Assistant

Alleging a "course of anticompetitive conduct," the Federal Trade Commission filed a complaint against Cephalon Inc. regarding deals signed two years ago between the firm and four generic manufacturers to keep lower-cost generic versions of its flagship narcolepsy drug, Provigil, from reaching the market until 2012.

The complaint, which was filed in U.S. District Court and seeks an injunction against Cephalon that would allow generics on the market prior to April 2012, did not "come as a surprise, given the agency's hawkish public stance" on the issue, analyst David Windley, of San Francisco-based Jefferies & Co., wrote in a research note, though its impact, if any, on the company remains to be seen.

"The court case between Cephalon and the FTC could easily drag on" for three or four years, Windley stated. "By the time it is resolved, generic entry under the very agreements that the FTC is challenging might be imminent."

A near-term threat to Provigil sales, which in 2007 totaled $852 million - nearly half of the company's $1.7 billion in overall product sales - is likely to come, instead, from possible reductions in off-label use.

Frazer, Pa.-based Cephalon's marketing practices had been under scrutiny for several years, amid accusations that the firm aggressively promoted its drugs, including Provigil and pain drug Actiq, for non-FDA-approved indications. In November, the company agreed to a $425 million settlement with the U.S. Attorney's Office and the Department of Justice.

Provigil (modafinil), approved for narcolepsy in 1998, has been prescribed off-label for indications such as depression and attention deficit hyperactivity disorder, but in the absence of further off-label promotion, "it is very difficult to know what the real Provigil market is," Megan Murphy, analyst with New York-based Lazard Capital Markets LLC said in a research note.

Murphy, who maintained a "hold" rating on the firm, said the concern is that "the Provigil market may be undergoing a correction," and the drug's demand, as seen over the past nine years, "may in fact not be so real."

Nevertheless, it was the FTC's action that garnered Cephalon the most headlines this week, though the commission's complaint came two years after Cephalon reached patent infringement settlements with Teva Pharmaceutical Industries, Barr Pharmaceuticals Inc., Ranbaxy Laboratories Inc. and Mylan Inc.

Under those agreements, the FTC alleges, Cephalon agreed to pay more than $200 million to those companies in exchange for keeping generic versions of Provigil off the market, thereby forcing consumers "to pay hundreds of millions of dollars a year more for Provigil."

Those agreements also effectively blocked any other potential generic entrants to the market. As per the Hatch-Waxman Act, the first firm to file for approval of a generic is guaranteed 180 days of exclusivity before other firms can market competing generic products. But that exclusive period only begins once the product has hit the market.

At the time Cephalon signed those deals in 2006, Provigil's orphan drug exclusivity was on the verge of expiring, but the company claimed that the patent protecting the drug extended until 2015.

In a press release issued late Wednesday in response to the FTC's complaint, Cephalon maintained that its agreements with Teva, Barr, Ranbaxy and Mylan "comply with both the spirit and letter of the antitrust laws," and even benefit consumers by allowing generic drugs on the market three years before the expiration of its 2015 patent.

Cephalon added that it plans to "vigorously defend itself in this matter and expects to prevail."

And history shows there's a chance it could.

In 2005, a federal appeals court ruled in favor of Schering-Plough Corp., stating that the Kenilworth, N.J.-based firm did not violate antitrust laws, as alleged by the FTC, when its signed a $60 million deal in 1997 with Upsher-Smith Laboratories to keep a generic version of K-Dur, a potassium chloride supplement, off the market until 2001.

The FTC appealed the matter to the Supreme Court, which declined to hear the case in 2006.

Regardless of when generic competitors become available to U.S. consumers, there's no doubt they will severely hobble Provigil sales.

Hoping to preempt hits to its bottom line, Cephalon is working on several late-stage programs, including Treanda (bendamustine HCl), a drug acquired through its 2005 buyout of San Diego-based Salmedix Inc. that is under FDA review in chronic lymphocytic leukemia and non-Hodgkin's lymphoma.

Cephalon also has a supplemental new drug application on file for Fentora (fentanyl buccal tablet) in the management of breakthrough pain in opioid-tolerant patients with chronic pain. (See BioWorld Today, Sept. 24, 2007, and Jan. 2, 2008.)

In late-stage development, the company has CEP-701 (lestaurtinib), which is in Phase III testing in acute myeloid leukemia, and also is in Phase III trials with Trisenox (arsenic trioxide) in acute myeloid leukemia (AML) and in mid- and late-stage testing with Nuvigil (armodafinil) in bipolar depression, schizophrenia and excessive sleepiness in Parkinson's disease and other disorders.

At the end of 2007, Cephalon launched Amrix, an approved muscle relaxant for which it gained North American rights from ECR Pharmaceuticals in exchange for $100 million in August.

In separate news this week, the firm reported pooled analysis from the two pivotal studies that supported approval showing that Amrix (cyclobenzaprine hydrochloride extended-release capsules) was superior to placebo, while showing similar efficacy to cyclobenzaprine immediate-release formulations in alleviating acute muscle spasm associated with lower back and neck pain with less daytime drowsiness.

Those results were presented at the American Academy of Pain Medicine meeting in Orlando, Fla.

Cephalon, which reported net income of $44.2 million, or 66 cents per share, for the fourth quarter of 2007, had about $818.7 million in cash as of Dec. 31.

The company's stock (NASDAQ:CEPH) closed at $61.42 Wednesday, up $3.98.