-, and an increase in
overall general and administrative expenses in support of increased corporate
activities.
Interest and other revenue, which consists primarily of interest income,
increased 174% and 104%, respectively, for the quarter and nine months ended
September 30, 1996 compared to the same periods in 1995, primarily due to
higher average invested cash balances following ALZA's offering of $500
million of 5% convertible subordinated debentures due 2006 (the "5%
Debentures") in April 1996, and also due to realized gains on sales of
investments. Also included in interest and other revenue for the nine months
ended September 30, 1996 was a $2.5 million non-recurring benefit resulting
from the issuance to ALZA of shares of common stock of an unrelated company
for the exclusive rights to use certain ALZA technology. Reducing interest
and other revenue for the nine months ended September 30, 1996 was a
non-recurring charge of approximately $2.8
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million related to ALZA's dental business activities and investments.
Operating results of the ALZA and Procter & Gamble partnership have not met
expectations primarily due to lower than expected sales of the
Actisite-Registered Trademark- (tetracycline hydrochloride) periodontal fiber.
Interest expense for the quarter and nine months ended September 30, 1996
increased 90% and 69%, respectively, as compared with the corresponding
periods in 1995, reflecting the interest expense on ALZA's 5% Debentures and
the higher outstanding balance on ALZA's 5 1/4% zero coupon convertible
subordinated debentures due 2014 (the "5 1/4% Debentures").
ALZA's effective combined federal and state income tax rate for the year
ended 1995 and for the quarter and nine months ended September 30, 1996 was
38%.
The number of weighted average common and common equivalent shares for
the quarter and nine months ended September 30, 1996 includes 12.3 million
and 8.2 million shares, respectively, issuable upon conversion of the 5 1/4%
Debentures. Because the 5 1/4% Debentures were dilutive for the quarters
ended June 30, 1996 and September 30, 1996, only a correspondingly
proportional number of shares were included in the calculations for the nine
months ended September 30, 1996. These shares are considered common stock
equivalents, but have been excluded from the earnings per share calculations
for the quarter and nine months ended September 30, 1995 as they were
antidilutive for those periods. Earnings per share for the quarter and nine
months ended September 30, 1996 are calculated by adding to net income the
after-tax interest incurred on the 5 1/4% Debentures for the periods in which
they were dilutive ($3.1 million and $6.1 million, respectively) and dividing
by the number of weighted average common and common equivalent shares.
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LIQUIDITY AND CAPITAL RESOURCES
ALZA invested $32.1 million during the first nine months of 1996 in
additions to property, plant and equipment to support its research and
development and manufacturing activities. While ALZA believes its current
facilities and equipment are sufficient to meet its current operating
requirements, ALZA is expanding its facilities and equipment to support its
medium-term and long-term requirements.
At the end of April 1996, ALZA completed a $500 million public offering
of the 5% Debentures which resulted in approximately $489 million of net
proceeds to ALZA. The proceeds of the offering will be used for general
corporate purposes, which may include expansion of ALZA's pharmaceutical
business (including its sales and marketing activities), expansion of its
research and development and manufacturing facilities, expenditures under
existing or future joint ventures, partnerships or other similar agreements,
the completion or continuation of the development of TDC products if ALZA
exercises its right to license any or all of the TDC products or its Purchase
Option with respect to TDC, the acquisition of assets, technologies, products
and businesses to expand ALZA's operations, and working capital needs.
ALZA believes that its existing cash balances and investments are
adequate to fund its current cash needs. In addition, should the need arise,
ALZA believes it would be able to raise additional capital. ALZA may also
enter into strategic alliances with third parties which could provide
additional funding for research and development, support for marketing and
sales or the development of new products.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During January 1994, a suit was filed against ALZA by Cygnus Therapeutic
Systems ("Cygnus") seeking a declaration of unenforceability and invalidity
of an ALZA patent relating to the transdermal administration of fentanyl
(which patent covers the Duragesic-Registered Trademark- (fentanyl
transdermal system) CII product) and alleging violation of antitrust laws. In
April 1995, the District Court granted ALZA's motion to dismiss the lawsuit.
Cygnus appealed that ruling. During the quarter ended September 30, 1996,
the Court of Appeals of the Federal Circuit upheld the District Court's
dismissal of Cygnus' claims against ALZA. Cygnus has no further right of
appeal.
Pharmaceutical companies are subject to product liability claims from
time to time. Product liability suits have been filed against Janssen
Pharmaceutica, Inc. ("Janssen") and ALZA from time to time relating to the
Duragesic-Registered Trademark- product which is manufactured by ALZA and
marketed by Janssen. Janssen is managing the defense of the
Duragesic-Registered Trademark- suits in consultation with ALZA under an
agreement between the parties.
Historically, the cost of resolution of liability (including product
liability) claims against ALZA has not been significant, and ALZA is not
aware of any asserted or unasserted claims pending against it, including the
suits mentioned above, the resolution of which would have a material adverse
impact on the operations or financial position of ALZA.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.2 Composite Bylaws of ALZA Corporation as restated on
February 10, 1994 and amended on August 11, 1994,
February 16, 1995, February 15, 1996 and August 13, 1996
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALZA CORPORATION
Date: November 13, 1996 By: /s/ E. Mario
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Dr. Ernest Mario
Co-Chairman and
Chief Executive Officer
Date: November 13, 1996 By: /s/ Bruce C. Cozadd
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Bruce C. Cozadd
Vice President and Chief
Financial Officer
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EXHIBIT INDEX
EXHIBIT
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3.2 Composite Bylaws of ALZA Corporation as restated on February 10, 1994 and
amended on August 11, 1994, February 16, 1995, February 15, 1996 and
August 13, 1996
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
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