By Aaron Lorenzo

The holiday season arrived ahead of time for Cephalon Inc., which bought itself an early gift in French pharmaceutical company Group Lafon for $450 million in cash.

¿The acquisition of products or companies is an active part of Cephalon¿s growth strategy,¿ Cephalon Chairman and CEO Frank Baldino Jr. said during a conference call. ¿[The Lafon purchase¿s] impact on our top and bottom lines will be immediate and positive, and it will expand our presence in one of the world¿s largest pharmaceutical markets, and throughout Europe.¿

The deal gives West Chester, Pa.-based Cephalon worldwide rights to its flagship product Provigil (modafinil), a sleep disorder therapy currently marketed in France by Lafon, of Maisons Alfort, France.

¿Based on clinical and marketing successes with Provigil, we continue to believe that it will become a significant product, both in terms of very broad clinical benefits to patients and the very positive potential impact on Cephalon¿s future financial performance,¿ Baldino said.

Cephalon also acquires the European drugmaker¿s commercial, R&D and manufacturing operations, including facilities in Mitry-Mory, France, where Provigil¿s active drug substance is produced.

¿Gaining control of Provigil through this acquisition gives Cephalon control over manufacturing of the product,¿ Baldino said. ¿And it eliminates Cephalon¿s payments to Lafon for Provigil product supply and marketing rights, which will significantly reduce the cost of goods to the product.¿

Cephalon also adds Lafon¿s entire portfolio of smaller-selling products sold in France, including the antispasmodic drug Spasfon (phloroglucinol); Fonzylane (buflomedil), used to treat cardiovascular disorders; and Olmifon (adrafinil), a central nervous system stimulant and antidepressant. Through Lafon, which will operate as a wholly owned subsidiary, Cephalon plans to launch Actiq (oral transmucosal fentanyl citrate) next year in France.

But Provigil clearly is the jewel in the group.

¿It¿s all about Provigil,¿ Robertson Stephens analyst Michael King told BioWorld Today. ¿It¿s a very good financial transaction because [Cephalon] recaptures a substantial royalty that they¿re currently paying to Lafon. And the other thing that I think it allows them to do, which is the exciting part, is that it allows them to really ramp up the sales of Provigil in Europe. I think it will allow Cephalon to really take charge of that process and do it much more efficiently.¿

The company views Provigil as becoming very profitable in France, where the wake-promoting drug is known as Modiodal.

¿The benefits to our Provigil franchise that are created by this acquisition are enormous,¿ Baldino said. ¿The acquisition provides Cephalon with tremendous opportunity to grow product sales in France. We see substantial upside opportunity for this drug in France, where its indication already is much broader than in any other country.¿

Cephalon bankrolled the deal through its cash and a credit commitment from Credit Suisse First Boston. Closing is expected to occur by the end of the year. The company anticipates taking a one-time charge in the quarter ending Dec. 31 for the cost of acquired in-process R&D associated with the acquisition. Cephalon reported cash and equivalents of $444 million on Sept. 30.

¿We expect the cost of goods sold associated with our sales of Provigil to drop from about 22 percent of sales currently to about 7 percent of sales, post-acquisition,¿ Cephalon Chief Financial Officer Kevin Buchi said during the conference call. ¿In addition, sales of pharmaceutical products in France will add approximately $80 million in product revenue in 2002.¿

The company also expects to add $20 million in earnings before interest, taxes, depreciation and amortization (EBITDA), and 3 cents in earnings per share. As a result, Cephalon is raising its guidance for financial performance in 2002. For the year ending Dec. 31, 2002, Cephalon expects that revenues from the sale of products will increase to approximately $400 to $410 million, generating EBITDA of approximately $100 million for 2002 and diluted earnings of approximately $1.03 per share.

The companies initiated a partnership in 1993, when Lafon first licensed to Cephalon the rights to develop and commercialize Provigil in the U.S. The drug, designed to treat excessive daytime sleepiness associated with narcolepsy, was launched in the U.S. in February 1999.

Cephalon plans to maintain Lafon headquarters and its R&D center in Maisons Alfort, outside of Paris, and its manufacturing plants in Mitry-Mory and Nevers. The company will continue to market its products in France under the name Laboratoire Lafon.

Cephalon¿s stock (NASDAQ:CEPH) fell $2.71 Monday to close at $70.03.