Cephalon Serves Up Bright Outlook

The company guides sales higher for the first quarter and full year.
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Cephalon

(CEPH)

missed fourth-quarter earnings expectations, but the company's revised 2006 guidance offered a rosier picture than previously forecast.

Cephalon said Tuesday it predicts 2006 sales of $1.55 billion to $1.6 billion, up $200 million from the previous guidance that

was withdrawn in January. Analysts polled by Thomson First Call were expecting full-year 2006 revenue of $1.51 billion.

Cephalon predicted full-year net income, excluding one-time items, of $220 million to $230 million, a 24% increase over the previous guidance. The Wall Street consensus is a profit of $201.6 million.

"We enter 2006 in a position of strength, poised to deliver our best performance ever," said Frank Baldino Jr., the chairman and CEO, who reaffirmed that Cephalon expects to launch four new products this year. "The outlook for 2007 and 2008 is even brighter."

The company said first-quarter 2006 sales will be in the range of $355 million to $365 million, above the Wall Street consensus of $347 million.

Cephalon's 2006 earnings-per-share guidance excluded the dilutive impact of employee stock options and convertible notes. Usually, companies issue guidance based on diluted earnings per share rather than what accountants call "basic" EPS that Cephalon issued Tuesday.

"The company believes the use of basic shares

in the EPS calculation provides a better measure of the underlying performance of the business," a Cephalon press release says. "The number of diluted shares is affected by daily fluctuations in the market price of the company's common stock."

On that basis, Cephalon says basic, full-year 2006 EPS will be in the range of $3.80 to $4, excluding one-time items. Last year, Cephalon's basic earnings per share, excluding one-time items, was $2.88.

The company says first-quarter 2006 basic EPS, excluding one-time items, will be 65 cents to 70 cents.

Overshadowed by the predictions for 2006 were the results for 2005, which generally fell below Wall Street estimates.

For the fourth quarter, the company had a diluted EPS of 71 cents, excluding one-time items, or 3 cents below the Thomson First Call consensus. But revenue of $336 million exceeded the average prediction of $330 million.

For the full year, diluted EPS, excluding items, was $2.76, or 2 cents below the consensus. Full-year revenue of $1.21 billion matched the Wall Street prediction.

On a GAAP basis for the fourth quarter of 2005, the company earned $18.1 million, or 30 cents a diluted share. For the same period in 2004, it earned $78.1 million, or $1.23 a diluted share, on revenue of $299 million.

Cephalon issued its results after markets had closed. In regular trading, the stock closed at $71.75, up $1.18, or 1.7%. After hours, the stock lost 37 cents.

The company expects higher revenue this year because its leading revenue-producer, the sleep disorders drug Provigil,

won't be facing generic competition, thanks to separate deals that Cephalon signed with four companies. The agreements are essentially the same, allowing Cephalon to sell Provigil without a generic threat until at least the fall of 2011 and perhaps as late as the spring of 2012.

Provigil produced sales of $512.8 million last year, or 42% of corporate revenue. But because Cephalon had feared that Provigil would lose patent protection in mid-2006, the company reduced its marketing efforts during the second half of 2005. "For the last three years, we were positioning the company for life without Provigil," Baldino told analysts and investors during a Tuesday telephone conference call. Now, he added, Cephalon will ramp up its Provigil marketing efforts.

Before signing the deals with the generic-drug companies, Cephalon was planning to market the experimental sleep disorders drug Nuvigil as a replacement for Provigil. Nuvigil, which is a chemical cousin of Provigil, is still awaiting FDA approval. The agency recently said it

would need an additional 90 days to review Nuvigil, pushing its action date into late April.

Baldino said he would market Nuvigil and Provigil with a strategy that will "combine the merits of both products." Cephalon hasn't set a price for Nuvigil, which is a longer-lasting, lower-dose drug vs. its older cousin.

The two other products Cephalon hopes to launch this year include a cancer-pain drug, which Baldino expects to reach the market in late 2006, and Sparlon, a treatment for attention deficit hyperactivity disorder. Sparlon has experienced

several regulatory delays, and it will be reviewed by an FDA advisory committee in late March.