Cephalon: Wide Awake On Wall Street

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Investors woke up with a desire to buy Cephalon (CEPH) shares on Apr. 2 after news that the Frazer [Pa.]-based drug concern's Nuvigil compound for treatment of sleep disorders had received an approvable letter from the Food and Drug Administration [FDA] for its new drug application.











The company announced after the close of trading on Mar. 30 that the FDA okayed Nuvigil [armodafinil] in tablet form for the treatment of excessive sleepiness associated with narcolepsy, obstructive sleep apnea, and shift work sleep disorder. The agency also approved draft labeling for Nuvigil, including a bold warning label for side effects of skin rash and hypersensitivity in patients taking a combination of Nuvigil and a similar compound marketed by Cephalon, Provigil [modafinil].











The FDA has requested that the company provide a standard safety update from clinical trials conducted since the last update in June, 2006. Cephalon is expected to submit a response within 30 days, with the FDA expected to complete its review of Nuvigil within 60 days afterward.











Cephalon developed Nuvigil as a modified version of Provigil with the intention of offering a longer duration of action and an improved side effect profile. Provigil tricks the body into believing it has slept when it has not. It works by zeroing in on a cluster of nerve cells in the brain that trigger the awakening process. Provigil produces less of a buzz than amphetamines and is less likely to become addictive. Analysts believe the market for Provigil and other upcoming wakefulness drugs will eventually top $1 billion a year [see BusinessWeek, 1/26/04, "I Can't Sleep"].











According to a Standard & Poor's report, in 1998, the FDA approved Provigil tablets to treat excessive daytime sleepiness [EDS] due to narcolepsy, a chronic, lifelong sleep disorder. In January, 2004, the FDA approved Provigil to treat EDS associated with obstructive sleep apnea/hypopnea syndrome and shift work sleep disorder.











Cephalon shares gained 6.7% on Apr. 2 to close at $75.96.











Some Wall Street analysts shared investors' enthusiasm. Jefferies analyst David Windley upgraded his recommendation on the shares to buy from hold on Apr. 2, according to S&P MarketScope. Windley says the drug could win a final okay from the agency by this June, and says the imminent approval has strengthened Cephalon's longer-term outlook. The analyst set an $88 price target on the shares.











Meanwhile, Standard & Poor's equity analyst Steven Silver reiterated his buy opinion on the shares on Apr. 2. Silver sees an expansion of the company's sales force to market Provigil and Nuvigil -- and continued growth of its cancer pain treatment Fentora -- as key longer-term catalysts for the stock. Silver has an $89 12-month price target on the shares. [S&P, like BusinessWeek.com, is a unit of The McGraw-Hill Cos.]