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                                                       EXHIBIT 13

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

1997 EVENTS

     Many significant events in 1997 affected the financial
condition and results of operations of ALZA Corporation ("ALZA"
or the "Company").  In 1997, ALZA:

  - Purchased the Class A Common Stock of Therapeutic Discovery
    Corporation ("TDC") for $100.0 million

  - Contributed $300.0 million to Crescendo Pharmaceuticals
    Corporation ("Crescendo") and distributed its shares to ALZA
    stockholders and debenture holders

  - Acquired rights to the Mycelex-registered trademark- Troche,
    Ditropan-registered trademark-, and Elmiron-registered trademark-
    products

  - Acquired an option to develop and commercialize the Cereport
    -trademark- (RMP-7-trademark-) product

  - Entered into new agreements with Janssen Pharmaceutica, Inc.
    (together with its affiliates "Janssen") covering E-TRANS-
    trademark- fentanyl products for the treatment of acute and
    chronic pain

Therapeutic Discovery Corporation

     On September 29, 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.  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.  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.

Crescendo Pharmaceuticals Corporation

     On September 29, 1997, ALZA contributed $300.0 million in
cash to Crescendo for Crescendo's Class A Common Stock (the
"Crescendo Shares").  On September 30, 1997, the Crescendo Shares
were distributed to holders of ALZA common stock and ALZA's outstanding

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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 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 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 $4.0 million for 1997.  Five of the seven initial
products were in development at January 31, 1998.

     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 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.

Product Acquisitions
     In July 1997, ALZA acquired exclusive rights to Mycelex-
registered trademark- (clotrimazole) 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, and will make an additional payment if net
sales of the product during

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a certain period are above a specified level.  Bayer manufactures
Mycelex-registered trademark- Troche for ALZA, and receives
payments from ALZA based on sales of the product.

<PAGE 18 OF PAPER FORMAT ANNUAL REPORT>

     In October 1997, ALZA acquired the exclusive rights in the
United States and Canada to Elmiron-registered trademark-
(pentosan polysulfate sodium) and three additional urology
products, BiCitra-registered trademark-(sodium citrate and citric
acid), PolyCitra-registered trademark-(potassium citrate) 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 will pay additional fees if specified
Elmiron-registered trademark- sales levels are achieved during
the next five years.  IVAX manufactures the products for ALZA and
receives payments from ALZA based on sales of the products.

     In October 1997, ALZA acquired the rights in the United
States to the immediate-release Ditropan-registered trademark-
(oxybutynin chloride) product and trademark from Hoechst Marion
Roussel, Inc. ("HMRI").  Under the terms of the agreement, ALZA
made an upfront payment to HMRI, which was capitalized, and will
make additional payments if specified sales levels of Ditropan-
registered trademark- are achieved.  HMRI manufactures the
product for ALZA for a price based upon net sales.  ALZA has the
right to market other products in the United States under the
Ditropan-registered trademark- trademark, and HMRI will receive
royalty payments from ALZA if the trademark is used by ALZA with
other products.

Development and Option Agreements
     In September 1997, ALZA entered into a clinical development
and option agreement with Alkermes, Inc. ("Alkermes") relating to
Cereport-trademark-, 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-trademark-,
and ALZA has the option to acquire exclusive worldwide
commercialization rights to the product.

     ALZA entered into two agreements with Janssen, effective
December 31, 1997, relating to two E-TRANS-trademark- fentanyl
products.  Under a development and commercialization agreement,
ALZA and Janssen modified the agreement pursuant to which the
companies were jointly developing an E-TRANS-trademark- fentanyl
product for the treatment of acute pain.  In connection with this
modified agreement, ALZA made a one-time payment

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of $21.5 million to Janssen, which was charged
to acquisition of in-process research and development.  ALZA will
receive a share of the U.S. operating profits from the product
and royalties from sales of the product outside the United
States.  The product is currently in Phase III clinical trials.
Under the second agreement, ALZA will continue the development of
an E-TRANS-trademark- fentanyl product for the treatment of
chronic pain.  Janssen will have an option, until a specified
time, to take over funding the continued development of the
product and to commercialize the product worldwide.  If Janssen
exercises its option, ALZA will receive a share of the U.S.
operating profits from the product and royalties from sales of
the product outside the United States.  If Janssen does not
exercise its option, ALZA may continue the development of the
product, which is currently under development with Crescendo.

     Certain of the events described above resulted in
significant non-recurring charges in 1997.  The discussion,
tables and graphs below cover the results of ALZA's business
operations excluding non-recurring items.  Non-recurring items,
and their impact on ALZA's results of operations, are discussed
on page 22 and in the Notes to Consolidated Financial Statements.
The following discussion must be read in conjunction with the
discussion of the non-recurring items in order to fully
understand the results of ALZA's 1997, 1996 and 1995 operations
as reported.


RESULTS OF OPERATIONS

SUMMARY
(In millions, except per share amounts)        1997       1996
1995
_________________________________________________________________
Revenues
 As reported                         $464.4    $413.1   $324.6
 Excluding non-recurring items        464.4     404.7    326.2
_________________________________________________________________
Operating Income (Loss)
 As reported                         (204.0)    139.2    114.7
 Excluding non-recurring items        164.8     133.9    123.0
_________________________________________________________________
Net Income (Loss)
 As reported                         (261.1)     92.4     72.4
 Excluding non-recurring items        107.6      90.1     77.5
_________________________________________________________________
Earnings (Loss) per Share (diluted)
 As reported                          (3.07)     1.08    0.88
 Excluding non-recurring items         1.23      1.06    0.94
_________________________________________________________________

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     Excluding the impact of non-recurring items, ALZA's net
income increased 19% in 1997 compared with 1996.  This increase
resulted primarily from higher net sales of ALZA-marketed
products, which more than doubled in 1997 compared with 1996.
Also contributing to the increase in 1997 net income were higher
royalties, fees and other revenues and a lower effective income
tax rate.  Partially offsetting these contributions to net income
in 1997 were increases in research and development expenses and
sales and marketing expenses, and the amortization of product
acquisition costs, as well as decreased net interest income.

     ALZA's net income increased 16% in 1996 compared to 1995,
excluding non-recurring items.  This increase primarily resulted
from higher royalties, fees and other revenues in 1996 compared
to 1995, as well as increases in net sales, research and
development revenues and net interest income.  These increases
were partially offset by higher research and development
expenses, and increased selling, general and administrative
expenses in 1996 compared with 1995.

(Presented graphically in paper format annual report)
REVENUES
(In millions of dollars)
                        1997   1996    1995   1994    1993
_________________________________________________________________
Royalties and fees      183     163    145     132    114
Net sales               146     109     77      69     60
Research and development135     133    104      69     47
_________________________________________________________________

TOTAL REVENUES          464     405    326     270    221

(Presented graphically in paper format annual report)
OPERATING INCOME
(In millions of dollars)
                        1997   1996    1995   1994    1993
_________________________________________________________________
                        165     134    123     103     94

ROYALTIES, FEES AND OTHER REVENUES

(Dollars in millions)                   1997      1996    1995
_________________________________________________________________
Royalties, fees and other revenues     $183.3   $162.8   $145.3
Percentage of total revenues            39%      40%      45%
_________________________________________________________________

     Royalties, fees and other revenues increased 13% in 1997
compared to 1996, primarily as a result of increased royalties
due to higher

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sales of Glucotrol XL-registered trademark- (glipizide) by Pfizer
Inc. ("Pfizer"), Duragesic-registered trademark- (fentanyl) by
Janssen, Nicoderm-registered trademark- and NicoDerm-registered
trademark- CQ-trademark- (nicotine) by HMRI and SmithKline
Beecham ("SmithKline"), respectively, and Catapres-TTS-registered
trademark- (clonidine) by Boehringer Ingelheim Pharmaceuticals,
Inc.  These increases were partially offset by decreased
royalties on sales of Procardia XL-registered trademark-
(nifedipine) by Pfizer.  Commercialization and licensing fees
also contributed to the increase in royalties, fees and other
revenues in 1997 compared with 1996. Fees for 1997 included
upfront payments from Knoll Pharmaceutical Company in connection
with an agreement for continued development and worldwide
commercialization of the OROS-registered trademark- hydromorphone
product, from SmithKline in connection with the agreement for the
commercialization of the Nicoderm-registered trademark-
transdermal nicotine product in numerous international markets,
and from Pfizer for the rights to commercialize the OROS-
registered trademark- pseudoephedrine product in certain
countries outside the U.S., and technology fee revenue of $4.0
million from Crescendo.

     Sales of Procardia XL-registered trademark-, as reported by
Pfizer, decreased 18% in 1997 from 1996, and decreased 11% in
1996 from 1995.  Royalties from Procardia XL-registered trademark-
accounted for approximately 29% of royalties, fees and other
revenues in 1997, compared with 40% in 1996.  In 1997, Mylan
Laboratories Inc. ("Mylan") filed an Abbreviated New Drug
Application ("ANDA") with the United States Food and Drug
Administration ("FDA") requesting clearance to market a
controlled-release nifedipine tablet as a generic alternative to
Procardia XL-registered trademark-.  Pfizer subsequently
commenced separate legal proceedings challenging Mylan's product
based on regulatory and patent issues.  Under applicable law,
Pfizer's suits may have the effect of delaying FDA clearance of
Mylan's ANDA.  However, it is not possible to predict the outcome
of such litigation, nor is it possible to predict the impact
Mylan's product, if cleared for marketing, may ultimately have on
sales of Procardia XL-registered trademark- and the resulting
royalties to ALZA.

     The growth in royalties, fees and other revenues in 1996
compared with 1995 was due to increased sales of Adalat CR-
registered trademark- (nifedipine) by Bayer AG, Catapres-TTS-
registered trademark-, Duragesic-registered trademark-, Glucotrol
XL-registered trademark-, and NicoDerm-registered trademark- CQ-
trademark- following its introduction in the third quarter of
1996.  In addition, despite lower sales of Procardia XL-
registered trademark- in 1996, royalties from this product
increased due to a higher effective royalty rate.  Reducing
royalties and fees in 1996 were lower royalties on sales of
Transderm-Nitro-registered trademark- (nitroglycerin) by Novartis
Pharmaceuticals Corporation.


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NET SALES AND COSTS OF PRODUCTS SHIPPED

Net Sales
(Dollars in millions)                  1997        1996      1995
_________________________________________________________________
ALZA-marketed products
 Ethyol-registered trademark-         $20.6      $9.4       -
 Mycelex-registered trademark- Troche  10.8       -         -
 Testoderm-registered trademark-        6.3       6.7       6.8
 Elmiron-registered trademark-          4.8       -         -
 Other                                 10.4       7.1       6.8
_________________________________________________________________
Total ALZA-marketed products           52.9      23.2      13.6
Contract manufacturing                 93.2      85.4      63.3
_________________________________________________________________
  Total net sales                    $146.1   $ 108.6  $   76.9
=================================================================
Percentage of total revenues           31%       27%       24%
ALZA-marketed products as a percentage
  of net sales                         36%       21%       18%

     Included in net sales are sales of products marketed
directly by ALZA and through distributors, and sales generated
from contract manufacturing activities for ALZA's client
companies.  In 1997, net sales increased 35% from 1996, primarily
due to a substantial increase in sales of ALZA-marketed products,
the rights to many of which were acquired by ALZA during 1997.
Sales of Ethyol-registered trademark- (amifostine), which was
launched in April 1996, contributed to the increase in sales of
ALZA-marketed products in 1997, together with sales of Mycelex-
registered trademark- Troche, the U.S. rights to which were
acquired in July 1997, and sales of Elmiron-registered trademark-,
the U.S. and Canadian rights to which were acquired in October
1997.  Net sales from contract manufacturing increased 9% in 1997
compared with 1996 primarily due to a 27% increase in ALZA
shipments of Nicoderm-registered trademark- and NicoDerm-
registered trademark- CQ-trademark-, and a 14% increase in ALZA
shipments of Duragesic-registered trademark-.

     Net sales increased 41% in 1996 compared to 1995, primarily
due to sales of Ethyol-registered trademark- beginning in April
1996, and increased sales from shipments to client companies of
launch quantities of NicoDerm-registered trademark- CQ-trademark-
and Covera-HS-trademark-.

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(Presented graphically in paper format annual report)
NET SALES
(In millions of dollars)
                        1997   1996    1995   1994    1993
_________________________________________________________________
ALZA-marketed products   53      23     14      11      7
Contract manufacturing   93      86     63      58     53
_________________________________________________________________

TOTAL NET SALES         146     109     77      69     60

     Net sales of ALZA-marketed products can be expected to vary
from quarter to quarter, particularly in the first years after
launch of a new product.  Rights to several of the ALZA-marketed
products were acquired by ALZA during 1997.  Both Ethyol-
registered trademark- and Elmiron-registered trademark- were
cleared for marketing during the past few years and have not yet
achieved their steady-state sales levels.  Wholesaler stocking
patterns, managed care and formulary acceptance, the introduction
of competitive products and acceptance by patients and physicians
will affect future sales of these products.

    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 of products shipped to client companies, and in
some quarters, due to the shipment of launch quantities of
products to the clients.

     Costs of products shipped increased 12% to $92.8 million in
1997 compared to 1996, and 27% to $82.8 million in 1996 compared
with 1995, reflecting the increase in net sales.

                                       1997      1996      1995
_________________________________________________________________
Gross margin as a
   percentage of net sales (1)         36%      24%       15%

(1) Gross margin is net sales less costs of products shipped

     The increase in ALZA's gross margin in 1997 compared to 1996
was due to increased sales of higher-margin ALZA-marketed
products and increased margins on products shipped 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, even significant ones, can be
expected to continue to occur for the reasons discussed above.  A
trend of higher gross margins may be achieved through a
proportionate increase in the sales of ALZA-marketed products in
relation to contract manufacturing activities, increased
utilization of capacity, and greater operating efficiencies.


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RESEARCH AND DEVELOPMENT

Research and Development Revenues
(Dollars in millions)                    1997      1996    1995
_________________________________________________________________
TDC                                   $  67.8   $ 102.0  $ 70.1
Crescendo                                29.7       -       -
Other clients                            37.5      31.3    33.9
_________________________________________________________________
  Total research and development
     revenues                         $ 135.0   $ 133.3 $ 104.0
=================================================================
Percentage of total revenues            29%       33%     32%
_________________________________________________________________

     The increase in research and development revenues in 1997
compared to 1996, and in 1996 compared with 1995, was due to
product development activities undertaken on behalf of client
companies, including TDC and Crescendo. In the third quarter of
1997, TDC ceased funding products under development. Crescendo
commenced operations in the third quarter of 1997, and began
funding certain of the products previously under development by
ALZA and TDC.  Research and development revenues from other
clients increased 20% in 1997 compared to 1996, reflecting an
increase in product development activities under ALZA's
agreements with these companies.  ALZA's research and development
revenues generally represent client reimbursement of costs,
including a portion of general and administrative expenses.
Therefore, product development activities do not contribute
significantly to operating results.

Research and Development Expenses
(Dollars in millions)                  1997        1996      1995
_________________________________________________________________
Research and development expenses   $ 155.4   $ 141.1   $ 103.4
As a percentage of total revenues       33%       35%      32%
_________________________________________________________________

     The increase in research and development expenses in 1997
compared to 1996 reflects the increased activity for client
companies, including TDC and Crescendo. Research and development
expenses increased in 1996 compared to 1995 as a result of
increased activity for TDC.

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(Presented graphically in paper format annual report)
INVESTMENT IN RESEARCH AND DEVELOPMENT
(In millions of dollars)
                        1997   1996    1995   1994    1993
_________________________________________________________________
Investment in Research
   and Development      155     141    103      76     53


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

(Dollars in millions)                  1997      1996      1995
_________________________________________________________________
Sales and marketing expenses          $28.8     $24.0    $ 17.1
General and administrative expenses    18.6      20.7      17.3
Amortization of product acquisition
 payments                               4.0       2.2       -
_________________________________________________________________
 Total selling, general and
   administrative expenses            $51.4     $46.9    $ 34.4
=================================================================
As a percentage of total revenues      11%      12%       11%
_________________________________________________________________

     Selling, general and administrative expenses increased 10%
in 1997 compared with 1996 as a result of increased sales and
marketing expenses, and amortization of product acquisition
payments primarily related to products acquired in 1997.  Higher
sales and marketing expenses in 1997 compared with 1996 resulted
from the expansion of ALZA's sales force and increased marketing
costs in support of Ethyol-registered trademark-, Mycelex-
registered trademark- Troche and Elmiron-registered trademark-.
General and administrative expenses declined 10% in 1997 compared
to 1996.  While corporate administrative costs increased 5% in
1997 compared with 1996, this increase was offset by an increase
in the cash surrender value of life insurance policies.

     Selling, general and administrative expenses increased 36%
in 1996 compared to 1995 due primarily to sales and marketing
expenses related to the launch of Ethyol-registered trademark-,
the amortization of the upfront payment to U.S. Bioscience, Inc.
("USB") for Ethyol-registered trademark-, and an increase in
overall general and administrative expenses in support of
increased corporate activities.


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NET INTEREST

(In millions)                          1997        1996      1995
_________________________________________________________________
Interest and other income           $  55.6   $  54.6   $  26.0
Interest expense                       55.0      43.0      23.9
_________________________________________________________________
  Net interest income               $   0.6   $  11.6   $   2.1

_________________________________________________________________

     Interest and other income increased 2% in 1997 compared to
1996, primarily due to higher average invested cash balances
during 1997 following ALZA's issuance of $500.0 million of
5% convertible subordinated debentures due 2006 (the
"5% Debentures") in April 1996. Partially offsetting the higher
interest income were lower realized gains on the sales of
investments in 1997 compared with 1996.

    The increase in interest and other income in 1996 compared to
1995 was primarily due to higher average invested cash balances
following the issuance of the 5% Debentures.  Also contributing
to the increase in interest and other income in 1996 were net
realized gains of $8.4 million on sales of investments in 1996,
compared with $1.0 million of such gains in 1995.

     Interest expense increased 28% in 1997 compared to 1996, as
the 5% Debentures were outstanding for all of 1997.  Also
contributing to the increase were lower amounts of capitalized
interest on construction projects and higher interest on the 5 1/4%
zero coupon convertible subordinated debentures due 2014 (the
"5 1/4% Debentures").

     The increase in interest expense in 1996 compared to 1995
reflects the interest expense on the 5% Debentures and higher
interest on the 5 1/4% Debentures.


EFFECTIVE TAX RATE
     In 1997, ALZA recorded income tax expense of $49.7 million
despite ALZA's pretax loss, as certain non-recurring charges
recognized in 1997 are generally not deductible for income tax
purposes.  Excluding nonrecurring items, ALZA's 1997 effective
income tax rate was 35% compared to 38% in 1996 and 1995.  The
rate declined in 1997 from prior years primarily due to increased
investment and research tax credits in 1997.


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NON-RECURRING ITEMS
     The table below summarizes the non-recurring charges and
credits by income statement classification, and the related tax
effects, for 1997, 1996 and 1995:

(In millions)                           1997      1996    1995
_________________________________________________________________
Royalties, fees and other revenues   $    -    $  10.5   $ (1.6)
Research and development revenues         -       (2.1)     -
Costs of products shipped                 -       (2.4)     -
Research and development expenses        (1.4)    (0.5)     -
Selling, general and administrative
 expenses                                (0.4)    (0.2)    (6.7)
Acquisitions of in-process research
 and development                       (108.5)     -        -
Contribution to Crescendo              (247.0)     -        -
Asset write-down                        (11.5)     -        -
Distribution to debenture holders        (8.0)     -        -
Interest and other income                 -       (1.7)     -
Income taxes                              8.1     (1.4)     3.2
_________________________________________________________________
 Total non-recurring items           $ (368.7) $   2.2   $ (5.1)
=================================================================

     The 1997 non-recurring items included acquisitions of in-
process research and development, which consisted of $77.0
million related to the purchase of the Class A Common Stock of
TDC, a $10.0 million charge in connection with a development and
option agreement for Cereport-trademark- between ALZA and
Alkermes, and $21.5 million related to a development and
commercialization agreement between ALZA and Janssen for an E-
TRANS-trademark- fentanyl product for the treatment of acute
pain.  ALZA recorded a charge of $247.0 million and interest
expense of $8.0 million related to ALZA's contribution to
Crescendo and distribution of shares to stockholders and
debenture holders, respectively.  Also included in 1997 non-
recurring items are a write-down of excess manufacturing
equipment of $11.5 million, and $1.8 million in costs related to
a workforce reduction ($1.4 million included in research and
development expenses, and $0.4 million included in selling,
general and administrative expenses).

     The 1996 non-recurring items included a $7.1 million benefit
from the reversal of a reserve related to Procardia XL-registered
trademark- royalties and a $6.4 million benefit from the
settlement of litigation related to patent disputes concerning
transdermal nicotine patches, partially offset by a $4.0 million
charge for the unamortized portion of a partnership acquisition
prepayment, a $1.9 million charge related to a limited recall of
two lots of Duragesic-registered trademark-, and other joint
venture, partnership and product reserves.

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     The 1995 non-recurring items included a benefit of $7.4
million resulting from the partial reversal of a reserve
established in connection with a patent dispute concerning
transdermal nicotine patches, offset by a reserve of $9.0 million
established to account for a potential reduction of the royalties
from Pfizer on sales of Procardia XL-registered trademark-, and a
charge of $6.7 million for a portion of the initial payment by
ALZA to USB under the marketing and distribution agreement for
Ethyol-registered trademark-.


LIQUIDITY AND CAPITAL RESOURCES

 (In millions)                         1997        1996      1995
_________________________________________________________________
Working capital                     $ 253.4   $ 494.8   $ 273.2
Cash and investments                  535.8     999.8     419.1
Total assets                        1,369.2   1,613.7     937.2
Long-term debt                        902.6     882.3     362.9
Net cash provided by
  operating activities (1)            171.3     123.3     115.6
Capital expenditures                   38.8      48.6      46.3
Product acquisition payments          140.1       -        13.3
_________________________________________________________________
 (1) Excludes nonrecurring items

     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-
registered trademark- Troche, made a $10.0 million payment to USB
related to Ethyol-registered trademark- and made an upfront
payment of $75.0 million to IVAX for the United States and
Canadian rights to Elmiron-registered trademark- and three
additional urology products.  ALZA also paid $10.0 million to
Alkermes under the agreement related to Cereport-trademark- and
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.


<PAGE>
<PAGE 23 OF PAPER FORMAT ANNUAL REPORT>

(Presented graphically in paper format annual report)
NET CASH PROVIDED BY OPERATING ACTIVITIES
(In millions of dollars)
                        1997   1996    1995   1994    1993
_________________________________________________________________
Net Cash Provided by
   Operating activities 171     123    116      74     94


     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 will be applied to the construction of
buildings on the parcel. ALZA is also obligated to make
improvements to the buildings, the total cost of which is
estimated to be between $60.0 million and $100.0 million.  The
joint venture will lease the buildings to ALZA upon completion of
construction, currently scheduled for 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 will receive
50% of the joint venture's income.

     ALZA has also entered into a ground lease agreement for an
adjacent seven-acre parcel of land on which it plans to construct
a pilot plant, laboratories and 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.

     ALZA's capital spending for 1997 was $38.8 million for
additions to property, plant and equipment to support its
expanding research, development and manufacturing activities,
compared to capital spending of $48.6 million in 1996 and $46.3
million in 1995.  While ALZA believes its current facilities and
equipment are sufficient to meet its current operating
requirements, ALZA is expanding its facilities and equipment to
support its medium-term and long-term requirements.  Capital
expenditures in 1998 are currently expected to increase over 1997
levels.

     ALZA believes that its existing cash and investment balances
are adequate to fund its cash needs for 1998 and beyond.  In
addition, should the need arise, ALZA believes it would be able
to borrow additional funds or otherwise raise additional capital.
ALZA may consider using its capital to make strategic investments
or to acquire or license technology or products.  ALZA may also
enter into strategic alliances with third parties that could
provide access to additional capital.


<PAGE>
<PAGE 23-24 OF PAPER FORMAT ANNUAL REPORT>

OUTLOOK

Notice Concerning Forward-Looking Statements
     The following is intended to provide an outlook for 1998 and
beyond.  To the extent any statements made in this Annual Report
to Stockholders, including this section, 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
ALZA's Annual Report on Form 10-K and discussed below.

ROYALTIES, FEES AND OTHER REVENUES
     ALZA expects royalties, fees and other revenues to continue
to increase in 1998 as a result of growth in sales of products
currently marketed by client companies and, to a lesser extent,
products which are awaiting approval by regulatory authorities
outside of the United States.  Sales of Procardia XL-registered
trademark-, and therefore ALZA's royalties from this product, are
expected to continue to decline in 1998.

     Royalties, fees and other revenues, which are derived
largely from sales by client companies of products developed
jointly with ALZA, vary from quarter to quarter as a result of
changing levels of product sales by client companies and,
occasionally, the receipt by ALZA of certain one-time fees.
Because ALZA's clients generally take responsibility for
obtaining necessary regulatory approvals and make all marketing
and commercialization decisions regarding such products, most of
the variables that affect ALZA's royalties, 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
one-time in nature and will vary year to year and quarter to
quarter.  Royalties and fees for 1998 are expected to include
$10.7 million in technology fees from Crescendo and may include
upfront fees from third parties in connection with arrangements
for the commercialization of Crescendo products.

<PAGE>
<PAGE 24 OF PAPER FORMAT ANNUAL REPORT>

     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, including products developed
with Crescendo.  However, there can be no assurance that ALZA
will be successful in undertaking 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 ALZA marketing, the difficulties and costs associated with
acquiring from third parties products for ALZA 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.

NET SALES
     Net sales of ALZA-marketed products are expected to
increase significantly in 1998, as the products acquired in
1997 contribute a full year of sales.  Wholesaler stocking
patterns, managed care and formulary acceptance, the
introduction of competitive products, and acceptance by
patients and physicians will affect future sales of these
products.  ALZA expects that 1998 contract manufacturing
revenues will remain approximately at 1997 levels.  Because
many factors affecting contract manufacturing activities are
not within ALZA's control, revenues will fluctuate from
period to period depending on the volume, mix and timing of
orders received from client companies.

     ALZA also expects that gross margins, as a percentage of net
sales, will continue to increase 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 the sales of ALZA-marketed products (as
compared with sales from contract manufacturing), increased
utilization of capacity and greater operating efficiencies.

RESEARCH AND DEVELOPMENT

Crescendo Pharmaceuticals Corporation
     ALZA expects that Crescendo will expend its available funds
over the next three to four years.  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.

<PAGE>
<PAGE 24-25 OF PAPER FORMAT ANNUAL REPORT>

Pharmaceutical Company Clients
     To maintain or increase 1997 product development
revenue levels, ALZA will need to enter into new
arrangements with client companies to replace revenues lost
when programs terminate or products are submitted for
regulatory clearance or cleared for marketing.  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, revenues from any particular
client program could decrease dramatically once the New Drug
Application 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.

ALZA Technology Institute
     In 1998, ALZA expects to continue its current level of
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 continue to
increase in 1998 primarily due to growth in marketing efforts
resulting from the acquisition of new products and the
introduction of products developed by ALZA.  The increase in the
size of ALZA's sales force in late 1997 will increase sales and
marketing expenses in 1998 compared with 1997. In December 1997,
ALZA received clearance from the FDA to market Testoderm-
registered trademark- TTS (testosterone transdermal system) CIII
for men with testosterone deficiency.  Sales and marketing
efforts will expand as Testoderm-registered trademark- TTS is
introduced in March 1998.  Sales and marketing expenses are also
expected to increase in anticipation of the launch of Ditropan-
registered trademark- XL-trademark-, which may occur in early
1999, and as ALZA increases its activities for recently acquired
products.  Selling, general and administrative expenses in 1998
will include amortization of product acquisition fees relating to
products acquired in prior years.

INTEREST AND OTHER INCOME
     Interest and other income is expected to be lower in 1998 as
a result of the significant reduction of cash and investment
balances in 1997.

INCOME TAX RATE
     ALZA currently expects its combined federal and state 1998
effective income tax rate to be approximately 35%.  The actual
effective income tax rate will depend upon the level of actual
earnings, changes in the tax laws, and the amount of investment
and research credits available and ALZA's ability to utilize such
credits.

<PAGE>
<PAGE 25 OF PAPER FORMAT ANNUAL REPORT>

YEAR 2000
     The majority of ALZA's significant operating and accounting
systems are year 2000 compliant.  The systems that are not
currently year 2000 compliant are in the process of being
upgraded or replaced. ALZA does not have a comprehensive program
for monitoring whether its suppliers' and vendors' systems are
year 2000 compliant.  However, for material new agreements, ALZA
requests assurances of year 2000 compliance.  ALZA does not
expect its financial condition or results of operations to be
materially adversely affected by its year 2000 issues.

ALZA TTS RESEARCH PARTNERS, LTD.
     ALZA developed the Duragesic-registered trademark- and
Testoderm-registered trademark- products on behalf of the ALZA
TTS Research Partners, Ltd. (the "TTS Partnership"), a limited
partnership from which ALZA licensed the products. The TTS
Partnership receives payments from ALZA equal to 4% of Janssen's
net sales of Duragesic-registered trademark- and 4% of ALZA's
sales of Testoderm-registered trademark-.

     ALZA's license from the TTS Partnership for Testoderm-
registered trademark- will become nonexclusive on July 26, 1998;
ALZA's license for Duragesic-registered trademark- will become
nonexclusive on December 4, 1998. Once ALZA's licenses become
nonexclusive, the TTS Partnership will need to determine whether
to grant nonexclusive licenses to third parties.  Under ALZA's
distribution agreement with Janssen for the Duragesic-registered
trademark- product, if ALZA's license from the TTS Partnership
becomes nonexclusive, if the TTS Partnership licenses the product
to a third party and if the third party introduces the product,
Janssen's royalty payable to ALZA will drop significantly;
however, ALZA will continue to owe the TTS Partnership 4% of
Janssen's net sales.

     ALZA has an option to purchase all of the interests in the
TTS Partnership for $120 million in cash less amounts paid by
ALZA to the TTS Partnership under its licenses prior to the date
the option is exercised.  As of December 31, 1997, ALZA had paid
the Partnership $27.3 million under these licenses.


<PAGE>
<PAGE 26 OF PAPER FORMAT ANNUAL REPORT>

ALZA Corporation

CONSOLIDATED STATEMENT OF OPERATIONS
Years ended December 31,
(In millions, except per share amounts)  1997      1996      1995
_________________________________________________________________
REVENUES
Royalties, fees and other           $ 183.3   $ 173.3   $ 143.7
Net sales                             146.1     108.6      76.9
Research and development, including
 amounts from TDC (1997-$67.8,
 1996-$100.7, 1995-$70.1) and
 Crescendo (1997-$29.7)               135.0     131.2     104.0
_________________________________________________________________
 Total revenues                       464.4     413.1     324.6

COSTS AND EXPENSES
Costs of products shipped              92.8      85.2      65.4
Research and development              156.8     141.6     103.4
Selling, general and administrative    51.8      47.1      41.1
Acquisitions of in-process
 research and development             108.5       -         -
Contribution to Crescendo             247.0       -         -
Asset write-down                       11.5       -         -
_________________________________________________________________
 Total costs and expenses             668.4     273.9     209.9
_________________________________________________________________
Operating income (loss)              (204.0)    139.2     114.7

Interest expense                       55.0      43.0      23.9
Distribution to debenture holders       8.0       -         -
Interest and other income             (55.6)    (52.9)    (26.0)
_________________________________________________________________
Net interest and other expense(income)  7.4      (9.9)     (2.1)
_________________________________________________________________
Income (loss) before income taxes    (211.4)    149.1     116.8

Provision for income taxes             49.7      56.7      44.4
_________________________________________________________________
Net income (loss)                   $(261.1)  $  92.4   $  72.4
=================================================================
Earnings (loss) per share
  Basic                             $  (3.07) $  1.10   $  0.88
=================================================================
  Diluted                           $  (3.07) $  1.08   $  0.88
=================================================================
See accompanying notes.

<PAGE>
<PAGE 27 OF PAPER FORMAT ANNUAL REPORT>

ALZA Corporation
CONSOLIDATED BALANCE SHEET
December 31,
(In millions, except per share amounts)         1997      1996
_________________________________________________________________
ASSETS
CURRENT ASSETS
Cash and cash equivalents                     $ 65.0    $187.7
Short-term investments                         109.2     199.3
Receivables, net of allowance for doubtful
 accounts(1997-$0.8; 1996-$0.6)                119.2     116.6
Inventories                                     37.8      39.2
Prepaid expenses and other current assets       26.8      19.2
_________________________________________________________________
   Total current assets                        358.0     562.0

PROPERTY, PLANT AND EQUIPMENT
Buildings and leasehold improvements           209.6     228.7
Equipment                                      145.0     144.2
Construction in progress                        22.9      18.1
Land and prepaid land leases                    24.3      17.1
_________________________________________________________________
                                               401.8     408.1
Less accumulated depreciation and amortization (91.4)   (100.3)
_________________________________________________________________
   Net property, plant and equipment           310.4     307.8

Investments in long-term securities            361.6     612.8
Deferred product acquisition payments          147.2      11.1
Other assets                                   192.0     120.0
_________________________________________________________________
   TOTAL ASSETS                              $1,369.2  $1,613.7
=================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable                             $  56.9   $  28.7
Accrued liabilities                             45.9      37.6
Current portion of long-term debt                1.8       0.9
_________________________________________________________________
   Total current liabilities                   104.6      67.2

5% convertible subordinated debentures         500.0     500.0
5 1/4% zero coupon convertible subordinated
 debentures                                    402.6     382.3
Other long-term liabilities                     60.8      67.5

Commitments and contingencies

<PAGE>
<PAGE 27 OF PAPER FORMAT ANNUAL REPORT>

STOCKHOLDERS' EQUITY
Common stock, $.01 par value,300.0 shares authorized;
 85.5 and 84.6 shares issued and outstanding at
 December 31, 1997 and 1996, respectively        0.9       0.8
Additional paid-in capital                     381.5     362.2
Unrealized losses on available-for-sale
 securities, net of tax effect                  (4.8)     (0.1)
Retained earnings (deficit)                    (76.4)    233.8
_________________________________________________________________
   Total stockholders' equity                  301.2     596.7
_________________________________________________________________

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,369.2  $1,613.7
=================================================================

See accompanying notes.

<PAGE>
<PAGE 28 OF PAPER FORMAT ANNUAL REPORT>

ALZA Corporation
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995

(In millions)
                                               GAINS
                                            (UNREALIZED
                                              LOSSES)      TOTAL
                                ADDITIONAL  ON AVAILABLE- RETAINED  STOCK-
                       COMMON    PAID-IN      FOR-SALE    EARNINGS  HOLDERS'
                       STOCK     CAPITAL     SECURITIES  (DEFICIT)  EQUITY
___________________________________________________________________________

Balance,
December 31, 1994    $    0.8   $ 302.2      $ (7.5)      $ 69.0  $ 364.5

Common stock issued       -         8.3          -           -        8.3
Unrealized gains on
 available-for-sale
 securities, net of
 tax effect               -         -            9.4         -        9.4
Net income                -         -            -          72.4     72.4
________________________________________________________________________

Balance, December 31, 1995        0.8          310.5         1.9    141.4
454.6

Common stock issued       -        51.7          -           -       51.7
Unrealized losses on
 available-for-sale secur-
 ities, net of tax effect -         -           (2.0)        -       (2.0)
Net income                -         -            -          92.4     92.4
__________________________________________________________________________

Balance,
   December 31, 1996      0.8     362.2         (0.1)      233.8    596.7

Common stock issued       0.1      19.3          -           -       19.4
Distribution of Crescendo
 Shares                   -         -            -         (49.1)   (49.1)
Unrealized losses on
 available-for-sale
 securities, net of
 tax effect               -         -           (4.7)        -       (4.7)
Net loss                  -         -            -        (261.1)  (261.1)
__________________________________________________________________________
Balance,
   December 31, 1997   $  0.9   $ 381.5       $ (4.8)    $ (76.4)  $301.2
========================================================================
See accompanying notes.

<PAGE>
<PAGE 29 OF PAPER FORMAT ANNUAL REPORT>

ALZA Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)

Years ended December 31,                 1997      1996      1995
_________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                      $(261.1)  $92.4      $72.4
Non-cash adjustments to reconcile net
 income (loss) to net cash provided by
 (used in) operating activities:
 Depreciation and amortization          29.3      19.8       15.3
 Amortization of product acquisition
  payments                               4.0       2.2        -
 Interest on 5 1/4% zero coupon
  convertible subordinated debentures   20.3      19.3       18.4
 Decrease (increase) in assets:
  Receivables                           (2.6)     (8.6)     (23.1)
  Inventories                            1.5      (4.7)      (1.1)
  Prepaid expenses and other current
   assets                               (4.4)     (1.2)       6.2
 Increase (decrease) in liabilities:
  Accounts payable                      28.1       8.7        -
  Accrued liabilities                    8.7        7.8      10.6
  Deferred revenue                      (0.4)     (17.2)      1.3
  Other long-term liabilities           (20.8)     4.8       11.4
 Asset write-down                       11.5         -         -
_________________________________________________________________
   Total adjustments                    75.2      30.9       39.0
_________________________________________________________________
Net cash provided by (used in)
  operating activities                 (185.9)    123.3     111.4

CASH FLOWS FROM INVESTING ACTIVITIES:
Product acquisition payments           (140.1)      -       (13.3)
Capital expenditures                    (38.8)    (48.6)    (46.3)
Investment in real estate joint venture (36.2)      -          -
Purchase of TDC deferred tax asset      (23.0)      -          -
Purchases of available-for-sale
 securities                             (370.8)(1,125.2)   (205.2)
Sales of available-for-sale securities  680.9     542.6     134.1
Maturities of available-for-sale
 securities                              23.3      98.1      12.0
Increase in cash surrender value-life
  insurance and prepaid premiums       (12.8)     (20.3)     (4.1)
Decrease (increase) in other assets     12.4       (9.6)      3.1
_________________________________________________________________
Net cash provided by (used in) investing
  activities                            94.9     (563.0)   (119.7)

CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of Crescendo Pharmaceuticals

<PAGE>
<PAGE 29 OF PAPER FORMAT ANNUAL REPORT>

  Corporation shares to ALZA
   stockholders                        (49.1)       -         -
Net proceeds from 5% convertible
  subordinated debentures                -        488.8       -
Issuances of common stock               19.4       51.7       8.3
Principal payments on long-term debt    (2.0)      (1.1)     (0.8)
_________________________________________________________________
  Net cash provided by (used in)
   financing activities                (31.7)     539.4       7.5
_________________________________________________________________

Net increase (decrease) in cash and
  cash equivalents                      (122.7)   99.7       (0.8)

Cash and cash equivalents at the
  beginning of year                      187.7    88.0       88.8
Cash and cash equivalents at the
_________________________________________________________________
  end of year                            $65.0  $187.7      $88.0
=================================================================
See accompanying notes.

<PAGE>
<PAGE 30 OF PAPER FORMAT ANNUAL REPORT>

ALZA Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

     ALZA Corporation is an emerging 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 is currently
focusing its sales and marketing efforts in urology and oncology.

Nature of Operations
     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 or similar
payments under such agreements.  Included in royalties, fees and
other revenues are revenues from ALZA's promotion and copromotion
of certain products, some of which are contingent on sales.
Royalties, fees and other revenues are recognized as earned.

     Net sales includes sales of products marketed directly by
ALZA and through distributors, and sales generated from contract
manufacturing activities for ALZA's client companies.  ALZA
recognizes sales revenues at the time of product shipment, net of
discounts, rebates and allowances.  Export sales, principally to
distributors and client companies in Europe, were $31.5 million,
$23.0 million and $20.1 million in 1997, 1996 and 1995,
respectively.

     Revenues from research and development activities with
client companies, including Crescendo, 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 results.  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 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

<PAGE>
<PAGE 30-31 OF PAPER FORMAT ANNUAL REPORT>

the financial condition or operations of any of the
pharmaceutical distributors 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.

     Pfizer accounted for 17% of ALZA's total revenues in 1997,
22% in 1996 and 26% in 1995.  TDC accounted for 15% of ALZA's
total revenues in 1997, 24% in 1996 and 22% in 1995. Janssen
accounted for 15% of ALZA's total revenues in 1997, 14% in 1996
and 13% in 1995. HMRI accounted for 10% of ALZA's total revenues
in 1997 and 11% in both 1996 and 1995.


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, 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.

Restatements
     In 1997, ALZA changed the presentation of its consolidated
statement of operations and consolidated balance sheet.  In the
consolidated statement of operations, royalties, fees and other
revenue now include items related to operations that were
previously reflected in interest and other income.  Interest
expense and income are now shown separately after operating
income (loss).  On the consolidated balance sheet, ALZA has
reclassified securities which have maturities of one year or more
as investments in long-term securities; these securities were
previously treated as current assets.  Prior year amounts have
been changed to conform with the current year presentation.

<PAGE>
<PAGE 31 OF PAPER FORMAT ANNUAL REPORT>

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 less than one
year.  The carrying amount reported on the balance sheet for
cash, cash equivalents and short-term investments approximates
their fair value.

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 consist of the following (in millions):
                                      1997           1996
_________________________________________________________________
Raw materials                       $  16.5            $17.7
Work in process                         8.5             18.0
Finished goods                         12.8             3.5
_________________________________________________________________
     Total inventories              $  37.8            $39.2
=================================================================

Property, Plant and Equipment
     Property, plant and equipment are stated at cost, including
interest capitalized of $0.7 million in 1997, $2.2 million in
1996 and $1.3 million in 1995.  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 (1 to 5 years)
Equipment                     3 to 9 years
Prepaid land leases           Remaining terms of the leases (17
                              to 60 years)

     Depreciation and amortization expense for property, plant
and equipment was $24.7 million, $17.8 million and $14.8 million
for 1997, 1996 and 1995, respectively.  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
are payments made in connection with facilities being constructed
or modified, and the installation of related equipment in Palo
Alto and Mountain View, California (primarily research and
development) and Vacaville, California (primarily commercial
manufacturing).

<PAGE>
<PAGE 31 OF PAPER FORMAT ANNUAL REPORT>

     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.  ALZA has not yet determined
the ultimate disposition of these assets.  The remaining $7.8
million of the write-down is related primarily to obsolete and
idle assets.

Deferred Product Acquisition Costs
     Initial payments and distribution fees for product
acquisitions that are capitalized are amortized over the
estimated life cycle of the products, which range from 10 to 20
years. Accumulated amortization of these costs was $6.2 million
and $2.2 million at December 31, 1997 and 1996, respectively.

Accrued Liabilities
Accrued liabilities are as follows(in millions):

                                      1997           1996
_________________________________________________________________
Accrued compensation                $  17.7            $15.4
Accrued income taxes                    9.7              7.3
Other accrued liabilities              18.5             14.9
_________________________________________________________________
     Total accrued liabilities      $  45.9            $37.6
=================================================================

Advertising Costs
     Advertising costs are accounted for as expenses in the
period in which they are incurred.  Advertising expense for 1997,
1996 and 1995 was $6.4 million, $4.4 million and $3.3 million,
respectively.

Supplemental Disclosures of Cash Flow Information (in millions)
Cash paid during the year for:
                                    1997     1996      1995
_________________________________________________________________
  Income taxes                    $ 59.5    $ 42.2    $ 37.0
  Interest, net of amount
    capitalized                     36.6      16.3       2.6


Noncash investing and financing activities:
                                    1997     1996      1995
_________________________________________________________________
Net unrealized gains (losses)
 on available-for-sale
 securities, net of tax effect     $ (4.7)  $ (2.0)   $  9.4

<PAGE>
<PAGE 31-32 OF PAPER FORMAT ANNUAL REPORT>

Deferred issuance costs for
 5% Debentures                        -       11.2       -
Investment in low-income housing
 in exchange for long term debt      17.1     11.9       -

Recently Issued Accounting Pronouncements

     In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" ("SFAS 130") and SFAS No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise
and Related Information".  SFAS 130 establishes standards for
reporting comprehensive income and is effective in 1998.  SFAS
131 establishes standards for annual and interim disclosures of
operating segments, products and services, geographic areas and
major customers, and is also effective in 1998.  ALZA is in the
process of evaluating the disclosure requirements of the new
standards, the adoption of which will have no impact on ALZA's
results of operations or financial condition.

Note 2. Investments

     ALZA has classified its entire investment portfolio,
including cash equivalents of $64.1 million and $185.2 million at
December 31, 1997 and 1996, respectively, as available-for-sale.
Investments in the available-for-sale category are generally
carried at fair value with unrealized gains and losses recorded
as a separate component of stockholders' equity.  At December 31,
1997, net unrealized losses on available-for-sale securities were
$4.8 million, net of $3.4 million tax effect.  At December 31,
1996, net unrealized losses on available-for-sale securities were
$0.1 million, net of $0.1 million tax effect. The cost of
securities when sold is based upon specific identification.
Realized gains and losses for the year ended December 31, 1997
were $7.6 million and $1.5 million, respectively.  Realized gains
and losses for the year ended December 31, 1996 were $9.1 million
and $0.7 million, respectively.

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

<PAGE>
<PAGE 32 OF PAPER FORMAT ANNUAL REPORT>

                                 December 31, 1997
__________________________________________________________________
                                                     Estimated
                     Amortized Unrealized Unrealized    Fair
                        Cost     Gains      Losses     Value
__________________________________________________________________
U.S. Treasury securities
 and obligations of

U.S. government
 agencies             $ 143.2   $    0.4   $  (0.3)   $ 143.3

Collateralized mortgage
 obligations and asset
 backed securities       70.9        0.3      (0.2)      71.0

Corporate securities
 (primarily corporate
 notes and commercial
 paper)                 329.1        2.0     (10.4)     320.7
__________________________________________________________________
 Total                $ 543.2   $    2.7   $ (10.9)   $ 535.0
=================================================================

                                 December 31, 1996
_________________________________________________________________
                                                     Estimated
                     Amortized Unrealized Unrealized    Fair
                        Cost     Gains      Losses      Value
__________________________________________________________________
U.S. Treasury securities
 and obligations of
 U.S. government
 agencies             $ 434.1   $    1.0   $  (1.8)   $ 433.3

Collateralized mortgage
 obligations and asset
 backed securities      112.8        0.3      (0.4)     112.7

Corporate securities
 (primarily corporate
 notes and commercial
 paper)                 450.6        1.9      (1.2)     451.3
__________________________________________________________________
 Total                $ 997.5   $    3.2   $  (3.4)   $ 997.3
=================================================================

     The amortized cost and estimated fair value of debt
securities at December 31, 1997 and 1996, by contractual
maturity, are shown below (in millions). 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.

<PAGE>
<PAGE 32-33 OF PAPER FORMAT ANNUAL REPORT>

December 31,                      1997                1996
_________________________________________________________________
                                     Estimated          Estimated
                          Amortized    Fair   Amortized    Fair
                            Cost      Value     Cost      Value
_________________________________________________________________

Due in one year or less    $173.5    $173.4   $ 384.5    $ 384.5
Due after one year
  through four years        235.1     235.6     428.1      427.8
Due after four years
  through eight years       134.6     126.0     184.9      185.0
_________________________________________________________________
     Total                 $543.2     $535.0  $ 997.5    $ 997.3
=================================================================

     In early 1997, ALZA purchased approximately 1.2 million
common shares of USB (4.9% of the outstanding common shares) at a
price of $18.256 per share, for an aggregate investment of $21.5
million.  Transfer of these shares by ALZA is restricted and they
are therefore recorded at cost.

     In early 1997, ALZA purchased 2.0 million common shares of
Alkermes (9.7% of the outstanding common shares) at a price of
$25.0 per share, for an aggregate investment of $50.0 million.
This stock is not restricted and is therefore classified as
available-for-sale.

NOTE 3. PER SHARE INFORMATION

     In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share" ("SFAS 128"), which was
adopted for the year ended December 31, 1997, with restatement of
all prior periods.  Under SFAS 128, 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.

     The following table sets forth the computation of ALZA's
basic and diluted earnings (loss) per share (in millions, except
per share amounts):
                                    1997     1996      1995
_________________________________________________________________
NUMERATOR:
Basic
  Net income (loss)               $(261.1)  $ 92.4    $ 72.4
=================================================================
Diluted

<PAGE>
<PAGE 33 OF PAPER FORMAT ANNUAL REPORT>

  Net income (loss)               $(261.1)  $ 92.4    $ 72.4
  Interest on 5 1/4% Debentures,
    net of tax                       -        12.2       -
_________________________________________________________________
  Adjusted net income (loss)      $(261.1)  $104.6    $ 72.4
=================================================================

DENOMINATOR:
Basic
  Weighted average shares           85.1      84.2      82.3
=================================================================
Diluted
  Weighted average shares           85.1      84.2      82.3
  Effect of dilutive securities:
   Employee stock options            -         0.7       0.3
   5 1/4% Debentures                 -        12.3       -
_________________________________________________________________
  Weighted average shares and
    assumed conversions             85.1      97.2      82.6
=================================================================
Basic earnings (loss) per share   $ (3.07)  $ 1.10    $ 0.88
=================================================================
Diluted earnings (loss) per share $ (3.07)  $ 1.08    $ 0.88
=================================================================

     The potentially dilutive effect of outstanding options to
purchase 6.1 million shares of ALZA's common stock and the
5 1/4% Debentures would have been anti-dilutive in 1997 and were
therefore excluded from the 1997 diluted calculation.  The
5% Debentures were not included in the diluted earnings per share
calculation for the periods presented as their inclusion would
have been anti-dilutive.


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 for Ethyol-registered trademark-.  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, and is responsible for sales and marketing; the USB
sales force copromotes the product with ALZA. After the five-year
period, which ALZA has an option to extend for one year,
marketing rights to Ethyol-registered trademark- will revert to
USB, and ALZA will receive payments from USB for ten years based
on continued sales of the product.  ALZA paid USB
<PAGE>
<PAGE 33-34 OF PAPER FORMAT ANNUAL REPORT>

an upfront payment and initial distribution fees totaling $20.0
million in 1995 and 1996.  Of this amount, approximately $13.3
million was capitalized and approximately $6.7 million, which was
attributable to potential expanded product indications, 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-registered trademark-, and
paid an additional $5.0 million in early 1998.

   In July 1997, ALZA acquired exclusive rights to Mycelex-
registered trademark- Troche in the United States from Bayer.
Under the terms of the agreement with Bayer, ALZA made a
$50.0 million upfront payment to Bayer, which was capitalized,
and will make an additional payment if net sales of the product
during a certain period are above a specified level.  Bayer
manufactures Mycelex-registered trademark- Troche for ALZA, and
receives payments from ALZA based on sales of the product.

    In October 1997, ALZA acquired the exclusive rights in the
United States and Canada to Elmiron-registered trademark- and
three additional urology products, BiCitra-registered trademark-,
PolyCitra-registered trademark- and Neutra-Phos-registered
trademark-, from Baker Norton Pharmaceuticals, Inc. and its
parent, IVAX.  Under the terms of the agreement, ALZA paid a
$75.0 million upfront fee to IVAX, which was capitalized, and
will pay additional fees if specified Elmiron-registered
trademark- sales levels are achieved during the next five years.
IVAX manufactures the products for ALZA and receives payments
from ALZA based on sales of the products.

    In October 1997, ALZA acquired the rights in the United
States to the immediate-release Ditropan-registered trademark-
product and trademark from HMRI.  Under the terms of the
agreement, ALZA made an upfront payment to HMRI, which was
capitalized, and will make additional payments if specified sales
levels of Ditropan-registered trademark- are achieved.  HMRI
manufactures the product for ALZA for a price based upon net
sales.  ALZA has the right to market other products in the United
States under the Ditropan-registered trademark- trademark.  HMRI
will receive royalty payments from ALZA if the trademark is used
by ALZA with other products.

Development and Option Agreements
   In September 1997, ALZA entered into a clinical development
and option agreement with Alkermes relating to Cereport-trademark-
, a compound for facilitating chemotherapy drug delivery 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.  Alkermes will conduct additional
clinical activities related to Cereport-trademark-, and ALZA has
the option to acquire exclusive worldwide commercialization
rights to the product.

<PAGE>
<PAGE 34 OF PAPER FORMAT ANNUAL REPORT>

   ALZA entered into two agreements with Janssen, effective
December 31, 1997, related to two E-TRANS-trademark- fentanyl
products. Under a development and commercialization agreement,
ALZA and Janssen modified the agreement pursuant to which they
were jointly developing an E-TRANS-trademark- fentanyl product
for the treatment of acute pain.  In connection with this
modified agreement, ALZA made a one-time payment of $21.5 million
to Janssen, which was charged to acquisition of in-process
research and development.  ALZA will receive a share of the U.S.
operating profits from the product and royalties from sales of
the product outside the United States.  The product is currently
in Phase III clinical trials. Under the second agreement, ALZA
will continue the development of an E-TRANS-trademark- fentanyl
product for the treatment of chronic pain.  Janssen will have an
option, until a specified time, to take over funding of the
continued development of the product and to commercialize the
product worldwide.  If Janssen exercises its option, ALZA will
receive a share of the U.S. operating profits from the product
and royalties from sales of the product outside the United
States.  If Janssen does not exercise its option, ALZA may
continue the development of this product, which is currently
under development with Crescendo.


NOTE 5: DEBT OBLIGATIONS AND OTHER LONG-TERM LIABILITIES

     In 1996, ALZA issued $500 million of 5% convertible
subordinated debentures due 2006 (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.
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 $10.0 million at December 31, 1997 and were included in
other assets.  At December 31, 1997 and 1996, the fair value of
the 5% Debentures was $526.9 million and $490.0 million,
respectively.

     In 1994, ALZA issued 5 1/4% zero coupon convertible
subordinated debentures due 2014 (the "5 1/4% Debentures").  The 5 1/4%
Debentures were issued at a price of $354.71 per $1,000 principal
amount at maturity. The 5 1/4% Debentures have a principal amount at
maturity of $948.8 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, 1999, 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,

<PAGE>
<PAGE 34-35 OF PAPER FORMAT ANNUAL REPORT>

at its option, may 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 $7.5 million
at December 31, 1997.  At December 31, 1997 and 1996, the fair
value of the 5 1/4% Debentures was $441.2 million and $397.3
million, respectively.

Other Long-term Liabilities
ALZA's other long-term liabilities are as follows(in millions):
                                      1997           1996
_________________________________________________________________
Deferred compensation               $  35.8            $31.2
Deferred income taxes                   -               25.4
Long-term debt                         25.0             10.9
_________________________________________________________________
   Total other long-term liabilities  $60.8            $67.5
=================================================================

     ALZA has deferred compensation arrangements under which
selected employees may defer a portion of their salaries.  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.  The cash surrender value of these policies totaled
$71.2 million and $58.4 million at December 31, 1997 and 1996,
respectively, and is included in other assets.

     At December 31, 1997 and 1996, long-term debt consists of
notes representing the required future payments under investments
of $32.1 million and $11.9 million, respectively, in low income
housing partnerships (included in other assets).  The aggregate
annual maturities of long-term debt at December 31, 1997 were
$1.8 million in 1998, $5.6 million in 1999, $3.7 million in 2000,
$3.6 million in 2001 and $3.4 million in 2002.

<PAGE>
<PAGE 35 OF PAPER FORMAT ANNUAL REPORT>

NOTE 6:  CAPITAL STOCK AND WARRANTS

     In January 1996, privately held warrants to purchase 1.0
million shares of ALZA common stock were exercised.  Net proceeds
to ALZA totaled $25.0 million.

     In connection with the formation of TDC, ALZA issued
warrants to purchase approximately 1.0 million shares of common
stock at an exercise price of $65 per share.  The warrants, to
the extent not exercised, will expire on December 31, 1999.

     ALZA is authorized to issue 100,000 shares of preferred
stock, $.01 par value, none of which was outstanding at December
31, 1997 or 1996. The Board of Directors may determine the
rights, preferences and privileges of any preferred stock issued
in the future.


NOTE 7:  ARRANGEMENTS WITH THERAPEUTIC DISCOVERY CORPORATION AND
CRESCENDO PHARMACEUTICALS CORPORATION

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 acquisitions 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, 1996 and
1995 under this development contract were $67.8 million, $100.7
million and $70.1 million, respectively.  ALZA performed certain
administrative services for TDC under an administrative services
agreement for which ALZA was reimbursed its direct costs, plus
certain overhead expenses.  For the years ended 1997, 1996 and
1995, administrative service revenue under this agreement was
$0.4 million, $0.2 million and $0.1 million, respectively, and is
included in royalties, fees and other revenues.

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

<PAGE>
<PAGE 35-36 OF PAPER FORMAT ANNUAL REPORT>

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.

    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.

     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 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 $4.0 million for 1997.  Five of the seven initial
products were in development at January 31, 1998.

     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.  Also, 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.

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, if any, is determined by ALZA's Board
of Directors, at its discretion, based on ALZA's performance
during the year. Bonus and
<PAGE>
<PAGE 36-37 OF PAPER FORMAT ANNUAL REPORT>

award expenses under this program for 1997, 1996 and 1995 were
$7.9 million, $6.9 million and $5.3 million, respectively.

Defined Contribution Plan
     ALZA has a company-funded, defined contribution retirement
plan for 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 1997, 1996 and 1995, the total expense for such
contributions to this plan was $3.6 million, $2.9 million and
$2.7 million, respectively.

Employee Savings Plan
     ALZA has an employee savings plan which permits participants
to make contributions by salary reductions pursuant to section
401(k) of the Internal Revenue Code.  The Company matches
contributions up to a specified amount per participant.  In 1997
and 1996, ALZA's contributions to the plan were $1.1 million and
$0.7 million.  There were no matching contributions in 1995.

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.  A total of
8.9 million shares of ALZA's common stock have been reserved for
issuance under its stock plan.  To date, all options granted have
had exercise prices equal to the fair market value of common
stock on the date of grant.  In 1997, a total of 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.  ALZA has the right
to repurchase a declining portion of the shares, at par value, if
the employee's employment with ALZA terminates within three years
of the date of issuance.

     Financial Accounting Standards Board SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), effective
beginning in 1996, 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"). The Company has elected to
continue to follow APB 25 in accounting for its employee stock
options and employee stock purchase plan.

<PAGE>
<PAGE 37 OF PAPER FORMAT ANNUAL REPORT>

     Had compensation expense for stock options and shares issued
under the stock purchase plan been determined using the fair
value method in accordance with 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)                          1997       1996      1995
_________________________________________________________________
Net income (loss)
 As reported                        $(261.1)    $92.4    $72.4
 Pro forma                           (270.4)     85.8     70.0
Earnings (loss) per share (basic)
 As reported                         $(3.07)    $1.10    $0.88
 Pro forma                            (3.18)     1.02     0.85
Earnings (loss) per share (diluted)
 As reported                         $(3.07)    $1.08    $0.88
 Pro forma                            (3.18)     1.01     0.85

     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:

                              1997      1996    1995
_________________________________________________________________
Risk-free interest rate       6.4%      6.0%     6.1%
Expected dividend yield         0         0        0
Expected volatility            30%       30%      30%
Expected life (in years)      4.0       3.6      3.9

     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 plan.

     A summary of ALZA's stock option activity, and related
information for 1997, 1996 and 1995 follows:

<PAGE>
<PAGE 37 OF PAPER FORMAT ANNUAL REPORT>

                     1997                1996               1995
____________________________________________________________________________
                         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           5.5     $24       5.7     $  23        4.4      $ 21
Granted            1.6      29       0.9        27        1.8        23
Exercised         (0.6)     21      (0.9)       20       (0.3)       14
Forfeited         (0.4)     26      (0.2)       25       (0.2)       21
____________________________________________________________________________
Outstanding-
   end of year     6.1      25       5.5        24        5.7        23

Exercisable-
   end of year     2.7      24       2.2        23        1.8        23

Weighted-average fair
 value of options
 granted               $9.93             $8.13               $7.75

At December 31, 1997 and 1996, shares available for grant under
the stock plan were 2.7 million and 4.0 million, respectively.


                         OPTIONS OUTSTANDING
_________________________________________________________________
                 Number     Weighted-Average
Range of      Outstanding      Remaining   Weighted-Average
Exercise      at 12/31/97   Contractual life    Exercise
Prices       (in millions)     (in years)        Price
_________________________________________________________________
$12.00-21.75       1.7            5.79           $19.94
 22.00-24.75       1.5            7.39            24.11
 24.88-29.06       2.4            8.60            27.51
 29.63-49.25       0.5            6.16            34.37
_________________________________________________________________
                   6.1

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                          OPTIONS EXERCISABLE
_____________________________________________________________
                 Number
Range of      Exercisable                   Weighted-Average
Exercise      at 12/31/97                       Exercise
Prices        (in millions)                      Price
_________________________________________________________________
$12.00-21.75       1.4                           $19.83
 22.00-24.75       0.5                            24.33
 24.88-29.06       0.5                            25.75
 29.63-49.25       0.3                            36.55
_________________________________________________________________
                   2.7

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
1997, 1996 and 1995 total shares of ALZA common stock purchased
by the participants under the terms of this plan were 260,130,
237,950 and 165,314, respectively.  Since adoption of this plan
in 1984, 1,665,528 shares have been issued under this plan and
384,472 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 1997, 1996 and 1995:  risk free interest rates of
5.4%, 5.3% and 4.8%, respectively; dividend yields of zero; an
expected volatility factor of the market price of ALZA's common
stock of 30%; and an expected life of six months.  The weighted-
average fair value for shares issued under the employee stock
purchase plan for 1997, 1996 and 1995 was $6.52, $6.00 and $5.62,
respectively.

NOTE 9:  INCOME TAXES

The provision for income taxes is as follows (in millions):
                                  1997        1996        1995
_________________________________________________________________
Federal
 Current                          $ 46.9         $47.9     $30.1
 Deferred                          (12.9)       (2.4)      5.6
_________________________________________________________________
                                    34.0          45.5      35.7
State
 Current                            16.5          11.2      6.4
 Deferred                           (0.8)        -         2.3
_________________________________________________________________
                                    15.7          11.2      8.7
_________________________________________________________________
Provision for income taxes        $ 49.7         $56.7     $44.4
===================================================================

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<PAGE 38 OF PAPER FORMAT ANNUAL REPORT>

  Tax benefits associated with employee stock option transactions
reduced accrued income taxes by $2.3 million, $3.3 million and $1.0
million for 1997, 1996 and 1995, 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):
                                    1997       1996      1995
_________________________________________________________________
Expected federal tax at 35%      $ (73.0)      $52.2     $40.9
 State income taxes, net of
 federal benefit                    10.2         7.3       5.7
Investment and research
 tax credits                        (5.2)       (2.3)     (1.3)
Purchased in-process research and
 development                       113.4         -         -
Other                                4.3        (0.5)     (0.9)
_________________________________________________________________
Provision for income taxes       $  49.7      $ 56.7     $44.4
===================================================================

Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities at December 31, 1997 and 1996
are as follows (in millions):
                                          1997       1996
_________________________________________________________________
Deferred tax assets:
  Capitalized intangibles               $  35.9      $ 6.1
  Compensation                             16.1       14.5
  State income taxes                        7.4        4.8
  Investments                               5.7        1.0
  Inventories                               5.6        5.7
  Bad debt                                  3.0        2.3
  Deferred revenue                          0.1        0.1
  Other                                     1.6        -
_________________________________________________________________
     Total deferred tax assets             75.4       34.5
_________________________________________________________________
Deferred tax liabilities:
  Property, plant and equipment            43.1       39.8
  Unrealized losses on
     available-for-sale securities         (3.4)      (0.1)
  Other                                     3.9        2.5
_________________________________________________________________
     Total deferred tax liabilities        43.6       42.2
_________________________________________________________________
Net deferred tax assets (liabilities)   $  31.8      $(7.7)
===================================================================

<PAGE>
<PAGE 38-39 OF PAPER FORMAT ANNUAL REPORT>

NOTE 10:  COMMITMENTS AND CONTINGENCIES

Commitments
     ALZA leases certain buildings and equipment under operating
leases, the terms of which range from one to 33 years.  Rent
expense under these leases for 1997, 1996 and 1995 was $4.0
million, $3.7 million and $1.7 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.  ALZA invested $36.2 million in the
joint venture, which will be applied to the construction of
buildings on the parcel. ALZA is also obligated to make
improvements to the buildings, the total cost of which is
estimated to be between $60.0 million and $100.0 million.  The
joint venture will lease the buildings to ALZA upon completion of
construction, currently scheduled for 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 will receive
50% of the joint venture's income.

     ALZA has also entered into a ground lease agreement for an
adjacent seven-acre parcel of land on which it plans to construct
a pilot plant, laboratories and 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.

     Aggregate minimum lease commitments under all non-cancelable
operating lease arrangements as of December 31, 1997 were (in
millions):

          1998              $3.9
          1999               9.2
          2000              10.4
          2001              10.2
          2002              10.4
          Later years      162.1
_________________________________________________________________
          Total           $206.2

     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, the majority of 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.


<PAGE>
<PAGE 39 OF PAPER FORMAT ANNUAL REPORT>

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-registered
trademark- 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: QUARTERLY FINANCIAL DATA (UNAUDITED)
(In millions, except per share amounts)
                            1997
_________________________________________________________________
                         First     Second    Third(1)  Fourth(2)
_________________________________________________________________
Total revenues         $ 105.5   $ 118.2     $ 114.5   $ 126.2

Gross margin               7.8      13.3        14.5      17.7

Operating income (loss)   39.2      42.9      (305.9)     19.8

Net income (loss)         26.3      26.4      (326.5)     12.7

Earnings (loss) per share
   Basic                 $0.31     $0.31      $(3.83)    $0.15
   Diluted                0.30      0.30       (3.83)     0.15

                            1996
_________________________________________________________________
                         First     Second    Third     Fourth
_________________________________________________________________
Total revenues           $88.5    $117.9       $98.4    $108.3

Gross margin               4.7       4.0         8.0       6.6

Operating income (loss)   31.0      38.1        33.7      36.4

Net income (loss)         20.4      23.2        23.1      25.7

Earnings (loss) per share
   Basic                $ 0.24    $ 0.27      $ 0.27    $ 0.30
   Diluted                0.24      0.27        0.27      0.30

<PAGE>
<PAGE 39-40 OF PAPER FORMAT ANNUAL REPORT>

(1)In the third quarter of 1997, ALZA recorded nonrecurring
   charges totaling $353.5 million, or $4.14 per share, diluted.
   These charges included a $247.0 million charge and $8.0
   million of interest expense related to the distribution of
   Crescendo Shares, $87.0 million for acquired in-process
   research and development and an asset write-down of $11.5
   million.

(2)In the fourth quarter of 1997, ALZA recorded charges of $21.5
   million for acquired in-process research and development and
   $1.8 million in costs related to a workforce reduction.  Net
   of income taxes, these charges totaled $15.2 million, or
   $0.17 per share, diluted.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND STOCKHOLDERS
ALZA CORPORATION


We have audited the accompanying consolidated balance sheet of ALZA
Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December
31, 1997. 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 generally accepted
auditing standards.  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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

                                                  Ernst & Young LLP
Palo Alto, California
February 13, 1998

<PAGE>
<PAGE 41 OF PAPER FORMAT ANNUAL REPORT>

SELECTED CONSOLIDATED FINANCIAL DATA
(In millions, except per share amounts)
                       1997      1996    1995     1994    1993
__________________________________________________________________
Total revenues      $ 464.4    $413.1  $324.6  $ 261.2  $ 214.6

Net income (loss)    (261.1)(1)  92.4    72.4     58.1     45.6(2)

Earnings (loss)
 per share, diluted   (3.07)    1.08     0.88      0.7(1)  0.57

Cash and investments  535.8     999.8   419.1    344.9    257.5(4)

Total assets        1,369.2   1,613.7   937.2    806.3    621.8(4)

Convertible debentures902.6     882.3   362.9    344.6       -(5)

Total stockholders'
 equity               301.2     596.7   454.6    364.5    306.7(4)
__________________________________________________________________


                       1992      1991    1990     1989    1988
_________________________________________________________________
Total revenues      $ 230.1    $141.0  $100.2  $  82.7  $  74.4

Net income (loss)      72.2     (62.1)(3)24.7     18.8     17.0

Earnings (loss)
 per share, diluted   0.90      (0.88)   0.35     0.27     0.25

Cash and investments  338.5     296.6   302.4    109.0    121.1

Total assets          698.4     580.5   530.9    288.4    261.6

Convertible debentures229.0     213.2   273.2     75.0     75.0

Total stockholders'
 equity               407.5     322.9   219.6    186.6    159.8
_________________________________________________________________
1   Reflects a total of $368.7 million (or $4.30 per share,
   diluted) of non-recurring charges, including a $247.0 million
   charge 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

<PAGE>
<PAGE 41 OF PAPER FORMAT ANNUAL REPORT>

   costs of $1.8 million related to a workforce reduction, less
   a tax benefit of $8.1 million.

2   Includes pre-tax charges and allowances of $28.1 million
   ($0.23 per share, diluted) related primarily to manufacturing
   activities.  Also includes $6.6 million ($0.08 per share,
   diluted) in one-time benefits resulting from the adoption of
   SFAS No. 109, "Accounting for Income Taxes", and a $3.8
   million ($0.05 per share, diluted) extraordinary charge
   relating to the redemption of ALZA's 7 1/2% zero coupon
   convertible subordinated debentures.

3   Includes the effects of a one-time charge of $101.3 million
   ($1.38 per share, diluted) related to the purchase of in-
   process technology.

4   Includes the effect of the $250.0 million contribution to
   Therapeutic Discovery Corporation and the related special
   dividend of shares of Therapeutic Discovery Corporation to
   ALZA stockholders.

5   Approximately $249.5 million of commercial paper (including
   accrued interest) was outstanding.

ALZA COMMON STOCK (UNAUDITED)
     ALZA common stock (symbol AZA) is listed for trading on the
New York Stock Exchange and, as of December 31, 1997, there were
8,242 holders of record.  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 1997
and 1996, as reported on the composite tape are shown below:



                               ALZA COMMON STOCK
_________________________________________________________________
                             1997                    1996
_________________________________________________________________
                    High          Low           High         Low

  First quarter    $31 3/8     $24 7/8        $34 7/8      $24 3/8

  Second quarter    31 3/8      25 1/2         32 1/2       26 3/8

  Third quarter     32 1/2      28 1/16        27 3/4       24

  Fourth quarter    31 13/16    24 7/8         29           25 1/8