Cephalon 2009 Annual Report

valuingintegrity

fosteringcollaboration

inspiringcreativity

restoringlives

leveragingknowledge

uncoveringpromise

drivinginnovation

This is how we’re turning our

insightsintomedicine.SM

pioneeringtherapies

P ROD UC T P I P E L I N E

CEP-18770: The novel proteasomeinhibitor with a higher propensity to inhibitproteasomes in tumors than in normaltissue. Current therapeutic target: multiplemyeloma, a treatable, incurable canceraffecting plasma cells. Clinical validationof the disease mechanism and drug targetprovides strong rationale for continuingdevelopment. Phase II clinical trial underway.

CEP-37251: Engineered version of naturalosteoprotegerin (OPG), a non-signalingdecoy receptor for RANKL and a keymediator of bone resorption. Preclinicalstudies in bone cancer showed compoundis as protective against bone loss as OPGand reduced the ability of tumors to grow inbone. Phase I clinical trial planned for 2010.

NUVIGIL: Armodafinil; next generation ofproven modafinil compound. Additionalindication for excessive sleepiness (ES)due to jet lag disorder under FDA review;early promise in studies of depressivecomponents of bipolar disorder and negativesymptoms associated with schizophrenia.Phase II/III studies underway in psychiatricconditions and ES in traumatic brain injury.

Lupuzor (CEP-33457): Novel mechanismfor modifying behavior of key cells (CD4T cells) involved in the pathogenesis ofsystemic lupus erythematosus, a chronic,inflammatory autoimmune disorder.Phase IIb three-month clinical studyshowed encouraging results in loweringdisease activity in lupus. Plan to initiatesix-month Phase IIb study in 2010.

CEP-37247: New generation tumornecrosis factor (TNF) alpha blocker isthe first product incorporating humanframework domain antibodies to be usedin human trials. Phase II psoriasis trialresults released in 2009. Acquired optionto purchase BioAssets Development Corp.and its intellectual property estate aroundthe use of TNF inhibitors for sciatica.Next milestone: begin Phase I/II clinicaltrials in sciatica in 2010.

20 PIPELINE09 HIGHLIGHTS

P H A S E I I I

TREANDA® (bendamustine hydrochloride) injectionFirst Line Non-Hodgkin’s Lymphoma

NUVIGIL® (armodafinil) [C-IV] TabletsExcessive Sleepiness Associated with Traumatic Brain InjuryAdjunctive Treatment for Major Depressive Disorder Associated with Bipolar Depression

P H A S E I I

TREANDA (bendamustine hydrochloride) injectionMantle Cell Lymphoma-2nd Line Combo with Rituxan® [(rituximab) Genentech, Inc.]

NUVIGIL (armodafinil) [C-IV] TabletsAdjunctive Treatment for Schizophrenia

CINQUIL™, CEP-38072 (reslizumab) Anti-IL5 •Adult Eosinophilic Asthma

Lupuzor™, CEP-33457 (CD4 T cell modulator)Systemic Lupus Erythematosus

CEP-18770 (proteasome inhibitor)Multiple Myeloma

P H A S E I

TREANDA (bendamustine hydrochloride) injectionMultiple Myeloma-refractory Combo with Velcade® [(bortezomib) Millennium Pharmaceuticals, Inc.]

CEP-11981 (VEGF-R/TIE2 kinase inhibitor)Solid Tumors

CEP-9722 (PARP inhibitor)Solid Tumors with Temozolomide

CEP-37247 (anti-tumor necrosis factor) •Sciatica

CEP-33236 (once-daily hydromorphone)Tamper-deterrent Opioid

CEP-33237 (twice-daily hydrocodone)Tamper-deterrent Opioid

CEP-26401 (H3 antagonist)Cognition in Alzheimer’s Disease/Schizophrenia

CEP-33222 (intravenous celecoxib)Post-operative Pain

R E S E A RCH / P R E - C L I N I C A L

CEP-28122 (ALK kinase inhibitor)Anaplastic Large-Cell Lymphoma/Non-Small Cell Lung Cancer

CEP-32496 (B-Raf inhibitor)Melanoma/Colon Carcinoma

CEP-37250/KHK2804 (targets glycolipid) •Colorectal Cancer (collaboration with Kyowa-Kirin)

CEP-37251 (RANKL inhibitor) •Bone Metastasis

CEP-37248 (Anti-IL 12/23) •Inflammation

CEP-37309 (JL1 antibody) •Leukemia

indicates biologic

See complete pipeline chart at www.cephalon.com

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T O OU R S T OCKHO L D E R S

Our insights into the science and business of medicine have led to another

outstanding year, with the launch of NUVIGIL®, important acquisitions and

strong financial performance. Our pipeline is full of opportunity, with

a record 12 compounds in all phases of clinical studies and six compounds

in pre-clinical research.

Changing lives in meaningful ways. It takes both innovativescience and keen business sense to bring new therapeuticoptions to physicians and patients. It also takes rigoroustesting, hundreds of millions of dollars and many years beforea product reaches the market. Precious few compounds willever make it through the regulatory process. Nonetheless,a single success has the potential to change patients’ livesin meaningful ways — and, in doing so, we can deliver solidreturns for our shareholders.

Since our start in 1987, we have invested more than$3 billion in research and development. Our focus is onnovel medicines — either first or best-in-class — thataddress needs not met by currently available products. Wealso have several products designated as “orphan drugs,”developed to treat rare medical conditions that affect fewerthan 200,000 Americans annually.

With PROVIGIL®, and now NUVIGIL, we stood convention onits head in treating sleep disorders. By improving wakefulness,millions of patients suffering from excessive sleepinessassociated with three disorders of sleep and wakefulnesshave been able to reclaim their lives. NUVIGIL also mayprove to be a useful treatment for additional sleep disordersand for patients with specific psychiatric disorders, wherewe are seeing encouraging results in clinical trials forbipolar depression and negative symptoms of schizophrenia.We also are changing lives for the better with TREANDA®

for patients with certain forms of blood cancers.

Our aspiration to have a positive impact on patients’ livespermeates our business, leading us to look differently atwhich products we develop and how we develop them.This also means running our business differently than mostpharmaceutical companies. Our insightful approach to businessdevelopment enhances our product pipeline with lower riskopportunities and brings balance to our approach. A primeexample is our 2009 acquisition of Arana Therapeutics,which added an engine for biologics — monoclonal antibodiesand therapeutic proteins — that may allow us to attackdiseases in new ways.

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Strong results. In 2009, sales exceeded $2 billion for the first time,at $2.15 billion, coming just five years after our first $1 billion yearin 2004. We continue to generate strong cash flows, which underwriteour ability to develop, license or acquire new compounds and to purchaseassets that support long-term growth. We ended 2009 with cash andcash equivalents of $1.6 billion.

We maintain a disciplined approach to controlling expenses, whichhelps to strengthen earnings growth. In 2009, adjusted net incomewas $469 million, up 28% from the prior year.

Delivering results• NUVIGIL launches in June 2009 and gains25% market share by year-end.• TREANDA sales nearly triple; AMRIX®

sales grow 55%.• Studies reveal positive data for NUVIGILin psychiatric disorders; regulatory filing

could expand NUVIGIL indications to includeexcessive sleepiness due to jet lag disorder.• Pipeline hits record in 2009, with12 compounds in all phases of clinicaldevelopment and six compounds inpre-clinical research.

Seizing opportunityCephalon expands pipeline, adds biologicsengine and boosts long-term growth potentialby licensing, acquiring or optioning assets:• Lupuzor™, an investigational medicationfor systemic lupus erythematosus, fromImmuPharma PLC.• Arana Therapeutics, an Australian-basedcompany, with biologics targeted to oncologyand inflammatory diseases and technologyplatforms for optimizing antibodies.• BioAssets Development Corp., and itsestate of intellectual property and scientificexpertise, under option for Cephalonto acquire.• Acquires an option and, in 2010, exercisesthe option to buy Ception Therapeuticsand its lead product CINQUIL™ (reslizumab),following strong Phase II results in treatingeosinophilic asthma.

Improving lives: About 3,500 uninsuredpatients receive $35 million of free Cephalonmedicines under the CephalonCaresSM

Foundation, (CephalonCares.com), launchedin April 2009. This program could reachup to 4,000 patients in 2010.

Safety first: The Risk Evaluation andMitigation Strategy, or REMS, beingnegotiated with FDA for FENTORA® couldbe a model for managing risks for otherrapid onset opioid pain medications.

20 BUSINESS09 HIGHLIGHTS

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T O TA L S A L E S

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shiftingparadigms

balancingrisk

We believein innovationandinvestment.

New in ’09. The exceptional launch of NUVIGIL, a once-daily,longer-lasting form of modafinil, will surely extend the longevityof our wake-promoting franchise. We introduced NUVIGILin June with lower pricing and expanded patient access tothe medication through our co-pay support program. Weare confident in our intellectual property position withNUVIGIL and expect that our expansion strategy will allowthis therapy to reach many patients for years to come.

We launched EFFENTORA® in Europe, beginning with the UK,Ireland, Germany and Italy in 2009, for the treatment ofbreakthrough cancer pain in adults who regularly takeother opioid medications for persistent cancer pain. In theUnited States, this product is marketed as FENTORA andhas been available since 2006. We are now pursuingadditional indications, specifically for opioid-tolerant patientswith non-cancer breakthrough pain. To support the safeand appropriate use of FENTORA, we submitted a novelRisk Evaluation and Mitigation Strategy (REMS) to the FDA.Our REMS approach could pave the way for a new industrystandard in managing risks for other rapid onset opioidpain medications.

New Opportunities. In the tough economic environmentof the past year, most companies would be happy to finda single promising growth opportunity, no matter whatindustry they’re in. At Cephalon, we have been successfulover many years in identifying prospects that both alignwith our strategy and combine to create something brandnew. Our business development activities have addedassets and expertise in science, technology and a newtherapeutic area, inflammatory diseases.

• In January, we signed an option to acquire CeptionTherapeutics, with its lead product CINQUIL™ (reslizumab),a humanized monoclonal antibody, in clinical studies forthe treatment of eosinophilic diseases. In November,we announced disappointing initial results of a Phase IIb/IIIclinical study for the treatment of pediatric eosinophilicesophagitis. Subsequently, in February 2010, Ceptiondelivered strong results from its Phase II study of CINQUILin eosinophilic asthma, presenting us with the opportunityto add this asset to our Phase III pipeline.

• In February 2009, we exercised our option to licenseLupuzor™ (CEP-33457) from ImmuPharma PLC, basedon encouraging Phase IIb data in treating systemic lupuserythematosus. We plan to initiate a six-month study toexpand on their results as well as to better understand thelonger-term impact of this medication. This study will bringus one step closer to fulfilling the need for a medicationto treat this chronic and potentially life-threateningautoimmune disorder.

• In August, we completed our acquisition of AranaTherapeutics, gaining a firm footing in biologics to complementour current R&D program, which has been based primarilyon small molecules. We also strengthened our commitmentin inflammatory diseases, with the most advanced beingCEP-37247, a new generation tumor necrosis factor (TNF)alpha blocker, which is also the first product incorporatinghuman framework domain antibodies to be used in humantrials. The benefits of this technology platform mightinclude therapeutic antibodies with reduced immunogenicity,increased potency, and enhanced tissue penetration.

5

deliveringgrowth

• In October, we signed an option to acquire BioAssetsDevelopment Corp. and its estate of intellectual property.By combining the innovations of BioAssets and Arana,we will be able to better evaluate the developmentcompound CEP-37247 as a non-surgical treatment forsciatica. BioAssets has secured an intellectual propertyestate around the use of TNF inhibitors for sciatic painin patients with intervertebral disk herniation and otherspinal disorders.

Our approach to business development takes many forms,from outright acquisitions to the purchase of options-to-acquire or license based on meeting milestones of keycompounds under study. The value of this business modelis our ability to grow while limiting downside risk andcontaining costs, all without sacrificing upside potentialshould the product prove to be a success.

Breaking new ground. Much of our work at Cephalonfocuses on helping patients in disease areas where thereare few, if any, medications available. Our first insightscome when we identify a molecular target and a chemicalor biological intervention we hope will lead to a new therapyfor patients.

Unfortunately, not every opportunity will make it to themarket. So it’s rewarding when compounds make it throughthe development process, gain regulatory approval andreach physicians and their patients. This is what drives usto succeed at Cephalon. The ability to develop a therapythat could transform the life of a patient is a tremendouslyrewarding experience. We have been fortunate to introduceexciting new therapies to patients, year after year.

TREANDA has proven to be one of those terrific successesand, as a result, thousands of patients found new hope.TREANDA was launched in 2008 for two indications: chroniclymphocytic leukemia and as second-line treatment forindolent non-Hodgkin’s lymphoma (NHL) that has progressed.Today, positive results in numerous studies initiated byindependent investigators around the world are receivinga tremendous response from members of the oncologycommunity. One study, presented at the annual meeting ofthe American Society of Hematology in December 2009,showed that a combination of TREANDA and Rituxan®

[(rituximab) Genentech, Inc.] as first-line therapy for NHLhad better complete response and progression-free survivalrates with fewer side effects compared to the currentstandard of care. The study was presented by the leadinvestigator of the Study Group of Indolent Lymphomas,Mathias J. Rummel, M.D., Ph.D., who heads the Departmentfor Hematology at the University Hospital in Giessen, Germany.Although the results are promising, we are still evaluatingthis study to determine if these data could support aregulatory filing for a front-line indication for TREANDA.Our own front-line NHL study is ongoing.

With CEP-701 (lestaurtinib), a proprietary compounddiscovered in our own laboratory, we were disappointed inthe long-anticipated results of pivotal studies for this oralsmall molecule tyrosine kinase inhibitor. We had high hopesfor this compound as a treatment for acute myelogenousleukemia in patients where the disease was associatedwith a mutation in a kinase called FLT-3. Even though theresults were disappointing, with no positive clinical impactdemonstrated, we and the oncology community believethere is much to be learned about the potential to predictwhich patients will be responsive to certain medicines fromthis first-of-its-kind study in a rare disease population.

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pursuingopportunities

Changinglivesonetherapyat a time.

Seeing opportunity where others don’t. Our businessmodel is unique in that it seeks to balance the inherent riskin drug discovery by continually filling the drug pipeline inseveral ways: with in-house discoveries, late-stage productswe license, outright acquisitions, and our commitment tospecialty areas where there is great demand for newtreatment options.

In order to build a sustainable pharmaceutical business, weneed to address important pharmaceutical markets in everycorner of the world. This is what led us in early 2010 tosign an agreement to acquire Mepha AG, a profitable,Swiss-based pharmaceutical company. Mepha has specificexpertise in innovative dosage formulations and marketsboth generic and branded generic products. The acquisitionallows Cephalon to diversify our business, and providesan attractive platform to launch current and future productsin new, developed and emerging markets. With this deal,we now serve all three types of pharmaceutical markets:Proprietary branded, generic and branded generic. Webelieve this balance will increase the growth and stabilityof our business.

Developing new products, expanding indications for existingproducts and leveraging our geographic footprint are allways that we ensure that patients gain access to ourmedications. We enhance these efforts by developingprograms that provide greater access to those most inneed of our medications, those with no health insurance andthose with limited financial resources. Our co-pay assistanceprograms have helped many patients reduce theirout-of-pocket costs for some of our medications and ourCephalonCaresSM Foundation is helping those who have nohealth insurance at all. In 2009, we distributed $35 millionof free Cephalon medications to 3,500 patients in theUnited States. We hope that someday any patient whoneeds our medications will receive our medications.

This comprehensive and holistic approach is business asusual at Cephalon; it’s how we’re building the companyone product at a time. We look at an asset — a researchcompound, a new technology, a company to acquire —with eyes wide open. This allows us to see more ways toattack disease and to design better studies for targetedpopulations. We can work through the complexities ineducating physicians and patients about new treatmentoptions. And we can spot potential in unexpected placeswith a fresh perspective on compounds and technologiesthat could truly change patients’ lives.

Our insights into medicine have enabled us to assemblethe deepest and most diverse pipeline in our history, witha variety of small molecules and biologics being studiedfor central nervous system disorders, pain, oncology andinflammatory diseases. We’re excited about the opportunitiesahead and the millions more patients that our efforts andour products might help someday.

Frank Baldino, Jr., Ph.D.Chairman and Chief Executive OfficerMarch 25, 2010

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expandingreach

E X E C U T I V E O F F I C E R S

Frank Baldino, Jr., Ph.D.Chairman andChief Executive Officer

J. Kevin BuchiChief Operating Officer

Alain AraguesExecutive Vice Presidentand President of Cephalon Europe

Valli F. Baldassano, Esq.Executive Vice President,Chief Compliance Officer

Peter E. Grebow, Ph.D.Executive Vice President,Worldwide Technical Operations

Wilco GroenhuysenExecutive Vice Presidentand Chief Financial Officer

Gerald J. Pappert, Esq.Executive Vice Presidentand General Counsel

Lesley Russell, MB.Ch.B., MRCPExecutive Vice Presidentand Chief Medical Officer

Carl A. SaviniExecutive Vice Presidentand Chief Administrative Officer

Jeffry L. Vaught, Ph.D.Executive Vice Presidentand Chief Scientific Officer

B O A RD O F D I R E C T O R S

Frank Baldino, Jr., Ph.D.Chairman and Chief ExecutiveOfficer, Cephalon, Inc.

William P. EganGeneral PartnerAlta Communications, Inc.

Martyn D. GreenacreChairman, BMP Sunstone Corp.;Former Chairman Europe,SmithKline Beecham Pharmaceutical Co.

Vaughn M. KailianManaging Director, MPM Capital LP;Former CEO and President,COR Therapeutics, Inc.

Kevin E. MoleyChairman, Project Concern Intl.;Former U.S. Ambassador to theUnited Nations in Geneva, Switzerland;Former Assistant SecretaryU.S. Dept. of HHS

Charles A. Sanders, M.D.Former Chairman andChief Executive Officer, Glaxo, Inc.

Gail R. Wilensky, Ph.D.Healthcare Economist;Senior Fellow, Project HOPE;President, Defense Health Board

Dennis L. WingerFormer Senior Vice Presidentand Chief Financial Officer,Applera Corporation

C O R POR AT E I N F O RMAT I O N

Investor RelationsCephalon invites stockholders,security analysts and representativesof the financial community to contact:investorrelations@cephalon.com

41 Moores RoadPO Box 4011Frazer, PA 19355610.883.5894

Interested parties may obtain newsand information about the Companyand its financial performance on theInternet at www.cephalon.com.

SEC Form 10-KThe Company’s Form 10-K asfiled with the U.S. Securities andExchange Commission is availablewithout charge by contactingCephalon’s Investor Relationsdepartment at 610.883.5894.

Common Stock ListingThe common stock of Cephalon istraded on the NASDAQ Stock Marketunder the symbol CEPH.

Transfer Agent and RegistrarAmerican Stock Transfer& Trust Company59 Maiden LaneNew York, NY 10038800.937.5449www.amstock.com

Annual MeetingCephalon stockholders are invited toattend our annual meeting, whichis scheduled to be held at 8:30 amon May 20, 2010, at CephalonCorporate Headquarters, 41 MooresRoad, Frazer, PA 19355.

Independent AuditorsPricewaterhouseCoopers LLPTwo Commerce SquareSuite 17002001 Market StreetPhiladelphia, PA 19103-7042

DividendsThe Company has not paid any cashdividends on the common stock sinceits inception and does not anticipate payingany dividends in the foreseeable future.

TrademarksCephalon, and the “C” block logo,as well as AMRIX, EFFENTORA, FENTORA,NUVIGIL, PROVIGIL and TREANDA aretrademarks or registered trademarksowned by or licensed to Cephalon, Inc.or its subsidiaries. CINQUIL™ is atrademark of Ception Therapeutics.LUPUZOR™ is a trademark ofImmuPharma, PLC. All other brandsand names used herein are trademarksof their respective owners.

COR POR AT E H E A DQU A R T E R S

41 Moores RoadPO Box 4011Frazer, Pennsylvania 19355610 344 0200

cephalon.com

insightingprogress