The WSJ is running an article today that should sink the share price. Funny, many of the things I posted is in the article. Pay close attention.
Setback Sinks Cephalon Shares,
But It Pushes Ahead With Drug
By ELYSE TANOUYE
Staff Reporter of THE WALL STREET JOURNAL
Shares of Cephalon Inc. plummeted 35% Friday after a
Food and Drug Administration expert panel last week
rejected the company's lead drug as a treatment for Lou
Gehrig's disease.
Still, Cephalon and its partner, Chiron Corp., said they
aren't ready to give up on the drug.
The FDA panel on Thursday decided the companies' data
on the drug, Myotrophin, was insufficient to prove it works
against the disease, formally known as amyotrophic lateral
sclerosis. But a spokesman for Chiron, based in
Emeryville, Calif., pointed out later that the panel's vote
was simply guidance, and the FDA isn't bound to follow
the recommendation. "We're continuing the necessary
process, including the inspection of our plants by the
FDA," he said.
"We were obviously very surprised by the outcome," said
Frank Baldino, Cephalon's president and chief executive
officer. But the company will continue pursuing the drug's
approval until the FDA makes its final decision, he said. "It
isn't over yet."
On Friday, investors showed their disappointment, sending
Cephalon shares down $7 a share to $13 in heavy trading
on the Nasdaq Stock Market. Chiron shares fell 87.5 cents
to close at $19.125 on the Nasdaq.
Hole in Options Play
The blow to Cephalon's stock price is also a setback for a
$10 million options play the company had made. Cephalon
bet that good news, such as a favorable FDA panel
recommendation, would cause its stock to rise over six
months and garner as much as $45 million in profit. The
spokesman for Cephalon, based in West Chester, Pa.,
defended the investment, saying it was a way to raise
capital "with minimal dilution to shareholders." While the
options, which had an exercise price of $21.50, are now
worthless at Cephalon's current price, he noted they have
a six-month term, and "we'll see what happens down the
road."
Michael Murphy, who headed up clinical development of
the drug for Cephalon until he left the company last fall,
wasn't hurt by Cephalon's stock plunge. Earlier this year,
he exercised his Cephalon stock options shortly before
they would have expired, because he had left Cephalon to
join a start-up clinical-research organization that he partly
owns. He said the 32,000 shares brought him only a
modest profit.
While Dr. Murphy said he is convinced Myotrophin is
active in patients, he also said he believes another clinical
trial is necessary to prove it. The companies' first trial in
North America produced "absolutely compelling" evidence
that the drug worked, he said, but a second trial in Europe
was "very disappointing," in part because it was too small.
Limited Market
An FDA panel last June recommended the drug be made
available early to patients under a provision called a
"treatment IND," but some panel members at that time
strongly urged the companies to conduct a third trial before
applying for full FDA approval. Dr. Baldino said, in an
interview Sunday, that a third study "would take well over
three years to complete, and in the three-year time frame,
over 15,000 patients would die." Moreover, he noted, given
the small size of the drug's potential market, the company
found it hard to justify additional expenses. At the FDA
panel meeting last week, Dr. Baldino said the companies
had already invested $180 million in the drug.
Wall Street is mixed on the outlook for Myotrophin and the
companies. Matthew Geller, an analyst at Oppenheimer &
Co., said he doesn't see how the companies could afford
to proceed with development of the drug, in part because
the market is small. A drug already on the market to treat
the disease had sales of only $32 million last year, he
estimated. The once-highflying Cephalon now must
re-establish its credibility with investors, he added,
possibly making it harder for the company to raise more
money.
Cephalon's spokesman said the company has about $160
million in cash, equivalent to about three years' worth of
operating funds.
Mark Simon, an analyst at Robertson Stephens, was more
optimistic. He said the FDA might go ahead and approve
the drug without additional data because of the devastating
nature of the disease. "There's definitely life" in
Myotrophin, he said.
interactive4.wsj.com |
