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Cephalon-Cima Merger Gets OK

Updated from 3:10 p.m. EDT

The Federal Trade Commission has alleviated the long-running angst of arbitragers and Internet chat-room investors by finally giving the OK to the merger of Cephalon (CEPH) and Cima Labs (Cima).

The agency endorsed the deal late Monday, and the 12-month-long saga apparently will be concluded in a few days.

The merger had achieved near-soap opera status. Here's a summary: Cima was approached with a stock swap offer from aaiPharma (AAII) in early August 2003. Cima agreed, then Cephalon came along with a cash bid of $26 a share that was slightly better than aaiPharma's offer. But Cima rejected that last September.

In October, a mystery bidder entered the fray with a slightly higher bid. But in November, Cima agreed to a Cephalon cash bid of $34 a share. However, the Cephalon-Cima deal was held up by the FTC, which asked the companies in January for more information. While the FTC mulled the data, Cima investors stewed, as the stock dipped as low as $30 during the agency's deliberations.

The key sticking point was the potential anti-trust issue involving cancer-pain treatments marketed by Cephalon and under development by Cima. Cephalon sells Actiq, which looks like a lollipop, but is a treatment for sharp bouts of pain experienced by cancer patients. This pain is called breakthrough cancer pain, and the FTC said Cephalon's proprietary drug is the only such breakthrough cancer-pain product. The main ingredient in Actiq is a narcotic analgesic called fentanyl.

Cima has been working on a version of fentanyl called OraVescent fentanyl, a fast-dissolving pill that the FTC said would give Cephalon a monopoly in the breakthrough cancer-pain market and considerable power to discourage generic developers of Actiq.

The FTC says the U.S. breakthrough cancer-pain drug market is a $200-plus million a year market that is "growing rapidly." Cima has said that it expects to seek approval by the Food and Drug Administration of OraVescent fentanyl later this year or early next year. If all goes well, the drug could be available in late 2006. Cephalon also hopes to launch a sugar-free version of Actiq by mid-2005, contingent upon FDA approval.
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