Cephalon shares up after suit settlement

Cephalon Inc. shares rose to a four-year high Tuesday after the maker of the sleep-disorder drug Provigil said it settled a suit against Mylan Laboratories Inc. to keep a generic version off the market at least until 2011.

The agreement is similar to ones Cephalon reached with Teva Pharmaceutical Industries Ltd. and Ranbaxy Laboratories Ltd. Both generic makers sought to market Provigil knockoffs. Still pending is a suit against Barr Pharmaceuticals Inc., which is seeking regulatory approval to sell a low-cost version of the drug. Cephalon sued all four companies in New Jersey.

Provigil accounted for $364.5 million, or 44 percent, of Cephalon's sales in the first nine months of 2005. Provigil sales rose 32 percent in the third quarter, the company said. Cephalon is trying to ward off generic competition while it seeks to persuade doctors to switch their patients to Nuvigil, a long-acting form of Provigil that has its own patent protection.

"This across-the-board patent settlement program would effectively insulate Cephalon's earnings profile from significant erosion from overt generic competition to the Provigil franchise later this year," analyst Ken Kulju of Credit Suisse First Boston said in a note to clients.

Kulju, who has an "overweight" rating on the shares, increased the company's 2007 sales forecast by $114 million to $1.03 billion. He and analyst Corey Davis at JP Morgan Securities predicted that Cephalon would settle with Barr as well.

Shares of Cephalon, which is based in Frazer, Pa., and makes several products in Salt Lake City, rose $6.10, or 8.8 percent to close at $75.74 in Nasdaq Stock Market trading of 9.5 million shares, five times the three-month daily average. It's the highest closing price since January 2002 and was the biggest one-day jump since November 2002.

Mylan shares rose 9 cents to $20.86 in New York Stock Exchange composite trading.

The agreement with Mylan allows the company to begin selling generic Provigil three years before the expiration of a patent covering the formula for making the drug, specifically the size of the particles. Under the accord, Mylan is barred from making a generic version until four years after the 2007 expiration of the main patent covering the chemical compound for Provigil.

Financial terms of the settlement weren't disclosed.