Cephalon Inc. announced Wednesday that it raised $45 millionin a private placement in Cephalon Clinical Partners, L.P., anewly formed limited partnership, to develop its first product,Myotrophin, a recombinant form of human insulin-like growthfactor-1 (IGF-1).

Cephalon holds a patent issued in March for the use of IGF-1 inthe treatment of amyotrophic lateral sclerosis (ALS), or LouGehrig's disease, and has also been granted orphan drug statusfor the same application.

Under the terms of the agreement, the limited partnershipinitially retains rights to myotrophin, and Cephalon holdsmanufacturing and marketing rights, paying royalties to thepartnership. When sales reach a certain level, Cephalon canrepurchase myotrophin rights for $50 million in cash orCephalon stock and continue to pay partnership royalties.

"The reason for the financing arrangement is that we

looked at the potential of myotrophin in multiple applications,"said Bruce Peacock, executive vice president and chief financialofficer of the West Chester, Pa., company. The partnership willfinance the combination of myotrophin trials Cephalon intendsto initiate.

Phase I myotrophin clinicals began in the United Kingdom inhealthy volunteers early this year, and the company expects tobegin U.S. Phase I trials later this month. In preclinical trials,myotrophin promoted the survival of neurons and alsoincreased neuronal "sprouting" H the attachment of nerve cellsto affected muscle tissue. Neurons are specialized cells thatmediate functions of the nervous system. They areirreplaceable because they are unable to regenerate.

"Raising the $45 million is a good sign that Cephalon's doing OK,considering that since they raised $60 million in an IPO in Junelast year, their stock has been a poor performer H never seeingmuch higher than $19," said Jay Silverman, an analyst withWertheim & Schroder in New York. The stock has traded in a52-week range of $7 to $19.50. Shares (NASDAQ:CEPH) closedWednesday at $11.38 per share, up 38 cents.

Analysts predict that the potential U.S. market is at least $100million for the disease, for which there is no effective therapy.ALS is a fatal disorder affecting the nervous system. Itdeteriorates motor neurons and leads to the loss of musclecontrol and to death from respiratory failure in 25,000 to30,000 people in the United States.

Several other companies are developing drugs for ALS, notablySynergen Inc. of Boulder, Colo., and Regeneron PharmaceuticalsInc. of Tarrytown, N.Y. They are involved in a patent disputeover CNTF (ciliary neurotrophic factor), which is also intendedfor use in ALS. Synergen has two issued patents on CNTF, andRegeneron has applied for a patent.

Cephalon, however, views the competition in a positive light."We don't see myotrophin as a competing drug for ALS, butrather potentially complementary," Peacock said. "The diseaseis fatal, and so the more you can do for these patients thebetter."

Cephalon's more conservative approach in clinical trials isbeneficial to its progress through the regulatory process, saidSteve Tighe, an analyst with J.P. Morgan in New York."Cephalon enjoys not having competition in its own product, astheir approach is different to Regeneron and Synergen," Tighesaid.

Analysts agree that it is difficult to predict which compoundwill ultimately be most effective in treating ALS until furtherresults are available from clinical trials, but they foresee that acombination therapy could work.

"The single-agent therapies developed by the three companiescould have a synergistic effect if used in combination," saidCowen and Co. analyst David Stone. "Both IGF-1 and CNTF haveshown to work in preclinicals. The question remains whichrescue factor is going to be best."

-- Michelle Slade Associate Editor

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