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Cephalon Raises Sales Targets

The company also lifts its profit forecast for the year.

Updated from 5:44 p.m. EST



reported second-quarter earnings and sales Thursday that easily beat Wall Street estimates.

"We are well positioned for strong future growth," said Frank Baldino Jr., chairman and CEO, as his company raised its full-year earnings per share guidance.

However, the company also said 2007 would be a "transitional year" because its cancer-pain drug Actiq will face generic competition and marketing of new drugs will mean higher expenses.

For the three months ended Sept. 30, Cephalon earned $1.61 a share on sales of $469.1 million, excluding one-time items that affected both revenue and profits. The figures included the impact of stock options. Analysts polled by Thomson First Call had predicted earnings of $1.16 on sales of $434.3 million.

Once all items were factored in, Cephalon earned $95.7 million, or $1.43 a share, on sales of $482.3 million. For the same period last year, the company earned $29.3 million, or 50 cents a share, on revenue of $309.6 million.

Financial results were released after markets had closed. In regular trading, Cephalon closed at $70.25, up 31 cents. After hours, the stock lost 90 cents.

The third quarter was paced by the sleep-disorders drug Provigil, which recorded sales of $197.6 million, up 47% from the year-ago period. Sales of pain medications, primarily Actiq, rose 80% to $181.7 million.

The company raised its full-year sales guidance to a range of $1.66 billion to $1.68 billion from the previous estimate of $1.58 billion to $1.66 billion. Cepahlon boosted its earnings prediction to a range of $5.10 to $5.20 from a previous range of $4.10 to $4.30.

Although Cephalon counts the impact of stock-based compensation and convertible notes in EPS for completed quarters, it doesn't do so for its predictions. Thus, the profit forecast reflects "basic" earnings per share rather than the diluted numbers used by virtually every other company. Cephalon says this approach offers a better measurement of its activities.

In addition, Cephalon offered guidance for 2007, saying its basic earnings per share should be $4.50 to $4.60 on sales of $1.68 billion to $1.72 billion. J. Kevin Buchi, the chief financial officer, said marketing expenses will be higher due to the recent roll-outs of the cancer-pain drug Fentora and the alcoholism treatment Vivitrol.

Cephalon markets the

Vivitrol under license from

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(ALKS) - Get Alkermes Plc Report

. Vivitrol was approved by the Food and Drug Administration in May.

Alkermes said Thursday that Vivitrol sales will be in the $5 million to $10 million range for the fiscal year ending March 31, down from an original prediction of $35 million to $45 million.

Cephalon's third quarter closed before the company could begin selling

Fentora, which was approved by the FDA in late September. Cephalon continues testing Fentora for treatments other than cancer pain, including low-back pain and nerve pain. If the FDA approves Fentora for additional uses, sales could expand significantly, Baldino said.

Baldino said he expected a "modest launch" for the sleep-disorders drug Nuvigil in 2007. A cousin of Provigil, the drug is still under review by the FDA. Even when the agency approves Nuvigil, Baldino said Cephalon will devote most of its marketing muscle to Provigil. By 2010, he added, Cephalon will begin a campaign to switch patients from the older drug to the newer treatment.

Not long ago, Cephalon feared that Provigil would lose patent protection due to a series of challenges by generic-drug companies. If that had happened, Cephalon would have wanted to get Nuvigil on the market as quickly as possible. But in rapid-fire order, Cephalon negotiated deals with four companies,

protecting Provigil from copycats until October 2011.

Now, the regulatory delays for Nuvigil don't seem as troublesome. The FDA granted

conditional approval in May, and the agency is supposed to act by late December.

Cephalon is talking to the FDA about a proposed warning on the labels of both drugs for a rare, dangerous skin disease called Stevens-Johnson syndrome. The discussion emerged after the FDA in August

rejected a Cephalon application for Sparlon to treat attention deficit hyperactivity disorder in children.

The FDA found one suspected case of the dangerous syndrome in Sparlon clinical trials. Cephalon presented data disputing the diagnosis, but the FDA held firm. Sparlon, Provigil and Nuvigil all contain the ingredient modafinil. The Sparlon dose was higher than the doses for the sleep-disorder drugs. Provigil and Nuvigil aren't for children.

Baldino told analysts that listing Stevens-Johnson syndrome on the Provigil and Nuvigil labels probably wouldn't affect sales of either drug because the medications will be prescribed only for adults.