The upbeat trend continues in the broader market as the lingering fears of rising inflation and the concerns of a slowing economy have subsided. Biotech stocks have mirrored these gains and both biotech indices show signs that the sector is in the middle of an upswing that we expect to continue for the remainder of the year.
Recently, the FDA approved Cephalon’s/NASDAQ: CEPH Fentora as a treatment for breakthrough cancer pain. Meanwhile, Actiq is expected to go generic at any time, with Barr launching the only generic.
Fentora has several of potential advantages over Actiq. First, Fentora’s tablet formulation is more discreet than the Actiq “lollipop.” Second, according to Cephalon the enhanced absorption technology allows for both faster initiation of pain relief (5-10 minutes) versus Actiq (10-20 minutes) and achievement of maximum pain relief with approximately half as much opiate as Actiq. Therefore, patients can minimize pain with potentially lower exposure to fentanyl. Third, lower exposure to fentanyl may result in less tolerance among long-term users of opiate products as well as fewer opiate-related side effects, most notably severe constipation. Cephalon believes these advantages over Actiq will help drive conversion of the approximately 460,000 current U.S. annual Actiq prescriptions to Fentora and will support approval and use in a broader population of patients with generalized, acute pain. The company estimates this population at three million in the U.S. Cephalon has had discussions with the FDA regarding broadening Fentora’s label and has initiated studies in break through lower back and neuropathic pain.
The next anticipated product approval is Nuvigil, Cephalon’s single-isomer follow-on to Provigil. The company has filed for approval of Nuvigil in narcolepsy. Based on four Phase III trials, it appears Nuvigil has an improved duration of response over Provigil (10 to 12 hours of wakefulness versus 6 to 8 hours), a more rapid onset, and a modestly better side-effect profile. The longer duration of response may, importantly, eliminate the need for afternoon dosing. Additionally, the company has accumulated data that demonstrates Nuvigil not only improves wakefulness, but also restores cognitive function to baseline levels. The company has no such data regarding Provigil.
Cephalon received an approvable letter for Nuvigil and has since resubmitted the NDA to the agency. Nuvigil’s approval is expected by December 31, 2006, with launch commencing in early 2007. For Nuvigil, exclusivity status remains a potential issue. The composition of matter patent expires in May 2007. Assuming a late December 2006 approval, exclusivity would extend through mid-2010. However, the company has filed additional patent applications which may offer extended protection to Nuvigil post mid-2010. Worst case scenario, Nuvigal could face generic competition within three-and-a-half years of approval. If Nuvigil gains patent exclusivity beyond 2010, the product could eclipse $500 million at peak. Otherwise, Nuvigil will be a relatively modest sized product.
With new products on the market, Cephalon has projected 2006 earnings per share of $4.10-$4.30 which is doable. Thus, we say buy Cephalon on the dips.
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