Cephalon Wins Bidding War, Plans $515M CIMA Takeover
By Randall Osborne
National Editor
With its $515 million offer, Cephalon Inc. apparently has won the bidding war for CIMA Labs Inc., and the two have signed a definitive agreement to merge.
"I don't think it's anything that's going to make people jump up and down," said William Tanner, analyst with Leerink Swann & Co. in New York, who was skeptical of the merger when West Chester, Pa.-based Cephalon first expressed interest during the summer.
"You can say at least that [buying CIMA] is taking a potentially competitive drug off the table," he added, referring to CIMA's OraVescent fentanyl for breakthrough cancer pain, soon to enter Phase III trials, which will complement Cephalon's cancer pain drug Actiq (oral transmucosal fentanyl citrate).
Cephalon's stock (NASDAQ:CEPH) dipped 57 cents Tuesday to close at $45.86.
Under the terms of the transaction, which is expected to close in the first quarter and is valued at $397 million net of CIMA's cash and equivalents, Cephalon will acquire all outstanding common shares of CIMA for $34 each in cash.
The boards of both companies have approved the deal. If CIMA stockholders go along and the customary regulatory approvals are gained, drug delivery firm CIMA will become a wholly owned subsidiary of Cephalon.
In August, Cephalon intervened in the proposed merger of CIMA and aaiPharma Inc., a specialty pharma company in Wilmington, N.C., trying to break up aaiPharma's $360 million deal with an offer of $26 per share. Since CIMA had about $133.8 million in cash, Cephalon would have been paying about $260 million for the takeover at that time. (See BioWorld Today, Aug. 22, 2003.)
CIMA, of Eden Prairie, Minn., ultimately rejected that offer from Cephalon, later disclosing that a third unnamed suitor had upped the ante with an all-cash offer worth about $30 per share. Now, having put up $34 per share, Cephalon seems to have prevailed with its proposed deal, which the company said would be "modestly dilutive" next year, to the tune of 5 cents to 10 cents per share, Tanner noted.
AaiPharma, meanwhile, marches ahead with its efforts in the pain drug arena, agreeing to pay about $100 million for four such products from Dublin, Ireland-based Elan Corp. plc, as part of the latter's asset-divestiture plan. (See BioWorld Today, Oct. 23, 2003.)
The Cephalon/CIMA merger is not without good points, Tanner said.
"The way [Cephalon] positioned it to me was that they think the ongoing business at CIMA can fund development of fentanyl," he told BioWorld Today. "Our guys are modeling revenues of about $85 million for 2004 and $95 million for 2005 from CIMA."
Cephalon gets a 92,000-sq.-ft. manufacturing facility in the deal, and its three marketed products are doing well.
In its third-quarter earnings report Tuesday, Cephalon said Actiq sales of $65.5 million helped the company beat Wall Street estimates by a strong margin, with earnings per share of 47 cents as compared to a consensus of 40 cents. Gabitril (tiagabine hydrochloride) for epileptic seizures sold $17.2 million during the quarter and Provigil (modafinil) for excessive daytime sleepiness associated with narcolepsy sold $79.8 million.
The FDA last month gave its nod to a label expansion for Provigil, which will be launched in the first quarter of next year for two new indications: improving wakefulness in people with excessive sleepiness associated with shift-work sleep disorder, and doing the same in patients with obstructive sleep apnea. (See BioWorld Today, Oct. 22, 2003.)
"Obviously they're running the company and they're smarter than I am, but it seems like if you've got a sales force and expanded label for a drug coming out in the March time frame, you'd want to focus on that," Tanner said.
With the buyout of CIMA, Cephalon could be "bulking up on pre-existing problems, namely marketed products facing impending generic competition," he wrote in a research note.
CIMA's earnings consist mostly of royalties from products such as Remeron SolTab, the fast-dissolving version of the antidepressant mirtazapine, which CIMA developed and manufactured for Netherlands-based NV Organon. The drug provides about one-third of CIMA's earnings and is expected to face generic competition next year.
Other of CIMA's marketed products include an antidepressant, a drug for irritable bowel syndrome and an allergy medication, all of which could become targets of generics.
Tanner said the CIMA fentanyl product, also an orally dissolving formulation, could become a way to reduce the impact of generic competition for Actiq, which might appear in the marketplace as early as late 2005 or early 2006. For the time being, Actiq is enjoying a surge, with Tanner forecasting revenues from the drug of $235 million this year and $348 million next year.
Cephalon has about 1,400 employees in the U.S. and Europe. CIMA has about 275 workers in Eden Prairie and Brooklyn Park, Minn., and both facilities will keep operating after the merger, Cephalon said.
In the deal, JP Morgan, of New York, acted as financial adviser to Cephalon, and Deutsche Bank Securities, also of New York, performed in that capacity for CIMA.
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