CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended									Three Months Ended
	September 30, 2006									September 30, 2005
	GAAP			Adjustments			“Adjusted”			GAAP			Adjustments			“Adjusted”
REVENUES:
Sales	$	470,513		$	(13,273	)(1)	$	457,240		$	294,371					$	294,371
Other revenues	11,820						11,820			15,165						15,165
	482,333			(13,273		)	469,060			309,536			$	—		309,536
COSTS AND EXPENSES:
Cost of sales	62,356						62,356			37,629						37,629
Research and development	81,012			(3,368		)(2)	77,644			91,934						91,934
Selling, general and administrative	157,490			(5,368		)(3)	152,122			103,253						103,253
Depreciation and amortization	29,849			(20,804		)(4)	9,045			22,346			(15,451		)(4)	6,895
Acquired in-process research and development	—			—			—			5,500			(5,500		)(6)	—
	330,707			(29,540		)	301,167			260,662			(20,951		)	239,711

INCOME FROM OPERATIONS	151,626			16,267			167,893			48,874			20,951			69,825

OTHER INCOME (EXPENSE):
Interest income	7,046						7,046			7,247						7,247
Interest expense	(4,749		)				(4,749		)	(7,494		)				(7,494		)
Gain on early extinguishment of debt	—						—			2,085			(2,085		)(7)	—
Other income (expense), net	895						895			(38		)				(38		)
	3,192			—			3,192			1,800			(2,085		)	(285		)

INCOME BEFORE INCOME TAXES	154,818			16,267			171,085			50,674			18,866			69,540

INCOME TAX EXPENSE	59,077			4,102		(5)	63,179			21,331			2,105		(5)	23,436

NET INCOME	$	95,741		$	12,165		$	107,906		$	29,343		$	16,761		$	46,104

BASIC INCOME PER COMMON SHARE	$	1.58					$	1.78		$	0.51					$	0.79

DILUTED INCOME PER COMMON SHARE	$	1.43					$	1.61		$	0.50					$	0.78

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	60,762						60,762			58,064						58,064

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION	67,072						67,072			59,398						59,408

CEPHALON, INC. AND SUBSIDIARIES

Notes to Reconciliation of GAAP Net Income to “Adjusted” Net Income
Three Months Ended September 30, 2006 and September 30, 2005

(1) To exclude the U.S. Department of Defense (“DoD”) Tricare program reversal as a result of the September 2006 ruling.

(2) To exclude charges related to the net impact of the adoption of the new stock compensation accounting rules (representing half of the total stock option compensation expense recorded based on the employees’ compensation allocation).

(3) To exclude charges associated with the settlement of the PROVIGIL patent litigation with Carlsbad Technology, Inc. in August 2006 ($2.0 million) and the net impact of the adoption of the new stock compensation accounting rules ($3.4 million, representing half of the total stock option compensation expense recorded based on the employees’ compensation allocation).

(4) To exclude the on-going amortization of acquired intangible assets.

(5) To reflect the tax effect of pre-tax adjustments at the applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances and other changes in liabilities.

(6) To exclude in-process research and development charges.

(7) To exclude the gain on early extinguishment of debt related to the repurchase of $511.7 million of our 2.5% convertible subordinated notes due December 2006.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Nine Months Ended									Nine Months Ended
	September 30, 2006									September 30, 2005
	GAAP			Adjustments			“Adjusted”			GAAP			Adjustments			“Adjusted”
REVENUES:
Sales	$	1,246,825		$	(13,273	)(1)	$	1,233,552		$	833,588					$	833,588
Other revenues	32,562						32,562			41,900						41,900
	1,279,387			(13,273		)	1,266,114			875,488			$	—		875,488
COSTS AND EXPENSES:
Cost of sales	189,848			(8,610		)(2)	181,238			114,093						114,093
Research and development	279,765			(56,554		)(3)	223,211			255,591						255,591
Selling, general and administrative	460,068			(21,541		)(4)	438,527			302,904						302,904
Depreciation and amortization	85,989			(60,765		)(5)	25,224			61,151			(42,178		)(5)	18,973
Impairment charge	12,417			(12,417		)(6)	—			—						—
Acquired in-process research and development	—			—			—			295,615			(295,615		)(9)	—
	1,028,087			(159,887		)	868,200			1,029,354			(337,793		)	691,561

INCOME (LOSS) FROM OPERATIONS	251,300			146,614			397,914			(153,866		)	337,793			183,927

OTHER INCOME (EXPENSE):
Interest income	16,736						16,736			19,559						19,559
Interest expense	(13,523		)				(13,523		)	(19,311		)				(19,311		)
Write-off of deferred debt issuance costs	(13,105		)	13,105		(7)	—			—						—
Gain on early extinguishment of debt	—						—			2,085			(2,085		)(10)	—
Other income (expense), net	(116		)				(116		)	1,983						1,983
	(10,008		)	13,105			3,097			4,316			(2,085		)	2,231

INCOME (LOSS) BEFORE INCOME TAXES	241,292			159,719			401,011			(149,550		)	335,708			186,158

INCOME TAX EXPENSE	91,567			52,847		(8)	144,414			43,477			18,278		(8)	61,755

NET INCOME (LOSS)	$	149,725		$	106,872		$	256,597		$	(193,027	)	$	317,430		$	124,403

BASIC INCOME (LOSS) PER COMMON SHARE	$	2.48					$	4.25		$	(3.33	)				$	2.14

DILUTED INCOME (LOSS) PER COMMON SHARE	$	2.17					$	3.72		$	(3.33	)				$	2.04

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	60,415						60,415			58,035						58,035

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION	68,921						68,921			58,035						63,149

CEPHALON, INC. AND SUBSIDIARIES

Notes to Reconciliation of GAAP Net Income (Loss) to “Adjusted” Net Income

Nine Months Ended September 30, 2006 and September 30, 2005

(1) To exclude the DoD Tricare program reversal as a result of the September 2006 ruling.

(2) To exclude the reserve for SPARLON capitalized inventory costs.

(3) To exclude charges related to payments for several product development collaborations ($45.0 million) and the net impact of the adoption of the new stock compensation accounting rules ($11.6 million, representing half of the total stock option compensation expense recorded based on the employees’ compensation allocation).

(4) To exclude charges associated with the settlement of the PROVIGIL patent litigation ($6.0 million), employee severance costs associated with the European integration and restructuring ($4.0 million) and the net impact of the adoption of the new stock compensation accounting rules ($11.6 million, representing half of the total stock option compensation expense recorded based on the employees’ compensation allocation).

(5) To exclude the on-going amortization of acquired intangible assets.

(6) To exclude charges related to the impairment of an intangible asset.

(7) To exclude the write-off of deferred debt issuance costs related to the Zero Coupon convertible subordinated notes.

(8) To reflect the tax effect of pre-tax adjustments at the applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances and other changes in liabilities.

(9) To exclude in-process research and development charges related to the acquisition of Salmedix ($130.1 million), VIVITROL ($160.0 million) and other ($5.5 million).

(10) To exclude the gain on early extinguishment of debt related to the repurchase of $511.7 million of our 2.5% convertible subordinated notes due December 2006.

CEPHALON, INC. AND SUBSIDIARIES

“ADJUSTED” CONSOLIDATED SALES DETAIL

(In thousands)

(Unaudited)

	Three Months Ended												%
	September 30,												Increase
	2006						2005						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Sales:
PROVIGIL	$	186,568	$	11,081	$	197,649	$	126,387	$	8,103	$	134,490	48	%	37	%	47	%
GABITRIL	13,729		723		14,452		15,178		1,333		16,511		(10	)%	(46	)%	(12	)%
CNS Disorders	200,297		11,804		212,101		141,565		9,436		151,001		41	%	25	%	40	%

Pain	174,147		7,585		181,732		95,485		4,759		100,244		82	%	59	%	81	%

Other	13,292		50,115		63,407		15,575		27,551		43,126		(15	)%	82	%	47	%

	$	387,736	$	69,504	$	457,240	$	252,625	$	41,746	$	294,371	53	%	66	%	55	%

	Nine Months Ended												%
	September 30,												Increase
	2006						2005						(Decrease)
	United States		Europe		Total		United States		Europe		Total		United States		Europe		Total
Sales:
PROVIGIL	$	494,047	$	29,219	$	523,266	$	338,529	$	26,009	$	364,538	46	%	12	%	44	%
GABITRIL	41,291		3,510		44,801		54,023		4,562		58,585		(24	)%	(23	)%	(24	)%
CNS Disorders	535,338		32,729		568,067		392,552		30,571		423,123		36	%	7	%	34	%

Pain	452,175		19,213		471,388		282,105		11,904		294,009		60	%	61	%	60	%

Other	41,661		152,436		194,097		36,319		80,137		116,456		15	%	90	%	67	%

	$	1,029,174	$	204,378	$	1,233,552	$	710,976	$	122,612	$	833,588	45	%	67	%	48	%

NOTE: Amounts exclude the impact of the DoD Tricare program reversal of $13.3 million which reduced GAAP U.S. sales of PROVIGIL, GABITRIL and ACTIQ (Pain) by $6.9 million, $0.9 million and $5.5 million, respectively, for both the three and nine months ended September 30, 2006.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	September 30,			December 31,
	2006			2005
CURRENT ASSETS:
Cash and cash equivalents	$	630,363		$	205,060
Investments	37,619			279,030
Receivables, net	234,675			199,086
Inventory, net	164,664			137,886
Deferred tax assets, net	170,131			187,436
Other current assets	43,937			40,339
Total current assets	1,281,389			1,048,837

PROPERTY AND EQUIPMENT, net	391,846			323,830
GOODWILL	472,152			471,051
INTANGIBLE ASSETS, net	799,756			742,874
DEFERRED TAX ASSETS, net	164,919			200,629
OTHER ASSETS	17,498			31,985
	$	3,127,560		$	2,819,206

CURRENT LIABILITIES:
Current portion of long-term debt	$	933,494		$	933,160
Accounts payable	63,492			53,699
Accrued expenses	245,011			291,744
Total current liabilities	1,241,997			1,278,603

LONG-TERM DEBT	762,404			763,097
DEFERRED TAX LIABILITIES, net	87,228			110,703
OTHER LIABILITIES	58,764			54,632
Total liabilities	2,150,393			2,207,035

STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value	608			584
Additional paid-in capital	1,333,340			1,166,166
Treasury stock, at cost	(17,558		)	(17,125		)
Accumulated deficit	(420,347		)	(570,072		)
Accumulated other comprehensive income	81,124			32,618
Total stockholders’ equity	977,167			612,171
	$	3,127,560		$	2,819,206

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	149,725		$	(193,027	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income tax expense	64,112			27,931
Tax benefit from stock-based compensation	—			3,956
Depreciation and amortization	94,828			70,966
Amortization of debt issuance costs	387			6,521
Write-off of debt issuance costs associated with Zero Coupon convertible subordinated notes	13,105			—
Stock-based compensation expense	32,436			7,631
Non-cash gain on early extinguishment of debt	—			(4,549		)
Loss on disposals of property and equipment	2,368			949
Impairment charge	12,417			—
Acquired in-process research and development	—			130,615
Changes in operating assets and liabilities, net of effect from acquisitions:
Receivables	(30,818		)	43,347
Inventory	(22,837		)	(37,084		)
Other assets	(5,133		)	910
Accounts payable, accrued expenses and deferred revenues	(45,820		)	21,671
Other liabilities	(13,580		)	(11,428		)
Net cash provided by operating activities	251,190			68,409

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(97,122		)	(63,951		)
Acquisition of Salmedix, net of cash acquired	—			(130,733		)
Acquisition of TRISENOX	—			(69,722		)
Acquisition of intangible assets	(115,000		)	(2,652		)
Sales and (purchases) of investments, net	242,660			(14,113		)
Net cash provided by (used for) investing activities	30,538			(281,171		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of common stock options	112,794			2,247
Windfall tax benefits from stock-based compensation	21,912			—
Acquisition of treasury stock	(433		)	(32		)
Payments on and retirements of long-term debt	(2,528		)	(501,958		)
Net proceeds from issuance of convertible subordinated notes	—			891,949
Proceeds from sale of warrants	—			217,071
Purchase of convertible note hedge	—			(382,261		)
Net cash provided by financing activities	131,745			227,016

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	11,830			(3,222		)

NET INCREASE IN CASH AND CASH EQUIVALENTS	425,303			11,032

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	205,060			574,244

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	630,363		$	585,276

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of Projected GAAP Basic Income per Common Share

to Basic Adjusted Income Per Common Share Guidance

(Unaudited)

	Twelve Months							Twelve Months
	Ended							Ended
	December 31,							December 31,
	2006							2007

Projected GAAP basic income per common share excluding the impact of SFAS 123(R) (Current methodology)	$	3.19		—	$	3.29		$	3.34		—	$	3.44

DoD Tricare program reversal	$	(0.22	)	—	$	(0.22	)	$	—		—	$	—
Reserve for SPARLON capitalized inventory costs	$	0.14		—	$	0.14		$	—		—	$	—
Product development collaborations	$	0.74		—	$	0.74		$	—		—	$	—
PROVIGIL patent litigation settlement costs	$	0.10		—	$	0.10		$	—		—	$	—
European integration and restructuring charges	$	0.07		—	$	0.07		$	—		—	$	—
Impact of SFAS 123(R)	$	0.51		—	$	0.51		$	0.48		—	$	0.48
Amortization of current intangibles	$	1.34		—	$	1.34		$	1.33		—	$	1.33
Impairment charge	$	0.20		—	$	0.20		$	—		—	$	—
Write-off of deferred debt issuance costs	$	0.21		—	$	0.21		$	—		—	$	—
Tax effect of pre-tax adjustments at the applicable tax rates and certain other tax related adjustments	$	(1.18	)	—	$	(1.18	)	$	(0.65	)	—	$	(0.65	)

Basic adjusted income per common share guidance excluding the impact of SFAS 123(R) (Current methodology)	$	5.10		—	$	5.20		$	4.50		—	$	4.60

Reversal of impact of SFAS 123(R)	$	(0.51	)	—	$	(0.51	)	$	(0.48	)	—	$	(0.48	)
Reversal of tax effect of impact of SFAS 123(R)	0.19			—	0.19			0.18			—	0.18

Basic adjusted income per common share guidance including the impact of SFAS 123(R) (2007 methodology)	$	4.78		—	$	4.88		$	4.20		—	$	4.30

The Company’s guidance is being issued based on certain assumptions including:

· Adjusted effective tax rate of 36 percent for each of 2006 and 2007; and

· Weighted average number of common shares outstanding of 61.0 million and 62.0 million shares for the twelve months ended December 31, 2006 and 2007, respectively.

For Immediate Release

Cephalon Third-Quarter Earnings More Than Double