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No. of Recommendations: 2
                                                                              5 / 2.5 / 0
Company Industry TTM FCF Last Pred price 1-5 5-10 Term
Cephalon (NasdaqGS:CEPH) Biotechnology $724 $58.98 $81.21 -1.6% -0.8% 0.0%

This company looked intriguing. Not your typical biotech waiting for good Phase III results or FDA approval (though it does have some of that to add some excitement). But then I read this in the 10-K:

PROVIGIL is indicated for the treatment of excessive sleepiness associated with narcolepsy, OSA/HS and SWSD and was launched in 1999. PROVIGIL comprised 41% and 48% of our total consolidated net sales for the years ended December 31, 2010 and 2009, respectively, of which 94% was in the U.S. market for each year. We expect that PROVIGIL will face generic competition in the United States beginning in April 2012 and, as a result, PROVIGIL sales will materially decline.

Oops. 41% of sales will be drastically cut back starting next year, as four generic companies all launch their versions. Plus, Cephalon is embroiled in a lawsuit with the FTC over the settlement agreements it made with those companies to arrange for launch of their versions next April.

Add in the fact that Nuvigil, which accounted for 7% of revenue, is also under generic challenge and the FDA could approve the generics as early as May 2012.

That's a total of half the company's sales, with no big and visible replacements (though it does have a few in Phase III trials).

Verdict: PASS

Cheers,
Jim
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