EXHIBIT 2015
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`EXHIBIT 2015
`
`Cephalon Exhibit 2015
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`Fresenius v. Cephalon IPR2016-00111
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`

`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`
`FORM 10-K
`
`(Mark One)
`፤ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGE ACT OF 1934
`For the fiscal year ended December 31, 2008
`or
`អ 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)
`
`23-2484489
`(I.R.S. Employer Identification No.)
`
`Delaware
`(State or Other Jurisdiction of
`Incorporation or Organization)
`41 Moores Road
`P.O. Box 4011
`19355
`Frazer, Pennsylvania
`(Zip Code)
`(Address of Principal Executive Offices)
`Registrant’s telephone number, including area code: (610) 344-0200
`Securities registered pursuant to Section 12(b) of the Act:
`Title of each class
`Name of each exchange on which registered
`Common Stock, par value $0.01 per share
`NASDAQ Global Select Market
`Securities registered pursuant to Section 12(g) of the Act:
`None
`(Title of Class)
`
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
`Act. Yes ፤ No អ
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
`Act. Yes អ No ፤
`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 ፤ No អ
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
`not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
`Part III of this Form 10-K or any amendment to this Form 10-K. ፤
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
`reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller reporting company’’ in Rule 12b-2
`of the Exchange Act.
`Large accelerated filer ፤
`
`Non-accelerated filer អ
`(Do not check if a smaller
`reporting company)
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes អ No ፤
`The aggregate market value of the voting stock held by non-affiliates of the registrant, as of June 30, 2008, was approximately
`$2.8 billion. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the
`NASDAQ Global Select Market on June 30, 2008. For purposes of making this calculation only, the registrant has defined affiliates as
`including only directors and executive officers and shareholders holding greater than 10% of the voting stock of the registrant as of
`June 30, 2008.
`The number of shares of the registrant’s Common Stock outstanding as of February 17, 2009 was 68,809,077.
`
`Accelerated filer អ
`
`Smaller reporting company អ
`
`Portions of the registrant’s definitive proxy statement for its 2009 annual meeting of stockholders are incorporated by reference
`into Items 10, 11, 12, 13, and 14 of Part III of this Form 10-K.
`
`DOCUMENTS INCORPORATED BY REFERENCE
`
`CEPHALON, INC. -- EXHIBIT 2015 0001
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`

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`TABLE OF CONTENTS
`
`Cautionary Note Regarding Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`PART I
`
`Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 1.
`Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 2.
`Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 3.
`Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 4.
`Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . .
`PART II
`
`Item 5.
`
`Item 6.
`Item 7.
`
`Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
`Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Management’s Discussion and Analysis of Financial Condition and Results of
`Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . .
`Item 8.
`Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 9.
`Changes in and Disagreements With Accountants on Accounting and Financial
`Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`PART III
`
`Item 10.
`Item 11.
`Item 12.
`
`Item 13.
`Item 14.
`
`Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . .
`Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Security Ownership of Certain Beneficial Owners and Management and Related
`Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Certain Relationships and Related Transactions, and Director Independence . . . . . . .
`Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`PART IV
`
`Page
`ii
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`89
`90
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`150
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`150
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`Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`Item 15.
`SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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`CEPHALON, INC. -- EXHIBIT 2015 0002
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`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 or
`incorporated herein by reference constitute our expectations or forecasts of future events as of the date
`this report was filed with the Securities and Exchange Commission 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:
`(cid:129) our dependence on sales of PROVIGIL↦ (modafinil) Tablets [C-IV] and, once launched,
`NUVIGIL↦ (armodafinil) Tablets [C-IV] in the United States and the market prospects and
`future marketing efforts for PROVIGIL, NUVIGIL, FENTORA↦ (fentanyl buccal tablet)
`[C-II], AMRIX↦ (cyclobenzaprine hydrochloride extended-release capsules) and TREANDA↦
`(bendamustine hydrochloride);
`(cid:129) any potential approval of our product candidates, including with respect to any expanded
`indications for NUVIGIL and/or FENTORA;
`(cid:129) 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;
`(cid:129) 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;
`(cid:129) our ability to comply fully with the terms of our settlement agreements (including the Corporate
`Integrity Agreement) with the U.S. Attorney’s Office (‘‘USAO’’), the Department of Justice
`(‘‘DOJ’’), the Office of the Inspector General of the Department of Health and Human Services
`(‘‘OIG’’) and other federal government entities, the Offices of the Attorneys General of
`Connecticut and Massachusetts and the various states;
`(cid:129) our ongoing litigation matters, including litigation stemming from the settlement of the
`PROVIGIL patent litigation, the FENTORA patent infringement lawsuits we have filed against
`Watson Laboratories, Inc. and Barr Laboratories, Inc. and the AMRIX patent infringement
`lawsuits we have filed against Barr, Mylan Pharmaceuticals, Inc. and Impax Laboratories, Inc.;
`(cid:129) 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 general
`economic conditions; and
`(cid:129) 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
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`CEPHALON, INC. -- EXHIBIT 2015 0003
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`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:
`(cid:129) the acceptance of our products by physicians and patients in the marketplace, particularly with
`respect to our recently launched products;
`(cid:129) our ability to obtain regulatory approvals to sell our product candidates, including any additional
`future indications for FENTORA and NUVIGIL, and to launch such products or indications
`successfully;
`(cid:129) scientific or regulatory setbacks with respect to research programs, clinical trials, manufacturing
`activities and/or our existing products;
`(cid:129) the timing and unpredictability of regulatory approvals;
`(cid:129) unanticipated cash requirements to support current operations, expand our business or incur
`capital expenditures;
`(cid:129) the inability to adequately protect our key intellectual property rights;
`(cid:129) the loss of key management or scientific personnel;
`(cid:129) the activities of our competitors in the industry;
`(cid:129) regulatory, legal or other setbacks or delays with respect to the settlement agreements with the
`USAO, the DOJ, the OIG and other federal entities, the state settlement agreements and
`Corporate Integrity Agreement related thereto, the settlement agreements with the Offices of
`the Attorneys General of Connecticut and Massachusetts, our settlements of the PROVIGIL
`patent litigation and the ongoing litigation related to such settlements, the FENTORA patent
`infringement lawsuits we have filed against Watson and Barr and the AMRIX patent
`infringement lawsuits we have filed against Barr, Mylan and Impax;
`(cid:129) our ability to integrate successfully technologies, products and businesses we acquire and realize
`the expected benefits from those acquisitions;
`(cid:129) unanticipated conversion of our convertible notes by our note holders;
`(cid:129) market conditions generally or in the biopharmaceutical industry that make raising capital or
`consummating acquisitions difficult, expensive or both; and
`(cid:129) 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 Part I, Item 1A of this Annual Report on Form 10-K. This discussion is permitted
`by the Private Securities Litigation Reform Act of 1995.
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`CEPHALON, INC. -- EXHIBIT 2015 0004
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`

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`PART I
`
`ITEM 1. BUSINESS
`Overview
`Cephalon, Inc. is an international biopharmaceutical company dedicated to the discovery,
`development and commercialization of innovative products in three core therapeutic areas: central
`nervous system (‘‘CNS’’), pain and oncology. In addition to conducting an active research and
`development program, we market seven proprietary products in the United States and numerous
`products in various countries throughout Europe and the world. Consistent with our core therapeutic
`areas, we have aligned our approximately 780-person U.S. field sales and sales management teams by
`area. We have a sales and marketing organization numbering approximately 400 persons that supports
`our presence in nearly 20 European countries, including France, the United Kingdom, Germany, Italy
`and Spain, and certain countries in Africa and the Middle East. For the year ended December 31,
`2008, our total revenues and net income were $2.0 billion and $222.5 million, respectively. Our
`revenues from U.S. and European operations are detailed in Note 18 to our Consolidated Financial
`Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
`Our most significant product is PROVIGIL↦ (modafinil) Tablets [C-IV], which comprised 51% of
`our total consolidated net sales for the year ended December 31, 2008, of which 94% was in the U.S.
`market. For the year ended December 31, 2008, consolidated net sales of PROVIGIL increased 16%
`over the year ended December 31, 2007. PROVIGIL is indicated for the treatment of excessive
`sleepiness associated with narcolepsy, obstructive sleep apnea/hypopnea syndrome (‘‘OSA/HS’’) and
`shift work sleep disorder (‘‘SWSD’’). With respect to the marketing of PROVIGIL in the United
`States, on August 29, 2008, we terminated our co-promotion agreement with Takeda Pharmaceuticals
`North America, Inc. (‘‘TPNA’’) effective November 1, 2008. Under the co-promotion agreement, TPNA
`provided 500 Takeda sales representatives to promote PROVIGIL to primary care physicians and other
`appropriate health care professionals in the United States. As a result of the termination of the
`co-promotion agreement, we have supplemented our existing sales teams with an additional 270 sales
`representatives who began promoting PROVIGIL and AMRIX in the first quarter of 2009. We
`accomplished this through a combination of new hires and use of a contract sales force. In total, we
`currently have 730 sales representatives promoting PROVIGIL. In June 2007, we secured final U.S.
`Food and Drug Administration (the ‘‘FDA’’) approval of NUVIGIL↦ (armodafinil) Tablets [C-IV] for
`the same indications as PROVIGIL. NUVIGIL is a single-isomer formulation of modafinil, the active
`ingredient in PROVIGIL. The product is protected by a composition of matter patent that will expire
`on December 18, 2023 and covers a novel polymorphic form of armodafinil, the active pharmaceutical
`ingredient in NUVIGIL. We currently intend to launch NUVIGIL in the third quarter of 2009. We
`expect that upon the launch of NUVIGIL, our marketing efforts with respect to PROVIGIL will
`decline substantially and will shift to NUVIGIL. Currently, we do not believe 2009 CNS net sales will
`be adversely impacted as compared to 2008 by the decline in PROVIGIL marketing efforts associated
`with the launch of NUVIGIL.
`Our two next most significant products are FENTORA↦ (fentanyl buccal tablet) [C-II] and
`ACTIQ↦ (oral transmucosal fentanyl citrate) [C-II] (including our generic version of ACTIQ (‘‘generic
`OTFC’’)). Together, these products comprise 22% of our total consolidated net sales for the year
`ended December 31, 2008, of which 87% was in the U.S. market. In October 2006, we launched in the
`United States FENTORA, our next-generation proprietary pain product. FENTORA is indicated for
`the management of breakthrough pain in patients with cancer who are already receiving and are
`tolerant to opioid therapy for their underlying persistent cancer pain. In April 2008, we received
`marketing authorization from the European Commission for EFFENTORA↩ for the same indication
`as FENTORA and launched the product in certain European countries in January 2009. We have
`focused our clinical strategy for FENTORA on studying the product in opioid-tolerant patients with
`breakthrough pain associated with chronic pain conditions, such as neuropathic pain and back pain. In
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`CEPHALON, INC. -- EXHIBIT 2015 0005
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`November 2007, we submitted a supplemental new drug application (‘‘sNDA’’) to the FDA seeking
`approval to market FENTORA for the management of breakthrough pain in opioid tolerant patients
`with chronic pain conditions. In May 2008, an FDA Advisory Committee voted not to recommend
`approval of the FENTORA sNDA. In September 2008, we received a complete response letter, in
`which the FDA requested that we implement and demonstrate the effectiveness of proposed
`enhancements to the current FENTORA risk management program. In December 2008, we also
`received a supplement request letter from the FDA requesting that we submit a Risk Evaluation and
`Mitigation Strategy (the ‘‘REMS Program’’) with respect to FENTORA, which we expect to file by the
`end of the first quarter of 2009. In the December 2008 supplement request letter, the FDA also
`provided guidance for the design and implementation of the REMS Program to mitigate serious risks
`associated with the use of FENTORA. To address the FDA’s requests in its September 2008 and
`December 2008 letters, we plan to implement as part of the REMS Program a first-of-its-kind initiative
`designed to minimize the potential risk of overdose from an opioid through appropriate patient
`selection. We believe that, by working with the FDA, we can design and implement a REMS Program
`to meet the FDA’s requests and possibly to provide a potential avenue for approval of the sNDA. We
`anticipate initiating the REMS Program upon receipt of approval from the FDA. With respect to
`ACTIQ, its sales have been meaningfully eroded by the launch of FENTORA and by generic OTFC
`products sold since June 2006 by Barr Laboratories, Inc. and by us through our sales agent, Watson
`Pharmaceuticals, Inc. We expect this erosion will continue throughout 2009.
`In March 2008, we received FDA approval of TREANDA↦ (bendamustine hydrochloride) for the
`treatment of patients with chronic lymphocytic leukemia (‘‘CLL’’) and we launched the product in April
`2008. In October 2008, we received FDA approval of TREANDA for treatment of patients with
`indolent B-cell non-Hodgkin’s lymphoma (‘‘NHL’’) who have progressed during or within six months of
`treatment with rituximab or a rituximab-containing regimen. The FDA has granted an orphan drug
`designation for the CLL indication for TREANDA.
`In August 2007, we acquired exclusive North American rights to AMRIX↦ (cyclobenzaprine
`hydrochloride extended-release capsules) from E. Claiborne Robins Company, Inc., a privately-held
`company d/b/a ECR Pharmaceuticals (‘‘ECR’’). Two dosage strengths of AMRIX (15 mg and 30 mg)
`were approved in February 2007 by the FDA for short-term use as an adjunct to rest and physical
`therapy for relief of muscle spasm associated with acute, painful musculoskeletal conditions. We made the
`product available in the United States in October 2007 and commenced a full U.S. launch in November
`2007. In February 2008, we entered into an agreement with a contract sales organization to add 120 sales
`representatives to our field sales team promoting AMRIX. As described above, through an expansion of
`our contract sales force and through new hires, we have added an additional 270 sales representatives
`who began promoting PROVIGIL and AMRIX in the first quarter of 2009. In total, we currently have
`840 sales representatives promoting AMRIX. In June 2008, the U.S. Patent and Trademark Office issued
`a pharmaceutical formulation patent for AMRIX, which expires in February 2025.
`In January 2009, we entered into an option agreement (the ‘‘Ception Option Agreement’’) with
`Ception Therapeutics, Inc. Under the terms of the Ception Option Agreement, we have the irrevocable
`option (the ‘‘Ception Option’’) to purchase all of the outstanding capital stock on a fully diluted basis
`of Ception at any time on or prior to the expiration of the Option Period (as defined below). As
`consideration for the Ception Option, we paid $50 million to Ception and also paid certain Ception
`stockholders an aggregate of $50 million. We, in our sole discretion, may exercise the Ception Option
`by providing written notice to Ception at any time during the period from January 13, 2009 to and
`including the date that (i) is fifteen business days after our receipt of the final study report for
`Ception’s ongoing Phase IIb/III clinical trial for reslizumab in pediatric patients with eosinophilic
`esophagitis (‘‘Res-5-0002 EE Study’’) indicating that the co-primary endpoints have been achieved or
`(ii) is thirty business days after our receipt of the final study report for Res-5-0002 EE Study indicating
`that the co-primary endpoints have not been achieved (the ‘‘Option Period’’). We anticipate that the
`Res-5-0002 EE Study will be completed in the fourth quarter of 2009. If the data are positive and we
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`exercise the Ception Option, we intend to file a Biologics License Application for reslizumab with the
`FDA in 2010. If we exercise the Ception Option, we have agreed to pay a total of $250 million in
`exchange for all the outstanding capital stock of Ception on a fully-diluted basis. Ception stockholders
`also could receive (i) additional payments related to clinical and regulatory milestones and (ii) royalties
`related to net sales of products developed from Ception’s program to discover small molecule, orally-
`active, anti-TNF (tumor necrosis factor) receptor agents. In November 2008, we paid a $25 million
`non-refundable fee to Ception for exclusive rights to negotiate the Ception Option. This payment was
`credited against the Ception Option Agreement payments.
`In November 2008, we entered into an option agreement (the ‘‘Immupharma Option Agreement’’)
`with ImmuPharma PLC providing us with an option to obtain an exclusive, worldwide license to the
`investigational medication LUPUZOR↩ for the treatment of systemic lupus erythematosus. In January
`2009, we exercised the option and entered into a Development and Commercialization Agreement (the
`‘‘Immupharma License Agreement’’) with Immupharma based on a review of interim results of a
`Phase IIb study for LUPUZOR. Under the terms of the Immupharma Option Agreement, we paid
`ImmuPharma a $15 million upfront option payment upon execution and will pay a one-time $30 million
`license fee by early March 2009. Under the Immupharma License Agreement, Immupharma may
`receive (i) up to approximately $500 million in milestone payments (including the option and license
`fees) upon the achievement of regulatory and sales milestones and (ii) royalties on the net sales of
`LUPUZOR. We will assume all expenses for the remaining term of the Phase IIb study, the Phase III
`studies, regulatory filings and, assuming regulatory approval, subsequent commercialization of the
`product.
`In November 2008, we entered into a license and convertible note transaction with
`Acusphere, Inc., a specialty pharmaceutical company that develops new drugs and improved
`formulations of existing drugs using its proprietary microparticle technology. In connection with the
`transaction, Acusphere granted us an exclusive worldwide license to all intellectual property of
`Acusphere relating to celecoxib to develop and market celecoxib for all current and future indications.
`In connection with this license, we paid Acusphere an upfront fee of $5 million and agreed to pay a
`$15 million milestone upon FDA approval of the first new drug application prepared by us with respect
`to celecoxib for any indication, as well as royalties on net sales. In addition, we purchased a $15 million
`senior secured three-year convertible note (the ‘‘Acusphere Note’’) from Acusphere, secured by
`substantially all the assets of Acusphere (including Acusphere’s intellectual property). The Acusphere
`Note is convertible at our option at any time prior to November 3, 2009 into either (i) a number of
`shares of Acusphere common stock at least equal to 51% of Acusphere’s outstanding common stock on
`a fully-diluted basis on the date of conversion of the Acusphere Note, (ii) an exclusive license to all
`intellectual property of Acusphere relating to Imagify↩ (perflubutane polymer microspheres) to use,
`distribute and sell Imagify for all current and future indications worldwide excluding those European
`countries subject to Acusphere’s agreement with Nycomed Danmark ApS, or (iii) a $15 million credit
`against the future milestone payment under the celecoxib license agreement. In December 2008, an
`FDA Advisory Committee voted not to recommend approval of Acusphere’s new drug application for
`Imagify. Separately, in March 2008, we purchased license rights for Acusphere’s Hydrophobic Drug
`Delivery Systems (HDDS↩) technology for use in oncology therapeutics for $10 million. See Note 2 to
`our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K
`for additional information regarding this transaction.
`In November 2008, we entered into a termination agreement (the ‘‘Termination Agreement’’) with
`Alkermes, Inc. to end our collaboration. As of December 1, 2008, we are no longer responsible for the
`marketing and sale of VIVITROL↦ (naltrexone for extended-release injectable suspension) in the
`United States. The Termination Agreement is intended to reduce our cost structure and enhance
`competitiveness. Pursuant to the Termination Agreement, we will incur certain costs associated with exit
`or disposal activities. The pretax charges associated with the Termination Agreement total
`$119.8 million. These charges include (i) cash charges of $12.2 million, consisting of a termination
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`CEPHALON, INC. -- EXHIBIT 2015 0007
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`payment of $11.0 million to Alkermes and severance costs of $1.2 million and (ii) non-cash charges of
`$107.6 million, consisting of the $17.2 million loss on sale of the Product Manufacturing Equipment
`and other Capital Improvements (as such terms are defined in the Supply Agreement effective as of
`June 23, 2005 between the parties, as amended to date) and the $90.4 million impairment charge to
`write-off the net book value of the VIVITROL intangible assets. These pretax charges have been
`recognized in the fourth quarter of 2008.
`In August 2008, we established a $200 million, three-year revolving credit facility (the ‘‘Credit
`Agreement’’) with JP Morgan Chase Bank, N.A. and certain other lenders. The credit facility is
`available for letters of credit, working capital and general corporate purposes and is guaranteed by
`certain of our domestic subsidiaries. The Credit Agreement contains customary covenants, including but
`not limited to covenants related to total debt to Consolidated EBITDA (as defined in the Credit
`Agreement), senior debt to Consolidated EBITDA, interest expense coverage and limitations on capital
`expenditures, asset sales, mergers and acquisitions, indebtedness, liens, and transactions with affiliates.
`As of the filing date of this Annual Report on Form 10-K, we have not drawn any amounts under the
`credit facility.
`We have significant discovery research programs focused on developing therapeutics to treat
`neurological disorders and cancers. Our technology principally focuses on an understanding of kinases
`and proteases and the role they play in cellular integrity survival and proliferation. We have coupled
`this knowledge with a library of novel, small, orally-active synthetic molecules that inhibit the activities
`of specific kinases. We also work with our collaborative partners to provide a more diverse therapeutic
`breadth and depth to our research efforts.
`While we seek to increase profitability and cash flow from operations, we will need to continue to
`achieve growth of product sales and other revenues sufficient for us to attain these objectives. The rate
`of our future growth will depend, in part, upon our ability to obtain and maintain adequate intellectual
`property protection for our currently marketed products, and to successfully develop or acquire and
`commercialize new product candidates.
`As a biopharmaceutical company, our future success is highly dependent on obtaining and
`maintaining patent protection or regulatory exclusivity for our products and technology. We intend to
`vigorously defend the validity, and prevent infringement, of our patents. The loss of patent protection
`or regulatory exclusivity on any of our existing products, whether by third-party challenge, invalidation,
`circumvention, license or expiration, could materially impact our results of operations. In late 2005 and
`early 2006, we entered into PROVIGIL patent settlement agreements with each of Teva
`Pharmaceuticals USA, Inc., Mylan Pharmaceuticals Inc., Ranbaxy Laboratories Limited and Barr; in
`August 2006, we entered into a settlement agreement with Carlsbad Technology, Inc. and its
`development partner, Watson Pharmaceuticals, Inc., which we understand has the right to
`commercialize the Carlsbad product if approved by the FDA. As part of these separate settlements, we
`agreed to grant to each of these parties a non-exclusive royalty-bearing license to market and sell a
`generic version of PROVIGIL in the United States, effective in April 2012, subject to applicable
`regulatory considerations. Under the agreements, the licenses could become effective prior to April
`2012 only if a generic version of PROVIGIL is sold in the United States prior to this date.
`We also received rights to certain modafinil-related intellectual property developed by each party
`and in exchange for these rights, we agreed to make payments to Barr, Ranbaxy and Teva collectively
`totaling up to $136.0 million, consisting of upfront payments, milestones and royalties on net sales of
`our modafinil products. In order to maintain an adequate supply of the active drug substance
`modafinil, we entered into agreements with three modafinil suppliers whereby we have agreed to
`purchase minimum amounts of modafinil through 2012, with remaining aggregate purchase
`commitments totaling $57.8 million as of December 31, 2008. Based on our current assessment, we
`have recorded a reserve of $26.0 million for purchase commitments for modafinil raw materials not
`
`4
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`CEPHALON, INC. -- EXHIBIT 2015 0008
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`

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`expected to be utilized. See Note 7 to our Consolidated Financial Statements included in Part II,
`Item 8 of this Annual Report on Form 10-K for additional information.
`We filed each of the settlements with both the U.S. Federal Trade Commission (the ‘‘FTC’’) and
`the Antitrust Division of the U.S. Department of Justice (the ‘‘DOJ’’) as required by the Medicare
`Prescription Drug, Improvement and Modernization Act of 2003 (the ‘‘Medicare Modernization Act’’).
`The FTC conducted an investigation of each of the PROVIGIL settlements and, in February 2008, filed
`suit against us in the U.S. District Court for the District of Columbia challenging the validity of the
`settlements and related agreements entered into by us with each of Teva, Mylan, Ranbaxy and Barr. We
`filed a motion to transfer the case to the U.S. District Court for the Eastern District of Pennsylvania,
`which was granted in April 2008. The complaint alleges a violation of Section 5(a) of the Federal Trade
`Commission Act and seeks to permanently enjoin us from maintaining or enforcing these agreements
`and fro