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has ended a controversial financing vehicle that moved marketing costs for two of its drugs off the biotech firm's balance sheet.

The arrangement involved an outside joint venture formed last December with two of Cephalon's institutional investors. The investors put up $50 million in exchange for equity in the venture, known as CNS Marketing. The money funded physician-sponsored studies aimed at expanding the potential use for Provigil and Gabitril -- two of the company's drugs.

But in early February, as


fever gripped Wall Street, investors questioned Cephalon's arrangement, sending the stock sharply lower and forcing company executives to hold a conference call to explain and defend the financing vehicle. Cephalon's stock price subsequently recovered and closed Thursday at $63.

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Monday, however, Cephalon says it has acquired the investors' interest in CNS Marketing through a $55 million private placement of 3.875% convertible subordinated notes due in 2007. The notes are convertible into Cephalon's common stock, at the option of the holder, at a price of $70.36 per share.

"The business climate has changed considerably since this joint venture was created," said Frank Baldino Jr., chairman and CEO of Cephalon. "Although many companies have used this type of financing structure, we no longer believe it is appropriate in the current environment, and we eliminated it."

The joint venture was supposed to have a life of two years, after which Cephalon would have repurchased the investors' stake for $72 million. Cephalon has never identified the investors in CNS Marketing. In February, the company pledged to name them in its annual report to the

Securities and Exchange Commission

. That document has not yet been filed.

Ending the off balance sheet marketing partnership will result in a $7.1 million extraordinary charge in Cephalon's first-quarter results, including the write-off of $4.6 million in costs associated with its formation. About $7 million in costs related to the joint venture's operations will be also be included in the first-quarter results, the company said.

On Monday, the company reaffirmed its previous pro forma earnings guidance of 15 cents a share in the first quarter and diluted earnings of $1.05 per share to $1.08 a share for 2002.