<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
-----------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from ______________ to _______________
Commission File Number 0-19119
----------------------------
CEPHALON, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 23-2484489
--------------------------- ---------------------------
(State Other Jurisdiction of Incorporation (I.R.S. Employer Identification
or Organization) Number)
145 Brandywine Parkway, West Chester, PA 19380
- ------------------------------------------ ----------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 344-0200
----------------------------
Not Applicable
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Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of November 9, 1998
------------------------------ ----------------------------------
Common Stock, par value $.01 28,719,673 Shares
This Report Includes a Total of 21 Pages
1
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CEPHALON, INC. and SUBSIDIARIES
-------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - 3
September 30, 1998 and December 31, 1997
Consolidated Statements of Operations - 4
Three and nine months ended September 30, 1998 and 1997
Consolidated Statements of Cash Flows - 5
Nine months ended September 30, 1998 and 1997
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
2
<PAGE>
CEPHALON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 3,717,000 $ 10,271,000
Reverse repurchase agreements 23,458,000 27,414,000
Short-term investments 54,207,000 81,786,000
Other 4,828,000 7,680,000
---------------- ----------------
Total current assets 86,210,000 127,151,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $12,629,000 and $11,099,000 21,163,000 21,853,000
OTHER 1,527,000 2,204,000
---------------- ----------------
$ 108,900,000 $ 151,208,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,331,000 $ 2,724,000
Accrued expenses 14,862,000 16,075,000
Current portion of long-term debt 1,605,000 1,734,000
---------------- ----------------
Total current liabilities 18,798,000 20,533,000
LONG-TERM DEBT (Note 2) 15,408,000 27,587,000
OTHER 3,227,000 2,750,000
---------------- ----------------
Total liabilities 37,433,000 50,870,000
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized, none issued -- --
Common stock, $.01 par value, 100,000,000 shares authorized,
28,696,191 and 27,395,254 shares issued and outstanding 287,000 274,000
Additional paid-in capital 330,709,000 318,450,000
Accumulated deficit (259,529,000) (218,386,000)
---------------- ----------------
Total stockholders' equity 71,467,000 100,338,000
---------------- ----------------
$ 108,900,000 $ 151,208,000
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CEPHALON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES: $ 2,773,000 $ 4,599,000 $ 9,753,000 $ 14,116,000
OPERATING EXPENSES:
Research and development 10,456,000 10,111,000 32,783,000 37,857,000
Selling, general and administrative 7,178,000 7,607,000 21,074,000 26,137,000
--------------- --------------- --------------- ---------------
17,634,000 17,718,000 53,857,000 63,994,000
--------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (14,861,000) (13,119,000) (44,104,000) (49,878,000)
--------------- --------------- --------------- ---------------
INTEREST:
Income 1,438,000 1,932,000 4,418,000 5,992,000
Expense (446,000) (972,000) (1,457,000) (2,475,000)
--------------- --------------- --------------- ---------------
992,000 960,000 2,961,000 3,517,000
--------------- --------------- --------------- ---------------
LOSS $ (13,869,000) $ (12,159,000) $ (41,143,000) $ (46,361,000)
=============== =============== =============== ===============
BASIC AND DILUTED LOSS PER SHARE (Note 1) $ (0.48) $ (0.47) $ (1.45) $ (1.84)
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 28,655,804 25,742,380 28,313,019 25,193,900
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CEPHALON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss $ (41,143,000) $ (46,361,000)
Adjustments to reconcile loss to net cash
used for operating activities:
Depreciation and amortization 1,530,000 1,708,000
Non-cash compensation expense 1,466,000 2,311,000
Other 47,000 --
(Increase) decrease in operating assets:
Other current assets 2,531,000 330,000
Other long-term assets (62,000) (1,627,000)
Increase (decrease) in operating liabilities:
Accounts payable (353,000) (77,000)
Accrued expenses (1,298,000) 1,926,000
Other long-term liabilities 477,000 360,000
---------------- ----------------
Net cash used for operating activities (36,805,000) (41,430,000)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (573,000) (507,000)
Sales and maturities of investments, net 31,535,000 23,545,000
---------------- ----------------
Net cash provided by investing activities 30,962,000 23,038,000
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of common stock options and warrants 406,000 2,631,000
Proceeds from issuance of long-term debt -- 30,000,000
Principal payments on long-term debt (1,117,000) (4,907,000)
---------------- ----------------
Net cash (used for) provided by financing activities (711,000) 27,724,000
---------------- ----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,554,000) 9,332,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,271,000 5,671,000
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,717,000 $ 15,003,000
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CEPHALON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------
Business
Cephalon, Inc. ("Cephalon" or the "Company") seeks to discover, develop and
market pharmaceutical products to treat neurological disorders and cancer. The
Company has negative cash flow from operations and has funded its operations
primarily from the proceeds of public and private placements of its equity
securities.
The Company's business is subject to a number of significant risks, including
the risks inherent in pharmaceutical research and development activities and in
seeking product marketing approvals in a highly regulated environment. The
Company has filed an application for U.S. Food and Drug Administration ("FDA")
approval to market PROVIGIL(R) (modafinil) Tablets in the United States for the
treatment of excessive daytime sleepiness associated with narcolepsy. The
Company is highly dependent upon obtaining timely FDA approval to market
PROVIGIL and there can be no assurance that this application will be approved in
a timely manner.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. They do not include all of the information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K, filed with the Securities and Exchange Commission,
which includes financial statements as of and for each of the three years in the
period ended December 31, 1997. The results of the Company's operations for any
interim period are not necessarily indicative of the results of the Company's
operations for any other interim period or for a full year.
BASIC AND DILUTED LOSS PER SHARE
The Company has adopted Statement of Financial Standards ("SFAS") No. 128,
"Earnings per Share," which requires dual presentation of basic and diluted
earnings per share ("EPS") for complex capital structures on the face of the
statement of operations. Basic EPS is computed by dividing net income or loss
by the weighted-average number of common shares outstanding during the period.
Diluted EPS is similar to basic EPS except that the effect of converting or
exercising all potentially dilutive securities also is generally included in the
denominator. The Company's calculation of diluted EPS excludes the effect of
converting or exercising stock options, restricted stock awards, warrants and
convertible notes since, due to the loss presented in each period, the effect
would be antidilutive.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Standards
("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income or loss and its
components in financial statements. For the periods presented, comprehensive
loss approximated the loss as presented in the accompanying Statements of
Operations.
SEGMENT INFORMATION
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." This statement establishes
standards for reporting financial and descriptive information about an
enterprise's operating segments in its financial statements. This statement need
not be applied to interim financial statements in the initial year of
application.
6
<PAGE>
CEPHALON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. LONG-TERM DEBT
--------------
In April 1997, the Company completed a $30,000,000 private placement of senior
convertible notes (the "Notes"). As of December 31, 1997, $18,674,000 in
principal of the Notes had been converted into 1,938,000 shares of common stock.
During the nine months ended September 30, 1998, the remaining balance of
$11,326,000 in principal of the Notes was converted into 1,210,000 shares of
common stock.
3. COMMITMENTS AND CONTINGENCIES
-----------------------------
Related party
Cephalon Clinical Partners, L.P. (the "Partnership") has granted the Company
an exclusive license (the "Interim License") to manufacture and market
MYOTROPHIN for human therapeutic use within the United States, Canada and Europe
(the "Territory") in return for certain royalty payments and a payment of
approximately $16,000,000 (the "Milestone Payment") that is to be made if
MYOTROPHIN receives regulatory approval in the United States or certain other
countries within the Territory. The Company has the option to pay the Milestone
Payment in cash, common stock, or a combination thereof.
The Company has a contractual option to purchase all of the limited
partnership interests in the Partnership (the "Purchase Option") in specified
circumstances following the initiation of commercial sales, if any, of
MYOTROPHIN. To exercise the Purchase Option, Cephalon is required to make an
advance payment of $40,275,000 in cash or, at Cephalon's election, $42,369,000
in shares of the Company's common stock, valued at the market price at the time
the Purchase Option is exercised. In addition to the advance payment, the
exercise of the Purchase Option requires the Company to make future payments to
the former limited partners for a period of eleven years after exercise at a
royalty rate of 10.1% (subject to reduction under certain circumstances) of
MYOTROPHIN sales in the Territory. If the Company does not exercise the Purchase
Option prior to its expiration, the Interim License will terminate and all
development and marketing rights to MYOTROPHIN in the Territory would revert to
the Partnership, which may commercialize MYOTROPHIN itself or license or assign
its rights to a third party. The Company would not receive any benefits from
such commercialization.
Late in 1995, the Partnership depleted all of its available funding and has
not provided further funding of MYOTROPHIN development costs to the Company. The
amount of additional funding required for further development is determined by
the Partnership's general partner in advance of each quarter, and each quarter,
the Company has the right, but not the obligation, to contribute such funds. If
the Company decides to discontinue funding of the MYOTROPHIN program, the
Purchase Option and Interim License will terminate and commercialization rights
to MYOTROPHIN will revert back to the Partnership, as described in the preceding
paragraph.
The January 1994 collaboration between the Company and Chiron Corporation
("Chiron") is subject to the rights of the Partnership. The Company is solely
responsible for making any royalty and milestone payments owed to the
Partnership and for funding the Purchase Option, if it elects to exercise the
option.
The general partner of the Partnership is a wholly-owned subsidiary of the
Company, which owns 1% of the Partnership.
7
<PAGE>
CEPHALON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
LEGAL PROCEEDINGS
The Company and certain of its officers have been named as defendants in a
number of civil actions filed in the U.S. District Court for the Eastern
District of Pennsylvania, which have been consolidated into a single class
action. The certified class of plaintiffs includes those who purchased the
Company's securities (as well as options to purchase or sell those securities)
during the period between June 12, 1995 and June 7, 1996. The plaintiffs allege,
based in part on statements and opinions expressed at a June 1996 meeting of an
FDA advisory committee, that earlier statements by the Company about the results
of North American and European clinical studies of MYOTROPHIN were misleading.
The plaintiffs seek unspecified damages and other relief. The Company's motion
to dismiss the case was denied, and discovery has commenced and is expected to
continue through 1998. A judgment adverse to the Company could result in an
assessment which materially exceeds the coverage which may be available under
the Company's directors' and officers' liability insurance. Based on presently
available information, management believes that it has meritorious defenses to
the claims and intends to vigorously defend the action. However, the defense of
the action is expensive, and the costs of defense will reduce the available
insurance coverage. In addition, the insurance carriers may take the position
that coverage is unavailable. Management believes that it is too early in the
proceedings to determine with any certainty the outcome of this action or the
potential liability of the Company, if any.
Due to the Company's involvement in promoting Stadol NS(R) (butorphanol
tartrate) Nasal Spray, a product of Bristol Myers Squibb Company ("BMS"), the
Company has been named as a defendant in two recent product liability actions
brought against BMS. The Company cannot predict with certainty the outcome of
this litigation, although it is believed that any expenses or damages that are
incurred will be paid by BMS under the indemnification provisions of the co-
promotion agreement. As such, the Company does not believe that these actions
will have a material adverse effect on the Company's financial condition or
results of operations.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain Risks Related to Cephalon's Business
In addition to historical facts or statements of current condition, this
report contains forward-looking statements. Forward-looking statements provide
our current expectations or forecasts of future events. These may include
statements regarding anticipated scientific progress, development of potential
pharmaceutical products, prospects for regulatory approval, manufacturing
development and capabilities, sales and marketing capabilities, and other
statements regarding matters that are not historical fact. You can 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.
Our 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 such
as those set forth below and in our 8-K and 10-K reports to the SEC. Given
these risks and uncertainties, any or all of these forward-looking statements
may prove to be incorrect. Therefore, you are cautioned not to place too much
reliance on any such factors or forward-looking statements. Furthermore, we do
not intend (and we are not obligated) to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
This discussion is provided as permitted by the Private Securities Litigation
Reform Act of 1995.
Risks Inherent in Research and Development of Pharmaceutical Products
We are highly focused on research and development of potential future
pharmaceutical products and we have not yet developed any products that are
available for sale in the United States. Even if we ultimately have products
available for sale, we will have to continue substantial research and
development to generate new product leads.
Research of pharmaceutical products is a very risky and speculative activity.
Any potential products require time consuming and very costly research,
development, preclinical studies, clinical testing, regulatory approval, and
development and scale-up of manufacturing processes prior to commercialization.
Furthermore, in all of these activities, we have limited experience and
resources and compete against major multinational pharmaceutical companies.
Regulatory Uncertainties Related to PROVIGIL(R) (modafinil) Tablets
Regulatory approval is required to market our products. In response to our new
drug application (NDA) seeking approval to market PROVIGIL in the United States
for the treatment of excessive daytime sleepiness associated with narcolepsy,
the U.S. Food and Drug Administration (FDA) issued an "approvable letter" in
December 1997. In this letter, the FDA requested clarification and/or
confirmation of some of the information contained in the NDA. We submitted a
response to this request, and the FDA has indicated that its target date for a
decision on the NDA is December 31, 1998. This date represents only a goal of
the agency and its review could take longer. We cannot be sure that the FDA
will approve the NDA by the end of 1998 or at all.
On April 14, 1998, the Drug Enforcement Administration (DEA) published a
Notice of Proposed Rulemaking to classify modafinil as a controlled substance in
Schedule IV under the Controlled Substances Act. The public comment period
expired on May 14, 1998. In the proposed rule, the DEA has indicated that the
final rule will not be completed unless and until the FDA approves the PROVIGIL
NDA. Even if the FDA grants marketing authorization, we cannot begin to sell
PROVIGIL in the United States until the DEA's classification of modafinil is
completed. The DEA is not obligated to issue the final rule by any specific
date, and any delay could delay the initiation of sales. Some physicians may be
reluctant to prescribe the drug due to the restrictions imposed by the
Controlled Substances Act and the commercial impact, if any, of marketing
PROVIGIL as a controlled substance cannot be predicted.
9
<PAGE>
Need for Product Approval and Additional Funds
During the nine months ended September 30, 1998, we had significant cash
outflow from operations including substantial amounts of money spent in
conducting our research and development activities and in preparing for the
potential commercial launch of PROVIGIL in the United States. As of September
30, 1998, we had enough cash resources to fund our operations at their current
level for at least twelve months. Even if PROVIGIL is approved in the United
States, it will be at least several years, if ever, before sales from PROVIGIL
will provide enough funds to generate positive cash flow from operations.
Therefore, we will need to raise substantial additional funds to continue our
operations at their current level.
To date, most of the funds we have raised has been through the equity markets.
It is currently very difficult to raise funds in the equity markets and, if we
do not receive approval to market PROVIGIL, it will become even more difficult.
We may have to sell a substantial amount of our common stock to raise a
sufficient level of funds. If we issue common stock or securities convertible
into common stock in order to raise additional funds, the existing shareholders'
percentage ownership of Cephalon would be reduced.
If we cannot raise additional funds, we will have to reduce our present level
of spending which may involve curtailing or restructuring our operations. Even
with such curtailment, we would not be able to eliminate our fixed costs, such
as occupancy expenses and debt service.
Volatility of Stock Price
The market price and trading volume of shares of our common stock is very
volatile, and we expect it to continue to be volatile for the foreseeable
future. Any future negative announcements (such as adverse regulatory
decisions, disputes concerning patent or proprietary rights, or operating
results that fall below the market's expectations) could produce significant
declines in the price of our common stock. External events, such as news about
our competitors, also could negatively affect the price of our common stock.
Regulatory Uncertainties Related to MYOTROPHIN(R)(rhIGF-I) Injection
Cephalon and Chiron have withdrawn the joint marketing authorization
application for MYOTROPHIN in Europe for the treatment of ALS. We made this
decision because of comments we received from the reviewer concerning the
results of our two pivotal ALS studies. These comments led us to believe that
our application would not be approved. We may never re-apply for approval to
market MYOTROPHIN in Europe for the treatment of ALS. Furthermore, the
withdrawal of our marketing authorization application for MYOTROPHIN in Europe
may negatively affect the FDA approval process for MYOTROPHIN in the United
States.
In May 1998, the FDA issued a letter stating that the new drug application by
the Cephalon and Chiron Corporation to market MYOTROPHIN in the United States
for the treatment of amyotrophic lateral sclerosis (ALS) was "potentially
approvable," contingent, however, upon the submission of additional information
from ongoing clinical studies that demonstrates to the satisfaction of the FDA
that MYOTROPHIN is effective in the treatment of ALS. Cephalon and Chiron have
had discussions with the FDA regarding safety and efficacy data and have
submitted information from the ongoing treatment investigational new drug
program (T-IND). The T-IND is a compassionate use program that is neither
placebo-controlled nor blinded, and therefore is not designed to produce
evidence of efficacy. No additional clinical data will be submitted to the FDA
at this time. The study of MYOTROPHIN in ALS patients being conducted by Kyowa
Hakko in Japan is not under our control. Results from that study are not
expected in the foreseeable future and will not satisfy the FDA's request for
additional information. The prospects for regulatory approval of MYOTROPHIN
continue to be very uncertain in the United States. Cephalon and Chiron will
continue to evaluate the regulatory prospects of receiving MYOTROPHIN approval
and based on communications with the FDA, may determine to withdraw the new drug
application.
If the information which has been submitted to the FDA does not prove to be
sufficient for approval, a new study would be necessary, which would be
expensive and would take years to complete. We are not sure whether the
potential profits from sales of MYOTROPHIN would make an additional study
cost-effective to conduct. Even if an additional study were to be conducted, the
results of a new study may not be sufficient to obtain regulatory approval.
10
<PAGE>
No Assurance of Profitability
Even if PROVIGIL is approved in the United States, it will be at least several
years, if ever, before profitable operations will be achieved from sales of
PROVIGIL. The market for use of PROVIGIL in narcolepsy patients is relatively
small (approximately 125,000 people in the United States, of which 30,000-40,000
are believed to currently seek treatment from a physician). There is
competition for PROVIGIL in all of our licensed territories since narcolepsy is
currently treated with several drugs, all of which have been available for a
number of years and are available in inexpensive generic forms.
Manufacturing Uncertainties
There are a number of uncertainties related to the manufacture of our
products. Laboratoire L. Lafon is our sole supplier of bulk modafinil compound.
Furthermore, we have only one supplier that is qualified to manufacture finished
PROVIGIL tablets for commercial or clinical use, and one of the raw materials
used in the finished product is obtained through a company that we believe to be
the only available source of the material. We rely on Chiron's U.S.
manufacturing facility as the sole source of supply for MYOTROPHIN. Chiron has
only limited experience in producing MYOTROPHIN on a commercial scale, and we
can not be sure that the transition to commercial production would be
successful. If these suppliers are unable to provide the material needed, we
might not be able to locate alternatives. Our failure to locate other suppliers
could result in significant costs and delays, damage the commercial prospects
for PROVIGIL and MYOTROPHIN, and materially affect our business.
Cephalon and its suppliers must comply with all applicable regulatory
requirements of the FDA and foreign authorities, including current Good
Manufacturing Practice regulations. The manufacturing facilities used by
Cephalon and its suppliers are subject to inspection by the FDA and other
regulatory authorities at any time to determine compliance with current Good
Manufacturing Practice requirements. The current Good Manufacturing Practice
regulations are complex, and failure to be in compliance could lead to remedial
action, civil and criminal penalties and delays in production of material.
Legal Proceedings
Cephalon and certain of our officers have been named as defendants in a number
of civil actions filed in the U.S. District Court for the Eastern District of
Pennsylvania, which have been consolidated into a single class action. The lead
plaintiffs in the consolidated action have alleged that statements by Cephalon
about the results of North American and European clinical studies of MYOTROPHIN
were misleading. A judgment against us could materially exceed the coverage
which may be available under our directors' and officers' liability insurance.
We are vigorously defending ourselves against this lawsuit and feel that we have
meritorious defenses against the claims. However, the defense of the action is
expensive, and the costs of defense will reduce our available insurance
coverage. In addition, the insurance carriers may take the position that
coverage is unavailable. At this time, we are not able to determine with any
certainty the outcome of this action or our potential liability.
Due to our involvement in promoting Stadol NS(R) (butorphanol tartrate) Nasal
Spray, a product of Bristol Myers Squibb Company ("BMS"), we have been named as
a defendant in two recent product liability actions brought against BMS.
Although we cannot predict with certainty the outcome of this litigation, we
believe that any expenses or damages that we may incur will be paid by BMS under
the indemnification provisions of our co-promotion agreement. As such, we do
not believe that these actions will have a negative effect on our financial
condition or results of operations.
Product Liability Risks
The administration of drugs to humans, whether in clinical trials or
commercially, can result in product liability claims even if our drugs or a
collaborator's drugs are not actually at fault for causing an injury.
Furthermore, there can be adverse side effects or potentially dangerous drug
interactions caused by our products that we may not learn about or understand
fully until the drug is actually manufactured and sold for some time. Product
liability claims can be expensive to defend and may result in large judgments or
settlements against us,
11
<PAGE>
which could have a negative effect on our financial performance. We only
maintain limited product liability insurance, and claims could exceed our
coverage. Furthermore, we can not be sure that we will always be able to
purchase sufficient insurance at a price that we can afford. Even if a product
liability claim is not successful, the adverse publicity and time and expense of
defending such a claim may interfere with our business.
Impact of Other Studies
We are required to report to the FDA and other regulatory authorities the
results of clinical studies conducted by others using products we are
developing. If the results of these studies are negative or adverse experiences
are reported in clinical studies or marketing activities, the regulatory review
of our marketing applications for such products may be negatively affected.
Limited Distribution and Marketing Capabilities
We have limited experience in marketing and distributing our products. We
have a small group of employees who oversee marketing and distribution of our
products but we rely primarily on third parties to perform these activities for
us. We have only limited experience in managing and coordinating the activities
performed by these third parties.
Other Risks
We face many additional risks and uncertainties in our business due to:
* our inexperience in selling and marketing new products;
* the difficulty in obtaining and enforcing patents needed in our business and
the risk that we may violate patents held by others;
* the failure by government agencies (such as Medicare and Medicaid) and private
insurance companies to adequately reimburse users for our potential products;
* changes in technology;
* substantial competition in the markets for our potential products;
* our reliance upon key executives and scientists, and the difficulty in
retaining such people; and
* environmental and personal injury risks associated with the materials that are
used in our research and development activities.
12
<PAGE>
Liquidity and Capital Resources
Cash, cash equivalents, reverse repurchase agreements and investments at
September 30, 1998 were $81,382,000, representing 75% of total assets, and at
December 31, 1997 were $119,471,000, representing 79% of total assets. The
Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents,
reverse repurchase agreements and investments consisted primarily of short to
intermediate-term corporate obligations, overnight investments that are backed
by collateral in the form of government securities with a value equal to at
least 102% of such investments and short- to intermediate-term obligations of
the United States government.
The following is a summary of selected cash flow information for the nine
months ended September 30:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Net cash used for operating activities................. $(36,805,000) $(41,430,000)
Net cash provided by investing activities.............. 30,962,000 23,038,000
Net cash (used for) provided by financing activities... (711,000) 27,724,000
</TABLE>
Net cash used for operating activities
--Operating cash inflows
A summary of the major sources of cash receipts reflected in net cash used for
operating activities for the nine months ended September 30 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
TAP Holdings...................... $6,240,000 $5,068,000
Chiron............................ 1,962,000 5,242,000
Medtronic......................... 1,435,000 --
Kyowa Hakko....................... 902,000 1,631,000
Bristol-Myers Squibb.............. 1,482,000 3,352,000
Aguettant......................... 520,000 --
Other............................. 225,000 2,385,000
Interest.......................... 3,279,000 6,307,000
</TABLE>
The Company and TAP are parties to a licensing and research and development
collaboration (the "TAP Agreement") to develop and commercialize certain
compounds for the treatment of human cancers and prostate disorders in the
United States. Under the terms of the TAP Agreement, the Company performs
research and preclinical development of these compounds for which it is
compensated quarterly by TAP, based on a contract rate per individual assigned
to the program for that quarter and reimbursement of certain external costs, all
subject to annual budgetary maximums.
The Company has been developing MYOTROPHIN in collaboration with Chiron for
the treatment of ALS and other neurological disorders. Under the collaboration,
the costs of the program through June 30, 1998 had generally been shared equally
by the two companies. The amounts received by the Company generally represented
reimbursement from Chiron for MYOTROPHIN costs incurred by the Company in excess
of the fifty percent share of program costs. Receipt of cash from Chiron in the
nine months ended September 30, 1998 has decreased from the corresponding 1997
levels due to an overall reduction in the Company's expenditures associated with
the MYOTROPHIN program and because as of June 30, 1998, each party has agreed to
fund their own ongoing MYOTROPHIN expenditures.
Under an April 1997 agreement with Medtronic, Inc. ("Medtronic"), the Company
is co-promoting Intrathecal Baclofen Therapy (ITB(TM)) to neurologists and
physiatrists in the United States for the treatment of
13
<PAGE>
intractable spasticity. The Company receives quarterly compensation based
primarily upon sales activity and the attainment of performance targets.
In July 1993, the Company entered into an agreement (the "Kyowa Hakko
Myotrophin Agreement") with Kyowa Hakko Kogyo Co., Ltd. ("Kyowa Hakko") to
develop and market MYOTROPHIN in Japan. The payments received from Kyowa Hakko
primarily represent reimbursement of MYOTROPHIN supplies for the clinical trials
conducted in Japan by Kyowa Hakko. Included in the payments received from Kyowa
Hakko in the first nine months of 1997 is a non-recurring $900,000 milestone
payment that was paid upon the Company's filing of the MYOTROPHIN NDA in the
United States.
Cephalon markets two BMS proprietary products, Stadol NS(R) (butorphanol
tartrate) Nasal Spray and Serzone(R) (nefazodone hydrochoride), to neurologists
in the United States. Pursuant to the agreements, BMS makes quarterly payments
to the Company if the percentage of certain prescriptions written by
neurologists exceeds a predetermined base amount. The decrease in amounts
received from BMS in the nine months ended September 30, 1998 is due to a
reduction in payments earned by the Company from the comparable 1997 period and
because of timing differences in the remittance of payments.
In December 1997, the Company entered into a ten-year agreement with
Laboratoire Aguettant S.A. ("Aguettant") to promote and market Apokinon(R)
(apomorphine hydrocloride) to neurologists in France. The Company receives
quarterly compensation from Aguettant based primarily on a fee per unit of
APOKINON sold.
Cash received from other collaborations by the Company in 1998 represents a
payment from Nippon Shoji Kaisha, Ltd. ("Nippon Shoji") upon the execution of an
agreement between the Company and Nippon Shoji for the development and marketing
of modafinil in Japan. Payments from other collaborations received by the
Company in 1997 represent research funding under agreements with SmithKline
Beecham and Schering-Plough Corporation, both of which concluded in 1997.
Interest income decreased for the nine months ended September 30, 1998 as
compared to the corresponding 1997 period due principally to a decrease in the
Company's cash and investment balances.
--Operating cash outflows
The funding of research and development decreased for the nine months ended
September 30, 1998 as compared to the same 1997 period, primarily due a 12%
decrease in staffing levels. Additionally, costs associated with the purchase
of bulk modafinil compound, license fees and other research and development
costs decreased from the corresponding 1997 period. The funding of selling,
general and administrative activities decreased for the nine months ended
September 30, 1998 as compared to the same 1997 period, primarily due to
reductions in pre-marketing efforts associated with MYOTROPHIN and decreases in
external administrative costs.
- --Operating cash outlook
The Company expects its cash flow from operating activities to continue to be
negative until such time as products can be marketed in the United States and
revenue received from product sales exceeds funding of operating costs. The
Company expects to continue to expend significant funds on research and
development activities and on PROVIGIL to prepare for potential commercial
launch of this product in the United States, including to build inventories and
to investigate the utility of PROVIGIL in other uses. Even if PROVIGIL is
approved for sale in the United States, the Company expects it will be at least
several years, if ever, before sales from PROVIGIL will provide enough funds to
generate positive cash flow from operations. The Company will require
substantial additional funds to continue its operations at their current level.
Although the Company is currently marketing PROVIGIL in the United Kingdom,
sales of PROVIGIL in the United Kingdom are not expected to provide a
significant source of cash.
The major source of the Company's current cash inflows is derived from
collaborative research and development agreements and co-promotion agreements.
The continuation of the research funding under the
14
<PAGE>
agreement with TAP is subject to periodic review by TAP and may be terminated
without cause with prior notice. The levels of potential payments to be received
under the Company's co-promotion agreements with BMS and Medtronic are subject
to a number of uncertainties related to product sales, including competition
from new and existing products. Potential receipts in 1998 from the Company's
co-promotion agreement with BMS, which are earned principally from STADOL NS
sales, are expected to decrease from 1997 levels. There can be no assurance that
either co-promotion agreement will be renewed when it expires. As of June 30,
1998, the Company and Chiron have agreed to fund their own ongoing MYOTROPHIN
expenditures. The Company will not receive any future payments from Chiron for
reimbursement of the Company's MYOTROPHIN program costs. Future receipts from
Kyowa Hakko are dependent upon shipment of MYOTROPHIN to supply Kyowa Hakko's
clinical trials in Japan.
If MYOTROPHIN does not receive regulatory approval in the United States, the
Company will evaluate what level of future expenditures, if any, is appropriate
for the MYOTROPHIN program. If the FDA were to require an additional study to
demonstrate MYOTROPHIN's efficacy, and if the Company were to decide to conduct
an additional study, a significant outlay of funds would be required. The
Company does not believe that Chiron would be willing to share in the costs of
such a study.
Net cash provided by investing activities
A summary of net cash provided by investing activities for the nine months
ended September 30 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
<S> <C> <C>
Purchases of property and equipment........................ $ (573,000) $ (507,000)
Sales and maturities of investments, net................... 31,535,000 23,545,000
----------- -----------
Net cash provided by investing activities................ $30,962,000 $23,038,000
=========== ===========
</TABLE>
Sales and maturities of investments, net, represent the liquidation of
investments, the proceeds of which are used primarily to fund operations.
Net cash (used for) provided by financing activities
A summary of cash (used for) provided by financing activities for the nine
months ended September 30 is as follows:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Proceeds from exercises of common stock options and warrants............ $ 406,000 $ 2,631,000
Proceeds from the issuance of long-term debt............................ -- 30,000,000
Principal payments on long-term debt.................................... (1,117,000) (4,907,000)
----------- -----------
Net cash (used for) provided by financing activities.................. $ (711,000) $27,724,000
=========== ===========
</TABLE>
The extent and timing of future warrant and option exercises, if any, are
primarily dependent upon the market price of the Company's common stock and
general financial market conditions, as well as the exercise prices and
expiration dates of the warrants and options.
The proceeds from the issuance of long-term debt in the nine months ended
September 30, 1997 consists of a $30,000,000 private placement of senior
convertible notes. As of September 30, 1998, the principal on the notes had been
fully converted into 3,148,000 shares of the Company's common stock.
The decrease in principal payments on long-term debt for the nine months ended
September 30, 1998 from the corresponding 1997 period is due to the repayment in
full in March 1997 of the $3,750,000 balance due on an unsecured bank loan.
15
<PAGE>
Commitments and contingencies
--Related Party
Cephalon Clinical Partners, L.P. (the "Partnership") granted the Company an
exclusive license (the "Interim License") to manufacture and market MYOTROPHIN
within the United States, Canada and Europe (the "Territory") in return for
certain royalty payments and a payment of approximately $16,000,000 (the
"Milestone Payment") that is to be made if MYOTROPHIN receives regulatory
approval in the United States or certain other countries within the Territory.
The Company has the option to pay the Milestone Payment in cash, common stock,
or a combination thereof.
The Company has a contractual option to purchase all of the limited
partnership interests in the Partnership (the "Purchase Option") in specified
circumstances following the initiation of commercial sales, if any, of
MYOTROPHIN. To exercise the Purchase Option, Cephalon is required to make an
advance payment of $40,275,000 in cash or, at Cephalon's election, $42,369,000
in shares of the Company's common stock, valued at the market price at the time
the Purchase Option is exercised. In addition to the advance payment, the
exercise of the Purchase Option requires the Company to make future payments to
the former limited partners for a period of eleven years after exercise at a
royalty rate of 10.1% (subject to reduction under certain circumstances) of
MYOTROPHIN sales in the Territory. If the Company does not exercise the Purchase
Option prior to its expiration date, the Interim License will terminate and all
development and marketing rights to MYOTROPHIN in the Territory would revert to
the Partnership, which may commercialize MYOTROPHIN itself or license or assign
its rights to a third party. The Company would not receive any benefits from any
such commercialization.
Late in 1995, the Partnership depleted all of its available funding and has
not provided further funding of MYOTROPHIN development costs to the Company. The
amount of additional funding required for further development is determined by
the Partnership's general partner in advance of each quarter, and each quarter,
the Company has the right, but not the obligation, to contribute such funds. If
the Company decides to discontinue funding of the MYOTROPHIN program, the
Purchase Option and Interim License will terminate and commercialization rights
to MYOTROPHIN will revert back to the Partnership, as described in the preceding
paragraph.
The January 1994 collaboration between the Company and Chiron Corporation
("Chiron") is subject to the rights of the Partnership. The Company is solely
responsible for making any royalty and milestone payments owed to the
Partnership and for funding the Purchase Option, if it elects to exercise the
option.
The general partner of the Partnership is a wholly-owned subsidiary of the
Company, which owns 1% of the Partnership.
--Legal Proceedings
The Company and certain of its officers have been named as defendants in a
number of civil actions, which have been consolidated into a single class
action, alleging that various statements by the Company about the North American
and European trial results of MYOTROPHIN were misleading. Due to the Company's
involvement in promoting Stadol NS, a product of BMS, the Company has been
named as a defendant in two recent product liability actions brought against
BMS. See "Certain Risks Related to the Company's Business."
Funding Requirements Outlook
As described above, the Company expects to continue to use its current cash
and investment balance to fund operations. The Company believes that its cash
and investment balance as of September 30, 1998 is adequate to fund the then-
current level of operations for at least twelve months. The Company expects to
continue to expend significant funds on research and development activities and
on PROVIGIL to prepare for potential commercial launch of this product in the
United States. Even if PROVIGIL is approved for sale in the United States, the
Company expects that it will require substantial additional funds to finance
continuing operations and other
16
<PAGE>
potential significant cash outflows, such as those associated with marketing a
product if approval is obtained or Phase IV and other clinical trials. The
Company will need to obtain additional funding through debt and/or equity
financings. Additionally, the Company may seek to obtain additional funding
through corporate collaborations or through other financing vehicles, such as
"off-balance sheet" financing with limited partnerships or corporations. There
can be no assurance that such additional funds can be obtained through these
sources on terms acceptable to the Company, if at all. If additional funds
cannot be obtained, the Company will have to reduce its present level of
spending which may involve curtailing or restructuring operations. Even with
such curtailment, the Company would not be able to eliminate fixed costs, such
as occupancy expenses and debt service.
Results of Operations
This section should be read in conjunction with the more detailed discussion
under "Liquidity and Capital Resources."
A summary of revenues and expenses for the three and nine months ended
September 30 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------------- -----------------------------------
1998 1997 % CHANGE 1998 1997 % CHANGE
----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................ $ 2,773,000 $ 4,599,000 (40)% $ 9,753,000 $14,116,000 (31)%
Research and development expenses....................... 10,456,000 10,111,000 3 32,783,000 37,857,000 (13)
Selling, general and administrative expenses............ 7,178,000 7,607,000 (6) 21,074,000 26,137,000 (19)
Interest income, net.................................... 992,000 960,000 3 2,961,000 3,517,000 (16)
</TABLE>
Revenues for the three months ended September 30, 1998 as compared to the
corresponding 1997 period decreased due primarily to a reduction in
reimbursement of MYOTROPHIN related expenditures from arrangements with Chiron
and Kyowa Hakko. Additionally, the 1997 period contains revenue recognized
under an arrangement with SmithKline Beecham which has terminated.
Research and development expenses increased slightly and selling, general and
administrative expenses decreased slightly for the three month period ended
September 30, 1998 as compared to the corresponding 1997 period. Increased
expenditures associated with the PROVIGIL program were offset by a decrease in
the Company's general expenditures including those associated with the
MYOTROPHIN program.
During the three months ended September 30, 1998, net interest income remained
essentially the same as compared to the same period of the prior year due to
decreased interest income from a lower investment balance offset by decreased
interest expenses.
The decrease in revenues for the nine months ended September 30, 1998 as
compared to the corresponding 1997 period resulted primarily from decreases in
revenue recognized in the 1998 period under the Chiron collaboration and the
termination of funding in 1997 under a research and development agreement with
SmithKline Beecham. Additionally, revenues in the first quarter of 1997 include
the recording of a milestone payment from Kyowa Hakko for the filing of the
MYOTROPHIN NDA in the United States. The decrease in revenues was partially
offset by the recognition of revenue in 1998 reflecting the commencement of co-
promotion activities under the 1997 agreements with Medtronic and Aguettant.
Research and development expenses decreased for the nine months ended
September 30, 1998 as compared to the corresponding 1997 period, due primarily
to a 12% decrease in staffing levels. Additionally, the expenses associated
with the purchases of bulk modafinil compound and license fees decreased from
the corresponding 1997 period.
17
<PAGE>
The decrease in the selling, general and administrative area for the nine
months ended September 30, 1998 as compared to the corresponding 1997 period,
was due primarily to reductions associated with the MYOTROPHIN program and
decreases in external administrative expenses.
During the nine months ended September 30, 1998, net interest income decreased
as compared to the same period of the prior year due a lower investment balance.
Results of Operations Outlook
The Company expects to continue to incur operating losses unless and until
such time as product approvals, if any, are obtained in the United States and
product sales exceed operating expenses. The Company is incurring significant
expenditures on PROVIGIL to prepare for possible U.S. commercialization. Even if
PROVIGIL is approved for sale in the United States, the Company expects to
continue to incur operating losses for at least several years and may not ever
be able to achieve a level of profitability solely through sales of PROVIGIL.
Although the Company is currently marketing PROVIGIL in the United Kingdom,
sales of PROVIGIL in the United Kingdom are not expected to provide a
significant source of revenue.
The majority of the Company's current revenue is derived from collaborative
research and development agreements and co-promotion agreements. The
continuation of any of these agreements is subject to the achievement of certain
milestones and to periodic review by the parties involved. Additionally, all
agreements have termination clauses allowing either party to end the funding
under those agreements. Without these sources of revenue, the Company's
operating losses would increase.
The Company does not believe that inflation has had a material impact on the
results of its operations since inception.
Impact of Year 2000
The "Year 2000 Issue" is typically the result of software and firmware being
written using two digits rather than four to define the applicable year. If the
Company's software and firmware with date-sensitive functions are not Year 2000
compliant, these systems may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, interruptions
in research and development operations or the inability to engage in normal
business activities.
The Company has developed a multi-step Year 2000 readiness plan for its
internal systems. The plan includes development of corporate awareness,
assessment of internal systems, project planning, project implementation
(including remediation, upgrading and replacement where necessary), validation
testing and contingency planning.
The Company is currently conducting a review of its internal information
technology systems and non-information technology systems, such as
microcontrollers, to identify the systems that could be adversely affected by
the Year 2000 problem. The Company believes that, with minor modifications and
testing of its systems, the Year 2000 issue will not pose a significant
operational problem. The Company is using its internal resources to reprogram
or replace and test its software for Year 2000 modifications. If the Company is
unable to make the required modifications to existing software or convert to new
software in a timely manner, the Year 2000 Issue could have an impact on the
Company's operations, although management does not believe this impact will be
material.
The Company has initiated formal communication with significant suppliers and
third party vendors to determine the extent to which the Company's operations
are vulnerable to those third parties' failure to remediate their own Year 2000
hardware and software issues. The Company's primary focus to date has been on
research and development activities that do not rely heavily on third-party
systems. However, third parties perform certain
18
<PAGE>
activities related to commercialization of the Company's products, including
product manufacturing and distribution, order entry, shipping and billing, and
sales tracking. The Company has asked its suppliers and vendors to inform it of
the status of their Year 2000 compliance of their products and the Company is
aware that certain of its suppliers and vendors are not Year 2000 compliant.
These parties have communicated to the Company that they are taking appropriate
remediation steps, and the Company intends to monitor their progress. During the
fourth quarter of 1998, the Company will continue to seek information from non-
responsive suppliers and vendors and it plans to contact additional suppliers.
In addition, in all new contract negotiations, the Company now asks suppliers to
warrant that products sold or licensed to the Company are Year 2000 compliant.
In the event that any of the Company's significant suppliers are unable to
become Year 2000 compliant, the Company's business or operations could be
adversely affected. There can be no assurance that the systems of other
companies on which the Company relies will be compliant by the year 2000 and
would not have an adverse effect on operations.
The Company does not expect the total cost associated with required
modifications to become Year 2000 compliant to be material to its financial
position. The Company is funding the minimal expenditures of the Year 2000
project through existing cash on hand. The Company anticipates completing the
critical Year 2000 issues by the first half of 1999, which is prior to any
anticipated impact on its operating systems, and expects the Year 2000 project
to continue beyond the year 2000 with respect to resolution of non-critical
issues.
The Company has not yet fully developed a comprehensive contingency plan
addressing situations that may result if the Company is unable to achieve Year
2000 readiness of its critical operations. Contingency plan development is in
process and the Company expects to finalize its plan during the remainder of
1998. There can be no assurance that the Company will be able to develop a
contingency plan that will adequately address issues that may arise in the year
2000. Finally, the Company is also vulnerable to external forces that might
generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failures and related service interruptions.
The costs of the project and the completion date of the Year 2000
modifications are based on management's best estimates. These estimates were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. There can be no assurance that these estimates will be achieved and
actual results could differ materially from those anticipated.
19
<PAGE>
PART II - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-- ----------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended September 30, 1998, the
Registrant filed a Current Report on Form 8-K on September 23, 1998 for the
following events:
(i) On September 15, 1998, Cephalon, Inc. announced that
Cephalon-Chiron B.V. has withdrawn its application to the European Medicines
Evaluation Agency (EMEA) seeking clearance to market MYOTROPHIN(R) (mecasermin)
Injection in Europe for the treatment of amyotrophic lateral sclerosis (ALS or
motor neuron disease).
(ii) On September 18, 1998, Cephalon, Inc. announced the
first findings from preclinical studies of its compound, CEP-701, for the
treatment of pancreatic ductal adenocarcinoma (PDAC). The results presented on
September 18, 1998 at the Baltic Pancreas Meeting in Germany demonstrate that
CEP-701 can significantly decrease tumor growth as well as inhibit tumor cell
invasion in PDAC animal models.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CEPHALON, INC.
(Registrant)
November 13, 1998 By /s/ Frank Baldino, Jr.,Ph.D.
--------------------------------
Frank Baldino, Jr., Ph.D.
President, Chief Executive Officer
and Director
(Principal executive officer)
By /s/ J. Kevin Buchi
---------------------------------
J. Kevin Buchi
Senior Vice President, Finance
and Chief Financial Officer
(Principal financial and accounting officer)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CEPHALON,
INC.'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,717,000
<SECURITIES> 77,665,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 86,210,000
<PP&E> 33,792,000
<DEPRECIATION> 12,629,000
<TOTAL-ASSETS> 108,900,000
<CURRENT-LIABILITIES> 18,798,000
<BONDS> 15,408,000
0
0
<COMMON> 287,000
<OTHER-SE> 71,467,000
<TOTAL-LIABILITY-AND-EQUITY> 108,900,000
<SALES> 0
<TOTAL-REVENUES> 9,753,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,783,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,457,000
<INCOME-PRETAX> (41,143,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,143,000)
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
