Net Product Sales in millions

We are particularly proud of Mepha’s accomplishments in the pursuit of improved treatments for patients suffering from malaria. As a result of the considerable investment in research and development, and the favorable outcome of several clinical trials conducted in Africa, the new malaria Treatment Guidelines published by the World Health Organization (WHO) in March 2010 recommends the use of artesunate plus mefloquine found in Mepha’s drugs ARTEQUIN™ and ARTEQUIN™ PAEDIATRIC in Africa.

The third acquisition completed in 2010 was of BioAssets Development Corp. (BDC), enabling Cephalon to secure intellectual property covering the use of TNF inhibitors for sciatic pain in patients with intervertebral disc herniation, as well as other spinal disorders. BDC’s intellectual property and scientific expertise will help us advance our proprietary domain antibody anti-TNF, CEP-37247, administered epidurally for the treatment of patients with sciatica.

In December 2010, Cephalon and Australia-based Mesoblast Ltd. entered into a strategic alliance to develop and commercialize novel adult Mesenchymal Precursor Cells (MPC) for degenerative conditions of the cardiovascular and central nervous systems. These conditions include congestive heart failure, acute myocardial infarction, Parkinson’s disease, and Alzheimer’s disease. The alliance also extends to products for augmenting hematopoietic stem cell transplantation in cancer patients.

Not only are we acquiring, but we are executing in research and development, regulatory, sales and marketing, and across all of the various support functions. To that end, we have assembled a talented management team that enjoys the privilege of directing the efforts of a unique group of employees. Employees come to Cephalon because they know that here they will not only be allowed to make a difference, they will be expected to make a difference.

Executing in the Marketplace:

Under the leadership of Bob Repella, Senior Vice President, Pharmaceutical Operations, Americas Region, sales in the United States grew 19 percent in 2010 to $2.1 billion. In 2010, Bob and his sales and marketing teams were primarily focused on building on the success of NUVIGIL® (armodafanil) [C-IV] Tablets, and TREANDA® (bendamustine HCI) for Injection.

NUVIGIL achieved 38 percent market share of the wakefulness category by the end of 2010. We are well on our way to making NUVIGIL the preferred wakefulness product in the marketplace. NUVIGIL is indicated to improve wakefulness in patients with excessive sleepiness associated with treated obstructive sleep apnea/hypopnea syndrome, narcolepsy, and shift work sleep disorder.

TREANDA has been a huge success since its launch in April 2008. TREANDA is indicated for the treatment of patients with indolent B-cell non-Hodgkin’s lymphoma (iNHL) that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen. TREANDA is also indicated for the treatment of patients with chronic lymphocytic leukemia (CLL).

TREANDA sales exceeded $393 million in 2010. To date, we estimate that approximately 31,000 patients in the United States have received treatment with TREANDA. With an estimated five-year prevalence of CLL and iNHL in the United States of approximately 54,000 and 110,000, respectively, we believe that TREANDA has the potential to reach thousands of additional patients.

Expanding Our Reach:

Outside of the United States, Alain Aragues, Executive Vice President and President of Cephalon Europe, leads a pharmaceutical operation that spans three continents. With the addition of Mepha, Alain and his team have been tasked with integrating and expanding our European, Middle Eastern, and African capabilities; identifying and expanding cross-selling opportunities; securing approvals; and launching new branded, generic, and branded generic products in an ever-increasing number of countries.

We aim to provide healthcare professionals and patients with a diversified product offering in both mature and emerging markets throughout Europe, the Middle East, and Africa.

Advancing the Clinical Pipeline:

Our clinical and regulatory operations are led by Dr. Lesley Russell, Executive Vice President and Chief Medical Officer. Clinical activity in 2010 will be remembered not so much by which trials concluded, but by the late-stage pipeline that we have advanced.

The pipeline of new compounds that we have assembled is unsurpassed in our history. Entering 2011, we have 13 compounds being evaluated in approximately 65 clinical studies taking place in more than 45 countries spanning therapeutic areas that include cardiology, the central nervous system, inflammatory diseases, oncology, and pain. We have five Phase III programs planned for 2011: NUVIGIL for bipolar indication, CINQUIL, tamperdeterrent hydrocodone, LUPUZOR, and TREANDA for front-line iNHL.

Developing Preclinical Opportunities:

Dr. Jeffry Vaught, Executive Vice President and Chief Scientific Officer, leads our preclinical efforts. These efforts include not only advancing our own early-stage compounds into clinical trials, but also play a critical role in analyzing opportunities that are being considered by our business development group.

In 2010 we secured several Investigational New Drug (INDs) Applications and advanced CEP-37248, our anti-IL 12/23 compound for the treatment of inflammation, from research into preclinical development. Our new INDs included CEP-9722 (PARP inhibitor), CEP-18770 (proteasome inhibitor), and CEP-37247 (domain antibody anti-TNF), allowing us to begin clinical trials with these compounds in the United States.

Look Forward:

The year 2010 was a pivotal year for our company on several fronts. It was a year when we doubled our presence in Europe, the Middle East, and Africa with the acquisition of Mepha; a year when TREANDA came to the forefront in the treatment of indolent non-Hodgkin’s lymphoma; and a year when we set the stage for five new product opportunities.

The decade has by no means been easy. We have suffered numerous setbacks: Clinical trials that failed to differentiate from placebo; regulatory filings that were not approved; and compounds we sought to acquire but could not.

Despite these setbacks, we thrived in the past decade.

As we begin a new decade, we go forward with confidence: Confident that we have accumulated the products, pipeline, financial resources, talented employees, and experienced management necessary to make the next decade even more successful than the last.

Kevin Buchi
Chief Executive Officer

March 14, 2011

Board of Directors

Corporate Information

Stock Price Performance Graph The graph set forth at right compares cumulative total return on Cephalon’s common stock with the cumulative total stockholder return of (i) the Standard & Poor’s 500 Index and (ii) the NASDAQ Pharmaceutical Stock Index, assuming an investment of $100 on December 31, 2005 in each of the common stocks of theCompany; the stocks comprising the S&P 500 Index; and the stocks comprising the NASDAQ Pharmaceutical Stock index. All values assume the reinvestment of the pre-tax value of dividends paid by companies included in these indices over the five-year period extending through the end of 2010.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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