This is a bonus column from Adam Feuerstein, whose commentary usually runs only on RealMoney. We're offering it today to readers. To read Adam's commentary every day, click here for information on a free trial to RealMoney.



is acquiring fellow specialty pharmaceutical firm

Cima Labs


in a cash deal valued at $515 million, the companies announced Monday night.

The acquisition values Cima at $34 per share, or an approximate 10% premium above its Monday closing price of $31.31 per share.

Separately, Cephalon posted higher third-quarter profits on increased drug sales, and increased 2003 sales and earnings guidance. But the company gave 2004 guidance that is lower than current Wall Street expectations.

Cima Labs, which specializes in drug delivery technologies, has had several suitors in recent weeks. Cephalon has apparently won the mating game over competing bids from



and an undisclosed drug company.

TheStreet Recommends

While Cephalon has posted strong sales growth in recent years, looming generic competition has dampened investor enthusiasm for the company. Cephalon first announced its interest in Cima in August, mainly because Cima Labs is developing a fast-dissolving fentanyl tablet, which would be used to treat pain. Cephalon could be eyeing this product as a replacement for its own pain product, the Actiq "lollipop," which also uses fentanyl as the active ingredient.

While Actiq has been a strong performer for Cephalon, the painkiller loses patent protection in a couple of years.

Last month the FDA offered conditional approval for an expanded label for Cephalon's "stay awake" drug Provigil. The new label will allow Cephalon to market the drug to improve wakefulness in patients with sleep apnea and graveyard shift workers who suffer from so-called shift-work sleep disorder. Provigil was originally approved as a treatment for narcolepsy.

Cephalon will begin selling Provigil under the new indications in the first quarter of 2004, and this is expected to lead to increase sales. However, possible generic competition for the drug looms as early as 2006, putting at risk long-term growth for the drug. Cephalon has said that it intends to fight the market entry of generic Provigil, and it is also working on a longer-acting version of the drug.

Cephalon shares closed Monday down 1% to $46.42, ahead of the merger announcement. Shares were off slightly in after-hours trading. Shares of Cima closed Monday down fractionally to $31.31

Apart from the merger news, Cephalon reported third-quarter net income of $22.3 million, or 38 cents per share, compared with net income of $20 million, or 35 cents per share, in the year-ago quarter.

On a non-GAAP basis, Cephalon earned 47 cents per share, above Wall Street consensus estimate of 41 cents, as polled by Thomson First Call. The adjusted earnings exclude a charge related to the early retirement of debt.

Total revenue in the quarter rose 46% to $190 million, including product sales of $185 million, an increase of 52% from the year-ago quarter.

The company increased 2003 product sales guidance to a range of $680 million to $685 million and raised its earnings forecast to $1.52. Wall Street is currently looking for Cephalon to earn $1.49 a share this year.

But Cephalon gave a 2004 forecast that falls below Wall Street expectations. The company said it expects 2004 earnings of about $2 a share, below current consensus estimate of $2.07 per share. Cephalon's forecast 2004 product sales guidance in the range of $900 million-$950 million, including Provigil sales of $375 million-$425 million.

In the third quarter, sales of the "stay awake" drug Provigil rose 51% to $79.8 million in the quarter.

Third-quarter sales of cancer-pain drug Actiq totaled $65.5 million, while sales of the epilepsy drug Gabitril totaled $17.2 million.

Adam Feuerstein writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

your feedback.