Exhibit 13

Portions of the 2000 Annual Report to Stockholders

Page 25 of paper format annual report

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

                       RESULTS OF OPERATIONS

                              SUMMARY

SUMMARY
(In millions, except per share amounts)
						   2000      1999      1998
________________________________________________________________
Revenues                            $ 988.5   $ 795.9   $ 646.9

Operating Income                      255.7     149.2     196.5

Net Income                            223.3      91.0     108.3

Diluted Earnings per Share (1)         0.95      0.44      0.53

(1) Reflects the two-for-one stock split effective November 1, 2000
  for all periods presented.

2000 Compared to 1999

     In 2000, ALZA's results of operations reflect significant
growth in product sales by ALZA Pharmaceuticals, the launch of
Concerta-trademark- (methylphenidate HCl), increasing gross margin
on net sales, expansion of the sales organization and increased
royalties and fees.  Also in 2000, ALZA purchased all of the
outstanding shares of Class A Common Stock of Crescendo
Pharmaceuticals Corporation ("Crescendo"), which has provided
significant funding for ALZA's research and development since its
inception in 1997; called for redemption of its 5% convertible
subordinated debentures due 2006 (the "5% Debentures"), most of
which were converted into ALZA common stock; and issued the 3% zero
coupon convertible subordinated debentures due July 28, 2020 (the
"3% Debentures").

     ALZA's total revenues rose 24% in 2000 from 1999, and pro
forma net income, excluding certain items discussed below,
increased 42% in 2000 from 1999. Significant factors contributing
to ALZA's 2000 financial results include:

  -  Total net sales increased 36% in 2000 from 1999, and net sales
     of products by ALZA Pharmaceuticals increased 48% in 2000 from
     1999, primarily due to strong sales of Ditropan XL-registered
     trademark-  (oxybutynin chloride), which more than doubled in 2000
     from 1999 levels, the launch of Concerta in August 2000, and
     increased sales of Doxil-registered trademark-  (doxorubicin HCl
     liposome injection).

  -  Gross margin as a percentage of net sales increased to 70% in
     2000 from 65% in 1999, reflecting increased sales of higher-margin
     products by ALZA Pharmaceuticals.

  -  Royalties, fees and other income increased 24% in 2000 from
     1999, primarily due to continued growth of royalties on sales of
     Duragesic-registered trademark-  (fentanyl) from Janssen
     Pharmaceutica ("Janssen") and fee income from Bayer Corporation
     ("Bayer") in connection with the Viadur-trademark- (leuprolide
     acetate) agreement.

  -  Interest and other income increased 42% in 2000 from 1999, due
     to higher invested cash balances resulting from the issuance of new
     debt.

  -  Selling, general and administrative expenses increased 35% in
     2000 from 1999, due to the continued expansion of ALZA
     Pharmaceuticals' sales organization, increased marketing expenses,
     and the increase in sales and marketing expenditures related to the
     launch and promotion of Concerta in August 2000.

  -  Research and development revenues declined 17% in 2000 from
     1999 as a result of ALZA's purchase of Crescendo, and, as a
     consequence,  the end of Crescendo research and development
     funding, in the fourth quarter of 2000.

ALZA's results of operations for 2000 also include the following
charges and credits:

  -  $12.4 million charge for in-process research and development
     relating to the purchase of Crescendo and a payment to Chong Kun
     Dang Pharmaceutical Corporation ("CKD") relating to ALZA's
     licensing agreement for the anti-cancer compound CKD-602.

  -  $4.8 million charge for the consolidation of certain research
     and development operations in the first quarter of 2000.

  -  $56.5 million income tax credit related to a change in the
     estimate of realizable deferred tax asset.

  -  $12.4 million ($7.4 million after tax) cumulative effect of a
     change in accounting principle pertaining to revenue recognition,
     related to a charge in connection with the adoption of the
     Securities and Exchange Commission's Staff Accounting Bulletin No.
     101 ("SAB 101").

     Excluding these items, pro forma net income for 2000 was
$188.4 million, or $0.82 per diluted share, compared to pro forma
net income of $132.6 million, or $0.64 per diluted share, for 1999.

1999 Compared to 1998

     ALZA's 1999 net income decreased 16% from 1998. In addition to
certain charges discussed below, the results for 1999 were impacted
primarily by the following:

  -  Net sales increased 55% in 1999 from 1998, and net sales of
     products by ALZA Pharmaceuticals increased 84% to $323.4 million in
     1999 compared with $175.8 million in 1998.

  -  Gross margin as a percentage of net sales increased to 65% in
     1999 from 57% in 1998.

  -  Interest and other income increased 57% to $41.6 million in
     1999 from $26.4 million in 1998.

Page 26 of paper format annual report


  -  ALZA's effective tax rate declined to 31% for 1999, excluding
     the tax benefit of $13.5 million associated with merger-related
     costs, compared to 35% for 1998.

     Substantially offsetting these contributions to net income in
1999 were the following:

  -  Selling, general and administrative expenses increased 83% in
     1999 from 1998, due to the significant expansion of the ALZA
     Pharmaceuticals' sales organization, the increase in sales and
     marketing expenses related to the launch and promotion of
     Ditropan XL and increased marketing expenses for ALZA's expanded
     product portfolio.

ALZA's net income for 1999 included the following charges:

  -  $32.3 million relating to the acquisition of SEQUUS.

  -  $13.4 million resulting from a terminated merger agreement.

  -  $9.6 million relating to a change in sales return policy and
     an increase in the reserve for sales rebates.

  -  $5.3 million primarily relating to a write-off of
     uncollectible accounts receivable.

     Excluding these charges, pro forma net income for 1999 was
$132.6 million, or $0.64 per diluted share.


OPERATING SEGMENT SUMMARY
(In millions, except per share amounts)
						   2000      1999	     1998
Revenues
 ALZA PHARMACEUTICALS               $ 567.6   $ 427.9   $ 294.1
 ALZA TECHNOLOGIES                    509.0     498.4     465.6
 OTHER                                 10.3       1.7       2.4
________________________________________________________________
  Total segment revenues            1,086.9     928.0     762.1
  Intersegment eliminations           (98.4)   (132.1)   (115.2)
________________________________________________________________
     Total revenues                 $ 988.5   $ 795.9   $ 646.9


Operating Income
 ALZA PHARMACEUTICALS               $  79.9 (1) $23.5   $  24.6
 ALZA TECHNOLOGIES                    215.3     204.5     200.4
 OTHER                                (39.5)(2) (78.8)(3) (28.5)
________________________________________________________________
     Total operating income         $ 255.7   $ 149.2   $ 196.5


(1) In 2000, the operating income for ALZA Pharmaceuticals
    included $12.4 million for in-process research and development
    relating to the purchase of Crescendo and payment to Chong Kun Dang
    Pharmaceutical Corporation relating to a licensing agreement for
    the anti-cancer compound CKD-602.  Excluding these charges, the
    operating income for ALZA Pharmaceuticals would have been $92.3
    million.

(2) In 2000, the operating loss for Other included a $4.8 million
    charge associated with the consolidation of research and
    development operations.  Excluding this charge, operating loss for
    Other would have been $34.7 million for 2000.

(3) In 1999, the operating loss for Other included merger-related
    expenses of $32.3 million relating to the acquisition of SEQUUS
    and $13.4 million resulting from a terminated merger agreement.
    Excluding these charges, operating loss for Other would have
    been $33.1 million in 1999.


ALZA PHARMACEUTICALS

     ALZA Pharmaceuticals derives its revenues from sales of ALZA
Pharmaceuticals products to the pharmaceuticals marketplace in the
United States and Canada and to distributors who market the
products elsewhere; research and development revenues from
Crescendo through the third quarter of 2000, after which Crescendo
was acquired; co-promotion fees from third parties, and fees
received with respect to rights to market, outside the United
States or Canada, products marketed or intended to be marketed by
ALZA Pharmaceuticals in the United States and Canada.  Revenues
from Crescendo have been offset by intersegment charges from ALZA
Technologies for research and development expenses related to
products to be marketed by ALZA Pharmaceuticals, which are under
development on behalf of Crescendo.  ALZA Pharmaceuticals' costs
and expenses include costs of products shipped for products
marketed by ALZA Pharmaceuticals, including costs of products
manufactured by ALZA Technologies and third party manufacturers,
research and development expenses billed by ALZA Technologies and
others, sales and marketing expenses and amortization of product
acquisition payments.

     ALZA Pharmaceuticals' operating income increased substantially
in 2000 compared to 1999.  This improvement was due to a 48%
increase in net sales and an increase in gross margin as a
percentage of net sales on these products to 82% in 2000 compared
with 80% in 1999. These increases were partially offset by
increased sales and marketing expenses.

     ALZA Pharmaceuticals' operating income remained relatively
constant in 1999 compared to 1998.  ALZA Pharmaceuticals' revenues
increased 45% in 1999 compared to 1998, and gross margin as a
percentage of net sales increased to 80% in 1999 compared with 77%
in 1998.  The increase in revenues was due to an 84% increase in
net sales as compared to 1998.  These increases were offset by
increased sales and marketing expenses and, to a lesser extent, an
increase in clinical expenses.

ALZA TECHNOLOGIES

     ALZA Technologies derives its revenues from net sales of
products manufactured for pharmaceutical product development
partners and for ALZA Pharmaceuticals, royalty revenues, fee
revenues under agreements with  partners, and revenues for research
and development activities undertaken for  partners and ALZA
Pharmaceuticals.

     In 2000, operating income for ALZA Technologies increased
slightly compared to 1999, primarily due to a 19% increase in
royalties, fees and other revenues and a 12% decrease in research
and development expense. Partially offsetting the increase in
revenues from royalties, fees and other and the decrease in
research and development expense was a 52% decline in intersegment
research

Page 27 of paper format annual report

and development revenues. Operating income for 1999 remained
relatively constant compared with operating income for 1998,
primarily due to the increase in both contract manufacturing sales
and revenues from royalties being offset by the decline in fee
revenues in 1999 compared to 1998.

OTHER

     The "Other" category primarily comprises corporate general and
administrative activities and the associated costs related to
finance, legal, human resources, commercial development, executive
and other functions not directly attributable (or allocated) to the
activities of the operating segments, as well as rental and service
fee revenues.

     In 2000, the operating loss for the Other segment remained
relatively constant compared to the 1999 operating loss, excluding
certain charges for both years described above, primarily due to an
increase in certain corporate expenses, which was partially offset
by an increase in rental and other income.  In 1999, the operating
loss for the Other segment increased 16%, excluding certain
charges, compared to 1998, primarily due to an increase in certain
corporate expenses and, to a lesser extent, lower rent and service
revenues in 1999 compared with 1998, partially offset by growth in
the cash surrender value of company-owned life insurance policies
in 1999 compared with 1998.

                             NET SALES

NET SALES
(Dollars in millions)                 2000       1999      1998
________________________________________________________________
ALZA PHARMACEUTICALS
 Ditropan XL-registered trademark-  $ 179.0   $  86.9   $   -
 Doxil-registered trademark-           82.4      66.2      48.4
 Concerta-trademark-                   67.9       -         -
 Ethyol-registered trademark-          48.4      48.3      32.6
 Elmiron-registered trademark-         33.7      29.9      23.0
 Mycelex-registered trademark- Troche  19.5      29.2      25.9
 Testoderm TTS-registered
  trademark- line                      18.6      20.8      10.0
 Other                                 28.2      42.1      35.9
________________________________________________________________
  Total ALZA Pharmaceuticals          477.7     323.4     175.8

ALZA TECHNOLOGIES
 Contract manufacturing               129.5     124.6     113.6
 Intersegment                          53.4      41.2      22.1
________________________________________________________________
  Total ALZA Technologies             182.9     165.8     135.7

 Intersegment eliminations            (53.4)    (41.2)    (22.1)
________________________________________________________________
     Total net sales                $ 607.2   $ 448.0   $ 289.4

ALZA PHARMACEUTICALS

     Net sales increased substantially in 2000 compared to 1999 due
to $179.0 million of sales of Ditropan XL, which more than doubled in
the product's first year of sales after the launch in 1999, and $67.9
million sales of Concerta, which was launched in August 2000, as well
as an increase of 24% in sales of Doxil (CAELYX-registered trademark-
in Europe) in 2000 compared to 1999.  Net sales of Mycelex-registered
trademark-  (clotrimazole) Troche declined 33% in 2000 from 1999, due
in part to high inventory levels from late-1999 stocking by
distributors in anticipation of the Year 2000 issues and the then-
pending merger with Abbott Laboratories ("Abbott") which terminated
in 2000.  Net sales of Ethyol-registered trademark-  (amifostine) in
2000, which were relatively constant with 1999 levels, were also
affected by late-1999 inventory stocking by distributors.

     Net sales increased 84% in 1999 compared to 1998 due to sales of
Ditropan XL, which was launched in February 1999, as well as a 37%
increase in sales of Doxil (CAELYX-registered trademark-  in Europe)
in 1999 compared to 1998.  In addition, Ethyol, Elmiron-registered
trademark-  (pentosan polysulfate sodium) and Mycelex Troche had
significant sales growth in 1999 compared to 1998.

     ALZA Pharmaceuticals' net sales can be expected to vary
significantly from year to year, particularly in the first years
after launch of a new product.  Concerta was launched in the third
quarter of 2000, Ditropan XL was launched in the first quarter of
1999, and Doxil and Testoderm  TTS were cleared for marketing
during the past few years.  In June 1999, the United States Food
and Drug Administration ("FDA") approved new indications for Ethyol
and Doxil. Wholesaler stocking patterns, managed care and formulary
acceptance, the introduction of competitive products, and
acceptance by patients and physicians will also affect future sales
of ALZA's products.

ALZA TECHNOLOGIES

     Net sales from contract manufacturing remained relatively
constant in 2000 compared to 1999 primarily due to increased ALZA
shipments of Duragesic, offset by decreased shipments of
Glucotrol XL-registered trademark-  (glipizide).  Net sales from
contract manufacturing increased 10% in 1999 compared with 1998,
primarily due to an increase in ALZA shipments to pharmaceutical
product development partners of Glucotrol XL and NicoDerm CQ-
registered trademark-  (nicotine).

     The timing and quantities of orders for products by partner
companies are not within ALZA's control. Therefore, net sales to
partners can be expected to fluctuate from period to period,
sometimes significantly, depending on the volume, mix and timing of
orders for products shipped and, in some quarters, due to the
shipment of launch quantities of products to partners.

Page 28 of paper format annual report

                           GROSS MARGIN

Gross margin as a percentage of net sales
                                       2000     1999      1998
________________________________________________________________
 ALZA PHARMACEUTICALS (1)              82%      80%       77%
 ALZA TECHNOLOGIES (1)                 26%      24%       25%

 Gross margin as a percentage of
   total net sales (1)                 70%      65%       57%

(1)  After intersegment eliminations

     The progressive increase in total gross margin for the three
years presented was due to increased sales of higher-margin
products by ALZA Pharmaceuticals and increases in ALZA
Pharmaceuticals sales as a percentage of total sales.  ALZA expects
its gross margin on net sales to increase from historical rates
over the longer term, although quarter-to-quarter fluctuations,
some of which may be significant, can be expected to continue to
occur.  A trend of higher gross margins may be achieved through a
proportionate increase in the sales by ALZA Pharmaceuticals in
relation to sales by ALZA Technologies and, to a lesser extent,
increased utilization of capacity and greater operating
efficiencies by ALZA Technologies.

ALZA PHARMACEUTICALS

     The gross margin on net sales of ALZA Pharmaceuticals products
increased in 2000 compared to 1999 primarily due to a shift in
product mix towards sales of higher-margin products, including a
full year of sales of Ditropan XL and the launch of Concerta in
August 2000.  The gross margin on net sales of ALZA Pharmaceuticals
products increased in 1999 compared to 1998 due to a shift in
product mix towards sales of higher-margin products, including the
launch of Ditropan XL.

ALZA TECHNOLOGIES

     The gross margin on net sales of products manufactured by ALZA
Technologies for sale by partner companies and ALZA Pharmaceuticals
remained constant for the three years presented. ALZA Technologies'
gross margin on its contract manufacturing sales is considerably
lower than ALZA Pharmaceuticals' gross margin on its sales of ALZA
Pharmaceuticals products. ALZA's partner-funded product development
agreements generally provide for a supply price that is intended to
cover ALZA's costs to manufacture the product plus a small margin.
ALZA also generally receives royalties on the partners' sales of
the products, which are included in royalties, fees and other
revenues.  Sales to ALZA Pharmaceuticals are based upon negotiated
prices.


                ROYALTIES, FEES AND OTHER REVENUES

     Royalties, fees and other revenues consist largely of
royalties paid by partner companies on products developed under
joint development and commercialization agreements with ALZA and
marketed by the partner companies. Fee revenues consist of upfront,
milestone and other one-time, special or infrequent payments made
under these joint development agreements, or by distributors who
acquire rights to market ALZA products outside the United States
and Canada, and co-promotion fees.

     In the fourth quarter of 2000, ALZA adopted SAB 101, the SEC's
new guidelines for revenue recognition, effective January 1, 2000.
SAB 101 requires certain fees that were recognized in full at the
time of payment under ALZA's previous policy, to be deferred and
recognized ratably over future periods during which ALZA has
continuing involvement, typically the term of the agreements.  The
adoption of SAB 101 resulted in the recognition of a $12.4 million
($7.4 million after tax) charge for the cumulative effect of an
accounting change as of the beginning of 2000.  Specifically, this
charge represented the deferral of fees totaling $8.3 million
related to the agreement with Schering-Plough, which expires in
2010, for the European commercialization of CAELYX; and $6.5
million related to the agreement with Sanofi-Synthelabo, which
expires in 2012, for the European commercialization of Ditropan XL.
The deferral of these amounts was partially offset by amortization
for periods prior to January 1, 2000.  Results of operations for 2000
reflects ratable recognition of these amounts.


                ROYALTIES, FEES AND OTHER REVENUES

(Dollars in millions)                   2000      1999      1998
________________________________________________________________
ALZA PHARMACEUTICALS                  $  20.2  $  14.0  $  25.3
ALZA TECHNOLOGIES                       250.7    211.4    205.4
OTHER                                    10.3      1.7      2.4
________________________________________________________________
 Total royalties, fees and
  other revenues                      $ 281.2  $ 227.1  $ 233.1


ALZA PHARMACEUTICALS

     Fee revenue in 2000 for ALZA Pharmaceuticals included fees of
$5.0 million from Schering-Plough related to CAELYX, $2.5 million
from Sanofi-Synthelabo for rights to commercialize Ditropan XL in
Europe, $2.7 million from Crescendo, and $10 million in co-
promotion fees with respect to products co-promoted by ALZA
Pharmaceuticals.  Fee revenue in 1999 for ALZA Pharmaceuticals
included technology fees of $6.7 million from Crescendo, $1.3
million from Schering-Plough, and $6.0 million in co-promotion fees
with respect to products co-promoted by

Page 29 of paper format annual report

ALZA Pharmaceuticals.  In 1998, fee revenue for ALZA
Pharmaceuticals included technology fees of $10.7 million from
Crescendo, a $6.5 million fee from Sanofi-Synthelabo related to the
commercialization of Ditropan XL in Europe (adjusted in 2000 to
deferred revenue under SAB 101, as discussed above), $4.0 million
in fees from Schering-Plough related to CAELYX, and $4.1 million in
co-promotion fees with respect to products co-promoted by ALZA
Pharmaceuticals.

ALZA TECHNOLOGIES

     Royalties, fees and other revenues for ALZA Technologies
increased 19% for 2000 compared to 1999 primarily due to an
increase in royalties from Janssen as a result of increased sales
of Duragesic and $16.0 million in fees from Bayer relating to the
commercialization of Viadur.  Royalties, fees and other revenues
for ALZA Technologies increased 3% for 1999 compared to 1998
primarily due to an increase in royalties from Janssen as a result
of increased sales of Duragesic and from Pfizer Inc. ("Pfizer") as
a result of increased sales of Glucotrol XL, partially offset by
lower fee revenue and a decrease in royalties on lower sales of
Procardia XL-registered trademark-  (nifedipine) by Pfizer in 1999
compared to 1998.

     In March 2000, the FDA approved Viadur for marketing in the
United States.  The product is the first FDA-approved product to
incorporate ALZA's DUROS-registered trademark-  implant technology.
In April 2000, ALZA entered into a commercialization agreement with
Bayer for Viadur.  Under the terms of the agreement, Bayer will
have the commercial rights to Viadur in the United States through
2015.  ALZA received a $15.0 million payment (deferred and
recognized ratably under SAB 101) in the second quarter of 2000,
and may receive certain manufacturing and sales milestone payments.
ALZA also received and recognized as revenue $15.0 million in
quarterly manufacturing, patent and trademark payments beginning in
the second quarter of 2000.  ALZA will continue to receive these
payments through the third quarter of 2001.  Following the launch
of Viadur, ALZA will receive royalty payments based on net sales of
the product, as well as milestone payments if the product achieves
specified sales levels.  ALZA will manufacture Viadur for Bayer,
for which ALZA will receive a negotiated supply price.  ALZA
retains the right to buy back the United States commercialization
rights at the end of 2008, 2010 or 2012, in exchange for specified
payments.

                     RESEARCH AND DEVELOPMENT

     ALZA's research and development revenues generally represent
reimbursement of costs, including a portion of general and
administrative expenses, by partners (including Crescendo) for the
development of products.  Therefore, product development activities
do not contribute significantly to operating results.

Research and Development Revenues
(Dollars in millions)                    2000      1999      1998
________________________________________________________________
ALZA PHARMACEUTICALS
 Crescendo                            $  68.3   $  90.5  $  93.0
 Intersegment                             1.4       -        -
________________________________________________________________
  Total ALZA Pharmaceuticals             69.7      90.5     93.0

ALZA TECHNOLOGIES
 Crescendo                                -         -        2.0
 Other partners                          31.8      30.3     29.4
 Intersegment                            43.6      90.9     93.1
________________________________________________________________
  Total ALZA Technologies                75.4     121.2    124.5

Intersegment elimination                (45.0)    (90.9)   (93.1)
________________________________________________________________
Total research and
 development revenues 			  $ 100.1   $ 120.8  $ 124.4


ALZA PHARMACEUTICALS

     ALZA Pharmaceuticals derived research and development revenues
from Crescendo through the third quarter of 2000.  Revenues from
Crescendo were offset by intersegment charges from ALZA
Technologies, under the prior period's segment presentation, and
were partially offset under the current year segment presentation,
due to the change in the current year's segment presentation for
research and development expense (as discussed below).
Intersegment charges from ALZA Technologies are for research and
development expenses incurred on behalf of ALZA Pharmaceuticals
related to products under development for marketing by ALZA
Pharmaceuticals.

     In September 2000, ALZA exercised its option to acquire all of
the Class A Common Stock of Crescendo for a cash payment of
$100.0 million.  Royalties that would otherwise have been paid by
ALZA to Crescendo on net sales of products licensed from Crescendo
(Ditropan XL, Concerta and Viadur) were no longer payable following
the closing date of the transaction, November 13, 2000.  Research
and development revenues from Crescendo ended upon ALZA's exercise
of its purchase option.

ALZA TECHNOLOGIES

     Research and development revenues from partners other than
Crescendo increased slightly during the three years presented.
Revenues from product development activities vary from quarter to
quarter depending upon the mix of projects underway and the phase
of development of each project. The decrease in the intersegment
revenues, in 2000 compared to 1999, is due to the change in the
current period's segment presentation for research and development
expenses and to ALZA's exercise of its purchase option to acquire
Crescendo, as discussed above.  In the current year segment
presentation, certain research and development

Page 30 of paper format annual report

expenses previously recorded in the ALZA Technologies segment and
charged to ALZA Pharmaceuticals were moved to the ALZA
Pharmaceuticals segment, as they were incurred directly by ALZA
Pharmaceuticals departments relating to products to be sold by ALZA
Technologies.  Under the prior period's segment presentation,
intersegment revenues for ALZA Technologies for 2000 would have
been $68.3 million.

Research and Development Expenses
(Dollars in millions)                  2000      1999        1998
__________________________________________________________________
ALZA PHARMACEUTICALS
 Intersegment                        $ 43.6    $ 90.9      $ 93.1
 Product development expense           60.2 (1)  33.2        28.5
__________________________________________________________________
     Total ALZA Pharmaceuticals       103.8     124.1       121.6

ALZA TECHNOLOGIES
 Intersegment                           1.4       -           -
 Product development expense          130.6     150.4       154.3
__________________________________________________________________
     Total ALZA Technologies          132.0     150.4       154.3

 Intersegment eliminations            (45.0)    (90.9)      (93.1)
__________________________________________________________________
     Total research and
       development expenses          $190.8   $ 183.6     $ 182.8

As a percentage of total revenues       19%       23%       28%


(1) In 2000, the product development expense for ALZA
    Pharmaceuticals excluded $12.4 million for in-process research and
    development relating to the purchase of Crescendo and payment to
    Chong Kun Dang Pharmaceutical Corporation for ALZA's licensing
    agreement for the anti-cancer compound CKD-602.


ALZA PHARMACEUTICALS

     ALZA Pharmaceuticals engages ALZA Technologies to perform
research and development services, the cost of which is determined
based upon amounts that would be charged to third parties for
similar services. Total research and development expenses decreased
16% in 2000 compared to 1999, primarily due to ALZA's exercise of
its purchase option to acquire all of the outstanding Class A
Common Stock of Crescendo, as discussed above, and a change in the
current period's segment presentation for research and development
expenses.  In the current year segment presentation, certain
research and development expenses, including expenses of clinical
studies, previously recorded in the ALZA Technologies segment and
charged to ALZA Pharmaceuticals, were moved to the ALZA
Pharmaceuticals segment, as they were incurred directly by ALZA
Pharmaceuticals departments.  Under the prior period's segment
presentation, intersegment expense and product development expense
for 2000 would have been $68.3 million and $41.8 million,
respectively.  Expenses remained relatively constant in 1999
compared to 1998, primarily due to an increase in clinical expenses
offset by a decline in intersegment expenses reflecting the
completion of New Drug Applications ("NDA") submissions for Viadur
and Concerta, which were submitted to the FDA in April 1999 and
July 1999, respectively.

ALZA TECHNOLOGIES

     Research and development expenses decreased 12% in 2000
compared to 1999, reflecting the change in the current period's
segment presentation for research and development expenses.  In the
current year segment presentation, certain research and development
expenses previously recorded in the ALZA Technologies segment and
charged to ALZA Pharmaceuticals were moved to the ALZA
Pharmaceuticals segment, as they were incurred directly by ALZA
Pharmaceuticals departments.  Under the prior period's segment
presentation, product development expenses for 2000 would have been
$158.8 million.  Research and development expenses decreased in
1999 compared to 1998, due to a decrease in product development
activities for ALZA Pharmaceuticals and under agreements with
pharmaceutical product development partners.


           SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Dollars in millions)                  2000        1999      1998
__________________________________________________________________
ALZA PHARMACEUTICALS
 Sales and marketing expenses       $ 275.1   $ 200.0   $  95.2
 Amortization of product acquisition
   payments                            15.3      15.1      11.1
__________________________________________________________________
   Total                              290.4     215.1     106.3

ALZA TECHNOLOGIES
 Amortization of product acquisition
   payments                             9.1       9.1       4.6
__________________________________________________________________
OTHER
 General and administrative expenses   49.9 (1)  34.8      31.0
__________________________________________________________________
Total selling, general and
  administrative expenses           $ 349.4   $ 259.0    $141.9

Total sales and marketing expenses
  as a percentage of ALZA
  Pharmaceuticals net sales            58%       62%       54%

Total selling, general and
  administrative expenses a
  percentage of total revenues         35%       33%       22%

(1)  Included expenses of $4.8 million related to the consolidation
     of research and development operations.

Page 31 of paper format annual report

ALZA PHARMACEUTICALS

     Total sales, marketing and product amortization expenses
increased 35% in 2000 compared to 1999, and more than doubled in
1999 compared to 1998, as a result of the significant increase in
sales and marketing expenses for ALZA's expanded product portfolio
and commercial organization, including expenses associated with the
launch in 1999 and subsequent promotion of Ditropan XL, and launch
of Concerta in 2000. ALZA also expanded its commercial organization
to a total of 700 sales professionals, up 300 from 1999.  In
addition to expanding its primary care, urology and oncology sales
organization, ALZA established its central nervous system sales
organization in connection with the launch of Concerta.

     In April 2000, ALZA entered into an agreement with McNeil
Consumer Healthcare ("McNeil"), a Johnson and Johnson company, to
co-promote Concerta in the United States. ALZA and McNeil have
deployed a combined sales organization of over 400 sales
professionals to support Concerta, including over 300 sales
professionals from McNeil.  McNeil receives payments based on sales
calls made and based on sales of Concerta above certain levels.

     ALZA also has agreements with UCB Pharma, Inc. ("UCB Pharma")
and Bayer to co-promote Ditropan XL in the United States, which
provide an additional 460 sales professionals supporting this
product.  From July 1999 through January 20, 2000, under an
agreement with ALZA, Abbott co-promoted Ditropan XL for fees based
on sales calls made. This agreement was terminated concurrently
with the termination of the merger agreement.

     Amortization of product acquisition payments remained
relatively constant in 2000 compared to 1999.  The amortization
increased in 1999 compared to 1998 due to the amortization of
payments for products that were acquired in the second half of
1998, and the amortization of additional milestone payments
incurred during 1999.

ALZA TECHNOLOGIES

     Amortization of product acquisition payments remained
relatively constant in 2000 compared to 1999.  Amortization of
product acquisition payments for 1999 and 1998 reflects
amortization of the $91.2 million exercise price paid in August
1998 to acquire all of the outstanding limited partnership
interests in the ALZA TTS Research Partners, Ltd.("TTS
Partnership"), for a full year and six months, respectively.  For
reporting purposes, these costs are treated as product acquisition
costs because they primarily relate to the acquisition of TTS
Partnership's rights to royalties on Duragesic, and resulted in
ALZA retaining all royalties paid by Janssen on sales of that
product.

OTHER

     General and administrative expenses increased 43% in 2000
compared with 1999, primarily due to $4.8 million in costs
associated with the consolidation of certain research and
development facilities, as well as an increase in corporate support
functions to support ALZA's expanding commercial operations.  In
1999, general and administrative expenses increased 12% compared
with 1998, primarily due to a $4.5 million charge for uncollectible
accounts receivable, partially offset by higher cash surrender
value of company-owned life insurance policies.


                    INTEREST INCOME AND EXPENSE

NET INTEREST
(In millions)                          2000      1999      1998
__________________________________________________________________
Interest and other income           $ (59.0)  $ (41.6)  $ (26.4)
Interest expense                       58.0      58.1      56.7
__________________________________________________________________
  Net interest and other
   (income) expense                 $  (1.0)  $  16.5   $  30.3


     Interest and other income increased 42% in 2000 from 1999
primarily due to an increase in interest income on higher cash and
investment balances resulting from the issuance of the 3%
Debentures completed in July 2000 and increased cash from
operations.  In 1999, interest and other income increased 58% from
1998, primarily due to pretax gains of $12.4 million on sales of
real estate assets and realized gains on investments of
$9.6 million in 1999.


                           INCOME TAXES

     ALZA recorded a tax benefit in the fourth quarter of 2000 of
$56.5 million reflecting a change in the estimated amount of
realizable deferred tax assets.  The tax benefit was the result of
revised estimates of amounts realizable in future periods and the
favorable resolution of uncertainties regarding the deductibility
of certain amounts.  Excluding this  benefit, ALZA's effective
income tax rate for 2000 would have been 31%.  In 1999, ALZA's
effective tax rate was 31%, excluding the impact of certain merger-
related expenses that were not deductible, compared to a tax rate
of 35% in 1998, primarily due to realization of previously reserved
deferred tax assets relating to acquired SEQUUS tax loss
carryforwards.


Page 32 of paper format annual report

                  LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY AND CAPITAL RESOURCES
(In millions)                        2000        1999      1998
__________________________________________________________________
Working capital                    $1,124.5  $  297.8  $  297.6
Cash and investments                1,460.9     598.1     514.1
Total assets                        2,921.6   1,852.5   1,666.6
Long-term debt                      1,125.6     979.0     966.1
Net cash provided by
  operating activities                340.4     160.2     115.0
Capital expenditures                   42.6      94.2      65.1
Product acquisition payments           66.8      35.0     127.6


     Cash flow provided by operating activities in 2000 was
$340.4 million, primarily reflecting the strong earnings growth in
2000. This compares with cash flow provided by operating activities
in 1999 of $160.2 million and $115.0 million in 1998.

     During 2000, ALZA paid $100.0 million (including $45.7 million
as product acquisition payments) in cash for the purchase of all of
the Class A Common stock of Crescendo.  Also in 2000, ALZA made fee
payments of $10.0 million to SmithKline Beecham, now
GlaxoSmithKline, related to Urispas (flavoxate hydrochloride) and
$8.5 million to IVAX Corporation ("IVAX") related to Elmiron.
During 1999, ALZA made fee payments of $15.0 million to Bayer
related to Mycelex Troche, $8.5 million to IVAX related to Elmiron,
$7.5 million to Aventis S.A. ("Aventis") related to Ditropan and
$4.0 million related to rights to market certain products in
Canada.  During 1998, ALZA paid $91.2 million in cash for the
purchase of all of the outstanding limited partnership interests of
the TTS Partnership.  Also in 1998, ALZA made an upfront fee
payment of $25.0 million to GlaxoSmithKline for the United States
rights to Urispas, and made additional fee payments of $6.2 million
to Aventis relating to rights to the Ditropan product and
$5.0 million to MedImmune, Inc. ("MedImmune") related to Ethyol.

     In July 2000, ALZA called for the redemption of its
outstanding 5% Debentures on August 18, 2000.  Substantially all
holders of the outstanding 5% Debentures elected to convert their
debentures into shares of ALZA common stock at a conversion price of
$19.09 per share, or approximately 52.36 shares per $1,000 principal
amount of debentures.  The aggregate number of shares issued from
conversion of the 5% Debentures into ALZA common stock was
26.2 million.

     In July 2000, ALZA completed a private offering of the 3%
Debentures, which were issued at a price of $551.26 per $1,000
principal amount at maturity.  The 3% Debentures have a total
principal amount at maturity of $1.09 billion, with a yield to
maturity of 3% per annum, computed on a semiannual bond equivalent
basis.  The offering resulted in approximately $587 million of net
proceeds to ALZA.  At December 31, 2000, 15.3 million shares were
available for issuance for conversion of the 3% Debentures.

     During 1999, ALZA sold five buildings located in Palo Alto,
California, resulting in a total pretax gain of $12.4 million.
ALZA leased these buildings through December 1999, when it
completed occupancy of its new buildings in Mountain View,
California.  ALZA is also leasing or subleasing out certain other
Palo Alto, Menlo Park and Mountain View, California properties it
owns or leases, which will generate rental income in 2001 and
beyond.

     ALZA's capital expenditures for 2000 were $42.6 million,
primarily for facilities and equipment.  In 1999, capital
expenditures were $94.2 million, including $74.2 million for the
Mountain View campus and the remainder for additions to facilities
and equipment.  This compares to capital expenditures of $65.1
million in 1998.  In 2001, capital expenditures are expected to
increase compared to 2000 levels as a result of expansion of
research, development and manufacturing facilities, including
development costs associated with a manufacturing facility in
Ireland, which is currently expected to be completed by late 2002.

     ALZA believes that its existing cash and investment balances
are adequate to fund its cash needs for 2001 and beyond.  In
addition, should the need arise, ALZA believes it would be able to
borrow additional funds, although no such borrowing arrangements
are in place, or otherwise raise additional capital.  ALZA may use
its capital to make strategic investments or to acquire or license
technology or products.
                              OUTLOOK

Notice Concerning Forward-Looking Statements

     The following discussion is intended to provide an outlook for
2001 and beyond.  To the extent any statements made in this section
or elsewhere in this management's discussion and analysis or in the
financial statements deal with information that is not historical,
these statements are forward-looking.  Such statements include,
without limitation, plans concerning the commercialization of
products, statements concerning potential product sales, future
costs of products shipped (and gross margins), associated sales and
marketing expenses, plans concerning development of products and
other statements that are not historical facts.  The occurrence of
the events described, and the achievement of the intended

Page 33 of paper format annual report

results, are subject to various risk factors that could cause
ALZA's actual results to be materially different from those
presented in this outlook, some or all of which are not predictable
or within ALZA's control.  Many risks and uncertainties are
inherent in the pharmaceutical industry, and others are more
specific to ALZA's business.  Many of the significant risks related
to ALZA's business are described in Item 1 of ALZA's Form 10-K
Annual Report for the year ended December 31, 2000, and some are
also discussed briefly below.

Net Sales

     Net sales of products marketed by ALZA Pharmaceuticals are
expected to increase significantly in 2001.  This increase is
expected to result from full year sales of Concerta, including
sales of the 54 milligram dose, which was launched in February
2001; increasing sales of
Ditropan XL, including sales in the United Kingdom and pending
regulatory approval in other European countries; strong sales of
Doxil; and modest increases in sales of other products.  ALZA has
the right to market Ethyol until April 2002, and will receive
residual payments from MedImmune for nine years after the end of
ALZA's marketing rights.  Wholesaler stocking patterns, managed
care and formulary acceptance and pricing practices, the
introduction of competitive products, and acceptance by patients,
physicians and formularies will affect sales of ALZA's products in
2001 and beyond.

     During the next several years, ALZA intends to continue
expanding ALZA Pharmaceuticals' sales and marketing activities and
directly marketing and selling more products.  However, there can
be no assurance that ALZA will be successful in continuing this
expansion, or that any expanded sales and marketing activities will
be successful, due to factors such as the risks associated with
developing, clinically testing and obtaining regulatory clearance
of products for marketing by ALZA Pharmaceuticals, the difficulties
and costs associated with acquiring from third parties products for
ALZA Pharmaceuticals to market, the length of the regulatory
approval process, the uncertainties surrounding the acceptance of
new products by the intended markets, the introduction and
marketing of competitive products, risks relating to patents and
proprietary rights and the current health care cost containment
environment.  ALZA Pharmaceuticals products, including Ditropan XL
and Concerta, may face competition from newly approved products or
products in late-stage development by other pharmaceutical
companies. Many of these pharmaceutical companies have greater
financial resources, technical staff and manufacturing and
marketing capabilities than ALZA, which may negatively impact ALZA
Pharmaceuticals product sales.

     ALZA expects 2001 contract manufacturing revenues for ALZA
Technologies to increase slightly from 2000 levels primarily due
to anticipated growth in orders from pharmaceutical product
development partners, particularly for Duragesic.  ALZA also
expects Viadur to be launched by Bayer in the first half of 2001.
Because many factors affecting contract manufacturing activities
are not within ALZA's control, revenues will continue to fluctuate
from period to period depending on the volume, mix and timing of
orders received from customers.  Some of the products manufactured
by ALZA Technologies incorporating drugs that are off patent or
soon to be off patent could face competition from generic
pharmaceutical manufacturers.  Generic competitors would be able
to charge lower prices for their products due to substantially
reduced development costs, as they would need only to demonstrate
bioequivalence to the original product, provided they do so
without infringing ALZA patents relating to its drug delivery
technologies or the resulting products.  If they are successful
they could negatively impact contract-manufacturing revenues in
2001 and beyond.

Gross Margins on Net Sales

     ALZA expects that gross margins, as a percentage of net sales,
will continue to increase in 2001 and over the longer term,
although quarter-to-quarter fluctuations will continue to occur.
Higher gross margins would be achieved through continuing the
proportionate increase in sales of higher-margin products by ALZA
Pharmaceuticals, and, to a lesser extent, increased utilization of
capacity and greater operating efficiencies by ALZA Technologies.
The purchase of Crescendo in 2000 by ALZA will also result in an
increase in gross margins in 2001, as ALZA will no longer pay
royalties on net sales of products that were licensed from
Crescendo.

Royalties, Fees and Other Revenues

     ALZA expects royalties for ALZA Technologies to continue to
increase in 2001 as a result of growth in sales of products
currently marketed by pharmaceutical product development partners.
Fees for 2001 may also include one-time or infrequent fees from
third parties in connection with arrangements for the
commercialization of products or partner-funded development
arrangements.

     Under SAB 101, which was adopted by ALZA in 2000, certain
upfront and milestone fees expected to be received in 2001 will be
required to be deferred and recognized over the period during which
ALZA has continuing obligations under the agreement.  Fees in 2001
will include the recognition of deferred fee revenue from prior
years.

Page 34 of paper format annual report

     Royalties, fees and other revenues, which are derived largely
from sales by partner companies of products developed by ALZA
Technologies, vary from quarter to quarter as a result of changing
levels of product sales by partner companies and, occasionally, the
recognition by ALZA of one-time, infrequent and special fees.
Because ALZA's partners generally take responsibility for obtaining
necessary regulatory approvals and make all marketing and
commercialization decisions regarding these products, most of the
variables that affect ALZA's royalties, fees and other revenues are
not directly within ALZA's control.  Sales of products from which
ALZA derives royalties and fees are affected by the partners'
marketing efforts and the introduction and marketing of competing
products, among other factors.  Fee revenues will vary from year to
year and quarter to quarter.

Research and Development

     In 2001, ALZA expects to incur a significant increase in
research and development expenses for services provided by ALZA
Technologies to ALZA Pharmaceuticals and pharmaceutical product
development partners.  ALZA also plans to expand internal
technology research in order to continue strengthening ALZA's
leadership in the drug delivery field.  Also in 2001, ALZA expects
to in-license products that are currently in development from other
companies and record the fees paid to these companies as in-process
research and development expenses.

     Research and development revenues will decline significantly
in 2001 from 2000 as the result of ALZA's acquisition of Crescendo
in the fourth quarter of 2000.  Crescendo funded the development of
products by ALZA since Crescendo's inception in September 1997.
Research and development revenues from Crescendo for 2000, 1999 and
1998 were $68.3 million, $90.6 million and $95.0 million, respectively.
ALZA expects to increase its research and development revenues from
pharmaceutical product development partners in 2001 by increasing
the number and scope of partner-funded projects.

     Future product development revenues are dependent upon ALZA's
ability to enter into new arrangements with product development
partners. Development agreements with partner companies are
generally terminable by the partners on short notice and may be
terminated for many reasons, including technical issues, marketing
concerns, reallocation of partner resources, and changes in
priorities.  In addition, product development revenues from any
particular partner development program could decrease dramatically
once the NDA for the product has been filed, and could decrease
earlier if the partner, rather than ALZA, were to undertake the
clinical development of a product.



Selling, General and Administrative Expenses

     Sales and marketing expenses are expected to increase in 2001
due to the continuing growth of the sales organization, and
increase in costs associated with the promotion of Ditropan XL,
Concerta and other products in ALZA Pharmaceuticals' portfolio.
Amortization of product acquisition costs for 2001 will include
ongoing amortization of costs of products acquired in prior years,
including the deferred product acquisition cost paid as part of the
Crescendo purchase in November 2000.  Amortization of product
acquisition costs for 2001 will also include amortization of costs
of any new products acquired in 2001 and, to a lesser extent,
amortization of additional payments under the arrangements for
acquired products.

Interest and Other Income

     Interest and other income is expected to be higher in 2001
compared to 2000, due to a full year of interest income on the
proceeds from the 3% Debentures.  Interest and other income in 2001
may also include gains from the sale of real estate and gains from
the sale of certain investments.

Income Tax Rate

     ALZA currently expects its combined federal and state
effective income tax rate in 2001 to be approximately 31%.  The
actual effective income tax rate will depend upon the actual level
of earnings, changes in the tax laws, and the amount of investment
and research credits available and ALZA's ability to utilize such
credits.


Page 35 of paper format annual report

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

     ALZA's exposure to market risk for changes in interest rates
relates primarily to ALZA's investment portfolio and long-term debt
obligations.  ALZA does not have derivative financial instruments
in its investment portfolio.  ALZA's investment policy requires
investments with high credit quality issuers and limits the amount
of credit exposure to any one issuer.


     The table below presents principal amounts and related
weighted-average interest rates by year of maturity for ALZA's
investment portfolio:
                                               There-       Fair
               2001  2002 2003    2004   2005  after Total Value
__________________________________________________________________
(In millions)
Cash Equivalents
Fixed Rate
 Securities  $817.6   -    -       -      -    -     $817.6 $817.6
Average Interest
 Rate          6.02%  -    -       -      -    -      6.02%

Short-term Investments
Fixed Rate
 Securities  $146.5   -    -       -      -    -     $146.5 $146.4
Average Interest
 Rate          6.41%  -    -       -      -    -      6.41%

Long-term Investments
Fixed Rate
 Securities      -  $123.5 $95.7 $52.3  $7.8  $3.5   $282.8 $284.4
Average Interest
 Rate            -   6.17% 6.18% 6.64%  7.18% 6.09%   6.29%

Total Investments
Fixed Rate
 Securities  $964.1 $123.5 $95.7 $52.3  $7.8  $3.5 $1,246.9 $1,248.4
 Average Interest
    Rate      6.08%  6.17% 6.18% 6.64%  7.18% 6.09%   6.12%


     ALZA also established a grantor trust, invested in accordance
with investment guidelines established by ALZA, as discussed in
Note 2 to the Consolidated Financial Statements:  Investments.  At
December 31, 2000, the trust's investments included United States
Treasury and agency securities of $73.4 million, corporate notes
and bonds of $17.8 million, and institutional money market funds of
$16.0 million, with maturities ranging from one day through nine
years.  ALZA is exposed to equity price risks on the marketable
portion of equity securities included in its portfolio of
investments entered into to further its business and strategic
objectives.  These investments are generally in small
capitalization stocks in the pharmaceutical and biotechnology
industry sector, in companies with which ALZA has research and
development or product agreements.  ALZA typically does not attempt
to reduce or eliminate its market exposure on these securities. A
20% adverse change in equity prices would result in a decrease of
approximately $5.7 million in ALZA's available-for-sale securities,
based upon a sensitivity analysis performed on ALZA's financial
position at December 31, 2000.  However, actual results may differ
materially.

     ALZA derives royalty revenues from partner companies with
significant sales to customers in foreign countries.  ALZA believes
its exposure to foreign currency exchange rate risks is generally
limited to such royalty revenues.  ALZA does not use derivative
financial instruments to mitigate this exposure.

Page 36 of paper format annual report

CONSOLIDATED STATEMENT OF OPERATIONS
Years ended December 31,
(In millions, except per share amounts)  2000      1999      1998
__________________________________________________________________
REVENUES

Net sales                              $ 607.2   $ 448.0   $ 289.4
Royalties, fees and other                281.2     227.1     233.1
Research and development, including
 amounts from Crescendo, a related party
 (2000-$68.3, 1999-$90.5, 1998-$95.0)    100.1     120.8     124.4
__________________________________________________________________
 Total revenues                          988.5     795.9     646.9

COSTS AND EXPENSES

Costs of products shipped                180.2     158.4     125.7
Research and development                 190.8     183.6     182.8
Selling, general and administrative      349.4     259.0     141.9
Merger-related charges                     -        45.7       -
Acquisitions of in-process
 research and development                 12.4       -         -
__________________________________________________________________
 Total costs and expenses                732.8     646.7     450.4

  Operating income                       255.7     149.2     196.5

Interest expense                          58.0      58.1      56.7
Interest and other income                (59.0)    (41.6)    (26.4)
__________________________________________________________________
Net interest and other (income)
  expense                                 (1.0)     16.5      30.3
__________________________________________________________________
Income before income taxes               256.7     132.7     166.2

Provision for income taxes                26.0      41.7      57.9
__________________________________________________________________
Income before cumulative effect of
 change in accounting principle (Note 1) 230.7      91.0     108.3

Cumulative effect of change in accounting
 principle (net of income taxes of $5.0)  (7.4)      -         -
__________________________________________________________________
Net income                             $ 223.3   $  91.0   $ 108.3

Earnings per share - basic
 Income before cumulative effect of
  change in accounting principle       $  1.06   $  0.45   $  0.55
 Cumulative effect of change in
  accounting principle                   (0.03)     -         -
__________________________________________________________________
 Net income                            $  1.03   $  0.45   $  0.55

Earnings per share - diluted
 Income before cumulative effect of
  change in accounting principle       $  0.97   $  0.44   $  0.53
 Cumulative effect of change in
  accounting principle                   (0.02)     -         -
__________________________________________________________________
 Net income                            $  0.95   $  0.44   $  0.53

Shares
  Basic                                  217.2     202.1     198.0
  Diluted                                269.9     206.9     203.0

Pro forma amounts assuming the
 accounting change is applied retroactively:
 Net income                            $ 230.7   $  91.6   $ 104.8
 Net earnings per share
  Basic                               $   1.06   $  0.45   $  0.53
  Diluted                             $   0.97   $  0.44   $  0.52
 Weighted average shares
  Basic                                  217.2     202.1     198.0
  Diluted                                269.9     206.9     203.0

See accompanying notes.

Page 37 of paper format annual report

CONSOLIDATED BALANCE SHEET

December 31,
(In millions, except per share amounts)         2000      1999
__________________________________________________________________
ASSETS

CURRENT ASSETS
Cash and cash equivalents                   $  867.0  $  149.4
Short-term investments                         146.4      68.0
Receivables, net of allowances (2000-$28.4;
 1999-$18.1)                                   169.0     113.7
Receivable from Crescendo, a related party       -        12.0
Inventories                                     65.0      69.0
Prepaid expenses and other current assets       27.7      20.6
__________________________________________________________________
   Total current assets                      1,275.1     432.7

PROPERTY, PLANT AND EQUIPMENT
Buildings and leasehold improvements           314.8     286.0
Equipment                                      228.9     209.6
Construction in progress                        22.5      34.0
Land and prepaid land leases                    33.9      33.9
__________________________________________________________________
                                               600.1     563.5
Less accumulated depreciation and
 amortization                                 (178.7)   (145.7)
__________________________________________________________________
   Net property, plant and equipment           421.4     417.8

Long-term investments                          447.5     381.5
Deferred product acquisition costs             324.2     283.4
Cash surrender value of life insurance         201.9     148.4
Other assets                                   251.5     188.7
__________________________________________________________________
   TOTAL ASSETS                             $2,921.6  $1,852.5

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable                            $   77.6  $   75.9
Accrued liabilities                             63.2      51.5
Current portion of long-term debt                9.8       7.5
__________________________________________________________________
   Total current liabilities                   150.6     134.9

5% convertible subordinated debentures           -       495.5
5 1/4% zero coupon convertible
 subordinated debentures                       464.0     443.7
3% zero coupon convertible subordinated
 debentures                                    608.5       -
Other long-term liabilities                    135.1      86.6

Commitments and contingencies

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 0.1 shares
 authorized                                      -         -
Common stock, $.005 par value, 1,000.0 shares
 authorized; 237.5 and 204.4 shares issued and
 outstanding in 2000 and 1999, respectively      1.2       1.0
Additional paid-in capital                   1,341.5     705.6
Accumulated other comprehensive income (loss)    9.4      (2.8)
Retained earnings (accumulated deficit)        211.3     (12.0)
__________________________________________________________________
   Total stockholders' equity                1,563.4     691.8

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $2,921.6  $1,852.5

See accompanying notes.

Page 38 of paper format annual report

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998

(In millions)

                                      ACCUMULATED   RETAINED    TOTAL
                           ADDITIONAL    OTHER      EARNINGS    STOCK-
                    COMMON  PAID-IN  COMPREHENSIVE (ACCUMULATED HOLDERS'
                     STOCK  CAPITAL  INCOME(LOSS)  DEFICIT)     EQUITY
________________________________________________________________________
Balance, December 31,
  1997          		    $1.0   $581.4        $(4.8)   $(211.3)    $366.3

Common stock issued,
  including tax
  benefit of $9.7      -       63.1          -          -         63.1

Comprehensive income
 Net income            -        -            -        108.3      108.3
 Unrealized losses on
  securities of $4.8,
  net of reclassification
  adjustment for gains
  included in net
  income of $1.0       -        -           (5.8)       -         (5.8)
________________________________________________________________________
Total comprehensive income                                       102.5
________________________________________________________________________
Balance, December 31,
  1998                 1.0    644.5        (10.6)    (103.0)     531.9

Common stock issued,
  including tax
  benefit of $10.7     -       61.1          -          -         61.1

Comprehensive income
 Net income            -        -            -         91.0       91.0
 Unrealized gains on
  securities of $14.1,
  net of reclassification
  adjustment for gains
  included in net
  income of $6.3       -        -            7.8        -          7.8
________________________________________________________________________
 Total comprehensive income                                       98.8
________________________________________________________________________
Balance, December 31,
  1999                 1.0    705.6         (2.8)     (12.0)     691.8

Common stock issued,
 including tax
 benefit of $40.9      -      141.6          -          -        141.6

Common stock issued
 upon conversion of
 subordinated
 debentures            0.2    494.3          -          -        494.5

Comprehensive income
 Net income            -        -            -        223.3      223.3
 Unrealized gains on
  securities of $18.6,
  net of reclassification
  adjustment for gains
  included in net
  income of $6.4       -        -           12.2        -         12.2
________________________________________________________________________
 Total comprehensive income                                      235.5
________________________________________________________________________
Balance, December 31,
  2000                $1.2  $1,341.5        $9.4     $211.3   $1,563.4

See accompanying notes.

Page 39 of paper format annual report

CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Years ended December 31,                 2000      1999       1998
___________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                             $223.3     $91.0     $108.3
Non-cash adjustments to reconcile
 net income to net cash provided by
 operating activities:
 Depreciation and amortization           52.1      41.5       34.4
 Amortization of product acquisition
  payments                               24.4      24.2       15.7
 Cumulative change in accounting
  principle                               7.4        -         -
 Acquired in-process research and
  development                             9.4        -         -
 Tax benefit for stock options and stock
  Purchase plans                         40.9      10.7        9.7
 Interest on 5 1/4% zero coupon
  convertible subordinated debentures    22.7      22.5       21.4
 Interest on 3% zero coupon convertible
  subordinated debentures                 7.6       -          -
 Issuance of common stock to 401(k) plan  -         -          0.3
 Undistributed income from real estate
  joint venture                          (4.4)     (2.1)       -
 Decrease (increase) in assets:
  Receivables                           (41.1)     22.9      (24.6)
  Inventories                             0.9     (14.4)     (12.8)
  Prepaid expenses and other current
   assets                                 8.6       0.4        5.8
  Prepaid premiums and increase in cash
    surrender value of life insurance   (53.4)    (55.5)     (21.8)
 Increase (decrease) in liabilities:
  Accounts payable                        3.5      22.8        0.4
  Accrued liabilities                    17.8      (9.4)     (26.9)
  Other long-term liabilities            22.6       6.7        5.1
 Gain on sale of real estate and other
  assets, net                            (1.9)    (12.2)       -
 Asset write-down                         -        11.1        -
___________________________________________________________________
   Total adjustments                    117.1      69.2        6.7
___________________________________________________________________
Net cash provided by
  operating activities                  340.4     160.2      115.0

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                    (42.6)    (94.2)    (65.1)
Proceeds from sale of real estate and
 other assets                             4.8      20.2       -
Product acquisition payments            (21.1)    (35.0)    (36.4)
Purchase of limited partners' interests
 in ALZA TTS Research Partners, Ltd.      -         -       (91.2)
Purchases of available-for-sale
 securities                            (292.9)   (293.8)   (323.3)
Purchase of Crescendo, net of cash
 acquired                               (83.2)      -         -
Sales of available-for-sale securities  157.1     239.6     317.0
Maturities of available-for-sale
 securities                              16.2      31.3      82.1
Increase in other assets                (35.8)    (19.5)    (16.7)
___________________________________________________________________
Net cash used in
 investing activities                  (297.5)   (151.4)   (133.6)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock                94.7      41.1      61.4
Principal repayments on long-term
 debt, net                               (7.4)    (10.6)     (4.4)
Net proceeds from 3% zero coupon
 convertible bonds                      587.4       -         -
___________________________________________________________________
Net cash provided by
 financing activities                   674.7      30.5      57.0
___________________________________________________________________
Net increase in cash and cash
 equivalents                            717.6      39.3      38.4

Cash and cash equivalents at the
  beginning of year                     149.4     110.1      71.7
___________________________________________________________________
Cash and cash equivalents at the
  end of year                         $ 867.0    $149.4    $110.1

See accompanying notes.

Page 40 of paper format annual report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

     ALZA Corporation is a research-based pharmaceutical company
with leading drug delivery technologies.  ALZA applies its delivery
technologies to develop pharmaceutical products with enhanced
therapeutic value for its own portfolio and for many of the world's
leading pharmaceutical companies.  ALZA's sales and marketing
efforts are currently focused on urology, oncology and central
nervous system products.

Nature of Operations and Revenue Recognition

     Net sales includes sales of products marketed directly by ALZA
and sales of those products to distributors, as well as sales
generated from contract manufacturing activities for ALZA's
pharmaceutical product development partners.  ALZA recognizes sales
revenues at the time of product shipment and transfer of title, net
of estimates for discounts, and reserves for sales returns and
allowances and rebates.

     ALZA's contract manufacturing activities are undertaken with
respect to products developed as a result of ALZA's partner-funded
product development arrangements. ALZA often manufactures the
product for the partner, generally for a supply price intended to
cover ALZA's costs to manufacture the product plus a small margin;
and ALZA receives royalties based on the partner's sales of the
products.  ALZA also manufactures on a contract basis certain
products which it has developed on its own and has licensed to
third parties for distribution in defined territories.

     Royalties, fees and other revenues include royalty and other
payments based on sales by ALZA's partner companies of products
developed under joint development and commercialization agreements
and sales of products by licensees, and certain one-time or
infrequent fees, milestones or similar payments under these
agreements. Also included in royalties, fees and other revenues are
revenues from ALZA's promotion and co-promotion of certain
products. Royalties, fees and other revenues are recognized as
earned under the terms of the related agreements.

     ALZA recognizes non-refundable upfront product license fees
and certain other related fees over the periods of continuing
involvement. If, at the execution of the agreement, significant
development risk remains due to the stage of completion of the
product development, then such fees are recognized as revenue on a
straight-line basis over the development period. If, at the
execution of the agreement, the product is approved or product
development risk has been substantially eliminated, then such fees
are recognized as revenue on a straight-line basis over the longer
of the contractual term of the manufacturing obligation or the
expected period over which ALZA will supply the product. Fees
associated with substantive at risk performance milestones are
recognized as revenue upon their completion, as defined in the
respective agreements.

     In the fourth quarter of 2000, but effective to January 1,
2000, ALZA changed its method of accounting to that described above
for non-refundable upfront product license fees and certain other
related fees. ALZA historically recognized these fees as revenues
when all of the conditions to payment had been met and there were
no further performance contingencies or conditions to ALZA's
receipt of payment. These fees were generally not creditable
against future payments. ALZA believes the change in accounting
principle is consistent with guidance provided in SEC Staff
Accounting Bulletin No. 101 - Revenue Recognition in Financial
Statements released in December 1999.

     As a result of this change in method of accounting, a $12.4
million ($7.4 million net of tax effect) cumulative effect of the
change on prior years, calculated as of January 1, 2000, was
reported as a charge in the year ended December 31, 2000. The
cumulative effect was initially recorded as deferred revenue and is
being recognized as revenue over the period ALZA is obligated to
manufacture the related products. During the year ended December
31, 2000, ALZA recognized $0.9 million in revenue ($0.5 million net
of tax effect) that was included in the cumulative effect
adjustment as of January 1, 2000. During the year ended December
31, 2000, the impact of the change in accounting was to decrease
income before cumulative effect of the accounting change by $8.1
million, net of tax, or $0.03 per diluted share. This decrease is
comprised of $14.3 million ($8.6 million net of tax effect) of
upfront fees that would have been recognized as revenue under
ALZA's prior accounting policy, offset by the $0.9 million ($0.5
million net of tax effect) component of the cumulative effect
adjustment recognized in 2000.  The remainder of the related
deferred revenue at December 31, 2000 will be recognized as revenue
on a straight-line basis through periods from 2010 to 2015. The pro
forma amounts presented in the consolidated statements of
operations were calculated assuming the accounting change was made
retroactive to prior periods.

Page 41 of paper format annual report

     Revenues from research and development activities with
pharmaceutical product development partners, including Crescendo,
are reported as research and development revenues, and are
recognized as earned.  ALZA's research and development revenues
represent partners' reimbursement to ALZA of costs incurred in
product development and clinical evaluation, including a portion of
general and administrative expenses, and therefore do not
contribute significantly to operating income.  Research and
development revenues are recognized when billable in accordance
with the terms prescribed in each partner development agreement
(billed based upon labor and other costs incurred during the
period).  The payments are not refundable.  ALZA's policy is to
expense all costs of research and product development related both
to costs incurred on its own behalf and on behalf of its partners.

Credit and Investment Risks

     Royalties, fees and other revenues and research and
development revenues are generally derived from agreements with
major pharmaceutical product development partners and, prior to its
acquisition, Crescendo, all of which have significant cash
resources.  Therefore, ALZA considers its credit risk related to
these transactions to be minimal.  ALZA's net sales result from
sales of ALZA Pharmaceuticals products primarily to major
pharmaceutical distributors, and sales from contract manufacturing
for ALZA's partner companies.  ALZA performs on-going credit
evaluations of those customers, and does not require collateral.
If the financial condition or operations of any of the
pharmaceutical distributors or partner companies were to
deteriorate substantially, ALZA's operating results could be
adversely affected.

     ALZA generally invests excess cash in securities of banks and
companies from a variety of industries with strong credit ratings,
and in U.S. government obligations.  These securities typically
bear minimal risk and ALZA has not experienced any losses on its
investments due to institutional failure or bankruptcy.  ALZA's
investment policy is designed to limit exposure with any one
institution.

Principles of Consolidation

     The consolidated financial statements include the accounts of
ALZA and its wholly-owned subsidiaries, ALZA Development
Corporation, ALZA International, Inc., ALZA Land Management, Inc.,
ALZA Limited and TDC for all periods presented, and Crescendo since
its acquisition in November 2000. All significant intercompany
accounts and transactions have been eliminated.

Stock Split

     On October 31, 2000, ALZA stockholders voted to amend ALZA's
Restated Certificate of Incorporation to increase the authorized
common stock from 300 million shares to one billion shares.  ALZA
stockholders also approved a two-for-one split of common stock for
distribution on November 15, 2000 to stockholders of record on
November 1, 2000.  The per share par value of Common Stock was
adjusted from $0.01 to $0.005.  All share and per share data for
all periods presented in these financials have been adjusted to
reflect the split.

Use of Estimates

     The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes.  Actual results
could differ from those estimates.  Significant estimates made by
management include the calculation of reserves for uncollectible
accounts, sales returns and allowances and rebates, useful lives of
long-lived assets, including intangibles, and the realizability of
deferred tax assets.

Cash, Cash Equivalents and Short-term Investments

     Cash and cash equivalents include cash balances and
investments with maturities of three months or less at the time of
purchase.  Short-term investments include commercial paper and
other highly liquid investments with maturities of less than one
year.  The carrying amount reported on the balance sheet for cash,
cash equivalents and short-term investments equals their fair
value.

Stock-Based Compensation

     ALZA accounts for stock option grants and restricted stock
grants in accordance with Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and its
interpretations.  ALZA currently grants stock options for a fixed
number of shares to employees and directors with an exercise price
equal to the fair value of the shares at the date of grant, and
therefore records no compensation expense.  ALZA records
compensation expense for all restricted stock grants equal to the
difference between the market price on the date of grant and the
price paid for the shares issued, on a straight-line basis between
the date of grant and the lapse of the restriction.

Page 42 of paper format annual report

     In March 2000, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 44 "Accounting for Certain
Transactions involving Stock Compensation--An Interpretation of
Accounting Principles Board (APB) Opinion No. 25" ("FIN 44"). FIN
44 clarifies the application of APB Opinion No. 25. FIN 44 was
effective July 1, 2000. The adoption of FIN 44 did not have a
material effect on ALZA's financial position or results of
operations.

Inventories

     Raw materials, work in process and finished goods inventories
are stated at the lower of standard cost (which approximates actual
costs on a first-in, first-out cost method) or market value.

Inventories at December 31, consist of the following:

(In millions)                         2000           1999
_____________________________________________________________
Raw materials                       $  15.9            $26.0
Work in process                        21.8             10.4
Finished goods                         27.3             32.6
                                    ________          _______
     Total inventories              $  65.0            $69.0



Property, Plant and Equipment

     Property, plant and equipment are stated at cost.  Maintenance
and repairs are expensed as incurred. Depreciation and amortization
are generally computed on the straight-line method, over estimated
useful lives, as follows:

Classification                Estimated Useful Life
___________________________________________________________________
Buildings                     30 to 40 years
Leasehold improvements        Terms of the leases or useful life (1
                              to 33 years)
Equipment                     3 to 9 years
Prepaid land leases           Terms of the leases (14 to 57 years)

     Depreciation and amortization expense for property, plant and
equipment was $36.9 million for 2000, $29.7 million for 1999 and
$27.2 million for 1998.  Prepaid land leases represent ALZA's total
cost, paid in advance, of leasehold rights to land upon which
certain of ALZA's buildings in Palo Alto, California are situated.
Included in construction in progress at December 31, 2000 and 1999
are payments made in connection with facilities being constructed
or modified, and the construction and installation of equipment in
Palo Alto, Mountain View and Menlo Park, California (primarily
research and development) and Vacaville, California (primarily
commercial manufacturing).

Deferred Product Acquisition Costs and Acquisition of In-process
Research and Development

     Initial payments and distribution fees for the acquisition of
products that, at the time of acquisition by ALZA, are already
marketed or are approved by the FDA for marketing (or for which
such approval is imminent) are capitalized and amortized ratably
over the estimated life cycle of the products, which range from 10
to 20 years.  At the time of acquisition, the product life cycle is
estimated by ALZA based upon the term of the agreement, the patent
life of the product and, for products that are no longer covered by
patents, the product's historical profitability trend since it has
been off-patent and management's assessment of future sales and
profitability of the product.  This estimate is assessed regularly
during the amortization period and the asset value or useful life
would be adjusted when appropriate.  Accumulated amortization of
these costs was $70.6 million, $46.2 million and $21.9 million at
December 31, 2000, 1999 and 1998, respectively.

     Payments for rights to products acquired by ALZA when they are
in development and not yet approved by the FDA (and which have no
alternative future use) are recognized as charges to acquisition of
in-process research and development.  Charges to in-process
research and development were $12.4 million in 2000.  There were no
such charges recorded in 1999 and 1998.

Long-Lived Assets

     ALZA periodically evaluates the carrying value of its long-
lived assets.  ALZA records impairment losses on long-lived assets
used in operations when events and circumstances indicate that
assets may be impaired and the undiscounted cash flows estimated to
be generated by the assets are less than the carrying amount of
those assets.  In 1999, ALZA wrote down approximately $11.1 million
in fixed assets, $9.6 million of which related to a write-down of
assets relating to the SEQUUS merger and is included in the merger-
related costs.  There were no such write-downs in 2000 or 1998.

Accrued Liabilities

Accrued liabilities as of December 31, are as follows:

(In millions)                         2000           1999
_________________________________________________________
Accrued compensation                $  41.3       $  32.0
Accrued income taxes                    7.5           4.4
Other accrued liabilities              14.4          15.1
_________________________________________________________
     Total accrued liabilities      $  63.2       $  51.5

Page 43 of paper format annual report

Advertising Costs

     Advertising costs are accounted for as expenses in the period
in which they are incurred.  Advertising expense for 2000, 1999 and
1998 was $47.3 million, $40.5 million and $16.3 million,
respectively.

Supplemental Disclosures of Cash Flow Information
(In millions)

Cash paid during the year for:
                                    2000      1999      1998
_____________________________________________________________
Income taxes                      $ 23.7    $ 53.0    $ 34.2
Interest, net of amount capitalized 24.1      31.1      29.8

Non cash investing and financing activities:

                                    2000      1999      1998
_____________________________________________________________
Net unrealized gains (losses)
 on available-for-sale
 securities, net of tax effect     $12.2     $ 7.8     $(5.8)
Acquisition of building in lieu of
 repayment of note receivable          -         -      17.5
Accrued product and license
 acquisition costs                  11.8      13.5      20.0
Conversion of 5% and 5 1/4%
 Debentures into ALZA common stock 504.0       6.0       1.4
Investment in low-income housing
 in exchange for long term debt     23.0       7.0      23.6


Comprehensive Income

     Total comprehensive income includes net income plus other
comprehensive income, which for ALZA primarily comprises net
unrealized gains or losses on available-for-sale securities.  The
following table shows the tax effect allocated to each component of
comprehensive income for the years ended December 31, 2000, 1999
and 1998:

                                  Before-Tax  Tax(Expense)  Net-of-Tax
(In millions)                        Amount    or Benefit     Amount
______________________________________________________________________
Unrealized losses on available-
 for-sale securities                $ (8.3)     $  3.5        $(4.8)
Less:  reclassification adjustment
 for gains realized in net income      1.5        (0.5)         1.0
______________________________________________________________________
Net unrealized loss for the year
 ended December 31, 1998            $ (9.8)     $  4.0        $(5.8)

Unrealized gains on available-
 for-sale securities                $ 22.3      $ (8.2)       $14.1
Less:  reclassification adjustment
 for gains realized in net income      9.3        (3.0)         6.3
______________________________________________________________________
Net unrealized gains for the year
 ended December 31, 1999            $ 13.0      $ (5.2)       $ 7.8

Unrealized gains on available-
 for-sale securities                $ 33.6      $(15.0)       $18.6
Less:  reclassification adjustment
 for gains realized in net income      9.1        (2.7)         6.4
______________________________________________________________________
Net unrealized gains for the year
 ended December 31, 2000            $ 24.5      $(12.3)       $12.2

Reclassifications

     Certain prior year amounts have been reclassified to conform
to the current presentation.  These reclassifications had no impact
on previously reported results of operations or stockholders'
equity.

New Accounting Standards

     In July 1999, FASB announced the delay of the effective date
of Statement of Financial Accounting Standards 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133") for
one year, to the first quarter of 2001.  SFAS 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities.  It requires companies to
recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. Gains or
losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and
whether

Page 44 of paper format annual report

it qualifies for hedge accounting under SFAS 133.  The impact of
SFAS 133 on ALZA's financial position and results of operations is
not expected to be material.



Note 2. INVESTMENTS

     ALZA has classified its entire investment portfolio as
available-for-sale.  Investments in the available-for-sale category
are carried at fair value based on quoted market values, with
unrealized gains and losses recorded as a separate component of
stockholders' equity. At December 31, 2000, net unrealized gains on
available-for-sale securities were $9.3 million, net of $10.2
million tax effect.  At December 31, 1999, net unrealized losses on
available-for-sale securities were $3.4 million, net of $2.0
million tax effect.  The cost of securities when sold is based upon
specific identification. Realized gains and losses for the year
ended December 31, 2000 were $9.8 million and $1.0 million,
respectively.  Realized gains and losses for the year ended
December 31, 1999 were $10.0 million and $0.4 million,
respectively. Realized gains and losses for the year ended
December 31, 1998 were $1.7 million and $0.2 million, respectively.

The following is a summary of ALZA's investment portfolio (in
millions):

                                       December 31, 2000
_______________________________________________________________________
			                                            Estimated
                            Amortized  Unrealized  Unrealized   Fair
                               Cost      Gains       Losses     Value
U.S. Treasury securities
 and obligations of
 U.S. government
 agencies                      $79.7      $0.7       $(0.2)      $ 80.2

Collateralized mortgage
 obligations and asset
 backed securities              63.2       0.2        (0.2)        63.2

Corporate debt securities    1,104.0       1.5        (0.5)     1,105.0
_______________________________________________________________________
Total debt securities        1,246.9       2.4        (0.9)     1,248.4
Investments held in trust      104.8       2.4         -          107.2
Marketable equity securities    12.8      18.0        (2.4)        28.4
_______________________________________________________________________
Total available for sale     1,364.5      22.8        (3.3)     1,384.0

Less cash equivalents         (817.6)      -           -         (817.6)
_______________________________________________________________________
Total investments             $546.9     $22.8       $(3.3)      $566.4


                                       December 31, 1999
_______________________________________________________________________
			                                            Estimated
                            Amortized  Unrealized  Unrealized   Fair
                               Cost      Gains       Losses     Value
U.S. Treasury securities
 and obligations of
 U.S. government
 agencies                      $87.9      $-         $(1.4)      $ 86.5

Collateralized mortgage
 obligations and asset
 backed securities              51.7       -          (1.1)        50.6

Corporate debt securities      300.4       -          (2.4)       298.0
_______________________________________________________________________
Total debt securities          440.0       -          (4.9)       435.1
Investments held in trust      113.8       -           -          113.8
Marketable equity securities     2.7       0.2        (0.7)         2.2
_______________________________________________________________________
Total available for sale       556.5       0.2        (5.6)       551.1

Less cash equivalents         (118.5)      -           -         (118.5)
_______________________________________________________________________
Total investments             $438.0     $ 0.2       $(5.6)      $432.6

     A grantor trust was established to fund ALZA's obligation to
certain of its senior employees for benefits provided by the
Executive Estate Protection Plan ("EEPP"), as discussed in Note 5.
As a result of the then-pending merger, the trust was fully funded
in October 1999.  The trust funds were invested in accordance with
investment guidelines established by ALZA and, as a result of the
termination of the merger agreement with Abbott, ALZA may withdraw
its investments from the trust at any time upon notification to the
trustee.  At December 31, 2000, the trust's investments included
United States Treasury and agency securities of $73.4 million,
corporate notes and bonds of $17.8 million, and institutional money
market funds of $16.0 million, with maturities ranging from one day
through nine years.

Page 45 of paper format annual report

     The amortized cost and estimated fair value of marketable debt
securities at December 31, 2000 and 1999, by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right
to prepay certain of the obligations without prepayment penalties.

(In millions)
                                 2000                1999
                                    Estimated            Estimated
                          Amortized    Fair    Amortized    Fair
                            Cost       Value     Cost       Value
___________________________________________________________________
Due in one year or less   $ 994.6    $ 994.4   $ 217.8   $ 217.6
Due after one year
  through four years        314.9      317.6     288.9     284.5
Due after four years
  through nine years         42.2       43.6      47.1      46.8
___________________________________________________________________
     Total               $1,351.7   $1,355.6   $ 553.8   $ 548.9


NOTE 3. PER SHARE INFORMATION

     Basic earnings per share is calculated by dividing net income
by the weighted average common shares outstanding for the period.
Diluted earnings per share is calculated by dividing net income, as
adjusted, by the weighted average common shares outstanding for the
period plus the dilutive effect of stock options, warrants and
convertible securities.

     The following table sets forth the computation of ALZA's basic
and diluted earnings per share:

(In millions, except per share amounts)     2000     1999      1998
____________________________________________________________________
NUMERATOR:
 Net income                               $223.3   $ 91.0    $108.3
 Net interest expense
  on convertible debt                       31.8      -         -
____________________________________________________________________
 Adjusted net income                      $255.1   $ 91.0    $108.3

DENOMINATOR:
Basic
 Weighted average shares                   217.2    202.1     198.0
Diluted
 Weighted average shares                   217.5    202.6     198.4
 Effect of dilutive securities:
  Employee stock options                     5.1      4.3       4.6
  5% Debentures                             16.2      -         -
  5 1/4% Debentures                         24.4      -         -
  3% Debentures                              6.7      -         -
____________________________________________________________________
 Weighted average shares                   269.9    206.9     203.0

Basic earnings per share                 $  1.03   $ 0.45    $ 0.55
Diluted earnings per share               $  0.95   $ 0.44    $ 0.53

     Outstanding options to purchase 0.6 million shares of ALZA's
common stock were excluded from the earnings per share calculation
for the year ended December 31, 2000, compared to outstanding
options and warrants to purchase 6.0 million and 2.6 million shares
of ALZA's common stock for the year ended December 31, 1999 and
1998, respectively.  These options and warrants were excluded
because their exercise price was greater than the average market
price of ALZA's common stock.  Assumed conversions of ALZA's 5%
Debentures and the 5 1/4% zero coupon convertible subordinated
debentures due 2014 ("5 1/4% Debentures") were not included in the
diluted earnings per share calculation for the year ended December
31, 1999 and 1998, as their inclusion would have been anti-
dilutive.

Page 46 of paper format annual report

NOTE 4: ACQUISITIONS OF PRODUCT RIGHTS AND DEVELOPMENT AND OPTION
 AGREEMENTS

Product Acquisitions

     In late 1995, ALZA entered into a marketing and distribution
agreement with U.S. Biosciences ("USB"), now MedImmune, for Ethyol.
Under the terms of the agreement, ALZA has exclusive rights to
market the product in the United States for five years after its
launch in April 1996 (with an option to extend for one additional
year), and is responsible for sales and marketing; the MedImmune
sales force co-promotes the product with ALZA.  In 2000, ALZA
exercised the option to extend the agreement for an additional
year.  After the six-year period, marketing rights to Ethyol will
revert to MedImmune, and ALZA will receive payments from MedImmune
for nine years based on continued sales of the product.  ALZA
capitalized approximately $13.3 million of upfront payments related
to this agreement. ALZA paid $10.0 million and $5.0 million in
distribution fees in 1997 and 1998, respectively, based on USB
clinical activities relating to Ethyol. These amounts were all
capitalized.  ALZA will owe additional fees to MedImmune in 2001 as
a result of the one year extension.

     In July 1997, ALZA acquired exclusive rights to Mycelex Troche
in the United States from Bayer.  Under the terms of the agreement,
ALZA made a $50.0 million upfront payment to Bayer, which was
capitalized.  In 1999, ALZA made a milestone payment of $15.0
million to Bayer for reaching certain sales levels, which was also
capitalized.  Bayer also receives royalty payments from ALZA based
upon sales of Mycelex Troche.  Bayer manufactures Mycelex Troche
for ALZA.

     In October 1997, ALZA acquired the exclusive rights in the
United States and Canada to Elmiron and three additional urology
products, BiCitra-registered trademark- , PolyCitra-registered
trademark-  and Neutra-Phos-registered trademark- , from IVAX.
Under the terms of the agreement, ALZA paid a $75.0 million upfront
fee to IVAX, which was capitalized, and must pay additional fees if
specified Elmiron sales levels are achieved during the five years
ending October 2002.  ALZA incurred additional milestone fees of
$4.3 million, $8.5 million, and $8.5 million in 2000, 1999 and 1998
based upon Elmiron sales, which were also capitalized.  ALZA may
owe additional fees if Elmiron reaches certain sales levels in
2001.  IVAX also receives royalty payments from ALZA on sales of
Elmiron and the other three urology products.  IVAX manufactures
Elmiron for ALZA.

     In October 1997, ALZA acquired the rights in the United States
to the immediate-release Ditropan product and trademark from
Hoechst Marion Roussel, Inc. ("HMRI"), now Aventis.  ALZA also
acquired the rights to the product in Canada in April 1998 from
HMRI and Procter & Gamble Pharmaceuticals, Inc. ("P&G").  Under the
terms of the agreements, ALZA made upfront payments to HMRI and
P&G, which were capitalized, and incurred additional fees of $12.5
million in 1998 to HMRI based upon Ditropan sales levels in the
United States, which were capitalized.  Aventis manufactures the
product for ALZA.  ALZA has the right to market other products in
the United States and Canada under the Ditropan trademark, and
Aventis receives royalty payments from ALZA as a result, based upon
sales of Ditropan XL.

     In November 1998, ALZA acquired the exclusive marketing and
distribution rights in the United States to Urispas from SmithKline
Beecham ("SB"), now GlaxoSmithKline.  Under the terms of the
agreement, ALZA paid a $25.0 million upfront fee to SB, which was
capitalized. ALZA incurred additional milestone payments of $5.0
million in 1999 for the filing of a supplemental New Drug
Application by SB and $10.0 million in 2000 for the approval by the
FDA and reaching certain sales level, which were also capitalized.
SB manufactures the product for ALZA.


Development and Option Agreements

     In April 1998, ALZA and Alkermes entered into an exclusive
license agreement for two of ALZA's oral drug delivery
technologies: RingCap-trademark- and dose sipping technology.  The
arrangement gives Alkermes worldwide rights to the two technologies
and Alkermes will be responsible for the continued research and
development of products incorporating them.
Alkermes will pay ALZA upfront payments and revenues from the
development and commercialization of products incorporating the
technologies.

   In November 2000, ALZA and CKD entered into an exclusive
agreement to develop and commercialize CKD-602, an anti-cancer
drug, formulated in ALZA's STEALTH-registered trademark-  liposomal
drug delivery technology.  ALZA has worldwide rights to
commercialize the product, except in Korea, where CKD will have
commercialization rights.  The payment made to CKD was charged to
acquisition of in-process research and development.

   For certain arrangements described above, the amounts paid by
ALZA were charged to acquisition of in-process research and
development because the products were under development and had not
yet been approved by the FDA, and the products had no alternative
future use.

Page 47 of paper format annual report

NOTE 5: DEBT OBLIGATIONS AND OTHER LONG-TERM LIABILITIES

     On July 28, 2000, ALZA completed a private offering of the 3%
Debentures, which were issued at a price of $551.26 per $1,000
principal amount at maturity.  At December 31, 2000, the
outstanding 3% Debentures had a total principal amount at maturity
of $1.09 billion with a yield to maturity of 3% per annum, computed
on a semiannual bond equivalent basis.  There are no periodic
interest payments. The offering resulted in approximately $587.4
million of net proceeds to ALZA.  The 3% Debentures are
convertible, at the option of the holder, at any time prior to
maturity, unless previously redeemed or repurchased, into 14.027
shares of ALZA common stock per $1,000 principal amount at
maturity, at a conversion price of $39.30 per share, subject to
certain anti-dilution adjustments.  At the option of the holder,
the 3% Debentures may be repurchased by ALZA on July 28, 2003, 2008
or 2013, at a purchase price equal to the issue price plus accreted
original issue discount to such purchase date.  ALZA, at its
option, may elect to deliver either ALZA common stock or cash, or a
combination of stock and cash, in the event of repurchase of the 3%
Debentures. ALZA, at its option, may also redeem any or all of the
3% Debentures after July 28, 2003 at the issue price plus accreted
original issue discount.  Unamortized costs related to the issuance
of the 3% Debentures were $13.2 million at December 31, 2000 and
are included in other assets.  At December 31, 2000, the fair value
based on quoted market value of the 3% Debentures was $759.8
million.   As of December 31, 2000, 15.3 million shares were
available for issuance for conversion of the 3% Debentures.

     In 1996, ALZA issued $500 million of the 5% Debentures.  Each
5% Debenture is convertible, at the option of the holder, into
shares of ALZA common stock at an initial conversion price of
$19.09 per share, subject to certain anti-dilution adjustments.
On July 19, 2000, ALZA called for the redemption of its outstanding
5% Debentures.  Substantially all holders of the outstanding
5% Debentures elected to convert their debentures into shares of ALZA
common stock at the conversion price of $19.09 per share, or
approximately 52.36 shares per $1,000 principal amount of debentures.
The aggregate number of shares issued from conversion of the
5% Debentures into ALZA common stock was 26.2 million.  The amount
paid to redeem the remaining 5% Debentures was not significant.

     In 1994, ALZA issued the 5 1/4% Debentures at a price of
$354.71 per $1,000 principal amount at maturity.  At December 31,
2000, the outstanding 5 1/4% Debentures had a total principal
amount at maturity of $935.9 million, with a yield to maturity of 5
1/4% per annum, computed on a semiannual bond equivalent basis.
There are no periodic interest payments.  At the option of the
holder, each 5 1/4% Debenture is convertible into 25.974 shares of
common stock.  At the option of the holder, the 5 1/4% Debentures
will be purchased by ALZA on July 14, 2004 or July 14, 2009, at a
purchase price equal to the issue price plus accreted original
issue discount to such purchase date.  ALZA, at its option, may
elect to deliver either common stock or cash in the event of
conversion or purchase of the 5 1/4% Debentures.  ALZA, at its
option, may also redeem any or all of the 5 1/4% Debentures for
cash after
July 14, 1999 at a redemption price equal to the issue price plus
accreted original issue discount.  Unamortized costs related to the
issuance of the 5 1/4% Debentures were $6.2 million and $6.6
million at December 31, 2000 and 1999. At December 31, 2000 and
1999, the fair value based on quoted market value of the 5 1/4%
Debentures was $1,038.3 million and $472.5 million, respectively.
As of December 31, 2000, 24.4 million shares were available for
issuance for conversion of the 5 1/4% Debentures.

Other Long-term Liabilities

ALZA's other long-term liabilities as of December 31, were as
follows:

(In millions)                             2000           1999
______________________________________________________________
Long-term debt                         $  53.1         $ 39.8
Deferred compensation                     51.2           44.9
Deferred revenue                          30.1            1.1
Other                                      0.7            0.8
______________________________________________________________
   Total other long-term liabilities   $ 135.1         $ 86.6

     At December 31, 2000 and 1999, long-term debt primarily
consists of notes representing the required future payments under
investments of $73.5 million and $55.0 million, respectively, in
low income housing partnerships (included in other assets).  The
aggregate annual maturities of long-term debt, including the
current portion, at December 31, 2000 were $9.8 million in 2001,
$9.7 million in 2002, $9.0 million in 2003, $8.4 million in 2004
and $26.0 million in later years.

Page 48 of paper format annual report

     ALZA has deferred compensation arrangements under which
selected employees may defer a portion of their salaries and
bonuses.  ALZA has purchased life insurance policies that it
intends to use to partially finance amounts to be paid in the
future to participants, based on their deferred salary amounts plus
interest.  In addition, certain senior employees participate in
ALZA's EEPP, under which ALZA pays certain life insurance premiums
in exchange for a one-time waiver by the participants of certain
deferred compensation benefits.  Under the policies ALZA is
entitled to receive, at a future date, an amount equal to all
premiums paid plus ALZA's cost of funds.  The total costs of the
life insurance premiums that ALZA is committed to under the EEPP
plan is $110.1 million. The cash surrender value of ALZA-owned
policies related to the deferred compensation arrangements and the
premiums paid under policies for the EEPP totaled $201.9 million
and $148.4 million at December 31, 2000 and 1999, respectively.




NOTE 6: CAPITAL STOCK

     ALZA is authorized to issue 100,000 shares of preferred stock,
$0.01 par value, none of which was outstanding at December 31, 2000
or 1999.  The Board of Directors may determine the rights,
preferences and privileges of any preferred stock issued in the
future.

     On December 20, 1999, ALZA's Board of Directors adopted a
Stockholder's Rights Plan under which preferred stock purchase
rights (the "rights") were distributed to stockholders of record on
January 5, 2000 at the rate of one right for each share of common
stock held.  The rights become exercisable only upon the occurrence
of certain events related to changes in ownership of ALZA's common
stock.  Once exercisable, each right entitles the holder to
purchase, at a price of $200, one one-ten thousandth of a share of
Series RP Preferred Stock.  ALZA has initially reserved 30,000
shares of preferred stock pursuant to the exercise of the rights.
The rights expire on December 17, 2009.


NOTE 7: ARRANGEMENTS WITH CRESCENDO PHARMACEUTICALS CORPORATION
(RELATED PARTY)

    Crescendo was formed by ALZA for the purpose of selecting and
developing human pharmaceutical products, and commercializing such
products, most likely through licensing to ALZA.  On September 29,
1997, ALZA contributed $300.0 million in cash to Crescendo.  On
September 30, 1997, all of the Crescendo Shares were distributed to
the holders of ALZA common stock and ALZA's outstanding convertible
subordinated debentures.

    On November 13, 2000, ALZA acquired all of the Class A Common
Stock (the "Stock") of Crescendo for a cash payment of $100.0
million.  ALZA exercised its option to acquire the Crescendo Stock
pursuant to the terms of the purchase option set forth in
Crescendo's Restated Certificate of Incorporation.  ALZA funded the
acquisition through available working capital.  The transaction was
accounted for as a purchase, and, accordingly, the purchase price
was allocated to cash and investments, a deferred tax asset,
developed products costs and acquired in-process research and
development ("IPR&D").  Cash and investments ($16.8 million) were
valued at their fair market values at the closing date.  The
valuation of the deferred tax asset ($28.1 million) represented
estimated future tax savings that ALZA will likely receive as a
result of the Crescendo acquisition.  Using a risk adjusted present
value calculation (at a discount rate of 20%) of the future
royalties ALZA would have paid for products Crescendo has developed
and is in the process of developing, the remaining purchase price
was allocated to developed products as deferred product acquisition
costs ($45.7 million) and IPR&D ($9.4 million).

    The following pro forma data reflects the business combination
between ALZA and Crescendo as if it had occurred at the beginning
of the periods presented.

Year ended December 31,
(in millions, except per share amounts)     2000        1999
______________________________________________________________
Total revenues                           $ 915.9     $ 698.2
Net income                                 128.2        36.5
Basic earnings per share                    0.59        0.18
Diluted earnings per share                  0.58        0.18

    At December 31, 2000, Crescendo became a wholly owned
subsidiary of ALZA.  Royalties that would otherwise have been paid
by ALZA to Crescendo on net sales of products licensed from
Crescendo are no longer payable.  Following ALZA's exercise of its
purchase option, there are no longer research and development
revenues from Crescendo.

    In connection with the formation of Crescendo, ALZA and
Crescendo entered into a number of agreements.  Crescendo and ALZA
entered into a Development Agreement for the selection and
development of human pharmaceutical products.  Under the agreement,
Crescendo funded the development of products recommended by ALZA
for development and accepted by Crescendo. The development of
certain specified products was funded by Crescendo beginning in
1997.  Product development revenues from Crescendo for 2000, 1999
and 1998 were $68.3 million, $90.5 million and $95.0 million,
respectively.

Page 49 of paper format annual report

     Under a Technology License Agreement between ALZA and
Crescendo, ALZA granted to Crescendo a worldwide license to use
ALZA technology solely to select and develop Crescendo products,
and to conduct related activities, and to commercialize such
products. In exchange for the license to use existing ALZA
technology relating to seven products initially under development
by Crescendo and ALZA, Crescendo paid a technology fee to ALZA.
ALZA recorded technology fee revenue from Crescendo of $2.7
million, $6.7 million and $10.7 million for 2000, 1999 and 1998,
respectively.

     ALZA had an option to acquire an exclusive, royalty-bearing
license to each product developed by Crescendo under the
Development Agreement, which was exercisable on a product-by-
product, country-by-country, basis.  In December 1998, ALZA
exercised its option to obtain a worldwide license to OROS
oxybutynin (marketed in the United States as Ditropan XL).  In
consideration of the grant of the license, ALZA paid Crescendo 2.5%
of net sales of the product in 1999 and 3% of net sales prior to
the purchase option exercise in 2000.

     In March 2000, the FDA approved Viadur for marketing in the
United States.  The product is the first FDA-approved product to
incorporate ALZA's DUROS implant technology.  Also in March 2000,
ALZA exercised its option to obtain a worldwide license to the
product from Crescendo.

     On August 1, 2000, the FDA approved OROS methylphenidate
(Concerta extended-release tablets (CII)) for marketing in the
United States.  Also on August 1, 2000, ALZA exercised its option
to obtain a worldwide license to the product from Crescendo and
launched the product in the United States.  No royalties were
payable under this license prior to the time Crescendo became a
wholly owned subsidiary of ALZA.



NOTE 8:  EMPLOYEE COMPENSATION AND BENEFIT PROGRAMS

Bonuses and Awards

     ALZA has a company-wide bonus program under which
substantially all regular employees are eligible to receive a
bonus.  The annual bonus pool, if any, is determined by ALZA's
Compensation Committee, at its discretion, based on ALZA's
performance during the year.  Bonus expenses under this program for
2000, 1999 and 1998 were $17.3 million, $11.7 million and $10.9
million, respectively.

Defined Contribution Plan

     ALZA has a company-funded, defined contribution retirement
plan for substantially all its employees.  This plan provides for
an annual basic contribution and allows for additional
discretionary contributions on a year-by-year basis.  Such
contributions are allocated to participants based on the
participants' salaries and ages. For 2000, 1999 and 1998, the total
expense for such contributions to this plan was $4.8 million, $5.2
million and $3.6 million, respectively.  A supplemental plan for
executives provides for contributions in excess of those made to
the above plan.  ALZA recognized expense of $0.5 million, $0.3
million and $0.3 million related to this supplemental plan in 2000,
1999 and 1998, respectively.

Employee Savings Plan

     ALZA has an employee savings plan that permits participants to
make contributions by salary reductions pursuant to section 401(k)
of the Internal Revenue Code.  ALZA makes small contributions and
matches contributions up to a specified amount per participant.  In
2000, 1999, and 1998, ALZA's contributions to the plan were $3.2
million, $3.1 million and $1.8 million, respectively.

Stock Plan

     ALZA has stock plans whereby incentive stock options to
purchase shares of ALZA common stock at not less than the fair
market value of the stock at the date of the grant may be granted
to employees; nonstatutory stock options to purchase shares of ALZA
common stock at not less than 85% of the fair market value of the
stock at the date of grant may be granted to employees, directors
and consultants; and restricted stock may be issued.  Options
typically vest one to three years from date of grant and generally
expire ten years after the date of grant. A total of 28.4 million
shares of ALZA's common stock have been reserved for issuance under
its stock plans.  At December 31, 2000 and 1999, shares available
for grant under ALZA's stock plans were 10.7 million and 4.0
million, respectively.  To date, all options granted have had
exercise prices equal to the fair market value of common stock on
the date of grant.

     In 2000, 1999 and 1998, a total of 291,280, 121,544 and
521,546 shares of restricted stock were issued, respectively, to a
limited number of employees at a price of $0.005 per share, the par
value of the common stock.  Restrictions on the 2000, 1999 and 1998
issuances of restricted shares lapse in 2004, 2003 and 2002,
respectively, or upon change of control of ALZA.  All shares for
which restrictions have not yet lapsed are subject to forfeiture in
the event of termination of the holder's employment with ALZA.
ALZA records as an expense, all restricted stock grants for the
difference between the market price on the date of grant and the
par value on a straight line basis over the vesting period.
Compensation expense recorded for the restricted stock option
grants for December 31, 2000, 1999, and 1998 was $3.3 million, $3.3
million and
$1.1 million.

Page 50 of paper format annual report

     A summary of ALZA's stock option activity, and related
information for 2000, 1999 and 1998 follows, which includes SEQUUS
options for all periods presented:

                       2000                1999              1998
                         Weighted            Weighted          Weighted
                         Average              Average           Average
                 Options Exercise  Options   Exercise Options  Exercise
            (in millions) Price (in millions) Price (in millions) Price
_______________________________________________________________________
Outstanding-
 beginning
 of year          20.8   $16           17.4   $  13     15.4    $ 13
Granted            4.8    33            7.6      17      5.4      21
Exercised         (6.4)   14           (3.0)     10     (3.0)     12
Forfeited         (1.6)   18           (1.2)     17     (0.4)     17
	              	 	_____			             _____		          _____
Outstanding-
 end of year      17.6    21           20.8      16     17.4      15

Exercisable-
 end of year       6.5    14            9.0      13      8.0      12

Weighted-average
 fair value of
 options granted      $11.44                $5.50            $6.99


     The following is a summary of ALZA's combined options
outstanding and options exercisable at December 31, 2000:

             OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                             Weighted-
			 		Average
                   Number    Remaining   Weighted    Number   Weighted-
Range of        Outstanding  Contractual  Average  Exercisable  Average
Excecise        at 12/31/00     life     Exercise at 12/31/00  Exercise
Prices         (in millions) (in years)     Price (in millions)  Price
________________________________________________________________________
$ 6.25-13.86          3.3         4.1       $ 11         3.2     $ 11
 14.22-18.00          4.8         8.1         15         2.0       15
 18.02-23.34          5.7         8.1         21         1.2       21
 23.44-43.06          3.8         9.6         35         0.1       25
________________________________________________________________________
                     17.6         7.7         21         6.5       14

     Financial Accounting Standards Board SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") prescribes a fair value
method of accounting for employee stock options.  SFAS 123 gives
companies a choice of recognizing related compensation expense by
adopting the fair value method or continuing to measure
compensation under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").  ALZA has
elected to continue to follow APB 25 in accounting for its employee
stock options and employee stock purchase plan (discussed below).

     Had compensation expense for ALZA's stock options and shares
issued under the stock purchase plans been determined using the
fair value method in accordance with SFAS 123, ALZA's pro forma net
income and earnings per share would have been as follows:

(In millions, except per share amounts)        2000    1999    1998
___________________________________________________________________
Net income
 As reported                                $ 223.3 $  91.0 $ 108.3
 Pro forma                                    202.7    67.0    88.4
Earnings per share (basic)
 As reported                                $  1.03 $  0.45 $  0.55
 Pro forma                                     0.93    0.33    0.45
Earnings per share (diluted)
 As reported                                $  0.95 $  0.44 $  0.53
 Pro forma                                     0.87    0.33    0.44

     The fair value for options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions:

                               2000          1999           1998
____________________________________________________________________
Risk-free interest rate    5.2% to 6.7%  5.0% to 6.3%   5.5% to 6.2%
Expected dividend yield         0%            0%              0%
Expected volatility            33%           31%             30%
Expected life (in years)    2.54-5.54     2.32-4.36       2.25-3.8

     Changes in the assumptions can materially affect the fair
value estimate and therefore the existing models do not necessarily
provide a reliable single measure of the fair value of ALZA's
employee stock options or shares issued under the employee stock
purchase plans.

Employee Stock Purchase Plan

     ALZA has an employee stock purchase plan in which essentially
all ALZA employees may participate and purchase stock at 85% of its
fair market value at certain specified dates.  Employee
contributions are limited to 15% of compensation.  In 2000, 1999
and 1998 total shares of ALZA common stock purchased by the
participants under the terms of the plan were 0.6 million, 0.6
million and 0.4 million, respectively. Since adoption of the plan
in 1984, 4.9 million shares have been issued under the plan and 3.1
million shares are available for issuance.  The fair value of the
employees' purchase rights was estimated using the Black-Scholes
option

Page 51 of paper format annual report

pricing model with the following weighted average assumptions for
2000, 1999, and 1998: risk free interest rates of 6.2%, 5.4% and
5.3%, respectively; dividend yields of zero; an expected volatility
factor of the market price of ALZA's common stock of 31%; and an
expected life of six months.  The weighted-average fair value for
rights issued under the employee stock purchase plan for 2000, 1999
and 1998 was $7.62, $5.38 and $4.13, respectively.


NOTE 9:  INCOME TAXES

The provision for income taxes is as follows:



(In millions)                      2000       1999        1998
________________________________________________________________
Federal
 Current                          $ 42.3      $29.1       $49.8
 Deferred                          (33.3)       1.8        (0.7)
________________________________________________________________
                                     9.0       30.9        49.1
State
 Current                            16.7       11.1        11.1
 Deferred                            0.3       (0.3)       (2.3)
________________________________________________________________
                                    17.0       10.8         8.8
________________________________________________________________
Provision for income taxes        $ 26.0     $ 41.7      $ 57.9

     Tax savings associated with employee stock option transactions
reduced current income taxes payable by $40.9 million, $10.7 million
and $9.7 million for 2000, 1999 and 1998, respectively.  These amounts
were credited to stockholders' equity.

     The provision for income taxes differs from the amount computed
by applying the statutory federal income tax rate to income before
income taxes.  The sources and tax effects of the differences are as
follows:

(In millions)                       2000       1999       1998
________________________________________________________________
Expected federal tax at 35%      $  89.9      $ 46.5     $ 58.3
State income taxes, net of
 federal benefit                    11.1         7.0        5.7
Investment and research
 tax credits                       (10.0)       (8.8)      (7.5)
Non-deductible merger costs
  and purchased research costs       3.3         4.6        -
Recognition of previously
  reserved deferred tax assets     (66.9)       (8.8)       -
Other                               (1.4)        1.2        1.4
________________________________________________________________
Provision for income taxes       $  26.0      $ 41.7     $ 57.9

   Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities at December 31, 2000 and 1999 are
as follows:

(In millions)                             2000       1999
___________________________________________________________
Deferred tax assets:
  Capitalized intangibles               $ 160.3     $122.4
  Net operating loss and credit
     carryforwards                         40.6       49.5
  Compensation                             26.1       22.6
  Deferred revenue                         10.2        -
  Unrealized losses on
     available-for-sale securities          -          2.0
  Inventories                               4.5        4.4
  Investments                               4.0        3.9
  Allowances for accounts receivable
     and other accounts                    16.0        8.8
  State income taxes                        4.1        4.0
  Other                                     4.1        8.1
___________________________________________________________
     Total deferred tax assets            269.9      225.7
  Less valuation allowance                (98.9)    (104.2)
___________________________________________________________
                                          171.0      121.5
Deferred tax liabilities:
  Property, plant and equipment            37.1       38.6
  Unrealized gains on
     available-for-sale securities         10.2        -
  Other                                    12.6        8.7
     Total deferred tax liabilities        59.9       47.3
___________________________________________________________
Net deferred tax assets                 $ 111.1     $ 74.2

     In 1999, certain deferred tax assets were reflected on a net
basis in the above schedule.  The 1999 presentation has been
revised to be consistent with gross basis presentation in 2000.
The net operating losses and credit carryfowards expire beginning
in 2009.

     ALZA recorded a tax benefit in the fourth quarter of 2000 of
$56.5 million reflecting a change in the estimated amount of
realizable deferred tax assets.  This change increased net income
by $56.5 million, or $0.21 per diluted share. The revised estimate
was the result of the favorable resolution of uncertainties
regarding the deductibility of certain amounts and revised
estimates of amounts realizable in future periods.  The deferred
tax asset valuation allowance at December 31, 2000 relates
primarily to capitalized intangibles and net operating loss
carryforwards of acquired companies which management believes are
not realizable in the near future due to "change of ownership" tax
limitation.

Page 52 of paper format annual report

NOTE 10:  COMMITMENTS AND CONTINGENCIES

Commitments

     ALZA leases certain buildings and equipment under operating
leases, the terms of which range from one to 31 years.  Rent
expense under these leases for 2000, 1999 and 1998 was $13.2
million, $11.9 million and
$5.3 million, respectively.

     In late 1997, ALZA acquired a 50% interest in P/A Charleston
Road, LLC, a real estate joint venture for the development of a 13-
acre parcel of land in Mountain View, California, which is being
accounted for under the equity method.  ALZA invested $36.2 million
in the joint venture, which was applied to the construction of
buildings on the parcel.  This amount has been included in other
assets.  ALZA is also obligated to make improvements to the
buildings, which are being recorded and depreciated on ALZA's
financial statements; approximately $127.5 million had been spent
as of December 31, 2000. The joint venture began leasing the
buildings to ALZA in the second half of 1999.  The leases provide
for an initial term of 15 years with scheduled annual rent
increases, followed by two 10-year extension periods with rent
increases based upon the Consumer Price Index.  ALZA recognizes 50%
of the joint venture's net income.   For 2000 and 1999, ALZA
recorded $4.4 million and $2.1 million of income related to the
joint venture, respectively, which were offset against rental
expense.

     During 1999, ALZA sold five buildings located in Palo Alto,
California, resulting in a total pretax gain of $12.4 million.
ALZA leased these buildings through December 1999, when it
completed occupancy of its new buildings in Mountain View,
California.  ALZA is also leasing or subleasing out certain other
Palo Alto, Menlo Park and Mountain View, California properties, it
owns or leases, which will continue to generate rental income in
2001 and beyond.  Leasing or subleasing income for the year ended
December 31, 2000 was $10.4 million.

     In late 1997, ALZA entered into a ground lease agreement for a
seven-acre parcel of land in Mountain View, California on which it
plans to construct a pilot plant, laboratories or other technical
facilities.  The term of the ground lease is approximately 33 years
and includes options for ALZA to purchase, or to be required to
purchase, the property.  Ground lease payments are approximately
$140,000 per month.  ALZA has exercised its option to acquire the
property and the purchase is expected to close during 2001 at a
price of approximately $17 million.

   Aggregate minimum lease commitments and sublease income under
all non-cancelable operating lease arrangements as of December 31,
2000 were (in millions):
                            Lease      Sublease
                         Commitments    Income
                         _______________________
          2001            $ 13.3        $ 11.6
          2002              13.8          11.9
          2003              13.0           8.0
          2004              11.7          10.5
          2005              11.7           5.6
          Later years      129.6          16.2
                         _______________________
          Total           $193.1        $ 63.8

Contingencies

     Pharmaceutical companies are subject to product liability
claims.  Product liability suits have been filed against Janssen and
ALZA from time to time relating to the Duragesic product.  Janssen is
managing the defense of these suits in consultation with ALZA under
an agreement between the parties.  Product liability suits have also
been filed from time to time relating to other ALZA-developed
products.

     Historically, the cost of resolution of ALZA's liability
(including product liability) claims 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 ALZA's results of
operations or financial position.


NOTE 11. ACQUISITION OF LIMITED PARTNERS' INTERESTS IN ALZA TTS
RESEARCH PARTNERS, LTD.

    On June 29, 1998, ADC, a wholly-owned subsidiary of ALZA, elected
to exercise its option to acquire all of the outstanding limited
partnership interests in the TTS Partnership, which was formed in 1982
to develop and commercialize products combining ALZA's proprietary
transdermal drug delivery technology with certain generic compounds.
The exercise price of $91.2 million was paid in cash to the limited
partners on August 14, 1998. Prior to this transaction, ALZA had been
paying the TTS Partnership four percent of net sales of Duragesic and
Testoderm, two products developed by ALZA on behalf of the TTS
Partnership.  As a result of the exercise of the purchase option, ALZA
has all rights to these products, and therefore retains all royalties
paid by Janssen on sales of Duragesic, the full transfer price and
royalties from sales of Testoderm outside the United States, and the
full sales margin on Testoderm in the United States.  The purchase
price was

Page 53 of paper format annual report

recorded as deferred product and license acquisition cost and is being
amortized over a period of 10 years beginning July 1, 1998.

     Additionally, as of September 1998 ALZA and Janssen entered
into an agreement under which Janssen made a series of quarterly
payments to ALZA over two years to help defray ALZA's substantial
purchase price paid for the limited partnership interests in the
TTS Partnership.  In exchange, the royalty rate payable by Janssen
to ALZA with respect to Duragesic was reduced by a portion of the
rate that ALZA had previously paid to the TTS Partnership.  The
quarterly payments ended in the second quarter of 2000.

NOTE 12. ACQUISITION OF SEQUUS PHARMACEUTICALS, INC

     On March 16, 1999, ALZA completed a merger with SEQUUS by
acquiring all of SEQUUS' outstanding stock in a tax-free, stock-for-
stock transaction.  SEQUUS stockholders received 0.8 shares of ALZA
common stock for each share of SEQUUS common stock.  ALZA issued
26.4 million shares in the merger.  ALZA accounted for the
transaction as a pooling of interests.  Accordingly, ALZA's
consolidated financial statements and all financial information
have been retroactively restated for prior periods to reflect the
combined operations, financial position and cash flows of both
companies.

     The following table summarizes the separate and combined results
of operations of ALZA and SEQUUS:

Year ended December 31, 1998
(In millions, except per share amounts)         POOLING
                               ALZA    SEQUUS  ADJUSTMENT  COMBINED
___________________________________________________________________
Revenues                    $  584.5  $ 62.4    $  -        $ 646.9
Net income (loss)              112.3    (6.7)      2.7(1)     108.3
Earnings (loss) per share
 Basic                         0.65    (0.10)                  0.55
 Diluted                       0.63    (0.10)                  0.53

(1)Represents a 40% tax benefit derived from SEQUUS' net loss.

     As a result of the SEQUUS acquisition, ALZA incurred merger-
related costs that consisted of merger transaction costs, exit
costs and employee severance costs.  Merger transaction costs
consisted primarily of fees for investment bankers, attorneys and
accountants, filing fees, financial printing costs and other
related charges.  Exit costs include costs such as cancellation of
lease agreements and the write-down of SEQUUS assets that will not
be used in continuing operations.  Employee severance costs relate
to termination of about 100 employees working primarily in research
and development and general administration departments.  The
following table shows the details of the accrual for merger-related
costs for the year ended December 31, 2000:

                                    Merger-            Balance at
                                    related           December 31,
(In millions)                        costs    Utilized    2000
___________________________________________________________________

Merger transaction costs            $ 13.2    $ 13.2     $ -
Exit costs                            14.3      14.3       -
Employee severance                     5.1       5.1       -
                                  _______________________________
Total                               $ 32.6    $ 32.6     $ -
                                  ===============================

NOTE 13:  TERMINATED MERGER AGREEMENT WITH ABBOTT LABORATORIES

     On June 21, 1999, ALZA entered into an Agreement and Plan of
Merger with Abbott.  Under the terms of the merger agreement,
Abbott would have acquired all of ALZA's outstanding stock in a tax-
free, stock-for-stock transaction. On December 16, 1999, ALZA and
Abbott announced that the merger would not be completed due to the
inability of the companies to meet certain requirements of the FTC
for approval of the transaction.  On January 20, 2000, ALZA and
Abbott announced the formal termination of the merger agreement.
No payments were made as a result of the termination.

     As a result of the activities related to the terminated merger
agreement, ALZA incurred $13.4 million in merger-related costs.
These costs included merger transaction costs, which consisted
primarily of fees for investment bankers, attorneys and
accountants, filing fees, financial printing costs, as well as
other merger-related costs.  The following table shows the details
of the accrual for merger-related costs for the year ended December
31, 2000:

                                    Merger-            Balance at
                                    related           December 31,
(In millions)                        costs    Utilized    2000
___________________________________________________________________

Transaction costs                    $ 9.8     $ 9.8     $ -
Other merger-related costs             3.6       3.6       -
                                  _______________________________
Total                               $ 13.4    $ 13.4     $ -
                                  ===============================


NOTE 14:  SEGMENT REPORTING

     ALZA has two operating segments: ALZA Pharmaceuticals, which
includes sales of products directly to the pharmaceutical
marketplace, research and development for products marketed by, and
potential products to be marketed by, ALZA (including revenues

Page 54 of paper format annual report

and expenses relating to products under development with Crescendo)
and certain co-promotion revenues for products co-promoted by ALZA;
and ALZA Technologies, which includes research, development and
manufacturing for pharmaceutical product development partners and
ALZA Pharmaceuticals, and royalties and fees resulting from sales
by ALZA's pharmaceutical product development partners of products
developed under joint development and commercialization agreements.
The "Other" category primarily comprises corporate general and
administrative expenses, including finance, legal, human resources,
commercial development, executive and other functions not directly
attributable (or allocated) to the activities of the operating
segments, as well as rental and service fee revenues.

     ALZA evaluates performance and allocates resources based on
operating income or loss from operations (before allocation of
certain general and administrative expenses, net interest expense,
investment gains and losses and income taxes).  ALZA does not
assess segment performance or allocate resources based on a
segment's total assets and therefore, ALZA's assets are not
reported by segment.  ALZA allocates certain long-lived assets to
operating segments for purposes of allocating depreciation and
amortization expense.  The accounting policies of the reportable
segments are the same as those described in the summary of
significant accounting policies.  ALZA accounts for intersegment
sales based upon negotiated prices.

     ALZA's reportable segments are strategic units that distribute
products to different types of customers and provide different
types of services.  They are managed differently because ALZA
Pharmaceuticals' sales and marketing efforts are extensive and
disparate from the revenue generation process resulting from
arrangements with pharmaceutical product development partners.
Additionally, ALZA Pharmaceuticals develops products for
commercialization by ALZA, while ALZA Technologies develops
products for commercialization by other companies and ALZA
Pharmaceuticals.

     For the current year segment presentation, certain research
and development expenses previously recorded in the ALZA
Technologies segment and charged to ALZA Pharmaceuticals were moved
to the ALZA Pharmaceuticals segment, as they were incurred directly
by ALZA Pharmaceuticals departments.  Under prior period's segment
presentation, research and development expenses for ALZA
Pharmaceuticals and ALZA Technologies would have been $110.1
million and $158.8 million, respectively.

     Certain prior year amounts have been reclassified to conform
to the current segment presentation.  These amounts relate to the
cost of sales of in-licensed products marketed by ALZA
Pharmaceuticals, which under the current presentation are recorded
in ALZA Technologies and sold to ALZA Pharmaceuticals at an
intersegment transfer price.

     The following tables contain information about segment
operating income (loss) for the years ended December 31, 2000, 1999
and 1998:

                                      Year ended December 31, 2000
                                ALZA           ALZA
(In millions)             Pharmaceuticals  Technologies   Other   Total
________________________________________________________________________
Revenues from
external customers
 Net sales                     $477.7        $129.5      $  -    $607.2
 Royalties, fees and other       20.2         250.7        10.3   281.2
 Research and development        68.3          31.8         -     100.1
________________________________________________________________________
  Total                        $566.2        $412.0      $ 10.3  $988.5

 Intersegment revenues
 Net sales                     $  -          $ 53.4      $  -    $ 53.4
 Research & development           1.4          43.6         -      45.0
________________________________________________________________________
  Total                        $  1.4        $ 97.0      $  -    $ 98.4

Depreciation and amortization
 expense (1)                   $ 16.1        $ 28.6      $ 22.2  $ 66.9

Segment operating
 income (loss)                 $ 79.9 (2)    $215.3    $(39.5)(3) $255.7


                                      Year ended December 31, 1999
                                ALZA           ALZA
(In millions)             Pharmaceuticals  Technologies   Other   Total
________________________________________________________________________
Revenues from
external customers
 Net sales                     $323.4        $124.6      $ -     $448.0
 Royalties, fees and other       14.0         211.4        1.7    227.1
 Research and development        90.5          30.3        -      120.8
________________________________________________________________________
  Total                        $427.9        $366.3      $ 1.7   $795.9

 Intersegment revenues
 Net sales                     $  -          $ 41.2      $ -     $ 41.2
 Research & development           -            90.9        -       90.9
________________________________________________________________________
  Total                        $  -          $132.1      $ -     $132.1

Depreciation and amortization
 expense (1)                   $ 16.0        $ 28.3     $12.3    $ 56.6

Segment operating
 income (loss)                 $ 23.5        $204.5   $(78.8)(4) $149.2


Page 55 of paper format annual report

                                       Year ended December 31, 1998
                                 ALZA           ALZA
(In millions)              Pharmaceuticals  Technologies  Other   Total
________________________________________________________________________
Revenues from
external customers
 Net sales                     $175.8        $113.6       $ -    $289.4
 Royalties, fees and other       25.3         205.4         2.4   233.1
 Research and development        93.0          31.4         -     124.4
________________________________________________________________________
  Total                        $294.1        $350.4       $ 2.4  $646.9

Intersegment revenues
 Net sales                     $  -          $ 22.1       $ -    $ 22.1
 Research & development           -            93.1         -      93.1
________________________________________________________________________
  Total                        $  -          $115.2       $ -    $115.2

Depreciation and amortization
  expense (1)                  $ 12.0        $ 23.0       $10.2  $ 45.2

Segment operating
 income(loss)                  $ 24.6        $200.4      $(28.5) $196.5


(1) Includes depreciation expense for property, plant and equipment and
    amortization expense for deferred product acquisition costs and
    capitalized software.

(2) Includes charges totaling $12.4 million for in-process research
    and development relating to purchase of Crescendo and payment
    to Chong Kun Dang Pharmaceutical Corporation for licensing
    agreement for anti-cancer compound CKD-602.

(3) In 2000, the operating loss for Other includes $4.8 million of
    charges associated with the consolidation of certain research
    and development facilities. Excluding these charges operating
    loss for Other would have been $34.7 million in 2000.

(4) In 1999, the operating loss for Other includes merger-related
    expenses of $32.3 million relating to the acquisition of SEQUUS
    and $13.4 million resulting from a terminated merger agreement
    with Abbott.  Excluding these charges operating loss for Other
    would have been $33.1 million in 1999.

    The following table contains a reconciliation of ALZA's total
income before taxes to that reported by segment in the tables
above:

(In millions)                            2000     1999      1998
_________________________________________________________________
Income before taxes
Total operating income (loss) for
  reportable segments                 $  255.7  $ 149.2 $  196.5
Unallocated amounts:
 Interest income                          59.0     41.6     26.4
 Interest expense                        (58.0)   (58.1)   (56.7)
_________________________________________________________________
Income before income taxes            $  256.7  $ 132.7 $  166.2

Company-wide Information:

Geographic Revenues
 (In millions)                           2000     1999     1998
-----------------------------------------------------------------
United States                         $  853.1  $ 686.5 $  538.7
Canada                                    14.3     11.8      7.9
Europe                                   116.0     89.8     94.9
Other foreign countries                    5.1      7.8      5.4
_________________________________________________________________
Consolidated total                    $  988.5  $ 795.9 $  646.9

     Long-lived assets outside the United States were not
significant. Export sales, principally net sales to distributors
and pharmaceutical product development partners in Europe, were
$50.7 million, $42.9 million and $42.6 million in 2000, 1999 and
1998, respectively.

     The following table shows the revenues from ALZA's major
customers as a percentage of total consolidated revenues for the
years ended December 31, 2000, 1999 and 1998.

                          Percentage of ALZA's Consolidated Revenues
                                   2000      1999      1998
____________________________________________________________
Janssen                            15%        17%       18%
McKesson HBOC, Inc.                12          *         *
Cardinal Health                    10          *         *
Crescendo                           *         12        16
Pfizer                              *         10        12

* represents less than 10% of total consolidated revenues

     The following table shows ALZA's net sales by major products
for the years ended December 31, 2000, 1999 and 1998.

NET SALES
(In millions)                         2000      1999       1998
_________________________________________________________________
ALZA PHARMACEUTICALS
 Ditropan XL-registered trademark-  $ 179.0   $  86.9  $    -
 Doxil-registered trademark-           82.4      66.2      48.4
 Concerta-trademark-                   67.9       -         -
 Ethyol-registered trademark-          48.4      48.3      32.6
 Elmiron-registered trademark-         33.7      29.9      23.0
 Mycelex-registered trademark- Troche  19.5      29.2      25.9
 Testoderm TTS-registered
  trademark- line                      18.6      20.8      10.0
 Other                                 28.2      42.1      35.9
_________________________________________________________________
  Total ALZA Pharmaceuticals          477.7     323.4     175.8

ALZA TECHNOLOGIES
 Contract manufacturing               129.5     124.6     113.6
 Intersegment                          53.4      41.2      22.1
_________________________________________________________________
  Total ALZA Technologies             182.9     165.8     135.7

 Intersegment eliminations            (53.4)    (41.2)    (22.1)
_________________________________________________________________
     Total net sales                $ 607.2   $ 448.0   $ 289.4


Page 56 of paper format annual report

NOTE 15: QUARTERLY FINANCIAL DATA (UNAUDITED)
(In millions, except per share amounts)
                          2000                           1999
              First1 Second2 Third3 Fourth4  First5 Second Third Fourth6
_________________________________________________________________________
Total revenues $201.5 $239.2 $271.9 $275.9   $185.5 $195.2 $222.1 $193.1

Gross profit
 on net sales    74.1   92.6  116.2  144.1     61.9   62.9   91.7   73.1

Operating income 50.0   63.7   78.5   63.5     19.3   46.7   69.7   13.5

Income before
 cumulative
 effect of change
 in accounting
 principle       27.7   38.3   57.4  107.3      3.7   34.2   42.8   10.3

Cumulative effect
 of change in
 accounting
 principle        7.4    -      -      -        -      -      -      -
________________________________________________________________________
Net income       20.3   38.3   57.4  107.3      3.7   34.2   42.8   10.3

Earnings per
 share - basic

 Income before
 cumulative effect
 of change in
 accounting
 principle     $0.14   $0.19  $0.26  $0.45    $0.02 $0.17   $0.21 $0.05

 Cumulative effect
 of change in
 accounting
 principle      0.04    -      -      -        -     -       -     -
_______________________________________________________________________
 Net income    $0.10   $0.19  $0.26  $0.45    $0.02 $0.17   $0.21 $0.05

Earnings per
 share - diluted

 Income before
 cumulative effect
 of change in
 accounting
 principle     $0.13   $0.18  $0.23  $0.40    $0.02 $0.17   $0.20 $0.05

 Cumulative effect
 of change in
 accounting
 principle      0.03    -      -      -        -     -       -     -
_______________________________________________________________________
 Net income    $0.10   $0.18  $0.23  $0.40    $0.02  $0.17  $0.20 $0.05

1 In the first quarter of 2000, ALZA recorded charges related to
 the consolidation of research and development operations of $4.8
 million ($2.9 million after tax, or $0.01 per diluted share).
 Also in the first quarter of 2000, ALZA recorded a net charge of
 $7.4 million ($0.03 per diluted share) for a cumulative effect of
 a change in accounting principle relating to the adoption of SAB
 101 for the deferral of certain fees recognized in prior years.
 ALZA also recognized $0.2 million after tax of deferred revenue
 in connection with the adoption of SAB 101.

2 In accordance with the adoption of SAB 101, ALZA restated the
 amounts for the second quarter of 2000.  The impact of the
 restatement was to decrease net income by $10.0 million, or $0.04
 per diluted share, comprised of the reversal of $15.0 million
 ($10.4 million after tax, or $0.04 per diluted share) in fees
 previously recognized during the period, net of $0.4 million
 ($0.3 million after tax) in deferred revenue recognized during
 the quarter.

3 In accordance with the adoption of SAB 101, ALZA restated the
 amounts for the third quarter of 2000.  The impact of the
 restatement was to increase net income by $0.5 million ($0.3
 million after tax) of deferred revenue recognized during the
 quarter.

4 In the fourth quarter of 2000, ALZA recorded in process research
 and development expenses related to the purchase of Crescendo and
 payment to Chong Kun Dang Pharmaceutical Corporation of $12.4
 million ($11.2 million after tax, or $0.04 per diluted share).
 In addition, ALZA recorded a tax benefit of $56.5 million related
 to a change in the amount of estimated realizable deferred tax
 assets.

5 In the first quarter of 1999, ALZA recorded charges related to
 the SEQUUS merger of $32.6 million ($24.8 million after tax, or
 $0.12 per diluted share).

6 In the fourth quarter of 1999, ALZA recorded charges of $13.4
 million ($8.0 million after tax, or $0.04 per diluted share)
 relating to a terminated merger agreement. Also in the fourth
 quarter of 1999, ALZA recorded charges of $9.6 million relating
 to a change in sales return policy and an increase in the reserve
 for sales rebates and $5.3 million primarily relating to a write-
 off of uncollectible accounts receivable.
Page 57 of paper format annual report

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ALZA CORPORATION


We have audited the accompanying consolidated balance sheets of ALZA
Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States.  Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of ALZA Corporation at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, in
2000 ALZA Corporation changed its method of accounting for revenue
recognition.


                                                 /s/Ernst & Young LLP

Palo Alto, California
January 19, 2001
Page 58 of paper format annual report

SELECTED CONSOLIDATED FINANCIAL DATA
(In millions, except per share amounts)

                    2000      1999      1998      1997      1996
____________________________________________________________________

Total revenues    $ 988.5   $ 795.9   $ 646.9   $ 504.4  $ 446.1

Net income (loss)   223.3(1)   91.0(2)  108.3    (275.2)(3) 82.1

Earnings (loss)
 per share(4):
 Basic               1.03      0.45      0.55     (1.41)    0.43
 Diluted             0.95      0.44      0.53     (1.41)    0.42

Cash and
 investments      1,460.9     598.9     514.1     561.1  1,032.8

Total assets      2,921.6   1,852.5   1,666.6   1,450.7  1,698.6

Total long-term
 liabilities      1,207.6   1,025.8   1,006.6     968.0    949.8

Total stockholders'
 equity           1,563.4     691.8     531.9     366.3    670.9
____________________________________________________________________


1    Reflects a total of $35.0 million of net credit, net of tax,
 including $4.8 million ($2.9 million after tax) relating to the
 consolidation of research and development operations, $12.4 million
 ($11.2 million after tax) relating to the purchase of Crescendo and
 payment to Chong Kun Dang Pharmaceutical Corporation, a charge of
 $7.4 million, net of tax, related to a cumulative effect of a
 change in accounting principle, offset by $56.5 million credit
 related to a change in estimated amount of realizable deferred tax
 assets.

2    Reflects a total of $60.6 million ($41.7 million after tax, or
 $0.20 per share, diluted) of charges, including $32.3 million
 relating to the acquisition of SEQUUS Pharmaceuticals, Inc., $13.4
 million resulting from a terminated merger agreement, $9.6 million
 relating to a change in sales return policy and an increase in the
 reserve for sales rebates and $5.3 million primarily relating to a
 write-off of uncollectible accounts receivable.

3    Reflects a total of $368.7 million (or $1.89 per share,
 diluted) of charges, including a $247.0 million charge and $8.0
 million of interest expense related to ALZA's distribution of
 shares of Crescendo Pharmaceuticals Corporation, $108.5 million for
 acquired in-process research and development, an asset write-down
 of $11.5 million and costs of $1.8 million related to a workforce
 reduction, less a tax benefit of $8.1 million.

4    Pro forma earnings per share amounts, assuming the accounting
 change in accordance with SAB 101 was applied retroactively to the
 beginning of the period presented, are as follows:
                             2000   1999   1998   1997   1996
 _____________________________________________________________
 Net income (loss)         $230.7  $91.6 $104.8 $(275.5) $77.8

 Net earnings (loss)
 per share:
  Basic                    $ 1.06  $0.45 $ 0.53 $(1.42)  $0.41
  Diluted                  $ 0.97  $0.44 $ 0.52 $(1.42)  $0.40

 Weighted average shares:
  Basic                     217.2  202.1  198.0  194.5   191.6
  Diluted                   269.9  206.9  203.0  194.5   194.8




ALZA Common Stock (unaudited)

     ALZA common stock (symbol AZA) is listed for trading on the
New York Stock Exchange and, as of February 22, 2001 there were
approximately 7,062 holders of record of the common stock.  ALZA
has never paid cash dividends on its common stock and has no plan
to do so in the near term.  The quarterly high and low sales prices
of ALZA common stock for 2000 and 1999, as reported on the
composite tape and adjusted for the stock split, are shown below:

                               ALZA COMMON STOCK
                             2000             1999
                        High     Low        High    Low

  First quarter        $19.75   $15.94     $27.88  $18.91

  Second quarter        30.81    18.50      25.53   15.50

  Third quarter         44.28    41.69      26.78   20.84

  Fourth quarter        47.00    35.50      24.81   14.81