Cephalon: Commentary

(from July/August 2010)

There are those who would point out that companies like Cephalon also diversified away from CNS, and with handsome results: Cephalon's market cap is now $4.6 billion dollars. The problem is, four years ago, when its exit from CNS was yet-to-come, Cephalon's market cap was almost $6.1 billion. Thus over the four years spent moving away from CNS, farther into oncology and inflammation, Cephalon's valuation has decreased 25%. Hedging one's bets may be prudent, but it can also be a mirage

(from January 2010)

Now that a clinical trial disappointment has caused them to rethink their acquisition of inflammation company Ception, perhaps they will rethink their decision (which was to be announced this month) to exit the CNS drug development space. They are clearly having some concerns about Nuvigil, including whether they can successfully transition patients from Provigil before the latter goes generic; their Nuvigil sales totaled just $38 million for the first three quarters of 2009. The FDA has just extended the Nuvigil review for jet lag into March. But they are already facing challenges to their patent protection on the enantiomer. It has been a very long time since Cephalon has accomplished anything of note in CNS, but to give up completely would be symbolically jarring.

(added 12/9/08)

Why Americans Hate Pharma Almost As Much as They Hate Oil Companies: Case 1109--Cephalon

It's not news that pharma companies try to 'switch' patients to a revamped version of a drug prior to the introduction of a generic competitor in order to pre-empt that advent. And it's not news that one of the levers available is to raise the price of the original drug, in order to shift patients to the revised edition. The assumption that they make is that prescribers are too busy to notice that the revamped drug may offer little value over the original version, and thus will keep patients on the new one even when the generic arrives, at lower cost. When a new version is genuinely better, as was the case for Adderall XR, the merit of the molecule drives the market, as it should. But as Adderall XR's patient life dwindled, Shire tried to repeat the trick with Vyvanse, whose superiority to Adderall XR is confined to slightly reduced abuse risk. They stated quite openly that, if necessary, they would raise Adderall XR's price to drive users to Vyvanse before the generic Adderall XR hit the market. We do not track Adderall XR's pricing, so we don't know to what degree Shire implemented that tactic.

But Shire possessed the subtlety of MI5 compared to Cephalon, whose SWAT-team pricing tactics for Provigil hit the Wall St. Journal on November 18. Cephalon has raised the per-tablet price for Provigil, now in billion-dollar per year revenue range, by 74% over the past four years (that's one way to get there), 24% in just the past year. And they are open about the fact that they are boosting Provigil's price in order to shift people to Nuvigil, which will not be available until 2009, (if then) and displays no significant advantages over its racemic forebear. To summarize: In anticipation of generic competition in 2012, they are raising prices four years ahead. Since there really aren't any desirable alternatives to Provigil, they are gouging a captive audience.

Cephalon already has its picture up on the Post Office Wall as a perpetrator of the first order when it comes to regulatory reckless driving. Earlier this year, they paid a $444 million fine for violating rules on off-label marketing, which they brushed off as if it were just a traffic ticket. It's not as if it has not been obvious for years that Cephalon likes to skate on the thinnest edge of the law; when we pointed out just such an instance of skirting the rules in 2007, their response was to have their Legal Department send NI a letter of reprimand. If it was a threat, it was a hollow failure, since what they had done was in front of an audience of about two thousand.

NI has previously written of our disappointment with Cephalon's squandering of its potential: Greater contributions to medical care and ethical responsibility have been exchanged for hard-nosed marketing and incremental improvements. But this has implications beyond that, because of the times in which we live. Greed is no longer seen as being as good as it once seemed. The mercenary excesses of the banking industry have led to chaos in global macroeconomics, and scapegoats are welcome. Now, a new Administration is about to come to power in the US, with healthcare reform high on its agenda. Cephalon's strategy seems to be one of trying to stuff as much loot into their sack as they can before the vault door swings closed, much as some banking executives voted themselves bonuses as their corporate vessels began to founder. This is a policy of plunder which only provides ammunition to anyone who considers price controls to be an valid option for reining in healthcare expenses. Not that Cephalon is alone--the media is awash with reports of health risks concealed, benefits exaggerated. But this is another nail in the coffin of Pharma's public image.

From NI, January 2008

Cephalon's revenue picture continued its dynamic growth. Provigil is approaching the billion dollar sales mark. The buccal opioid analgesic Fentora, whose ease of use (not to mention dental superiority) makes it more attractive than Actiq, is attracting the hoped-for transition of users from Actiq. However, Cephalon plans to expand it to neuropathic pain, a context where highly abusable opioids are not, and will not ever be, a preferred option. As was noted earlier, Cephalon's marketing panache has not made much of a dent in the resistance to their marketing of Alkermes' overpriced and underpowered anti-addiction drug, Vivitrol. Until they bring it down from an end-user cost of more than $10,000 per year, payors (or patients) will remain loath to reimburse for such a marginal treatment. Towards year-end, they announced that their oncology drug Treanda outperformed the current standard of care. But the big story was the $425 million settlement regarding the marketing misconduct charges for illegal marketing practices. This is very much a reflection of CEO Frank Baldino's 'take no prisoners' attitude towards business, and--we suspect--life in general. Given that Cephalon has already been cited as playing fast and loose with off-label advocacy vis-a-vis Provigil, one might have thought that they might exercise a bit more caution and self-restraint. No such luck. During Baldino's presentation at JP Morgan, he began to discuss his positive expectations for Vivitrol, the anti-addiction treatment developed by Alkermes, now being marketed by Cephalon. Baldino, whose presentation had already involved a rather condescending animation (it turns out that "breakthrough pain" looks a lot like little volcanoes) and then put on what was essentially a videotaped infomercial. Dr. George Bright, of the "Adolescent Health Center", informed the rapt audience that Vivitrol is his first line of attack against alcohol abuse, with the video depicting a boy in his late teens receiving Vivitrol and a good-talking-to, at what may have indeed represented the aforementioned "Adolescent Health Center." The problem with this is that Vivitrol is only approved for adult populations, it was neither tested nor labeled for pediatric populations, which in our book, includes 'adolescents.' One might even wonder if Cephalon intended to subliminally convey the potential of off-label prescribing for adolescents. Given that the common conjecture is that Sparlon's unpleasant and admittedly unfair treatment by the FDA may have been a not-too-subtle form of payback for Cephalon's past indiscretions, this does not strike us as a savvy regulatory strategy.•

Readers with an interest in such matters might consider reading Walter Armstrong's profile of Cephalon CEO Frank Baldino PhD, just published in Pharmaceutical Executive, which we consider a well-written and balanced portrait of a rather complex individual. NI was interviewed for that piece, and while we have not yet heard from Cephalon directly, we understand from other sources that this has only added fuel to the fire of Cephalon's discontent with NI Research.

One note: Mr. Armstrong at one point refers to the interviewee laughing "fondly"--the correct word would be "ruefully."

http://www.pharmexec.com/pharmexec/content/printContentPopup.jsp?id=408472

From NI, January 2007

Actiq's replacement, Fentora, received approval just in time for Cephalon to launch a prescriber-switching campaign prior to generic 'Actiq's debut in 2007. One other disappointment is the Vivitrol for alcohol abuse depot medication, partnered with Alkermes. NI has commented in the past on the minimal clinical benefit provided by Vivitrol, and the substance abuse markets--and their pharmacy benefits managers--seem to have agreed. Vivitrol's first full quarter of sales totaled just $1.1 million. We expect payor resistance to continue: the drug is overpriced given its lackluster efficacy. Towards the end of the year, Cephalon signed a R&D partnership with Ambit involving kinase inhibitors. Cephalon has been pursuing this angle for ten plus years without any discernible payoff. With their resources, one would think that they could show more R&D creativity.

1H Comment/from the July 06 NI

The most important development for Cephalon during 1H:06 was that they were able to settle with Teva, Ranbaxy, Mylan, and Barr, buying themselves Provigil exclusivity until 2012. While they claimed that these agreements were not 'material', we suspect that the price went up with each one, and would not be cheap by our standards. But given the Provigil/Sparlon/Nuvigil group's billion dollar potential, it was undoubtedly worth it. The FDA threw a wrench into Cephalon's plans and valuation with its red flag on Sparlon, claiming that it could have been associated with a case of Stevens-Johnson syndrome. That now does not appear to have been the case, and we expect Sparlon to be approved for ADHD. Whether a black box warning would deter prescribers well-acquainted with Provigil''s strong sfety record is questionable; this is the downside of having pretended that Sparlon is a "new drug", now they'll have to remind everyone that it isn't. In January we said "If Barr chooses to settle during 2006, that would be a most bullish indicator for Cephalon". It is indeed. We are somewhat more cautious about the prospects for Vivitrol, Alkermes' naltrexone depot version Cephalon will sell. Premium pricing and very modest clinical impact may blunt the trajectory of its market debut. Cephalon has added 500 Takeda representatives to their Provigil detailing task force, though this may benefit Takeda (trying to sell Rozerem) more than it benefits Cephalon. Shortly before the end of June, Cephalon announced that Gabitril had failed in its Generalized Anxiety PhII, which was not overly surprising, we had long wondered whether a dose low enough to avoid sedation could be an effective anxiolytic. Turns out it was not. However, a good 'Approvable' letter, as opposed to a bad 'Approvable' letter, was received regarding Actiq's successor, buccal fentanyl tablets, known as Fentora. Good 'Approvable' means that they don't have to run any more trials, and replacing generic-bound Actiq's contribution to the bottom line is much more important than inventing something new for Gabitril.

Comment on the FDA AC Vote Against Sparlon: 3/24/06

When is a Black Box Warning not good enough?

A: When the disorder in question is a high-profile target for those who claim that psychotropic medications are overprescribed and that medications are being used as a quick fix by parents too self-absorbed to parent adequately--and when the FDA wants to up its safety 'street cred' without fear of a backlash. Of course, those who have dealt with ADHD children in schools, clinical practices, or in their homes tend to not doubt the reality of the disorder, but it's an easy target for skeptical observers of the pharma industry. Cephalon's Sparlon had been disingenuously (and perhaps to their own ultimate disservice) proclaimed as an "important new drug", instead of seeking supplemental approval on the basis of what it really is, a label extension for Provigil. Perhaps it would not have made any difference: the FDA was informed of a single Sparlon case of the rare dermatological disorder Stevens-Johnson-Syndrome (SJS) eighteen months ago, they reviewed all available adverse event reports for Provigil as well. Three cases out of approximately one million in the FDA database, three million people have taken Provigil in total. There is no hint of a SJS epidemic. One cannot be certain whether that one case out of 660 was the statistical fluke, or whether there is something else going on--though the SJS expert commented that it is unlikely to be dose-related. One can make a case for a black-box warning, although even that seems dubious. But to recommend 12-1 against approval (and ironically, the one vote for approval was from the only dermatologist on the AC, who one would think would be more attuned to the SJS risk issue); is to essentially tell parents that stimulants are safer--which is an absurdity. Now the FDA's Robert Temple wants Cephalon to test Sparlon for four to six weeks in 3000 individuals before going forward. We will see how long that takes.

But for now, the FDA can brag to its critics that it has made a stand against those greedy pharma companies, that it is in no one's pocket, and that safety comes second to nothing. That will offer little solace to the parents of children with ADHD whose kids cannot tolerate stimulants, and do not benefit from the ineffectual Strattera. Those children can continue to flounder in school and with life in general--there's no rush. The FDA has all the time in the world.