SuperGen Gaining Momentum On Promising MDS Drug

In a recent Business Week article, SuperGen Inc. (NASDAQ: SUPG) was mentioned as one biotech stock that was gaining traction as fund managers discover it had a viable product and that the company's shares were still underpriced. Yet when SuperGen reported fourth quarter earnings on March 14, investors focused on the increasing net loss for 2006 of $16.5 million, or $.31 per share, compared with a net loss of $14.5 million, or $.28, per share, for the year ago period.

The stock stalled a bit on the news, but forward thinking investors did not allow the net loss to deter them from looking towards the promising drug called Dacogen. Hence, SuperGen shares have since climbed to hit a new 52-week high of $6.12 on increasingly heavy volume in the past few days.

It all began back in September of 2005, when the company received an approval letter for Dacogen from the Food and Drug Administration. Subsequently, the FDA approved Dacogen for the treatment of patients with MDS (myelodysplastic syndromes symptoms). Currently, the company has an agreement with Johnson & Johnson to market the drug Dacogen outside the United States and SuperGen has granted MGI Pharma (NASDAQ: MOGN), which owns 9% of the company, North American rights to the development, manufacture, commercialization and distribution of Dacogen. SuperGen is entitled to receive a royalty on worldwide net sales starting at 20%.

Dacogen's U.S. 2006 sales totaled $36 million, beating even the company's estimate of $25 million. For 2007, Dacogen sales will hit $120 million according to Rodman & Renshaw analyst Elemer Piros who rates the stock a "buy." The analyst believes that royalties from MGI will grow as sales expand, thus making SuperGen a takeover target of MGI at some point in the future.

That brings us back to today. MGI Pharma's presentation later this afternoon at the Lehman Brothers 10th Annual Global Healthcare Conference should be rather insightful. The company will be providing an overview of its products, pipeline and corporate goals for 2007. This means an opportunity for SuperGen shareholders to find out the scoop on Dacogen.

What is interesting is that SuperGen stock has climbed to hit a new high on heavy volume and a lot of option call interest recently ahead of the conference, quite possibly signaling positive comments and guidance to come on Dacogen.

SUPG 1-yr chart:

Comments

[hpski]

The MDS market, which will be growing with the "graying of America", is indeed a positive predictor of Dacogen's future sales. But this rosy picture is mitigated by Pharmion's Vidaza, a similar MDS drug, which generated sales of $142.2 million in 2006. I am quite familiar with both these agents. Neither MGI's nor Pharmion’s sales people are permitted to even suggest one is more efficacious than the other. Anecdotal reports suggest there may be more toxicity with Dacogen, which theoretically makes sense since it works, "upstream" from Vidaza. Then one must consider other companies developing second and third generation MDS agents. It is my opinion that if MGI seeks to acquire SUPG, it will need to be justified by more than knocking down the 20% royalty. There are also internal issues at SUPG that if examined closely, may carry a legacy of unanticipated expense.

[bombinvestor]

What types of internal issues have you identified at SUPG?

[hpski]

I cannot discuss this, since by definition the signing of a non-disclosure agreement precludes bringing intracompany issues to the public's attention, plus if one obtains info. second/third hand, it may have been altered to reflect the personal opinons/prejudices of that person(s). So, maybe there aren't any. Objectively, the case against SUPG being a buyout candidate can be supported by another royalty scenarios, notably Genentech's resounding success with Avastin and Herceptin, licensed from PDLI, which enabled PDLI's royalty revenues to grow from $52.7M in FY'03 to $184M in FY'06. Why hasn't DNA gone ahead and purchased PDLI? PDLI stock has underperformed the biotech index, mainly because of Wall Street's negative perception of their own aquisitions. In light of their pipeline & future royalty estimates, PDLI should be trading considerably higher, so again, why doesn't DNA snap up this bargain, and save big $$ on future royaly expense? Hematological malignancies, of which MDS is a part, represent about 4% of all cancers, so the potential of Avastin & Herceptin is considerably higher vs. Dacogen & Vidaza combined. IMO, MGI is too savvy to put that much cash on the line and/or increase their debt for a single product.

[jturano7423]

RE:NSTK CAN ANYONE EXPLAIN TO ME THAT IF MORE THAN A DOZEN LEADING REPUTABLE AND CREDITABLE INVESTMENT SERVICES RATE AND STATE POOR RATINGS AND FUNDAMENTALS ABOUT THIS SPECIFIC COMPANY, WHY WOULD AFTER A 45% DROP IN PRICE IN THE PAST 6 MONTHS, WOULD ANY TV FIGURE RECOMMEND A BUY NOW WITH NO POTENTIAL OF SHORT TERM GAIN LOOKING OUT FOR THE NEXT SIX MONTHS?