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News Release
Cephalon Reported Financial Results for the Second Quarter of 2011


Sales For The Period Were $730 Million
Basic Income Per Common Share Increased 31 Percent

FRAZER, Pa., Aug. 2, 2011 /PRNewswire via COMTEX/ -- Cephalon, Inc. (Nasdaq: CEPH) today reported second quarter 2011 net sales of $730.1 million, a 2 percent increase compared to net sales of $712.4 million for the second quarter of 2010. Basic income per common share for the period was $1.54 compared to $1.18 for the second quarter of 2010. Excluding amortization expense and certain other items, adjusted net income for the second quarter of 2011 was $142.6 million, a 14 percent decrease versus the same period in 2010. Basic adjusted income per common share for the quarter was $1.86, a 15 percent decrease from the $2.20 for the second quarter of 2010.

Central nervous system (CNS) franchise net sales were $332.3 million during the quarter, a 5 percent decrease compared to the same period last year. Pain franchise reported net sales of $140.6 million, a 4 percent increase versus second quarter 2010. Oncology franchise net sales were $158.8 million, a 22 percent increase over the same period last year due to strong net sales of TREANDA® (bendamustine hydrochloride) of $125.8 million. Sales of other products remained relatively constant at $98.5 million.

During the second quarter 2011 Cephalon recorded net cash provided by operating activities of $74.2 million and ended the period with $997.5 million of cash and cash equivalents.

"We continue to work with both US and European authorities to obtain all necessary regulatory approvals in order to close the transaction with Teva," said Kevin Buchi, Chief Executive Officer.

About Cephalon, Inc.

Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life of individuals around the world. Since its inception in 1987, Cephalon has brought first-in-class and best-in-class medicines to patients in several therapeutic areas. Cephalon has the distinction of being one of the world's fastest-growing biopharmaceutical companies, now among the Fortune 1000 and a member of the S&P 500 Index, employing approximately 4,000 people worldwide. The company sells numerous branded and generic products around the world. In total, Cephalon sells more than 180 products in more than 100 countries. More information on Cephalon and its products is available at http://www.cephalon.com/.

In addition to historical facts or statements of current condition, this press release may contain forward-looking statements. Forward-looking statements provide Cephalon's current expectations or forecasts of future events. These may include statements regarding Teva's proposed acquisition of Cephalon; anticipated scientific progress on its research programs; development of potential pharmaceutical products; interpretation of clinical results; prospects for regulatory approval; manufacturing development and capabilities; market prospects for its products; and other statements regarding matters that are not historical facts. You may identify some of these forward-looking statements by the use of words in the statements such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" or other words and terms of similar meaning. Cephalon's performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties facing Cephalon such as those set forth in its reports on Form 8-K, 10-Q and 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements. Furthermore, Cephalon does not intend to update publicly any forward-looking statement, except as required by law. The Private Securities Litigation Reform Act of 1995 permits this discussion.

This press release and/or the financial results attached to this press release include "Adjusted Net Income," "Basic Adjusted Income per Common Share," and "Diluted Adjusted Income Per Common Share," amounts that are considered "non-GAAP financial measures" under SEC rules. As required, we have provided reconciliations of these measures. Additional required information is located in the Form 8-K furnished to the SEC in connection with this press release.



Contacts:


Media:

Investors:

Fritz Bittenbender

Robert (Chip) Merritt

610-883-5855

610-738-6376

fbittenb@cephalon.com

cmerritt@cephalon.com





Natalie deVane

Joseph Marczely

610-727-6536

610-883-5894

ndevane@cephalon.com

jmarczely@cephalon.com



CEPHALON, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



Three Months Ended


Six Months Ended


June 30,


June 30,


2011


2010


2011


2010

REVENUES:








Net sales

$ 730,100


$ 712,435


$ 1,466,102


$ 1,289,116

Other revenues

8,163


14,475


17,274


34,379


738,263


726,910


1,483,376


1,323,495

COSTS AND EXPENSES:








Cost of sales

123,667


170,739


281,650


275,782

Research and development

134,851


101,261


257,164


206,638

Selling, general and administrative

276,068


258,468


526,754


463,109

Change in fair value of contingent consideration

2,600


-


4,401


-

Restructuring charges

4,279


4,581


5,137


5,325

Acquired in-process research and development

-


-


30,000


-

Impairment and (gain) loss on sale of assets

48,408


-


54,056


-


589,873


535,049


1,159,162


950,854









INCOME FROM OPERATIONS

148,390


191,861


324,214


372,641









OTHER INCOME (EXPENSE):








Interest income

1,253


1,300


2,270


3,230

Interest expense

(24,475)


(28,182)


(48,682)


(54,973)

Change in fair value of investments

99,473


-


264,208


-

Other income (expense), net

(26,360)


(9,332)


(29,388)


(16,603)


49,891


(36,214)


188,408


(68,346)









INCOME BEFORE INCOME TAXES

198,281


155,647


512,622


304,295









INCOME TAX EXPENSE

83,089


63,254


185,820


111,565









NET INCOME

115,192


92,393


326,802


192,730









NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST

2,983


(3,329)


2,461


6,899









NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 118,175


$ 89,064


$ 329,263


$ 199,629

















BASIC INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.

$ 1.54


$ 1.18


$ 4.32


$ 2.66









DILUTED INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.

$ 1.34


$ 1.11


$ 3.97


$ 2.46









WEIGHTED AVERAGE NUMBER OF COMMON








SHARES OUTSTANDING ATTRIBUTABLE TO








CEPHALON, INC.

76,679


75,192


76,213


75,092









WEIGHTED AVERAGE NUMBER OF COMMON








SHARES OUTSTANDING-ASSUMING DILUTION








ATTRIBUTABLE TO CEPHALON, INC.

88,303


80,507


82,871


81,223

CEPHALON, INC. AND SUBSIDIARIES


Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)




Three Months Ended



June 30,



2011


2010







GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 118,175


$ 89,064







Cost of sales adjustments

(834)

(1)

52,209

(1)

Research and development adjustments

320

(2)

317

(2)

Selling, general and administrative adjustments

24,774

(3)

9,225

(3)

Change in fair value of contingent consideration adjustment

2,600

(4)



Restructuring adjustment

4,279

(5)

4,581

(5)

Impairment and (gain) loss on sale of assets adjustment

48,408

(6)



Interest expense adjustment

16,016

(7)

18,476

(7)

Change in fair value of investments adjustment

(99,473)

(8)



Other (income) expense adjustment

16,483

(9)

5,398

(9)

Income tax adjustment

11,875

(10)

(14,017)

(10)

*Noncontrolling Interest adjustments:





Other revenues

-


-


Research and development

1,214


(2,018)


Selling, general and administrative

706


200


Interest income

-


-


Interest expense

424


(3)


Other income (expense)

-


1


Income taxes

-


(2,658)


Less amount attributable to noncontrolling interest

(2,344)


4,478



24,448


76,189







ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 142,623


$ 165,253












BASIC ADJUSTED INCOME PER COMMON SHARE

$ 1.86


$ 2.20







DILUTED ADJUSTED INCOME PER COMMON SHARE

$ 1.62


$ 2.05







WEIGHTED AVERAGE NUMBER OF COMMON





SHARES OUTSTANDING

76,679


75,192







WEIGHTED AVERAGE NUMBER OF COMMON





SHARES OUTSTANDING-ASSUMING DILUTION

88,303


80,507







* Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.


Notes to Reconciliation of GAAP Net Income to Adjusted Net Income


(1) To exclude the on-going amortization of acquired intangible assets ($26.9M in 2011: $32.2M in 2010), the reversal of a royalty accrual related to AMRIX sales milestones that are no longer expected to be payable ($27.8M in 2011), accelerated depreciation related to restructuring ($5.5M in 2010), amortization of inventory revaluation related to Mepha ($5.0M in 2010) and the write-off of modafinil purchase commitments in excess of estimated requirements ($9.4M in 2010).


(2) To exclude accelerated depreciation related to worldwide restructuring ($0.3M in 2011 and 2010).


(3) In 2011, to exclude charges related to the unsolicited proposal we received from Valeant Pharmaceuticals International and the Agreement and Plan of Merger with Teva Pharmaceutical Industries Ltd. ($20.9M), and charges associated with recent acquisitions. In 2010, to exclude charges related to the acquisition of Mepha ($7.9M) and the acquisition of Ception noncontrolling interest ($1.4M).


(4) In 2011, to exclude the change in fair value of the Ception Therapeutics, Inc. ($1.4M), BioAssets Development Company ($0.3M) and Gemin X Pharmaceuticals ($0.9M) contingent consideration.


(5) To exclude costs related to restructurings.


(6) In 2011, to exclude costs related to the impairments of AMRIX ($43.3M) and Mepha in-process research and development ($5.2M).


(7) To exclude imputed interest expense associated with convertible debt.


(8) In 2011, to exclude the change in fair value of our investments in Mesoblast Ltd. ($91.2M) and ChemGenex Pharmaceuticals Ltd. ($8.3M).


(9) In 2011, to exclude costs and changes in fair value of certain derivative contracts ($16.5M). In 2010, to exclude losses related to the acquisition of Mepha AG, including a loss on foreign exchange derivative instruments ($2.9M) and a loss on foreign exchange of Swiss Franc acquisition funds ($2.5M).


(10) To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES


Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)




Six Months Ended



June 30,



2011


2010







GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 329,263


$ 199,629







Cost of sales adjustments

28,284

(1)

83,175

(1)

Research and development adjustments

320

(2)

676

(2)

Selling, general and administrative adjustments

25,704

(3)

11,502

(3)

Change in fair value of contingent consideration adjustments

4,401

(4)

-


Restructuring adjustment

5,137

(5)

5,325

(5)

Acquired in-process research and development adjustments

30,000

(6)

-


Impairment and (gain) loss on sale of assets adjustment

54,056

(7)

-


Interest expense adjustment

31,691

(8)

36,055

(8)

Change in fair value of investments adjustments

(264,208)

(9)

-


Other (income) expense adjustment

16,989

(10)

11,567

(10)

Income tax adjustment

39,359

(11)

(38,690)

(11)

*Noncontrolling Interest adjustments:





Other revenues

-


(31)


Research and development

1,417


6,094


Selling, general and administrative

1,063


3,222


Other income (expense)

-


166


Interest income

-


(7)


Interest expense

723


154


Income taxes

-


(3,848)


Less amount attributable to noncontrolling interest

(3,203)


(5,750)



(28,267)


109,610







ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 300,996


$ 309,239












BASIC ADJUSTED INCOME PER COMMON SHARE

$ 3.95


$ 4.12







DILUTED ADJUSTED INCOME PER COMMON SHARE

$ 3.63


$ 3.81







WEIGHTED AVERAGE NUMBER OF COMMON





SHARES OUTSTANDING

76,213


75,092







WEIGHTED AVERAGE NUMBER OF COMMON





SHARES OUTSTANDING-ASSUMING DILUTION

82,871


81,223







* Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.


Notes to Reconciliation of GAAP Net Income to Adjusted Net Income


(1) To exclude the on-going amortization of acquired intangible assets ($56.0M in 2011; $58.0M in 2010), the reversal of a royalty accrual related to AMRIX sales milestones that are no longer expected to be payable ($27.8M in 2011), accelerated depreciation related to restructuring ($10.7M in 2010), amortization of inventory revaluation related to Mepha ($5.0M in 2010) and the write-off of modafinil purchase commitments in excess of estimated requirements ($9.4M in 2010).


(2) To exclude accelerated depreciation related to restructuring.


(3) In 2011, to exclude charges related to the unsolicited proposal we received from Valeant Pharmaceuticals International and the Agreement and Plan of Merger with Teva Pharmaceutical Industries Ltd. ($20.9M), and charges associated with recent acquisitions. In 2010, to exclude charges related to the acquisition of Mepha ($10.1M) and the acquisition of Ception noncontrolling interest ($1.4M).


(4) In 2011, to exclude the change in fair value of the Ception Therapeutics, Inc. ($2.7M), BioAssets Development Company ($0.8M) and Gemin X Pharmaceuticals ($0.9M) contingent consideration.


(5) To exclude costs related to restructurings.


(6) In 2011, to exclude costs related to the acquisition of worldwide license rights to Mesoblast Limited's proprietary technology platform.


(7) In 2011, to exclude costs related to the impairments of AMRIX ($43.3M) and Mepha in-process research and development ($5.2M) and costs associated with our plant to sell our manufacturing facility in Mitry Mory, France ($6.1M), offset by a gain on the sale of our facility in Savigny le Temple, France ($0.4M).


(8) To exclude imputed interest expense associated with convertible debt.


(9) In 2011, to exclude the change in fair value of our investments in Mesoblast Ltd. ($250.8M) and ChemGenex Pharmaceuticals Ltd. ($13.4M).


(10) In 2011, to exclude costs and changes in fair value of certain derivative contracts ($17.0M). In 2010, to exclude losses related to the acquisition of Mepha AG, including a loss on foreign exchange derivative instruments ($9.1M) and a loss on foreign exchange of Swiss Franc acquisition funds ($2.5M).


(11) To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to; changes in valuation allowances and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES













CONSOLIDATED SALES DETAIL

(In thousands)

(Unaudited)















Three Months Ended

%



June 30,

Increase



2011


2010


(Decrease)



United States


Europe


Total


United States


Europe


Total


United States


Europe


Total

Sales:



















CNS



















Proprietary CNS



















PROVIGIL


$ 237,684


$ 13,462


$ 251,146


$ 268,550


$ 16,280


$ 284,830


(11%)


(17%)


(12%)

NUVIGIL


58,576


-


58,576


40,968


-


40,968


43


-


43

GABITRIL


8,765


1,165


9,930


11,118


1,024


12,142


(21)


14


(18)

Other Proprietary CNS


-


2,608


2,608


-


2,652


2,652


-


(2)


(2)

Generic CNS


-


9,990


9,990


-


8,574


8,574


-


17


17

CNS


305,025


27,225


332,250


320,636


28,530


349,166


(5)


(5)


(5)




















Pain



















Proprietary Pain



















FENTORA


41,910


9,516


51,426


38,861


5,661


44,522


8


68


16

Other Proprietary Pain


-


-


-


-


49


49


-


(100)


(100)

Generic Pain



















ACTIQ


14,607


15,387


29,994


14,471


14,067


28,538


1


9


5

Generic OTFC


6,015


-


6,015


11,535


-


11,535


(48)


-


(48)

AMRIX


13,554


-


13,554


28,548


-


28,548


(53)


-


(53)

Generic AMRIX


11,420


-


11,420


-


-


-


100


-


100

Other Generic Pain


-


28,224


28,224


-


21,556


21,556


-


31


31

Pain


87,506


53,127


140,633


93,415


41,333


134,748


(6)


29


4




















Oncology



















Proprietary Oncology



















TREANDA


125,847


-


125,847


99,732


-


99,732


26


-


26

Other Proprietary Oncology


5,017


21,699


26,716


6,253


18,769


25,022


(20)


16


7

Generic Oncology


-


6,188


6,188


-


5,704


5,704


-


8


8

Oncology


130,864


27,887


158,751


105,985


24,473


130,458


23


14


22




















Other



















Other Proprietary


4,726


1,804


6,530


2,883


1,754


4,637


64


3


41

Other Generic


4,536


87,400


91,936


3,058


90,368


93,426


48


(3)


(2)

Other


9,262


89,204


98,466


5,941


92,122


98,063


56


(3)


0






















$ 532,657


$ 197,443


$ 730,100


$ 525,977


$ 186,458


$ 712,435


1%


6%


2%






















Six Months Ended

%



June 30,

Increase



2011


2010


(Decrease)



United States


Europe


Total


United States


Europe


Total


United States


Europe


Total

Sales:



















CNS



















Proprietary CNS



















PROVIGIL


$ 481,027


$ 28,515


$ 509,542


$ 513,151


$ 34,130


$ 547,281


(6%)


(16%)


(7%)

NUVIGIL


110,608


-


110,608


75,890


-


75,890


46


-


46

GABITRIL


19,803


2,254


22,057


19,417


2,486


21,903


2


(9)


1

Other Proprietary CNS


-


4,961


4,961


-


5,658


5,658


-


(12)


(12)

Generic CNS


-


19,765


19,765


-


10,885


10,885


-


82


82

CNS


611,438


55,495


666,933


608,458


53,159


661,617


0


4


1




















Pain



















Proprietary Pain



















FENTORA


80,953


16,874


97,827


77,341


9,390


86,731


5


80


13

Other Proprietary Pain


-


61


61


-


108


108


-


(44)


(44)

Generic Pain



















ACTIQ


30,093


28,056


58,149


29,411


32,558


61,969


2


(14)


(6)

Generic OTFC


15,038


-


15,038


24,314


-


24,314


(38)


-


(38)

AMRIX


36,586


-


36,586


53,683


-


53,683


(32)


-


(32)

Generic AMRIX


11,420


-


11,420


-


-


-


100


-


100

Other Generic Pain


-


52,090


52,090


-


23,698


23,698


-


120


120

Pain


174,090


97,081


271,171


184,749


65,754


250,503


(6)


48


8




















Oncology



















Proprietary Oncology



















TREANDA


243,572


-


243,572


180,989


-


180,989


35


-


35

Other Proprietary Oncology


10,520


41,433


51,953


10,808


38,960


49,768


(3)


6


4

Generic Oncology


-


12,366


12,366


-


9,858


9,858


-


25


25

Oncology


254,092


53,799


307,891


191,797


48,818


240,615


32


10


28




















Other



















Other Proprietary


10,731


4,018


14,749


8,247


1,754


10,001


30


129


47

Other Generic


11,687


193,671


205,358


7,154


119,226


126,380


63


62


62

Other


22,418


197,689


220,107


15,401


120,980


136,381


46


63


61






















$ 1,062,038


$ 404,064


$ 1,466,102


$ 1,000,405


$ 288,711


$ 1,289,116


6%


40%


14%

CEPHALON, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)







June 30,


December 31,


2011


2010

CURRENT ASSETS:




Cash and cash equivalents

$ 997,476


$ 1,160,239

Receivables, net

486,519


431,333

Inventory, net

305,421


291,360

Deferred tax assets, net

206,895


213,798

Other current assets

98,272


54,845

Total current assets

2,094,583


2,151,575





INVESTMENTS ($505,800 and $155,808 at fair value in 2011 and 2010, respectively)

528,067


168,494

PROPERTY AND EQUIPMENT, net

507,152


502,856

GOODWILL

866,272


822,071

INTANGIBLE ASSETS, net

1,724,246


1,212,387

DEBT ISSUANCE COSTS

11,829


14,196

OTHER ASSETS

20,937


20,254


$ 5,753,086


$ 4,891,833





CURRENT LIABILITIES:




Current portion of long-term debt, net

$ 672,102


$ 651,997

Accounts payable

120,128


104,477

Accrued expenses

479,080


460,141

Total current liabilities

1,271,310


1,216,615





LONG-TERM DEBT

405,985


391,416

DEFERRED TAX LIABILITIES, net

237,487


172,589

OTHER LIABILITIES

303,366


273,438

Total liabilities

2,218,148


2,054,058





REDEEMABLE EQUITY

153,600


170,183





EQUITY:




Cephalon Stockholders' Equity




Common stock, $0.01 par value

813


791

Additional paid-in capital

2,633,913


2,428,450

Treasury stock, at cost

(225,881)


(225,870)

Accumulated earnings

576,349


247,086

Accumulated other comprehensive income

316,649


182,975

Total Cephalon stockholders' equity

3,301,843


2,633,432

Noncontrolling Interest

79,495


34,160

Total equity

3,381,338


2,667,592


$ 5,753,086


$ 4,891,833

CEPHALON, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Six Months Ended


June 30,


2011


2010

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$ 326,802


$ 192,730

Adjustments to reconcile net income to net cash provided by operating activities:




Deferred income tax expense (benefit)

52,156


(18,059)

Shortfall tax benefits from stock-based compensation

(331)


(559)

Depreciation and amortization

93,389


106,724

Stock-based compensation expense

16,950


21,630

Amortization of debt discount and debt issuance costs

32,776


35,692

Changes in fair value of investments

(264,208)


-

Loss (gain) on foreign exchange contracts

(5,089)


9,499

Impairment and loss (gain) on sale of fixed assets

54,056


-

Other

23,090


3,752

Changes in operating assets and liabilities:




Receivables

(37,532)


(25,581)

Inventory

5,646


18,985

Other assets

1,207


9,474

Accounts payable, accrued expenses and deferred revenues

(11,445)


23,955

Other liabilities

(65,462)


(189)

Net cash provided by operating activities

222,005


378,053





CASH FLOWS FROM INVESTING ACTIVITIES:




Purchases of property and equipment

(28,049)


(22,997)

Proceeds from sale of property and equipment

818


-

Cash balance from consolidation of variable interest entity

15,513


-

Acquisition of Mepha net of cash acquired



(549,463)

Acquisition of Gemin X, net of cash acquired

(184,198)



Acquisition of ChemGenex, net of cash acquired

(179,931)



Purchases of investments

(135,453)


(60)

(Cash settlements of) proceeds from foreign exchange contracts

7,111


(9,499)

Net cash used for investing activities

(504,189)


(582,019)





CASH FLOWS FROM FINANCING ACTIVITIES:




Proceeds from sale of common stock

349


-

Proceeds from exercises of common stock options

133,703


14,370

Windfall tax benefits from stock-based compensation

12,060


-

Acquisition of Ception non-controlling interest

-


(299,289)

Acquisition of ChemGenex Ltd. non-controlling interest

(6,602)



Acquisition of treasury stock

-


(33)

Payments on and retirements of long-term debt

(35,763)


(221,478)

Net cash provided by (used for) financing activities

103,747


(506,430)





EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

15,674


(9,793)





NET INCREASE IN CASH AND CASH EQUIVALENTS

(162,763)


(720,189)





CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1,160,239


1,647,635





CASH AND CASH EQUIVALENTS, END OF PERIOD

$ 997,476


$ 927,446

SOURCE: Cephalon, Inc.