Cephalon Holders Take Flight

The FDA action date for Nuvigil has been pushed back to late December from late August. Dr. Paul Blake, Cephalon's executive vice president for worldwide medical and regulatory operations, said the FDA requested more data, which the company has sent. The request wasn't related to Stevens-Johnson.

Nuvigil is a chemical cousin of Provigil, the company's best-selling drug that accounted for 40% of corporate revenue during the first half of 2006.

Provigil's key ingredient is modafinil, which, at a higher dose, is the active ingredient in Sparlon. "Obviously, the FDA was not convinced [about Sparlon] and had concerns surrounding the modafinil molecule at higher doses given the targeted pediatric population," says Adam Greene of JP Morgan in a Thursday note to clients.

Neither Provigil nor Nuvigil is aimed at children and adolescents, although some doctors prescribe Provigil for ADHD. This "off-label" use is legal. Once the FDA approves a drug for one use, doctors can prescribe it for other diseases and conditions.

"The impact to Nuvigil and Provigil remains unclear," says Greene, who is neutral on Cephalon. "It is possible that Nuvigil receives a more restrictive label than Provigil." He doesn't own shares. His firm has had a recent investment banking relationship.

However, S.G. Cowen analyst Eric Schmidt tells clients there is "plenty to like at Cephalon without Sparlon." He's keeping his outperform rating due to "Provigil's blockbuster potential" and the expected sales of Nuvigil and several other products, such as the alcoholism treatment Vivitrol, marketed with Alkermes (ALKS), and the cancer-pain drug Fentora, which is under FDA review.

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