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Executives

James Manuso - President and Chief Executive Officer

Michael Molkentin - Chief Financial Officer

Greg Berk - Chief Medical Officer

Dr. David Bearss - Chief Science Officer

Timothy Enns - SVP, Corporate Communications and Business Development

Dr. Mohammad Azab - Chief Medical Officer

Gavin Choy, PharmD - Vice President, Clinical Operations

Analysts

Boris Peaker - Rodman & Renshaw, Inc.

Joe Pantginis - Merriman Curhan Ford & Co.

SuperGen, Inc. (SUPG) Q2 2009 Earnings Call Transcript July 27, 2009 4:30 PM ET

Operator

Good day ladies and gentlemen and welcome to the second quarter 2009 SuperGen earnings conference call. My name is Shamika and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. Timothy L. Enns, Senior Vice President of Corporate Communications and Business Development. Please proceed, sir.

Timothy Enns

Thank you, Operator. Good afternoon and thank you for joining us today to discuss SuperGen's 2009 second quarter financial results. With me today are Dr. James Manuso, President and Chief Executive Officer; Michael Molkentin, Chief Financial Officer; Dr. David Bearss, Chief Scientific Officer; Dr. Mohammad Azab, Chief Medical Officer; and Gavin Choy, PharmD, Vice President, Clinical Operations.

In a few moments, Jim Manuso and Michael Molkentin will deliver remarks on the 2009 second quarter financial results and provide a summary of our business outlook. After our prepared comments, we will open the line for questions.

Earlier today, we issued a press release of our financial results. A copy of the press release is available on the Investor Relations section of our website at www.SuperGen.com. In addition, this call is being webcast and may be accessed via the Investor Relations section of our website. A webcast replay will be available for 90 days.

During the call, we will make projections and forward-looking statements that are based on management's expectations. Actual results may differ materially from these forecasts due to various factors. There are significant risks and uncertainties in biotechnology research and development. There can be no guarantee that our products or product candidates will progress pre-clinically or clinically as we expect or that we will ultimately obtain approvals for the indications that we seek. Moreover, if the products or product candidates are approved in the future, we cannot guarantee they will be commercially successful.

The Company's results may also be affected by such factors as competitive developments, launches of new products, the timing of anticipated regulatory approvals, other regulatory actions or patent disputes and litigation. For additional information and discussion concerning the risk factors that affect the Company's business, please refer to the Company's filings with the Securities and Exchange Commission, including reports on our most recently filed Form 10-K and 10-Q. The Company undertakes no duty to update forward-looking statements.

In the coming weeks, we will be presenting at two investor conferences, the Capstone Small-Cap Conference on July 29 and the BMO Healthcare Conference on August 5. Both live and archived webcasts of these presentations will be posted at Investors Relations section of our corporate website, www.supergen.com.

I will now turn the call over to Dr. James Manuso, who will provide highlights of our accomplishments during the 2009 second quarter, Jim?

James Manuso

Thank you very much Tim. Good afternoon, and thank you for joining us today for SuperGen's 2009 second quarter financial results conference call.

First of, I would like to formally introduce and welcome the newest member of the SuperGen management team, our Chief Medical Officer, Dr. Mohammad Azab. Dr. Azab has over 20 years of experience in worldwide anticancer drug development, clinical and regulatory development and medical affairs at companies including Intradigm, QLT, AstraZeneca and Sanofi-Aventis.

We look forward to benefiting from his clinical leadership to advance further our product portfolio from discovery through clinical proof-of-concept. He is a great addition to our dynamic team. Mohammad, would you like to say a few words?

Mohammad Azab

Yes, Jim, thanks a lot for the great introduction. I am extremely excited to join the SuperGen team. I believe SuperGen’s CLIMB technology is one of the most innovative drug discovery engines for Targa Therapeutics anticancer-space today.

As this proprietary discovery engine generates additional both in selective and first-in-class clinical candidates for a very exciting target, I am very eager to apply my extensive oncology and translational expertise to the clinical and regulatory development of SuperGen’s impressive emerging pipeline.

I am committed to bring it forward to clinical proof-of-concept to these candidates in the most efficient and expeditious way to create value for our shareholders and to benefit the right cancer patients with the right drugs. I look forward to working with the impressive team that Jim has assembled at SuperGen.

Finally, I welcome transparent and efficient communications with SuperGen shareholders and stakeholders. I will now turn the call back to you Jim.

James Manuso

Thank you, Mohammad. We look forward to working with you in the years ahead.

Now, I would like to discuss our second quarter financial and operational results. In closing the second quarter, SuperGen maintained a strong unrestricted cash position of approximately $91 million as of June 30th and we remained debt free.

We will continue to manage carefully our operational costs during the second half of this year and I am pleased to say that we expect a non-GAAP net cash burn for 2009 of less than $2 million. Consistent with our circumstances since 2005, we have no need to raise money in the markets this year.

In the second quarter, we recognized Dacogen royalty revenues of $6 million. The decrease in revenue from the same prior year quarter was due primarily to the reduction of purchases of Dacogen by certain wholesalers that reduced their inventory levels. Despite this reduction, IMS data tracking end-user sales in North America continues to indicate that the relative demand for Dacogen has not changed significantly over the last six months.

Regardless of the reduced revenue during the second quarter, our annual revenue and net cash burn for guidance for 2009 remains essentially unchanged. Most important, both Eisai and J&J continued to forecast significant growth for Dacogen sales in 2009 over 2008.

The demand for Dacogen in North America appears to be fairly consistent over time. IMS report the Dacogen’s percentage of MDS market share during the last six months is in the 40s.

Moving forward, Eisai and J&J continued to be highly committed to expanding their respective markets for Dacogen. On July 1st, Eisai launched a new sales and marketing campaign for Dacogen in North America and more than doubled the size of their oncology sales force. All oncology reps will offer Dacogen to their customers.

Earlier this month, United States Food and Drug Administration (FDA) accepted for review Eisai Supplemental New Drug Application (NASDAQ:SNDA) for a five-day dosing regimen of Dacogen for MDS. Under FDAs 10 months review timeline we anticipate results of the agency’s review in March of 2010.

In addition, Eisai recently announced plans to initiate a clinical trial of Dacogen in pediatric patients with acute myelogenous leukemia (AML) in the United States. Upon initiation of this trial, FDA will grant Dacogen additional market exclusivity for six months thereby extending its orphan drug status until November 2013.

The ongoing Dacogen trial in elderly patients with AML is proceeding satisfactorily. This is expected to conclude at the end of this year and an NDA submission is expected by the middle of next year. If the AML trial and registration of the drug are successful, worldwide Dacogen sales can be expected to increase further.

For its part, Johnson & Johnson has achieved approvals for Dacogen in 22 countries. The drug is being sold in 14 countries with additional launches to follow in the short term. In fact, just yesterday, it was announced that Dacogen was launched in China by Xian-Janssen, a division of Johnson & Johnson.

Indeed, the SFDA, the Chinese equivalent of the FDA, granted an expedited review process to Dacogen, allowing Xian-Janssen to begin marketing the drug in China based on trials completed outside of China.

In 2010, J&J plans to submit to the European Medical Evaluation Agency, a Marketing Authorization Application (NYSE:MAA) for Dacogen in the AML patient population. The SuperGen team is extremely pleased with the firm commitments Eisai and J&J continued to make to maximize the strategic and financial value of Dacogen. It is our expectation that the variable annuity that the worldwide Dacogen franchise provides to SuperGen will be long lived.

On the clinical front, we are advancing our lead drug candidate, MP470, a DNA repair suppressor in a Phase 1b combination trial. At next week’s 13th World Conference on Lung Cancer, we will present encouraging Phase 1 data on clinical responses associated with the use of MP470 in combination with Standard of Care DUBLIN Chemotherapy in patients with small cell lung cancer and neuroendocrine tumors.

Recall that during the first quarter, the first patient was dosed with SGI-1776, a first-in-class oral PIM kinase inhibitor. SGI-1776 has been tested in patients with refractory prostate cancer and relapse or refractory non-Hodgkin’s lymphoma. To date, eight patients have received at least one dose of SGI-1776. No dose limiting toxicities have been reported and dose escalation continues as planned.

In summary, SuperGen continues to advance two novel product candidates in the clinic to achieve clinical proof-of-concept with the aim of maximizing their partnering value. Preclinical stage drug candidates, including SGI-110, a prodrug of decitabine, are undergoing IND-enabling research as a prelude to regulatory filings. Our partners, Eisai and J&J are clearly committed to penetrating new markets for Dacogen geographically and in new indications.

At this time, I will turn the call over to Michael Molkentin, our Chief Financial Officer. Michael will provide details on our 2009 second quarter financial results. Michael?

Michael Molkentin

Thank you, Jim. Total revenues for the 2009 second quarter consisting entirely of royalty revenue were $6 million compared with $8.1 million for the same prior year period. The primary reason for the decline in royalty revenue is lower quarterly product sales reported by Eisai resulting from the influence of certain third party wholesalers adjusting their near term inventory purchases. Royalty revenue is earned pursuant to a worldwide license agreement for Dacogen and is generally recognized when received.

Excluding the gain on sale of products, total operating expenses for the 2009 second quarter were $8.7 million compared with $11 million for the same prior year period. Elements contributing to the decrease in operating expenses for 2009 second quarter were lower research and development costs, influence by changes and the timing of costs incurred for clinical trials and other product development activities, a reduction in general and administrative expenses due to lower general corporate expenses and the elimination of costs resulting from the cessation of our European operations during 2008. Stock based compensation expense was $505,000 for the current year second quarter compared with $670,000 for the same prior year period.

No gain on sale on products was reported during the 2009 second quarter. The gain on sale of products reported for 2008 second quarter was $560,000 and related to the receipt of an additional milestone payment resulting from the sale of a worldwide commercial franchise for Nipent in the prior year.

For the 2009 second quarter, the Company reported a net loss of $2.4 million or $0.04 per share compared with a net loss of $4.9 million or $0.08 per share for the same prior year period. The net loss reported for the 2008 second quarter includes a non-cash operating charge of $3.1 million reflecting other than temporary decline in the value of an equity investment. There was no similar non-cash operating charge in 2009 second quarter.

As of June 30th, 2009, our financial position remains strong. The Company had approximately $91.1 million in unrestricted cash, cash equivalents and current and noncurrent marketable securities compared with $91.8 million at March 31st, 2009.We have revised our financial guidance for 2009 as follows.

Royalty revenue remains unchanged from our prior guidance and is anticipated to be in the range from $38 million to $42 million. Research and development expenses have been further revised downward from a prior guidance to a range from $35 million to $37 million. The anticipated growth in research and development expenses from the prior year continues to be influenced by costs related to current and anticipated clinical trial programs, including MP470 and SGI-1776 and ongoing product development efforts.

General and administrative expenses have been further reduced from our prior guidance to a range from $9 million to $9.5 million. No additional gain on sale of products is expected during 2009 other than the $500,000 already received during the 2009 first quarter. As previously indicated, the receipt of the residual milestone payment in the prior quarter relates to the sale of a worldwide commercial franchise for Nipent in the prior year.

The revised financial guidance results in a further reduction in our anticipated annual net loss from our previous guidance and is now expected to be in the range from $3 million to $4.5 million. Included in total operating expenses are non-cash stock based compensation expenses now estimated at $2.750 million. Excluding the non-cash stock based expenses from the revised net loss, the estimated basic non-GAAP annual cash burn will now be in a range from $250,000 to $1.750 million consistent with our goal of being at or near cash flow neutral.

And lastly, our average annual shares outstanding remains unchanged from previous guidance and are expected to be approximately $59.2 million common shares.

This concludes the review of our financial results for the 2009 second quarter and comments on a revised annual financial guidance for 2009.

I will now turn the call back to Dr. Manuso for closing comments.

James Manuso

Thank you, Michael. In these challenging economic times, during which many of our peers are struggling, SuperGen continues to progress financially and otherwise.

We are furthering the clinical development of our two drugs in the clinic and we are actively discovering, developing and preparing for initial registration, novel first-in-class compounds.

Going forward, our milestones include the following.

In November, we will present additional MP470 data at the AACR NCI EORTC Meeting. During the fourth quarter, we expect to announce a lead Etk inhibitor candidate. Also in the fourth quarter, we will announce the selection of one additional first-in-class lead drug candidate that targets a novel kinase. During the first quarter of 2010, we plan to initiate a Phase 1 trial of SGI-1776 in relapsed or refractory leukemia. Within the first half of 2010, we will submit to the FDA an IND for SGI-110, our novel prodrug of decitabine.

In the second half of 2010, we plan to begin a Phase 2 trial of MP470; and next year, we expect to submit to FDA an IND for a first-in-class Etk kinase inhibitor. Thus by year end 2010, SuperGen plans to have up to four novel wholly-owned drugs in the clinic, one or more of which could be the subject of a strategic partnership. As always, it is our ultimate goal to develop drugs that help to save patients’ lives.

I look forward to updating you on our progress in the lab, in the clinic and on the financial and business development fronts in the months ahead. Thank you for your interest in and support of SuperGen.

With that, Doctors David Bearss and Mohammad Azab, Michael Molkentin, Timothy Enns, Gavin Choy and I are now ready to answer your questions. Operator, we will take questions at this time please.

Question-and-Answer Session

Operator

(Operator Instruction) Your first question comes from the line of Boris Peaker - Rodman & Renshaw.

Boris Peaker - Rodman & Renshaw, Inc.

Can you hear me?

James Manuso

Yes. Thank you.

Boris Peaker - Rodman & Renshaw, Inc.

I have a couple of questions I guess on Dacogen. You mentioned that Eisai filed the five-day dosing schedule. I was wondering if they have made any comments regarding a response whether it is going to get a standard approval or an expedited approval.

James Manuso

Yes. We actually anticipate a standard review period which puts us into next year.

Boris Peaker - Rodman & Renshaw, Inc.

Okay. And I guess the more important question there is what fraction of current Dacogen use, do you estimate, is using five-day dosing?

James Manuso

The last estimates were in the 90% range and indeed they have increased considerably over the last year or so. More importantly, the nature of that is consistent with what is being reimbursed and pretty much from the outset when it became clear that the longer term dosage with a shorter schedule is more appropriate. That is when the physicians really started to turnover to the five-day regimen. So that has been pretty popular for a good period of time now and more importantly as I said they are being reimbursed for that.

Boris Peaker - Rodman & Renshaw, Inc.

So is it reasonable to assume that a label expansion will not have a material positive or negative real impact on Dacogen then?

James Manuso

It is hard to say, although, occasionally these things do alter that picture. Tim is also in charge of our marketing operations. So Tim, how would you perceive that?

Timothy Enns

Hi, Boris. Just the freedom that you want to go after here, even though the large percentage of the market is currently using that dosage regimen is that the data that was created while generating the information for this label is very strong and suggests a nice treatment period or treatment effect to time of progression. So that would be data you would like to have out there. You would like to represent this to be able to talk more freely about that information and make sure that is widely known as they go head to head with the data.

Boris Peaker - Rodman & Renshaw, Inc.

I see. So that gives you promotional strength basically?

Timothy Enns

Yes. That is what you are looking here promotional strength and hopefully as a direct lead in to your AML data which they are expecting later this year or early next year if that is positive on a survival because that survival endpoint that would be utilized in the same dosage regimen.

Boris Peaker - Rodman & Renshaw, Inc.

I got it. I got it. And I was wondering if you could provide any more details about the downward flip in revenue in Dacogen this quarter, any more details about stocking, destocking or anything else?

Timothy Enns

Yes. It is our understanding that on the part of small number of wholesalers there was, how should I say, potentially overzealous increase in the amount ordered and that is believed to be temporary and indeed as I pointed out, what we saw was that both Eisai and J&J have been consistent with regard to their estimates or sales this year and we have been consistent with regard to our guidance. So, we see this as an interim event. Michael, would you like to comment on that?

Michael Molkentin

I would agree with that. It appears that this is a near term event and we did spend a little time with Eisai getting better clarification as to where they were going and as Jim has indicated, there is a lot of effort momentum behind Dacogen worldwide and most importantly despite the short term they are still forecasting annual growth year-over-year worldwide and those are all encouraging signs.

Boris Peaker - Rodman & Renshaw, Inc.

Alright, and my last question for you Michael is what was the share count at the end of the quarter?

Michael Molkentin

The actual outstanding shares at the end of the quarter were $59.1 million and then what we present in our analysts’ presentation as far as fully diluted is $69 million.

Operator

Your next question comes from the line of Joe Pantginis - Merriman Curhan Ford & Co.

Joe Pantginis - Merriman Curhan Ford & Co.

Hi guys. Thanks for taking my question and welcome aboard, Dr. Azab. You guys have obviously a lot of cash on hand to leverage your discovery platforms. I was wondering if you could spend just an extra moment on giving a little more color regarding your partnering in collaborative goals here. Obviously, you have indicated in the past that it could be a clinical stage product. It might be earlier stage product. What is SuperGen looking for in a partner at this point?

James Manuso

Well, a number of things. First and foremost, as we have said consistently it would be, I think, to the benefit of our discovery platform to have a discovery base deal on hand. This would certainly, I think, validate in the eyes of many, the abilities that we have with respect to discovery and then also we have said specifically that we will not take anything into Phase 3 that is on partnered. So that gives us a good broad range within which to work. I have also pointed out that it is anticipated. Next year, we will have up to four drugs in the clinic and while on the one hand that is a great place to be, on the other we certainly would like to have a partnership on one or more of those drugs. What I have said in the past and I will say again is that we are engaged in appropriate discussions with logical suspects relative to potential partnerships and in this environment regardless of the good place that we are in as far as our cash position we still want to assure that we spread the risks and we also benefit early on from the monetization of our assets and that is something that all the officers of the Company are attuned to and certainly our business development operations are focused on that. So that is very much front and center for us and we are active on that front, Joe, and obviously I cannot share with you any specific discussions. But we certainly, from our perspective, are executing along those lines.

Operator

There are no further questions at this time. I would now like to turn the call back over to Dr. Manuso for closing remarks. Please proceed, sir.

James Manuso

Alright, well, thank you very much for your time and attention today and for your support and interest in SuperGen and please still free to catch up with us relative to any questions you might have going forward and looking forward to seeing some of you at the upcoming conferences, the Capstone Conference and the BMO Conference next year.

Thank you so much. Have a fine afternoon. Goodbye.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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