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Could SuperGen (SUPG) do more?

According to company news, SuperGen will soon be renamed Astex Pharmaceuticals. On August 3, 2011, the company reported: "On July 20, 2011, SuperGen closed the transaction to acquire Astex Therapeutics Limited, a U.K.-based biotechnology company." Yet despite this forward movement, it appears not to be fast enough to hold $3+/share. As a result, SuperGen slipped to a recent low of $1.99/share on August 23, 2011, before closing at $2.10/share. On Tuesday the company closed at $2.22/share. But this in large measure is due to the market's correction because SuperGen is in the process of redefining its mission, vision, and future.

SuperGen is becoming leaner and meaner. CEO Manuso stated:

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 (Ibid).

CEO Manuso has made the painful, but necessary, decisions to move the company forward. It has required a considerable transformation and shedding of people resources--never a happy option, but the company is focusing on consolidating its resources.

Yet the existing anomaly with SuperGen is that it is cash-flush. As reported by the company, SuperGen ended Q2 2011 with "approximately $129 million in cash, cash equivalents and current and non-current marketable securities." Quite the opposite situation of companies like Cell Therapeutics (NASDAQ:CTIC) that executed a 1:6 reverse stock split that touched $2.26/share on May 23, 2011, and then eventually sunk to $1.05/share on 8 & 10 August 2011 just as I predicted: "It could test one buck once the big boys get done with it." (Ibid). Unlike Cell Therapeutics that then dumped news of raising $30M via preferred stocks and warrants, SuperGen is sitting on a pile of cash.

But what is cash without a pipeline? Yes, as reported, SuperGen has enjoyed the revenue stream of Dacogen: "
Total revenues for the 2011 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 the license agreement entered into with MGI PHARMA (acquired by Eisai Corporation of North America in January 2008) during 2004, which granted MGI PHARMA exclusive rights to the development, manufacture, commercialization and distribution of Dacogen." But SuperGen's pipeline is rather anemic, which is why the merger with Astex Therapeutics appears essential. Nevertheless, it must be argued that Astex's pipeline comes with no guarantees either and it is years away from phase 3. Which means what? It means that the new Astex Pharmaceuticals is going to light a fire on that pile of cash, but is still in need of a late stage clinical drug candidate. So is SuperGen doing enough? Could they do more?

With deference to my previous coverage on SuperGen, I still prefer to see SuperGen acquire a late-stage oncology drug or to merge with an oncology firm that is on the financial ropes. With that in mind, I suggest beleagured Cel-Sci Corporation (NYSEMKT:CVM) that is running out of cash, but similar to Dendreon's (NASDAQ:DNDN) immuno-therapy drug Provenge, Cel-Sci has a potent immuno-therapy drug called Multikine for the treatment of head and neck cancer. Cel-Sci desperately needs cash and SuperGen has it in spades. SuperGen needs a late stage drug and Cel-Sci has it in phase 3 Multikine. Furthermore, Cel-Sci has roots in Europe where its decorated founder Maximillan DeClara resides, just as Astex is based in the United Kingdom. Both Asex and Cel-Sci have excellent research centers and Cel-Sci plans to generate revenue by renting out its cold-fill facility outside Baltimore, Maryland. The two firms should consider merging and no doubt SuperGen's CEO Manuso and Cel-Sci's CEO Kersten could orchestrate a deal where all concerned would benefit.

Furthermore, both firms have interesting collaborations with big pharma: for example, Cel-Sci has a key partnership with TEVA (NYSE:TEVA) among others, and Astex is linked with GlaxoSmithKine (NYSE:GSK), Jannsen, Novartis (NYSE:NVS), and AstraZeneca (NYSE:AZN). Together, SuperGen, Astex, and Cel-Sci could create enormous synergy with Dacogen, an early through late stage oncology pipeline, and the finances to complete Multikine's phase 3 trial. This way, all would win.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: SuperGen Acquiring Cel-Sci Would Be A Win-Win