Robert W. Baird reiterated its 'neutral' rating on shares of Cephalon Inc. (CEPH) with a price target of $64, after FDA shot Nuvigil down again in jet lag (this time for good).

The company said it received a second complete response letter from the FDA for the supplemental new drug application for Nuvigil (armodafinil) tablets for the treatment of patients with excessive sleepiness associated with jet lag disorder resulting from eastbound travel.

The company stated this was due to the same concerns FDA had when it first denied approval back in March, implying the two key issues were that efficacy was less significant on day-2 than on day-1, and that imputation analyses omitting certain patients led to missing statistical significance (p>0.05).

In its letter to the company, the FDA reiterated its previously stated concerns regarding the Nuvigil supplemental new drug application.

Following several conversations with the agency, and given this second complete response letter, the company believes that further communications with the FDA will not result in an approval of this application. As a result, the company is no longer pursuing this indication, said Lesley Russell, Chief Medical Officer at Cephalon.

Nuvigil is indicated to improve wakefulness in patients with excessive sleepiness associated with treated obstructive sleep apnea, shift work disorder or narcolepsy. The most common adverse events in controlled clinical trials were headache, nausea, dizziness, and insomnia.

We don't view this as a big surprise or major revenue opportunity off-the-table. It does, however, confirm Nuvigil will have no differentiated label claims in April 2012 when predecessor product Provigil goes generic. Recalling the tale, it is an 'emperor' with no 'new clothes'. We expect the payer overhang to only increase over the next 1.5 years, said Thomas Russo, an analyst at Robert W. Baird.

The company will not pursue this area any further. Russo views this as no major surprise, given CEPH had previously ball-parked the total revenue potential in jet lag as only about $100 million, and that any effort to keep going here would surely push out beyond the time when predecessor product Provigil goes generic.

Nuvigil has previously failed or been discontinued in schizophrenia and traumatic brain injury, leaving only bipolar depression, where the timeline (data about end-11, approval about 2013) lags that for Provigil going generic (April 2012), and where CEPH recently added a third trial as a hedge on getting two to succeed.

Recall the original, well-publicized strategy for defending the Nuvigil cash flow stream beyond April 2012 was to differentiate this successor product as much as possible before/shortly after predecessor product Provigil goes generic. This hasn't gone well, and Russo continues to expect payer headwinds to be significant around/after that time.

The brokerage maintained its 2010 EPS estimate for Cephalon of $8.03, and its 2011 estimate of $8.10.

Cephalon shares closed Monday's regular trading session down 0.80 percent at $63.49 on the NASDAQ stock market, while in after-hours the stock fell 0.05 percent to $63.46.