A Biotech Outcast Awakens

By ANDREW POLLACK

The NY Times, October 20, 2002

Cephalon hopes that Provigil, its drug for narcolepsy, will gain the government's approval as a treatment for sleepiness associated with any medical condition.

Like most top executives, Frank Baldino Jr. sometimes does not get enough sleep. But Dr. Baldino, the founder and chief executive of Cephalon Inc., a biotechnology company, may be able to cope with lack of sleep better than most.

He has a prescription for Provigil, his company's No. 1 drug, which some doctors and users say has the ability to keep people awake and alert for hours, or even days. And it appears to do so without the side effects — the buzz and jitteriness, or the risk of addiction — of coffee or amphetamines.

Provigil, which is short for "promotes vigilance," was approved late in 1998 for treatment of sleepiness associated with narcolepsy, a condition in which people fall asleep uncontrollably. But use of the drug is expanding rapidly, with more than 80 percent of the prescriptions written to treat the fatigue and sleepiness associated with many other diseases, like depression and multiple sclerosis, or even just sleepiness caused by no disease at all.

Rising sales of Provigil and the company's two other main drugs, all of them licensed from other companies, have made Cephalon one of the fastest-growing biotechnology companies and one of the few profitable ones. And they have meant a resurrection for Dr. Baldino, who has long been a subject of controversy, especially after the failure of an earlier Cephalon drug.

But the growing sales of Provigil are also raising questions about the company's promotion of the drug and about society's use of it. Already, some doctors say, Provigil is showing signs of becoming a lifestyle drug for a sleep-deprived 24/7 society, used by people who need to pull all-nighters for work or school or who just want to sleep less so they can work or play more.

"People think they can now burn the candle at both ends and not have to pay for it if they take this drug," said Dr. David Slamowitz, a sleep disorder specialist at the National Jewish Medical and Research Center in Denver. But even if a person doesn't feel the need for sleep, he said, doing without it can be harmful.

How far the use of Provigil will extend could be determined in the coming months. By year-end, Cephalon hopes to have results of a clinical trial in which Provigil is being tested to reduce sleepiness in people who work the graveyard shift.

If the trial is successful, the company will ask the Food and Drug Administration to expand the approved uses of Provigil from just narcolepsy to excessive sleepiness associated with any medical condition. That would allow the company's sales force to begin calling on general practitioners rather than just sleep specialists, neurologists and psychiatrists, potentially expanding sales to the billion-dollar range.

"There are no warts on this drug," Dr. Baldino, 49, who has a doctorate in pharmacology, said with characteristic bluntness at his office in this suburb of Philadelphia. "The only question is how big we can make it."

SALES of Provigil are expected to exceed $200 million this year, up from $150 million last year, the company says. Cephalon's overall product sales, helped by an acquisition, are expected to nearly double, to at least $430 million. The company said it expected to earn $1.08 to $1.10 a share this year, excluding extraordinary items, compared with 19 cents before extraordinary charges last year. The company's stock is down 37 percent since the beginning of the year, closing on Friday at $47.33. But it has generally done better than many biotech stocks.

Only a few years ago, Dr. Baldino was a pariah with investors after the F.D.A. rejected Cephalon's experimental drug for Lou Gehrig's disease, which he had touted heavily. The situation bore some resemblance to the recent case of ImClone Systems, whose cancer drug was rejected after that company repeatedly assured investors that the drug was a regulatory shoo-in.

Cephalon paid $17 million to settle shareholder lawsuits accusing Dr. Baldino and other executives of overstating the effectiveness of the drug, though the company says it settled for expediency, and denies it did anything wrong. Seven outsiders associated with the company, including a clinical investigator and a member of the scientific advisory board, were charged by the Securities and Exchange Commission with insider trading. And the Justice Department investigated allegations that Cephalon had doctored records related to the manufacturing of the drug. The investigation was dropped with no action taken, Cephalon has said.

Some investors still avoid Cephalon stock, and short-sellers, who bet that a stock will fall, have taken a heavy position in the company. The Center for Financial Research and Analysis, a company that investigates corporate balance sheets and sells reports to investors, says Cephalon's earnings appear to be inflated by accounting techniques. Cephalon dismisses those contentions. But earlier this year, it did end a partnership it set up to finance research off its balance sheet, saying such arrangements, once common, were no longer appropriate because of investor concerns about accounting.

But Dr. Baldino also has many supporters who say that he is extremely sharp and guilty at most of only overenthusiasm. And if others shun the stock, they say, so much the better.

"There's a cloud around Frank and that's part of the opportunity," said Laurence Blumberg, who runs his own biotech hedge fund in New York. "He's been running the company well. He's delivering."

When the F.D.A. approves a drug for sale, it usually does so for the treatment of a particular disease. Doctors can prescribe drugs for other uses, however, even though drug companies are restricted in how much they can promote the drug for unapproved uses.

Cephalon has sponsored studies of the use of the drug to treat fatigue associated with depression and multiple sclerosis, and to treat attention deficit hyperactivity disorder. Doctors wrote more prescriptions after the studies suggested some benefits.

SKEPTICS are not convinced that Cephalon will be able to receive as broad an approval for Provigil as it hopes. Moreover, some ask, is being tired because of working the graveyard shift really a disease? Cephalon and many doctors say many shift workers suffer from a condition they call circadian rhythm disorder. Some specialists say that whether or not it is a true disease, there are public safety reasons for using medicine to keep people functioning.

"I think I'd rather my pilot be alert than sleepy, and I'm sure I'd rather my surgeon be alert than sleepy," said Dr. Joyce A. Walsleben, director of the New York University sleep disorders center.

Dr. Neil B. Kavey, director of the sleep disorders center at Columbia-Presbyterian Medical Center in New York, said a more difficult decision would be whether to prescribe it to people who sleep only five hours a night because of the demands of their jobs. "It's a judgment call," Dr. Kavey said, adding that he would shy away from such use.

But the question will have to be faced. "You can be sure students are going to ask for it," Dr. Kavey said.

Dr. Baldino denies that the drug is or will be abused.

"I don't think it's going to happen, because we're careful about how we sell it and doctors are careful how they write prescriptions," he said. He added that the growing use of the drug for conditions other than narcolepsy is being driven by physicians, not by Cephalon's marketing.

Still, the F.D.A. admonished the company in January for advertising Provigil in journals, on Web sites and via handouts to doctors as a general remedy for sleepiness and fatigue rather than only for narcolepsy, and for understating the side effects. Cephalon says it has since changed its promotional material.

Dr. Baldino would not say what medical condition he uses Provigil for. But current and former executives say that they — and Dr. Baldino — use it to counter jet lag.

Cephalon licensed Provigil, which is known generically as modafinil, in 1993 from a small French company, Lafon, for $6 million over six years, plus royalties. Lafon never sold much of the drug in France but Cephalon has done so well with it that it acquired Lafon last year to gain full control of the drug.

Cephalon's own drug development has not yet borne fruit — it has three drugs in clinical trials, two for cancer and one for Parkinson's disease. But it has been successful at licensing neglected drugs from other companies and expanding their use, a tactic more characteristic of specialty pharmaceutical companies than biotech companies.

"He has seen value where no one else has," said Mark Simon, an investment banker at Salomon Smith Barney who has long worked with Dr. Baldino.

Consider Cephalon's second-biggest drug, Actiq, a narcotic lozenge on a stick that is sucked like a lollipop, giving quick, temporary relief from the sharp spikes of pain that some cancer patients suffer despite taking other narcotics.

The drug was controversial at one time, with critics saying a narcotic lollipop would tempt children. Neither the Anesta Corporation, which developed the drug, nor its licensee, Abbott Laboratories, ever sold much of it. But after Cephalon bought Anesta in 2000, it decided that cancer doctors were interested primarily in treating tumors, not pain, so it focused its sales campaign on pain specialists. The company expects Actiq sales to exceed $100 million this year, 10 times the level the year before it bought Anesta.

CEPHALON'S third-best-selling product, Gabitril, was licensed from Abbott and is approved for epilepsy. But Cephalon is doing trials to find other uses — for anxiety, for example. Its sales are also expected to double this year, to about $50 million.

Dr. Baldino was raised in a working-class neighborhood in Lodi, N.J. His father, an immigrant from Italy, was a supervisor in a paper factory. Dr. Baldino studied biology at Muhlenberg College in Allentown, Pa., and received his doctorate from Temple University. In 1981, he joined DuPont as a researcher, studying the activity of genes in the brain.

But he did not stick to test tubes. "If he didn't like the way things were done, he wasn't shy about discussing it forcefully with upper management, which didn't always make him popular," said Michael E. Lewis, a colleague at DuPont.

Itching to do bigger things, Dr. Baldino, only 33 at the time, jumped when two young venture capitalists asked him in 1987 to start a company to treat neurological diseases. He took with him as founders two other DuPont scientists, Dr. Lewis and James Kauer.

Dr. Baldino, a divorced father of three, is described as ultracompetitive, even in golfing with friends. He can berate subordinates in public, former executives say, driving some out of the company. Others have been at Cephalon for years.

Dr. Baldino makes no apologies. "Yeah, I do push people hard, but I get paid to do that," he said. "I'm not here to make friends."

Cephalon's first big project was Myotrophin, a drug for amyotrophic lateral sclerosis, or Lou Gehrig's disease, which paralyzes its victims and is fatal. In 1995, the company said its first big clinical trial showed that the drug had slowed patients' deterioration, causing the company's stock to surge 75 percent in a day. Ten days later, Dr. Baldino sold $1.4 million of shares, and two months after that Cephalon raised $89 million in a secondary stock offering.

But things soon began to unravel. A European trial, which Cephalon said had "confirmed" the positive results in the United States, actually found that patients taking the drug died twice as often as those taking placebos. Doctors and the F.D.A. said results of both trials were less significant than the company had stated.

An F.D.A. advisory panel in 1996 urged Cephalon to do another clinical trial. But Dr. Baldino said the company could not afford to. Instead, Cephalon relied on patients with the disease, who tearfully begged the F.D.A. to approve it. It did not.

"He basically got into a power struggle with the F.D.A.," Harry Tracy, publisher of NeuroInvestment, a newsletter about drugs for neurological diseases, said of Dr. Baldino. "He just wasn't diplomatic with them." But Dr. Tracy now recommends the stock, saying the smooth initial approval of Provigil shows that Dr. Baldino has learned his lessons.

Dr. Baldino said the only lesson he learned was that the company should not have done the trial in Europe.

Now, the National Institutes of Health and a patient group are financing a new large trial that could eventually lead to the drug's approval. Cephalon is supplying the drug but has no other part in the trial, said Dr. Baldino, who seems to want to put Myotrophin behind him.

Even as it was placing its bets on Myotrophin in the early 1990's, Cephalon looked to diversify. A young scientist in the business development department, Nicholas Landekic, and his boss, Jack Lief, scoured the world for opportunities before stumbling upon modafinil, which Lafon was testing for narcolepsy.

Both men, who have since left Cephalon, said there was initial resistance in the company from some executives, who thought the market for narcolepsy drugs was too small. "I remember at the first executive committee meeting, one of the executives said, `Well, let's just give it back,' " recalled Mr. Lief, now president of Arena Pharmaceuticals.

How modafinil works is not known exactly, though Cephalon says it is close to figuring it out. While coffee and amphetamines stimulate the entire nervous system, modafinil seems to more specifically affect the part of the brain needed for wakefulness. Some doctors say it does not produce a high and is not believed to be addictive, although the label for the drug says it does produce "psychoactive and euphoric effects." Compared with caffeine or amphetamines, modafinil also seems to let people sleep better when they do decide to rest.

"In terms of disturbing your sleep, it's not an issue," said one analyst at a brokerage firm, who added that he takes the drug — as do two others in his department. "I used to drink 12 cups of coffee a day and now I don't do that anymore," said the analyst, who spoke only on the condition that he not be identified.

NOT everyone is convinced that Provigil is as good as its reputation. Nancy J. Wesensten, a research psychologist at the Walter Reed Army Institute of Research who is searching for alertness drugs for soldiers, tested modafinil against caffeine in volunteers kept awake for 54 hours. In terms of alertness, performance and side effects, "our conclusion is that modafinil was no better than caffeine," which is far cheaper and readily available, she said.

There is an even bigger cloud over the prospects for Provigil: the basic patent on modafinil expired last year. Cephalon has a patent on the particular formulation it uses, and that patent lasts until 2014. But if a generic maker can challenge the patent, a generic modafinil could reach the market as early as 2006.

Cephalon must also persuade insurance companies to cover the cost of Provigil. Some insurers are reluctant to buy it for narcolepsy because amphetamines are much cheaper, doctors say. Cephalon sells Provigil for $5 a pill; doctors say patients might pay $7 or $8 and usually take one a day. Dr. Baldino says it costs only as much as a large Starbucks.

Cephalon is now looking for other drugs or companies to acquire, Dr. Baldino said, adding that while the company is not trying to sell itself, it is conceivable that a bigger drug company may want to acquire it.