9
BioTech Stock Report, March 2003
rently conducting studies in general-
ized anxiety disorder, neuropathic pain,
and insomnia since Gabitril is currently
used only as an adjunct therapy for
epilepsy.
In addition to the three key prod-
ucts, Cephalon is currently working on
a number of pipeline projects that are
in Phase II clinical studies such as
CEP-1347, CEP-701, and CEP-7055.
CEP-1347 is an apoptosis inhibitor in
development for use as a potential
treatment for Parkinson's disease.
CEP-701 is an orally administered tyro-
sine kinase inhibitor that is currently
being studied in pancreatic cancer and
acute myelogenous leukemia (AML).
Phase II trials for pancreatic cancer are
ongoing and studies in AML are in the
early stages. CEP-7055 is an orally ac-
tive angiogenesis inhibitor for the
treatment of solid tumors.
Even though Chiron/NASDAQ:
CHIR (BSR #1: AIDS) ended 2002
with a solid financial performance, the
company may have achieved a high-
point. The question for investors is
whether earnings beyond 2003 are ca-
pable of meeting Chiron's long-term
growth target of 20%. Though Chiron
has several product lines (Procleix,
TOBI, Menjugate, Betaseron) which
appear capable of contributing to top-
line growth, none of these products
appears to bring the visibility needed
to convince investors Chiron is a
growth story. While in licensing a
product may help, obtaining late stage
drugs with significant potential are
scarce and in high demand. Chiron's
early stage pipeline is broad and will
provide a number of upcoming mile-
stones, but no products are likely to
contribute to near-term growth. Man-
agement reiterated their guidance for
2003 earnings per share between $1.40
and $1.50, and stood by their goal for
an average long-term earnings growth
rate of 20%.
On February 25, Dendreon/
cause Cephalon plans to spend its mar-
keting dollars in the first quarter rather
than over the course of the year. First-
quarter earnings are projected to be
$.20 a share as compared to the con-
sensus earnings of $.32 a share. The
company has not changed its Novem-
ber 2003 earnings guidance of $1.50 a
share, and product sales of $650 million
to $660 million.
Wall Street is debating over
Cephalon's pipeline since the company
stock price has been stuck in a trading
range of the high $40s for the past few
months. Influencing investors's opin-
ion has been the potential for generic
competition for Provigil. A generic
manufacturer has in fact filed an abbre-
viated new drug application (ANDA)
and in response, Cephalon said it
would file a lawsuit. If this becomes a
long drawn-out lawsuit, we believe
investor's attention will fade and shift
to the fundamentals, which remain very
strong.
This includes strong Provigil sales
and expanding the labeling not only for
Provigil, but for Actiq and Gabitril.
These key products should drive earn-
ings.
Besides, Cephalon is currently
developing an isomer of Provigil that
would have a longer half life of ap-
proximately 14 hours instead of an 8-10
hour half life while maintaining similar
safety and efficacy. Because many pa-
tients use more than one tablet per
day, a Provigil tablet with a longer half
life would clearly be beneficial. Provigil
could also be used for ADHD patients.
Cephalon has a number of wake pro-
moting new chemical entities in devel-
opment that could potentially be more
potent than the original Provigil.
With respect to Actiq, manage-
ment laid out its strategic plans to
bring all U.S. Actiq manufacturing in-
house, begin pediatric extension stud-
ies, and develop a new "sugar free"
formulation.
For Gabitril, the company is cur-
Currently, investors are in a tug-
of-war between believers and skeptics,
continuing to debate the impact of war
and how it will affect the stock market
and the U.S. economy.
In retrospect, there has been a
change in the nature of the market over
the past two years, with technical
analysis growing in importance. In a
market characterized, as a "trading" or
"stockpicker's" market, technical
analysis, or the relative strength of a
stock's performance, appears to be just
as, if not more important, than funda-
mental analysis. Then volume and sup-
port/resistance levels for stocks are
more important indicators than ever
before, but often these signs can be
difficult to read.
Going forward, we are inclined to
say Wall Street is anxious to conclude
the Iraqi situation, allowing investors
to focus on the economy.
Cell Genesys/NASDAQ: CEGE
(BSR #25: Gene Therapy) announced
it would eliminate some of its gene
therapy programs, that including for
hemophilia and other genetic defi-
ciency diseases, in order to focus on
the company's cancer vaccines and
oncolytic virus therapies. Cell Gene-
sys's subsidiary, Ceregene, Inc. will
continue to focus on gene therapies
for neurologic disorders. The parent
Cell Genesys will reduce 26 positions
in its workforce. Cell Genesys's deci-
sion is a wise one since the company's
strength is its cancer vaccine business.
Gene therapy has enormous potential,
but the technology is still evolving and
is controversial, with one death occur-
ring and several other recent setbacks.
Cephalon/NASDAQ: CEPH (BSR
#59: Central Nervous Disease) beat
fourth- quarter earnings consensus by
five cents, reporting $.41 a share. How-
ever, the company foresees first-
quarter earnings 2003 will be lower
than what Wall Street anticipated be-
