Markets & Finance

Cephalon: Wide Awake on Wall Street


The shares jumped Monday after the drugmaker received an approvable letter from the FDA for its sleep disorder treatment

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.)


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