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Cephalon, Inc. (CEPH) is a U.S. biopharmaceutical company co-founded in 1987 by Dr. Frank Baldino, Jr., a pharmacologist and scientist with the DuPont Company. The company's name comes from the adjective "cephalic" meaning "related to the head or brain," and it was established primarily to pursue treatments for neurodegenerative diseases. With a market cap of a bit north of $4B and the stock price down ~10% already this year, Cephalon has some growing pains over the next few years.
Figure 1. Stock Price for Last Year.
Table 1. 2010 Sales and Projections Through 2015 (sales data from 2010 Annual Report)
Current Marketed Drugs
Provigil®/Nuvigi® – Provigil, the flagship product of the company, will be open to generic competition when its patent expires on April 6, 2015 for its particle size patent, but the use patent comes off in April 2012. As can be seen above, the loss of Provigil will be an important event, as the company currently derives close to half of its revenues from the sale of this single product. Nuvigil is an improved version of Provigil (Nuvigil is the pure enanitomer of the racimate, Provigil – again, think of the Provigil as a left and right hand, where Nuvigil is only the left), and Nuvigil will likely to take over the market share held by Provigil. It remains to be seen if Nuvigil can make up all the revenue loss, as newer versions don't always meet expectations. Time will tell.
Treanda® (bendamustine) is an alkylating agent and PARP modulator. The product is indicated for the IV treatment of Hodgkin's disease, indolent B-cell non-Hodgkin's lymphoma (NHL) that has progressed within six months of treatment with rituximab, plasmacytoma, chronic lymphocytic leukemia (CLL), multiple myeloma (MM) and breast cancer.
Fentora®/Actiq® are facing competition from J&J’s Duragesic patch. I am not a fan of this area, as it is a very crowded space.
Pipeline filled with Acquisitions
In February 2009, Cephalon announced its intention to acquire Australian biotechnology firm Arana Therapeutics, a move that represents one of the largest changes in the Australian life sciences landscape. The acquisition of Arana brings Cephalon its lead biologic candidate ART621 for inflammatory diseases. ART621 a domain antibody (dAb) against TNF alpha, for the potential IV or subcutaneous treatment of sciatica. I don't have high hopes for this one.
In February 2010, Cephalon exercised its option to acquire Ception Therapeutics, following receipt of positive data from a clinical study in adults with eosinophilic asthma. Reslizumab is a humanized anti-IL-5 mAb, for the potential treatment of eosinophil-mediated inflammatory conditions, including eosinophilic esophagitis (EE) and asthma. IL-5 appears to be an ideal target to prevent or blunt eosinophil-mediated inflammation asthmatics because of its central role in the regulation of eosinophil development and function. However, clinical outcomes of trials with mepolizumab (from GSK) and reslizumab in patients with mild-to-severe asthma have been less than stellar, despite the observed depletion of blood, sputum and bone marrow eosinophils. I think this fails in the asthma space but has some potential in the EE area, which is a high unmet medical need (especially in children and younger adults).
A week or so ago, CEPH agreed to acquire Gemin X Pharmaceuticals for up to $525 million. Their lead candidate, obatoclax (in Phase 2b), is a small-molecule Bcl-2 inhibitors in clinical trials for the potential IV infusion for various types of cancer (non-Hodgekin's lymphoma, SCLC, NSCLC, Mantle cell lymphoma, etc). Bcl-2 refers to the founding member of the Bcl-2 family of apoptosis regulator proteins encoded by the BCL2 gene, and in short, over-activity causes cells to be 'immortal'. Data are due out soon for several of these indications, but Roche and Abbott have tried to get this target (in part) to work to no avail. Other drugs in Gemin X's pipeline are based on reactivating programmed forms of cell death through the inhibition of metabolism in tumor cells and it is too early to discuss them.
One of the least talked about, most 'out there', but could be uber lucrative areas is CEPH's stake in Mesoblast of Australia. In December 2010, Cephalon Inc. took a 20 percent stake in Mesoblast Ltd. and bought the rights to market the Australian company’s adult stem-cell therapies for heart and nervous system conditions in a deal potentially worth more than $2B. Mesoblast's development stem cell treatment, Revascor, an injectable formulation of culture-expanded, nucleated, allogeneic, adult mesenchymal precursor cells (MPCs) obtained from a single donor and delivered using Cordis' NOGA MyoStar catheter technology system, for the potential treatment of cardiovascular disease and regeneration of cardiac tissue following a myocardial ischemic event. Phase II results just published in Nature Biotechnology showed that Cephalon’s MPCs, branded Revascor, reduced MACE (Major Adverse Cardiac Events: chest pain, heart attack, death, etc) by 84%. Current heart drugs get prescribed if they can reduce MACE by 5%. While two of the 15 untreated control patients died during the study (13%), not a single one of the 45 treated patients died and there were no adverse side-effects reported. While the study size was only 60 people, these results are 99.5% statistically significant and similar results have been demonstrated in animal studies. Unlike embryonic stem cells, MPCs pose no ethical issues are widely believed to have no cancer risk. I am not a stem cell expert, and I have my doubts about their use (for now), but this could be a big bang for them IF it works in Phase 3. Now, Osiris Therapeutics in association with Genzyme is in clinical trials for the same indication, although the cells used and techniques employed are slightly different.
Other drugs worth mentioning:
- CEP-9722, the lead in a series of poly (ADP-ribose) polymerase (PARP) inhibitors, as a potential radio- and chemo-sensitizer for resistant cancers. Several of these targeted drugs are in the clinic including from Abbott and AstraZeneca.
- Forigerimod (CEP-33457 licensed from ImmuPharma) is a phosphorylated peptide sequence from the 70k snRNP protein that modulates the signalling of a specific subset of CD4+ T cells, for the potential subcutaneous treatment of systemic lupus erythematosus (SLE). Phase 2 data were compelling, and Phase 3 data are due out in November 2012.
CEPH has several Phase 3 trials underway for some intriguing targets in cancer and inflammation. This particular stem cell treatment is something to watch very carefully. I am interested in playing this one conservatively. Most analysts are neutral on the stock and the above pipeline has some potential, but thus far is less than stellar. My recommendation is to buy a small round of the Jan12 $50/55 BCS for $3.50 and sell the $50 Ps for $2.70 or better. That is $0.80 for the $5 spread. One interesting note is there is a very large short interest in the stock (26% as of Feb. 28).
I do not own stock or options on CEPH.
