SuperGen: Merger Is A Step In The Right Direction

Includes: ASTX, AZN, GSK, JNJ, NVS
by: James Stocklasar Thomas Jr.

On 17 March, I wrote that "SuperGen: Flush With Cash, But Drug Pipeline Is Anemic" sincerely believing that the best way forward for the cash-flush SuperGen (SUPG) was to either in-license a later stage drug candidate, or do as they have, execute a merger. As a follow-up, I think this merger is good news for both SuperGen and Astex Therapeutic shareholders, but I also think the merged companies will need to do more.

Obviously, SuperGen had to dip into its kitty, but if you think about it, SuperGen has invested in its own future. And while a slight pull-back in SuperGen's share price is not surprising for events like this, long-term SuperGen shareholders should see this company's shareprice pay them back over the next few years.

Of course, SuperGen is rolling a good measure of its future on the success of Astex's pipeline. And it is fair to note, the merger with Astex is not bringing a late stage drug candidate into the SuperGen fold. That is my single criticism. I still think that is a missing link to a more robust future. It must be recognized that the Astex drug candidates still have a long way to go. Odds are most of those candidates will never make it to market. And while my perspective may sound pessimistic, I venture it is realistic. SuperGen's merger with Astex will bring SuperGen many new promising leads, but the company still lacks a later stage drug candidate.

Has SuperGen improved itself? Yes, I do think it has and I look forward to seeing a less juvenile website that looks like it was designed for pre-schoolers. I also think the change to Astex Pharmaceuticals will bode well for the merged "innovative oncology drug discovery" firm (Ibid.). But my frivilous comments aside, the real question is, Will Astex's pipeline bring SuperGen shareholders the upward climb in share price every shareholder dreams of?

My answer remains not until future Astex Pharmaceuticals has a later stage drug candidate. But will the share price most likely improve? Yes, because SuperGen has bettered itself. Yes, the share price should go up: $4-6/share is my estimate over next twelve months. And yes, it is impressive to see heavy-weight partnerships with GlaxoSmithKline (NYSE:GSK), Eisai, Johnson & Johnson (NYSE:JNJ), Novartis (NYSE:NVS) and AstraZeneca (NYSE:AZN) including the eye-popping $2B potential milestones and royalty revenues, but just remember, most of those oncology targets will probably never make it to market.

Don't get me wrong. I do like this merger, but I still hope the newly merged firms will in-license a later stage drug candidate, or again merge with another firm that has a later stage pipeline. If that happened, shareholders would most likely be looking at a share price in the double digits. Yes, I do like the deal, but I want to see more!

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