Sleep and dreams

News that Cephalon (CEPH) beat the third quarter consensus estimates by a more than robust $0.34 might have given the impression that analysts were asleep at the wheel. It's not every day that a company produces a 567% upside surprise.

Most of the upside came from wholesaler stockpiling of CEPH's Provigil modafinil narcolepsy drug in advance of an expected price increase. This left analysts in the unenviable position of ferreting out the true sales run rate for Provigil, a dubious task given that market watchers estimate that the product gets nearly three-quarters of its sales from off-label use in depression, schizophrenia and effective disorders.

After the market close on Monday, CEPH reported third quarter EPS of $0.40 versus the Street consensus of $0.06. Sales of Provigil came in at $53.7 million, up from $19.2 million in the third quarter last year(see BioCentury Extra, Monday Nov. 5).

The response of investors was muted - not surprising, given that most of the upside was stocking. "That's why you don't see the stock up $10 points," said SG Cowen analyst Eric Schmidt. "Investors are trying to determine the appropriate baseline for sales growth going forward." CEPH closed Friday at $60.46, down $1.99 on the week, after trading up $1.01 to $65.55 on 4.7 million shares on Tuesday.

The earnings surprise also pointed up the conundrum companies face under the disclosure requirements of the SEC's Regulation FD (see "After FD comes CD", A16).

Following its earnings release, CEPH bumped up its 2001 total product sales guidance to $220 million from $200 million and increased its EPS guidance to $0.21 from $0.10. CEPH also provided its first guidance for 2002, aiming for sales of $320-$330 million, leading to EPS of $1, in line with prior Street consensus of $328 million in sales and EPS of $1.01.

Schmidt suggested that the Provigil numbers may have overshadowed strong sales of Actiq transmucosal fentanyl, which at $14 million were up 42% quarter-over-quarter and significantly above most analyst estimates of $10-$11 million. CEPH relaunched the pain drug, which it

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