A reasonable set of third-quarter results for Cephalon has been overshadowed by the news that the firm will pay $425 million to settle a three-year investigation into its marketing practices by US authorities.

The company has reached an agreement in principle with the US Attorney's Office in Philadelphia and the Department of Justice with respect to an investigation begun in September 2004 into its sales and marketing practices, especially concerning alleged off-label promotion its sleep drug Provigil (modafinil) and the opioid painkiller Actiq (fentanyl). The $425 million figure will cover federal and related state Medicaid claims and as part of the settlement Cephalon has also agreed to a single misdemeanour violation of the US Food, Drug, and Cosmetic Act.

Furthermore, Cephalon will enter into a “corporate integrity agreement” with the US Department of Health and Human Services. The firm’s chief executive Frank Baldino said that “we have always taken seriously our responsibility to conduct our business in accordance with both the letter and spirit of the law”. Also, “over the past few years, we have devoted substantial resources to continually enhancing our compliance programme and have built a strong foundation for our ongoing compliance efforts", he added. Cephalon added that a separate investigation by the Connecticut Attorney General is ongoing.

As a result of the proposed agreement, Cephalon increased its settlement reserves and posted a loss for the third quarter of 306.8 million, or $4.58 per share, compared with a profit of $95.7 million, or $1.43 per share in the like, year-earlier period. Excluding that factor, however, the firm said it would have earned $1.08 per share.

Sales declined 9% to $438.4 million, pretty much in line with analysts’ expectations. Provigil advanced 10% to $217.1 million, but Actiq collapsed 69% to $55.9 million as a result of generic competition. Neverthless, its follow-up drug to Actiq, called Fentora, contributed $33.2 million to the coffers.

Dr Baldino said the firm was pleased with “the strong financial performance we delivered”, and noted that the firm is currently launching Amrix (cyclobenzaprine), a once-daily extended-release muscle relaxant. He also expressed high hopes for Treanda (bendamustine), a new compound for the treatment of indolent non-Hodgkin's lymphoma for which impressive Phase III data has just been presented.

Cephalon raised its full-year earnings forecast up $0.05 to $4.45-$4.55 per share, while its sales estimate remained unchanged at $1.68-$1.73 billion.