Cephalon (CEPH) 8-K Results of Operations and Financial Condition

Exhibit 99.1

News

Investor Contact: Chip Merritt

610-738-6376

cmerritt@cephalon.com

Media Contact: Robert W. Grupp

610-738-6402

rgrupp@cephalon.com

For Immediate Release

Cephalon, Inc. Reports Third Quarter Financial Results

Sales Increase 37 Percent;

Earnings Exceed Quarterly Guidance by 9 Cents;

 2004 Full-Year Guidance Increased;

Company Introduces 2005 Sales and Earnings Guidance

West Chester, PA – November 3, 2004 – Cephalon, Inc. (Nasdaq:  CEPH) today reported third quarter 2004 revenue of $262.0 million, compared to revenue of $190.0 million in the third quarter of 2003. Also during the quarter the company recorded a $185.7 million pre-tax in-process R&D charge associated with the acquisition of CIMA LABS INC., and charges totaling $29.6 million related to the exchange of $78 million of 2½ percent notes for common stock and the repurchase of the remaining $33 million of 3 7/8 percent notes. These items resulted in a GAAP diluted loss per share of $2.94 in the third quarter. Excluding these items, and amortization expense of $9.7 million, diluted adjusted earnings per share were $0.75, versus $0.55 in the third quarter 2003 representing an increase of 36 percent and exceeding the company’s guidance of $0.66.

Product sales increased over the third quarter 2003 due to continued strong prescription growth of Cephalon’s three key products.  Sales of PROVIGIL^® (modafinil) Tablets [C-IV] increased 28 percent to $102.0 million.  Sales of ACTIQ^® (oral transmucosal fentanyl citrate) [C-II] increased 57 percent to $102.7 million, and sales of GABITRIL^® (tiagabine hydrochloride) increased 43 percent to $24.6 million.  Other product sales totaled $24.3 million in the third quarter 2004.

“The addition of OraVescent fentanyl to our pipeline, as well as outstanding results from our studies of modafinil for treatment of ADHD in children, made this quarter particularly notable,” said Frank Baldino Jr., Ph.D., Chairman and CEO.  “With two other products in late-stage development, we now are planning to launch four products in the 2006 timeframe. This will enable Cephalon to continue delivering exceptional growth.”

SOURCE:  Cephalon, Inc. • 145 Brandywine Parkway • West Chester, PA  19380-4245 • (610) 344-0200 • Fax (610) 344-0981

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During the second quarter 2004, the company made a clerical error related to the cost of sales in France that resulted in an overstatement of its adjusted net income for the quarter of $1.2 million.  Although there would have been no impact of this error on the company’s financial results for the year, the company has chosen to restate its second quarter results as shown in the table below.

The company is refining its 2004 sales guidance.   Product sales now are expected to be between $940-965 million, in the upper end of original 2004 guidance range.  This includes PROVIGIL sales of $405-415 million; ACTIQ sales of $345-355 million; GABITRIL sales of $90-95 million and other product sales of $95-105 million. The company also is increasing 2004 diluted adjusted earnings per share guidance, which excludes amortization of intangible assets, by $0.03 to approximately $2.35.

Cephalon is introducing guidance for 2005 sales of $1.20-1.25 billion.  This includes PROVIGIL sales of $550-600 million, ACTIQ sales of $390-420 million, GABITRIL sales of $110-120 million and other products sales of $110-125 million. Guidance for 2005 diluted adjusted earnings per share will be $2.80 to $2.95.

Kevin Buchi, Chief Financial Officer, said, “Based on the strength of our modafinil ADHD Phase III data, we have accelerated the filing of our planned NDA submission.  This will shift significant investment for the ADHD launch from early 2006 into late 2005.  Despite this increased spending, we expect 2005 to be another year of strong sales and earnings growth for Cephalon.”

Cephalon management will discuss the company’s third quarter results with analysts and investors during a conference call beginning at 5:00 p.m. U.S. EST on Wednesday, November 3, 2004. To participate in the conference call, dial 913-981-5543 and refer to Conference Code Number 954395. Individual investors are encouraged to log onto the “Investor Information” section of www.cephalon.com and click on the “Webcast” link to access the live call.

Cephalon, Inc.

Founded in 1987, Cephalon, Inc. is an international biopharmaceutical company dedicated to the discovery, development and marketing of innovative products to treat sleep and neurological disorders, cancer and pain.

Cephalon currently employs approximately 2,100 people in the United States and Europe. U.S. sites include the company’s headquarters in West Chester, Pennsylvania, and offices and manufacturing facilities in Salt Lake City, Utah and Eden Prairie and Brooklyn Park, Minnesota. Cephalon’s major European offices are located in Guildford, England, Martinsried, Germany, and Maisons-Alfort, France.

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2

The company currently markets three proprietary products in the United States: PROVIGIL, GABITRIL, ACTIQ and more than 20 products internationally. Full prescribing information on its U.S. products is available at 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, including our ability to launch four products in the 2006 timeframe, interpretation of clinical results, prospects for regulatory approval, manufacturing development and capabilities, market prospects for its products, including our ability to deliver exceptional growth in the future, yearly and quarterly sales and earnings guidance for the remainder of 2004 and 2005, 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 (Loss) Per Common Share,” “Diluted Adjusted Income (Loss) Per Common Share,” and “Diluted Adjusted Earnings Per Share Guidance” 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.

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3

Cephalon, Inc. and Subsidiaries

Consolidated Statement of Operations

(Amounts in Thousands, Except per Share)

(Unaudited)

	Three Months Ended September 30, 2004									Three Months Ended September 30, 2003
	GAAP			Adjustments			“Adjusted”			GAAP			Adjustments			“Adjusted”
Revenues:
Sales	$	253,594					$	253,594		$	184,877					$	184,877
Other revenues	8,373						8,373			5,166						5,166
	261,967			—			261,967			190,043			—			190,043
Costs and Expenses:
Cost of sales	33,782						33,782			22,584						22,584
Research and development	67,683						67,683			44,541						44,541
Selling, general and administrative	76,204						76,204			63,533						63,533
Depreciation and amortization	13,784			(9,702		)(1)	4,082			10,991			(8,250		)(1)	2,741
Acquired in-process research and development	185,700			(185,700		)(2)	—			—						—
	377,153			(195,402		)	181,751			141,649			(8,250		)	133,399
Income (loss) from operations	(115,186		)	195,402			80,216			48,394			8,250			56,644
Other Income and Expense:
Interest income	4,804						4,804			2,962						2,962
Interest expense	(5,176		)				(5,176		)	(6,218		)				(6,218		)
Debt exchange expense	(28,230		)	28,230		(3)	—			—						—
Charge on early extinguishment of debt	(1,352		)	1,352		(4)	—			(9,816		)	9,816		(4)	—
Other income (expense), net	(642		)				(642		)	(522		)				(522		)
	(30,596		)	29,582			(1,014		)	(13,594		)	9,816			(3,778		)
Income (loss) before income taxes	(145,782		)	224,984			79,202			34,800			18,066			52,866
Income tax expense	(19,464		)	(13,563		)(5)	(33,027		)	(12,528		)	(6,504		)(5)	(19,032		)
Net Income (loss)	$	(165,246	)	$	211,421		$	46,175		$	22,272		$	11,562		$	33,834
Basic income (loss) per common share*	$	(2.94	)				$	0.82		$	0.40					$	0.60
Diluted income (loss) per common share*	$	(2.94	)				$	0.75		$	0.37					$	0.55
Weighted average number of common shares outstanding	56,178						56,178			55,573						55,573
Weighted average number of common shares outstanding-assuming dilution	56,178						63,510			64,552						64,552

* Prior period EPS is restated for adoption of guidance from EITF 03-6.

Cephalon, Inc. and Subsidiaries

Consolidated Statement of Operations

(Amounts in Thousands, Except per Share)

(Unaudited)

	Nine Months Ended September 30, 2004									Nine Months Ended September 30, 2003
	GAAP			Adjustments			“Adjusted”			GAAP			Adjustments			“Adjusted”
Revenues:
Sales	$	698,975					$	698,975		$	482,745					$	482,745
Other revenues	17,451						17,451			20,822						20,822
	716,426			—			716,426			503,567			—			503,567
Costs and Expenses:
Cost of sales	89,599						89,599			65,283						65,283
Research and development	198,208						198,208			117,336						117,336
Selling, general and administrative	243,908			4,214		(6)	248,122			183,685						183,685
Depreciation and amortization	36,927			(26,456		)(1)	10,471			32,558			(24,751		)(1)	7,807
Impairment charge on investment in MDS Proteomics Inc.	30,071			(30,071		)(7)	—			—						—
Acquired in-process research and development	185,700			(185,700		)(2)	—			—						—
	784,413			(238,013		)	546,400			398,862			(24,751		)	374,111
Income (loss) from operations	(67,987		)	238,013			170,026			104,705			24,751			129,456
Other Income and Expense:
Interest income	11,639						11,639			8,137						8,137
Interest expense	(16,888		)				(16,888		)	(22,574		)				(22,574		)
Debt exchange expense	(28,230		)	28,230		(3)	—			—						—
Charge on early extinguishment of debt	(2,313		)	2,313		(4)	—			(9,816		)	9,816		(4)	—
Other income (expense), net	(2,444		)				(2,444		)	1,789						1,789
	(38,236		)	30,543			(7,693		)	(22,464		)	9,816			(12,648		)
Income (loss) before income taxes	(106,223		)	268,556			162,333			82,241			34,567			116,808
Income tax expense	(45,695		)	(18,461		)(5)	(64,156		)	(29,608		)	(12,444		)(5)	(42,052		)
Net Income (loss)	$	(151,918	)	$	250,095		$	98,177		$	52,633		$	22,123		$	74,756
Basic income (loss) per common share*	$	(2.71	)				$	1.74		$	0.94					$	1.33
Diluted income (loss) per common share*	$	(2.71	)				$	1.60		$	0.90					$	1.24
Weighted average number of common shares outstanding	56,065						56,065			55,510						55,510
Weighted average number of common shares outstanding-assuming dilution	56,065						64,214			64,497						64,497

* Prior period EPS is restated for adoption of guidance from EITF 03-6.

Cephalon, Inc. and Subsidiaries

Notes to Reconciliation of GAAP Earnings (Loss) to “Adjusted” Earnings

Three and Nine Months Ended September 30, 2004

(1)   To exclude the ongoing amortization of acquired intangible assets including technology, trademark and marketing rights acquired from Group Lafon and CIMA LABS INC., Gabitril marketing rights, Actiq marketing rights, and product marketing rights acquired in conjunction with our Novartis collaboration.

(2)   To exclude the write-off of in-process research and development associated with the acquisition of CIMA LABS INC.

(3)   To exclude the expense associated with the exchange of $78.3 million of Cephalon’s 2.5% Convertible Subordinated Notes into common stock.

(4)   To exclude the charge on early extinguishment of debt in 2004 related to the repurchase of $33 million and $10 million of our 3.875% Convertible Subordinated Notes in August and March 2004, respectively. To exclude the charge on early extinguishment of debt in 2003 related to the redemption of $174 million of our 5.25% Convertible Subordinated Notes and the repurchase of $12 million of our 3.875% Convertible Subordinated Notes in July 2003.

(5)   To reflect the tax effect of adjustments at the applicable tax rates.

(6)   To exclude the gain resulting from the cancellation of postretirement health care benefits for current employees at Cephalon France.

(7)   To exclude the impairment charge for the write-off of our investment in MDS Proteomics, Inc. for which no corresponding tax benefit was recorded as the realization of this deduction for tax purposes is not considered probable.

Cephalon, Inc. and Subsidiaries

Consolidated Sales Detail

(Amounts in Thousands)

(Unaudited)

	Three Months Ended September 30,												% Increase
	2004						2003						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Sales:
Provigil	$	92,631	$	9,347	$	101,978	$	71,938	$	7,808	$	79,746	29	%	20	%	28	%
Actiq	100,753		1,941		102,694		64,384		1,067		65,451		56	%	82	%	57	%
Gabitril	23,047		1,577		24,624		15,661		1,582		17,243		47	%	0	%	43	%
Other	5,224		19,074		24,298		—		22,437		22,437		—		(15	)%	8	%
	$	221,655	$	31,939	$	253,594	$	151,983	$	32,894	$	184,877	46	%	(3	)%	37	%

	Nine Months Ended September 30,												% Increase
	2004						2003						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Sales:
Provigil	$	276,071	$	23,221	$	299,292	$	186,286	$	18,772	$	205,058	48	%	24	%	46	%
Actiq	253,130		5,350		258,480		162,257		2,059		164,316		56	%	160	%	57	%
Gabitril	67,373		4,659		72,032		39,790		4,683		44,473		69	%	(1	)%	62	%
Other	5,224		63,947		69,171		—		68,898		68,898		—		(7	)%	0	%
	$	601,798	$	97,177	$	698,975	$	388,333	$	94,412	$	482,745	55	%	3	%	45	%

Cephalon, Inc. and Subsidiaries

Consolidated Balance Sheets

(Amounts in Thousands)

	September 30, 2004			December 31, 2003
	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	605,992		$	1,115,699
Investments	204,534			39,464
Receivables, net	136,503			86,348
Inventory, net	71,466			61,249
Deferred tax asset	69,481			57,972
Other current assets	27,664			9,198
Total current assets	1,115,640			1,369,930
Property and equipment, net	224,523			126,442
Goodwill	363,912			298,769
Other intangible assets, net	412,216			326,445
Debt issuance costs, net	27,429			35,250
Deferred tax asset, net	129,216			168,506
Other assets	25,877			56,314
	$	2,298,813		$	2,381,656
CURRENT LIABILITIES:
Current portion of long-term debt	$	9,403		$	9,637
Accounts payable	40,330			28,591
Accrued expenses	131,254			99,038
Current portion of deferred revenues	1,042			422
Total current liabilities	182,029			137,688
Long-term debt	1,287,320			1,409,417
Deferred revenues	1,592			1,736
Deferred tax liabilities	86,251			45,665
Other liabilities	17,862			16,780
Total liabilities	1,575,054			1,611,286
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value	577			558
Additional paid-in capital	1,161,570			1,052,059
Treasury stock, at cost	(13,706		)	(13,692		)
Accumulated deficit	(473,223		)	(321,305		)
Accumulated other comprehensive income	48,541			52,750
Total stockholders’ equity	723,759			770,370
	$	2,298,813		$	2,381,656

Cephalon, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

	Nine Months Ended September 30,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(151,918	)	$		52,633
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Deferred income taxes	11,853			15,227
Tax benefit from exercise of stock options	3,109			3,100
Debt exchange expense	28,230			—
Tax effect on debt exchange	(11,288		)
Depreciation and amortization	39,327			32,558
Amortization of debt issuance costs	6,420			6,837
Stock-based compensation expense	3,793			1,765
Non-cash charge on early extinguishment of debt	2,313			3,615
Pension curtailment	(4,214		)	—
Loss on disposals of property and equipment	430			—
Impairment charge	30,071			—
Acquired in-process research and development	185,700			—
Increase (decrease) in cash due to changes in assets and liabilities, net of effect from acquisition:
Receivables	(40,085		)	(12,394			)
Inventory	(4,504		)	(2,328			)
Other assets	17,827			1,193
Accounts payable, accrued expenses and deferred revenues	12,805			6,339
Other liabilities	3,460			(2,784			)
Net cash provided by operating activities	133,329			105,761
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(27,283		)	(28,983			)
Investments in non-marketable securities	—			(32,975			)
Acquisition of CIMA, net of cash acquired	(482,521		)
Acquisition of intangible assets	(2,034		)	—
Purchases of investments	(169,741		)	(87,643			)
Sales of investments	76,653			136,481
Net cash used for investing activities	(604,926		)	(13,120			)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of common stock options	8,794			3,391
Acquisition of treasury stock	(14		)	(125			)
Principal payments on and retirements of long-term debt	(45,924		)	(200,757			)
Net proceeds from issuance of convertible subordinated notes	—			727,085
Proceeds from sale of warrants	—			178,315
Purchase of Convertible Hedge	—			(258,584			)
Net cash provided by (used for) financing activities	(37,144		)	449,325
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(966		)	4,078
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(509,707		)	546,044
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,115,699			486,097
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	605,992		$	1,032,141

	Twelve Months Ended December 31, 2004			Twelve Months Ended December 31, 2005
	(Unaudited)			(Unaudited)
Reconciliation of Projected GAAP Diluted Earnings (Loss) Per Share to Adjusted Diluted Earnings Per Share Guidance:
Projected GAAP diluted earnings (loss) per share	$	(1.55	)	$	2.38 - $2.53
Charge on early extinguishment of debt	$	0.04
Debt exchange expense	$	0.43
Gain on pension curtailment - Cephalon France	$	(0.06	)
Impairment charge - investment in MDS Proteomics Inc.	$	0.46
Amortization of current intangibles	$	0.57		$	0.68
Acquired in-process research and development	$	2.84
Tax benefit on adjustments	$	(0.38	)	$	(0.26	)
Adjusted diluted earnings per share guidance	$	2.35		$	2.80 - $2.95

Cephalon, Inc. and Subsidiaries

Summary of Line Items Affected by Second Quarter 2004 Restatement

(Amounts in Thousands, Except Per Share)

	Three Months Ended June 30, 2004													Six Months Ended June 30, 2004
	As Reported				As Restated				Difference					As Reported			As Restated				Difference
Cost of Sales	$	27,380			$	29,840			$		2,460			$	53,357		$			55,817	$	2,460
Net Income (Loss)	$	(6,851		)	$	(8,383		)	$			(1,532	)	$	14,860		$			13,328	$	(1,532		)
Basic income (loss) per common share	$	(0.12		)	$	(0.15		)	$			(0.03	)	$	0.26		$			0.24	$	(0.02		)
Diluted income (loss) per common share	$	(0.12		)	$	(0.15		)	$			(0.03	)	$	0.26		$			0.23	$	(0.03		)
* Adjusted EBITDA	$	52,852			$	50,392			$			(2,460	)	$	98,659		$		96,199		$	(2,460		)
* Adjusted Net Income (excluding amortization of intangible assets)	$	28,450			$	27,252			$	(1,198			)	$	53,343		$	52,002			$		(1,341	)
* Basic adjusted income per common share (excluding amortization of intangible assets)	$		0.50		$		0.48		$	(0.02			)	$		0.94	$	0.92			$		(0.02	)
* Diluted adjusted income per common share (excluding amortization of intangible assets)	$		0.47		$		0.45		$	(0.02			)	$		0.88	$	0.86			$		(0.02	)

*For a reconciliation of these “non-GAAP financial measures,” please refer to the financial information attached to the Company’s second quarter 2004 press release dated August 3, 2004 (a copy of which is located at www.cephalon.com).  The “as reported” amounts for such non-GAAP financial measures included in that release for the three and six months ended June 30, 2004 are hereby restated by the amounts shown in the respective “as restated” columns above.