Cephalon Inc. offered to pay up to $20 million to regain royaltyrights held by investors in a 1992 limited partnership formed to fundclinical development of Myotrophin, which last month provedsuccessful in Phase III trials for treatment of Lou Gehrig's disease.

The West Chester, Pa.-based company, which expects to file a newdrug application with the FDA by early 1996, has moved to reduce itsroyalty obligation to Cephalon Clinical Partners L.P. by nearly half.If Myotrophin is commercialized, the partnership stands to receiveroyalties totaling 11.3 percent of sales.

Those royalty payments would come out of Cephalon's portion of its50-50 split on total sales with its joint venture partner, Chiron Corp.,of Emeryville, Calif.

Cephalon's chief financial officer, Kevin Buchi, said the companyhas offered to buy back 400 of the 900 limited partnership interestssold to investors in Cephalon Clinical Partners for $50,000 each. Ifall 400 units are repurchased, Buchi said it would decrease theroyalty percentage paid to the partnership by nearly 50 percent.

He said Cephalon intends to use money from a public offering of 2.5million shares _ registered with the Securities and ExchangeCommission last week _ to fund the $20 million buy-back plan.Using the stock's (NASDAQ:CEPH) closing price Thursday of$18.50, which was down 62 cents from the day before, the companywould raise about $46.25 million in the offering.

The $50,000 offered by Cephalon for each partnership unit equals theinvestors' original cost, which they have been paying in installments.The limited partnership was designed to raise a total of $45 million.

Acceptance of Cephalon's proposal, which expires Aug. 1, wouldcancel out the investors final $12,000 payment. However, they wouldretain warrants issued as part of their 1992 investment.

In addition to gambling on the commercialization of Myotrophin,investors in Cephalon Clinical Partners bought two warrants topurchase a total of 4,500 shares of Cephalon common stock at whatthey hoped would be a discount to the market price.

With the apparent success of Myotrophin, the bet likely will pay off.One warrant entitles holders to buy 3,700 shares for $11.32 or$13.82, depending on when it's exercised over the next four years.The price for the 800 shares included in the second warrant was set at$13.70 per share. Both warrants expire Aug. 31, 1999. Based on thestock's current trading price, the two warrants are worth as much as$31,500.

Buchi described Cephalon's proposal to buy out the partnership unitsas an attractive offer. "The investors keep the warrants and they'regetting a positive cash flow of $50,000," he said, noting that eachinvestor has contributed only $38,000 since 1992.

Cephalon's Jason Rubin, vice president of corporatecommunications, said the company's decision to make offers on 400units was "based on a total amount of money we were willing tocommit to repurchase a portion of the partnership at this time."

Following release of the positive Phase III Myotrophin data June 12,Cephalon's stock soared 75 percent. The trial results demonstratedthe drug, which is recombinant human insulin-like growth factor, canslow progression of the deadly Lou Gehrig's disease and lessenseverity of the disorder.

Lou Gehrig's disease, or amyotrophic lateral sclerosis, is adegenerative neuromuscular disorder that affects 70,000 peopleworldwide, half of whom are in the U.S. Results of a second Phase IIItrial in Europe are expected by late 1995.

Buchi said there is no change in the structure of the CephalonClinical Partners agreement for investors who do not accept the$50,000 per unit buy out.

Under the original terms of the partnership, holders of each unit areslated to receive a $20,000 payment if the FDA clears Myotrophinfor marketing and another $50,000 between 24 months and 48months following regulatory approval. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.

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