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Prospectus Supplement Filed Under Rule 424(b)(3)
File No. 033-74320
CEPHALON, INC.
Prospectus Supplement Dated October 1, 1999 to
Prospectus Dated February 9, 1994, as Previously Amended,
Supplemented and Restated
This Prospectus Supplement provides supplemental information to the
Prospectus dated February 9, 1994, as previously amended, supplemented and
restated (the "Prospectus") covering the resale from time to time of up to
800,000 shares of common stock, $0.01 par value per share (the "Common Stock"),
of Cephalon, Inc. (the "Company") by Chiron Corporation. The information set
forth in this Prospectus Supplement is hereby added to and deemed to be included
in the Prospectus and replaces, in its entirety, the information set forth in
the Prospectus under the headings "Available Information," "Incorporation of
Certain Documents By Reference," "The Company," and "Risk Factors."
This Prospectus Supplement does not contain complete information about the
offering of the Common Stock. Additional information is contained in the
Prospectus, a copy of which is attached hereto, and prospective purchasers of
Common Stock are urged to read both the Prospectus Supplement and the Prospectus
in full.
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CEPHALON
Cephalon, Inc., headquartered in West Chester, PA, is a biopharmaceutical
company dedicated to the discovery, development and marketing of products to
treat neurological disorders and cancer.
In December 1998, we received approval from the U.S. Food and Drug
Administration to market PROVIGIL(R), generically called modafinil, tablets
[C-IV], our first approved product in the United States. The FDA approved
PROVIGIL for treating excessive daytime sleepiness associated with narcolepsy.
Our sales organization initiated sales of PROVIGIL in the U.S. in February 1999.
We began marketing PROVIGIL in the United Kingdom in March 1998 and the Republic
of Ireland in February 1999 through our United Kingdom-based sales organization.
Additionally, we have rights to commercialize PROVIGIL in Austria, Italy, Mexico
and Switzerland, and we have either filed or are preparing to file applications
seeking marketing approval in these countries. We also have rights to PROVIGIL
in Japan. We are highly dependent on the commercial success of PROVIGIL in the
United States. The "Risk Factors" section on page 5 of this prospectus contains
more information about our dependence on PROVIGIL.
In February 1997, our company and Chiron Corporation submitted a new
drug application to the FDA for approval to market MYOTROPHIN(R), generically
called mecasermin, injection in the United States for the treatment of
amyotrophic lateral sclerosis. In May 1998, the FDA issued a letter stating that
the NDA was "potentially approvable" under certain conditions. We cannot predict
whether these conditions can be met to the satisfaction of the FDA, and the
prospects for regulatory approval of MYOTROPHIN continue to be very uncertain in
the United States. Because we believed the European regulatory authorities would
not approve our application, in September 1998, we withdrew the joint marketing
authorization application for MYOTROPHIN in Europe for the treatment of ALS.
We have initiated clinical studies exploring the utility of PROVIGIL
in treating excessive daytime sleepiness and fatigue associated with disorders
other than narcolepsy, such as sleep apnea and multiple sclerosis. We have a
significant discovery research program that focuses on discovering and
developing treatments for neurological disorders such as Parkinson's disease,
Alzheimer's disease and stroke, and oncological disorders such as prostate
cancer, pancreatic cancer and a variety of other cancers. We have also formed an
alliance with TAP Holdings Inc. for the development of signal transduction
modulators for the treatment of cancers and prostate disorders in the United
States. TAP is conducting Phase I clinical studies of intravenously and orally
administered compounds, as part of this alliance.
Our research and development efforts focus primarily in two areas:
neurodegenerative disorders and oncological disorders. Neurodegenerative
disorders are characterized by the death of neurons, the specialized conducting
cells of the nervous system. Oncological disorders are characterized by the
uncontrolled proliferation of cells that form tumors. We utilize our technical
expertise in molecular biology, molecular pharmacology, biochemistry, cell
biology, tumor biology and chemistry to develop products in both of these areas.
Our research strategy has focused on understanding the cellular mechanisms of
cell survival and cell death. This understanding may allow medicinal chemical
approaches toward creating novel, small, orally active, synthetic molecules.
These molecules would (1) facilitate the death of tumor cells leading to new
therapies in oncology or (2) cross the blood-brain barrier, preventing the free
passage of many molecules between the bloodstream and the central nervous
system. If these molecules cross the blood-brain barrier, they would enhance the
survival of neurons, and intervene in the progression of neurodegenerative
disorders. We believe that our multidisciplinary technology approach facilitates
the development of a portfolio of potential products for the treatment of
neurological disorders which involve neuronal death such as Parkinson's disease,
Alzheimer's disease and stroke, and oncological disorders such as prostate
cancer, pancreatic cancer and a variety of other cancers.
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RISK FACTORS
You should carefully consider the following risk factors and the other
information presented in this prospectus before deciding to invest in the shares
of common stock covered by this prospectus.
DURING THE NEXT SEVERAL YEARS WE WILL BE VERY DEPENDENT ON THE COMMERCIAL
SUCCESS OF PROVIGIL, AND WE MAY BE UNABLE TO ATTAIN PROFITABILITY ON SALES OF
PROVIGIL.
At our present level of operations, we will not be able to attain
profitability if physicians prescribe PROVIGIL only for those who are diagnosed
narcoleptics, and we are not permitted to promote PROVIGIL outside of this
approved use. In December 1998, the FDA approved PROVIGIL for use by those
suffering from excessive daytime sleepiness associated with narcolepsy. The
market for use of PROVIGIL in narcolepsy patients is relatively small; it is
limited to approximately 125,000 persons in the United States, of which we
estimate between 30,000 and 45,000 currently are seeking treatment from a
physician. We have initiated clinical studies to examine whether or not
PROVIGIL is effective and safe when used in connection with disorders other than
narcolepsy, but we do not know whether these studies will in fact demonstrate
safety and efficacy, or if they do, whether we will succeed in receiving
regulatory approval to market PROVIGIL for additional disorders. If the results
of these studies are negative, or if adverse experiences are reported in these
clinical studies or otherwise in connection with the use of PROVIGIL by
patients, this could undermine physician and patient comfort with the product
and limit the commercial success of the product. Even if the results of these
studies are positive, the impact on PROVIGIL may be negligible until we are able
to obtain FDA approval to expand the authorized use of PROVIGIL to include
treatment for conditions other than excessive daytime sleepiness associated with
narcolepsy. FDA regulations restrict our ability to communicate the results of
additional clinical studies to patients and physicians without first obtaining
from the FDA approval to expand the authorized uses for this product. As a
result, it may be several years, if ever, before we have sales revenue from
PROVIGIL beyond that attributable to prescriptions for diagnosed narcoleptics.
In addition, the following factors could limit the rate and level of market
acceptance of PROVIGIL:
. the effectiveness of our sales and marketing efforts relative to those of our
competitors;
. the availability and level of reimbursement for PROVIGIL by third-party
payors, including Federal, state and foreign government agencies;
. the occurrence of any side effects or adverse reactions (or unfavorable
publicity relating thereto) stemming from the use of PROVIGIL.
We have described these and other factors in more detail below:
Our lack of experience selling pharmaceuticals, together with significant
competition, may impact our ability to effectively market and sell PROVIGIL in
the United States.
In the United States and elsewhere, PROVIGIL faces significant competition in
the marketplace since narcolepsy is
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currently treated with several drugs, all of which have been available for a
number of years and many of which are available in inexpensive generic forms.
Thus, we will need to demonstrate to physicians and third party payors that the
cost of PROVIGIL is reasonable and appropriate in light of the safety and
efficacy of the product, and the related health care benefits to the patient.
During the past few years, we developed a specialty sales organization
focused on marketing, promoting and detailing the products of other companies to
neurologists. However, we have only very limited experience in marketing,
selling or distributing our own products in the United States, and we lack the
more substantial experience held by major pharmaceutical companies in
developing, training and managing a sales organization over an extended period
of time. More recently, we established a managed care sales force to market our
products to health maintenance organizations, prescription benefit management
firms, and other third party payors; we also lack substantial experience in this
area, and we cannot be certain that we will be successful in our efforts to
market our products to these groups.
The efforts of government entities and third party payors to contain or reduce
the costs of health care may affect our sales and limit the commercial success
of PROVIGIL.
In certain foreign markets, pricing or profitability of pharmaceutical
products is subject to governmental control. In the United States, there have
been, and we expect there will continue to be, various Federal and state
proposals to implement similar government controls. The commercial success of
PROVIGIL could be limited if federal or state governments adopt any such
proposals. In addition, in both the United States and elsewhere, sales of
pharmaceutical products depend in part on the availability of reimbursement to
the consumer from third party payors, such as government and private insurance
plans. Third party payors increasingly challenge the prices charged for
products, and limit reimbursement levels offered to consumers for such products.
Efforts directed toward PROVIGIL by third party payors could impair the
commercial success of the product.
As PROVIGIL is used commercially, unintended side effects may appear that could
impact sales of PROVIGIL.
We have limited the usage of PROVIGIL to clinical trial patients under
controlled conditions and under the care of expert physicians. We cannot
predict whether the commercial use of PROVIGIL will produce undesirable or
unintended side effects that have not been evident in our clinical trials.
We may not be able to maintain market exclusivity for PROVIGIL, and therefore
potential competitors may develop competing products, which could result in a
decrease in sales and market share, and could cause us to have to cut prices to
compete successfully, and would prevent PROVIGIL from being a commercial
success.
We hold exclusive license rights to a composition-of-matter patent covering
modafinil as the active drug substance in PROVIGIL; this patent was to have
expired in 1998 in the United States, but we have applied for a patent extension
that, if granted, would run through November 18, 2001. In addition, we own a
U.S. patent covering the particle size of modafinil which issued in 1997.
However, we may not succeed in obtaining any extension for the composition-of-
matter patent, and we cannot guarantee that any of our patents will be found to
be valid if their validity is
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challenged by a third party, or that these patents (or any other patent owned or
licensed by us) would prevent a potential competitor from developing competing
products or product formulations that avoid infringement.
In the United States, the Orphan Drug Act provides incentives to drug
manufacturers to develop and manufacture drugs for the treatment of rare
diseases. The FDA has granted orphan drug status to PROVIGIL for its use in the
treatment of excessive daytime sleepiness associated with narcolepsy. The grant
of orphan drug status to PROVIGIL allows us a seven-year period of marketing
exclusivity for the product in that indication. While the marketing exclusivity
provided by the orphan drug law should prevent other sponsors from obtaining
approval of the same compound for the same indication (unless the other sponsor
can demonstrate clinical superiority), it would not prevent approval of the
compound for other indications that otherwise are non-exclusive, nor approval of
other kinds of compounds for the same indication.
Manufacturing, supply and distribution problems could create supply disruptions
that would damage commercial prospects for PROVIGIL.
We depend upon Laboratoire L. Lafon as our sole supplier of bulk modafinil
compound, the active drug substance contained in PROVIGIL. Moreover, we depend
upon a single manufacturer that is qualified to manufacture finished PROVIGIL
for commercial purposes, and a non-active ingredient used in PROVIGIL is no
longer manufactured or commercially available. We maintain an inventory of
modafinil compound to protect against supply disruptions and, at anticipated
levels of demand, we also have several years supply of the ingredient that is no
longer available. We are preparing a new formulation of PROVIGIL that would not
include the now unavailable ingredient, and could enable us to qualify
additional tablet manufacturers with regulatory authorities. However, the
introduction of any such new formulation requires that we establish that the new
formulation is bioequivalent to the current one, and also requires regulatory
approval. If we are unable to develop and obtain approval for a new formulation,
or if demand for the product were to greatly exceed expectations, we could face
supply disruptions that would result in significant costs and delays, undermine
goodwill established with physicians and patients, and damage commercial
prospects for PROVIGIL.
We must comply with all applicable regulatory requirements of the FDA and
foreign authorities, including current Good Manufacturing Practice regulations.
The facilities used to manufacture, store and distribute our products are
subject to inspection by the FDA and other regulatory authorities at any time to
determine compliance with cGMP regulations and other regulatory requirements.
The cGMP regulations are complex, and failure to be in compliance could lead to
remedial action, civil and criminal penalties and delays in production of
material.
We rely on several third parties in the United States to formulate, tablet,
package, distribute, provide customer service activities and accept and process
returns. Although we employ a small number of persons to coordinate and manage
the activities undertaken by these third parties, we have relatively limited
experience in this regard. Any disruption in these activities could impede our
ability to sell PROVIGIL and reduce sales revenue.
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IF WE ARE UNABLE TO MAINTAIN CERTAIN CASH BALANCES UNDER THE TERMS OF OUR
REVENUE SHARING NOTES, HOLDERS OF OUR REVENUE SHARING NOTES HAVE THE RIGHT TO AN
INCREASED ROYALTY PERCENTAGE, WHICH WILL INCREASE OUR ROYALTY EXPENSE, AND MAY
HAVE THE RIGHT TO ACCELERATE THE NOTES AND FORECLOSE ON THE SECURITY, WHICH WILL
RESULT IN THE LOSS OF OUR RIGHTS TO PROVIGIL.
In February 1999, we completed the sale of $30,000,000 of revenue-sharing
notes due February 2002. The notes contain a number of covenants, including a
requirement to maintain cash and cash equivalent balances of $40,000,000 through
December 31, 1999 and $30,000,000 during the remainder of the term of the notes.
This requirement to maintain cash and cash equivalent balances may limit our
flexibility to use our cash resources for other corporate purposes. As of March
31, 1999, we had a cash and cash equivalent balance of approximately $78.5
million. The notes are secured by our licenses, patents and FDA rights relating
to PROVIGIL. The notes also require us to pay a royalty of 6% on net U. S.
PROVIGIL sales for 5 years, which we may reduce to 4 years under certain
circumstances. If we fail to maintain the required cash balances, the holders
of the notes can declare a default and increase the royalty percentage to 25% of
net U.S. PROVIGIL sales and, if the default is not cured within one year, can
accelerate the due date of the notes and foreclose on the security. The holders
of the notes can also foreclose on the security if we fail to pay principal and
interest when due or violate certain other covenants.
IF WE ARE UNABLE TO RAISE SUBSTANTIAL ADDITIONAL FUNDS, WE MAY BE FORCED TO
CURTAIL OR RESTRUCTURE OPERATIONS OR SELL CERTAIN ASSETS, WHICH MAY ADVERSELY
IMPACT OUR BUSINESS, OR SELL ADDITIONAL EQUITY SECURITIES.
Since our inception we have had negative cash flow from operations. Based on
our use of funds for the quarter ended March 31, 1999, we had sufficient cash
resources to fund our operations at their current level for at least twelve
months. However, we will need to raise substantial additional funds to continue
our operations at their current level, continue to meet our minimum cash balance
requirements during the period prior to the repayment of the notes and pay the
notes at maturity. We expect that it will be at least several years, if ever,
before our level of commercial sales and other revenue will provide enough funds
to generate positive cash flow from operations. Therefore, if we cannot raise
additional funds, we will have to reduce our present level of spending, which
may involve curtailing or restructuring our operations, including the sale of
certain assets. Even after taking these steps, we would not be able to
eliminate all of our existing fixed costs, such as occupancy expenses and debt
service.
Most of the funds we have raised to date have been through the sale of equity
in our company; our ability to raise money through the sale of additional equity
in our company, as well as the price at which such equity may be sold, are
difficult to predict. If we issue common stock or securities convertible into
common stock in order to raise such funds, the existing shareholders' percentage
ownership of our company necessarily would be reduced.
THE VALUE OF YOUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY DUE TO THE VOLATILITY
OF ITS MARKET PRICE AND TRADING VOLUME, WHICH SHOULD IMPACT YOUR DECISION TO
BUY, SELL OR HOLD YOUR SHARES.
The market price and trading volume of shares of our common stock is
volatile, and we expect it to continue to be volatile for the foreseeable
future. For example, during
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the previous 52 weeks, our common stock traded at a high price of $19.4375 and a
low price of $3.875. Negative announcements (such as adverse regulatory
decisions, disputes concerning patent or other proprietary rights, or operating
results that fall below the market's expectations) could trigger significant
declines in the price of our common stock. In addition, news concerning certain
external events, such as that concerning our competitors or changes in
government regulations that may impact the biotechnology or pharmaceutical
industries, also could affect the price of our common stock.
WE FACE SIGNIFICANT PRODUCT LIABILITY RISKS, WHICH MAY HAVE A NEGATIVE EFFECT ON
OUR FINANCIAL PERFORMANCE.
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, our products may cause, or may appear to have caused, adverse side
effects or potentially dangerous drug interactions 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, which could have a negative effect on
our financial performance. We maintain product liability insurance at a
relatively limited level, and as such, claims could exceed our coverage.
Furthermore, we cannot be certain that we will always be able to purchase
sufficient insurance at an affordable price. 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.
WE ARE INVOLVED IN A NUMBER OF LEGAL PROCEEDINGS THAT, IF ADVERSELY
ADJUDICATED OR SETTLED, COULD MATERIALLY IMPACT OUR FINANCIAL CONDITION.
Cephalon, a current director and officer, and a former officer, have been
named as defendants in a number of civil actions filed in the U.S. District
Court for the Eastern District of Pennsylvania, all of which have been
consolidated into a single class action. The plaintiff class is comprised of
those persons and entities who purchased Cephalon common stock, or traded in
options to buy or sell Cephalon common stock, during the period June 12, 1995
through and including June 7, 1996. Plaintiffs seek to hold defendants liable
for stock trading losses that stem from alleged violations of the U.S.
securities laws and alleged common law negligent misrepresentation. More
specifically, plaintiffs have alleged that statements made by Cephalon and the
named defendants relating to the results of certain clinical studies of
MYOTROPHIN were misleading. We have vigorously defended this lawsuit and believe
that there are valid defenses against the claims, but the defense of the action
is expensive, and the costs of this defense will reduce the amount of insurance
coverage that might otherwise be available to satisfy claims.
Therefore, on June 4, 1999, Cephalon entered into a Stipulation of Settlement
providing that Cephalon pay a total of $17,000,000 in full settlement of this
action, inclusive of attorneys fees and expenses. Of this amount, $7,500,000
will be paid by our directors' and officers' liability insurance carriers; the
remaining $9,500,000 will be paid by Cephalon. We have incurred charges to
earnings sufficient to cover the costs of the proposed settlement. On July 30,
1999, the Court entered a judgment of dismissal with prejudice, dismissing all
claims against the defendants. This order will become final on August 30, 1999,
if none of the parties files an appeal. In
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addition, a further complaint has been filed with the Court alleging that
Cephalon is liable under common law for misrepresentations concerning the
results of the MYOTROPHIN clinical trials, and that Cephalon and certain of its
current and former officers and directors are liable for the actions of persons
who allegedly traded in Cephalon common stock on the basis of material inside
information. With respect to their misrepresentation claim, we believe that we
have adequate defenses to all claims raised in this action and that, even if
there is a judgment against us, it will not have a negative effect on our
financial condition or results of operations.
Due to our involvement in promoting STADOL NS(R), generically called
butorphanol tartrate, Nasal Spray, a product of Bristol-Myers Squibb Company, we
are a co-defendant in a product liability action brought against Bristol-Myers.
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 Bristol-
Myers under the indemnification provisions of our co-promotion agreement. As
such, we do not believe that this action will have a negative effect on our
financial condition or results of operations.
OUR RESEARCH AND DEVELOPMENT ACTIVITIES MAY NOT RESULT IN ANY ADDITIONAL
PHARMACEUTICAL PRODUCTS, WHICH WOULD ADVERSELY AFFECT OUR OPERATIONS.
We are highly focused on the research and development of potential
pharmaceutical products. These activities include engaging in discovery research
and process development, conducting preclinical and clinical studies, and
seeking regulatory approval in the United States and abroad. In all of these
areas, we have relatively limited resources and compete against major
multinational pharmaceutical companies. Moreover, even if we undertake these
activities in an effective and efficient manner, regulatory approval for the
sale of new pharmaceutical products remains unlikely since, in our industry, the
majority of compounds fail to enter clinical studies and the majority of
therapeutic candidates entering clinical studies fail to be commercialized.
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE PATENT PROTECTION EITHER IN THE UNITED
STATES OR ABROAD, WHICH COULD IMPACT OUR ABILITY TO COMPETE EFFECTIVELY.
We place considerable importance on obtaining patent and trade secret
protection for new technologies, products and processes. We intend to file
applications for patents covering the composition of matter or uses of our drug
candidates or our proprietary processes. We also rely on trade secrets, know-how
and continuing technological advancements to support our competitive position.
Although we have entered into confidentiality and invention rights agreements
with our employees, consultants, advisors and collaborators, we cannot be sure
that such agreements will be honored or that we will be able to effectively
protect our rights to our unpatented trade secrets and know-how. Moreover, we
cannot be sure that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
our trade secrets and know-how. In addition, many of our scientific and
management personnel have been recruited from other biotechnology and
pharmaceutical companies where they were conducting research in areas similar to
those that we now pursue. As a result, we could be subject to allegations of
trade secret violations and other claims.
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In addition, we could incur substantial costs in defending any patent
infringement suits or in asserting any patent rights, including those licensed
to us by third parties, and in defending suits against us or our employees
relating to ownership of or rights to intellectual property. Such disputes
could substantially delay our drug development or commercialization. The U.S.
Patent and Trademark Office or a private party could institute an interference
proceeding involving us in connection with one or more of our patents or patent
applications. Such proceedings could result in an adverse decision as to
priority of invention, in which case we would not be entitled to a patent on the
invention at issue in the interference proceeding. The PTO or a private party
could also institute reexamination proceedings involving us in connection with
one or more of our patents, and such proceedings could result in an adverse
decision as to the validity or scope of the patents.
OUR DEPENDENCE ON KEY EXECUTIVES AND SCIENTISTS COULD IMPACT THE DEVELOPMENT AND
MANAGEMENT OF OUR BUSINESS.
The nature of our business is such that we are highly dependent upon our
ability to attract and retain qualified scientific, technical and managerial
personnel. There is intense competition for qualified personnel in the
pharmaceutical and biotechnology industries, and we cannot be sure that we will
be able to continue to attract and retain qualified personnel necessary for the
development and management of our business. Our research and development
programs and our business might be harmed by the loss of the services of
existing personnel, as well as the failure to recruit additional key scientific,
technical and managerial personnel in a timely manner. Much of the know-how we
have developed resides in our scientific and technical personnel and is not
readily transferable to other personnel. We do not maintain "key man" life
insurance on any of our employees.
WE MAY NEVER OBTAIN APPROVAL TO MARKET MYOTROPHIN, IT MAY NOT BE COST-EFFECTIVE
TO PURSUE MYOTROPHIN FOR OTHER INDICATIONS, AND THEREFORE WE MAY NEVER DERIVE
REVENUE FROM MYOTROPHIN.
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 of the application
concerning the results of our two pivotal ALS studies. These comments led us to
believe that the reviewer would not approve our application. 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 NDA application
submitted jointly by Cephalon and Chiron to market MYOTROPHIN in the United
States for the treatment of 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. The T-IND program is a
compassionate use program that is neither placebo-controlled nor blinded, and
therefore is not designed to produce evidence of efficacy. We are not planning
to submit additional data to the FDA at this time. The study of MYOTROPHIN in
ALS patients being
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conducted by Kyowa Hakko in Japan is not under our control. Results from that
study may be available in late 1999 but may 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. We will continue to evaluate
the prospects of receiving regulatory approval and, based on communications with
the FDA, may determine to withdraw the new drug application.
If the information submitted to the FDA to date 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 conducted, the results of
a new study may not be sufficient to obtain regulatory approval. If MYOTROPHIN
were not approved for ALS, we are not sure it would be cost-effective to pursue
MYOTROPHIN for any other indication.
OUR DEVELOPMENT AND MARKETING EFFORTS ARE HIGHLY DEPENDENT ON CORPORATE
COLLABORATORS WHO MAY NOT DEVOTE SUFFICIENT TIME, RESOURCES AND ATTENTION TO OUR
PROGRAMS, WHICH MAY ADVERSELY IMPACT OUR EFFORTS TO DEVELOP AND MARKET POTENTIAL
PRODUCTS.
Because we have limited resources, we have entered into a number of
agreements with other pharmaceutical companies. These agreements may call for
our partner to control:
. the supply of bulk or formulated drugs for commercial use or for use in
clinical trials;
. the design and execution of clinical studies;
. the process of obtaining regulatory approval to market the product; and
. the marketing and selling of any approved product.
In each of these areas, our partners may not support fully our research and
commercial interests since our program may well compete for time, attention and
resources with the internal programs of our corporate collaborators. As such, we
cannot be sure that our corporate collaborators will share our perspectives on
the relative importance of our program, that they will commit sufficient
resources to our program to move it forward effectively, or that the program
will advance as rapidly as it might if we had retained complete control of all
research, development, regulatory and commercialization decisions. For example,
we rely on several of these collaborators for the production of compounds and
the manufacture and supply of pharmaceutical products. If we learn from any of
them that they will not, or cannot, continue to produce and supply compounds or
products under the terms of our agreement(s), we would attempt to identify and
obtain a commitment from another manufacturer. We cannot be certain that we
would be able to locate an appropriate manufacturer or that a new manufacturer
will be able to manufacture such compounds or products in sufficient quantities,
at reasonable prices, and in accordance with cGMP requirements established by
the FDA and other regulatory authorities.
WE MAY BE REQUIRED TO INCUR SIGNIFICANT COSTS TO COMPLY WITH ENVIRONMENTAL LAWS
AND REGULATIONS AND OUR COMPLIANCE MAY LIMIT ANY FUTURE PROFITABILITY.
Our research and development activities involve the controlled use of
hazardous, infectious and radioactive materials that could be hazardous to human
health, safety
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or the environment. We store these materials and various wastes resulting from
their use at our facility pending ultimate use and disposal. We are subject to a
variety of federal, state and local laws and regulations governing the use,
generation, manufacture, storage, handling and disposal of these materials and
wastes resulting from their use, and we may be required to incur significant
costs to comply with both existing and future environmental laws and
regulations.
We believe that although our safety procedures for handling and disposing of
these materials comply with federal, state and local laws and regulations, the
risk of accidental injury or contamination from these materials cannot be
entirely eliminated. In the event of an accident, we could be held liable for
any resulting damages.
THE YEAR 2000 ISSUE MAY CAUSE COMPLIANCE FAILURE AND SERVICE INTERRUPTIONS IN
OUR BUSINESS OR OPERATIONS IF CERTAIN OF OUR SUPPLIERS OR VENDORS ARE UNABLE TO
BECOME YEAR 2000 COMPLIANT WHICH MAY CAUSE US TO INCUR ADDITIONAL EXPENSE.
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 our
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.
We have completed minor modifications to our computer systems and at this
time we do not expect the Year 2000 Issue to pose a significant internal
operational problem. However, we cannot be sure that the systems of other
companies on which we rely will be compliant on or before January 1, 2000 and
will not have an adverse effect on our operations. We have initiated formal
communication with significant suppliers and third party vendors to determine
the extent to which our operations are vulnerable to those third parties'
failure to remediate their own Year 2000 hardware and software issues.
Significant suppliers or third party vendors that are unable to become Year 2000
compliant could adversely affect our business or operations. We are 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. We have not yet fully developed a comprehensive
contingency plan addressing situations that may result if we are unable to
achieve Year 2000 readiness of our critical operations.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information we file at the SEC's public
reference rooms located at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 7 World Trade Center, Suite 1300, New York, NY 10048. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov."
We have filed a Registration Statement on Form S-3, of which this prospectus
forms a part, to register the resale of the shares with the SEC. As allowed by
SEC rules, this prospectus does not contain all the information you can find in
the Registration Statement or the exhibits to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. This prospectus
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about us, our
business and our finances.
The documents that we are incorporating by reference are:
. Our Annual Report on Form 10-K for the year ended December 31, 1998 and
all amendments thereto;
. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
. Our Current Reports on Form 8-K filed with the SEC on March 1, 1999, June
14, 1999, July 19, 1999, August 3, 1999, August 18, 1999 and September 28,
1999;
. The description of our common stock that is contained in our Form 8-A
Registration Statement filed with the SEC on March 15, 1991, including any
amendments or reports filed for the purpose of updating such description;
. The description of our stockholder rights plan that is contained in our
Form 8-A Registration Statement filed with the SEC on January 20, 1999,
including any amendments or reports filed for the purpose of updating such
description.
Any documents which we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus but before the end of any
offering of securities made under this prospectus will also be considered to be
incorporated by reference.
If you request, either orally or in writing, we will provide you with a copy
of any or all documents which are incorporated by reference. We will provide
such documents to you free of charge, but will not include any exhibits, unless
those exhibits are incorporated by reference into the document. You should
address written requests for documents to John E. Osborn, Senior Vice President
and General Counsel, Cephalon, Inc., 145 Brandywine Parkway, West Chester, PA
19380, (610) 344-0200.
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FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus contains some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. Such statements may
include words such as "anticipate", "estimate", "expect", "project", "intend",
"plan", "believe" and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. In
particular, these include statements relating to present or anticipated
scientific progress, development of potential pharmaceutical products, future
revenues, capital expenditures, research and development expenditures, future
financing and collaborations, personnel, manufacturing requirements and
capabilities, and other statements regarding matters that are not historical
facts or statements of current condition.
Any or all of our forward-looking statements in this prospectus may turn out
to be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors mentioned in our
discussion in this prospectus will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make in our 10-Q, 8-K
and 10-K reports to the SEC. Also note that we provide a cautionary discussion
of risks and uncertainties relevant to our business under "Risk Factors" on page
4 of this prospectus. These are factors that we think could cause our actual
results to differ materially from expected results. Other factors besides those
listed here could also adversely affect us. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
