SuperGen, Inc. Q3 2009 Earnings Call Transcript

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SuperGen, Inc. (SUPG) Q3 2009 Earnings Call October 26, 2009 4:30 PM ET


Timothy Enns - SVP, Corporate Communications and Business Development

Dr. James Manuso - President and Chief Executive Officer

Michael Molkentin - Chief Financial Officer

Dr. Mohammad Azab - Chief Medical Officer

Dr. Michael McCullar - Vice President, Strategy and Discovery Operations


Joe Pantginis - Merriman Curhan Ford & Co.

Boris Peaker - Rodman & Renshaw

Robin Davidson - Edison Investment Research


Good day, ladies and gentlemen, and welcome to the third quarter 2009 SuperGen earnings conference call. My name is Regina, and I will be your operator for today. (Operator Instructions)

I would now like to turn the conference over to your host for today, Timothy 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 on SuperGen's 2009 third quarter conference call. With me today are Dr. James Manuso, President and Chief Executive Officer, Michael Molkentin, Chief Financial Officer, Dr. Mohammad Azab, Chief Medical Officer, and Michael McCullar, Vice President, Strategy and Discovery Operations.

In a few moments Jim Manuso and Michael Molkentin will deliver remarks on the recently announced discovery and development deal with GlaxoSmithKline or GSK, our 2009 third 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 two press releases. One release announced the transaction with GSK and the other release summarized our third quarter financial results. Copies of the press releases are available on the Investor Relations section of our website at

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 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 pre-clinically or clinically as we expect or that they 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 that 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 action of our strategic partners and collaborators with respect to the products we license or develop, and patent disputes and litigation.

For additional information and a 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 Form 10-Q.

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

In the coming weeks we will be presenting at several investor conferences, including the Bio Investor Forum on October 29th, the Merriman Curhan Ford Investor Summit on November 10th, and the Southwest Ideas Conference on November 12th. Live and archived webcasts of these presentations will be posted in the Investor Relations section of our corporate website,

I will now turn the call over to Dr. James Manuso, who will describe the discovery and development deal with GlaxoSmithKline and provide highlights of our accomplishments during the 2009 third quarter.


Dr. James Manuso

Thanks, Tim. Good afternoon and thank you for joining us today for SuperGen's 2009 third quarter conference call.

Before outlining the financial details of a very good third quarter, I'd like to provide some background on the collaboration we announced this morning with GlaxoSmithKline or GSK. As you may know, GSK is one of the world's largest fully integrated pharmaceutical companies and one of the most progressive discovery based development and commercial operations. GSK is the leader in the oncology space, and we are extremely honored to have been selected by GSK as a collaboration partner.

The discovery and development grants GSK options on an existing internal program wherein SuperGen will discovery and development specific epigenetic therapeutics through to clinical proof of concept. GSK will make upfront and development milestone payments to SuperGen and will have an option to license the program, consisting of two lead drugs and two backup drugs. GSK can then develop the products for global registration and marketing, thereby triggering additional milestone payments and tiered royalties from high single-digit royalties into double-digit magnitudes.

SuperGen will receive $5 million in upfront payments. This amount includes a $3 million equity investment priced at a premium to market. Specifically, GSK purchased approximately 990,000 shares of SuperGen common stock at $3.03 per share. Based on issued and outstanding stock of approximately 59 million shares, GSK now owned approximately 1.68% of SuperGen. If the drugs from this program are optioned and developed further by GSK, then the total upfront equity investment, development and commercialization milestones could exceed $375 million. In addition, SuperGen stands to earn royalty revenues following commercialization of any and all drugs emanating from the collaboration.

This collaboration is a significant one for our company. I want to recognize and thank SuperGen's R&D, Business Development, Finance and Legal teams for generating and finalizing this discovery and development transaction. I believe this deal helps to validate our CLIMB discovery platform, an integrated in-silico-based drug discovery process that has helped us solve complex biological and structural problems. Such problems may block the progress of development programs in other company's discovery operations.

The deal also signals our expertise in the research and development of epigenetic therapeutics that began with Dacogen and continues with SGI-110 and our small molecule epigenetic program. Going forward our talented people and the CLIMB process will continue to create first- in-class drugs for difficult to hit targets that address unmet medical needs in the hematology/oncology space.

While we were finalizing this deal, we were also busy executing on our strategic goals for the third quarter. Financially, the third quarter has been a fruitful one for us. Revenue in the quarter was up year-over-year and total operating expenses were down. This combination enabled SuperGen to post net income for the 2009 third quarter of $882,000 or approximately $0.01 per share. As of the end of the third quarter, our cash and cash equivalents amounted to more than $94 million. Furthermore, we are revising our financial guidance for 2009. We now forecast net income of approximately $2 million, making SuperGen one of a handful of small cap biotech companies that are profitable.

SuperGen remains debt free and continues to fund its operations from existing revenue sources. Dacogen sales remained strong in the first two months of the third quarter. Based on IMS sales data, the MDS market continues to grow. And as I mentioned in last quarter's call, Eisai and Johnson & Johnson remain highly committed to expanding their respective markets for Dacogen.

The largest effort to expand the market for Dacogen resides in the potential of the Phase III elderly AML trial, with 485 patients. Data analysis should be completed early next year. This study has an overall survival end point and was the subject of a special protocol assessment or SPA from the Food and Drug administration. A positive outcome of the study should result in a new labeled indication for Dacogen in the United States for Eisai. Finally, pending a positive outcome of the trial, Johnson & Johnson would plan to file Dacogen with the EMEA for approval in the European Union.

Now I'd like to provide an update on our product pipeline. Our dual multi-targeted kinase inhibitor and DNA repair suppressor, MP-470, is progressing in the clinic. At the World Conference on Lung Cancer in early August we presented data that MP-470 demonstrated an overall clinical benefit rate of 54% in patients with small cell lung cancer and neuroendocrine malignancies when the drug was administered in combination with standard of care carboplatin-containing doublet chemotherapy.

We've also completed development of an improved lipid-based formulation of MP-470 that affords the drug increased bioavailability. This new formulation will be used in Phase II studies.

With respect to SGI-1776, our first-in-class oral PIM kinase inhibitor, the Phase I trial in refractory prostate cancer and lymphomas is proceeding on schedule and dose escalation is advancing as planned. No significant clinical adverse events or dose-limiting toxicities have been reported. We are also on schedule to initiate an SGI-1776 Phase I study in refractory leukemias in the first quarter of next year. Additional SGI-1776 data will be presented at both the AACR, EORTC, NCI meeting in mid-November and at the American Society of Hematology or ASH meeting in early December.

Following MP-470 and SGI-1776 in the clinic, SGI-110, the next generation of decitabine, is expected to reach the clinic next year along with another of our early stage products. Potentially up to four products could be in the clinic during 2010, complementing our partnering and discovery programs. 2010 could be an eventful year for SuperGen.

Now I'd like to update you on recent changes within our drug discovery operation. SuperGen's immediate past Chief Scientific Officer, Dr. David Bearss, has been appointed Co-Director of the Center for Investigational Therapeutics at the University of Utah's Huntsman Cancer Institute. Congratulations to Dave. He has committed to continue to serve SuperGen as a part-time biology consultant and Scientific Advisory Board member. Dr. Bearss will advise us on the GSK collaboration and other early stage projects.

We have initiated an international search for a new head of Discovery Biology, and we are presently interviewing select candidates. Dr. Michael McCullar has resumed responsibility for managing drug discovery operations in Salt Lake City. Dr. McCullar was responsible for integrating the discovery team into SuperGen and managing it during the period 2006 to 2008.

To summarize, I believe that SuperGen's financial performance in the third quarter was one of our company's best. Our Dacogen partners are performing flawlessly. Eisai continues to maintain existing North American markets successfully, and Johnson & Johnson is actively developing new markets for Dacogen in Europe, Asia, the Middle East and South America. In addition, top line results from the AML survival trial comparing Dacogen to low-dose [Arasee] expected to be revealed in the coming months.

SuperGen's decision to perform novel drug discovery in a leaner and smarter manner has paid off. We are progressing markedly in our discovery, clinical and partnering efforts. We continue to be committed to partnering our product candidates at the clinical proof of concept stage, and we will not take any drug into Phase III clinical trials that is unpartnered.

There are many opportunities to monetize select assets going forward. As indicated earlier, we expect to have up to four drugs in the clinic next year, including SGI-110, our next generation decitabine candidate. In short, we are executing our strategy, and it is starting to pay off.

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


Michael Molkentin

Thank you, Jim.

Total revenues for the 2009 third quarter, which consisted entirely of royalty revenue, were $10.4 million compared with $10.2 million for the same prior year period. Dacogen sales as reported by Eisai have recovered from the prior quarter, where product sales were lower than anticipated due to certain 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.

Total operating expenses for the 2009 third quarter were $9.7 million compared with $11.4 million for the same prior year period. Elements contributing to the decrease in operating expenses for the 2009 third quarter were lower research and development costs influenced by reduced activities and completed studies for product development and clinical trial programs when compared to the prior year, the elimination of operating costs resulting from the cessation of our European operations in the prior year, and a reduction in general corporate expenses offset in part by slightly higher stock-based compensation expense.

Stock-based compensation expense was $709,000 for the current year third quarter compared with $642,000 for the same prior year period.

For the 2009 third quarter, the company reported net income of $833,000 or $0.01 per share compared with a net loss of $569,000 or $0.01 per share for the same prior year period.

We continue to report a strong financial position as of September 30, 2009. We had over $94 million in unrestricted cash, cash equivalents, and current and non-current marketable securities compared with approximately $92 million at June 30, 2009.

We have revised our financial guidance for 2009 as follows:

The anticipated range for royalty revenue has been narrowed from our previous guidance and is now expected to be from $40 to $42 million for the 2009 annual period. Research and development expenses have been further revised downward from our prior guidance to a range from $30 to $32 million. The change in research and development expenses when compared to the prior year continues to be influenced by the timing of costs related to current and anticipated clinical trial programs, including MP-470, SGI-1776, and SGI-110, and ongoing product development efforts.

General and administrative expenses continue to be reduced from the prior year and are forecasted to be in a range from $9 to $9.5 million.

No additional gain on sale of products is expected for 2009 other than the $520,000 already recorded through the end of the third quarter. The receipt of residual milestone payments relate primarily to the sale of our worldwide commercial franchise during 2006.

The revised financial guidance results in an improvement to our forecasted 2009 operational results as we are now forecasting net income in a range from $1.7 to $2.2 million.

Included in total operating expenses is non-cash stock-based compensation expense that is now estimated at $2.5 million. Average annual shares outstanding remains essentially unchanged from previous guidance of approximately 59 million common shares.

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

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

Dr. James Manuso

Thank you, Michael.

Thank you again for joining us today for our conference call. We have an exciting list of scientific milestones in the next 12 to 24 months. At the AACR, EORTC, NCI meeting in mid-November we will present updates on SGI-1776 as well as at the ASH meeting in early December.

In the relative near term, we will have updates to our ETK program and our [axil] program. Next year in Q1 we will initiative an SGI-1776 Phase I AML trial. Also in the first half of next year we will have filed an IND for SGI-110, our next generation decitabine product. In the second half of next year we will initiate our MP-470 Phase II study using our new lipid formulation with improved bioavailability. Also in 2010 we plan to file one additional IND.

Finally, we will be busy working on the epigenetics collaboration with GSK. While we're busy advancing the development of our clinical and pre-clinical candidates, Eisai and Johnson & Johnson will be completing the AML trial of Dacogen and, based on a successful outcome, completing filing documents for a follow-on indication.

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 very much for your interest in and support of SuperGen.

For an update later this week, please listen in to our presentation at the Bio Investor Forum.

With that, Dr. Mohammad Azab, Michael Molkentin, Dr. Michael McCullar, Tim Enns and I are now ready to answer your questions. Operator, we'll take questions at this time.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Joe Pantginis - Merriman Curhan Ford & Co.

Joe Pantginis - Merriman Curhan Ford & Co.

A couple of quick questions if you don't mind, first on GSK. With regard to the milestones, I know you can't disclose the individual payments, but can you maybe add a little more color as to the events that would trigger the milestones? And then I have a quick clinical follow up.

Dr. James Manuso

Oh, by all means. The events essentially resolve into the advancement of the drugs with respect to previously arranged targets that we have worked over the months in order to construct with GSK. And those relate both to the earliest discovery or pre-clinical development stage up through the clinical proof of concept stage. It's difficult to give you a sense as to the degree of balance, pre-clinical versus clinical, but what we can say is that, given that this was a program that had previously been undertaken by us, we're pleased with the potential for milestones relatively early on in the progress.

Joe Pantginis - Merriman Curhan Ford & Co.

And if I could just follow up with a quick clinical side on MP-470, it's great you have the new formulation to move into Phase II with, so congratulations on that. Will we be getting any more clinical updates from the current study? And also, forgive me for not remembering, but are you going to be conducting an earlier clinical PK study for this new formulation before Phase II.

Dr. James Manuso

Mohammad Azab will answer that.

Mohammad Azab

We have already conducted a PK study for the new formulation, and it showed that it did have a higher CMAX and higher ASE, so better overall for microkinetic performance of that formulation, so we're comfortable with the lipid formation that we have, and that's why we're planning to use it for further studies.

As far as concerning updates from the current MP-470 program, we are not planning any immediate short-term presentation in the upcoming conferences because we have presented the preliminary data on the World Conference of Lung Cancer, as you know. So we're not planning any additional presentation until we complete that trial, which is, as you know, the Phase Ib combination trial with chemotherapy.


Your next question comes from Boris Peaker - Rodman & Renshaw.

Boris Peaker - Rodman & Renshaw

I just have a couple of questions regarding the GSK partnership - and I apologize if you may have mentioned it as I dialed in a little late - but have you disclosed the price at which GSK is going to be making the equity investment?

Dr. James Manuso

Yes, we have. The price is $3.03 for which they receive approximately 990,000 shares, and that represents approximately 1.68% of our company.

Boris Peaker - Rodman & Renshaw

And further, just exploring the GSK partnership, how is that going to influence your R&D spend going forward or is that going to influence you in any way?

And kind of a follow up to that, who's going to be making the decisions in terms of what to pursue and how to pursue? Do you guys have a joint steering committee or are you independent in that sense from GSK?

Dr. James Manuso

First, let me indicate that indeed there is a joint steering committee on which members from both companies will sit. We anticipate meeting with a high frequency, and interactions will be ongoing and continuous.

Relative to the spend, appreciate that we have been involved in this program for some time. Our capabilities in the epigenetic therapeutics area date back to our acquisition and clinical and regulatory development of Dacogen, and then the subsequent move was to work on the invention of SGI-110, which we anticipate entering the clinic within the first half of next year. So what I'm suggesting, given the upfront and the milestones from GSK along with our ongoing budgeting efforts, we don't expect very dramatic or any dramatic impact on our spend in that regard.

And I'll ask Michael to comment on that.

Michael Molkentin

Yes. You know, the additional comment I want to make to what Jim had just said is that even though we're not in a position to go into specific dollars and things like that, this is a milestone-driven transaction. So as we achieve certain milestones through the development phase we will be earning economics that will certainly help from the funding requirement perspective.

Dr. James Manuso

And remember, Boris, we've always said that we wouldn't want to embrace deals that are anything less than tending toward cash flow neutrality when all's said and done, and that certainly is our hope in connection with this deal.

Boris Peaker - Rodman & Renshaw

And my last question, I guess, on the GSK deal is in the coming year, let's say, are there any news flow timelines or events that you anticipate to be associated with this partnership aside from maybe milestone payments?

Dr. James Manuso

I think most importantly when we receive a milestone, it would be contingent upon our achievement of a particular accomplishment. So that being the case, there would be conjointly the announcement of a milestone and the contingent achievement.


Your next question comes from Robin Davidson - Edison Investment Research.

Robin Davidson - Edison Investment Research

Can you split the $375 million in terms of development and commercialization just in terms of a broad figure at all? Is that possible?

Dr. James Manuso

We've not yet done that although our sense is it's 65%/35% on the broadest basis broken down between discovery and pre-clinical and clinical and regulatory.

Robin Davidson - Edison Investment Research

Just in terms of sort of the GSK opt in arrangements, I mean, is there sort of a one-time event which triggers their option or rather do they have multiple opportunities on each program?

Dr. James Manuso

They have one option that covers two drugs and their backups, so it is a one-time event in that regard that may be triggered up to and including the point in time at which we, SuperGen, have demonstrated clinical proof of concept.

Robin Davidson - Edison Investment Research

Can you give any, I mean, just in sort of broad terms again, the sort of time that it might take to get to those in, I don't know, years or something?

Dr. James Manuso

Well, what we can say is that this is a five-year agreement, and obviously it is our mutual intention to move things along as rapidly as possibly although, as you know, once you get into the clinic that has a life of its own. Our expertise, of course, is with respect to the CLIMB process and our ability to rapidly discovery and advance at the pre-clinical stages novel compounds, and that's exactly what we expect to do here.

Robin Davidson - Edison Investment Research

Just a final one. I mean, I know you don't like speculating on R&D expenditure for 2010, but I'm going to try and ask you anyway. I mean, obviously, if you're bringing in potentially two more products into Phase I, starting on Phase II with MP-470, an additional Phase I [inaudible] whatever with 1776, the expenditure could rise quite dramatically. Can you give any indication what sort of range you might be talking about? I mean, are you intending to try to keep the company profitable if the royalty revenue increases from Dacogen?

Dr. James Manuso

Well, you've alluded to a number of working parts. Clearly, it is our hope that the AML trial has a positive outcome. We would anticipate, in turn, that that would have a positive impact on our royalty revenues as a countervailing force to the potential for increased spends on the clinical and regulatory development side.

And you know, Robin, that we don't pre-announce our guidance in advance of the year itself, although if one examines our track record, it's very clear that we've always been very judicious with respect to our spends on the one hand and our hopes for increasing revenues.

However, I'll ask Mohammad Azab to comment on that. Please, Mohammad.

Mohammad Azab

Yes. Thanks, Jim. Robin, I would not expect to have a dramatic increase in the clinical budget because, as you know and as we said, we are conducting early clinical proof of concept for most of our compounds, so these trials are not very intensive in terms of the number of patients. We try to get the most out of these trials, but in terms of number of patients, which is a big driver in the cost of clinical development, they would not be much higher than what we have experienced in 2009. As you know, in 2009 we had been recruiting heavily in the Phase Ib and we also started the Phase I in 1776.

So the additions to that, basically the Phase Ib expense would be replaced by the Phase II for MP-470; the 1776, the expenses for the first Phase I trial will be winding down while we're expanding on the new Phase I in [inaudible] malignancy and leukemia, and there will be the additional expense of a new Phase I from S-110. And probably only towards the end of the year we'll have another IND filed for one of the new discovery programs.

So if you look at the number of programs that we're conducting and the number of patients in each one, I would not expect a dramatic increase next year.

Dr. James Manuso

Are there additional questions?


There are no further questions on the phone line, so I'll go ahead and turn the call back over to Dr. Manuso.

Dr. James Manuso

Okay, well thank you very much for your time and attention. Clearly, we're excited about our performance for the third quarter. We're looking forward to updating you in a little bit more detail on Thursday at the Bio Investor Forum and at the upcoming Merriman Curhan Ford meeting going forward.

And, again, thank you so much for your time and support. Have a great afternoon. Good bye.


Ladies and gentlemen, thank you so much for your participation in today's conference. This concludes the presentation, and you may now disconnect. Thank you and have a great day.

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