SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(RULE 14d-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
CEPHALON, INC.
(Name of Subject Company)
CEPHALON, INC.
(Name of Person(s) Filing Statement)
Common Stock, Par Value $0.01 Per Share
(including the associated Series A Junior
Participating Preferred Stock Purchase Rights)
(Title of Class of Securities)
156708109
(CUSIP Number of Class of Securities)
 
Gerald J. Pappert
Executive Vice President, General Counsel and Secretary
Cephalon, Inc.
41 Moores Rd.
Frazer, Pennsylvania 19355
(610) 344-0200

(Name, Address and Telephone Number of Person authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With copies to:

Eileen T. Nugent, Esq.
Neil P. Stronski, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000

[X]
Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.


 
 
 
 
 
April 6, 2011
 
 
 
2
2
Cephalon, Inc. (the "Company"), its directors and certain of its officers and employees may
be deemed to be participants in the solicitation of consent revocations from stockholders in
connection with a consent solicitation by Valeant Pharmaceuticals International, Inc.
("Valeant") to replace the Company's current Board of Directors with nominees of Valeant.
The Company plans to file a consent revocation statement with the Securities and
Exchange Commission (the "SEC") in connection with the solicitation of written consent
revocations in connection with Valeant's consent solicitation (the "Consent Revocation
Statement").   Information regarding the names of the Company's directors and other
participants in the solicitation and their respective interests in the Company by security
holdings or otherwise is set forth in the Company's proxy statement relating to its 2011
annual meeting of stockholders, which may be obtained free of charge at the SEC's website
at http://www.sec.gov and the Company's website at http://www.cephalon.com.   Additional
information regarding the interests of such potential participants will be included in the
Consent Revocation Statement and other relevant documents to be filed with the SEC in
connection with the consent solicitation.
 
Promptly after filing its definitive Consent Revocation Statement with the SEC, the
Company will mail the definitive Consent Revocation Statement and a form of white consent
revocation card to each stockholder entitled to deliver a written consent in connection with
the consent solicitation.
 
 
 
3
3
WE URGE INVESTORS TO READ THE CONSENT REVOCATION STATEMENT
(INCLUDING ANY SUPPLEMENTS THERETO), THE COMPANY'S
SOLICITATION/RECOMMENDATION STATEMENT REGARDING ANY TENDER OFFER
THAT MAY BE COMMENCED BY VALEANT, AND ANY OTHER RELEVANT
DOCUMENTS THAT THE COMPANY WILL FILE WITH THE SEC WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Stockholders will be able to obtain, free of charge, copies of the Consent Revocation
Statement, the solicitation/recommendation statement and any other documents filed by the
Company with the SEC in connection with the consent solicitation or any tender offer at the
SEC's website at http://www.sec.gov, at the Company's website at
http://www.cephalon.com, or by contacting Innisfree M&A Incorporated at (877) 800-5186
(banks and brokers call collect at (212) 750-5833).
 
 
 
4
Safe Harbor Statement
  This presentation contains forward-looking statements that involve risks
  and uncertainties. These statements may concern, among other things,
  our business strategy and market opportunities, the development of
  pharmaceutical products, and future financial and operating results.
  Additional information that may affect our business and financial prospects,
  as well as factors that would cause our actual performance to vary from our
  expectations, may be found in our filings with the Securities and Exchange
  Commission .
 
 
 
5
Situation Overview & Strategy
 
 
 
6
6
Situation Overview
§ On March 3, the Valeant and Cephalon CEOs had an introductory meeting. No proposal
of any kind was made
§ On March 18, Cephalon received a letter from Valeant with a $73 per share proposal for
100% of Cephalon shares - Valeant requested a response by April 1
§ On March 25, one week before Valeant's requested response date, Cephalon received a
second letter from Valeant reiterating its $73 per share proposal and adding a second
insufficiently defined alternative to acquire certain assets for $2.8 billion - at the same
time, Valeant shortened the response date to March 29
§ By reducing Cephalon’s time to evaluate these alternatives, it was not feasible for
Cephalon to thoroughly review the proposals with its Board
§ Upon receiving Valeant’s first proposal on March 18, Cephalon promptly informed the
Board of the proposal and quickly began reviewing the proposal with the assistance of
its financial and legal advisors
§ Before Cephalon could properly review the proposals with its Board, Valeant went
public with its $73 proposal on March 29 and announced its intent to commence a
Consent Solicitation Process
§ On April 5, Cephalon’s Board formally rejected Valeant’s unsolicited proposal, deeming
it inadequate and not in the best interests of Cephalon’s shareholders
 
 
 
7
7
Valeant’s Strategy: “Speed” at the Expense
of Process Harms Cephalon Shareholders
§ Valeant is attempting to quickly force a takeover that is not in the
best interest of Cephalon’s shareholders
“We maximize speed and believe “deal process” creates distractions.”
- Valeant’s Transaction Operating Principles, Investor Presentation, March 30, 2011
§ If they succeed in forcing us to act quickly, we will be unable to
maximize value for Cephalon shareholders
§ The market’s reaction in Valeant’s and Cephalon’s stock prices
clearly demonstrates that Valeant is significantly undervaluing
Cephalon
“There’s a general awareness that this is a steal.” - Jack Ablin, Harris Private Bank
“Valeant Pharmaceuticals’ hostile bid for Cephalon is so low that Valeant could raise the
offer by 15 percent and still pay less than any drug takeover in history.”
- Bloomberg News, March 31, 2011
 
 
 
8
8
Cephalon’s Approach
§ We have built a leading, global biopharmaceutical platform
that is diversified across both products and geographies
§ Over the past two years, Cephalon has created one of the
broadest late-stage pipelines in the industry
§ This pipeline has significant near- to mid-term commercial
potential, which has been given little-to-no value in Valeant’s
proposal or in public comments by Valeant’s CEO
 
 
 
9
Our Assessment of Valeant’s Proposal
 
 
 
10
10
Valeant’s $73 Proposal is Inadequate
§ 30-day average of $56.74 is near our 52-week low and not the
appropriate reference point
§ Premium is significantly below precedent life sciences
benchmarks
§ It is based on a “worst-case” scenario
§ It ascribes little-to-no value to Cephalon’s late-stage pipeline
§ It does not reflect the scarcity value of life sciences assets that
“move the needle”
 
 
 
11
11
Valeant’s $73 Proposal Represents
Virtually NO Premium to 52-Week High
Premium to 30 days prior
Note:   2006-2011 YTD pharmaceutical, specialty pharmaceutical and biotechnology precedent transactions with US-listed target, enterprise value > $500 million,
  > 50% cash consideration (n = 34).   Excludes large-cap mergers (e.g. Pfizer / Wyeth and Merck / Schering Plough).   Purchase prices exclude contingent
  value rights (CVRs).
Source:   Bloomberg, press releases and news articles, company filings.
Premium to last close
Premium to 52-week high
20.4%
0.4%
58.7%
29.6%
47.6%
24.3%
Median life
sciences bid
premium
Cephalon @ $73
Median life
sciences bid
premium
Cephalon @ $73
Median life
sciences bid
premium
Cephalon @ $73
 
 
 
12
12
Valeant Proposal Based on
Worst-Case Scenario
§ Valeant’s $73 proposal is based on a worst-case scenario
“We took the absolute worst case as one of our analyses....we assumed the worst, the worst in
terms of IP, the worst in terms of sort of everything, everything we could think of...if the worst
thing happens, no matter what, we don't want to destroy shareholder value...”
“…we don't believe we are going to destroy a ton of our shareholders' value, but we are certainly
not going to create any. There might be some. That is all worst case…”
- Michael Pearson, Valeant Chairman & CEO, on investor call on March 30, 2011
Cephalon should not be valued based on a worst-case scenario
 
 
 
13
13
Valeant’s Proposal Ascribes Little-to-No
Value to Cephalon’s Late-Stage Pipeline
§ Valeant does not believe in R&D and ascribes little-to-
no value to Cephalon’s late-stage pipeline
“Do not bet on science, bet on management.”
- Valeant Strategy, Investor Presentation, March 30, 2011
§ Cephalon values both and has a proven track record
§ Valeant has mis-characterized Cephalon’s pipeline as
early-stage
“I was extremely disappointed that on Monday you announced an agreement to acquire
another early-stage R&D program…”
- Michael Pearson, Valeant Chairman & CEO, Letter to Cephalon Board, March 25, 2011
§ The asset Valeant refers to is entering Phase III and is
one of 10 late-stage product candidates
 
 
 
14
Cephalon’s Proven Track Record
 
 
 
15
15
A History Of Strong Sales Growth
*2011 estimates depict the midpoint of guidance ranges provided in press release issued 2/10/11.
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Oncology
Other
Pain
CNS
Sales CAGR:
30%
 
 
 
16
16
Focus on Cash Flow Generation
* Excludes $425 million paid in 2008 in association with the settlement agreement with the U.S. Attorney’s Office that was considered a reduction in net cash provided
  by operating activities.
** Excludes $100 million paid to Angioblast for a license associated with the Mesoblast transaction that was included as an expense in 2010.
$0
$200
$400
$600
$800
$1,000
 
 
 
17
Ability to Identify, Develop and
Commercialize Assets
 
Asset
 
Acquisition Cost
Cumulative Sales
Through 4Q 2010
Cephalon Launch
Year
Lafon (PROVIGIL/NUVIGIL)
$448
$7,587
1998
GABITRIL
$110
$586
2000
Anesta (ACTIQ)
$357
$2,865
2000
TRISENOX
$70
$129
2005
CIMA (FENTORA & other)
$483
$872
2006
Zeneus
$366
$594
2006
VIVITROL
$270
$33
2006 to 2008
AMRIX
$99
$306
2007
Salmedix (TREANDA)
$131
$690
2008
Mepha
$549
$258
2010
Total
$2,882
$13,920
 
Note: All figures in $ millions.
 
 
 
18
Our Pipeline Presents Substantial
Value
Targeted
Launch
 
Product
 
Indication
 
Current Status
Estimated
Peak Sales
2012
Tamper Deterrent Hydrocodone
Chronic pain
Phase III
$500
2012
TREANDA
1 st line iNHL
Phase III
$600
2012
OMAPRO*
3 rd line CML
Preparing NDA
$150
2013
NUVIGIL
Bipolar depression
Phase III
$1,000
2013
Mesenchymal Precursor Cells
Cord blood expansion
Phase II completed
$200
2014
CINQUIL
Eosinophilic asthma
Phase III
$1,400
2015
CEP-37247
Sciatica
Phase I/II
$500
2015
REVASCOR
Congestive heart failure
Phase II
$2,000
2015
Obatoclax*
1 st line extensive stage -
SCLC
Phase II
completed
$1,000
2016
LUPUZOR
Systemic lupus
erythematosus
Phase II
$1,000
2016
Larazotide acetate**
Celiac disease
Phase II
$400
2016
REVASCOR
Acute myocardial infarction
Phase II
$600
Note: All figures in $ millions.
*   Cephalon has announced takeover proposals for ChemGenex and Gemin X. ** Cephalon has an option to purchase assets from Alba Therapeutics.
 
 
 
19
Key Attributes Of Cephalon’s Recent
Acquisitions
1)   Solid, enduring intellectual property
  §   Composition of matter patents
  §   12 years biologics exclusivity
2)   Unique products that payers will embrace
  §   Meet major unmet medical need
  §   1 st or 2 nd in class products
  §   Unique compounds, not reformulations
3)   Can be detailed to specialty physicians utilizing
  modest sales forces
4)   Secured worldwide rights for almost every
  compound
 
 
 
20
20
Summary
§ 30-day average of $56.74 is near our 52-week low and not the
appropriate reference point
§ Premium is significantly below precedent life sciences
benchmarks
§ It is based on a “worst-case” scenario
§ It ascribes little-to-no value to Cephalon’s late-stage pipeline
§ It does not reflect the scarcity value of life sciences assets that
“move the needle”
Valeant’s $73 Proposal is Inadequate
 
 
 
21
Supplemental Information
 
 
 
22
22
Cephalon Overview
§ Global biopharmaceutical company with well-
diversified product and geographic mix (170 products
sold in more than 100 countries)
§ Offering of branded, branded generic and generic
products
§ Branded portfolio focused on wakefulness and
neurological disorders, oncology, pain and
inflammatory diseases
§ Proven track record of growth and profitability
§ World-class, late-stage pipeline across multiple
therapeutics areas
§ Continue to augment core platform with business
development opportunities
 
 
 
23
23
Diversified Product Portfolio
CIMA Products
European Proprietary Products
U.S. Proprietary Products
 
 
 
24
24
Cephalon’s Growing Global Presence
Sales in more than 100 countries and over 170 products sold
 
 
 
25
Mesenchymal Precursor Cell (MPC)
Revascor
§   Produce cytokines and/or growth
  factors that induce endogenous tissue
  repair or cell proliferation
§   Data indicated that MPC treatment reduced
  MACE, hospitalization and mortality in CHF
§   Animal studies demonstrated improvement in
  ejection fraction in MI
§   Cord blood expansion resulted in 44-fold
  volume increases and reduced time to
  engraftment
§   In the U.S. alone:
  §   6 million people suffer from CHF
  §   1 million new cases of MI per year
  §   2,000 bone-marrow
  transplantations patients could
  benefit from MPCs
§   Cord blood expansion program & CHF
  to begin phase III programs in early
  2012
§   Myocardial infarction to begin phase II
  in 2011
Description
Data
Potential
Timeline
 
 
 
26
CINQUIL™
§   Humanized mAb against IL-5
§   Designed to reduce airway eosinophils
§   Phase IIb study results demonstrated:
  §   Reduction of sputum eosinophil
  counts
  §   Improvements on the asthma
  control questionnaire, FEV1, FVC,
  and clinical asthma exacerbations
§   ~30% of severe asthmatics or 750,000
  in U.S. alone
§   Phase III eosinophilic asthma program
  underway
§   First study readout in 4Q 2012
Description
Data
Potential
Timeline
 
 
 
27
LUPUZOR™
§   Immune modulator believed to:
  §   Reduce auto-antigen processing in
  antigen-presenting B cells
  §   A decrease in the priming and
  signaling of auto-reactive T-cells
§   Phase IIb study results showed a
  clinically significant improvement in the
  intent to treat population as measured
  by a composite endpoint as well as the
  SLEDAI Score
§   Lupus Foundation of America estimates
  1.5 million Americans have a form of
  lupus
§   Phase II study underway with interim
  analysis 3Q 2011
§   If interim data is positive, phase III will
  begin by YE 2011
Description
Data
Potential
Timeline
 
 
 
28
OMAPRO™
§   First-in-class cetaxine (small molecule)
§   Induces apoptosis by inhibition of
  protein synthesis
 
§ Promising data for the treatment of
chronic myeloid leukemia in patients who
failed or are intolerant to Gleevec® and
one other tyrosine kinase inhibitor
§ Presented at ASH 2009, Omapro
demonstrated durable hematologic &
cytogenetic responses (86% CHR, 41%
cytogenetic response)
§ 5,000 new CML cases each year in U.S.
§ Increasing prevalence as 5-year survival
rates approach 90%
§   Phase III complete
§   NDA submission H2 2011
Description
Data
Potential
Timeline
Note: Gleevec is a registered trademark of Novartis.
 
 
 
29
Obatoclax
§   Pan Bcl-2 inhibitor with preclinical and
  clinical activity
§   Observed as both a single agent and in
  combination with standard therapies for
  various cancers including extensive
  stage small cell lung cancer (ES-SCLC)
§   Completed first line, phase IIb study in
  combination with carboplatin and
  etoposide in more than 160 patients
  with ES-SCLC
§   20,000 new cases per year of ES-
  SCLC in U.S. alone
§   End-of-phase II meeting with FDA in
  2011
§   Begin phase III program with potential
  data readout in early 2015
Description
Data
Potential
Timeline
 
 
 
30
Tamper Deterrent Hydrocodone
§   Polymer-coated particles compressed
  into twice-daily, acetaminophen-free
  tablets
 
§   Formulation has demonstrated a
  resistance to immediate release of drug
  when crushed or mixed with alcohol
§   26 million+ long-acting opioid
  prescriptions per year in U.S.
§   $5 billion market
§ Complete Phase III by YE 2011
§ sNDA filing early 2012
Description
Data
Potential
Timeline
 
 
 
31
CEP-37247 (Domain Antibody Anti-TNF)
§   Domain antibody anti-TNF for epidural
  injection to treat sciatica
§   TNF is a key cytokine mediator in the
  pathophysiology of sciatica
§   Two small studies with etanercept have
  demonstrated proof of concept
§   ~14% of all chronic lower back pain
  cases involve sciatica
§   Prevalent population of ~1.7 million
  U.S. sciatica sufferers
§   Phase I/II anti-TNF study in sciatica
  underway
§   Data readout 2Q 2012
Description
Data
Potential
Timeline
 
 
 
32
Larazotide Acetate
§   Tight junction modulator
§   Early research suggests larazotide
  acetate may help keep the tight
  junctions closed when ingested prior to
  a meal, thus reducing the inflammatory
  process in response to gluten
§   Demonstrated a signal of efficacy in a
  phase II study for the treatment of
  celiac disease
§   Celiac disease affects > 2 million
  patients in U.S. alone
§   No approved treatment
§   In 2011, ALBA will initiate a new
  phase II study in patients who are
  symptomatic despite a gluten-free diet
§   Phase II interim data readout in 4Q
  2012
Description
Data
Potential
Timeline
 
 
 
33
Primary Patents Covering Potential
Launches
 
Product
 
Patent Type
 
Expiration*
Market
Exclusivity
TD Hydrocodone
Formulation**
2027
 
TREANDA
Composition of matter on polymorph**
2015 / 2029
NCE exclusivity to 2013
plus 6 months pediatric
extension plus time of
ANDA
OMAPRO
Method of treatment
2023
 
NUVIGIL
Composition of matter on polymorph
2024
 
Mesenchymal Precursor Cells
Composition of matter
2025
12-year biologics
exclusivity
CINQUIL
Composition of matter
2026
12-year biologics
exclusivity
CEP-37247
Composition of matter
2027
12-year biologics
exclusivity
REVASCOR
Composition of matter
2027
12-year biologics
exclusivity
Obatoclax
Composition of matter
2026
 
LUPUZOR
Composition of matter
2026
 
Larazotide Acetate
Composition of matter
2023
 
*   Hatch-Waxman extension likely on many of these patents.   ** Pending.
 
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