8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported)  October 27, 2009

Cephalon, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware	0-19119	23-2484489
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

41 Moores Rd.
Frazer, Pennsylvania	19355
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (610) 344-0200

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02               Results of Operations and Financial Condition.

The information under this caption is furnished by Cephalon, Inc. (the “Company”) in accordance with Securities Exchange Commission Release No. 33-8216. This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On October 27, 2009, the Company issued a press release announcing certain financial results for the third quarter 2009, revising full year 2009 total sales guidance and R&D and SG&A expense guidance and introducing sales, adjusted net income and basic adjusted income per share guidance for full year 2010.  A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

In the attached press release, the Company discloses “Adjusted net income” “Basic adjusted income per common share,” “Diluted adjusted income per common share,” “Basic adjusted income per common share guidance,” and “Adjusted net income guidance” for certain periods, all of which are considered “non-GAAP financial measures” under Securities and Exchange Commission rules.  A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP in the Company’s financial statements.  Management does not intend the presentation of non-GAAP financial measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

For all periods presented, the Company reconciles net income (loss) on a GAAP basis to adjusted net income.  Management believes that the presentation of these adjusted measures is useful to investors because it provides a means of evaluating the Company’s operating performance and results from period to period on a comparable basis not otherwise apparent on a GAAP basis, since many one-time or infrequent charges, including items that may not affect the Company’s operations, do not meet the strict GAAP definition of unusual non-recurring items.  Furthermore, in preparing operating plans, budgets and forecasts, and in assessing historical performance, management relies, in part, on trends in the Company’s historical results, exclusive of these items, and provides its forecasts to investors on this basis.   Finally, management believes that this presentation is useful in facilitating comparisons between the Company and other companies in its industry, many of whom exclude similar items.

Basic adjusted income per common share and diluted adjusted income per common share represent the Company’s adjusted net income, as described above, on a per share basis.  Management believes that the presentation of these measures is meaningful because it provides investors with a means of evaluating adjusted net income against the Company’s previously issued adjusted income per common share guidance.  In addition, in assessing the Company’s performance against its previously issued per share guidance, management uses these adjusted per share measures.  The presentation of guidance for adjusted net income and basic adjusted net income per common share reconciles the Company’s projected net income and basic income per common share on a GAAP basis to its current quarterly and full-year guidance.  Management believes the presentation of these measures is useful to investors because it will enable investors to assess and compare the Company’s guidance on an adjusted and a GAAP basis with adjusted actual results, when issued.  Moreover, these measures provide a straightforward view of the Company’s operations free from the complexity associated with determining the daily impact on the income per share calculation resulting from the Company’s outstanding convertible notes.  Finally, management utilizes the adjusted net income and basic adjusted income per common share measures in connection with its internal budgeting and forecasting.

References in the attached press release to basic income per common share, basic adjusted income per common share, basic adjusted income per common share guidance, adjusted net income, adjusted net income guidance, adjusted net income per common share, adjusted net income per common share guidance refers to those metrics on an “attributable to Cephalon” basis and does not include any effects attributable to non-controlling interests.

2

Item 9.01              Financial Statements and Exhibits.

(d)Exhibits.

Exhibit No.	Description of Document
99.1	Press Release dated October 27, 2009

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CEPHALON, INC.
Date: October 27, 2009	By:	/s/ J. Kevin Buchi
		J. Kevin Buchi
		Executive Vice President & Chief Financial Officer

4

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press Release dated October 27, 2009

5

EX-99.1

Exhibit 99.1

For Immediate Release

Cephalon Net Sales Increase 9% and Net Cash from Operations

Surpasses $200 Million in the Third Quarter 2009

Adjusted Net Income Surpasses Guidance

NUVIGIL Launch Exceeds Expectations

Frazer, Pa. — October 27, 2009 — Cephalon, Inc. (Nasdaq: CEPH) today reported third quarter 2009 net sales of $535.2 million, a 9 percent increase compared to net sales of $489.7 million for the third quarter 2008.  Basic income per common share for the quarter was $1.38.  Excluding amortization expense and certain other items, basic adjusted income per common share for the quarter was $1.70, an increase of 25 percent over the comparable figure of $1.36 for the same period in 2008.  Adjusted net income for the third quarter of 2009 was $126.7 million, a 36 percent increase over the comparable $92.9 million for the third quarter of 2008.  This exceeded the company’s adjusted net income guidance range of $108 to $116 million.

Central nervous system (CNS) franchise net sales were $291.9 million during the quarter, a 7 percent increase compared to the same period last year.  Pain franchise reported net sales of $116.3 million, a 1 percent decrease versus third quarter 2008.  Oncology franchise net sales were $83.1 million, a 58 percent increase over the same period last year due to strong sales of TREANDA® (bendamustine hydrochloride) of $54.5 million.

During the quarter Cephalon recorded net cash provided by operating activities of $203.6 million bringing the year-to-date cash flow from operations to $517.1 million.

“The exceptional launch of NUVIGIL was the highlight of the quarter” said Frank Baldino, Jr., Ph.D., Chairman and CEO.  “In addition, we have assembled the deepest and most diverse pipeline in our history with a variety of small molecules and biologics being studied for pain, oncology, and inflammatory diseases.  We look forward to developing this diverse pipeline with the goal of creating important new medicines for patients.”

The company is updating its guidance for 2009.  Total net sales guidance is now $2.125-$2.175 billion. This includes CNS franchise net sales of $1.150-$1.170 billion, pain franchise net sales of $480-$500 million, oncology franchise net sales of $315-$335 million, and other product net sales of $160-$175 million. Full year R&D and SG&A expense guidance is now $400-$415 million and $800-$815 million, respectively.  Adjusted net income guidance remains unchanged at $457-$464 million.  Basic adjusted income per common share guidance also remains unchanged at $6.30-$6.40.

SOURCE:  Cephalon, Inc. · 41 Moores Road · Frazer, PA  19355 · (610) 344-0200 · Fax (610) 344-0065

Cephalon is introducing 2010 net sales guidance of $2.325 - $2.400 billion. This includes CNS franchise net sales of $1.180 — $1.220 billion, pain franchise net sales of $535 - $570 million, oncology franchise net sales of $400 - $430 million, and other product net sales of $200 - $220 million. R&D and SG&A guidance for 2010 are $470 - $490 million and $840 - $860 million, respectively.

The company also is introducing adjusted net income for 2010 of $495 - $510 million. This represents growth of approximately 9 percent over our 2009 guidance.  Cephalon is introducing 2010 adjusted net income per common share guidance of $6.50 - $6.70.

Basic adjusted income per common share for both the full-year 2009 and full-year 2010 is reconciled below and is subject to the assumptions set forth therein.  References in this press release to basic income per common share, basic adjusted income per common share, basic adjusted income per common share guidance, adjusted net income, adjusted net income guidance, adjusted net income per common share, adjusted net income per common share guidance refers to those metrics on an “attributable to Cephalon” basis and does not include any income or losses attributable to noncontrolling interests.

Cephalon’s management will discuss the company’s third quarter 2009 performance in a conference call with investors beginning at 5:00 p.m. U.S. EDT today.  To participate in the conference call, dial +1-785-830-1926 and refer to conference code number 8349052. Investors can listen to the call live by logging on to the company’s website at www.cephalon.com and clicking on “Investors” then “Webcast.”  The conference call will be archived and available to investors for one week after the call.

About Cephalon, Inc.

Founded in 1987, Cephalon, Inc. is an international biopharmaceutical company dedicated to the discovery, development and commercialization of many unique products in four core therapeutic areas: central nervous system, inflammatory diseases, pain and oncology. A member of the Fortune 1000 and the S&P 500 Index, Cephalon currently employs approximately 3,000 people in the United States and Europe. U.S. sites include the company’s headquarters in Frazer, Pennsylvania, and offices, laboratories or manufacturing facilities in West Chester, Pennsylvania, Salt Lake City, Utah, and suburban Minneapolis, Minnesota.

Cephalon has a growing presence in Europe, the Middle East and Africa.  The Cephalon European headquarters and pre-clinical development center are located in Maisons-Alfort, France, just outside of Paris.  Key business units are located in England, Ireland, France, Germany, Italy, Spain, the Netherlands for the Benelux countries, and Poland for Eastern and Central European countries.  Cephalon Europe markets more than 30 products in four areas: central nervous system, pain, primary care and oncology.

The company’s proprietary products in the United States include: AMRIX®(cyclobenzaprine hydrochloride extended-release capsules), TREANDA® for Injection,

2

FENTORA® (fentanyl buccal tablet) [C-II], PROVIGIL® (modafinil) Tablets [C-IV], TRISENOX® (arsenic trioxide) injection, GABITRIL® (tiagabine hydrochloride), NUVIGIL®(armodafinil) Tablets [C-IV] and ACTIQ®(oral transmucosal fentanyl citrate) [C-II].  The company also markets numerous products internationally. Full prescribing information on its U.S. products is available at http://www.cephalon.com or by calling 1-800-896-5855.

# # #

In addition to historical facts or statements of current condition, this press release may contain forward-looking statements. Forward-looking statements provide Cephalon’s current expectations or forecasts of future events. These may include statements regarding anticipated scientific progress on its research programs; development of potential pharmaceutical products; interpretation of clinical results; prospects for regulatory approval; manufacturing development and capabilities; market prospects for its products; net sales, adjusted net income and basic adjusted income per common share guidance for the full-year 2009 and full-year 2010 and SG&A and R&D guidance for the full-year 2009 and full-year 2010; and other statements regarding matters that are not historical facts. You may identify some of these forward-looking statements by the use of words in the statements such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or other words and terms of similar meaning. Cephalon’s performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties facing Cephalon such as those set forth in its reports on Form 8-K, 10-Q and 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements. Furthermore, Cephalon does not intend to update publicly any forward-looking statement, except as required by law. The Private Securities Litigation Reform Act of 1995 permits this discussion.

This press release and/or the financial results attached to this press release include “Adjusted Net Income,” “Basic Adjusted Income per Common Share,” “Adjusted Net Income Guidance,” “Basic Adjusted Income per Common Share Guidance,” and “Diluted Adjusted Income Per Common Share,” amounts that are considered “non-GAAP financial measures” under SEC rules. As required, we have provided reconciliations of these measures. Additional required information is located in the Form 8-K furnished to the SEC in connection with this press release.

Source: Cephalon, Inc.

Contacts:
Media:	Investors:
Sheryl Williams	Robert (Chip) Merritt
610-738-6493	610-738-6376
swilliam@cephalon.com	cmerritt@cephalon.com

3

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2009			As adjusted2008*			2009			As adjusted2008*
REVENUES:
Net sales	$	535,223		$	489,664		$	1,588,610		$	1,408,603
Other revenues	14,189			8,818			28,583			25,813
	549,412			498,482			1,617,193			1,434,416
COSTS AND EXPENSES:
Cost of sales	90,456			121,477			293,633			312,711
Research and development	99,157			88,325			304,266			250,169
Selling, general and administrative	194,068			222,948			618,314			631,832
Restructuring charges	1,062			1,497			3,944			6,973
Settlement reserve	—			7,450			—			7,450
Acquired in-process research and development	6,000			—			46,118			10,000
	390,743			441,697			1,266,275			1,219,135
INCOME FROM OPERATIONS	158,669			56,785			350,918			215,281
OTHER INCOME (EXPENSE):
Interest income	1,821			4,002			3,455			15,515
Interest expense	(26,495		)	(19,013		)	(63,213		)	(62,080		)
Other income (expense), net	3,775			(2,284		)	42,418			1,488
	(20,899		)	(17,295		)	(17,340		)	(45,077		)
INCOME BEFORE INCOME TAXES	137,770			39,490			333,578			170,204
INCOME TAX EXPENSE (BENEFIT)	42,673			(66,108		)	122,659			(17,727		)
NET INCOME	95,097			105,598			210,919			187,931
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST	7,625			—			35,150			—
NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	102,722		$	105,598		$	246,069		$	187,931
BASIC INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.	$	1.38		$	1.55		$	3.44		$	2.77
DILUTED INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.	$	1.31		$	1.34		$	3.17		$	2.49
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ATTRIBUTABLE TO CEPHALON, INC.	74,647			68,118			71,541			67,855
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION ATTRIBUTABLE TO CEPHALON, INC.	78,431			78,920			77,552			75,580

*As adjusted in accordance with the transition provisions of accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) and accounting for noncontrolling interests in consolidated financial statements.

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)

	Three Months Ended September 30,
	2009			2008
GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	102,722		$	105,598
Cost of sales adjustments	21,968		(1)	54,569		(1)
Research and development adjustments	1,318		(2)	259		(2)
Selling, general and administrative adjustments	635		(3)	27,169		(3)
Restructuring charges	1,062		(4)	1,497		(4)
Settlement reserve	—		(5)	7,450		(5)
Interest expense adjustment	16,959		(6)	13,932		(6)
Other (income) expense adjustment	(484		)(7)	—		(7)
In-process research and development adjustments	6,000		(8)	—		(8)
Income tax adjustment	(23,475		)(9)	(117,569		)(9)
	23,983			(12,693		)
ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	126,705		$	92,905
BASIC ADJUSTED INCOME PER COMMON SHARE	$	1.70		$	1.36
DILUTED ADJUSTED INCOME PER COMMON SHARE	$	1.62		$	1.18
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	74,647			68,118
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION	78,431			78,920

Notes to Reconciliation of GAAP Net Income to Adjusted Net Income

(1)To exclude the on-going amortization of acquired intangible assets ($26.4M in 2009; $24.0M in 2008), accelerated depreciation related to restructuring ($5.0M in 2009; $4.5M in 2008) and the reserve for modafinil purchase commitments in excess of estimated requirements ($26.0M in 2008), offset by the gain recognized in connection with an agreement to reduce our excess modafinil purchase commitments ($9.5M in 2009).

(2)To exclude accelerated depreciation related to restructuring ($0.3M in 2009 and 2008) and charges related to payment for research and development collaboration ($1.0M in 2009).

(3)To exclude charges related to the acquisition of Arana Therapeutics Limited ($0.6M in 2009) and charges related to the estimated termination payments due to Takeda Pharmaceuticals North America, Inc. ($27.2M)..

(4)To exclude costs related to the CIMA restructuring.

(5)In 2008, to exclude charges related to the settlement of investigations by the Offices of the Attorney General of Connecticut and Massachusetts and estimated relator attorney fees.

(6)In 2009, to exclude non-cash interest expense associated with our convertible debt ($17.0M in 2009; $10.2M in 2008) and accrued interest related to the agreement in principle reached with the U.S. Attorney's Office in Philadelphia ($3.7M in 2008).

(7)In 2009, to exclude foreign exchange gains on Australian Dollar acquisition funds related to the acquisition of Arana Therapeutics Limited.

(8)To exclude charges incurred in exchange for license rights to certain of XOMA Ltd.’s proprietary antibody library materials.

(9)To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to the tax benefits for the settlement with the U.S. Attorney's Office ($13.8M in 2009; $84.5M in 2008), for which the related expense was recorded in 2007 and for the states of Connecticut and Massachusetts, for which the related expense was recorded in the third quarter of 2008.

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)

	Nine Months Ended September 30,
	2009			2008
GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	246,069		$	187,931
Cost of sales adjustments	78,146		(1)	111,349		(1)
Research and development adjustments	4,404		(2)	8,013		(2)
Selling, general and administrative adjustments	14,379		(3)	30,124		(3)
Restructuring charges	3,944		(4)	6,973		(4)
Settlement reserve	—			7,450		(5)
Interest expense adjustment	40,459		(6)	47,633		(6)
Other (income) expense adjustment	(40,011		)(7)	—
In-process research and development adjustments	46,118		(8)	10,000		(8)
Adjustment to noncontrolling interest	(819		)(9)	—
Income tax adjustment	(54,192		)(10)	(156,513		)(10)
	92,428			65,029
ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.	$	338,497		$	252,960
BASIC ADJUSTED INCOME PER COMMON SHARE	$	4.73		$	3.73
DILUTED ADJUSTED INCOME PER COMMON SHARE	$	4.36		$	3.35
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	71,541			67,855
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION	77,552			75,580

Notes to Reconciliation of GAAP Net Income to Adjusted Net Income

(1)To exclude the on-going amortization of acquired intangible assets ($70.6M in 2009; $77.0M in 2008)  and accelerated depreciation related to restructuring ($14.0M in 2009; $8.3M in 2008) and the reserve for modafinil purchase commitments in excess of estimated requirements ($3.0M in 2009; $26.0M in 2008), offset by the gain recognized in connection with an agreement to reduce our excess modafinil purchase commitments ($9.5M in 2009).

(2)To exclude accelerated depreciation related to restructuring ($0.9M in 2009; $0.3M in 2008), charges related to payments for several research and development collaborations ($2.0M in 2009; $6.0M in 2008), charges related to our transaction with Arana Therapeutics Limited ($1.5M in 2009) and other charges ($1.8M in 2008) related to employee severance costs.

(3)In 2009, to exclude charges related to the acquisition of Arana Therapeutics Limited ($7.8M) and charges related to our settlement with Takeda ($6.5M) which resolves our remaining contractual arrangements.  In 2008, to exclude charges related to employee severance costs ($3.0M) and charges related to the estimated termination payments due to Takeda Pharmaceuticals North America, Inc. ($27.2M).

(4)To exclude costs related to the CIMA restructuring.

(5)To exclude charges related to the settlement of investigations by the Offices of the Attorney General of Connecticut and Massachusetts and estimated relator attorney fees.

(6)To exclude non-cash interest expense associated with our convertible debt ($40.5M in 2009; $36.3M in 2008) and accrued interest related to the agreement in principle reached with the U.S. Attorney’s Office in Philadelphia ($11.3M in 2008).

(7)In 2009, to exclude the following gains and losses related to the acquisition of Arana Therapeutics Limited:

· $6.6M gain on pre-bid Arana holdings;

· $2.8M loss on contingent consideration (90% ownership incentive payment);

· $10.0M gain on the excess of net assets over consideration;

· $19.0M gains on foreign exchange derivative instruments;

· $5.6M foreign exchange gain on Australian Dollar acquisition funds; and

· $1.6M dividend income related to our initial purchase of Arana shares.

(8)To exclude charges related to the deconsolidation of Acusphere ($9.3M), the acquisition of worldwide license rights related to LUPUZOR from ImmuPharma ($30.0M), license rights for bendamustine hydrochloride in China and Hong Kong ($0.8M) and license rights to certain of XOMA Ltd.’s proprietary antibody library materials ($6.0M) in 2009 and the license of Acusphere HDDS technology for use in oncology therapeutics in 2008.

(9)In 2009 to exclude the portion of non-cash charges related to our acquisition of Arana Therapeutics Limited that are reflected in adjustments (7) above but do not affect net income because they are attributed to noncontrolling interests.

(10)To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to the tax benefits for the settlement with the U.S. Attorney’s Office ($13.8M in 2009; $84.5M in 2008), for which the related expense was recorded in 2007 and for the states of Connecticut and Massachusetts, for which the related expense was recorded in the third quarter of 2008.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED SALES DETAIL

(In thousands)

(Unaudited)

	Three Months Ended September 30,												% Increase
	2009						2008						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Net sales:
PROVIGIL	$	241,301	$	16,693	$	257,994	$	241,366	$	17,793	$	259,159	—	%	(6	)%	—	%
NUVIGIL	20,991		—		20,991		—		—		—		—		—		—
GABITRIL	11,560		1,340		12,900		12,176		2,337		14,513		(5	)	(43	)	(11	)
CNS	273,852		18,033		291,885		253,542		20,130		273,672		8		(10	)	7
ACTIQ	19,578		13,663		33,241		21,392		14,401		35,793		(8	)	(5	)	(7	)
Generic OTFC	19,332		—		19,332		19,569		—		19,569		(1	)	—		(1	)
FENTORA	35,779		1,201		36,980		41,330		—		41,330		(13	)	—		(11	)
AMRIX	26,703		—		26,703		20,512		—		20,512		30		—		30
Pain	101,392		14,864		116,256		102,803		14,401		117,204		(1	)	3		(1	)
TREANDA	54,532		—		54,532		24,551		—		24,551		122		—		122
Other	4,010		24,526		28,536		4,691		23,195		27,886		(15	)	6		2
Oncology	58,542		24,526		83,068		29,242		23,195		52,437		100		6		58
Other	6,632		37,382		44,014		11,351		35,000		46,351		(42	)	7		(5	)
	$	440,418	$	94,805	$	535,223	$	396,938	$	92,726	$	489,664	11	%	2	%	9	%

	Nine Months Ended September 30,												% Increase
	2009						2008						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Net sales:
PROVIGIL	$	726,313	$	47,111	$	773,424	$	658,777	$	48,428	$	707,205	10	%	(3	)%	9	%
NUVIGIL	37,777		—		37,777		—		—		—		—		—		—
GABITRIL	37,058		3,871		40,929		37,614		6,669		44,283		(1	)	(42	)	(8	)
CNS	801,148		50,982		852,130		696,391		55,097		751,488		15		(7	)	13
ACTIQ	71,148		38,122		109,270		96,960		40,734		137,694		(27	)	(6	)	(21	)
Generic OTFC	66,834		—		66,834		75,845		—		75,845		(12	)	—		(12	)
FENTORA	99,686		2,438		102,124		116,637		—		116,637		(15	)	—		(12	)
AMRIX	83,807		—		83,807		47,399		—		47,399		77		—		77
Pain	321,475		40,560		362,035		336,841		40,734		377,575		(5	)	—		(4	)
TREANDA	160,549		—		160,549		38,932		—		38,932		312		—		312
Other	13,529		67,726		81,255		14,259		70,837		85,096		(5	)	(4	)	(5	)
Oncology	174,078		67,726		241,804		53,191		70,837		124,028		227		(4	)	95
Other	26,167		106,474		132,641		37,995		117,517		155,512		(31	)	(9	)	(15	)
	$	1,322,868	$	265,742	$	1,588,610	$	1,124,418	$	284,185	$	1,408,603	18	%	(6	)%	13	%

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	September 30, 2009			As adjusted December 31, 2008*
CURRENT ASSETS:
Cash and cash equivalents	$	1,453,814		$	524,459
Short term investments	131,403			—
Receivables, net	329,330			409,580
Inventory, net	240,349			117,297
Deferred tax assets, net	255,136			224,066
Other current assets	67,104			54,120
Total current assets	2,477,136			1,329,522
INVESTMENTS	17,333			8,081
PROPERTY AND EQUIPMENT, net	459,381			467,449
GOODWILL	570,417			445,332
INTANGIBLE ASSETS, net	1,080,791			607,332
DEFERRED TAX ASSETS, net	1,224			46,074
DEBT ISSUANCE COSTS	20,112			11,838
OTHER ASSETS	32,313			167,314
	$	4,658,707		$	3,082,942
CURRENT LIABILITIES:
Current portion of long-term debt, net	$	810,081		$	781,618
Accounts payable	94,982			87,079
Accrued expenses	408,752			304,415
Total current liabilities	1,313,815			1,173,112
LONG-TERM DEBT	357,555			3,692
DEFERRED TAX LIABILITIES, net	197,333			77,932
OTHER LIABILITIES	144,877			163,123
Total liabilities	2,013,580			1,417,859
REDEEMABLE EQUITY	217,861			248,403
EQUITY:
Cephalon Stockholders’ Equity
Common stock, $0.01 par value	776			717
Additional paid-in capital	2,505,552			2,095,324
Treasury stock, at cost	(201,734		)	(201,705		)
Accumulated deficit	(275,217		)	(521,286		)
Accumulated other comprehensive income	114,146			43,630
Total Cephalon stockholders’ equity	2,143,523			1,416,680
Noncontrolling Interest	283,743			—
Total equity	2,427,266			1,416,680
	$	4,658,707		$	3,082,942

*As adjusted in accordance with the transition provisions of accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) and accounting for noncontrolling interests in consolidated financial statements.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2009			As adjusted2008*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	210,919		$	187,931
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	136,403			128,772
Deferred income tax benefit	(40,182		)	(22,761		)
Stock-based compensation expense	36,710			32,543
Amortization of debt discount and debt issuance costs	41,273			36,383
Gain on foreign exchange contracts	(26,754		)	—
Gain on acquisition of Arana	(10,008		)	—
Loss on disposals of property and equipment	—			2,740
Impairment charges	—			1,164
Acquired in-process research and development from Acusphere deconsolidation	8,366			—
Shortfall tax benefits from stock-based compensation	(38		)	(451		)
Other	(5,041		)	(396		)
Changes in operating assets and liabilities:
Receivables	94,204			(74,258		)
Inventory	(7,060		)	(14,557		)
Other assets	32,206			(99,008		)
Accounts payable, accrued expenses and deferred revenues	89,192			34,526
Other liabilities	(43,059		)	70,149
Net cash provided by operating activities	517,131			282,777
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(43,647		)	(55,689		)
Acquisition of intangible assets	—			(25,575		)
Cash balance from consolidation of variable interest entity	52,563			—
Investment in Ception	(75,000		)	—
Acquisition of Arana, net of cash acquired	(232,527		)	—
Purchases of investments	(9,292		)	(6,242		)
Proceeds from foreign exchange contracts	26,754			—
Sales and maturities of available-for-sale investments	5,074			7,596
Net cash used for investing activities	(276,075		)	(79,910		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock	288,000			—
Proceeds from exercises of common stock options	6,701			37,185
Windfall tax benefits from stock-based compensation	1,259			4,592
Acquisition of treasury stock	(29		)	(24		)
Payments on and retirements of long-term debt	(11,246		)	(216,093		)
Net proceeds from issuance of convertible subordinated notes	484,719			—
Proceeds from sale of warrants	37,640			—
Purchase of convertible note hedge	(121,040		)	—
Net cash provided by (used for) financing activities	686,004			(174,340		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	2,295			(601		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	929,355			27,926
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	524,459			818,669
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,453,814		$	846,595

*As adjusted in accordance with the transition provisions of accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) and accounting for noncontrolling interests in consolidated financial statements.

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of Projected GAAP Basic Income per Common Share

to Basic Adjusted Income Per Common Share Guidance

(Unaudited)

	Twelve Months Ended December 31, 2009							Twelve Months Ended December 31, 2010
Projected GAAP basic income per common share	$	4.69		—	$	4.79		$	4.95		—	$	5.15
Amortization of current intangibles	$	1.34		—	$	1.34		$	1.20		—	$	1.20
Accelerated depreciation adjustment- CIMA	$	0.09		—	$	0.09		$	0.08		—	$	0.08
Accelerated depreciation adjustment- Mitry-Mory	$	0.18		—	$	0.18		$	0.09		—	$	0.09
Research and development adjustments	$	0.05		—	$	0.05		$	—		—	$	—
Selling, general and administrative adjustments	$	0.20		—	$	0.20		$	—		—	$	—
Cost of goods sold adjustments	$	(0.09	)	—	$	(0.09	)	$	—		—	$	—
Restructuring adjustments	$	0.07		—	$	0.07		$	0.08		—	$	0.08
Acquired in-process research and development adjustments	$	0.64		—	$	0.64		$	—		—	$	—
Other income (expense) adjustments	$	(0.56	)	—	$	(0.56	)	$	—		—	$	—
Interest expense adjustments	$	0.80		—	$	0.80		$	0.86		—	$	0.86
Tax effect of pre-tax adjustments at the applicable tax rates	$	(1.11	)	—	$	(1.11	)	$	(0.76	)	—	$	(0.76	)
Basic adjusted income per common share guidance	$	6.30		—	$	6.40		$	6.50		—	$	6.70

The company’s guidance is being issued based on certain assumptions including:

· Adjusted effective tax rate of approximately 34.0 percent in 2009 and 33.0 percent in 2010; and

· Weighted average number of common shares outstanding of 72.5 and 76.2 million shares for the twelve months ended December 31, 2009 and 2010, respectively.