Cephalon Misses Expectations - Analyst Blog
May 04 2011 - 9:30AM
Zacks
Cephalon Inc. (CEPH) delivered first quarter
earnings of $1.98 per share, several cents below the Zacks
Consensus Estimate of $2.04 but 12.5% above the year-ago earnings
of $1.76.
First quarter revenues, which increased 24.9% to $745.1 million,
missed the Zacks Consensus Estimate of $752 million by a wide
margin. First quarter results were within the guidance range
provided by the company. Cephalon had guided towards adjusted net
income of $144 - $159 million on sales of $725 - $755 million.
The Quarter in Detail
First quarter revenues consisted of $736 million in product
sales (up 27.6%) and $9.1 million in other revenues. All segments
performed well during the quarter. The central nervous system (CNS)
and oncology franchises posted sales of $334.7 million (up 7%) and
$149.1 million (up 35%), respectively. Revenues were also boosted
by other product sales of $121.6 million.
Oncology drug Treanda continued to perform well, with sales
coming in at $117.7 million, up 45%. Growing acceptance among
hematologists should boost sales further. Moreover, expansion into
the first-line treatment of indolent non-Hodgkin's lymphoma should
help boost long-term growth of the product.
Cephalon reported $52 million in sales of its follow-on sleep
franchise product, Nuvigil, which was launched on June 1, 2009.
Provigil sales declined 2% to $258.4 million.
Cephalon said that Nuvigil exited 2010 with a 40% share of the
market. Cephalon continues to focus on shift-work disorder, a
market segment that offers significant opportunity for growth.
Cephalon recently released positive shift work disorder data that
showed that patients treated with Nuvigil experienced a
statistically significant difference in improvement in overall
clinical condition related to late-shift sleepiness compared to
placebo. The positive data should help Cephalon in its efforts to
promote Nuvigil in the shift-work disorder segment.
Cephalon is also looking to drive Nuvigil sales by gaining
approval for additional indications like bipolar depression.
First quarter pain franchise sales increased 13% to $130.5
million mainly due to the Mepha acquisition and Fentora sales.
While Amrix sales declined 8% to $23 million, Fentora sales
increased 10% to $46.4 million. Going forward, the implementation
of a Risk Minimization Action Plan (RiskMAP) for Fentora could
affect sales in the US.
Teva to Acquire Cephalon
On May 2, 2011, Teva Pharmaceutical Industries
Ltd. (TEVA) announced that it has entered into a
definitive agreement for the acquisition of Cephalon for $81.50 per
share in cash or $6.8 billion.
Another company, Valeant Pharmaceuticals (VRX),
had initially approached Cephalon in late March with a $73 bid.
However, Cephalon rejected the offer. Teva’s offer price tops
Valeant’s offer and represents a 39% premium to Cephalon’s stock
price before Valeant’s unsolicited proposal was announced.
Given its pending merger with Teva, Cephalon said that it will
not be providing guidance for 2011. The acquisition is scheduled to
close in the third quarter of 2011. The Zacks Consensus Estimate
for 2011 currently stands at $8.48.
We have a Neutral recommendation on Cephalon which carries a
Zacks #3 Rank (short-term “Hold” rating). The Teva offer will most
likely be viewed favorably by Cephalon’s shareholders. With
Cephalon likely to face a challenging period from 2012 following
the genericization of Provigil, an acquisition could be a way out
for the shareholders of the company. Moreover, Treanda could start
facing generics from 2015.
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