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

EXHIBIT 99.1

Media Contact

Jeff Richardson

610-738-6126

jcrichard@cephalon.com

Investor Contact

Chip Merritt

610-738-6376

cmerritt@cephalon.com

For Immediate Release

Cephalon Reports Outstanding Financial Results for 2004

Revenue Exceeds $1 Billion For the First Time;

Sales Increase 43 Percent;

Earnings Exceed Guidance By 7 Cents;

Cephalon Reiterates 2005 Guidance

West Chester, PA – February 15, 2005 – Cephalon, Inc. [Nasdaq: CEPH] today reported 2004 revenue of $1.0 billion, a 42 percent increase over 2003.  Earlier in the year the company recorded charges related to the acquisition of CIMA LABS INC and the exchange or repurchase of Cephalon notes, among other items, that resulted in a diluted loss per share for 2004 of $1.31.  Excluding these items and amortization expense, diluted adjusted earnings per share were $2.42, a 31 percent increase over the comparable figure of $1.85 recorded in 2003.

Sales totaled $980.4 million in 2004, compared with 2003 sales of $685.3 million, a 43 percent increase.  All three lead products posted outstanding sales increases. In 2004, sales of PROVIGIL^® (modafinil) Tablets [C-IV] increased 51 percent to $439.7 million; sales of ACTIQ^® (oral transmucosal fentanyl citrate) [C-II] increased 45 percent to $345.0 million; and sales of GABITRIL^® (tigabine hydrochloride) Tablets were $94.2 million, a 48 percent increase. Sales of other products totaled $101.5 million in 2004.

Prescribing activity continued its upward trend in 2004 for Cephalon’s flagship products.  Total prescriptions for PROVIGIL, ACTIQ, and GABITRIL in the United States increased 37 percent over 2003 and exceeded 3.3 million prescriptions.

—more—

“We have quadrupled sales since 2001, and our accomplishments in 2004 have positioned Cephalon for significant growth ahead,” said Frank Baldino Jr., Ph.D., Chairman and CEO. “We expect to file four NDAs in 14 months.  We believe that the success of these four products – ATTENACE^®, NUVIGIL^®,  OraVescent Fentanyl, and GABITRIL^® for generalized anxiety disorder – will deliver significant sales and earnings growth for the company in the years ahead.”

For the fourth quarter of 2004, the company reported total revenue of $299.0 million, a 42 percent increase from the fourth quarter of 2003 and sales of $281.4 million, up 39 percent from the same quarter last year.  Diluted earnings per share for the fourth quarter of 2004 were $1.23.  Excluding amortization expense, and a deferred tax gain resulting from adjustments to tax valuation allowances, diluted adjusted earnings per share were $0.82, which is a 37 percent increase over the comparable figure of $0.60 in the fourth quarter of 2003.

Cephalon is reiterating guidance for 2005 sales of between $1.20-$1.25 billion, which includes PROVIGIL sales of $550-$600 million, ACTIQ sales of $390-$420 million, GABITRIL sales of $110-$120 million, and other product sales of $110-$125 million. Cephalon’s 2005 guidance for diluted adjusted earnings per share is between $2.80 and $2.95.  Our guidance does not include amortization expense or the expense related to employee stock option grants, which will be a required expense under GAAP in 2005.

The company is introducing first quarter 2005 sales guidance of $280 to $290 million and diluted adjusted earnings per share of $0.45 to $0.50.

Cephalon’s management will discuss the company’s full-year and fourth quarter 2004 performance in a conference call with investors beginning at 5 p.m. (EST) on Tuesday, February 15, 2005.  To participate in the conference call, dial 913-981-5543 and refer to conference code number 492828. Investors can listen to the call live by logging on to the company’s website at www.cephalon.com and clicking on “Investor Relations,” then “Webcast.”  The conference call will be archived and available to investors for one week after the call.

Cephalon, Inc.

Cephalon currently employs approximately 2,300 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 suburban Minneapolis, Minnesota. Cephalon’s European offices are located in Guildford, England, Martinsried, Germany, and Maisons-Alfort, France.

The company currently markets three proprietary products in the United States: PROVIGIL, GABITRIL, and ACTIQ and more than 20 products internationally. Further information about Cephalon and 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, 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 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 Income (Loss) per Common Share, as adjusted,” “Diluted Income (Loss) Per Common Share, as adjusted,” 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.

Cephalon, Inc. and Subsidiaries

Consolidated Statement of Operations

(Amounts in Thousands, Except per Share)

(Unaudited)

	Three Months Ended December 31, 2004										Three Months Ended December 31, 2003
	GAAP			Adjustments			“Adjusted”				GAAP			Adjustments			“Adjusted”
Revenues:
Sales	$	281,400					$		281,400		$	202,505					$		202,505
Other revenues	17,599						17,599				8,735						8,735
	298,999			—			298,999				211,240			—			211,240
Costs and Expenses:
Cost of sales	30,374						30,374				27,092						27,092
Research and development	75,764						75,764				52,657						52,657
Selling, general and administrative	95,569						95,569				68,632						68,632
Depreciation and amortization	15,871			(11,297		)(1)	4,574				11,515			(8,303		)(1)	3,212
	217,578			(11,297		)	206,281				159,896			(8,303		)	151,593
Income from operations	81,421			11,297			92,718				51,344			8,303			59,647
Other Income and Expense:
Interest income	4,847						4,847				3,161						3,161
Interest expense	(5,298		)				(5,298			)	(6,331		)				(6,331			)
Other income (expense), net	(2,931		)				(2,931			)	(101		)				(101			)
	(3,382		)	—			(3,382			)	(3,271		)	—			(3,271			)
Income before income taxes	78,039			11,297			89,336				48,073			8,303			56,376
Income tax expense	66			(38,276		)(2)	(38,210			)	(16,848		)	(2,964		)(2)	(19,812			)
Net Income (loss)	$	78,105		$	(26,979	)	$	51,126			$	31,225		$	5,339		$	36,564
Basic income per common share *	$	1.35					$	0.89			$	0.55					$	0.65
Diluted income per common share *	$	1.23					$	0.82			$	0.51					$	0.60
Weighted average number of common shares outstanding	57,754						57,754				55,706						55,706
Weighted average number of common shares outstanding-assuming dilution	64,889						64,889				64,162						64,162

* Prior period EPS shown is restated for adoption of guidance from EITF 03-6 and EITF 04-8.

Cephalon, Inc. and Subsidiaries

Notes to Reconciliation of GAAP Net Income to “Adjusted” Net Income

Three Months Ended December 31, 2004 and December 31, 2003

(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 reflect the tax effect of adjustments at the applicable tax rates. Fourth quarter adjustments include the impact of tax benefits due to the reassessment of the realizability of deferred tax assets and an adjustment for the recognition of a tax benefit on the write-off of our investment in MDS Proteomics, Inc.

Cephalon, Inc. and Subsidiaries

Consolidated Statement of Operations

(Amounts in Thousands, Except per Share)

(Unaudited)

	Year Ended December 31, 2004										Year Ended December 31, 2003
	GAAP			Adjustments			“Adjusted”				GAAP			Adjustments			“Adjusted”
Revenues:
Sales	$	980,375					$		980,375		$	685,250					$		685,250
Other revenues	35,050						35,050				29,557						29,557
	1,015,425			—			1,015,425				714,807			—			714,807
Costs and Expenses:
Cost of sales	119,973						119,973				92,375						92,375
Research and development	273,972						273,972				168,222						168,222
Selling, general and administrative	339,477			4,214		(3)	343,691				254,088						254,088
Depreciation and amortization	52,798			(37,753		)(1)	15,045				44,073			(33,054		)(1)	11,019
Impairment charge on investment in MDS Proteomics Inc.	30,071			(30,071		)(4)	—				—						—
Acquired in-process research and development	185,700			(185,700		)(5)	—				—						—
	1,001,991			(249,310		)	752,681				558,758			(33,054		)	525,704
Income from operations	13,434			249,310			262,744				156,049			33,054			189,103
Other Income and Expense:
Interest income	16,486						16,486				11,298						11,298
Interest expense	(22,186		)				(22,186			)	(28,905		)				(28,905			)
Debt exchange expense	(28,230		)	28,230		(6)	—				—						—
Charge on early extinguishment of debt	(2,313		)	2,313		(7)	—				(9,816		)	9,816		(7)	—
Other income (expense), net	(5,375		)				(5,375			)	1,688						1,688
	(41,618		)	30,543			(11,075			)	(25,735		)	9,816			(15,919			)
Income (loss) before income taxes	(28,184		)	279,853			251,669				130,314			42,870			173,184
Income tax expense	(45,629		)	(56,737		)(2)	(102,366			)	(46,456		)	(15,305		)(2)	(61,761			)
Net Income (loss)	$	(73,813	)	$	223,116		$	149,303			$	83,858		$	27,565		$	111,423
Basic income (loss) per common share *	$	(1.31	)				$	2.63			$	1.49					$	1.98
Diluted income (loss) per common share *	$	(1.31	)				$	2.42			$	1.42					$	1.85
Weighted average number of common shares outstanding	56,489						56,489				55,560						55,560
Weighted average number of common shares outstanding-assuming dilution	56,489						64,358				64,076						64,076

* Prior period EPS shown is restated for adoption of guidance from EITF 03-6 and EITF 04-8.

Cephalon, Inc. and Subsidiaries

Notes to Reconciliation of GAAP Net Income (Loss) to “Adjusted” Net Income

Years Ended December 31, 2004 and December 31, 2003

(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 reflect the tax effect of adjustments at the applicable tax rates and the impact of tax benefits due to the reassessment of the realizability of deferred tax assets.

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

(4)To exclude the impairment charge for the write-off of our investment in MDS Proteomics, Inc.

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

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

(7)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.

Cephalon, Inc. and Subsidiaries

Consolidated Sales Detail

(Amounts in Thousands)

(Unaudited)

	Three Months Ended December 31,												% Increase
	2004						2003						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Sales:
Provigil	$	130,167	$	10,208	$	140,375	$	78,038	$	7,370	$	85,408	67	%	39	%	64	%
Actiq	83,942		2,575		86,517		71,854		1,297		73,151		17	%	99	%	18	%
Gabitril	19,976		2,156		22,132		17,984		1,242		19,226		11	%	74	%	15	%
Other	8,046		24,330		32,376		—		24,720		24,720		—		(2	)%	31	%
	$	242,131	$	39,269	$	281,400	$	167,876	$	34,629	$	202,505	44	%	13	%	39	%
	Year Ended December 31,												% Increase
	2004						2003						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Sales:
Provigil	$	406,238	$	33,429	$	439,667	$	264,324	$	26,141	$	290,465	54	%	28	%	51	%
Actiq	337,072		7,925		344,997		234,111		3,356		237,467		44	%	136	%	45	%
Gabitril	87,349		6,815		94,164		57,774		5,925		63,699		51	%	15	%	48	%
Other	13,270		88,277		101,547		—		93,619		93,619		—		(6	)%	8	%
	$	843,929	$	136,446	$	980,375	$	556,209	$	129,041	$	685,250	52	%	6	%	43	%

Cephalon, Inc. and Subsidiaries

Consolidated Balance Sheets

(Amounts in Thousands)

(Unaudited)

	December 31 2004,			December 31, 2003
CURRENT ASSETS:
Cash and cash equivalents	$	574,244		$	1,115,699
Investments	217,432			39,464
Receivables, net	203,594			86,348
Inventory, net	86,629			61,249
Deferred tax asset	65,302			57,972
Other current assets	32,819			9,198
Total current assets	1,180,020			1,369,930
Property and equipment, net	244,834			126,442
Goodwill	372,534			298,769
Other intangible assets, net	449,402			326,445
Debt issuance costs, net	25,401			35,250
Deferred tax asset, net	145,436			168,506
Other assets	22,549			56,314
	$	2,440,176		$	2,381,656
CURRENT LIABILITIES:
Current portion of long-term debt	$	5,114		$	9,637
Accounts payable	52,488			28,591
Accrued expenses	157,841			99,038
Current portion of deferred revenues	868			422
Total current liabilities	216,311			137,688
Long-term debt	1,284,410			1,409,417
Deferred revenues	1,769			1,736
Deferred tax liabilities	94,100			45,665
Other liabilities	13,542			16,780
Total liabilities	1,610,132			1,611,286
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value	580			558
Additional paid-in capital	1,172,499			1,052,059
Treasury stock, at cost	(14,860		)	(13,692		)
Accumulated deficit	(395,118		)	(321,305		)
Accumulated other comprehensive income	66,943			52,750
Total stockholders’ equity	830,044			770,370
	$	2,440,176		$	2,381,656

Cephalon, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

	Year Ended December 31,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(73,813	)	$	83,858
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Deferred income tax expense	37,598			32,437
Tax benefit from exercise of stock options	9,205			944
Debt exchange expense	28,230			—
Tax effect on debt exchange	(11,288		)	—
Depreciation and amortization	59,016			45,135
Amortization of debt issuance costs	8,275			7,602
Stock-based compensation expense	5,372			2,224
Non-cash charge on early extinguishment of debt	2,313			3,615
Pension curtailment	(4,214		)	—
Loss on disposals of property and equipment	1,423			—
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	(103,672		)	4,691
Inventory	(16,699		)	(1,691		)
Other assets	(20,318		)	7,741
Accounts payable, accrued expenses and deferred revenues	47,550			17,477
Other liabilities	1,788			(3,792		)
Net cash provided by operating activities	186,537			200,241
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(50,244		)	(40,453		)
Investments in non-marketable securities	—			(32,975		)
Acquisition of CIMA, net of cash acquired	(482,521		)
Acquisition of intangible assets	(53,704		)	—
Sales and (purchases) of investments, net	(106,678		)	55,836
Net cash used for investing activities	(693,147		)	(17,592		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of common stock options	12,051			4,528
Acquisition of treasury stock	(1,168		)	(1,703		)
Principal payments on and retirements of long-term debt	(51,905		)	(211,714		)
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	(41,022		)	437,927
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	6,177			9,026
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(541,455		)	629,602
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	1,115,699			486,097
CASH AND CASH EQUIVALENTS, END OF YEAR	$	574,244		$	1,115,699

Cephalon, Inc. and Subsidiaries

Reconciliation of Projected GAAP Diluted Earnings per Share to Diluted Adjusted Earnings Per Share Guidance

(Unaudited)

	Three Months Ended March 31, 2005			Twelve Months Ended December 31, 2005
Projected GAAP diluted earnings per share	$0.32 - $0.37			$2.29 - $2.44
Amortization of current intangibles	$	0.20		$	0.81
Tax benefit on adjustments	$	(0.07	)	$	(0.30	)
Diluted adjusted earnings per share guidance	$0.45 - $0.50			$2.80 - $2.95

Note: Guidance does not include the effect of SFAS 123R, “Share-Based Payments”, which becomes effective July 1, 2005.