Earlier this month, Cephalon Inc. (CEPH) announced that it has settled its patent infringement case with Barr Pharmaceuticals, which is now owned by Teva Pharmaceutical (TEVA). Barr was looking to market a generic version of Cephalon’s cancer pain management drug, Fentora.

As per the terms of the agreement, Barr has been granted a non-exclusive, royalty-free right to sell a generic version of Fentora in October 2018. However, if a generic version of Fentora enters the market prior to that date, Barr will be allowed to launch its generic version provided the other generic company does not enjoy marketing exclusivity. According to Cephalon, Fentora’s patent is not set to expire before 2019.

While we are pleased to hear about this settlement agreement with Barr, we note that another major generic player, Watson Pharmaceuticals (WPI), is also seeking to bring a generic version of Fentora to market.

A delay in the entry of generic competition would provide Cephalon with more time to develop Fentora for additional indications such as breakthrough pain and neuropathic pain, which would expand the market significantly.

Cephalon’s pain management franchise has been under significant pressure ever since generic competition for Actiq, the leading pain franchise product, entered the market in late 2006. While Amrix, also a Cephalon product, is performing well, we believe the pain franchise will remain under pressure going forward.

Competition for Fentora has increased with the entry of a new player, BioDelivery Sciences’ (BDSI) Onsolis. Meanwhile, Actiq could potentially face additional generic competition later this year/early next year. Finally, Amrix is also facing patent challenges.

We currently have a Neutral recommendation on Cephalon. We expect investor focus to remain on Cephalon’s emerging oncology pipeline, Amrix, and the conversion of patients to Nuvigil.

Zacks Investment Research

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