CEPH Cephalon (MM)

Cephalon Inc. (CEPH) delivered second quarter earnings of $1.62 per share, missing the Zacks Consensus Estimate of $2.08 by a huge margin. Earnings fell 21% from the year-ago period. Second quarter revenues, which increased 1.6% to $738.3 million, were way below the Zacks Consensus Estimate of $765 million.

The Quarter in Detail

Second quarter revenues consisted of $730.1 million in product sales (up 2.5%) and $8.2 million in other revenues. Central nervous system (CNS) franchise sales, which came in at $332.3 million, declined 5%.

While Provigil sales declined 12% to $251.1 million, Nuvigil sales increased 43% to $58.6 million. Provigil unit sales declined partly due to the transition of Cephalon’s marketing support from Provigil to Nuvigil.

Cephalon continues to focus on shift-work disorder, a market segment that offers significant opportunity for growth. Cephalon released positive shift work disorder data that showed that patients treated with Nuvigil experienced a statistically significant difference in improvement in overall clinical condition related to late-shift sleepiness compared to placebo.

The positive data should help Cephalon in its efforts to promote Nuvigil in the shift-work disorder segment. Cephalon is also looking to drive Nuvigil sales by gaining approval for additional indications like bipolar depression.

The oncology franchise posted sales of $158.8 million (up 22%). Oncology drug Treanda continued to perform well, with sales coming in at $125.8 million, up 26%. Treanda benefited from a price increase in Feb. 2011. Growing acceptance among hematologists should boost sales further. Moreover, expansion into the first-line treatment of indolent non-Hodgkin's lymphoma should help boost long-term growth of the product.

Second quarter pain franchise sales increased 4% to $140.6 million. The introduction of Fentora into several European territories, increases in generic pain sales in Europe and US price increases helped drive growth in the pain franchise. Amrix sales declined significantly following the loss of exclusivity in the US in May 2011.

Teva to Acquire Cephalon

Cephalon is currently working with authorities in the US and EU for the completion of the transaction with Teva Pharmaceutical Industries Ltd. (TEVA). On May 2, 2011, Teva Pharmaceutical Industries Ltd. had announced that it has entered into a definitive agreement for the acquisition of Cephalon for $81.50 per share in cash or $6.8 billion. The acquisition is scheduled to close in October 2011.

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