EXHIBIT B

A M A R K E T O P P O R T U N I T Y

A S S E S S M E N T F O R T H E D U R A G E S I C

T R A N S D E R M A L P A T C H

MARCH 2, 1998

Frost & Sullivan takes no responsibility for any incorrect information supplied
to us by manufacturers or users. Quantitative market information is based
primarily on interviews and therefore is subject to fluctuation.

Frost & Sullivan reports are limited publications containing valuable and
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parties.

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EXECUTIVE SUMMARY
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SCOPE OF THE STUDY

Frost & Sullivan was commissioned by ALZA Corporation to
provide revenue forecasts for Duragesic, a transdermal fentanyl
patch, for the time period 1997-2006.

OBJECTIVES OF THE STUDY

The objectives of the research were to:

. Assess the revenue potential of Duragesic from 1997
through 2006.

. Identify key competitive factors in the current and
future market environment.

. Identify key drivers of and restraints to market growth.

. Analyze the market opportunity for the period 1997-2006.

RESEARCH METHODOLOGY

The information contained in this report was obtained
through primary and secondary research.

Primary research included key discussions with:

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. Executives at pharmaceutical companies participating in
the chronic pain therapy market

. Experts in the field of opiate therapy and chronic pain
treatment

Secondary sources used to obtain relevant support
information included online data searches, trade journals, and
syndicated publications. In addition, IMS data encompassing
sales of Duragesic and competing products for the period 1995-
1997 were utilized.

Frost & Sullivan's initial approach to this project entailed
in-depth interviews with experts in the field of chronic pain
treatment. In addition, executives at companies involved in the
intractable pain market were interviewed to assess current and
future market trends.

Following the initial phase of research, an in-depth
analysis of the available information was done to develop a clear
assessment and forecast of the market.

KEY FINDINGS

The key findings are as follows:

. For a scenario in which a second transdermal product does
not emerge on the market, Duragesic is expected to
continue to experience substantial growth throughout the
forecast period. This growth will be due to increased
penetration into an expanding market, increased pricing,
and increased acceptance in key foreign markets.

. If a second product emerges on the market, in order to be
competitive, a company would need to undercut the price of
Duragesic.

Expanded market penetration should contribute to Duragesic's
revenue growth.

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DURAGESIC REVENUE FORECASTS
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DURAGESIC REVENUE FORECASTS

MARKET DEFINITION

Intractable pain is pain in which the cause cannot be
removed or otherwise treated, and no relief or cure has been
found. Chronic pain is pain that persists for greater than one
month beyond the course of an illness or injury, pain that
continues sporadically over the span of years, or pain associated
with a long-term disease such as cancer.

For the purposes of this project, the chronic pain market is
defined as the population of people with cancer pain (malignant)
and neuropathic pain (nonmalignant). In 1997, the nonmalignant
pain market totaled approximately 700,000 patients. The total
malignant chronic pain market was estimated to encompass 200,000
patients.

The total value of the market is defined by the combined
revenues generated by the following products: Duragesic, MS
Contin, Oramorph, IR Morphine, Demerol, Dilaudid, and Kadian. In
1997, worldwide sales of Duragesic reached approximately $254.6
million. Approximately 80 percent of revenues were generated
from U.S. sales.

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MARKET OPPORTUNITY ASSESSMENT: SCENARIO I

Figure 2-1 illustrates Duragesic revenue forecasts in the
world analgesic pharmaceuticals market from 1997 through 2006 if
Duragesic were to remain the only transdermal opiate patch on the
market. Factors expected to contribute to future market trends
include changes in price and market dynamics, additional launches
in new foreign markets, and shifts in the competitive
environment. These changes and factors are discussed in detail
below.

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FIGURE 2-1

DURAGESIC PHARMACEUTICALS MARKET:
REVENUE FORECASTS (WORLD),
1997-2006

SCENARIO I
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Revenue
Revenues Growth Rate
Year ($ Million) (%)
--------------------------------------------------------------------------------

1997............................................. 254.6 26.7
1998............................................. 320.9 26.1
1999............................................. 394.2 22.8
2000............................................. 473.7 20.2
2001............................................. 563.0 18.8
2002............................................. 645.3 14.6
2003............................................. 719.2 11.5
2004............................................. 786.3 9.3
2005............................................. 840.8 6.9
2006............................................. 892.1 6.1
Compound Annual Growth Rate (1997-2006): 14.9%
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Note: All figures are rounded. Source: Frost & Sullivan

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Increased Penetration
of Duragesic into the Chronic Pain Market

A key component of future revenue growth will probably be a
shift in the perception of opioid therapy. According to leading
experts in the field of opioid therapy, the market landscape in
the United States is ripe for a revolution in how and for whom
narcotic analgesics are prescribed. A combination of regulatory,
societal, and marketing factors will act in favor of
liberalization in the use of these products. This should result
in an increase in prescribing patterns across indications
(chronic cancer pain, neuropathic pain, and acute pain).

According to industry experts, regulatory changes and the
effect of these changes on the medical community and society
should instigate a shift in market dynamics. Recent industry
literature, position statements by patient advocacy
organizations, and statements by the FDA have all focused on the
inadequate treatment many pain patients receive in their final
days of life as well as throughout their lifetime. This trend is
indicative of a significant change emerging in how these drugs
are perceived.

Current misconceptions regarding tolerance and addiction
prevent increased penetration of these products into the chronic
pain market, specifically for chronic nonmalignant pain. As
experts and scientists continue to highlight the clinical
pharmacological reality, these products will become less
stigmatic.

In addition, the industry's continued study into the use of
pain medication in nonmalignant pain patients should prove highly
beneficial to the future market. As scientific knowledge on the
use of opioid therapy in this population of patients grows,

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industry participants, which have shown clinical effectiveness in
this population, are expected to gain the approval to actively
and aggressively market these products for nonmalignant pain
indications. An increase in marketing efforts directed at a end
users currently undertreated is expected to correlate directly to
an increase in the total number of prescriptions dispensed.

The growing use of Duragesic in the treatment of
nonmalignant pain will be an integral component in the future
sales growth of the product. According to industry sources,
approximately 700,000 patients suffer from neuropathic pain in
the United States. Unlike chronic cancer pain patients, these
individuals are expected to live a typical life span, thus
ensuring long-term annuity for companies.

The combination of a shift in perception, aggressive
marketing, actions taken by patient advocacy groups, and trends
to establish guidelines for the use of these products are
expected to result in an increase in penetration of opioid
therapy in the total pain population.

Increasing Acceptance of Duragesic
in the Following Key Foreign Markets: Spain,
Japan, Germany, United Kingdom, Italy, and France

The successful launch of Duragesic into key foreign markets
is expected to contribute to a healthy growth pattern in the
future. Although some markets are highly profitable, in general,
foreign markets do not generate revenues comparable to those of
the U.S. market. In many foreign markets, the industry cannot
demand a price premium because of economic or regulatory factors.

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Key markets in western Europe that do command price premiums
include Germany and England. As such, a large portion of future
market growth will depend on these countries. Other markets that
are expected to prove profitable are Spain, Japan, Italy, and
France. The forecast model estimates that Duragesic will be
launched into the Japanese market in 2001.

Price Increase of Duragesic

Based on historical trends, an increase in the price of
Duragesic has been incorporated in the market forecast. This is
translated as an increase in the average price per year for
treatment with Duragesic. Because of a lack of direct
competition in the form of a second transdermal patch or
comparable delivery system, the price in relation to demand is
inelastic (based on calculations made from historical demand and
price increases).

Price elasticity allows companies to predict the effect of
price on demand (and thus, unit sales). It is defined as the
sensitivity of demand with respect to price. Inelastic
translates into demand that is relatively unresponsive to price.
Conversely, an elastic demand translates into demand that
fluctuates greatly with price changes. Factors that determine
price elasticity include whether the necessity of the good and
the availability of substitute products. It is believed that the
consumer (hospitals, private physicians, and managed care
organizations) will accept price increases of 1.0 to 3.5 percent
throughout the forecast period without significant correlating
changes in demand.

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Shifts in the Future Competitive Environment

An increase in the future competitive environment has also
been integrated into the forecast model. Although only one
product is expected to have a significant impact on the market
during the forecast period, this factor must be included in
future predictions of market growth.

MARKET OPPORTUNITY ASSESSMENT: SCENARIO II

Figure 2-2 shows Duragesic revenue forecasts in the world
analgesic pharmaceuticals market should a second transdermal
patch emerge on the market during the fourth quarter of 2000.
Factors likely to contribute to market trends for this scenario
include a change in market dynamics, reimbursement issues, and
effects on foreign markets.

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FIGURE 2-2
DURAGESIC PHARMACEUTICALS MARKET:
REVENUE FORECASTS (WORLD),
1997-2006

SCENARIO II

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Revenue
Revenues Growth Rate
Year ($ Million) (%)
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1997............................................. 254.6 26.7
1998............................................. 320.9 26.1
1999............................................. 394.2 22.8
2000............................................. 470.6 19.4
2001............................................. 535.5 13.8
2002............................................. 586.0 9.4
2003............................................. 631.0 7.7
2004............................................. 671.9 6.5
2005............................................. 705.0 4.9
2006............................................. 739.1 4.8
Compound Annual Growth Rate (1997-2006): 12.6%
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Note: All figures are rounded. Source: Frost & Sullivan

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The following key analytical factors were utilized to
determine the effect of a second product on the Duragesic
revenues.

Creation Market

Because of the changing environment in the United States,
the net number of individuals treated with opioid therapy is
expected to increase in the future. (This factor is discussed in
the market opportunity assessment section of the first scenario).
The expanding market, due to the growing penetration of opioid
therapy in an undertreated population, will result in a creation
market.

This new market opportunity will allow for competition to
expand market revenues, despite a loss of prescription share due
to increased competition. This mechanism will reflect positively
on Duragesic sales despite the emergence of a second transdermal
patch.

An example of this dynamic occurred in the pharmaceuticals
market in the early 1990s. Prozac (marketed by Eli Lilly),
launched in 1988, established a new class of products for the
treatment of depression. The product is a selective serotonin
re-uptake inhibitor (SSRI). The superior nature of the product
in relation to other available products, combined with five years
of market exclusivity, generated $880 million in revenues in the
United States by 1993.

In 1993, the launch of Zoloft, Pfizer's SSRI changed a
virtual monopoly into a competitive marketplace. In addition,
Zoloft was launched at a price below that of Prozac, thus
significantly increasing the competition for Eli Lilly.

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At the time Zoloft was launched, the market for a depressive
was expanding because of a growing recognition of the disorder.
This resulted in an increase in the population of potential
users. Although two equivalent drugs were available on the
market, the size of the market had expanded significantly,
leaving room for both competitors to increase penetration.
Therefore, Zoloft gained a novel end-user population (a creation
market) instead of converting patients already on Prozac. Due to
the market expansion, both companies were able to grow revenues
significantly.

Pricing Strategy

To compete in a market already established and dominated by
Duragesic, an emerging product would be forced to compete on the
variable of price. It is highly unlikely that an emerging
product, priced equivalently, would be able to adequately compete
with Duragesic after nine years of market exclusivity. Because
of this "head start," Duragesic will have the advantage of an
already established distribution network; a strong, aggressive,
and knowledgeable sales and marketing team; and most importantly,
a high level of brand loyalty.

To compete with a solid product marketed globally, a second
transdermal patch would most likely be forced to undercut
Duragesic in price. Based on the pricing of generic drugs in the
pharmaceuticals industry, a second transdermal patch may be
priced as much as 20 to 30 percent below Duragesic's price. A
product that is the only generic competitor to a branded
pharmaceutical will undercut the branded product price by a
minimal amount, approximately 20 percent. As more generic
products are launched and begin to compete in the market, generic
manufacturers will further drop their prices.

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Substitution at the Pharmacy Level

A key market dynamic that allows generic manufacturers to
slightly undercut the branded competition is substitution at the
pharmacy level. Although a physician may prescribe the branded
product, upon filling the prescription, a pharmacist may
substitute a generic version. This often occurs as a cost-
cutting measure.

Substitution at the pharmacy level can be also done between
two branded products if the substituted product is given an AB
rating. This rating, given by the FDA, denotes that these
products are similar enough to be considered bio-equivalent. If
a second transdermal patch were to emerge and gain approval as
bio-equivalent to Duragesic, substitution at the pharmacy level
would be a highly plausible outcome.

An example of this occurred in the attention deficit
disorder (ADD) market. For years, pharmacological treatment of
this disease was dominated by Ritalin (generic name
methylpenidate). Ritalin, the branded product, is marketed by
Novartis. Currently, one generic competitor exists--Medeva--with
the product methylpenidate. Methylpenidate is priced
approximately 35 percent below Ritalin (based on the 1997 Redbook
price).

According to industry sources, although Novartis continues
to dominate in market share owing to its high price premium, the
company is clearly losing in prescription share. Industry
sources claim that even though 80 percent of the prescriptions
written are for Ritalin, less than 70 percent of the
prescriptions dispensed are the branded product. This is due to
generic substitution occurring at the pharmacy level.

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To substitute a generic product for a branded product, or
potentially a branded product for an equivalent branded product,
the pharmacist must ask the consumer for permission. The main
factor favoring the dispensation of the lower-priced product is
the individual's managed care organization. Although a consumer
does have a choice as to the product dispensed, the HMO plan may
only cover the lower-priced drug, therefore encouraging the
individuals to choose it or pay for the difference themselves.

Effect of Second Product
on Foreign Markets Is Not Substantial

A second transdermal patch is not expected to be launched
immediately on the global market without first generating
substantial revenues in the United States. In addition, because
of the lengthy approval process in many countries, a 2000 launch
in foreign markets is highly unlikely. Because of these factors,
the extent of Duragesic's market share loss in foreign markets
during the forecast period will probably be insignificant.

MARKET DRIVERS

The following factors were determined to be key drivers of
the future market.

Regulatory Changes

According to industry experts, state governments in the
future are expected to establish guidelines and laws for use
opioids that do not impede medical practice.

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Perceptual Shift

The anticipated favorable shift in the perception of opioid
therapy, within the medical community and within society at
large, should contribute to increased use of such therapy.

Advocacy Groups

Action by patient advocacy groups continue to elevate the
undertreatment of chronic pain as a significant medical issue.
The groups are essential components of the market because they
spur regulatory action by governmental bodies.

Increased Marketing

Based on the solid scientific results of industry studies,
opioid therapy is expected to gain approval to aggressively
market for nonmalignant pain indications. This is expected to
boost penetration into a population that is currently
undertreated.

Potential for Long-Term Annuity

As opioid therapy becomes more widely used to treat
nonmalignant chronic pain, industry participants will gain long-
term annuity, since many of these patients will likely live
typical life spans.

MARKET RESTRAINTS

The following factors were determined to be key restraints
to market growth.

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Gradual Process of Overcoming Misconceptions

Currently, misconceptions regarding the addictive nature of
opioid analgesics inhibit greater penetration of these products
into the population of chronic pain patients. For many members
of the medical community as well as patients, opioid analgesics
are thought to be associated with a high risk of addiction.

According to experts in the field of opioid therapy,
physical dependency is often used synonymously with addiction,
leading to confusion. As with many other types of drugs,
physiological changes in the body lead to withdrawal symptoms
when individuals cease using opioid narcotics. However, this is
not equivalent to addiction. In patients with no history of
addiction, this issue should not be considered a risk in the
management of their pain. Although addiction is not considered
by knowledgeable physician and patients as a risk, it is a factor
that impedes use among less knowledgeable individuals.

Although a change in the view of the addictive nature of
these products is expected, the process will be gradual,
occurring over a five to ten years. Thus, an immediate
substantial increase in the use of opioid therapy is unlikely.

Increased Competition in the Future Market

The launch of an innovative product offering pain relief
with few side effects is expected to increase the competition in
the market, and projected to significantly affect the chronic
neuropathic pain market.

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COMPETITIVE ENVIRONMENT

Analysis of Present Market Environment

The current narcotic analgesics market is dominated by seven
participants, which can be stratified into two tiers of
competition. Duragesic and MS Contin control the first tier of
competition. Based on clinical pharmacology, Kadian and Oramorph
can be considered first-tier competitors, although neither
product commands as much prescription share as Duragesic or MS
Contin. Differences in overall equivalency, ease of use,
duration of action, and analgesic effect differentiate these top
competitors from second-tier products such as Dilaudid, Demerol,
and IR morphine.

Second-tier products lack several key competitive advantages
that prevent them from tightening the competitive environment.
The major disadvantages are:

. Comparatively short duration of action

. Less controlled release of opioid

. Oral dosages are less effective than parenteral
counterparts

The shorter duration of action is a major weakness of
second-tier opioid analgesic drugs. This limitation prevents
Demerol (meperidine) from being considered a viable product for
relieving chronic pain (instead of one more appropriate for acute
pain). Furthermore, decreased duration of action prevents all
second-tier competitors from gaining a position of strength in
the total chronic pain market, since they are more suitable for
various niche indications.

First-tier products also offer key advantages in ease of
use, propelling these products into a different class. The

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limitation of current second-tier products is expected to
continue to prevent them from being a substantial competitive
factor to Duragesic.

Of the first-tier competitors, MS Contin and Oramorph are
similar products offering an oral product administered every 8 to
12 hours. Kadian competes directly with these two standard
treatments, offering a product administered every 24 hours.
Within the first tier of competition, the following factors
continue to effect market dynamics:

RAPID DOSE TITRATION

Duragesic is limited in one arena: it is not suitable for
rapid dose titration. If patients suffer a constant level of
pain, the limitation is not significant, but for patients with
rapid increases in pain intensity, Duragesic is not a suitable
option. Furthermore, in the future, opioid therapy is expected
to expand as a treatment of severe acute pain. Because of the
limited time of opioid use in these patients, Duragesic will be
unable to capitalize on this trend.

EASE OF ADMINISTRATION

Ease of use remains a significant factor that continues to
drive Duragesic sales. The convenience of the transdermal
administration mode is unmatched by other products on the market.
Although oral morphine offers ease of use, the oral formulation
of morphine sulfate is not as potent as the intravenous
formulations.

CONTINUED AGGRESSIVE MARKETING OF KADIAN

Kadian, the newest entrant into the opioid therapy market,
is expected to continue to impact market dynamics and

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modify the competitive environment. As marketing of Kadian
continues and the product gains prescription share, oral morphine
sulfate is expected to experience the biggest decline in sales.
Kadian intensifies the competitive environment for Duragesic,
offering a product with a significantly long duration of action.
However, prescription share is not forecast to be significantly
affected by this product.

Analysis of Future Market Environment

Research and development efforts in the narcotic analgesic
market are focused on delivering equivalent pain relief to
current marketed products while simultaneously diminishing side
effects. Figure 2-3 shows the products in development for the
treatment of chronic pain in the narcotic analgesic
pharmaceuticals market.

Strategies for delivering novel products tend to take one of
two paths: Companies are developing new administration modes for
already used compounds, or they are developing new compounds that
display their potency through a variant mechanism. It is the
latter of the two strategies that, if successful, may be the
greatest threat to Duragesic sales in the future.

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FIGURE 2-3

NARCOTIC ANALGESIC PHARMACEUTICALS MARKET:
SELECTED PRODUCTS IN RESEARCH AND DEVELOPMENT (WORLD),
1997

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Clinical
Product Company Type Status

BCH 3963............ BioChem Pharma Opiate Agonist Preclinical

Actiq............... Abbott Laboratories Fentanyl Citrate Registered
Anesta Corporation Transmucosal

4030W92............. Glaxo Wellcome, Inc. Sodium Channel Blocker Phase II

Not Available....... CytoTherapeutics Adrenal Chrommafin Cells Phase II
Astra AB

CMI-980............. CytoMed, Inc. Not Available Preclinical

Quadramet........... DuPont Merck/Cytogen Sumarium-153-EDTA Registered

Not Available....... Eli Lilly NK1 Antagonist Phase I

Not Available....... Eli Lilly Muscarinic Antagonist Phase I/II

GV196771............ Glaxo Wellcome Glycine Antagonist Preclinical

Hydromorphone Oros.. Alza Corp. Morphine Phase III
Knoll Pharmaceuticals

MorphiDex........... Algos Pharmaceuticals Corp. NMDA Receptor Phase III
Antagonist

Dirame.............. Roberts Pharmaceutical Partial Opiate Agonist Phase III

Ziconotide.......... Neurex Corp. Neuron Specific Phase III
(Intrathecal) Calcium Channel Blocker

Anchor.............. Redcell Opiate Agonist Preclinical

SNC 80.............. Glaxo Wellcome Opiate Antagonist Preclinical

TAN 67.............. Toray Delta Agonist Preclinical
Daichii Pharmaceuticals

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Source: Frost & Sullivan

The majority of products listed in Figure 2-3 will not have
a significant, if any, impact on the future market for Duragesic.
Products early in the developmental process are not expected to
appear on the market until 2004 or 2005, if at all. Many
products in the later stages of development are not believed to
have significant benefits or advantages that will threaten
Duragesic's market share. The exception to this is Ziconotide

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(formerly SNX-111), which is currently completing Phase III
clinical trials.

Ziconotide, in development by Neurex Corporation (Menlo
Park, California), is a synthetic copy of a natural neurotoxin
taken from cone snail venom. The compound, delivered through an
infusion pump, is a selective neuron specific calcium channel
blocker (a neurochemical pathway through which pain signals
travel to the brain).

The advantages and disadvantages of this product compared to
Duragesic are listed in Figure 2-4. The key advantage of
Ziconotide over Duragesic is the lack of side effects. It
appears that use of Ziconotide is not associated with euphoria or
mental confusion, which tend to accompany morphine-based
analgesics. This will prove a crucial marketing advantage, since
individuals and physicians alike will favor a compound that
relieves pain without diminishing the patient's mental capacity.

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FIGURE 2-4

NARCOTIC ANALGESIC PHARMACEUTICALS MARKET:
COMPARATIVE ANALYSIS OF ZICONOTIDE (WORLD),
1997

ADVANTAGES DISADVANTAGES
================================================================================================================

No side effects commonly associated with the use of morphine Inconvenient route of delivery
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Tolerance not an issue Limited initial label indication
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Effective in patients who have failed morphine therapy Neurex being new to marketplace
- ----------------------------------------------------------------------------------------------------------------
Partnership with medtronic pump Comparatively high annual cost for
treatment
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No regulatory environment to overcome
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Source: Frost & Sullivan
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B-20

The company plans to file an new drug application in
September 1998 with the FDA. The initial label indication that
Neurex will pursue is for use in patients who have failed all
other forms of opiate therapy. According to Neurex, this
population consists of approximately 270,000 malignant and
neuropathic pain patients. The company estimates that
approximately 10 percent of the 700,000 neuropathic pain patients
(70,000) and 200,000 cancer pain patients are not receiving
adequate pain relief from current treatments.

Because there are no existing treatment options for these
patients, according to FDA guidelines, Ziconotide is eligible to
be fast-tracked through the approval process. Therefore, the
launch date for this drug is estimated to be the first quarter of
2000.

Although Ziconotide will not benefit immediately from a
broad indication and thus not appear to be a competitive factor
for Duragesic, "off-label" use is a factor. The key benefits of
Ziconotide are strong incentives for physicians to prescribe the
drug to patients who wish to remit their chronic pain, without
becoming debilitated by morphine-induced side effects.

The main disadvantage expected to inhibit the widespread
success of Ziconotide is the product's delivery method. The only
intrathecal product currently on the market is Infumorph by
Elkins Sinn. It is not widely used and appears to be an option
for treatment only after intravenous and oral therapy have
failed. The inconvenience of an infusion pump will serve as a
restraint to penetration of Ziconotide. Furthermore, the cost
may also retrain the use of Ziconotide, which will be priced at
approximately $3,500 to $5,000 per year.

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