Cephalon Buys Generics Firm Mepha, but Still Focused on Novel Drugs

Cephalon (CEPH) paid $590 million to acquire Mepha, a Swiss generics firm being sold by Germany's Merckle family after rising debt and falling stock values prompted its billionaire patriarch to commit suicide.

The move will provide Cephalon with access to emerging markets such as Eastern Europe and Africa, as well as 120 generic and branded generic products. James White noted on the Wall Street Journal's Health Blog that "everybody wants to get into the global generics business these days," citing similar moves by Sanofi-Aventis (SNY) and Pfizer (PFE).

But while Cephalon is taking a page out of big pharma's book and moving into international generics, the firm isn't giving up on branded drugs and biologics. Oppenheimer and Co. analyst Bret Holley wrote in a research note that the Mepha deal is "an add-on to Cephalon's core business, not a philosophy shift," and CEO Frank Baldino himself confirmed that "high-margin biologics are important to our future," calling Mepha the "platform" to bring such drugs to other areas of the world that can afford them.

Cephalon's biggest branded product is wakefulness drug Provigil (modafinil), which faces patent expiration in April generic competition in April 2012. Yet the company is making good progress in switching patients to Nuvigil (armodafinil) and expanding the market: a PDUFA date for a jet lag indication is coming in late March and clinical trials are underway for traumatic brain injury, bipolar depression and schizophrenia. The pain franchise is slowing, but leukemia and lymphoma drug Treanda (bendamustine hydrochloride) is on the rise.

Cephalon has suffered some late-stage setbacks in its pipeline recently. In November, a Phase II/III trial of Cinquil (reslizumab) for pediatric eosinophilic esophagitis delivered mixed results, and last summer, a pivotal trial of leukemia drug lestaurtinib (CEP-701) failed to show a survival benefit.

But there's more new stuff in the works, if a little farther back: drugs for cancer, lupus, arthritis and psoriasis in Phase II; drugs for cancer, pain and Alzheimer's in Phase I; and programs aimed at expanding Treanda's label. At least some of them are bound to put that growing global distribution network to good use.