UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

 

FORM 10-Q

 

(Mark One)

 

ý                                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2004

OR

 

o                                 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   000-19119

 

CEPHALON, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

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    ý         No    o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ý    No  o

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

 

 

CEPHALON, INC. AND SUBSIDIARIES

 

INDEX

 

Cautionary Note Regarding Forward-Looking Statements
PART I – FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
Consolidated Balance Sheets – September 30, 2004 and December 31, 2003
Consolidated Statements of Operations – Three and nine months ended September 30, 2004 and 2003
Consolidated Statements of Stockholders’ Equity – September 30, 2004 and December 31, 2003
Consolidated Statements of Cash Flows – Nine months ended September 30, 2004 and 2003
Notes to Consolidated Financial Statements
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.    Quantitative and Qualitative Disclosure about Market Risk
Item 4.    Controls and Procedures
PART II – OTHER INFORMATION
Item 1.    Legal Proceedings
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.    Exhibits
SIGNATURES

 

i

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

In addition to historical facts or statements of current condition, this report and the documents into which this report is and will be incorporated contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements contained in this report constitute our expectations or forecasts of future events as of the date this report was filed with the SEC and are not statements of historical fact. 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,” “will,” “estimate,” “expect,” “project,” “intend,” “should,” “plan,” “believe,” “hope,” and other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual property and product development. In particular, these forward-looking statements include, among others, statements about:

 

•                  our dependence on sales of PROVIGIL® (modafinil) tablets [C-IV], ACTIQ® (oral transmucosal fentanyl citrate) [C-II] and GABITRIL® (tiagabine hydrochloride) in the United States and the market prospects and future marketing efforts for these products, including with respect to any new indications for such products;

•                  any potential expansion of the authorized uses of our existing products;

•                  our anticipated scientific progress in our research programs and our development of potential pharmaceutical products including our ongoing or planned clinical trials, the timing and costs of such trials and the likelihood or timing of revenues from these products, if any;

•                  the timing and predictability of regulatory approvals;

•                  our ability to adequately protect our technology and enforce our intellectual property rights and the future expiration of patent and/or regulatory exclusivity on certain of our products;

•                  our ability to realize the anticipated benefits of our acquisition of CIMA LABS INC.;

•                  our future cash flow, our ability to service or repay our existing debt and our ability to raise additional funds, if needed, in light of our current and projected level of operations; 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 report and in the documents we have referred you to may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Therefore, you should not place undue reliance on any such forward-looking statements. The factors that could cause actual results to differ from those expressed or implied by our forward-looking statements include, among others:

 

•                  the acceptance of our products by physicians and patients in our current markets and new markets;

•                  our ability to obtain regulatory approvals of our product candidates or of expanded indications for certain of our existing products;

•                  scientific or regulatory setbacks in our research programs, clinical trials, or manufacturing activities for our product candidates or our existing products;

•                  unanticipated cash requirements to support current operations, expand our business or incur capital expenditures;

•                  the inability to adequately protect our key intellectual property rights, including as a result of an adverse adjudication with respect to the PROVIGIL litigation;

•                  the loss of key management or scientific personnel;

•                  the activities of our competitors in the industry, including the filing of Abbreviated New Drug Applications (ANDAs) with a Paragraph IV certification for any product containing modafinil or the entry of a generic competitor to ACTIQ;

•                  the loss of one or more key customers of CIMA or the inability to obtain regulatory approval of OraVescent® fentanyl;

•                  market conditions in the biotechnology industry that make raising capital or consummating acquisitions difficult, expensive or both; and

 

ii

 

•                  enactment of new government laws, regulations, court decisions, regulatory interpretations or other initiatives that are adverse to us or our interests.

 

We do not intend to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. We discuss in more detail the risks that we anticipate in the section included in Part I, Item 2 hereof and entitled “Certain Risks Related to our Business.” This discussion is permitted by the Private Securities Litigation Reform Act of 1995.

 

iii

 

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

 

CEPHALON, INC.  AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share data)		September 30, 2004			December 31, 2003
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	605,992		$	1,115,699
Investments		204,534			39,464
Receivables, net		136,503			86,348
Inventory, net		71,466			61,249
Deferred tax asset		69,481			57,972
Other current assets		27,664			9,198
Total current assets		1,115,640			1,369,930
PROPERTY AND EQUIPMENT, net		224,523			126,442
GOODWILL		363,912			298,769
INTANGIBLE ASSETS, net		412,216			326,445
DEBT ISSUANCE COSTS, net		27,429			35,250
DEFERRED TAX ASSET, net		129,216			168,506
OTHER ASSETS		25,877			56,314
		$	2,298,813		$	2,381,656
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt		$	9,403		$	9,637
Accounts payable		40,330			28,591
Accrued expenses		131,254			99,038
Current portion of deferred revenues		1,042			422
Total current liabilities		182,029			137,688
LONG-TERM DEBT		1,287,320			1,409,417
DEFERRED REVENUES		1,592			1,736
DEFERRED TAX LIABILITIES		86,251			45,665
OTHER LIABILITIES		17,862			16,780
Total liabilities		1,575,054			1,611,286
COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, 2,500,000 shares issued, and none outstanding		—			—
Common stock, $.01 par value, 200,000,000 shares authorized, 57,690,229 and 55,842,510 shares issued, and 57,380,965 and 55,533,682 shares outstanding		577			558
Additional paid-in capital