Cephalon wants patent on dissolvable pain pills

Cephalon Inc., negotiating with the government to avert a challenge to its $515 million purchase of Cima Labs Inc., is exploring concessions to preserve competition for a cancer-pain drug, people familiar with the talks said Monday.

Cephalon, which has about 135 workers in Salt Lake City, wants to acquire Cima's patented OraVescent technique for pain pills that dissolve in the mouth and don't have to be swallowed. The purchase may let Cephalon expand its market for "breakthrough" pain drugs from 800,000 patients to 3 million, company chairman Frank Baldino has told investors. Cima's pills may also relieve nausea and migraines, he said.

In the talks with the U.S. Federal Trade Commission, Cephalon and antitrust officials are discussing options that include licensing the company's painkiller Actiq to a competitor, the people said. Cephalon may also be willing to limit patent protection for Actiq to win FTC approval, they said.

"There could be some sort of licensing fix, definitely, depending on what the companies are willing to give up," said Linda Varoli, an analyst with Merger Insight, an affiliate of Wall Street Access Inc. that advises investors on the likelihood of takeovers and mergers.

Cephalon, which entered Utah in October 2002 by purchasing and merging with Anesta Corp., manufactures Actiq in Salt Lake City.

The talks with the FTC have been "reasonable" but "extraordinarily slow," Baldino told an investors conference March 10 sponsored by SG Cowen Securities Corp. in Boston. The company is seeking a compromise that "is not anything about jettisoning products, or something like that, or divesting of any product opportunity. It is more of ensuring that competition is fair."

The Cima purchase would help Cephalon position itself for "the greatest period" of its growth, Baldino told the March 10 investors conference.

Cima is developing a fast-acting drug made with the narcotic fentanyl that government lawyers regard as a potential competitor to Actiq, the people said. Actiq, which is also made with fentanyl, is among Cephalon's three top-selling drugs. The others are Gabitril, prescribed by doctors to help control epileptic seizures, and Provigil, a treatment for narcolepsy and drowsiness.

The three drugs accounted for 86 percent of Cephalon's worldwide sales last year, according to the company's annual report filed March 12 with the Securities and Exchange Commission.