Viewpoint September 28, 2009, 7:50PM EST

The 10Q Detective: Losing Sleep Over Cephalon

(page 3 of 3)

David Phillips

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On July 28, both the company and investors breathed a collective sigh of relief when a new judge, was assigned the case. The judge issued an order consolidating all of the cases, telling all parties that he needed to be brought up to speed on the case. He then asked all plaintiffs to refile all their motions in concise form before restarting the discovery process. The judicial switch effectively delayed relief sought by the FTC and other plaintiffs, as it will likely take at least two years for any rulings to come down from the bench. The 10Q Detective concurs with analysts at investment banker Natixis Bleichroeder that the delay benefits Cephalon's switchover campaign.

That campaign is in full swing. In addition to promotional efforts by its field sales force to encourage patient switches from Provigil to Nuvigil, the company has initiated and is advertising a free sampling program, a seven-days-free coupon, and an innovative co-pay assistance of up to $50 per prescription.

Optimism About Sampling Program

Short term, the company is essentially giving away the drug, as $10.5 million in costs associated with the Nuvigil programs was deducted directly from gross sales in the second quarter. About 40% of new Nuvigil prescriptions in the quarter resulted from coupons, Chief Financial Officer Kevin Buchi reported on the second-quarter earnings call. Nonetheless, management remains optimistic that use of these coupons is a productive means to get new patients onto Nuvigil, and then to covert them into regular Nuvigil users for many years.

Supplementing the coupon efforts: discounted pricing. The prescription cost to the patient for a 30-day supply of daily recommended dosages of Provigil (200 mg) and Nuvigil (150 mg) is $361 and $295, respectively, a savings to cash-paying patients and health-care payers of 23%, according to pharma information site Destination Rx.

Discounted pricing and improved patient compliance (taking a pill once daily versus two-times daily) are incentives to payers (at least for now) to give Nuvigil similar status as Provigil. The current pricing strategy and switchover campaign run the risk of lower revenue per patient, however, as at least 25% of Provigil users need double the dosing, which means the sale of twice as many Provigil tablets, according to Bob Roche. (Offsetting short-term revenue loss, at least in theory: One out of four Provigil users might benefit from switching to once-a-day Nuvigil, potentially providing a source of revenue for many years to come.)

Nuvigil has some breathing room when it comes to generic competition: The patent covering armodafinil does not expire until December 2023. The company has been moving aggressively to expand the use of Nuvigil to a wider audience. An array of clinical programs is under way, including the study of the efficacy and safety of Nuvigil in bipolar depression, the negative symptoms of schizophrenia, cancer treatment-related fatigue, and excessive sleepiness associated with traumatic brain injury.

Lots of Questions

Chief Executive Frank Baldino told analysts on the second-quarter conference call that the company's objective is to file four supplemental new drug applications in the next five years. On June 30, the company submitted a Nuvigil application for the treatment of excessive sleepiness associated with jet lag disorder.

With the possibility of a flood of generic competition for Provigil, the uncertain prospects for market acceptance of Nuvigil, and the larger questions swirling around the treatment of its products amid various U.S. health-care reform proposals, the 10Q Detective thinks Cephalon investors may not need any chemical assistance to keep them awake at night.