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Executive Summary

ALZA's BIO-ELECTRO UNIT TO MANAGE MEDTRONIC ELECTROTRANSPORT business unit under a "collaborative arrangement" between Alza, its Bio-Electro spinoff and Medtronic. Alza formed Bio-Electro in 1988 as an independent vehicle for the development of drug delivery systems based on Alza technology in bioerodible polymers and electrotransport drug delivery. Both Bio-Electro and Alza are located in Palo Alto, California. Medtronic currently has 25 people working in the electrotransport area at its facility in Spring Lake Park, Minnesota. A spokesperson said that under the new arrangement, Bio-Electro will "give direction to and coordinate" those efforts. Bio-Electro also "has obtained a $17 mil. bank line of credit to fund the electrotransport activities with Medtronic," a Feb. 5 release notes. Medtronic has one electrotransport product on the market: a cystic fibrosis indicator for pediatric use. The battery powered device delivers a low level electrical current to the patient's arm, exciting the sweat glands. The clinician then removes the device and applies a patch, which analyzes the chemical content of the sweat and indicates the likelihood of CF via a color change. Medtronic will receive an upfront payment of $2.9 mil., warrants to acquire 500,000 shares of Alza Class A common stock at $50 per share, and royalties on future electrotransport product sales by Bio-Electro. "In addition to this collaboration, Bio-Electro Systems has obtained an option, exercisable through June 1992, to acquire Medtronic's electrotransport technologies and business unit," a Feb. 5 release states. Alza holds an option to acquire Bio-Electro which is good through January 1995; if both options are exercised, Alza would own the electrotransport business of both companies. Shifting responsibility for expansion of the firm's electrotransport business to Bio-Electro fits with Medtronic's strategy to focus primarily on the cardiovascular and neurological markets, the Medtronic spokesperson said. Electrotransport is a logical research area for Alza, which already has a number of non-oral drug delivery products on the market in the form of transdermal patches. Alza has no commercial products based on electrotransport technology. The firm currently is evaluating electrotransport for the delivery of proteins and peptides developed by the biotech industry which cannot be delivered orally because they are destroyed by the digestive system. A commercial product is three to five years away, a spokesperson estimated. Bio-Electro has its own executives and board, but no other employees; the actual R&D is carried out by Alza staff ("The Pink Sheet" Oct. 24, 1988, p. 9). Bio-Electro was spun-off from Alza in a $43 mil. stock-warrant deal in late 1988. The Bio-Electro execs will oversee the collaboration with Medtronic.

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