EXHIBIT 13
Portions of the 1999 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)
						   1999      1998       1997
________________________________________________________________
Revenues                            $ 795.9   $ 646.9    $ 504.4

Operating Income (Loss)               149.2     196.5     (228.8)

Net Income (Loss)                      91.0     108.3     (275.2)

Diluted Earnings (Loss) per Share      0.88      1.07      (2.83)



1999 Compared to 1998

     ALZA acquired all of the outstanding stock of SEQUUS
Pharmaceuticals, Inc. ("SEQUUS") in a tax-free, stock-for-stock
transaction on March 16, 1999.  SEQUUS stockholders received 0.4
shares of ALZA common stock for each share of SEQUUS common stock.
ALZA issued 13.2 million shares to acquire the outstanding shares
of SEQUUS on the closing date.  ALZA has accounted for the
transaction as a pooling of interests and accordingly, the
consolidated financial statements and all financial information
presented herein have been restated to reflect the combined
operations, financial position and cash flows of both companies.

     On June 21, 1999, ALZA entered into an Agreement and Plan of
Merger with Abbott Laboratories, Inc.("Abbott"), an Illinois
corporation.  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
Federal Trade Commission ("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.

     ALZA's 1999 net income decreased to $91.0 million, or $0.88
per diluted share, compared with 1998 net income of $108.3 million,
or $1.07 per diluted share.  The 1999 net income included a total
of $60.6 million ($41.7 million after tax, or $0.40 per share,
diluted) of charges, including $32.3 million relating to the
acquisition of SEQUUS, $13.4 million resulting from the terminated
merger agreement with Abbott, $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.   Excluding these charges, net
income for 1999 was $132.6 million, or $1.28 per diluted share.  In
addition to the charges mentioned above, the results for 1999 were
impacted primarily by the following:

     --Net sales increased 55% to $448.0 million in 1999 from
     $289.4 million in 1998.  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.

     --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
     substantially to $259.0 million in 1999 from $141.9 million in
     1998. This increase was due to the expansion of the ALZA
     Pharmaceuticals sales organization beginning in the second
     half of 1998, the increase in sales and marketing expenditures
     related to the launch and promotion of Ditropan XL-registered
     trademark- (oxybutynin chloride) in February 1999 and
     increased marketing expenses for ALZA's expanded product
     portfolio.


1998 Compared to 1997

     ALZA's 1998 net income increased to $108.3 million, or $1.07
per diluted share, compared with 1997 net loss of $(275.2) million,
or $(2.83) per diluted share.  The 1997 net income included a total
of $368.7 million (or $3.77 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 ("Crescendo"), $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.  Excluding these
charges, net income for 1997 was $93.5 million, or $0.94 per
diluted share.  The increase in 1998 net income resulted primarily
from the following:

     --Net sales increased 60% to $289.4 million in 1998 from
     $181.1 million in 1997.  Sales of products by ALZA
     Pharmaceuticals doubled in 1998 compared with 1997, increasing
     to $175.8 million in 1998 from $87.9 million in 1997.

     --Gross margin as a percentage of net sales increased to 57%
     in 1998 from 45% in 1997.

     --Royalties, fees and other revenues increased 24% to $233.1
     million in 1998, compared with $188.3 million in 1997.

Page 26 of paper format annual report

     Substantially offsetting these contributions to net income in
1998 were the following:

     --Selling, general and administrative expenses increased to
     $141.9 million in 1998 from $85.3 million in 1997, excluding
     $0.4 million in costs related to workforce reductions in 1997.
     This increase reflects the substantial increase in the size of
     the sales organization and increased marketing expenses
     related to ALZA's expanded product portfolio and preparation
     for the launch of Ditropan XL in February 1999. Increased
     amortization of product acquisition costs also contributed to
     the increase in selling, general and administrative expenses
     in 1998, as a result of a full year of amortization of the
     costs of products acquired by ALZA in 1997.

     --Interest income declined 54% in 1998 compared with 1997, due
     to lower cash balances as a result of the purchase of all of
     the shares of Therapeutic Discovery Corporation ("TDC"), the
     formation of Crescendo and several product acquisitions, all
     of which occurred in the second half of 1997, and payment of
     $91.2 million for the exercise of the option to acquire all of
     the outstanding limited partnership interests in ALZA TTS
     Research Partners, Ltd. (the "TTS Partnership"), which
     occurred in the third quarter of 1998.


OPERATING SEGMENTS

     ALZA has two operating segments:  ALZA Pharmaceuticals and
ALZA Technologies.

     ALZA Pharmaceuticals markets and sells products developed by
ALZA Technologies or others directly to the pharmaceutical
marketplace in the United States and Canada and to distributors who
sell such products outside the United States and Canada.  ALZA
Pharmaceuticals also co-promotes products with third parties,
conducts clinical studies and engages ALZA Technologies and others
to conduct product development and manufacture products marketed by
ALZA Pharmaceuticals.

     ALZA Technologies conducts research on ALZA's drug delivery
technologies and develops products for ALZA Pharmaceuticals,
Crescendo and other pharmaceutical company clients, and
manufactures products for sale by ALZA Pharmaceuticals and client
companies.

     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.


OPERATING SEGMENT SUMMARY
(In millions, except per share amounts)
						   1999      1998     1997
Revenues
 ALZA PHARMACEUTICALS               $ 427.9   $ 294.1  $ 191.3
 ALZA TECHNOLOGIES                    475.8     450.1    409.9
 OTHER                                  1.7       2.4      0.8
______________________________________________________________
  Total segment revenues              905.4     746.6    602.0
  Intersegment eliminations          (109.5)    (99.7)   (97.6)
______________________________________________________________
     Total revenues                 $ 795.9   $ 646.9  $ 504.4


Operating Income (Loss)
 ALZA PHARMACEUTICALS               $  24.7   $  25.6  $(352.8)(2)
 ALZA TECHNOLOGIES                    203.3     199.4    153.7(2)
 OTHER                                (78.8)(1) (28.5)   (29.7)
______________________________________________________________
     Total operating income (loss)  $ 149.2   $ 196.5  $(228.8)


(1) 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 the terminated merger
  agreement.  Excluding these charges, operating loss for Other
  would have been $33.1 million in 1999.

(2) In 1997, the operating loss for ALZA Pharmaceuticals includes
  charges totaling $334.0 million for the purchase of TDC, the
  contribution to Crescendo, and a payment in connection with a
  development and option agreement for Cereport-trademark-
  (bradykinin-based receptor-mediated permeabilizer) between ALZA
  and Alkermes, Inc.  Excluding these charges, operating loss for
  ALZA Pharmaceuticals would have been $18.8 million in 1997.
  Operating income for ALZA Technologies in 1997 included charges
  totaling $34.4 million related to a development and
  commercialization agreement between ALZA and Janssen
  Pharmaceutica, Inc. for E-TRANS-registered trademark- fentanyl,
  a write-down of manufacturing and research and development
  assets, and costs related to a workforce reduction. Excluding
  these charges, operating income for ALZA Technologies would have
  been $188.1 million in 1997.

ALZA PHARMACEUTICALS

     ALZA Pharmaceuticals derives its revenues from sales of ALZA-
marketed 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 (and
prior to 1998, TDC); co-promotion fees from third parties, and fees
(including milestone payments) 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 (and previously, TDC)
are offset by intersegment charges from ALZA Technologies for
research and development expenses related to products marketed by,
and potential products for marketing by, ALZA Pharmaceuticals under
development on behalf of Crescendo.  Crescendo is expected to
expend its remaining funds during the second half of 2000, at which
time ALZA Pharmaceuticals will no longer have offsetting revenues
for its research and development expenses relating to Crescendo
products, if ALZA Pharmaceuticals continues the development of such
produts.  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.

Page 27 of paper format annual report

     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 of ALZA-marketed products increased to 80%
in 1999 compared with 77% in 1998.  The increase in revenues was
due to an 84% increase in net sales of ALZA-marketed products as
compared to 1998.  These increases in revenues and gross margin
were offset by increased sales and marketing expenses and, to a
lesser extent, an increase in clinical expenses.

     ALZA Pharmaceuticals' operating income increased substantially
in 1998 compared to 1997, excluding certain 1997 charges described
above.  This improvement was due to a 100% increase in net sales of
ALZA-marketed products and an increase in gross margin as a
percentage of net sales on these products to 77% in 1998 compared
with 76% in 1997, offset by increased sales and marketing expenses
and amortization of product acquisition payments.

ALZA TECHNOLOGIES

     ALZA Technologies derives its revenues from net sales of
products manufactured for client companies and for ALZA
Pharmaceuticals, royalty revenues, fee revenues (including
milestone payments) under agreements with client companies, and
revenues for research and development activities undertaken for
client companies and ALZA Pharmaceuticals.

     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.  In 1998, operating income for ALZA Technologies
increased 6% compared to 1997, excluding certain 1997 charges as
described above.  This increase was primarily due to a 17% increase
in royalties, fees and other revenues, a 22% increase in contract
manufacturing sales and an improvement in gross margin to 24% in
1998 compared with 15% in 1997.

OTHER

     In 1999, the operating loss for the Other segment increased
16%, excluding certain charges described above, compared to 1998,
due primarily 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 higher cash surrender value of
company-owned life insurance policies in 1999 compared with 1998.
In 1998, the operating loss for the "Other" segment was $28.5
million, compared with $29.3 million in 1997, excluding a $0.4
million charge related to a workforce reduction.  The decrease in
the operating loss was due primarily to lower allocated internal
expenses, a reduction in certain corporate expenses and higher cash
surrender value of company-owned life insurance policies, all in
1998 compared with 1997.

                             NET SALES

NET SALES
(Dollars in millions)                 1999       1998      1997
_______________________________________________________________
ALZA PHARMACEUTICALS
 Ditropan XL-registered
  trademark-                        $  86.9    $   -     $   -
 Doxil-registered trademark-
  /Caelyx-registered trademark-        66.2      48.4      29.5
 Ethyol-registered trademark-          48.3      32.6      20.6
 Elmiron-registered trademark-         29.9      23.0       4.8
 Mycelex-registered trademark-
  Troche                               29.2      25.9      10.8
 Testoderm-registered trademark-
  TTS line                             20.8      10.0       6.3
 Other                                 42.1      35.9      15.9
_______________________________________________________________
  Total ALZA Pharmaceuticals          323.4     175.8      87.9

ALZA TECHNOLOGIES
 Contract manufacturing               124.6     113.6      93.2
 Intersegment                          18.6       6.6       6.0
_______________________________________________________________
  Total ALZA Technologies             143.2     120.2      99.2

 Intersegment eliminations            (18.6)     (6.6)     (6.0)
_______________________________________________________________
     Total net sales                $ 448.0   $ 289.4   $ 181.1

Total net sales as a percentage
  of total revenues                     56%       45%       36%

ALZA Pharmaceuticals as a percentage
  of total net sales                    72%       61%       49%



ALZA PHARMACEUTICALS

     Included in net sales of ALZA Pharmaceuticals are sales of the
products marketed directly by ALZA in the United States and Canada,
and sales of those products in other countries through distributors
(and to a limited extent, direct sales by ALZA of Amphocil-registered
trademark- (lipid-based amphotericin B) in the United Kingdom).  Net
sales of ALZA-marketed products increased 84% in 1999 compared to
1998 due to $86.9 million sales of Ditropan XL, which was launched on
February 1, 1999, as well as an increase of 37% in sales of Doxil-
registered trademark- (doxorubicin HCl liposome injection),  in 1999
compared to 1998.  Doxil is marketed by Schering-Plough Ltd.
("Schering-Plough") in Europe under the tradename Caelyx-registered
trademark-.  In addition, Ethyol-registered trademark- (amifostine),
Elmiron-registered trademark- (pentosan polysulfate sodium) and
Mycelex-registered trademark- (clotrimazole) Troche had significant
growth in sales in 1999 as compared to 1998.

     ALZA Pharmaceuticals' net sales increased 100% in 1998
compared to 1997, resulting from a 64% increase in sales of Doxil
and a 58% increase in sales of Ethyol, together with sales of
Mycelex Troche, Elmiron, BiCitra-registered trademark- (sodium
citrate and citric acid), PolyCitra-registered trademark-
(potassium citrate), and immediate release Ditropan-registered
trademark-, the rights to all of which were acquired by ALZA in the
second half of 1997, and sales of Testoderm-registered trademark-
TTS (Testosterone Transdermal System), which was launched in March
1998.

     Net sales of ALZA-marketed products can be expected to vary
from significantly from year to year, particularly in the first
years after launch of a new product.  Ditropan XL was launched in
the first

Page 28 of paper format annual report

quarter of 1999, and Doxil, Ethyol, Elmiron 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.

Product Acquisitions

     In July 1997, ALZA acquired exclusive rights to Mycelex Troche
in the United States from Bayer Corporation ("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, which was also capitalized.
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, PolyCitra and Neutra-Phos-registered trademark-
(potassium and sodium phosphate), from Baker Norton
Pharmaceuticals, Inc. and its parent, IVAX Corporation, (together,
"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 $8.5 million in each of 1999 and 1998
based upon Elmiron sales, which were also capitalized.  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 S.A.
("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 will receive royalty
payments from ALZA if the trademark is used by ALZA with other
products, such as Ditropan XL; therefore in 1999 ALZA made royalty
payments to Aventis related to Ditropan XL sales.

     In November 1998, ALZA acquired the exclusive marketing and
distribution rights in the United States to Urispas-registered
trademark- (flavoxate hydrochloride) from SmithKline Beecham
("SB").  Under the terms of the agreement, ALZA paid a $25.0
million upfront fee to SB, which was capitalized. ALZA incurred
an additional milestone payment of $5.0 million in 1999 for the
filing of a supplemental New Drug Application ("sNDA") by SB,
which was capitalized, and may be required to make additional
milestone payments. SB manufactures the product for ALZA.

ALZA TECHNOLOGIES

     Net sales from contract manufacturing include sales generated
from contract manufacturing activities for ALZA's client companies
and ALZA Pharmaceuticals. Net sales from contract manufacturing
increased 10% in 1999 compared with 1998, primarily due to an
increase in ALZA shipments to client companies of Glucotrol XL-
registered trademark- (glipizide) and NicoDerm-registered trademark-
CQ-registered trademark- (nicotine).  Net sales from contract
manufacturing increased 22% in 1998 compared with 1997, primarily
due to a 34% increase in ALZA's shipments of Duragesic-registered
trademark- (fentanyl) to Janssen Pharmaceutica, Inc. ("Janssen").

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

                           GROSS MARGIN

Gross margin as a percentage of net sales
                                       1999     1998      1997
_______________________________________________________________
 ALZA PHARMACEUTICALS (1)              80%      77%       76%
 ALZA TECHNOLOGIES (1)                 24%      24%       15%

 Gross margin as a percentage of
   total net sales (2)                 65%      57%       45%

(1)  Includes intersegment revenues or expenses
(2)  After intersegment eliminations

     The increase in total gross margin in 1999 compared to 1998
was due to increased sales of higher-margin products by ALZA
Pharmaceuticals, as well as an increase in ALZA Pharmaceuticals'
sales as a percentage of total sales.  The increase in total gross
margin in 1998 compared to 1997 was due to increased sales of
higher-margin products by ALZA Pharmaceuticals and increased
shipments of higher margin products by ALZA Technologies to client
companies.  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-marketed products
increased in 1999 compared to 1998 due to a shift in product mix
towards sales of higher-margin products, including Ditropan XL.
The increase in gross margin in 1998 compared

Page 29 of paper format annual report

with 1997 was due to an increase in net sales of higher margin
products, in large part reflecting a full year of sales in 1998 of
products acquired in 1997.

ALZA TECHNOLOGIES

     The gross margin on net sales of products manufactured by ALZA
Technologies for sale by client companies and ALZA Pharmaceuticals
remained constant in 1999 compared to 1998. The gross margin on net
sales of products manufactured by ALZA Technologies for sale by
client companies and ALZA Pharmaceuticals increased in 1998
compared with 1997 as a result of an increase in shipments of
higher-margin products to client companies.  ALZA Technologies'
gross margin on contract manufacturing sales is usually
considerably lower than ALZA Pharmaceuticals' gross margin on its
sales of ALZA-marketed products.  ALZA's client-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 receives royalties on the clients' sales
of the products, which are included in royalties, fees and other
revenues.  Sales to ALZA Pharmaceuticals are based upon negotiated
prices, which generally approximate the prices charged to third
parties.

                ROYALTIES, FEES AND OTHER REVENUES

     Royalties, fees and other revenues consist largely of
royalties paid by client companies on products developed under
joint development and commercialization agreements with ALZA and
marketed by the 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.

                ROYALTIES, FEES AND OTHER REVENUES

(Dollars in millions)                   1999      1998      1997
________________________________________________________________
ALZA PHARMACEUTICALS                  $  14.0  $  25.3   $  11.9
ALZA TECHNOLOGIES                       211.4    205.4     175.6
OTHER                                     1.7      2.4       0.8
________________________________________________________________
 Total royalties, fees and
  other revenues                      $ 227.1  $ 233.1   $ 188.3

Percentage of total revenues              29%      36%       37%


ALZA PHARMACEUTICALS

     Fee revenue in 1999 for ALZA Pharmaceuticals included
technology fees of $6.7 million from Crescendo, as provided in the
agreements between ALZA and Crescendo, fees of $1.3 million from
Schering-Plough under an agreement with Schering-Plough, as
describe below, covering Caelyx (marketed as Doxil in the United
States), and $6.0 million in co-promotion fees with respect to
products co-promoted by ALZA Pharmaceuticals. In 1998, fee revenue
for ALZA Pharmaceuticals included technology fees of $10.7 million
from Crescendo, $6.5 million in fees from Synthelabo (now Sanofi-
Synthelabo) for the rights to commercialize OROS-registered
trademark- oxybutynin (marketed as Ditropan XL in the United
States) in Europe, $4.0 million fees from Schering-Plough related
to Caelyx, and $4.1 million in co-promotion fees with respect to
products co-promoted by ALZA Pharmaceuticals.  In 1997, ALZA
Pharmaceuticals' fee revenue consisted of $4.0 million in
technology fees from Crescendo, fees from Schering-Plough and co-
promotion fees.

     ALZA has a distribution agreement with Schering-Plough,
entered in 1996. Under the agreement, which expires in 2010,
Schering-Plough has obtained exclusive rights to distribute, market
and sell Caelyx  worldwide, except for the United States, Japan and
a few other countries. Under the terms of the agreement, ALZA
received an upfront payment of $5.3 million and ALZA receives
payments for product sold to Schering-Plough, with the price
determined based on sales of the product.  ALZA will continue to
receive milestone payments upon achievement of certain specified
events.  Each party undertakes clinical trials in specific
indications.

ALZA TECHNOLOGIES

     Royalties, fees and other revenues for ALZA Technologies
increased 3% for 1999 compared to 1998 primarily due to an increase
in royalties and other revenues in 1999 compared to 1998, partially
offset by lower fee revenues in 1999 compared to 1998.  Royalties,
fees and other revenues for ALZA Technologies increased 17% in 1998
compared to 1997, primarily as a result of increased royalties due
to a higher effective royalty rate on and increased sales of
Duragesic by Janssen, and a higher royalty rate on and increased
sales of Glucotrol XL by Pfizer, Inc. ("Pfizer").  Partially
offsetting these increases in royalties were lower royalties on
sales of Procardia XL-registered trademark- (nifedipine) by Pfizer
and NicoDerm CQ by SB.  Commercialization and licensing fees also
contributed to the increase in royalties, fees and other revenues
in 1998 compared with 1997.

     Fee revenues for 1998 included an upfront payment from Janssen
related to the initiation of a new transdermal fentanyl product
development program.  Fees for 1997 included upfront payments from
Knoll Pharmaceuticals Company in connection with an agreement for
continued development and worldwide commercialization of an OROS
hydromorphone product, from SB in connection with an agreement for
the commercialization of the Nicoderm product in numerous
international markets, and from Pfizer for the rights to
commercialize an OROS pseudoephedrine product in certain countries
outside the United States.

    On June 29, 1998, ALZA Development Corporation, 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

Page 30 of paper format annual report

(determined under a formula set in 1983) was paid in cash to the
limited partners on August 14, 1998.  ALZA had been paying the TTS
Partnership four percent of net sales of Duragesic and Testoderm-
registered trademark- (testosterone), 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 recorded as
a deferred product acquisition cost and is being amortized over a
period of 10 years beginning July 1, 1998.

     As of September 1998, ALZA and Janssen entered into an
agreement under which Janssen is making a series of eight 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 has been reduced by a portion
of the rate that ALZA had previously paid to the TTS Partnership.

     As of March 1998, ALZA and Alkermes, Inc. ("Alkermes") entered
into an exclusive license agreement for two of ALZA's oral drug
delivery technologies: RingCap-trademark- and dose sipping
technology.  Under this arrangement, ALZA granted Alkermes
worldwide rights to the two technologies and Alkermes is
responsible for continuing research and development of products
incorporating them.  ALZA received upfront payments from Alkermes
and will receive a portion of Alkermes' revenues from the
development and commercialization of products incorporating the
technologies.

     Sales of Procardia XL, as reported by Pfizer, decreased 27% in
1999 from 1998, and decreased 13% in 1998 from 1997.  Royalties
from Procardia XL declined as anticipated and accounted for
approximately 4% of total revenues in 1999, compared with 7% in
1998 and 11% in 1997.  Several companies have filed Abbreviated New
Drug Applications ("ANDAs") with the FDA requesting clearance to
market generic sustained release nifedipine products which are
asserted to be bioequivalent to Procardia XL, and one company has
received FDA approval of its ANDA.  Pfizer has filed suit against
the ANDA applicants for infringement of patent rights relating to
the nifedipine active drug substance in Procardia XL.  Pfizer also
has filed suit against the FDA, challenging the procedural basis
for the FDA's approval of the generic products, which utilize a
different mechanism of extended release than the OROS technology
used in Procardia XL.  In March 2000, Pfizer entered into a
settlement agreement with Mylan Laboratories Inc. ("Mylan"), the
first applicant for a generic version of Procardia XL.  The
settlement resolved the litigation pending between the parties, and
Mylan announced that it would commercialize a generic version of
Procardia XL to be supplied by Pfizer and incorporating ALZA's OROS
technology.  Under its agreement with Pfizer, ALZA will receive
royalties on such products.  It is not possible to predict the
timing and amount of the negative impact on sales of Procardia XL
that will result from competition from generic sustained-release
nifedipine products.

                     RESEARCH AND DEVELOPMENT

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

Research and Development Revenues
(Dollars in millions)                    1999      1998      1997
_________________________________________________________________
ALZA PHARMACEUTICALS
 Crescendo                            $  90.5   $  93.0  $  28.2
 TDC                                      -         -       63.3
_________________________________________________________________
  Total ALZA Pharmaceuticals             90.5      93.0     91.5

ALZA TECHNOLOGIES
 Crescendo                                -         2.0      1.5
 TDC                                      -         -        4.5
 Other clients                           30.3      29.4     37.5
 Intersegment                            90.9      93.1     91.6
_________________________________________________________________
  Total ALZA Technologies               121.2     124.5    135.1

Intersegment elimination                (90.9)    (93.1)   (91.6)
_________________________________________________________________
Total research and development
   revenues                       $     120.8   $ 124.4  $ 135.0

Percentage of total revenues            15%       19%      27%


ALZA PHARMACEUTICALS

     ALZA Pharmaceuticals derives research and development revenues
from Crescendo and, prior to 1998, TDC. Revenues from Crescendo are
offset by intersegment charges from ALZA Technologies for research
and development expenses incurred on behalf of ALZA Pharmaceuticals
related to products under development for marketing by ALZA
Pharmaceuticals.  ALZA expects that Crescendo will have expended
all its available funds during the second half of 2000.

Crescendo Pharmaceuticals Corporation

    In September 1997, ALZA contributed $300.0 million in cash to
Crescendo for Crescendo's Class A Common Stock (the "Crescendo
Shares"). Also in September 1997, the Crescendo Shares were
distributed to the holders of ALZA common stock and ALZA's
outstanding convertible subordinated debentures.  ALZA recorded a
charge of $247.0 million (including expenses of $4.0 million) and
interest expense of $8.0 million related to ALZA's contribution to
Crescendo and the distribution to stockholders and debenture
holders, respectively.  ALZA also recorded a dividend of $49.1
million to ALZA stockholders in connection with the distribution of
the Crescendo Shares.

    Under a Development Agreement between ALZA and Crescendo,
Crescendo is funding the development of human pharmaceutical
products proposed by ALZA and accepted by Crescendo.  The
development of certain specified products was

Page 31 of paper format annual report

funded by Crescendo beginning August 25, 1997, the date on which
TDC ceased funding the development of such products.

     Under a Technology License Agreement between ALZA and
Crescendo, ALZA has granted to Crescendo a worldwide license to use
ALZA technology solely to select and develop Crescendo products, to
conduct related activities, and to commercialize Crescendo
products. In exchange for the license to use existing ALZA
technology relating to the products initially under development by
ALZA and Crescendo, Crescendo pays a technology fee to ALZA,
payable monthly over a period of three years, in the amount of $1.0
million per month for the 12 months following the distribution of
the Crescendo Shares, $667,000 per month for the following 12
months and $333,000 per month for the following 12 months.  The
technology fee will no longer be payable at such time as fewer than
two of the seven initial products under development by ALZA and
Crescendo are being developed by Crescendo and/or have been
licensed by ALZA pursuant to the option, granted to it by
Crescendo, to license any or all Crescendo products.  ALZA recorded
technology fee revenue from Crescendo of $6.7 million, $10.7
million and $4.0 million for 1999, 1998 and 1997, respectively.
Three of the seven initial products were in development and/or had
been licensed at December 31, 1999.

     ALZA has an option to acquire an exclusive, royalty-bearing
license to each product developed by Crescendo under the
Development Agreement.  The option is 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 (Ditropan XL).  Under the terms of the license
agreement, ALZA makes payments to Crescendo based upon worldwide
sales of the product.  In consideration of the grant of the
license, ALZA paid Crescendo 2.5% of net sales of the product in
1999 and will pay 3% for 2000 and 2001.  Thereafter, until 15 years
after the date of the first commercial sale of the product, the
percentage of net sales owed to Crescendo will be based upon
development costs of the product paid by Crescendo; based upon
current information, this rate is expected to be between 5.5% and
6.5%.  In 1999, ALZA paid Crescendo $2.3 million as royalties on
the sales of Ditropan XL.

     On March 3, 2000, the FDA approved DUROS-registered trademark-
leuprolide (which ALZA has named Viadur-trademark-) for marketing
in the United States.  The product is the first FDA-approved
product to incorporate ALZA's DUROS-registered trademark- implant
technology.  Also on March 3, 2000, ALZA exercised its option to
obtain a worldwide license to DUROS leuprolide from Crescendo.
Under the terms of the license agreement between Crescendo and
ALZA, Crescendo will receive payments from ALZA based on worldwide
net sales of the product.   For the first three years after launch
the rates will be 2.5%, 3.0% and 3.0% of net sales, respectively;
thereafter the rate is expected to be between 7.5% and 8.5%.

     In addition, under Crescendo's Restated Certificate of
Incorporation, ALZA has the right to purchase all (but not less
than all) of the Crescendo Shares at a price based upon a pre-
established formula, discussed in Note 7 to the consolidated
financial statements.

Therapeutic Discovery Corporation

     In September 1997, ALZA purchased all of the outstanding
shares of TDC Class A Common Stock for $100.0 million in cash.  The
purchase resulted in a charge of $77.0 million to acquisition of in-
process research and development.  Approximately $23.0 million of
the purchase price was allocated to a deferred tax asset arising
from TDC's net operating loss carryforwards and capitalized
research and development expense.  TDC was formed by ALZA in 1993
to develop and commercialize products incorporating ALZA's drug
delivery technologies. At the time of its purchase by ALZA, TDC had
a broad range of products in development, although none of these
products had yet received regulatory approval for marketing.  A
significant portion of the purchase price was charged to the
acquisition of in-process research and development because the TDC
products were under development and had not yet been approved by
the FDA. In addition, because TDC had rights only to specific
products, and not technology, the products acquired had no
alternative future uses.

ALZA TECHNOLOGIES

     Research and development revenues decreased slightly in 1999
compared to 1998 and 8% in 1998 compared to 1997, reflecting
changes in the levels and types of product development activities
under agreements with client companies.


Research and Development Expenses
(Dollars in millions)                  1999      1998        1997
_________________________________________________________________
ALZA PHARMACEUTICALS
 Intersegment                        $ 90.9    $ 93.1      $ 91.6
 Clinical expenses                     33.2      28.5        20.3
_________________________________________________________________
     Total ALZA Pharmaceuticals       124.1     121.6       111.9

ALZA TECHNOLOGIES                     150.4     154.3       160.3

 Intersegment eliminations            (90.9)    (93.1)      (91.6)
_________________________________________________________________

Total research and
       development expenses          $183.6   $ 182.8     $ 180.6

As a percentage of total revenues       23%       28%       36%


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. Expenses related to these services 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 DUROS leuprolide, which ALZA has named Viadur, and
OROS-registered trademark- methylphenidate, which ALZA has named
Concerta-trademark-, which were submitted to the FDA in

Page 32 of paper format annual report

April 1999 and July 1999, respectively.  Research and development
expenses increased 9% in 1998 compared to 1997 due to increased
research and development related to Crescendo products, Doxil and
an increase in clinical expenses.

     In September 1997, ALZA entered into a clinical development
and option agreement with Alkermes relating to Cereport, a compound
intended to facilitate the delivery of chemotherapeutic agents to
the brain.  Under the terms of the agreement, ALZA paid Alkermes
$10.0 million, which was charged to acquisition of in-process
research and development.  Under the agreement, Alkermes is
conducting additional clinical activities related to Cereport, and
ALZA has the option to acquire exclusive worldwide
commercialization rights to the product.

ALZA TECHNOLOGIES

     Research and development expenses decreased in 1999 compared
to 1998, and in 1998 compared to 1997, due to a decrease in product
development activities for ALZA Pharmaceuticals and under
agreements with client companies.

Development Arrangements

     ALZA entered into two agreements with Janssen, effective
December 31, 1997, modifying the previous arrangements between the
parties relating to two E-TRANS fentanyl products.  Under a
development and commercialization agreement, ALZA and Janssen
modified the agreement pursuant to which the companies were jointly
developing E-TRANS fentanyl for the treatment of acute pain.  In
connection with this modified agreement, ALZA made a one-time
payment of $21.5 million to Janssen.  As the product was not yet
approved by the FDA and has no alternative future use, the payment
was charged to the acquisition of in-process research and
development. Prior to these modifications, the agreement with
Janssen for E-TRANS fentanyl was a typical client arrangement for
ALZA under which Janssen paid all development costs, and ALZA would
receive a royalty based on sales of the product, if the product was
successfully developed.  Janssen has notified ALZA of its intent to
terminate its participation in the E-TRANS fentanyl (acute pain)
program, effective in March 2000.  Effective January 2000, the
product became a Crescendo product, and Crescendo began funding
product development.  At present ALZA Pharmaceuticals plans to
commercialize the product.

     Under the other agreement with Janssen, ALZA Pharmaceuticals
has continued the development, with Crescendo, of an E-TRANS
fentanyl product for the treatment of chronic and breakthough pain.
Janssen has an option to take over funding the continued
development of the product and to commercialize the product
worldwide, once ALZA has expended a specified amount on the
development of the product. The product is currently in limited
development.

           SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Dollars in millions)                  1999        1998      1997
_________________________________________________________________
ALZA PHARMACEUTICALS
 Sales and marketing expenses       $ 200.0     $  95.2   $  45.8
_________________________________________________________________
   Total                              200.0        95.2      45.8

ALZA PHARMACEUTICALS
 Amortization of product acquisition
   payments                            15.1        11.1       4.0
ALZA TECHNOLOGIES
 Amortization of product acquisition
   payments                             9.1         4.6       -
_________________________________________________________________
   Total                               24.2        15.7       4.0

OTHER
 General and administrative expenses   34.8 (1)    31.0      35.9
_________________________________________________________________
Total selling, general and
  administrative expenses           $ 259.0     $ 141.9    $ 85.7

Total selling, general and administrative
  expenses a percentage of total revenues       33%      22%   17%

(1)  Excludes merger-related expenses of $32.3 million relating to
     the acquisition of SEQUUS and $13.4 million resulting from the
     terminated merger agreement with Abbott.

ALZA PHARMACEUTICALS

     Sales and marketing expenses increased substantially in 1999
compared to 1998, and in 1998 compared to 1997, as a result of the
significant increase in the size of ALZA's sales organization, the
increased marketing expenses for ALZA's expanded product portfolio
and the increased sales and marketing activities due to the launch
and promotion of Ditropan XL in February 1999.  During the second
half of 1998, ALZA expanded its sales organization by approximately
260 sales professionals.  In December 1998, ALZA entered into an
agreement with UCB Pharma, Inc.("UCB Pharma") under which
approximately 350 sales professionals of UCB Pharma are co-
promoting Ditropan XL in the United States with ALZA.  UCB Pharma
receives payments based on sales of Ditropan XL above certain
levels, as well as payments for sales calls made.  The term of the
co-promotion arrangement continues through March 2002.

     In June 1999, ALZA entered into an agreement with Abbott to co-
promote Ditropan XL in the United States, adding sales calls of 300
more sales professionals to the sales force then promoting Ditropan
XL. Co-promotion fees based on sales call made and other expenses
were incurred under this agreement through December 1999.
Additional co-promotion fees and expenses were incurred in 2000
until the termination of the co-promotion arrangement on January
20, 2000.

Page 33 of paper format annual report

     Amortization of product acquisition payments 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.
Amortization of product acquisition payments increased
significantly in 1998 compared to 1997 due to a full year of
amortization of the acquisition costs of products acquired in 1997
and, to a lesser extent, products acquired in 1998.

ALZA TECHNOLOGIES

     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 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 Duragesic and ALZA
retaining all royalties paid by Janssen on sales of that product.

OTHER

     In 1999, general and administrative expenses increased 12%,
excluding certain merger-related expenses, 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.  General and administrative
expenses declined 14% in 1998 compared to 1997, excluding $0.4
million in costs related to workforce reductions in 1997.  This
decline was due primarily to lower allocated depreciation and
facilities costs, a reduction in certain corporate costs and an
increase in the cash surrender value of company-owned life
insurance policies.


                    INTEREST INCOME AND EXPENSE

NET INTEREST
(In millions)                          1999        1998      1997
_________________________________________________________________
Interest and other income           $ (41.6)    $ (26.4)  $ (57.1)
Distribution to debenture holders       -           -         8.0
Interest expense                       58.1        56.7      55.2
_________________________________________________________________
  Net interest and other
   expense                          $  16.5     $  30.3   $   6.1


     The increase in interest and other income for 1999 compared to
1998 was primarily due to a pretax gain of $12.4 million on sales
of real estate assets and realized gains on investments of $9.6
million in 1999. Interest and other income decreased in 1998
compared to 1997 primarily due to significantly lower average
invested cash balances during 1998.  ALZA's lower cash balances in
1998 were attributable to the purchase of TDC, the formation of
Crescendo and several product acquisitions, all of which occurred
in the second half of 1997, and payment of $91.2 million for the
exercise of the option to acquire all of the outstanding limited
partnership interests in the TTS Partnership, which occurred in the
third quarter of 1998.

     Interest expense increased 3% in both 1999 compared to 1998,
and in 1998 compared to 1997, primarily due to accreted interest on
ALZA's 5 1/4% zero coupon convertible subordinated debentures due
2014 (the "5 1/4% Debentures") issued in 1994.

     The 1997 distribution to debenture holders is related to the
Crescendo transaction as discussed under "Crescendo Pharmaceuticals
Corporation" above.

                           INCOME TAXES

     ALZA's effective income tax rate was 31% in 1999 on income
before merger-related expenses, compared to 35% in 1998.  The tax
benefit associated with merger-related expenses was $13.5 million
(30%), reflecting that certain of the merger-related expenses were
not deductible.  The 1999 tax rate was lower than 1998's rate
principally due to realization of previously reserved deferred tax
assets relating to acquired SEQUUS tax loss carryforwards.  In
1997, ALZA recorded income tax expense of $40.3 million despite
ALZA's pretax loss, as certain charges recognized in 1997 were
generally not deductible for income tax purposes.  ALZA's 1997
effective income tax rate excluding such items was 34%.


                  LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY AND CAPITAL RESOURCES
(In millions)                          1999        1998      1997
_________________________________________________________________
Working capital                    $  297.8    $  297.6  $  276.9
Cash and investments                  589.1       514.1     561.1
Total assets                        1,852.5     1,666.6   1,450.7
Long-term debt                        979.0       966.1     932.2
Net cash provided by (used in)
  operating activities                160.2       115.0    (213.1)
Capital expenditures                   94.2        65.1      41.8
Product acquisition payments           35.0       127.6     140.1


     Cash flow provided by operating activities in 1999 was $193.6
million, excluding $33.4 million in cash payments made for merger-
related expenses as discussed under "Results of Operations".  Cash
flow provided by operating activities in 1998 was $136.5 million,
excluding a $21.5 million payment to Janssen in January 1998
discussed above under "Results of Operations".  Cash flow provided
by operating activities in 1997 was $122.6 million excluding a
$247.0 million charge and $8.0 million interest expense relating to
ALZA's distribution of shares of Crescendo; a $77 million charge
relating to the purchase of TDC; a $10.0 million payment to
Alkermes under

Page 34 of paper format annual report

an agreement relating to Cereport; and $1.8 million in severance
payments; and an $8.1 million income tax benefit.  These items are
discussed above under "Results of Operations."

     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 HMRI (now 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 SB for the United States rights to Urispas, and
made additional fee payments of $6.2 million to HMRI for the
immediate release Ditropan product and $5.0 million to U.S.
Bioscience ("USB") related to Ethyol.  Cash for these transactions
was provided from the sales and maturities of short- and long-term
investments, as well as from cash and cash equivalents.

     During 1997, ALZA paid $100.0 million in cash for the purchase
of all of the shares of TDC, and contributed $300.0 million in cash
to Crescendo.  Also in 1997, ALZA paid Bayer a $50.0 million
upfront fee for the United States rights to Mycelex Troche, made a
$10.0 million payment to USB related to Ethyol and made an upfront
payment of $75.0 million to IVAX for the United States and Canadian
rights to Elmiron and three additional urology products.  ALZA also
paid $10.0 million to Alkermes under the agreement related to
Cereport. Also during 1997, ALZA made a $36.2 million investment in
a real estate joint venture, described below. Cash for these
transactions was provided from the sales and maturities of short-
and long-term investments, as well as from cash and cash
equivalents.

     In late 1997, ALZA acquired a 50% interest in a real estate
joint venture for the development of a 13-acre parcel of land in
Mountain View, California.  ALZA invested $36.2 million in the
joint venture, which was applied to the construction of buildings
on the parcel. ALZA is also obligated to make improvements to the
buildings; approximately $117.8 million had been spent as of
December 31, 1999 and ALZA expects to incur an additional $13.0
million in 2000.  The improvements were substantially completed as
of December 31, 1999.  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 receives 50%
of the joint venture's net income.

     Also in late 1997, ALZA entered into a ground lease agreement
for a seven-acre parcel of land in Mountain View, California on
which it may 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.

     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 out certain other Palo Alto,
Menlo Park and Mountain View, California properties it owns or
leases, which will generate rental income in 2000 and beyond.

     ALZA's capital spending for 1999 was $94.2 million; $74.2
million for the Mountain View campus and the remainder for
additions to facilities and equipment to support its expanding
research, development and manufacturing activities, compared to
capital spending of $65.1 million in 1998 and $41.8 million in
1997. Capital expenditures in 2000 are expected to decrease
compared to 1999 levels as result of the completion of the current
development program for the Mountain View campus.

     ALZA believes that its existing cash and investment balances
are adequate to fund its cash needs for 2000 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 is intended to provide an outlook for 2000 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 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; 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, 1999, and some are also discussed briefly
below.

Net Sales

     Net sales of products marketed by ALZA Pharmaceuticals
are expected to increase significantly in 2000 due to the
anticipated launch of Concerta during the year, full year
sales of Ditropan XL and increases in sales of currently-
marketed products.  ALZA also expects Viadur to be
commercialized in late 2000 or early 2001.  ALZA has the right
to market Ethyol until April 2002, and will receive residual
payments from MedImmune, Inc. ("MedImmune"), the successor by
merger to USB, for nine years after the end of ALZA's
marketing term.  Wholesaler stocking patterns, managed care
and formulary acceptance, the intro-


Page 35 of paper format annual report

duction of competitive products, and acceptance by patients,
physicians and formularies will affect sales in 2000 and
future sales of ALZA's products.

     ALZA expects 2000 contract manufacturing revenues for
ALZA Technologies to increase slightly from 1999 levels due to
anticipated increases in orders from customers.  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.

Gross Margins on Net Sales

     ALZA expects that gross margins, as a percentage of net sales,
will continue to increase somewhat in 2000 and over the longer
term, although quarter-to-quarter fluctuations will continue to
occur.  Higher gross margins may be achieved through continuing the
proportionate increase in direct sales by ALZA Pharmaceuticals (as
compared with sales from contract manufacturing), and, to a lesser
extent, increased utilization of capacity and greater operating
efficiencies by ALZA Technologies.

Royalties, Fees and Other Revenues

     Fees for ALZA Pharmaceuticals in 2000 are expected to include
technology fees from Crescendo.  Fees for 2000 may also include
upfront and/or milestone fees from third parties in connection with
arrangements for the commercialization of products and/or upfront
fees and/or milestone payments in connection with client
development arrangements.

     ALZA expects royalties, fees and other revenues for ALZA
Technologies to continue to increase in 2000 as a result of growth
in sales of products currently marketed by client companies.  Sales
of Duragesic, Glucotrol XL and Covera HS-trademark-(verapamil) are
expected to continue increasing in 2000 while sales of Procardia XL
are expected to continue to decline in 2000.  ALZA expects fee
revenue to contribute to ALZA Technologies' operating results in
2000.

     Royalties, fees and other revenues, which are derived largely
from sales by client companies of products developed by ALZA
Technologies, vary from quarter to quarter as a result of changing
levels of product sales by client companies and, occasionally, the
receipt by ALZA of one-time, infrequent and special fees (such as
upfront fees and milestone payments). Because ALZA's clients
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 clients' marketing efforts and the
introduction and marketing of competing products, among other
factors.  Fees are generally one-time in nature and will vary from
year to year and quarter to quarter.

     In December 1999 the Securities and Exchange Commission
("SEC")  issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101").  SAB 101
summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial
statements.  ALZA is evaluating SAB 101's potential future impact
on ALZA's financial position and results of operations.  It is
possible that under SAB 101, certain fees would be required to be
deferred or recognized in revenue over or in future periods.

     During the next several years, ALZA intends to continue
reducing its dependence on royalties and fees by further expanding
ALZA's sales and marketing activities and by directly marketing and
selling more products through ALZA Pharmaceuticals, including
products developed with Crescendo.  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 marketing of competitive
products, risks relating to patents and proprietary rights and the
current health care cost containment environment.  ALZA expects
that, in the near term, royalties on sales by clients of currently
marketed products will continue to be a substantial contributor to
net income.

Research and Development

     ALZA expects that Crescendo will expend its available funds
during the second half of 2000.  The rate of expenditure by
Crescendo will depend upon the continued development of products
currently under development by ALZA and Crescendo, and new products
proposed by ALZA and accepted by Crescendo for development.  After
Crescendo expends its available funds, ALZA Pharmaceuticals will
incur significant expenses for research and development services
provided by ALZA Technologies that will no longer be reimbursed by
Crescendo.

     If ALZA were to purchase all of Crescendo's shares the
purchase price would be determined pursuant to a formula set forth
in Crescendo's Certificate of Incorporation (See Note 7 to the
Consolidated Financial Statements: Arrangements with Crescendo
Pharmaceuticals Corporation and Therapeutic Discovery Corporation
(Related Parties)).  Depending on when the option is exercised, if
at all, the purchase price would be at least $100 million and could
be more.

Page 36 of paper format annual report

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

     In 2000, ALZA expects to continue internal technology research
in order to continue strengthening ALZA's leadership in the drug
delivery field.

Selling, General and Administrative Expenses

     Sales and marketing expenses are expected to increase in 2000
due to the increase in the size of the sales organization in 1999,
costs associated with the launch of Concerta and continued
promotion of ALZA Pharmaceutical's currently-marketed products.
Amortization of product acquisition costs for 2000 will include
ongoing amortization of costs of products acquired in prior years,
amortization of costs of any new products acquired in 2000 and to,
a lesser extent, amortization of additional payments under the
arrangements for the acquisition of acquired products.

Interest and Other Income

     Interest and other income could be lower in 2000 compared to
1999 due to the inclusion of gains from the sale of real estate, as
discussed above, and from sale of certain equity investments, both
in 1999.  Interest and other income would also be lower in 2000 if
ALZA exercises its option to purchase all of Crescendo's shares, as
discussed above, and pays the purchase price in cash.

Income Tax Rate

     ALZA currently expects its combined federal and state
effective income tax rate in 2000 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.

Year 2000

     In prior years and through the first three quarters of 1999,
ALZA discussed the nature and progress of its plans to make its
computer systems and applications, including scientific and
manufacturing equipment containing computer related equipment, Year
2000 ready.  In late 1999, ALZA completed its remediation and
testing of systems.  As a result of those planning and
implementation efforts, ALZA experienced no significant disruptions
in mission critical information technology and non-information
technology systems and believes those systems successfully
responded to the Year 2000 date change.  ALZA expensed less than
$1.0 million in connection with remediating its systems. ALZA is
not aware of any material problems resulting from Year 2000 issues,
either with its products, its internal systems, or the products and
services of third parties.  ALZA will continue to monitor its
mission critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.

Page 37 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
               2000  2001  2002    2003   2004  after Total Value
_________________________________________________________________
(In millions)
Cash and cash equivalents
Fixed Rate
 Securities  $118.5   -    -       -      -    -    $118.5 $118.5
Average Interest
   Rate        5.67%  -    -       -      -    -     5.67%

Short-term Investments
Fixed Rate
 Securities  $ 68.2   -    -       -      -     -    $68.2  $68.0
Average Interest
    Rate       5.61%  -    -       -      -     -     5.61%

Long-term Investments
Fixed Rate
 Securities     -  $117.4  $78.8 $52.2   $4.9   -   $253.3 $248.6
Average Interest
    Rate        -    6.28% 6.37% 6.32%   5.00%  -    6.29%

Total Investments
Fixed Rate
 Securities  $186.7 $117.4 $78.8 $52.2   $4.9   -  $ 440.0 $435.1
 Average Interest
    Rate       5.64% 6.28% 6.37% 6.32%  5.00%   -    6.02%


     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 $2.0 million in ALZA's available-for-sale securities,
based upon a sensitivity analysis performed on ALZA's financial
position at December 31, 1999.  However, actual results may differ
materially.

     ALZA derives royalty revenues from client 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 38 of paper format annual report

CONSOLIDATED STATEMENT OF OPERATIONS

Years ended December 31,
(In millions, except per share amounts)  1999      1998      1997
_________________________________________________________________
REVENUES

Net sales                           $ 448.0   $ 289.4   $ 181.1
Royalties, fees and other             227.1     233.1     188.3
Research and development, including
 amounts from Crescendo, a related party
 (1999-$90.5, 1998-$95.0, 1997-$29.7)
 and TDC, a related party
 (1997-$67.8)                         120.8     124.4     135.0
_________________________________________________________________
 Total revenues                       795.9     646.9     504.4

COSTS AND EXPENSES

Costs of products shipped             158.4     125.7      99.9
Selling, general and administrative   259.0     141.9      85.7
Research and development              183.6     182.8     180.6
Merger-related expenses                45.7         -         -
Acquisitions of in-process
 research and development               -         -       108.5
Contribution to Crescendo, a related
 party                                  -         -       247.0
Asset write-down                        -         -        11.5
_________________________________________________________________
 Total costs and expenses             646.7     450.4     733.2

  Operating income (loss)             149.2     196.5    (228.8)

Interest expense                       58.1      56.7      55.2
Distribution to debenture holders       -         -         8.0
Interest and other income             (41.6)    (26.4)    (57.1)
_________________________________________________________________
Net interest and other expense         16.5      30.3       6.1
_________________________________________________________________
Income (loss) before income taxes     132.7     166.2    (234.9)

Provision for income taxes             41.7      57.9      40.3
_________________________________________________________________
Net income (loss)                   $  91.0   $ 108.3   $(275.2)

Earnings (loss) per share
  Basic                            $   0.90  $  1.09   $ (2.83)
  Diluted                          $   0.88  $  1.07   $ (2.83)

Shares
  Basic                               101.1     99.0      97.3
  Diluted                             103.5    101.5      97.3

See accompanying notes.

Page 39 of paper format annual report

CONSOLIDATED BALANCE SHEET

December 31,
(In millions, except per share amounts)         1999      1998
_________________________________________________________________
ASSETS

CURRENT ASSETS
Cash and cash equivalents                    $ 149.4   $ 110.1
Short-term investments                          68.0      86.1
Receivables, net of allowances (1999-$18.1;
 1998-$3.6)                                    113.7     131.1
Receivable from Crescendo, a related party      12.0      17.5
Inventories                                     69.0      54.6
Prepaid expenses and other current assets       20.6      26.3
_________________________________________________________________
   Total current assets                        432.7     425.7

PROPERTY, PLANT AND EQUIPMENT
Buildings and leasehold improvements           286.0     229.6
Equipment                                      209.6     184.1
Construction in progress                        34.0      56.6
Land and prepaid land leases                    33.9      34.4
_________________________________________________________________
                                               563.5     504.7
Less accumulated depreciation and
  amortization                                (145.7)   (132.3)
_________________________________________________________________
   Net property, plant and equipment           417.8     372.4

Long-term investments                          371.7     317.9
Deferred product acquisition costs             283.4     279.1
Cash surrender value of life insurance         148.4      93.0
Other assets                                   198.5     178.5
_________________________________________________________________
   TOTAL ASSETS                              $1,852.5  $1,666.6

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable                             $  75.9   $  59.7
Accrued liabilities                             51.5      61.0
Current portion of long-term debt                7.5       7.4
_________________________________________________________________
   Total current liabilities                   134.9     128.1

5% convertible subordinated debentures         495.5     500.0
5 1/4% zero coupon convertible subordinated
 debentures                                    443.7     422.6
Other long-term liabilities                     86.6      84.0

Commitments and contingencies

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 0.1 shares
  authorized                                      -         -
Common stock, $.01 par value, 300.0 shares
  authorized; 102.2, 100.3 and 97.7 shares
  issued and outstanding in 1999, 1998 and
  1997; respectively                             1.0       1.0
Additional paid-in capital                     705.6     644.5
Accumulated other comprehensive loss            (2.8)    (10.6)
Accumulated deficit                            (12.0)   (103.0)
_________________________________________________________________
   Total stockholders' equity                  691.8     531.9

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $1,852.5  $1,666.6

See accompanying notes.

Page 40 of paper format annual report

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997

(In millions)

                                        ACCUMULATED              TOTAL
                            ADDITIONAL    OTHER       RETAINED   STOCK-
                     COMMON  PAID-IN  COMPREHENSIVE   EARNINGS   HOLDERS'
                      STOCK  CAPITAL   INCOME(LOSS)  (DEFICIT)   EQUITY
_________________________________________________________________________
Balance, December 31,
  1996                $1.0   $557.0      $ (0.1)       $113.0    $ 670.9

Common stock issued     -      24.4          -            -         24.4
Distribution of
  Crescendo Shares      -        -           -          (49.1)     (49.1)

Comprehensive loss
 Net loss               -        -           -         (275.2)    (275.2)
 Unrealized losses on
  securities of $1.0,
  net of reclassifica-
  tion adjustment for
  gains included in net
  income of $3.7        -        -         (4.7)           -       (4.7)
_________________________________________________________________________
Total comprehensive loss                                         (279.9)
_________________________________________________________________________
Balance, December 31,
  1997                 1.0     581.4       (4.8)      (211.3)     366.3

Common stock issued     -       63.1         -            -        63.1

Comprehensive income
  (loss)
 Net income             -        -           -         108.3      108.3
 Unrealized losses on
  securities of $4.8,
  net of
  reclassification ad-
  justment 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     -       61.1         -           -        61.1

Comprehensive income
 Net income             -        -           -          91.0      91.0
Unrealized gains on
 securities of $14.1,
 net of reclassifica-
 tion 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


See accompanying notes.

Page 41 of paper format annual report

CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)

Years ended December 31,                 1999       1998       1997
___________________________________________________________________

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                       $91.0     $108.3    $(275.2)
Non-cash adjustments to reconcile
 net income (loss) to net cash pro-
 vided by (used in) operating
 activities:
 Depreciation and amortization           41.5       34.4       31.3
 Amortization of product acquisition
  payments                               24.2       15.7        4.0
 Interest on 5 1/4% zero coupon
  convertible subordinated debentures    22.5       21.4       20.3
 Issuance of common stock to
  401(k) plan                             -          0.3        0.3
 Undistributed income from real
  estate joint venture                   (2.1)        -          -
 Decrease (increase) in assets:
  Receivables                            22.9     (24.6)        1.5
  Inventories                           (14.4)    (12.8)        3.1
  Prepaid expenses and other current
    assets                                0.4       5.8        (4.1)
  Prepaid premiums and increase in cash
    surrender value of life insurance   (55.5)    (21.8)      (12.8)
 Increase (decrease) in liabilities:
  Accounts payable                       22.8       0.4        27.4
  Accrued liabilities                     1.3     (16.5)        0.1
  Deferred revenue                         -       (0.7)        0.3
  Other long-term liabilities             6.7       5.1       (20.8)
 Gain on sale of real estate and
   other assets, net                    (12.2)        -         -
 Asset write-down                        11.1         -        11.5
___________________________________________________________________
   Total adjustments                     69.2       6.7        62.1
___________________________________________________________________
Net cash provided by (used in)
  operating activities                  160.2     115.0      (213.1)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                    (94.2)    (65.1)      (41.8)
Proceeds from sale of real estate and
 other assets                            20.2         -         -
Product acquisition payments            (35.0)    (36.4)     (140.1)
Purchase of limited partners' interests in
    ALZA TTS Research Partners, Ltd.       -      (91.2)        -
Investment in real estate joint venture    -         -        (36.2)
Purchase of TDC deferred tax asset         -         -        (23.0)
Purchases of available-for-sale
  securities                           (293.8)   (323.3)     (435.4)
Sales of available-for-sale securities  239.6     317.0       707.5
Maturities of available-for-sale
 securities                              31.3      82.1        65.7
Decrease (increase) in other assets     (19.5)    (16.7)       12.4
___________________________________________________________________
Net cash (used in) provided by
  investing activities                 (151.4)   (133.6)      109.1

CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of Crescendo
 Pharmaceuticals Corporation shares
 to ALZA stockholders                      -         -        (49.1)
Issuances of common stock                41.1      61.4        24.1
Principal repayments on long-term
 debt, net                              (10.6)     (4.4)        3.0
___________________________________________________________________
  Net cash provided by (used in)
   financing activities                  30.5      57.0       (22.0)
___________________________________________________________________
Net increase (decrease) in cash and
  cash equivalents                       39.3      38.4      (126.0)

Cash and cash equivalents at the
  beginning of year                     110.1      71.7       197.7
___________________________________________________________________

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

See accompanying notes.

Page 42 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 in urology and oncology.

     ALZA acquired all of SEQUUS' outstanding stock in a tax-free,
stock-for-stock transaction on March 16, 1999.  SEQUUS was engaged
in the development, manufacturing, marketing and sales of
proprietary liposome and lipid-based products used primarily to
treat cancer.  ALZA has accounted for the transaction as a pooling
of interests, and accordingly, the consolidated financial
statements and all financial information have been restated to
reflect the combined operations, financial position and cash flows
of both companies as described in Note 12.

Nature of Operations
     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 client
companies.  ALZA recognizes sales revenues at the time of product
shipment, net of estimates for discounts, and reserves for sales
returns and allowances and rebates.  In 1999, ALZA changed its
policy on product returns to restrict, among other things, returns
of products beyond one year from product expiration, from the
previous policy which allowed expired products to be returned
without any time limits.

     ALZA's contract manufacturing activities are undertaken with
respect to products developed as a result of ALZA's client-funded
product development arrangements.  Under the third party
arrangements, ALZA is reimbursed for its costs of developing the
products; ALZA often manufactures the product for the client,
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 client's sales of the products.

     Royalties, fees and other revenues include royalty revenue and
other payments based on sales by ALZA's client companies of
products developed under joint development and commercialization
agreements, and certain one-time or infrequent fees, milestones or
similar payments under such agreements.  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. ALZA recognizes upfront fee revenues on
or after the effective date of the licensing, co-promotion or other
agreement, when there are no contingencies or conditions to ALZA's
receipt of the payments.  ALZA recognizes milestone fee revenues
when all of the conditions to payment have been met and there are
no further performance contingencies or conditions to ALZA's
receipt of payment.  Such license and milestone fees, when
recognized, are not refundable or creditable against future
payments, and do not require any future performance by ALZA in
order to retain them.

     Revenues from research and development activities with client
companies, including Crescendo and previously TDC, are reported as
research and development revenues, and are recognized as earned.
ALZA's research and development revenues represent clients'
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 client 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 clients.

Credit and Investment Risks
     Royalties, fees and other revenues and research and
development revenues are generally derived from agreements with
major pharmaceutical company clients and 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-marketed products primarily to
major pharmaceutical distributors, and sales from contract
manufacturing for ALZA's client companies.  If the financial
condition or operations of any of the pharmaceutical distributors
or client 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.

Page 43 of paper format annual report

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 SEQUUS for all periods presented, and since its
acquisition in September 1997, TDC. All significant intercompany
accounts and transactions have been eliminated.

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 approximates their fair
value.

Stock-Based Compensation
     ALZA accounts for stock option grants and restricted stock
grants in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees.  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.

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)                          1999             1998
_________________________________________________________________
Raw materials                       $  26.0            $18.2
Work in process                        10.4             10.6
Finished goods                         32.6             25.8
_________________________________________________________________
     Total inventories              $  69.0            $54.6

Internal Use Software
     ALZA accounts for software developed or obtained for internal
use in accordance with Statement of Position 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use".  The statement requires capitalization of certain costs
incurred in the development of internal-use software, including
external direct material and service costs, employee payroll and
payroll related costs. Capitalized software costs, which have not
been significant to date, are depreciated over three years.

Property, Plant and Equipment
     Property, plant and equipment are stated at cost, including
capitalized interest of $3.4 million in 1999, $1.5 million in 1998
and $0.7 million in 1997.  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 34 years)
Equipment                     3 to 9 years
Prepaid land leases           Terms of the leases (15 to 58 years)

     Depreciation and amortization expense for property, plant and
equipment was $29.7 million for 1999, $27.2 million for 1998 and
$26.7 million for 1997.  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, 1999 and 1998
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).

Page 44 of paper format annual report

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 then be reduced when appropriate.  Accumulated amortization
of these costs was $46.2 million, $21.9 million and $6.2 million at
December 31, 1999, 1998 and 1997, 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 $108.5 million in 1997.  There were
no such charges recorded in 1999 and 1998.

Long-Lived Assets
     ALZA routinely 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.  In 1997, ALZA wrote down approximately $11.5 million of
fixed assets, $3.7 million of which related to excess manufacturing
equipment.  Lower than expected production requirements under a
supply agreement with G.D. Searle & Co. for Covera-HS-trademark-
(verapamil) contributed to the excess capacity of manufacturing
equipment.  Such equipment was written down to its fair market
value, which was determined based upon estimates of current market
prices.  The remaining $7.8 million of the write-down is related
primarily to custom-designed manufacturing and research and
development equipment that was determined to have limited or no
future use based upon changes in production volumes or product
formulations.

Accrued Liabilities
Accrued liabilities as of December 31, are as follows:

(In millions)                          1999             1998
_________________________________________________________________
Accrued compensation                $  32.0            $25.3
Accrued income taxes                    4.4             22.5
Other accrued liabilities              15.1             13.2
_________________________________________________________________
     Total accrued liabilities      $  51.5            $61.0

Advertising Costs
     Advertising costs are accounted for as expenses in the period
in which they are incurred.  Advertising expense for 1999, 1998 and
1997 was $40.5 million, $16.3 million and $8.5 million,
respectively.

Supplemental Disclosures of Cash Flow Information
(In millions)

Cash paid during the year for:
                                     1999      1998      1997
_________________________________________________________________
Income taxes                       $ 53.0    $ 34.2    $ 59.5
Interest, net of amount capitalized  31.1      29.8      36.8

Non cash investing and financing activities:
                                     1999      1998      1997
_________________________________________________________________
Net unrealized gains (losses)
 on available-for-sale
 securities, net of tax effect     $7.8    $  (5.8)    $(4.7)
Acquisition of building in lieu of
 repayment of note receivable       -         17.5       -
Accrued product and license
 acquisition costs                 13.5       20.0          -
Conversion of 5% and 5 1/4%
 Debentures into ALZA common stock  6.0        1.4           -
Investment in low-income housing
 in exchange for long term debt     7.0       23.6        17.1
Tax benefit for stock option and
 stock purchase plan               10.7        9.7         2.3

Page 45 of paper format annual report

Comprehensive Income
     As of January 1, 1998, ALZA adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting
comprehensive income and its components.  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 adoption of SFAS 130 had no
impact on ALZA's results of operations or financial position.  The
following table shows the tax effect allocated to each component of
comprehensive income for the years ended December 31, 1999, 1998
and 1997:

                                 Before-Tax  Tax(Expense)  Net-of-Tax
(In millions)                      Amount     or Benefit     Amount
_____________________________________________________________________
Unrealized losses on available-
  for-sale securities                $(1.9)       $  0.9       $(1.0)
Less: reclassification adjustment
  for gains realized in net income     6.1          (2.4)        3.7
____________________________________________________________________
Net unrealized loss for the year
  ended December 31, 1997             (8.0)          3.3        (4.7)

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

Segment Information
     In 1998, ALZA adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131").  The new rules establish revised
standards for the reporting of financial and descriptive
information about operating segments in financial statements. The
adoption of SFAS 131 did not have a material effect on ALZA's
financial statements, but did affect the disclosure of segment
information contained in Note 14.

Reclassifications
     Certain prior year amounts have been reclassified to conform
to the current presentation.

New Accounting Standards
     In July 1999, the Financial Accounting Standards Board
("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 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.

     In December 1999 the Securities and Exchange Commission
("SEC")  issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101").  SAB 101
summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial
statements.  ALZA is evaluating SAB 101's potential future impact
on ALZA's financial position and results of operations.   It is
possible that under SAB 101, certain fees would be required to be
deferred or recognized in revenue over or in future periods.


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, 1999, net unrealized losses
on available-for-sale securities were $3.4 million, net of $2.0
million tax effect.  At December 31, 1998, net unrealized losses on
available-for-sale securities were $10.6 million, net of $7.3
million tax effect.  The cost of securities when sold is based upon
specific identification. 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.
Realized gains and losses for the year ended December 31, 1997 were
$7.6 million and $1.5 million, respectively.

Page 46 of paper format annual report

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

                                   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
Equity securities               9.8       0.2       (0.7)        9.3
____________________________________________________________________
 Total available
 for sale                     563.6       0.2       (5.6)      558.2
Less cash
 equivalents                 (118.5)       -          -       (118.5)
____________________________________________________________________
Total investments            $445.1      $0.2      $(5.6)     $439.7

                                         December 31, 1998
____________________________________________________________________
                                                            Estimated
                           Amortized Unrealized Unrealized    Fair
                             Cost      Gains      Losses      Value
U.S. Treasury securities
 and obligations of
 U.S. government
 agencies                      $66.3       $0.6     $(0.1)  $    66.8

Collateralized mortgage
 obligations and asset
 backed securities              58.4        0.4        -         58.8

Corporate debt
  securities                   332.4        2.0      (0.1)      334.3
____________________________________________________________________
 Total debt
 securities                    457.1        3.0      (0.2)      459.9
Investments held
 in trust                         -          -         -           -
Equity securities               77.6         -      (20.7)       56.9
 ____________________________________________________________________
Total available
 for sale                      534.7        3.0     (20.9)      516.8
Less cash
 equivalents                  (112.8)        -         -       (112.8)
 ____________________________________________________________________
Total investments           $ 421.9       $3.0    $(20.9)     $404.0

     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, 1999, the trust's investments included
United States Treasury and agency securities, corporate notes and
bonds, and institutional money market funds, with maturities
ranging from one day through nine years.

     The amortized cost and estimated fair value of debt securities
at December 31, 1999 and 1998, 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)
                                  1999                1998
____________________________________________________________________
                                    Estimated             Estimated
                          Amortized    Fair    Amortized     Fair
                            Cost      Value       Cost      Value
____________________________________________________________________
Due in one year or less    $ 186.7   $ 186.5      $199.0      $198.9
Due after one year
  through four years         248.4     244.0       215.3       217.5
Due after four years
  through eight years          4.9       4.6        42.8        43.5
____________________________________________________________________
      Total                 $440.0    $435.1     $ 457.1     $ 459.9

     In early 1997, ALZA purchased approximately 1.2 million common
shares of USB (4.9% of the outstanding common shares at that time)
at a price of $18.256 per share, for an aggregate investment of
$21.5 million. Beginning in the first quarter of 1998, this stock
was classified as available for sale and recorded at fair market
value.  In 1999, USB was acquired by MedImmune and ALZA sold the
shares it received as a result of the merger for total proceeds of
$26.2 million. ALZA and USB (now MedImmune) are parties to a
marketing and distribution agreement for Ethyol, which is described
in Note 4.

     In early 1997, ALZA purchased 2.0 million common shares of
Alkermes (9.7% of the outstanding common shares at that time) at a
price of $25 per share, for an aggregate investment of
$50.0 million.  This stock was not restricted and was therefore
classified as available-for-sale. In 1997, ALZA entered into a
clinical development and option agreement with Alkermes for
Cereport, which is described in Note 4.  In 1998, ALZA and
Alkermes entered into an exclusive license agreement for two of
ALZA's oral drug delivery technologies, RingCap and dose sipping
technology, which is described in Note 4.  In 1999, ALZA sold all
2.0 million common shares of Alkermes at an average price of $27
per share.


NOTE 3. PER SHARE INFORMATION

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

Page 47 of paper format annual report

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

(In millions, except per share amounts)     1999       1998     1997
____________________________________________________________________
NUMERATOR:
  Net income (loss)                       $ 91.0     $108.3  $(275.2)

DENOMINATOR:
Basic
  Weighted average shares                  101.1       99.0     97.3
Diluted
  Weighted average shares                  101.3       99.2     97.3
  Effect of dilutive securities:
   Employee stock options
    and warrants                             2.2        2.3        -
 ____________________________________________________________________
 Weighted average shares                   103.5      101.5     97.3

Basic earnings (loss) per share          $  0.90     $ 1.09   $(2.83)
Diluted earnings (loss) per share        $  0.88     $ 1.07   $(2.83)

     Outstanding options and warrants to purchase 3.0 million and
1.3 million shares of ALZA's common stock were excluded from the
earnings per share calculation for the year ended December 31, 1999
and 1998 because the exercise price of the options was greater than
the average market price of ALZA's common stock.  The effect of
assuming conversion of the 5% convertible subordinated debentures
due 2006 (the "5% Debentures")and 5 1/4% Debentures would have been
anti-dilutive in all periods presented, and they were therefore
excluded from the diluted earnings per share calculation.  In 1997,
the effect of options and warrants would have been anti-dilutive
and they were therefore excluded from the diluted calculation.


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 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.  ALZA recently exercised the
option.  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 paid
USB an upfront payment and initial distribution fees totaling $20.0
million in 1995 and 1996.  Of this amount, approximately $13.3
million was attributed by ALZA to the initial FDA approved
indication (ovarian cancer) and was capitalized. Approximately
$6.7 million, which was attributed by ALZA to potential expanded
product indications not yet approved by the FDA, was charged to
selling, general and administrative expenses.  ALZA paid $10.0
million in distribution fees in 1997 based on USB clinical
activities relating to Ethyol, and paid an additional $5.0 million
in early 1998, both of which were capitalized.  ALZA will owe
additional fees to MedImmune in 2000 and 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, which was also capitalized.  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, PolyCitra and Neutra-Phos, 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
$8.5 million in each of 1999 and 1998 based upon Elmiron sales,
which were also capitalized.  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 HMRI,
now Aventis.  ALZA also acquired the rights to the product in
Canada in April 1998 from HMRI and 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 SB.  Under
the terms of the agreement, ALZA paid a $25.0 million upfront fee
to SB, which was capitalized. ALZA incurred an additional milestone
payment of $5.0 million in 1999 for the filing of a sNDA by SB,
which was capitalized, and may be required to make additional
milestone payments. SB manufactures the product for ALZA.

Development and Option Agreements
     In September 1997, ALZA entered into a clinical development
and option agreement with Alkermes relating to Cereport, a compound
intended to facilitate the delivery of chemotherapeutic agents to
the brain.  Under the terms of the agreement, ALZA paid Alkermes
$10.0 million, which was charged to acquisition of in-process
research and development.  Under the agreement, Alkermes is
conducting additional clinical activities related to Cereport, and
ALZA has the option to acquire exclusive worldwide
commercialization rights to the product.

Page 48 of paper format annual report

     ALZA entered into two agreements with Janssen, effective
December 31, 1997, modifying the previous arrangements between the
parties relating to two E-TRANS fentanyl products.  Under a
development and commercialization agreement, ALZA and Janssen
modified the agreement pursuant to which the companies were jointly
developing E-TRANS fentanyl for the treatment of acute pain.  In
connection with this modified agreement, ALZA made a one-time
payment of $21.5 million to Janssen.  As the product was not yet
approved by the FDA and has no alternative future use, the payment
was charged to the acquisition of the in-process research and
development. Prior to these modifications, the agreement with
Janssen for E-TRANS fentanyl was a typical client arrangement for
ALZA under which Janssen paid all development costs, and ALZA would
receive a royalty based on sales of the product, if the product was
successfully developed.  Janssen has notified ALZA of its intent to
terminate its participation in the E-TRANS fentanyl (acute pain)
program, effective in March 2000.  Effective January 2000, the
product became a Crescendo product, and Crescendo began funding
product development.  At present, ALZA Pharmaceuticals plans to
commercialize the product.

     Under the other agreement with Janssen, ALZA Pharmaceuticals
has continued the development, with Crescendo, of an E-TRANS
fentanyl product for the treatment of chronic and breakthough pain.
Janssen has an option to take over funding the continued
development of the product and to commercialize the product
worldwide, once ALZA has expended a specified amount on the
development of the product. The product is currently in limited
development.

     In April 1998, ALZA and Alkermes entered into an exclusive
license agreement for two of ALZA's oral drug delivery
technologies: RingCap 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.

   For the 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.

NOTE 5: DEBT OBLIGATIONS AND OTHER LONG-TERM LIABILITIES

     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
$38.19 per share, subject to certain anti-dilution adjustments.  At
any time on or after May 1, 2000, the 5% Debentures are redeemable
at ALZA's option at a premium to their face value.  In addition,
from May 1, 1999 to May 1, 2000, the 5% Debentures are redeemable
at ALZA's option if ALZA's common stock trades above a certain
level for a specified period.  Interest is payable semiannually.
The 5% Debentures rank pari passu with ALZA's outstanding 5 1/4%
Debentures discussed below.  Unamortized costs related to the
issuance of the 5% Debentures were $7.6 million and $8.8 million at
December 31, 1999 and 1998, respectively, and were included in
other assets.  At December 31, 1999 and 1998, the fair value based
on quoted market value of the 5% Debentures was $519.0 million and
$723.6 million, respectively.  As of December 31, 1999, 11.3
million shares were available for issuance for conversion of the 5%
Debentures.

     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,
1999, the outstanding 5 1/4% Debentures had a total principal
amount at maturity of $942.6 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 12.987 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 $6.6 million
and $7.0 million at December 31, 1999 and 1998. At December 31,
1999 and 1998, the fair value based on quoted market value of the 5
1/4% Debentures was $472.5 million and $650.6 million,
respectively.  As of December 31, 1999 12.2 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, are as
follows:

(In millions)                           1999           1998
____________________________________________________________________
Long-term debt                       $  39.8          $  43.5
Deferred compensation                   44.9             40.0
Other                                    1.9              0.5
____________________________________________________________________
   Total other long-term liabilities $  86.6          $  84.0

     At December 31, 1999 and 1998, long-term debt primarily
consists of notes representing the required future payments under
investments of $55.0 million and $52.5 million, respectively, in
low income housing partnerships (included in other assets).  The
aggregate annual maturities of long-term debt at December 31,

Page 49 of paper format annual report

1999 were $7.5 million in 2000, $7.4 million in 2001, $7.1 million
in 2002, $6.5 million in 2003 and $11.3 million in later years.

     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 cash surrender value
of ALZA-owned policies related to the deferred compensation
arrangements and the premiums paid under policies for the EEPP
totaled $148.4 million and $93.0 million at December 31, 1999 and
1998, respectively.


NOTE 6: CAPITAL STOCK AND WARRANTS

     In connection with the formation of TDC in September 1997,
ALZA issued warrants to purchase approximately 1.0 million shares
of common stock at an exercise price of $65 per share.  The
warrants were not exercised and expired on December 31, 1999.

     ALZA is authorized to issue 100,000 shares of preferred stock,
$0.01 par value, none of which was outstanding at December 31, 1999
or 1998.  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 stockholder's 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 AND
THERAPEUTIC DISCOVERY CORPORATION (RELATED PARTIES)

Crescendo Pharmaceuticals Corporation
    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. ALZA recorded a charge of $247.0 million
(including expenses of $4.0 million) and interest expense of $8.0
million related to the distribution to stockholders and debenture
holders, respectively.  ALZA also recorded a dividend of $49.1
million for the distribution of the Crescendo Shares to ALZA
stockholders.  The interest expense and dividend amount were
determined according to the fair market value (based on NASDAQ
trading prices immediately following the distribution) of the
Crescendo shares distributed to debenture holders and stockholders,
respectively.  The excess of the amount contributed to Crescendo
over the fair market value of the shares, along with transaction
expenses, was recorded as an expense.

    In connection with the contribution to Crescendo and the
distribution of the Crescendo Shares, 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 funds the
development of products recommended by ALZA for development and
accepted by Crescendo. The development of certain specified
products was funded by Crescendo beginning August 25, 1997, the
date on which TDC ceased funding the development of such products.
Product development revenues from Crescendo for 1999, 1998 and 1997
were $90.5 million, $95.0 million and $29.7 million; respectively.

     Under a Technology License Agreement between ALZA and
Crescendo, ALZA has 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 pays a technology fee to ALZA,
payable monthly over a period of three years, in the amount of $1.0
million per month for the 12 months following the distribution of
the Crescendo Shares, $667,000 per month for the following 12
months and $333,000 per month for the following 12 months.  The
technology fee will no longer be payable at such time as fewer than
two of the seven initial products (the "Initial Products") are
being developed by Crescendo and/or have been licensed by ALZA
pursuant to the option, granted to it by Crescendo, to license any
or all Crescendo products.  ALZA recorded technology fee revenue
from Crescendo of $6.7 million, $10.7 million and $4.0 million for
1999, 1998 and 1997, respectively.  Three of the seven initial
products were in development or had been licensed at December 31,
1999.

     ALZA recognizes the technology fee from Crescendo when earned.
Since Crescendo owes the fee at the end of each month if, and only
if, at least two of the Initial Products remain in development
and/or have been licensed at the end of each month, the fee is not
earned until the end of each month in which this condition is
satisfied.  Development of any or all of the Initial Products could
be terminated by Crescendo at any time, and four of these products
are no longer in active development or under license.  The monthly
technology fee payments are not guaranteed, and the conditions
precedent to their payment have not been fulfilled and cannot be
fulfilled before the end of each month.  At the time ALZA accrues
the Crescendo

Page 50 of paper format annual report

technology fee, ALZA has no future performance obligations to
Crescendo in order to earn the fee that is being accrued.

     ALZA has an option to acquire an exclusive, royalty-bearing
license to each product developed by Crescendo under the
Development Agreement.  The option is 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 will pay 3% for 2000 and
2001.  Thereafter, until 15 years after the date of the first
commercial sale of the product, the percentage owed to Crescendo
will be based upon development costs paid by Crescendo; based upon
current information this rate is expected to be between 5.5% and
6.5%.

     Under the terms of the services agreement, ALZA performed
certain administrative services for Crescendo for which ALZA was
reimbursed its direct costs plus certain overhead expenses.  ALZA
recorded service revenue of $0.2 million in 1999 and 1998; service
revenue in 1997 was insignificant.

     In addition, under Crescendo's Restated Certificate of
Incorporation, ALZA has the right to purchase all (but not less
than all) of the Crescendo Shares at a price based upon a pre-
established formula (the "Purchase Option").  The Purchase Option
price will be determined as the greatest of the following:

    (a)(i) 25 times the actual payments made by or due from ALZA
to Crescendo under the Development Agreement and the License
Agreement with respect to any product (and, in addition, such
payments as would have been made by or due from ALZA to Crescendo
if ALZA had not previously exercised its payment buy-out option
with respect to any such payments) for the four calendar quarters
immediately preceding the quarter in which the Purchase Option is
exercised (provided, however, that for any product which has not
been commercially sold during each of such four calendar quarters,
the portion of the exercise price for such product will be 100
times the average of the quarterly payments made by or due from
ALZA to Crescendo for each of such calendar quarters during which
such product was commercially sold) less (ii) any amounts
previously paid to exercise any payment buy-out option;

   (b) the fair market value of one million shares of ALZA Common
Stock;

   (c) $325 million less all amounts paid by or due from Crescendo
under the Development Agreement to the date the Purchase Option is
exercised; and

   (d) $100 million.

     In each case, the amount payable as the Purchase Option
exercise price will be reduced to the extent, if any, that
Crescendo's liabilities at the time of exercise (other than
liabilities under the Development Agreement, the Technology License
Agreement and the Services Agreement) exceed Crescendo's cash and
cash equivalents and short-term and long-term investments
(excluding the amount of Crescendo's available funds remaining at
such time). ALZA may pay the exercise price in cash, in ALZA Common
Stock or in any combination of cash and ALZA Common Stock.

Therapeutic Discovery Corporation
     On September 29, 1997, ALZA purchased all of the Class A
Common Stock of TDC for $100.0 million in cash.  This acquisition
was recorded as a purchase and, accordingly, the purchase price was
allocated to assets acquired based upon their fair market value on
the acquisition
date.  The purchase resulted in a charge of $77.0 million to
acquisition of in-process research and development, and the
remaining $23.0 million of the purchase price was allocated to a
deferred tax asset arising from TDC's net operating loss
carryforward and capitalized research and development.

     ALZA and TDC had a development contract pursuant to which ALZA
conducted research and development activities on behalf of TDC.
Product development revenues from TDC during 1997 under this
development contract were $67.8 million.  ALZA performed certain
administrative services for TDC under an administrative services
agreement for which ALZA was reimbursed its direct costs, plus
certain overhead expenses.  In 1997, administrative service revenue
under this agreement was $0.4 million and was included in
royalties, fees and other revenues.


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
Board of Directors, at its discretion, based on ALZA's performance
during the year.  Bonus expenses under this program for 1999, 1998
and 1997 were $11.7 million, $10.9 million and $9.5 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 1999, 1998 and 1997, the total
expense for such contributions to this plan was $5.2 million, $3.6
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 $0.3 million related to
this plan in both 1999 and 1998, the first two years in which
contributions were accrued.

Page 51 of paper format annual report

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
1999, 1998 and 1997, ALZA's contributions to the plan were $3.1
million, $1.8 million and $1.1 million, respectively.

     SEQUUS had a 401(k) Plan under which it made employer
contributions, in the form of common stock, at the discretion of
the Board of Directors.  SEQUUS reserved 55,200 shares (ALZA
equivalent shares) for issuance under the plan.  In 1998 and 1997,
SEQUUS' contributions of common stock to the plan were valued at
approximately $0.3 million.

Stock Plan
     ALZA has a stock plan 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.  SEQUUS' stock plans
included the SEQUUS 1987 Employee Stock Option Plan, the SEQUUS
1987 Consultant Stock Option Plan, the SEQUUS 1990 Director Stock
Option Plan and the SEQUUS Equity Incentive Plan.  Most of the
outstanding options under the SEQUUS plans accelerated so as to
become exercisable immediately prior to the closing date of the
acquisition of SEQUUS.  Upon closing of the merger in March 1999,
ALZA assumed all remaining options under these plans, which were
converted into outstanding options to purchase ALZA common stock.
A total of 12.4 million shares of ALZA's common stock have been
reserved for issuance under its stock plan.  At December 31, 1999
and 1998, shares available for grant under ALZA's stock plan were
2.0 million and 0.4 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 1999 and 1998, a total of 60,772 and 260,773 shares of
restricted stock were issued, respectively, to a limited number of
employees at a price of $0.01 per share, the par value of the
common stock.  Restrictions on the 1999 and 1998 issuances of
restricted shares lapse in 2003 and 2002, respectively, or upon
change of control of ALZA.  In 1997, 25,000 shares of restricted
stock were issued to one employee at a price of $0.01 per share,
the par value of the common stock.  Restrictions on these shares
lapse with respect to 25% of the shares in 1999, 50% of the shares
in 2000, and 25% of the shares in 2001. 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 expense for 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, 1999, 1998 and 1997 was $3.3 million, $1.1 million and
$0.1 million.

     A summary of ALZA's stock option activity, and related
information for 1999, 1998 and 1997 follows, which includes SEQUUS
options for all periods presented:

                    1999              1998             1997
                        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           8.7    $26       7.7     $  25      7.1     $ 24
Granted            3.8     34       2.7        41      2.1       26
Exercised         (1.5)    20      (1.5)       23     (0.7)      20
Forfeited         (0.6)    33      (0.2)       33     (0.8)      27
                 ______            ______            ______
Outstanding-
end of year       10.4     32       8.7        30      7.7       25

Exercisable-
end of year        4.5     26       4.0        24      3.6       23

Weighted-average
 fair value of
 options granted    $10.99             $13.98            $10.17


     The following is a summary of ALZA and SEQUUS (on an
equivalent basis) combined options outstanding and options
exercisable:

                               OPTIONS OUTSTANDING
                     Number          Weighted-Average
Range of           Outstanding         Remaining       Weighted-Average
Average Exercise  at 12/31/99      Contractual life       Exercise
Prices           (in millions)        (in years)            Price
_______________________________________________________________________
$18.68-23.00          2.1                   4.8              $ 20
 23.13-29.06          2.3                   6.4                27
 29.72-35.75          2.3                   9.1                31
 35.94-46.63          2.1                   9.0                37
 46.69-54.38          1.6                   8.3                47
 _______________________________________________________________________
                     10.4                   7.5                32

                   OPTIONS EXERCISABLE
                     Number
Range of          Exercisable        Weighted-Average
Exercise          at 12/31/99            Exercise
Prices            (in millions)            Price
 _______________________________________________________________________
$18.68-23.00          2.0                   $20
 23.13-29.06          1.6                    26
 29.72-35.75          0.3                    32
 35.94-46.63          0.2                    40
 46.69-54.38          0.4                    47
 _______________________________________________________________________
                      4.5                    26

     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 new 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 and SEQUUS' stock options
and shares issued under the stock purchase plans been determined
using the fair value method in accordance with

Page 52 of paper format annual report

SFAS 123, ALZA's pro forma net income (loss) and earnings (loss)
per share would have been as follows:

(In millions,
  except per share amounts)            1999      1998      1997
________________________________________________________________________
Net income (loss)
 As reported                         $ 91.0   $ 108.3   $(275.2)
 Pro forma                             67.0      88.4    (287.1)
Earnings (loss) per share (basic)
 As reported                         $  0.90  $  1.09   $ (2.83)
 Pro forma                              0.66     0.89     (2.95)
Earnings (loss) per share (diluted)
 As reported                         $  0.88  $  1.07   $ (2.83)
 Pro forma                              0.65     0.87     (2.95)

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

                              1999         1998          1997
 _______________________________________________________________________
Risk-free interest rate  5.0% to 6.3%  5.5% to 6.2%   6.2% to 6.4%
Expected dividend yield       0%            0%             0%
Expected volatility (1)      31%           30%            30%
Expected life (in years)  2.32-4.36      2.25-3.8       2.25-4.0

(1) SEQUUS' volatility rates for 1998 and 1997 were 83% and 79%
  respectively.

     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 1999, 1998
and 1997 total shares of ALZA common stock purchased by the
participants under the terms of the plan were 0.3 million, 0.2
million and 0.3 million, respectively. Since adoption of the plan
in 1984, 2.1 million shares have been issued under the plan and 0.9
million shares are available for issuance.  The fair value of the
employees' purchase rights was estimated using the Black-Scholes
option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997: risk free interest rates of
5.4%, 5.3% and 5.4%, 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 1999, 1998 and 1997 was $10.76, $8.26 and $6.52,
respectively.

     SEQUUS had a stock purchase plan for its employees, which,
upon closing of the merger was assumed by ALZA.  Under this plan,
SEQUUS employees could purchase stock at 85% of the fair market
value at certain specified dates.  Employees enrolled in the plan
were allowed to purchase equivalent shares of ALZA stock through
July 1999, when the plan terminated.  In 1998 and 1997 total shares
(ALZA equivalent) of SEQUUS common stock purchased by the
participants under the terms of this plan were not significant.


NOTE 9:  INCOME TAXES

The provision for income taxes is as follows:

(In millions)                      1999       1998        1997
________________________________________________________________________
Federal
 Current                          $ 29.1         $49.8      $46.9
 Deferred                            1.8          (0.7)     (20.2)
________________________________________________________________________
                                    30.9          49.1       26.7
State
 Current                            11.1          11.1       16.5
 Deferred                           (0.3)         (2.3)      (2.9)
_________________________________________________________________________
                                    10.8           8.8       13.6
________________________________________________________________________
Provision for income taxes        $ 41.7        $ 57.9     $ 40.3

     Tax benefits associated with employee stock option transactions
reduced current income taxes by $10.7 million, $9.7 million and $2.3
million for 1999, 1998 and 1997, respectively.

     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)                       1999       1998       1997
________________________________________________________________________
Expected federal tax at 35%      $  46.5      $ 58.3        $(81.2)
State income taxes, net of
 federal benefit                     7.0         5.7           8.8
Investment and research
 tax credits                        (8.8)       (7.5)         (5.2)
Non-deductible merger costs
  and purchased research costs       4.6          -          113.4
Realization of previously
  reserved deferred tax assets      (8.8)         -            -
Other                                1.2         1.4           4.5
________________________________________________________________________
Provision for income taxes       $  41.7      $ 57.9        $40.3

Page 53 of paper format annual report

Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities at December 31, 1999 and 1998 are
as follows:

(In millions)                             1999       1998
________________________________________________________________________
Deferred tax assets:
  Capitalized intangibles               $  47.4     $ 54.7
  Net operating loss and credit
     carry forwards                        41.5       51.8
  Compensation                             22.6       19.2
  Unrealized losses on
     available-for-sale securities          2.0        7.3
  Inventories                               4.4        7.2
  Investments                               3.9        4.2
  Allowance for uncollectible accounts      8.8        4.0
  State income taxes                        4.0        1.0
  Other                                     8.1        5.9
________________________________________________________________________
     Total deferred tax assets            142.7      155.3
  Less valuation allowance                (21.2)     (30.0)
________________________________________________________________________
                                          121.5      125.3
Deferred tax liabilities:
  Property, plant and equipment            38.6       43.6
  Other                                     8.7        6.0
     Total deferred tax liabilities        47.3       49.6
________________________________________________________________________
Net deferred tax assets                 $  74.2     $ 75.7

     The net operating losses and credit carryfowards expire
beginning in 2008.

     The valuation allowance at December 31, 1999 relates to net
operating losses and tax credit carryforwards which have delayed
availability due to tax "change of ownership" limitations. Of the
valuation allowance, $5.5 million is attributable to stock option
deductions, the benefit of which will be allocated to contributed
capital when realized.


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 1999, 1998 and 1997 was $11.9
million, $5.3 million and $6.5 million, respectively.

     In late 1997, ALZA acquired a 50% interest in a real estate
joint venture for the development of a 13-acre parcel of land in
Mountain View, California, which is being accounted under the
equity method.  ALZA invested $36.2 million in the joint venture,
which was applied to the construction of buildings on the parcel
and recorded as other assets.  ALZA is also obligated to make
improvements to the buildings, which are being recorded and
depreciated on ALZA's financial statements; approximately $117.8
million had been spent as of December 31, 1999 and ALZA expects to
incur an additional $13.0 million in 2000. The improvements were
substantially completed as of December 31, 1999. 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
receives 50% of the joint venture's net income.   For 1999, ALZA
recorded $2.1 million of income related to the joint venture, which
was 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 out certain other Palo Alto,
Menlo Park and Mountain View, California properties, it owns or
leases, which will generate rental income in 2000 and beyond.

     Also in late 1997, ALZA had also entered into a ground lease
agreement for a seven-acre parcel of land in Mountain View,
California on which it may 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.  Under the ground lease for
the seven-acre parcel, ALZA's option to acquire the property may be
exercised at any time after August 31, 2000 and prior to expiration
of the lease, and the landlord may exercise its option to sell the
property to ALZA at any time before August 31, 2000.  For a
purchase on or before September 30, 2002, the purchase price is
approximately $17 million; thereafter the purchase price is
adjusted for inflation. If neither ALZA nor the landlord exercises
its option, then any improvements constructed by ALZA on the parcel
would be the property of the landlord on termination of the lease.

   Aggregate minimum lease commitments under all non-cancelable
operating lease arrangements as of December 31, 1999 were (in
millions):

          2000            $ 12.1
          2001              11.8
          2002              12.0
          2003              11.1
          2004              10.8
          Later years      141.1
                          ______
          Total           $198.9

     Aggregate minimum lease payments have not been reduced by
aggregate minimum sublease rentals of $84.5 million which, at
December 31, 1999 were $10.8 million in 2000, $11.5 million in 2001,
$12.1 million in 2002, $11.6 million in 2003, $11.5 million in 2004
and $27.0 million in later years.

Page 54 of paper format annual report

     In January 1998, ALZA purchased a building in Mountain View,
California, which it had leased since 1992.  The total purchase price
was approximately $19.0 million, which was offset by the repayment of
an outstanding note receivable from the seller.  The note receivable
was included in other assets at December 31, 1997.

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.

     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. 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 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 is making 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 have been
reduced by a portion of the rate that ALZA had previously paid to
the TTS Partnership.  The quarterly payments are being recognized
as revenue when received.

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 0.4 shares of ALZA
common stock for each share of SEQUUS common stock.  ALZA issued
13.2 million shares in the merger.  ALZA accounted for the
transaction as a pooling of interests.  Accordingly, ALZA's
consolidated financial statements have been retroactively restated
for prior periods to include the combined financial results of ALZA
and SEQUUS.

     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                         1.30    (0.21)                  1.09
 Diluted                       1.26    (0.21)                  1.07

Year ended December 31, 1997
(In millions, except per share amounts)
                                                  POOLING
                               ALZA    SEQUUS    ADJUSTMENT COMBINED(2)
________________________________________________________________________
Revenues                    $ 464.4    $40.0     $    -     $ 504.4
Net loss                     (261.1)   (23.6)    $ 9.4(1)    (275.2)
Loss per share
 Basic                        (3.07)   (0.78)                  (2.83)
 Diluted                      (3.07)   (0.78)                  (2.83)

(1)Represents a 40% tax benefit derived from SEQUUS' net loss.
(2)Net loss for the year ended December 31, 1997 reflects a total of
   $368.7 million (or pro forma $3.77 per share, diluted) of
   charges, net of a tax benefit of $8.1 million, including a $247.0
   million and $8.0 million of interest expense related to ALZA's
   distribution of shares of Crescendo, $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 workforce
   reductions.  Pro forma combined net income excluding these items
   would have been $93.5 million (or pro forma $0.94 per share,
   diluted).

     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 in primarily in
research and

Page 55 of paper format annual report

development and general administration departments.  The following
table shows the details of the accrual for merger-related costs for
the year ended December 31, 1999:
                                    Merger-            Balance at
                                    related  Utilized  December 31,
(In millions)                        costs   /Adjusted    1999
___________________________________________________________________

Merger transaction costs            $ 13.2    $ 13.1     $ 0.1
Exit costs                            14.3      13.0       1.3
Employee severance                     5.1       5.1       -
___________________________________________________________________
Total                               $ 32.6    $ 31.2     $ 1.4


NOTE 13:  TERMINATED MERGER AGREEMENT WITH ABBOTT LABORATORIES,
INC.

     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 with Abbott, 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, 1999:

                                    Merger-            Balance at
                                    related           December 31,
(In millions)                        costs    Utilized    1999
___________________________________________________________________
Transaction costs                    $ 9.8     $ 8.5     $ 1.3
Other merger-related costs             3.6       3.6       -
___________________________________________________________________
Total                               $ 13.4    $ 12.1     $ 1.3


NOTE 14:  SEGMENT REPORTING

     In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for annual and interim
disclosures of operating segments, products and services,
geographic areas and major customers using the "management
approach."  This approach requires reporting information regarding
operating segments on the same basis used internally by management
to evaluate segment performance.

     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 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 client companies and ALZA Pharmaceuticals, and
royalties and fees resulting from sales by ALZA's client companies
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.

      SEQUUS' net sales, costs of products shipped, research and
development expenses for products marketed by, and potential
products to be marketed by, ALZA Pharmaceuticals, and sales and
marketing expenses are included in the ALZA Pharmaceuticals
segment; SEQUUS' royalty and fee revenues and research and
development revenues and related expenses (largely for activities
undertaken on behalf of ALZA Pharmaceuticals) are included in the
ALZA Technologies segment; and SEQUUS' general and administrative
expenses are included in the Other segment.

     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, which approximate the prices
charged to third parties.

     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 client companies in ALZA Technologies.
Additionally, ALZA Pharmaceuticals develops products for
commercialization by ALZA, while ALZA Technologies develops
products for commercialization by other companies and ALZA
Pharmaceuticals.

     Certain prior year amounts have been reclassified to conform
to the current segment presentation.  For the current segment
presentation certain clinical expenses, previously recorded in the
ALZA Technologies segment as research and development expenses,
were moved to the ALZA Pharmaceuticals segment as they related to
products developed and marketed by ALZA Pharmaceuticals.

Page 56 of paper format annual report

     The following tables contain information about segment
operating income (loss) for the years ended December 31, 1999, 1998
and 1997:

                                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                        -             18.6          -      18.6
 Research & development           -             90.9          -      90.9
_________________________________________________________________________
 Total                            -            109.5          -     109.5

Depreciation and amortization
  expense (2)                    16.0           28.3        12.3     56.6

Segment operating income (loss)  24.7          203.3       (78.8)(1)149.2


                                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       2.4233.1
 Research and development                  93.0       31.4    -124.4
 ________________________________________________________________________
  Total                       294.1        350.4    2.4     646.9

Intersegment revenues
 Net sales                      -            6.6    -         6.6
 Research & development           -               93.1        -
93.1
 ________________________________________________________________________
  Total                         -           99.7    -        99.7

Depreciation and amortization
  expense (2)                  12.0         23.0   10.2      45.2

Segment operating income(loss) 25.6        199.4  (28.5)    196.5

                                Year ended December 31, 1997
                              ALZA            ALZA
(In millions)            Pharmaceuticals   Technologies     Other   Total
 ________________________________________________________________________
Revenues from
 external customers
 Net sales                   $ 87.9         $  93.2          $ -   $181.1
 Royalties, fees and other     11.9           175.6           0.8   188.3
 Research and development      91.5            43.5            -    135.0
 ________________________________________________________________________
  Total                       191.3           312.3           0.8   504.4

Intersegment revenues
 Net sales                      -               6.0            -      6.0
 Research and development       -              91.6            -     91.6
_________________________________________________________________________
  Total                         -              97.6            -     97.6

Depreciation and amortization
  expense (2)                   4.7            16.9          10.3    31.9

Segment operating income
  (loss)                     (352.8)(3)       153.7(4)      (29.7) (228.8)

(1)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 the terminated merger
   agreement with Abbott.  Excluding these charges operating loss
   for Other would have been $33.1 million in 1999.

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

(3)Includes charges totaling $334.0 million: acquisition of in-
   process research and development charges of $77.0 million
   relating to the purchase of TDC and $10.0 million for a payment
   to Alkermes under an agreement relating to the Cereport product
   under development by Alkermes and a $247.0 million contribution
   to Crescendo.

(4)Includes charges totaling $34.4 million: $21.5 million related
   to a development and commercialization agreement between ALZA
   and Janssen for E-TRANS fentanyl, a $11.5 million charge
   relating to the write-down of excess or under-utilized
   manufacturing equipment and obsolete and idle assets and a $1.4
   million charge relating to a work force reduction.

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

(In millions)                            1999      1998      1997
_________________________________________________________________________
Income (loss) before taxes
Total operating income (loss) for
  reportable segments                 $  149.2  $ 196.5  $ (228.8)
Unallocated amounts:
 Interest income                          41.6     26.4      57.1
 Interest expense                        (58.1)   (56.7)    (63.2)
_________________________________________________________________________
Income (loss) before income taxes     $  132.7   $166.2  $ (234.9)

Page 57 of paper format annual report

Company-wide Information:

Geographic Revenues
 (In millions)                          1999      1998     1997
_________________________________________________________________________
United States                         $686.5    $538.7    $415.5
Canada                                  11.8       7.9       6.1
Europe                                  89.8      94.9      79.3
Other foreign countries                  7.8       5.4       3.5
_________________________________________________________________________
Consolidated total                    $795.9    $646.9    $504.4

     Long-lived assets outside the United States were not
significant. Export sales, principally net sales to distributors
and client companies in Europe, were $42.9 million, $42.6 million
and $25.8 million in 1999, 1998 and 1997, 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, 1999, 1998 and 1997.

                        Percentage of ALZA's Consolidated Revenues
                                   1999      1998      1997
_________________________________________________________________________
Janssen                           17%        18%       14%
Crescendo                         12         16         *
Pfizer                            10         12        16
TDC                                -          -        14
*   Less than 10%

     The following table shows ALZA's net sales by major products
for the years ended December 31, 1999, 1998 and 1997.

NET SALES
(In millions)                         1999      1998       1997
_________________________________________________________________________
ALZA PHARMACEUTICALS
Ditropan XL-registered
 trademark-                         $ 86.9     $  -       $  -
Doxil-registered trademark-
 /Caelyx-registered trademark-        66.2       48.4      29.5
Ethyol-registered trademark-          48.3       32.6      20.6
Elmiron-registered trademark-         29.9       23.0       4.8
Mycelex-registered trademark-
 Troche                               29.2       25.9      10.8
Testoderm-registered trademark-
  TTS line                            20.8       10.0       6.3
Other                                 42.1       35.9      15.9
_________________________________________________________________________
  Total ALZA Pharmaceuticals         323.4      175.8      87.9

ALZA TECHNOLOGIES
 Contract manufacturing               124.6     113.6      93.2
 Intersegment                          18.6       6.6       6.0
_________________________________________________________________________
  Total ALZA Technologies             143.2     120.2      99.2

 Intersegment eliminations            (18.6)     (6.6)     (6.0)
_________________________________________________________________________
     Total net sales                $ 448.0   $ 289.4   $ 181.1


NOTE 15: QUARTERLY FINANCIAL DATA (UNAUDITED)
(In millions, except per share amounts)
                               1999                        1998
_________________________________________________________________________
                First(1) Second Third Fourth(2) First Second Third  Fourth
_________________________________________________________________________

Total revenues  $185.5   $195.2 $222.1 $193.1  $143.5 $158.3 $172.8 $172.3

Gross profit on
 net sales        61.9     62.9   91.7   73.1    35.4   37.2   42.1   48.9

Operating income  19.3     46.7   69.7   13.5    47.6   53.1   50.5   45.3

Net income         3.7     34.2   42.8   10.3    26.5   29.4   27.7   24.7

Earnings per share
  Basic          $0.04    $0.34  $0.42  $0.10   $0.27  $0.30  $0.28  $0.25
  Diluted         0.04     0.33   0.40   0.10    0.27   0.29   0.27   0.24

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

(2) In the fourth quarter of 1999, ALZA recorded charges of $13.4
 million ($8.0 million after tax, or $0.07 per diluted share)
 relating to the 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 58 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, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31,
1999. 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, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.


                                                 /s/Ernst & Young LLP


Palo Alto, California
March 6, 2000

Page 59 of paper format annual report

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

                    1999      1998      1997      1996      1995
____________________________________________________________________
Total revenues     $ 795.9   $ 646.9   $ 504.4   $ 446.1  $ 326.6

Net income (loss)     91.0(1)  108.3    (275.2)(2)  82.1     52.2

Earnings (loss)
 per share:
 Basic                0.90      1.09     (2.83)     0.86     0.57
 Diluted              0.88      1.07     (2.83)     0.84     0.56

Cash and investments 589.1     514.1     561.1   1,032.8    469.4

Total assets       1,852.5   1,666.6   1,450.7   1,698.6  1,018.0

Total long-term
 liabilities       1,025.8   1,006.6     968.0     949.8    414.7

Total stockholders'
 equity              691.8     531.9     366.3     670.9    527.2
____________________________________________________________________

(1) Reflects a total of $60.6 million ($41.7 million after tax, or
 $0.40 per share, diluted) of charges, including $32.3 million
 relating to the acquisition of SEQUUS Pharmaceuticals, Inc., $13.4
 million resulting from the terminated merger agreement with Abbott
 Laboratories, Inc., $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.

(2) Reflects a total of $368.7 million (or $3.77 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.


ALZA Common Stock (unaudited)

     ALZA common stock (symbol AZA) is listed for trading on the
New York Stock Exchange and, as of March 17, 2000 there were
approximately 6,974 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 1999 and 1998, as reported on the
composite tape, are shown below:

                               ALZA COMMON STOCK
                             1999               1998
                         High     Low       High      Low
_____________________________________________________________
  First quarter        $55  3/4 $37 13/16  $45 9/16   $30 7/8

  Second quarter        51 1/16  31         52 7/8     40 1/2

  Third quarter         53 9/16  41 11/16   45 1/2     33 3/4

  Fourth quarter        49 5/8   29 5/8     54         38 9/16