Shares of Cephalon
Cephalon showed a slight $5 million year-over-year uptick in sales, thanks to growth from wakefulness-promoting drug Provigil outpacing the losses in revenue shown by its pain drug ACTIQ, as generic competitors eroded its market share. The problem lay with SG&A costs that rose an additional $32 million, causing adjusted operating income to fall by nearly 17%.
There were two causes for the burgeoning expenses. First, partner Alkermes
Cephalon also incurred a $56 million charge for reserves relating to an ongoing government investigation of how it has marketed Provigil. This may have been the second source of worries for investors, as Cephalon stated that this was only the initial reserve charge, and that additional charges may occur in the future.
Despite the higher level of expenditures, Cephalon is maintaining its adjusted earnings-per-share guidance of $4.40 to $4.50 for the year. The disappointment over the quarterly results appears to mainly lie with analysts. They had projected adjusted earnings per share of $0.99 for the quarter, versus the actual result of $0.93 a share.
Since nothing is inherently wrong with Cephalon's operations, investors would be wise to forgive the extra SG&A costs for the quarter (which will be a recurring expense) and wait until the drugmaker can return to a period of bottom-line growth.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article.