By Lisa Seachrist

Washington Editor

The bottom dropped out of Cephalon Inc.'s stock price Monday after the company disclosed a Phase II study testing Provigil (modafinil) as a treatment for attention deficit hyperactivity disorder (ADHD) in adults proved the drug was no more effective than placebo.

The company's stock (NASDAQ:CEPH) dove 40 percent on the news early in the day and closed at $38.75, down $24.

"There really is a lot of upside to this drug," said Frank Baldino, the West Chester, Pa.-based company's chairman and CEO. "The market's reaction is a little peculiar, given that Provigil is selling well and the potential market for excessive daytime sleepiness is ten times bigger than ADHD."

Provigil is an approved treatment for the excessive daytime sleepiness (EDS) resulting from narcolepsy. The drug is a stimulant that appears to act selectively in the areas of the brain that regulate normal wakefulness rather than in a wide region of the brain like amphetamines and other stimulants. As a result, the drug has a much more desirable safety profile.

Since receiving FDA approval to market Provigil in December 1998, Cephalon has watched sales grow by 31 percent. The company has also announced positive results this year for Phase II studies of Provigil in EDS associated with sleep apnea, shift work and fatigue resulting from multiple sclerosis.

The Phase II trial disclosed Monday, however, showed the drug failed to reduce ADHD symptoms in adults. The double-blind, placebo-controlled study involved 113 patients and compared the safety and efficacy of a 100 mg. dose and a 400 mg. dose to placebo. The company is continuing to study a 200 mg. dose in adults with ADHD and is continuing a Phase II trial of the drug in children with ADHD.

"We will complete the ongoing studies of Provigil for this indication," Baldino said. "But, I have to be honest, we don't hold out much hope for this indication."

Baldino characterized the failure of the drug as an early-stage failure, noting the company always intended to pursue expanded indications in EDS before attempting to get labeling for the drug as a therapy for ADHD. Cephalon will be testing the drug as a therapy for cancer-induced fatigue, chronic fatigue syndrome and as an adjunct to selective serotonin reuptake inhibitors in depression.

Eric Schmidt, vice president and analyst for SG Cowen Securities Corp., called the trial results a "reminder that Provigil won't work in all indications" and characterized the market's reaction as a gross over-reaction.

"With Cephalon shares trading down nearly 40 percent this morning, it is clear that the Street held significant expectations for Provigil in this indication," Schmidt said. "However, we would argue that it is imprudent to expect a drug like Provigil will provide positive results in treating every novel indication."

Schmidt saw the market's reaction as a reason to upgrade the stock from a buy to a strong buy and noted the prescription trends have been very strong to date. He also said physicians have been prescribing the drug readily for EDS, not just the narcolepsy indication.

"The take-home message is that more and more it looks like Cephalon has its hands on a safe and well-tolerated drug with a significant market potential," Schmidt said. "Our belief is Cephalon's stock will be a strong performer over the next weeks."

Schmidt said the weakness of Cephalon's stock was unlikely to scuttle a proposed merger with Anesta Corp. because "the merger was consummated for strategic reasons." Cephalon recently announced it would acquire Anesta in a stock swap transaction valued at $444 million when the deal was announced in July. (See BioWorld Today, July 18, 2000, p. 1.) Salt Lake City-based Anesta markets Actiq (fentanyl) for breakthrough cancer pain

Despite all of the positives for Provigil, investors took the ADHD news hard. Baldino said the problem may be the undesirable effects associated with current therapies.

"Everybody wants a solution to Ritalin," Baldino said. "What I can't do is let that desire overshadow what Provigil can potentially be."

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