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Why Cephalon's Provigil Price Hike May Prove FTC's Antitrust Case

Cephalon (CEPH) has hiked the price of Provigil by one third since it introduced Nuvigil, a similar but newer sleep disorder drug. At the same time, Cephalon has paid competing companies not to market rivals to Provigil.

The company is hoping that when its patent on Provigil expires -- and the drug faces competition from cheap generics -- that the "cheaper" Nuvigil will pick up the slack, bolstering revenues.

That's unlikely to happen. The reason is that Cephalon is facing the same position with its drugs as Shire (SHPGY) is now in with Adderall and Vyvanse. Shire tried the same switch -- and it's thus far failing.

Shire's Adderall XR ADHD blockbuster went generic and to combat the loss Shire introduced a similar new product, Vyvanse. Adderall once sold nearly $300 million per quarter. Now, Adderall is in freefall. Sales collapsed 74 percent to $71 million in Q3 2009. Vyvanse pulled in only $129 million -- not enough to replace the losses.

Expect to see the same pattern repeated at Cephalon. Indeed, Cephalon's Q3 2009 earnings indicate that Provigil already passed its peak. After the introduction of Nuvigil, sales of Provigil declined in the first nine months to $726 million, down from $773 million.

The Provigil price hike raises another issue: Cephalon's pay-for-delay deals. Cephalon paid four other companies (Barr, Teva, Mylan and Ranbaxy) to stop manufacturing generic Provigil until 2012.

The two moves -- anticompetition payments followed by rising prices -- would seem to bolster the FTC's argument that pay-for-delay deals are bad for consumers.

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