ALZA and Bio-electro Systems (A): Technological and Financial Innovation

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Case

Reference no. 9-293-124

Subject category: Finance, Accounting and Control

Authors: Josh Lerner (Harvard Business School); Peter Tufano (Harvard Business School)

Published by: Harvard Business Publishing

Originally published in: 1993

Version: 10 October 1995

Length: 29 pages

Data source: Field research

Topics: Financial strategy; R&D; Valuation; Subsidiaries

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Abstract

To develop the next generation of risky products, ALZA, a mature and profitable biotechnology firm specializing in drug delivery systems, must raise $40 million. Organizational constraints and competitive concerns demand that the work be done inside the firm. However, accounting considerations and concerns about shareholders' reactions to the introduction of new risks to the firm lead the CEO to consider off-balance-sheet means to finance the new venture. To finance the new venture, the firm creates a new financing vehicle, a unit consisting of callable common stock plus warrants. This case examines the CEO's decision leading up to the issue of the units and the establishment of a new research and development subsidiary.

Location:

California

Size:

645 employees, USD84 million revenues

Other setting(s):

1988