SuperGen's CEO Discusses Q2 2011 Results - Earnings Call Transcript

Aug. 3.11 | About: Astex Pharmaceuticals, (ASTX)

SuperGen (SUPG) Q2 2011 Earnings Call August 3, 2011 9:00 AM ET

Executives

Mohammad Azab - Chief Medical Officer

James Manuso - Chairman of the Board, Chief Executive Officer and President

Michael Molkentin - Chief Financial Officer, Principal Accounting Officer and Corporate Secretary

Timothy Enns - Senior Vice President of Corporate Communications & Business Development

Harren Jhoti - Co-Founder, Chief Executive Officer, Clinical Consultant, Director and Member of Scientific Advisory Board

Analysts

Elemer Piros - Rodman & Renshaw, LLC

John Nelson - State of Wisconsin Investment Board

George Zavoico - McNicoll, Lewis & Vlak LLC

Robin Davison - Edison Investment Research Limited

Operator

Good morning, my name is Brooke, and I'll be your conference operator today. At this time, I would like to welcome everyone to the SuperGen Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Mr. Timothy Enns, Senior VP of Corporate Communications and Marketing. Thank you. Mr. Enns, you may begin your conference.

Timothy Enns

Thank you, Brooke. Good day, and thank you for joining us for SuperGen's 2011 Second Quarter Financial Results Conference Call. With me today are Dr. James Manuso, Chairman and Chief Executive Officer; Dr. Harren Jhoti, President and member of the Board of Directors; Dr. Mohammad Azab, Chief Medical Officer; Dr. Martin Buckland, Chief Business Officer; and Michael Molkentin, Chief Financial Officer. In a few moments, Jim Manuso, Harren Jhoti and Michael Molkentin will deliver remarks on the 2011 second quarter financial results and will provide a summary of our business outlook. After our prepared comments, we will open the line for questions.

Earlier this morning, we issued a press release about our financial results. A copy of the press release is available in 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 30 days.

During this call, we will make projections and forward-looking statements that are based on management's current expectations. Actual results may differ materially from these forecasts and projections due to various factors. There are significant risks and uncertainties in biotechnology research and development. There can be no guarantee that our projects, products or product candidates will progress preclinically or clinically as we expect, or that we will ultimately obtain approvals for the indications that we seek. Moreover, even if our 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 a variety of factors, such as competitive developments, launches of new products, the timing of anticipated regulatory approvals or other regulatory action, the actions of our strategic partners and collaborators with respect to the products we license or co-develop and patent disputes and litigation.

On July 20, 2011, SuperGen closed the transaction to acquire Astex Therapeutics Limited, a U.K.-based biotechnology company. During today's conference call, SuperGen management may take -- may make additional forward-looking statements with respect to SuperGen's ability to realize the benefits of the Astex transaction. More information on the transaction can be found at the website, www.astex-supergen.com.

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. The company undertakes no duty to update forward-looking statements.

In the third quarter of 2011, SuperGen intends to change its company name to Astex Pharmaceuticals, Inc. and expects to be listed on NASDAQ under the symbol ASTX. In the coming months, we'll be presenting at several investor conferences, including the Rodman & Renshaw Annual Global Investment Conference, September 12 to 13, and the UBS Global Life Science Conference, September 19 to 21. Live and archived webcast of these presentations will be available in the Investor section of our corporate website.

I will now turn the call over to Dr. James Manuso, who will provide highlights of our accomplishments during the 2011 second quarter. Jim?

James Manuso

Thank you, Tim. Good morning, and thank you for joining us today for SuperGen's 2011 Second Quarter Conference Call. SuperGen's second quarter was a busy one on the financial, operational and clinical fronts. We posted strong financial results with Dacogen royalty revenue increasing 18% from the prior year quarter, and we earned net income of approximately $900,000. SuperGen ended the second quarter with more than $129 million in cash, cash equivalents and current and noncurrent marketable securities.

Operationally in late July, SuperGen completed the transaction to acquire Astex Therapeutics. The transaction is the first step for us to become Astex Pharmaceuticals, Inc. and change our listing on NASDAQ to the symbol ASTX.

By merging the 2 companies, Astex Pharmaceuticals will have the pipeline, people, partners, process and capital to become a significant force in oncology drug discovery and development. Early last week, we started the physical consolidation of certain processes and activities involving discovery, preclinical development and manufacturing to our Astex U.K. site. Our action initiated a program that will target a total estimated net reduction in force of approximately 44 employees or 24% of current worldwide headcount by year end. This initiative primarily affects research and development personnel. By year end, this process should be substantially complete, allowing us to wind down activities in our Salt Lake City and Pleasanton sites.

We anticipate ending 2011 with a solid financial position while reporting a nominal annual operating loss as indicated in our revised annual guidance. Portfolio rationalization is currently underway and a deep portfolio review will be provided at a future Analyst Day.

Harren, I'm very happy to be able to formally welcome you and Martin to our earnings call. Please take this opportunity to update us on the assets that Astex Therapeutics brings to our merged company. Harren?

Harren Jhoti

Thank you, Jim. Good morning, and it's a pleasure to describe to you the assets that Astex Therapeutics has contributed as part of the merger with SuperGen as we create Astex Pharmaceuticals.

Using our pioneering fragment-based drug discovery platform, Pyramid, Astex Therapeutics has generated 3 oncology drug candidates, which have all recently began Phase II clinical trials. Briefly, AT13387, a synthetic, potent, Hsp90 inhibitor, is being tested in a Phase II trial in combination with imatinib in patients with GIST or gastrointestinal stromal tumors.

AT7519, which inhibits several cyclin-dependent kinases, is being tested in multiple myeloma patients as a single agent and also in combination with Velcade. We are delighted to be working with the Multiple Myeloma Research Foundation on this Phase II clinical trial.

And finally, AT9283, a potent dual inhibitor of Aurora kinase and JAK2, is being tested as a single agent in patients with multiple myeloma in a Phase II trial, sponsored by the National Cancer Institute of Canada Clinical Trials Group.

In addition to advancing our internal pipeline, our platform, our permit platform has received strong validation through active partnerships with leading pharmaceutical companies, such as GSK, Novartis, J&J and AstraZeneca. These partnerships have been very successful and have already generated an additional 2 oncology drug candidates. AZD5363, a potent selective PKB/Akt inhibitor that is currently in Phase I trials and is being developed by AstraZeneca. And also, LEE011, a novel highly selective cyclin dependent kinase 4 inhibitor that is also in Phase I trials being developed by Novartis.

We look forward to continuing this high level of productivity in drug discovery as we restructure the operating companies and centralize all discovery and preclinical activities at our state-of-the-art facility in Cambridge, U.K.

James Manuso

Thank you very much, Harren, and again, welcome. Clinical stage products from the SuperGen portfolio continued to advance during the second quarter. The amuvatinib Phase II trial was initiated and launched within several prominent cancer centers. This is a proof-of-concept trial in small-cell lung cancer called the ESCAPE trial.

SuperGen clinical investigators are currently screening patients who have either not responded to platinum/etoposide treatment or who have relapsed shortly after such treatment. The ESCAPE trial is expected to include 21 to 50 patients and at least 13 centers will be participating.

SuperGen presented the final results of the Phase Ib trial of amuvatinib in combination with standard of care chemotherapy, including platinum etoposide at the American Society of Clinical Oncology or ASCO Annual Meeting this past June.

SGI-110, SuperGen's second-generation hypomethylating agent and follow-on to Dacogen, is proceeding well in patient accrual in its current Phase I/II MDS and AML trial. We're pleased to be working with major cancer centers and the Stand Up To Cancer's Epigenetics Dream Team on this trial. Next year, we anticipate potential end of Phase II clinical proof-of-concept data to be available.

The final clinical asset that is advancing is Dacogen. Dacogen Phase III data presented at ASCO could form the basis for new indication in elderly acute myeloid leukemia or AML. Our Dacogen partners, Eisai and Johnson & Johnson, filed marketing applications in the second quarter for Dacogen in an elderly AML indication in the United States and in the European Union, respectively. The PDUFA date in the U.S. will be March 6, 2012.

At this time, I'll turn the call over to Michael Molkentin, our Chief Financial Officer. Michael will provide details on our second quarter 2011 financial results, as well as comment on our updated financial guidance for 2011. Michael?

Michael Molkentin

Thank you very much, Jim. Total revenues for the 2011 second quarter were $11.7 million compared with $9.9 million for the same prior year period. Total revenues for the current year second quarter include royalty revenue of $11.5 million compared with $9.8 million for the same prior year period.

Royalty revenue is earned pursuant to a worldwide license agreement for Dacogen and is generally recognized when received. Total revenues for the current year second quarter also include development and license revenue of $127,000 compared to a similar amount for the same prior year period. Development and license revenue represents the amortization of deferred revenue relating to payments previously received pursuant to the collaborative research and license arrangement with GSK.

Excluding gain on sale of products, total operating expenses for the 2011 second quarter were $11.5 million compared with $9.7 million for the same prior year period. The primary reasons for the increase in total operating expenses during the current year second quarter were higher research and development expenses resulting from increased activities for product development and clinical trial programs, primarily associated with SGI-110, incremental transaction costs associated with the acquisition of Astex Therapeutics Limited and an increase in stock-based compensation expense. Approximately $1.3 million of additional expenses associated with the acquisition were included in second quarter general and administrative expenses, while noncash stock-based compensation expense was $744,000 for the 2011 second quarter compared with $488,000 for the same prior year period.

The gain on sale of products for the 2011 second quarter was $700,000 compared with the similar amount for the same prior year period. The gain on sale of products relates to the receipt of an additional contractual payment resulting from the 2007 sale of our worldwide commercial franchise for Nipent to Hospira.

The company reported net income for the 2011 second quarter of $903,000 or $0.01 per basic and diluted share compared with $961,000 or $0.02 per basic and diluted share for the same prior year period.

We continue to report a strong financial position. At June 30, 2011, the company had approximately $129 million in unrestricted cash, cash equivalents and current and noncurrent marketable securities compared to $120 million at December 31, 2010.

Since we completed the acquisition of Astex Therapeutics Limited on July 20, 2011, the financial guidance for 2011 has been updated to reflect the anticipated operational forecast of the combined entity post closing. The financial guidance included in today's news release provides additional detail which we typically do not present, but assessed would be helpful in providing a fuller picture of anticipated activities for the second half of 2011. The revised financial guidance includes one-time acquisition-related expenses for estimated severance and other costs associated with merging the combined operations and transaction-related costs associated with the acquisition pre- and post closing.

In addition, certain recurring noncash items influenced by or directly related to the acquisition have also been estimated and included in the revised financial guidance for the second half of 2011. A summary of these one-time acquisition-related expenses and recurring noncash items have been included as additional detail in the table reflected in today's news release, summarizing the consolidated financial guidance for 2011.

When considering the estimated one-time acquisition-related expenses and recurring noncash items, we are anticipating that operating results of the combined entity may be at or near cash flow neutral during the second half of 2011. This goal is consistent with our overall management philosophy influencing our current business practices.

Additional comments relating to our revised financial guidance for 2011 include the following: for the second half of 2011, we have increased our annual revenue guidance for Dacogen-based royalty revenue and have forecasted additional development and license revenue anticipated from the existing product development partnerships assumed through the acquisition. Royalty revenue continues to be stronger than originally anticipated, and therefore, we are increasing our prior annual royalty revenue guidance of up to $55 million for the year to a revised forecasted annual royalty amount of up to $57.5 million for 2011.

We are also increasing our development and license revenue from our prior annual guidance of $500,000 to approximately $6.5 million for 2011. This increase is primarily driven by the additional earnings potential resulting from the various partnership programs assumed through the acquisition of Astex Therapeutics.

The components of our forecasted operating and other expenses during the second half of 2011 have changed significantly from what has been previously reported by SuperGen. Expenses include the additional forecasted operating expenses of the acquired entity, one-time acquisition-related expenses and recurring revised or new noncash items.

In addition, the full long-term benefit of reduced operating costs resulting from the reduction in force initiative and the consolidation of various research functions in the U.K. will not be fully realized in the financial guidance during the second half of 2011.

Considering the impact of the different components mentioned, we are forecasting that consolidated annual research and development expenses will be approximately $50 million for 2011, while general and administrative expenses are forecasted at a revised annual level of approximately $17 million for the year.

We are forecasting a net loss for the second half of this year and for the 2011 calendar period of approximately $8 million and $2 million, respectively.

From a cash flow perspective, we anticipate being at or near cash flow neutral from our operational activities in the second half of 2011 and cash flow positive for the 2011 calendar period. Included in these forecasted operating results are one-time acquisition-related expenses and recurring noncash items for the second half of this year and for the 2011 calendar period, totaling approximately $9 million and $14 million, respectively.

As a result of the acquisition, SuperGen issued approximately 32.4 million common shares, thereby, increasing total actual shares outstanding to 92.8 million common shares. Considering the additional shares issued at closing, we are anticipating that our average annual shares outstanding for 2011 used for calculating per share results will be approximately 77 million common shares.

This concludes the review of our financial results for the 2011 second quarter and comments on our revised annual financial guidance for 2011. I'll now turn the call back to Dr. Manuso for closing remarks.

James Manuso

Thank you very much, Michael. First half of 2011 has been a particularly busy one for SuperGen. Net income for the 6 months ended June 30, 2011 increased 14% over the first 6 months of 2010. We anticipate that our new company, the combined entity, Astex Pharmaceuticals, may operate at or near cash flow neutrality during the second half of 2011.

Our corporate partners for Dacogen, Eisai and Johnson & Johnson, filed marketing applications for elderly AML in the U.S. and in the EU. We look forward to hearing from the respective regulatory agencies next year.

SGI-110, our follow-on to Dacogen, continues to advance in its Phase I/II MDS and AML trial. Our scientific collaborators include the Stand Up To Cancer Epigenetics Dream Team. Our amuvatinib Phase II proof-of-concept trial in small-cell lung cancer proceeds satisfactorily.

As we integrate SuperGen and Astex Therapeutics to become Astex Pharmaceuticals, I'm excited to implement the synergies of our business models and potentially unlock future value creation for stockholders.

Post merger, Astex Pharmaceuticals is expected to host top-tier partnerships with nearly $2 billion in potential milestone revenues, as well as future royalties. Our industry-leading discovery platform in Cambridge, the U.K., is expected to generate unique drugs designed to offer new hope to patients with serious unmet medical needs.

We look forward to updating you in the coming months on our progress. Dr. Harren Jhoti, Dr. Mohammad Azab, Dr. Martin Buckland, Michael Molkentin, Timothy Enns, and I are now ready to answer your questions. Operator, we'll take questions at this time. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from George Zavoico with MLV.

George Zavoico - McNicoll, Lewis & Vlak LLC

Congratulations on a great quarter and especially with the Dacogen revenue increasing the way it has and on progressing with the merger with Astex. I have a question. In some sense, the merger and the news about closing Salt Lake City and Pleasanton really reflects changes, I suppose, in the value of the 2 different drug discovery platforms that you had, the Montigen CLIMB and of course the Astex structural biology-based drug discovery operations. In a sense, it reflects, I guess, a disappointment perhaps in CLIMB. Can you comment a little bit on how do you weighed the 2 drug discovery platforms and what's going to happen to CLIMB? Is it an asset that you can perhaps partner out or sell?

James Manuso

Great question, George. Yes, very definitely. Appreciate that we are in the process of considering a spinout that will once again become Montigen and will incorporate CLIMB. This is something that we'll have much more to say about in the months ahead. And also appreciate that separate and apart from discovery platforms in both companies, Astex comes to us with cash, a variety of drugs in Phase II and up to $2 billion in potential milestone payments. So the comparison, I think, has to end with respect to solely and exclusively the discovery platforms. The discovery platform that was the basis for Montigen CLIMB will become part of the new Montigen to the extent we're able to engineer a spinout, which is something we're working on presently. In addition, let me comment on the potential that the Pleasanton operation could be sold as a standalone preclinical CMC and formulation operation. So we have not, by any means, written off these assets completely. However, attendant to the overall transfer of research and preclinical development to the U.K., we -- of necessity had to pair down the size of the employee force. Because in keeping with our strategy of operating the business at or near cash flow neutrality, you have to make some tough decisions like that. So in short, neither Salt Lake City, i.e. Montigen, nor Pleasanton, are dead. What we're doing is attempting to monetize these in a way that will be meaningful for shareholders. And of course, for those remaining employees who can become part of the new company.

George Zavoico - McNicoll, Lewis & Vlak LLC

I see, okay. Thank you for that. I always felt that there was considerable value in CLIMB, and it's nice to see that most of it will be resurrected in some way as well.

James Manuso

If you want so much, George, be in a resurrection as it will be a continuation and advancement. And appreciate that we've not yet commented in detail on the portfolio prioritization, which would also have implications for the initiatives I've described.

George Zavoico - McNicoll, Lewis & Vlak LLC

Could you comment also on -- looking at the second half guidance, your research and development expenses are more than doubling, which I guess is not surprising considering what's going on at Astex. Do you expect that research and development revenue beyond 2011 into 2012 to continue climbing as you bring more drugs into the pipeline? Or do you expect to hold R&D revenue at least stable for a little while?

James Manuso

Well, certainly, George, we're not going to comment on 2012 at this time. However, this is going to be very much a function of our work to balance revenues and costs in a meaningful way. And with respect to the R&D expenses and the severance and related expenses attendant to the transaction, there are many, as Michael was describing, one-time costs inherent there in. And I'll ask Michael to comment on that later issue. Michael?

Michael Molkentin

Yes. I mean, naturally, George, you are correct in the fact that the first half results reported the first half actual results or SuperGen on a stand-alone basis. And from an accounting perspective, you don't go back and restate that to reflect what Astex would have looked like had it been in there. And so, yes, there is this huge or this increase in operating expenses as anticipated. As you can see, we're looking at about $44 million in operating expenses for the second half between research and development and G&A. And in there, you have about $2.6 million of these one-time acquisition-related expenses that are either related to the transaction, for legal costs, accounting, consulting and things like that and severance and other type of benefits, also increasing the expenses, current in the last 6 months and in future periods, will be certain amortization of the assets that we acquired. From an accounting perspective, some of the intangible assets related to the different programs that we acquired. From a future cash flow perspective, our noncash items and our large, if you look at the table again, we're looking at -- for 6 months amortization of acquisition of intangibles of $3.6 million. Well, on an annual basis, that's like $7.2 million. So we believe, even though we will provide guidance for 2012 in our annual call in February, that we think we can manage this business as we've indicated all along to hopefully be at or near cash flow neutral.

James Manuso

And finally, just one last comment, and that is, we anticipate with 7 drugs in the clinic, 4 in Phase II, 3 partnered. We have a number of opportunities for monetization and value enhancement going forward. And it certainly has always been our intention to build and grow the business, and we believe this merging of Astex Therapeutics and SuperGen to become Astex Pharmaceuticals will accomplish that goal. And compared to most acquisitions in their early stages, we believe that we've managed -- we've been able to manage expenses in a very diligent way to assure that we're not using -- undo amounts of cash that we've worked hard to accumulate.

Operator

You're next question comes from Elemer Piros with Rodman & Renshaw.

Elemer Piros - Rodman & Renshaw, LLC

I suspect that the spin-off idea of the Montigen assets have been contemplated for some time. I just noticed that they registered to our conference to present. Do you think that a deal is in the works and could be closed during the next several months?

James Manuso

It certainly, Elemer, is our intention to develop rapidly a standalone business and to assure that it has ample financing to move forward. And as you point out, we'll be more explicit about that at the upcoming Rodman & Renshaw conference, during which time, the Montigen management team will present. We will have been able, we believe, to retain a core group of employees from the Salt Lake City discovery operation. We'll be able to retain the CLIMB discovery process. And it is our intention to integrate through yet another acquisition one drug and perhaps we'll put another drug such that there may be 2 Phase II drugs in the spin-out, along with some discovery stage assets and potentially, a corporate deal. So we fully appreciate the necessity of assuring that investors would achieve significant value in that spin-out. At the same time, it would clearly be our intention to retain a meaningful portion of equity in the spin-out such that SuperGen investors will continue to benefit from the work that has been done in Salt Lake over the last years. So I want to be very clear about our envisioning, continuing value in those assets. And indeed, it's our intention to assure that we retain some value therefrom.

Elemer Piros - Rodman & Renshaw, LLC

Okay. Which of your clinical assets might be part of the future Montigen?

James Manuso

It's a little too early for us to comment on that. We've not yet completed our review and prioritization of the clinical portfolio. But clearly, when you take a look at the wealth of opportunities in Astex Pharmaceuticals, it's significant and would be very costly for us to ramp up everything. So we'll be making clear what those choices are and what might be nested into Montigen going forward.

Elemer Piros - Rodman & Renshaw, LLC

Okay. Maybe if I could address this to Harren, if he is on the line. Would you be able to comment on what are the next milestones in the clinical assets at Astex? And whether there are any additional compounds in discovery or in developments that could be partnered during the next, let's say, 6 months or so?

Harren Jhoti

I can certainly give you an initial view. So as I mentioned earlier, we have 3 compounds which are in Phase II clinical trials. In all 3 cases, they just started those Phase II trials. These are open-label studies so we anticipate over the next 6 to 12 months beginning to see data coming from those studies to hopefully we will be able to point to some examples. And some of those trials showing, hopefully, positive signals of activity. So I would probably only keep my comments to that level of general observation at this stage. Before the clinical stage in terms of programs that we have in preclinical or in the drug discovery space, we have 2 programs currently indeed optimization, one which is targeting a protein called zyap [ph], which is for oncology and we anticipate being able to select the candidate for preclinical development. Certainly again within the next 6 to 9 months. And then the other program at a similar stage is a program which we have focused in HCV. Again we are looking to select a candidate within a similar timeframe. Obviously, given the primary focus of Astex Pharmaceuticals being in oncology, the HCV program may well be a very good candidate for a potential partnership as we move forward.

Elemer Piros - Rodman & Renshaw, LLC

Jim, you expressed or indicated that you would like to manage the business perhaps even 2012 at the cash flow neutral or slightly negative levels, this is one choice. And the other would be to step on the gas and take advantage of the capabilities at the former aspects and the future aspects of the combined company. I know that you don't want to go into specifics vis-à-vis 2012, but if you could compare the 2 options and provide a rationale why you choose to stay at the currently indicated spending levels.

James Manuso

Thank you, Ely. At this juncture, we're retaining our historical position of maintaining a cash flow neutral or profitable operation which has been our history in the recent past. I'll tell you very frankly we have yet to have an offsite with the officers together. We have not yet had our first combined board meeting. So it's very early on in the process. But we did want to give some color, some flavor to our thinking at this very early stage. As we move forward toward the end of this year, and certainly as we enter into 2012, we want to maximize the potential of all of our assets. In some instances, that will involve our investing in them. In other instances, that will involve partnering them. And yet in others that will involve divesting them. And yet in other, it could involve integrating one into the Montigen possibility. So we have many possibilities that we are considering, and we certainly want to proceed in such a manner that permits us, as you say, step on the gas and yet on the other hand retain a good tank.

Elemer Piros - Rodman & Renshaw, LLC

Very good analogy. Just from the numbers' perspective, if you compare Astex's R&D expenditures in the first half and what you plan to have during the next 6 months, how do those numbers compare?

James Manuso

We've really not gone public on any of that because, of course, Astex is a private company. Michael, would you care to give some color that?

Michael Molkentin

Yes. I think there is a consistency in the anticipated levels at least for 2011. Clearly, 2012 may look different once we've rationalized all of the different important elements and we've completed the reorganization in a couple of locations in the U.S. But if you look at Astex's filings for 2009 and 2010, I'm doing this out of memory, I believe their R&D expenses, and I'm going to speak in pound sterling here, were about GBP 13 million in 2010 and there will -- for 2011 that will have -- that will go up a bit based on current levels of activity. So when you compare the operating expenses for the first half to the second half, they will probably be consistent. And since we've not issued any interim information for 2011, we'll probably give better clarity about that in our third quarter call as we update our guidance. I think the point I want to make is that the R&D expenses, from a pound sterling perspective, could be in the GBP 13 million to GBP 16 million, GBP 17 million range for 2011 and you can convert that based on whatever exchange rate you feel is important or relevant.

Elemer Piros - Rodman & Renshaw, LLC

One last question, Michael, how much cash did you find in Astex's bank account?

Michael Molkentin

Well, at the end of 2010, they had about GBP 17.2 million, which is about $27 million. It will be slightly less upon closing on July 20. So it is a meaningful amount, it's $20 million-plus in cash that we will be consolidating on the date -- when we complete our purchase accounting on the date of acquisition.

Elemer Piros - Rodman & Renshaw, LLC

GBP 20 million or dollars?

Michael Molkentin

No. It's USD $20 million-plus. The exact amount -- I don't have the exact amount right now.

Operator

Your next question comes from Robin Davison with Edison Investment.

Robin Davison - Edison Investment Research Limited

Just a follow-up [indiscernible]. I just wondered about Dacogen. Obviously, you increased the guidance, but the growth rate is such that it's simply falling in the second half through, I get about sort of 1x -- of 10% on the previous year. I mean, is that sort of factoring in the impact of the loss of exclusivity by venture or is any other factors going on there that you're anticipating?

Michael Molkentin

Jim, I think I can explain that. One of the things you need to be careful of is our revenue -- because we recognized royalty revenue on a quarter in arrears, it's not -- when you look at our results historically, the revenue is typically 50/50, 45/55 when you look at the first half to second half. So we're happy with these results. I mean, we're looking at good growth over the prior year. And based on IMS data, there seems to be consistent, modest growth. And Eisai recently reported their Dacogen results for their first quarter, which is April through June of this year, which has shown some good growth. So we think the results are positive and it's a result of the continuing selling and marketing efforts by Eisai and J&J.

James Manuso

And also in addition I think there is another factor here that could be of real interest then. Mohammad, perhaps you could comment on the clinical picture?

Mohammad Azab

Well, I would just go on to comment that according to our knowledge that there is no generic provided [ph] on the market. So there is no impact from that perspective.

James Manuso

And also just remind you of what we believe are significant or should I say meaningful clinical results, M&A from the Phase III elderly AML trial that were reported at ASCO, recall that in the U.S. as a result of Orange Book inclusion, AML treatment is reimbursed to physicians for patients. So Mohammad, would you care to comment on that?

Mohammad Azab

I mean, you're correct, Jim. I mean, the results were presented at ASCO and they have reported certainly what is perceived in the community as a clinical benefit in terms of survival and certainly in terms of response rate. So there could be an impact from that perspective in terms of the use in elderly AML.

Robin Davison - Edison Investment Research Limited

Okay. I just wanted to -- I may have -- Mike, have answered this but the line wasn't very good for us. I'm trying to get an idea of the cash position of the company on the day of the pre-completion of the merger because obviously payments were made to the former Astex shareholders and the company had cash. And so give us some sort of approximate level of pro forma cash on the 20th of July or 21st of July?

James Manuso

Yes, Michael commented on that. But, Michael, if you could reiterate that.

Michael Molkentin

Well, I think maybe I'm going to oversimplify it. We've reported $129 million in total operating cash at the end of June, indicated that we would, at the date of closing, Astex would probably have $20 million-plus in cash in U.S. dollars. I don't have the exact amount but it will be in the $20 million range. And we will have paid the Astex shareholders approximately $25 million. So I think if you go through the math, the cash position looks pretty solid at probably $120 million or so if you. . .

Robin Davison - Edison Investment Research Limited

Yes, right. Okay. That's good. I'm assuming that the epigenetics collaboration with GSK and how would that fair under the new structure that you're proposing? I mean, are you intending or able to move that to the former Astex activity in Cambridge, specifically in Cambridge, would you say?

James Manuso

We are certainly considering a variety of alternatives in that regard given the fact that a bulk of the original work was undertaken in Salt Lake City and that work progresses. So I'm not in a position to comment at this time. But certainly, Robin, as we move forward, we'll let you know as soon as we are in a position to do so.

Robin Davison - Edison Investment Research Limited

Sure. Okay. Just sort of a final one, it's kind of a big-picture strategy. I mean, SuperGen has always been very clear that you were going to develop drugs up to Phase II, do you think that, that may change or is that not really realistic? I mean, would you take drugs up to registration? Are you in a position to do that as a new company?

James Manuso

Well, okay, certainly, you know historically we have done that. We've also been a commercial operation in the past. So those capabilities are well within our genetics. However, at this point in time, we're not in a position to do anything like that because of the nature of where the drugs are in development. But most assuredly, as we proceed in the years ahead, what we'll consider are a variety of initiatives that are, we believe in the best interest of shareholders to maximize value, and that could in an instance involve development beyond Phase II proof of concept. It's certainly something that could be considered. But again until we get to meaningful points in time, and here I'm referring to, we should have a number of Phase II readouts POC-level readouts next year, so that will put us in a position to better charge, also given our cash position at that point in time and the productivity of our partnerships, as to what we are in a position to manage. But I want to reassure you and the community, we're not a bank. I mean, we are in the business of discovering, developing and ultimately assuring that good drugs are commercialized and available to patients. And so that opens up a variety of possibilities strategically and otherwise.

Robin Davison - Edison Investment Research Limited

Right. Okay, if I may just try to get a last one in. Do you have a time in mind when you think the portfolio review and the sort of the second part of the new strategy will be in place and you'll be able to disclose that?

James Manuso

Certainly. We believe that by our next conference call, we'll be in a position to comment more rigorously in that respect. Again, we just closed recently. We just had a major reduction in force. We've been very busy and we'll be busier still going forward and that will include all of the things that were brought up in the course of this call that we've not been in a position to concretely comment upon.

Operator

Your next question comes from John Nelson with State of Wisconsin Investment Group.

John Nelson - State of Wisconsin Investment Board

My question is related to getting a little more detail on the AML market and what's going on as far as Dacogen? Any significant changes in Dacogen pricing that you can alert us to?

James Manuso

First, with respect to pricing, aside from the very small percentages that are typically applied for on an annualized basis, no major changes in pricing. And of course, we won't know until first quarter next year as to where FDA comes out with respect to the potential of the drug being, our supplemental MDA being approved in AML. Again, given that there is no approved drug for this indication. And I'd like to ask Dr. Azab to comment on the AML market.

Mohammad Azab

Well, I mean, as we stated before, I mean, the AML market is considered the same size as the current MDS market. There is about -- and also you need to take into account that, that would be introduction also of the European approval potentially if there is an approval of the J&J submission in the European Union, which we didn't have so that would open probably the use of AML. That could also be the use in that MDS if the drug is approved elsewhere in MDS. But if you look at the AML market in terms of incidents, there's about 13,000 new cases per year of AML, most of those are elderly. And that's just the incidence, if you look at the prevalence, it's a much larger number. But in general, we kind of stated that it's kind of approximately the same size of the price MDS markets.

John Nelson - State of Wisconsin Investment Board

Okay. With the MDS market, I mean, with your Dacogen revenues growing 18% with no significant change in pricing, either the MDS market is growing quite rapidly or you guys are taking significant share from Vidaza. So on the MDS market, is there something going on there that you've learned over the last quarter as far as the growth or composition of patients that's occurring?

James Manuso

Mohammad, why don't you take that?

Mohammad Azab

The market is growing. I think it's growing in the higher end. Tim might be able to comment further on that. I think in the high single digits or the low double digits. So the market overall is growing for MDS. It's just I think due to penetration, due to finding more patients and also the elderly, the population, now the aging of the population increasing the MDS incidence and also the elderly AML incidence is on the rise. So all these factors I think are contributing to the market that's slightly increasing overall. And the share of Dacogen according to the latest IMS data is also inching slightly higher. It's around 40% but it's like aging slightly higher over 40% of the total market. So that's kind of, I think, that's a reflection of the performance of the Eisai marketing and sales efforts. Tim?

Timothy Enns

Thank you, Dr. Azab. I would echo Dr. Azab's comments as far as increases, we're seeing increases across the board. We don't have the visibility into specifically what these increases are AML or what is MDS. We know that the drug is used in both indications. We know in the United States, there is support, reimbursement-wise for both indications, so that's occurring. But the positive results presented at ASCO confirm the suspicions that more cycles of the drug are beneficial. So this is a trend that's been seen that whether its MDS or AML, that physicians would treat longer and give more cycles to existing patients and potentially use for more patients. So I think its good news all around. We don't have clarity into specifically where the increases are coming. But the trends are in the right direction. And hopefully, the regulatory authorities will view this favorably and they can then add to approvals and help us prolong the growth.

John Nelson - State of Wisconsin Investment Board

Do you have any stance on average cycles per treatment in the broad MDS market or for Dacogen, specifically?

Timothy Enns

No. When the drug was marketed by MGI and within their portfolio, they gave that degree of clarity and actually spoke to the number of cycles that were given. But especially here since you're looking at 2 different indications, the treatment approaches and the patients that are presented within MDS and AML would be very different. MDS being, depending on the stage, we could say, a more indolent disease that it takes a little longer with some of the lower stages of MDS and so you could get more cycles in. With AML, it is more of an acute condition and therefore you would have less cycles. So a number of things to average in getting to the total use. But regardless of the indication, what you've seen is a consistent pattern with this class of drugs is that more cycles is better. And so you see this as a recurring theme and the survival results that are discussed as part of the AML are further information as regard that we think reflect well on the usage of the drug per patients.

Operator

Your next question comes from Elemer Piros with Rodman & Renshaw.

Elemer Piros - Rodman & Renshaw, LLC

Just a quick follow-up on this same topic, on the AML population. Do we have a sense, Tim or Jim, how much of the total revenue comes in from the AML off-label usage in the U.S.?

James Manuso

We really don't have clarity around that because you look at IMS data that's generated from up to 85% of actual data then they extrapolate the rest of it and its related to end user i.e. physician users and you really don't know, which way that's going. It's just not something that we have any meaningful degree of clarity around. However, I certainly believe, and I'd ask Mohammad Azab to comment on this, is that as these new data are increasingly understood by the medical community, there may be a propensity to significantly consider using the drug in AML. And Mohammad, what are your thoughts on that?

Mohammad Azab

Well, I mean, just further to my previous comment, is that the data now are out, at least on an abstract form in a presentation that was made at ASCO. So I think you can see from a clinical perspective that people could see that there is a significant clinical benefit for these patients who don't have really a lot of other options. There is no drug approved in either Europe or the United States for the elderly segment of the AML market. So that certainly could open usage for the drug.

James Manuso

And I would add one comment here and that is remember that a very large proportion of the treatment choice patients in the AML trial were receiving cytarabine. And so you could -- if you were a cytarabine prescriber and seeing a number of patients, you might well, based on these data, determine that Dacogen appears to be superior from a clinical perspective, so you might change over.

Elemer Piros - Rodman & Renshaw, LLC

And to further that, Jim, very unscientific fairly, but during ASCO, there were quite a few physicians that we reached out and said that it's an old brand we're already using, Dacogen and certainly not those. So maybe a point to make that, God forbid, the news is negative on the FDA front. It may not mean much in terms of the current usage patterns, at least in the...

James Manuso

It's a good point, Ely. And it's not inconceivable that the focus discussions on the regulatory side might be different in the EU versus the U.S.

Operator

At this time there are no further questions. I'll turn it back over to Dr. Manuso for closing remarks.

James Manuso

Well, again, thank you, everyone, for listening in. Thank you for the astute questions that have been offered, and we certainly pledge to work hard as the new combined entity to deliver value for our shareholders and encourage you to catch up with us in various and sundry forms, as well as in our new website as we proceed down a very new and fruitful road. So thank you again and this ends our call.

Operator

Thank you. This concludes the conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!