By Debbie Strickland
Special To BioWorld Today
On the heels of an FDA approval and two new research and marketing collaborations, Cephalon is seeking to raise $100 million through an offering of convertible exchangeable preferred stock.
The company expects to close the deal - its largest financing to date - next week.
"This is less dilutive than a straight offering," noted Frank Baldino Jr., president and CEO of Cephalon. "This deal is favorable to shareholders in the long run."
The financing will help carry Cephalon into profitability, currently projected for 2001, Baldino said. The West Chester, Pa., company currently has 29 million shares outstanding.
"The story here is that Provigil [a narcolepsy drug] is doing well and we're on track to profitability over the next few years, and with excellent sales of Provigil, we can service the interest rate on the financing," Baldino said.
Second-quarter sales figures are slated for release next week, he said, noting, "We think it's certainly going better than we had expected."
The preferred stock will be convertible into common stock at a premium to be determined at closing, and will be exchangeable, at the option of the company, into convertible debentures, which will also be convertible into shares of Cephalon common stock at the same conversion rate as the preferred shares. The preferred stock and debentures will be redeemable at declining redemption prices beginning in August 2001. Further terms were undisclosed.
Cephalon has earmarked proceeds from the financing, in addition to general corporate purposes, for further development and marketing of Provigil, which won FDA approval in February; for funding various preclinical- and clinical-stage projects; for settlement of securities litigation related to Cephalon's Myotrophin (mecasermin), an amyotrophic lateral sclerosis drug that earned a "potentially approvable" letter last year from the FDA (see BioWorld Today, May 14, 1998, p. 1); for potential acquisitions, though the company said no deals are in the works; and for retirement of debt, including paying down a $30 million revenue-sharing notes deal completed in February. (See BioWorld Today, Feb. 26, 1999, p. 1.)
While profits are still projected as two years away, 1999 is shaping up as a turning-point year for Cephalon, with the company winning its first FDA approval in the winter and following up in the spring and summer with new collaborations with Abbott Laboratories, of Abbott Park, Ill., and H. Lundbeck A/S, of Copenhagen, Denmark.
Under the Abbott agreement, Cephalon will co- promote Abbott's Gabitril, an anti-epileptic drug, in the U.S., and the companies will conduct additional clinical research.
The $40 million Lundbeck deal centers on receptor tyrosine kinase inhibitors for treatment of Parkinson's disease and Alzheimer's disease. The lead molecule, CEP-1347, entered clinical trials in July.
July also brought resolution of Myotrophin-related litigation filed in 1996 following the announcement of clinical trial results. In light of a $17 million settlement agreement reached in June, a final order dismissing the case was granted July 30. Although the order could be appealed, the settlement calls for the company to pay $9.5 million, and for the liability insurers of the company's directors and officers to pay $7.5 million.
Investors appear to be taking note of the good news: Cephalon's shares (NASDAQ:CEPH) have more than doubled in price over the last year, rising from $7 on Aug. 6, 1998, to a close of $17.062 Thursday, down 81.2 cents.