National Editor

Cephalon Inc. has stepped between CIMA Labs Inc. and aaiPharma Inc., trying for a hostile takeover of CIMA and making a cash offer of $26 per share as compared to aaiPharma's all-stock proposal.

"I hadn't really thought Cephalon was that desperate," said William Tanner, analyst with Leerink Swann & Co. in Boston. "It's not a stupid deal, but I don't really see what it gets them."

On the other hand, he noted, CIMA has about $133.8 million in cash, so Cephalon would be paying $260 million for the firm, "which isn't a huge number." Tanner noted the CIMA-aaiPharma deal had been valued at $360 million.

The CIMA cash "was maybe an asset that aaiPharma [a specialty pharmaceutical firm in Wilmington, N.C.] wanted, and clearly Cephalon didn't need the cash," Tanner added. As of June 30, Cephalon said it had $1.06 billion in cash.

CIMA's shares (NASDAQ:CIMA) closed at $26.85 Thursday, up $3.27, or 13.9 percent. The company has about 14.3 million shares outstanding.

The transaction put forth by Cephalon is pending its due diligence, "but if they've lobbed a letter in to CIMA saying they've got the interest in buying them, CIMA's going to have to disclose to their shareholders and the cat's out of the bag," Tanner said, explaining the CIMA press release Thursday.

Eden Prairie, Minn.-based CIMA's main revenue driver is Remeron SolTab, the fast-dissolving version of the antidepressant Remeron (mirtazapine), which CIMA developed and manufactured for the Netherlands-based NV Organon - and which is expected to face generic competition in 2004.

"That's when the wheels come off," Tanner said.

Cephalon already is facing the generic demon with regard to Provigil, its flagship narcolepsy drug. Although the Provigil franchise "should have substantial protection for the next few years," Cephalon seems to be "bulking up" on problems of this nature by buying CIMA, Tanner wrote in a research note.

CIMA's Alavert (loratadine), an orally disintegrating allergy tablet, also faces generic competition, he told BioWorld Today. "You're buying something not to grow but to maybe keep you from withering," Tanner said.

CIMA has in development OraVescent Fentanyl tablets for breakthrough cancer pain, entering Phase III trials in the fourth quarter. That version of fentanyl is designed to be absorbed more quickly than Actiq, Cephalon's drug for cancer pain.

"I don't know how much upside it provides because it could potentially cannibalize a bit of Actiq," Tanner said.

All in all, the offer by Cephalon to CIMA is not without logic, he said, but fails to address the difficulties likely to be posed by generics for both companies. Reasons for deals aren't always clear, Tanner said.

"Why did Genzyme buy SangStat? I don't think anybody can figure it out," he said, referring to the $600 million deal disclosed earlier this month in which Genzyme Corp. said it would pay $22.50 per outstanding share for SangStat Medical Corp. (See BioWorld Today, Aug. 5, 2000.)

Tanner said whether Cephalon's buyout will go through seems uncertain, although the company has "a lot of cash and they could certainly outspend [aaiPharma] if they had to."

Cephalon's stock (NASDAQ:CEPH) dropped 73 cents Thursday to close at $44.13, and aaiPharma's stock (NASDAQ:AAII) fell 62 cents to finish the day at $16.67.