Astex Pharmaceuticals (SUPG) 10-Q 2007 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2007

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

Commission file number 0-27628

SUPERGEN, INC.

(Exact name of registrant as specified in its charter)

Delaware	91-1841574
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification Number)
4140 Dublin Blvd, Suite 200, Dublin, California	94568
(Address of principal executive offices)	(Zip Code)

(925) 560 - 0100

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See  definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o Accelerated filer  x Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x.

The number of shares of the registrant’s Common Stock, $.001 par value, outstanding as of May 4, 2007 was 57,394,890.

TABLE OF CONTENTS

		Page No.
PART I	FINANCIAL INFORMATION
	Item 1—Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006	3
	Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2007 and 2006	4
	Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2007 and 2006	5
	Notes to Condensed Consolidated Financial Statements	6
	Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3—Quantitative and Qualitative Disclosures About Market Risk	23
	Item 4—Controls and Procedures	23
PART II	OTHER INFORMATION
	Item 1A—Risk Factors	25
	Item 6—Exhibits	36
SIGNATURES		37

2

SUPERGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

	March 31,				December 31,
	2007				2006
	(Unaudited)				(Note 1)
ASSETS
Current assets:
Cash and cash equivalents		$	74,394			$	67,704
Accounts receivable, net		838				489
Development revenue receivable from MGI PHARMA, Inc.		29				29
Accounts receivable, Mayne Pharma		764				1,502
Inventories, net		253				223
Prepaid distribution and marketing rights		—				630
Prepaid expenses and other current assets		1,678				1,111
Total current assets		77,956				71,688
Marketable securities, non-current		152				179
Investment in stock of related parties		6,890				659
Due from related parties, non-current		5				31
Property, plant and equipment, net		3,716				3,752
Goodwill		731				731
Other intangibles, net		851				958
Restricted cash and investments, non-current		2,651				10,043
Other assets		5				5
Total assets		$	92,957			$	88,046
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	2,631			$	5,202
Payable to AVI BioPharma, Inc.		565				565
Deferred gain on sale of products to Mayne Pharma		21,863				11,754
Deferred revenue		—				459
Accrued payroll and employee benefits		2,447				3,296
Total current liabilities		27,506				21,276
Deferred rent		912				938
Total liabilities		28,418				22,214
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized; none outstanding		—				—
Common stock, $.001 par value; 150,000,000 shares authorized; 55,713,539 and 55,177,377 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		56				55
Additional paid in capital		432,400				429,147
Accumulated other comprehensive gain		704				1,922
Accumulated deficit		(368,621		)		(365,292		)
Total stockholders’ equity		64,539				65,832
Total liabilities and stockholders’ equity		$	92,957			$	88,046

See accompanying notes to condensed consolidated financial statements

3

SUPERGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

	Three months ended
	March 31,
	2007			2006
Revenues:
Net product revenue	$	621		$	2,884
Royalty revenue	3,794			—
Total revenues	4,415			2,884
Costs and operating expenses:
Cost of product revenue	221			548
Research and development	5,063			3,021
Selling, general, and administrative	3,575			6,493
Total costs and operating expenses	8,859			10,062
Loss from operations	(4,444		)	(7,178		)
Interest income	944			536
Gain on disposition of investment in AVI BioPharma stock resulting from exercise of warrant	—			780
Foreign currency transaction gain	1			—
Change in valuation of derivatives	—			(6,326		)
Loss before income tax	(3,499		)	(12,188		)
Income tax benefit	170			—
Net loss	$	(3,329	)	$	(12,188	)
Net loss per common share:
Basic and diluted net loss per comon share	$	(0.06	)	$	(0.24	)
Weighted average shares used in basic and diluted net loss per common share calculation	55,456			51,758

See accompanying notes to condensed consolidated financial statements

4

SUPERGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Three months ended
	March 31,
	2007			2006
Operating activities:
Net loss	$	(3,329	)	$	(12,188	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	247			156
Amortization of intangibles and distribution and marketing rights	737			96
Change in valuation of derivatives	—			6,326
Stock compensation expense	1,152			671
Gain on disposition of investment in AVI BioPharma stock	—			(780		)
Changes in operating assets and liabilities:
Accounts receivable and development revenue receivable	389			5,451
Inventories	(30		)	119
Prepaid expenses and other assets	(567		)	(389		)
Due from related parties	26			—
Restricted cash and investments	(31		)	(22		)
Accounts payable and other liabilities	(3,446		)	(714		)
Deferred gain on sale of products to Mayne Pharma	(203		)	—
Deferred revenue	(459		)	—
Net cash provided by (used in) operating activities	(5,514		)	(1,274		)
Investing activities:
Sales or maturities of marketable securities	—			1,500
Purchases of property and equipment	(211		)	(9		)
Proceeds from sale of products to Mayne Pharma	10,312			—
Net cash provided by investing activities	10,101			1,491
Financing activities:
Proceeds from issuance of common stock, net of issuance costs	2,103			541
Net cash provided by financing activities	2,103			541
Net increase in cash and cash equivalents	6,690			758
Cash and cash equivalents at beginning of period	67,704			47,664
Cash and cash equivalents at end of period	$	74,394		$	48,422

See accompanying notes to condensed consolidated financial statements

5

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007
(Unaudited)

NOTE 1.BASIS OF PRESENTATION

The accompanying condensed unaudited consolidated financial statements of SuperGen, Inc. (“we,” “SuperGen” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2007 are not necessarily indicative of results that may be expected for the year ending December 31, 2007.

The balance sheet at December 31, 2006 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, 2006.

NOTE 2.STOCK-BASED COMPENSATION

We account for stock-based compensation in accordance with the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123R”).

Stock Option Plans.   We have 12,263,000 shares of common stock authorized for issuance upon the grant of incentive stock options or nonstatutory stock options to employees, directors, and consultants under our 2003 Stock Plan. The number of shares to be purchased, their price, and the terms of payment are determined by our Board of Directors, provided that the exercise price for incentive stock options cannot be less than the fair market value on the date of grant. The options granted generally expire ten years after the date of grant and become exercisable at such times and under such conditions as determined by the Board of Directors (generally over a four or five year period).

Employee Stock Purchase Plan.   We also have an employee stock purchase plan (“ESPP”) that allows eligible employees to purchase common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six month period during the term of the ESPP. The current offering period began November 15, 2006 and is scheduled to end on May 14, 2007. Upon adoption of SFAS 123R, we began recording stock-based compensation expense related to the ESPP.

We recognized $1,152,000 and $690,000, respectively, in stock based compensation expense for the three months ended March 31, 2007 and 2006. These amounts have been recorded in research and development expense or selling, general and administrative expenses, based on the home department of our employees.

6

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

NOTE 2.STOCK-BASED COMPENSATION (Continued)

The fair value of each stock award is estimated on the grant date using the Black-Scholes option-pricing model based on the assumptions noted in the following table:

	Three months ended
	March 31,
	2007		2006
Risk-free interest rate	4.59	%	4.60	%
Dividend yield	—		—
Expected volatility	60.76	%	64.58	%
Expected life (in years)	5.14		5.18
Forfeiture rate	9.63	%	12.02	%

A summary of the Company’s stock option activity as of March 31, 2007, and changes during the three months then ended is presented below:

	Options Outstanding			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance at December 31, 2006		6,615,153			$	8.75
Granted		1,563,524			5.07
Exercised		(174,135	)		3.86
Forfeited		(65,908	)		5.77
Expired		(333,064	)		9.67
Balance at March 31, 2007		7,605,570			$	8.09		6.60	$	5,277,853
Vested or expected to vest at March 31, 2007		7,142,648			$	8.18		6.47	$	4,998,262
Exercisable at March 31, 2007		5,037,418			$	8.93		5.45	$	3,643,798

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2007 was $2.86. The total intrinsic value of options exercised (i.e. the difference between the market price at exercise and the price paid to exercise the options) during the three months ended March 31, 2007 was $273,000 and the total amount of cash received from exercise of these options was $666,000.

As of March 31, 2007, there was $6,117,000 of total unrecognized compensation cost related to unvested stock-based awards. This cost is expected to be recognized over a weighted average period of 2.15 years. We expect approximately 2,105,530 in unvested options to vest at some point in the future. Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

NOTE 3.CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

Cash and cash equivalents include bank demand deposits, certificates of deposit, investments in debt securities with maturities of three months or less when purchased, and an interest in money market funds

7

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

which invest primarily in U.S. government obligations and commercial paper. These instruments are highly liquid and are subject to insignificant risk.

Investments in marketable securities consist of equity securities and corporate or government debt securities that have a readily ascertainable market value and are readily marketable. We report these investments at fair value. We designate all marketable securities as available-for-sale, with unrealized gains and losses included as a component of equity.

The following is a summary of available-for-sale securities as of March 31, 2007 (in thousands):

	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
U.S. corporate debt securities		$	70,011		$	9		$	—		$	70,020
Marketable equity securities		5,846			698			(2		)	6,542
Total		$	75,857		$	707		$	(2	)	$	76,562

The available-for-sale securities are classified on the balance sheet as of March 31, 2007 as follows (in thousands):

	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
Amounts included in cash and cash equivalents		$	70,011		$	9		$	—		$	70,020
Amounts included in investment in stock of related parties		5,722			668			—			6,390
Marketable securities, non-current		124			30			(2		)	152
Total		$	75,857		$	707		$	(2	)	$	76,562

Available-for-sale securities by contractual maturity are shown below (in thousands):

	Fair Value
	March 31, 2007			December 31, 2006
Debt securities due in one year or less		$	70,020		$	64,031
Marketable equity securities		6,542			7,761
Total		$	76,562		$	71,792

8

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

NOTE 4.INVENTORIES

Inventories consist of the following (in thousands):

	March 31, 2007			December 31, 2006
Work in process		$	126		$	126
Finished goods		127			97
Total		$	253		$	223

NOTE 5.LICENSE AND STOCK PURCHASE AGREEMENTS WITH MGI PHARMA, INC.

In August 2004, we entered into a license agreement, which became effective on September 21, 2004, with MGI PHARMA, Inc., a Minnesota corporation (“MGI”) relating to Dacogen® (decitabine) for Injection, an anti-cancer therapeutic which has been approved by the United States Food Drug Administration (“FDA”) for the treatment of patients with myelodysplastic syndrome (“MDS”).

Pursuant to the terms of the license agreement, MGI received exclusive worldwide rights to the development, commercialization and distribution of Dacogen for all indications. We are entitled to 20% to 30% in royalties from MGI on all sales of licensed product worldwide. The license agreement will expire, on a country-by-country and licensed product-by-licensed product basis on the later to occur of (a) twenty years after the first commercial sale of the applicable licensed product in the respective country or (b) the expiration, termination, invalidation or abandonment of the patent rights covering the respective licensed product, or the manufacture or use thereof, in the respective country. Either we or MGI may terminate the license agreement for the non-payment by the other of any payment obligations under the agreement, or for any uncured material breach of the agreement. In addition, we have the right to terminate the agreement if (i) MGI is acquired by an entity that is not deemed an “equivalent” pharmaceutical company or (ii) MGI becomes insolvent. None of the payments made pursuant to the agreement are refundable, except in the case of overpayment.

In May 2006, the FDA approved Dacogen for the treatment of patients with MDS and MGI commenced commercial sales of Dacogen in the United States. MGI is required to pay us royalties of 20% to 30% of net Dacogen sales within 45 days after the end of each calendar quarter. We recognize royalty revenue on a cash basis when we receive it from MGI because we do not have sufficient ability to accurately estimate Dacogen sales. During the three months ended March 31, 2007, we recorded royalty revenue of $3,794,000, relating to Dacogen sales for the fourth quarter of 2006.

In July 2006, MGI executed an agreement to sublicense Dacogen to Cilag GmbH, a Johnson & Johnson company, granting exclusive development and commercialization rights in all territories outside North America.

NOTE 6.ACQUISITION OF MONTIGEN PHARMACEUTICALS, INC.

On April 4, 2006, we completed our acquisition of Montigen Pharmaceuticals, Inc. (“Montigen”), a privately-held oncology-focused drug discovery and development company headquartered in Salt Lake City, Utah. Montigen’s assets include its research and development team, a proprietary drug discovery

9

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

NOTE 6.ACQUISITION OF MONTIGEN PHARMACEUTICALS, INC. (Continued)

technology platform and optimization process, CLIMB™, and late-stage pre-clinical compounds targeting Aurora-A Kinase and members of the Tyrosine Kinase receptor family.

Pursuant to the terms of the agreement, we paid the Montigen stockholders a total of $17.9 million upon the closing of the transaction in cash and shares of SuperGen common stock. We will pay the Montigen stockholders an additional $22.0 million in shares of SuperGen common stock, contingent upon achievement of specific regulatory milestones.

The acquisition of Montigen was accounted for as an acquisition of assets rather than as a business combination. The results of operations of Montigen since April 4, 2006 have been included in our consolidated financial statements and primarily consist of research and development expenses.

The values assigned to assembled workforce and CLIMB technology platform are being amortized over three years, the estimated useful lives of the assets. The accumulated amortization of the assembled workforce and CLIMB technology was $78,000 and $347,000, respectively at March 31, 2007.

The $22.0 million in future contingent regulatory milestone payments due to the Montigen stockholders will be recorded as additional acquired in-process research and development expense when paid.

Subsequent Event—Payment of First Milestone

The first Montigen compound began Phase I clinical trials in April 2007, triggering the first milestone payment to the former Montigen stockholders of $10.0 million, which was paid in shares of our common stock.

NOTE 7.��  ASSET ACQUISITION AGREEMENT WITH MAYNE PHARMA

Sale of North American Product Rights

On August 22, 2006, we executed an Asset Acquisition Agreement with Mayne Pharma (USA), Inc. (“Mayne”), pursuant to which Mayne acquired the North American rights to Nipent® and SurfaceSafe® cleaning system. We received cash proceeds of $13,395,000 upon closing of the transaction, which represented the purchase price per the agreement, reduced by a number of adjustments and holdbacks, as follows (in thousands):

Purchase price per agreement	$	21,095
Less:Mitomycin reduction	(1,140		)
Supply holdback	(5,000		)
Indemnification holdback	(1,000		)
Net asset adjustment	(445		)
Channel inventory adjustment	(115		)
Initial cash proceeds	$	13,395

10

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

NOTE 7.   ASSET ACQUISITION AGREEMENT WITH MAYNE PHARMA (Continued)

The supply holdback is being held by Mayne until we complete the qualification and deliver an FDA approved manufacturer of Nipent, and the execution of a commercial supply agreement between Mayne and the approved manufacturer. The indemnification holdback will be held by Mayne for 18 months to cover any potential claims.

In addition to the initial payment and holdbacks, we are entitled to receive annual deferred payments totaling $14,140,000 over the next five years based on achievement of specific annual sales targets by Mayne. These annual deferred payments may be accelerated under certain circumstances, including a change of control at Mayne. In February 2007, such a change in control occurred as Mayne was acquired by Hospira. As a result, we received an accelerated milestone payment of $10,312,000 from Mayne.

In conjunction with the Asset Acquisition Agreement with Mayne, we also entered into certain related agreements including the following:

Transition Services Agreement—We have agreed to provide certain transition services to Mayne. This includes utilization of our sales and marketing personnel during a six month transition period, for which we are being reimbursed by Mayne. In addition, Mayne has agreed to provide certain transition services, without charge related to supporting approval of a specified manufacturer of Nipent in Europe. During the three months ended March 31, 2007, we billed $481,000 for services provided to Mayne, which has been recorded as a reduction of our selling, general and administrative operating expenses. The transition services period ended on February 21, 2007.

Supply Agreement—To support our European business, Mayne will provide us with a supply of Nipent indefinitely or until our potential sale of the European business to Mayne is finalized. During the three months ended March 31, 2007, there were no purchases of Nipent from Mayne.

We have a number of additional obligations under the Asset Acquisition Agreement, including the following:

Reimbursement of Costs for Alternate Supply—We are obligated to reimburse Mayne up to $1 million for transferring manufacturing and purification capabilities related to crude pentostatin from the existing manufacturer to Mayne’s specified facility. During the three months ended March 31, 2007, we recorded $232,000 for alternate supply cost reimbursements, and have paid $374,000 to date.

Development Plan Payments—We are obligated to pay all remaining amounts due under a validation and supply agreement for qualification of a Nipent manufacturing facility. This provision relates directly to the $5 million supply holdback noted above. During the three months ended March 31, 2007, we recorded $90,000 of costs related to this obligation.

Price Protection—We are obligated to reimburse Mayne for three years for amounts paid to a new supplier of Nipent in excess of the amounts referenced in the Supply Agreement noted above. Contract negotiations have not been completed on the new supply agreement and we believe there remains uncertainty around the amount of the price protection exposure. Once the supply agreement is negotiated we anticipate that we will have an appropriate basis to assess whether, and to what

11

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

NOTE 7.ASSET ACQUISITION AGREEMENT WITH MAYNE PHARMA (Continued)

extent, any price protection exposure exists, which will impact when we recognize the net gain on sale for this transaction.

Retention and Severance Costs—We were obligated to pay all retention and severance costs for employees that continued to perform services under the Transition Services Agreement. Since our employees were required to stay with the company and perform transition related services before they could collect their retention and severance, we accrued the retention and severance costs as they were earned. During the three months March 31, 2007, we recorded $187,000 of retention and severance costs, recorded in selling, general and administrative expenses. We recorded total retention and severance costs of $1,826,000 through the end of the transition services period, which ended on February 21, 2007.

From the initial cash proceeds from the agreement of $13,395,000 and the accelerated milestone payment of $10,312,000, we deducted the value of net assets delivered to Mayne, including inventory, prepaid expenses, and manufacturing equipment, and also deducted the reimbursement of alternative supply costs, resulting in a remaining net gain of $21,863,000 as of March 31, 2007. However, due to the uncertainty regarding the price protection exposure noted above, we have continued to defer the entire net gain as of March 31, 2007.

Due to the Company’s continuing involvement with the Nipent operations, resulting from entering into the related agreements and the additional obligations as described above, the Company has reflected activities related to the Nipent and Surface Safe businesses in operating activities for all periods presented.

Subsequent Event—Sale of Remaining Worldwide Nipent Rights

On April 2, 2007, we closed an Asset Acquisition Agreement with Mayne, pursuant to which Mayne acquired the remaining worldwide rights to Nipent for a total consideration of $8 million, including approximately $3.75 million received upon the closing of the transaction. We also sold for additional consideration related Nipent inventory with the transaction. The balance of the purchase price includes $1.25 million of payments contingent on key events and the remaining $3 million is payable over a five-year period on the anniversary of the closing date.

NOTE 8.NIPENT EUROPEAN MARKETING AND DISTRIBUTION RIGHTS

Pfizer Marketing Rights

In February 2004, we entered into a Purchase and Sale Agreement with Pfizer Inc. to acquire European marketing rights for Nipent, our drug approved for marketing in the United States for hairy cell leukemia. We paid Pfizer $1,000,000 under this agreement and classified this amount in Prepaid distribution and marketing rights in the accompanying balance sheet. This amount was amortized over 31 months, the estimated life of the benefit period. Accumulated amortization was $806,000 at March 31, 2006, and was fully amortized at September 30, 2006.

12

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

NOTE 8.NIPENT EUROPEAN MARKETING AND DISTRIBUTION RIGHTS (Continued)

Wyeth Distribution Rights

On June 1, 2006, we entered into an agreement with Wyeth to terminate the European distribution of Nipent by Wyeth and transition distribution to SuperGen. In connection with the execution of the amended agreement, we paid Wyeth $2.1 million in consideration for the acceleration of the transfer of the Nipent European distribution rights and the net profit amounts to be paid by Wyeth as described below. The original distribution and supply agreement with Wyeth would have terminated on its own terms at no cost to SuperGen over a period of time, varying by country, through March 2007. Under the amended agreement, distribution rights transitioned for most countries, except Spain and France, on December 1, 2006. Spain and France transitioned in February 2007.

During the transition period, we continued to ship vials of Nipent to Wyeth for sale and distribution in various countries in Europe. On a monthly basis, Wyeth has remitted to SuperGen an additional amount, defined in the amended and restated supply agreement as the “net profit,” based on Wyeth’s sales of Nipent. The net profit has been computed as Wyeth’s invoiced net sales, less the product acquisition cost from SuperGen, less 5% transfer fee and less 5% distribution fee. Recurring remittances to SuperGen may be adjusted by any Wyeth invoiced trade receivable that is overdue by 60 days or more. At the time distribution rights transferred, we repurchased any unsold inventory held by Wyeth with a shelf life greater than 12 months.

We recorded the initial $2.1 million payment to Wyeth as Prepaid distribution and marketing rights, and amortized it as a reduction of product revenue over 10 months, which corresponds to the termination acceleration period of June 2006 through March 2007.  This payment was fully amortized at March 31, 2007. We recognized the revenue, and related cost of revenue, when the vials were delivered to the end customer by Wyeth.  We determined that Wyeth’s ability to collect from the end customer is reasonably assured. During the three months ended March 31, 2007, we recorded $257,000 of net profit from Wyeth, which was included in net product revenue.

NOTE 9.CONVERTIBLE DEBT FINANCING DERIVATIVE LIABILITY AND COLLATERAL

In June 2003, we closed a private placement transaction in which we issued Senior Convertible Notes (“June Notes”) in the aggregate principal amount of $21.25 million. In connection with the issuance of the June Notes, we issued to the note holders warrants to purchase the 2,634,211 shares of AVI BioPharma, Inc. that we own (“AVI Shares”) at an exercise price of $5.00 per share. The warrants represented a derivative under Statement of Financial Accounting Standards (“SFAS”) 133 that must be recorded at fair value. Changes in the fair value of the derivative have been recognized in earnings. During the three months ended March 31, 2006, we recorded a change in the value of this derivative of $6,326,000. There was no similar charge in the three months ended March 31, 2007 as the warrants expired on December 31, 2006.

During the three months ended March 31, 2006, one of the warrant holders exercised 300,000 warrants. As part of this transaction, we received $1,500,000 in cash and transferred 300,000 of the AVI Shares to the warrant holder. We recognized a gain on disposition of the shares of $780,000, representing the difference between our carrying value of the shares and the proceeds we received.

13

SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

NOTE 9.CONVERTIBLE DEBT FINANCING DERIVATIVE LIABILITY AND COLLATERAL (Continued)

In connection with the issuance of the warrants to acquire the AVI Shares, the AVI Shares had been pledged into a collateral account. At December 31, 2006, the fair value of the pledged 2,334,211 AVI Shares were included in the accompanying balance sheet under non-current Restricted cash and investments, with an additional 50,000 unrestricted shares of AVI included in Investment in stock of related parties. As noted above, the warrants expired on December 31, 2006, and the 2,334,211 pledged shares were released from the collateral account. At March 31, 2007, all 2,384,211 AVI Shares are included in Investment in stock of related parties. We reflect temporary changes in the value of those shares as part of accumulated other comprehensive gain or loss in stockholders’ equity.

NOTE 10.COMPREHENSIVE LOSS

Comprehensive losses consisted primarily of the net income or loss and changes in unrealized gains or losses on investments. For the three months ended March 31, 2007 and 2006, total comprehensive losses amounted to $4,547,000 and $2,542,000, respectively.   We recorded unrealized losses on investments of $1,218,000 for the three months ended March 31, 2007 and unrealized gains on investments of $9,646,000 for the three months ended March 31, 2006.

NOTE 11.BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

In periods in which we have reported operating losses, basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of shares outstanding during the period. The effect of assuming the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted net loss per share are the same.

The computation of diluted net loss per share for the three months ended March 31, 2007 and 2006 excludes the impact of the following (in thousands):

	March 31,
	2007	2006
Options to purchase common stock	7,606	6,368
Warrants to purchase common stock	4,596	6,725

NOTE 12.   INCOME TAXES

We have recorded a tax benefit of $170,000 for the three months ended March 31, 2007, based on the Company’s estimated effective tax rate for the year. The effective tax rate is based on the anticipated alternative minimum taxes and state income taxed that will be incurred in the current year. We recorded no tax benefit or provision for the three months ended March 31, 2006.

We adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. There was no impact on our consolidated financial position, results of operations and cash flows as a result of adoption. We have no unrecognized tax benefit, as described in FIN 48, as of March 31, 2007. Also, there are no accrued amounts for interest and penalties.

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SUPERGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 2007
(Unaudited)

NOTE 12.INCOME TAXES (Continued)

Our policy will be to recognize interest and penalties related to income taxes as a component of income tax expense. We are subject to income tax examinations for U.S. Federal incomes taxes and state income taxes from 1992 forward due to net operating losses in tax years 1992 through 2005. We are subject to tax examinations in the United Kingdom from 2001 forward. We do not anticipate that total unrecognized tax benefits will significantly change prior to March 31, 2008.

NOTE 13.   RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement clarifies how to measure fair value as permitted under other accounting pronouncements but does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. We will be required to adopt SFAS No. 157 as of January 1, 2008. We are currently evaluating the impact of SFAS No. 157 and have not yet determined the effect on our earnings or financial position.

NOTE 14.   SUBSEQUENT EVENT—SALE OF PRODUCTS TO INTAS

On April 17, 2007, we sold the rights to anticancer agents mitomycin and paclitaxel to Intas Pharmaceuticals Ltd. for an aggregate purchase price of $1.2 million. We received $600,000 upon closing of the transaction, with the balance due at the time of product transfer later in the second quarter. We will also sell for additional consideration certain related inventory with the transaction.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with our consolidated financial statements and related notes included elsewhere in this report. The results discussed below are not necessarily indicative of the results to be expected in any future periods. Our disclosure and analysis in this section of the report also contain forward-looking statements. When we use the words “anticipate,” “estimate,” “project,” “intend,” “expect,” “plan,” “believe,” “should,” “likely” and similar expressions, we are making forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. In particular, these statements include statements such as: our estimates about becoming profitable; the percentage of royalties we expect to earn on Dacogen sales under our agreement with MGI; our forecasts regarding our research and development expenses; and our statements regarding the sufficiency of our cash to meet our operating needs. Our actual results could differ materially from those predicted in the forward-looking statements as a result of risks and uncertainties including, but not limited to, delays and risks associated with conducting and managing our clinical trials; developing products and obtaining regulatory approval; ability to establish and maintain collaboration relationships; competition; ability to obtain funding; ability to protect our intellectual property; our dependence on third party suppliers; risks associated with the hiring and loss of key personnel; adverse changes in the specific markets for our products; and our ability to launch and commercialize our products. Certain unknown or immaterial risks and uncertainties can also affect our forward-looking statements. Consequently, no forward-looking statement can be guaranteed and you should not rely on these forward-looking statements. For a discussion of the known and material risks that could affect our actual results, please see the “Risk Factors” section of this report. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Readers should carefully review the Risk Factors section as well as other reports or documents we file from time to time with the Securities and Exchange Commission.

Overview

We are a pharmaceutical company dedicated to the discovery, development and commercialization of therapies to treat patients with cancer. We have a number of Aurora-A and Tyrosine Kinase inhibitors and DNA methyltransferase pre-clinical products under development. In 2006, Dacogen received approval for marketing in the United States, Nipent and our commercial infrastructure was sold to Mayne Pharma, and we acquired a drug discovery and development company to complement our ongoing licensing efforts. These changes were implemented to mitigate the ongoing risk of competitive in-licensing and maximize the return on both existing resources and our incoming royalty and milestone revenue.

Since our incorporation in 1991 we have devoted substantially all of our resources to our product development efforts. Our past development efforts have been focused on the key compounds of Dacogen and Nipent.

Dacogen.   The FDA approved Dacogen for the treatment of patients with MDS in May 2006.

In September 2004, we executed an agreement granting MGI exclusive worldwide rights to the development, manufacture, commercialization and distribution of Dacogen. Under the terms of the agreement, MGI made a $40.0 million equity investment in our company and will pay up to $45.0 million in specific regulatory and commercialization milestone payments. To date, we have received $32.5 million of these milestone payments, including $20.0 million upon first commercial sale of Dacogen in the U.S. in May 2006. In accordance with our agreement with MGI, we are entitled to receive a royalty on worldwide net sales starting at 20% and escalating to a maximum of 30%. During the three months ended March 31, 2007, we recorded royalty revenue of $3.8 million. Because we do not have sufficient ability to accurately estimate Dacogen sales, we recognize royalty revenue on a cash basis when we receive it from MGI.

In July 2006, MGI executed an agreement to sublicense Dacogen to Cilag GmbH, a Johnson & Johnson company, granting exclusive development and commercialization rights in all territories outside

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North America. In accordance with our license agreement with MGI, we are entitled to receive 50% of any payments MGI receives as a result of any sublicenses. We received $5.0 million, 50% of the $10 million upfront payment MGI received, and, as a result of both the original agreement with MGI and this sublicense with Cilag GmbH, may receive up to $23.75 million in future milestone payments as they are achieved for Dacogen globally. Janssen-Cilag companies will be responsible for conducting regulatory and commercial activities related to Dacogen in all territories outside North America, while MGI retains all commercialization rights and responsibility for all activities in the United States, Canada and Mexico.

Nipent.   Nipent is approved by the FDA and EMEA for the treatment of hairy cell leukemia. Nipent was marketed by us in the United States until August 2006, and distributed in Europe through March 2007.

On June 1, 2006, we entered into an amended and restated supply agreement with Wyeth to terminate the European distribution of Nipent by Wyeth and transition distribution to SuperGen. In connection with the execution of the amended agreement, we paid Wyeth $2.1 million in consideration for the acceleration of the transfer of the Nipent European distribution rights and the net profit amounts to be paid by Wyeth as described below. The original distribution and supply agreement with Wyeth would have terminated on its own terms at no cost to SuperGen over a period of time, varying by country, through March 2007. Under the amended agreement, distribution rights transitioned for most countries, except Spain and France, on December 1, 2006. Spain and France transitioned in February 2007.

During the transition period, we shipped vials of Nipent to Wyeth for sale and distribution in various countries in Europe. On a monthly basis, Wyeth remitted to SuperGen an additional amount, defined in the amended and restated supply agreement as the “net profit,” based on Wyeth’s sales of Nipent. The net profit has been computed as Wyeth’s invoiced net sales, less the product acquisition cost from SuperGen, less 5% transfer fee (based on product cost) and less 5% distribution fee (based on net revenue). Recurring remittances to SuperGen may be adjusted by any Wyeth invoiced trade receivable that is overdue by 60 days or more. Based on discussions with Wyeth, we believe that Wyeth’s ability to collect these amounts is reasonably assured. On December 1, 2006, we repurchased most of the unsold European inventory held by Wyeth with a shelf life greater than 12 months, and repurchased the inventories for Spain and France in February 2007.

On August 22, 2006, we closed a transaction with Mayne Pharma (USA), Inc., whereby Mayne acquired the North American rights to Nipent and SurfaceSafe cleaning system. Pursuant to the Asset Acquisition Agreement, we received cash proceeds of $13.4 million upon closing of the transaction. In addition to the initial payment and holdbacks, we had the right to receive annual deferred payments totaling $14.1 million over the next five years based on achievement of specific sales targets. These annual deferred payments may be accelerated under certain circumstances, including a change of control of Mayne. Such a change of control occurred in February 2007 when Mayne was acquired by Hospira, and we received $10.3 million of the deferred payments. We continued to maintain our commercial operations organization to support the sales and marketing of Nipent during the six-month transition period, which ended on February 21, 2007. We have been reimbursed by Mayne for all Nipent sales and marketing costs during the transition period, including employee salaries and overhead.

On April 2, 2007, we closed a transaction with Mayne, pursuant to which Mayne acquired the remaining worldwide rights to Nipent for a total consideration of $8 million, including approximately $3.75 million received upon the closing of the sale. We also sold for additional consideration related Nipent inventory with the transaction. The balance of the purchase price includes $1.25 million of payments contingent on key events and the remaining $3 million is payable over a five-year period on the anniversary of the closing date.

Montigen Acquisition.   In April 2006, we completed our acquisition of Montigen, a privately-held oncology-focused drug discovery and development company headquartered in Salt Lake City, Utah. Montigen’s assets included its research and development team, a proprietary drug discovery technology

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platform and optimization process known as CLIMB, and late-stage pre-clinical compounds targeting Aurora-A Kinase and members of the Tyrosine Kinase receptor family.

Pursuant to the terms of the merger agreement with Montigen, we paid the Montigen stockholders a total of $17.9 million upon the closing of the transaction in cash and shares of SuperGen common stock. We will pay the Montigen stockholders an additional $22.0 million in shares of SuperGen common stock, contingent upon achievement of specific regulatory milestones. The first Montigen compound began Phase I clinical trials in April 2007, which triggered the first milestone payment to the former Montigen stockholders of $10.0 million paid in shares of our common stock.

To date, our product revenues have been limited and were derived primarily from sales of Nipent for the treatment of hairy cell leukemia, which was marketed in the United States until August 2006 and in Europe through March 2007. Most of our products are still in the development stage, and we will require substantial additional investments in research and development, clinical trials, regulatory and in sales and marketing activities to commercialize current and future product candidates. Conducting clinical trials is a lengthy, time-consuming, and expensive process involving inherent uncertainties and risks, and our studies may be insufficient to demonstrate safety and efficacy to support FDA approval of any of our product candidates.

As a result of our substantial research and development expenditures and minimal product revenues, we have incurred cumulative losses of $368.6 million through March 31, 2007, and have never generated enough funds through our operations to support our business. We expect to continue to incur operating losses at least through 2008.

Ultimately, our ability to become profitable will depend upon a variety of factors, including regulatory approvals of our products, the timing of the introduction and market acceptance of our products and competing products, MGI’s success in commercializing Dacogen, the launch of new products and our ability to control our ongoing costs and operating expenses. If the results from our clinical trials are not positive, we may not be able to get sufficient funding to continue our trials or conduct new trials, and we would be forced to scale down or cease our business operations. Moreover, if our products are not approved or commercially accepted we will remain unprofitable for longer than we currently anticipate. Additionally, we might be forced to substantially scale down our operations or sell certain of our assets, and it is likely the price of our stock would decline precipitously.

Critical Accounting Policies

Our management discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and reported disclosures. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, intangible assets, valuation of investments and derivative instruments. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are more fully disclosed in Note 1 to our consolidated financial statements included in our 2006 Annual Report on Form 10-K. However, some of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management. We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

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Stock-Based Compensation

We account for stock-based compensation in accordance with the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123R”).

The fair value of each stock award is estimated on the grant date using the Black-Scholes option-pricing model based on assumptions for volatility, risk-free interest rates, expected life of the option, and dividends (if any). Expected volatility is determined based on a blend of historical volatility and implied volatility of our common stock based on the period of time corresponding to the expected life of the stock options. The expected life of our stock options is based on our historical data and represents the period of time that stock options granted are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption.

We are using the straight-line attribution method to recognize stock based compensation expense. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

As of March 31, 2007, there was $6,117,000 of total unrecognized compensation cost related to unvested stock-based awards. This cost is expected to be recognized over a weighted average period of 2.15 years. We expect approximately 2,106,000 in unvested options to vest at some point in the future. Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

Revenue Recognition

Our net product revenues have related principally to Nipent. We recognize sales revenue upon shipment and related transfer of title to customers, and when collectibility is reasonably assured.

Cash advance payments received in connection with distribution agreements, license agreements, or research grants are generally deferred and recognized ratably over the period of the respective agreements or until services are performed. We recognize cost reimbursement revenue under collaborative agreements as the related research and development costs are incurred. We recognize milestone fees upon completion of specified milestones according to contract terms. Deferred revenue represents the portion of such cash advance payments received that have not been earned.

We accounted for our $2.1 million payment to Wyeth in June 2006 as Prepaid distribution and marketing rights, which were amortized against revenue over 10 months, equaling the termination acceleration period of June 2006 through March 2007. The amortization of $630,000 through the three months ended March 31, 2007 was reflected as a reduction of product revenue. Proceeds from our initial product shipments to Wyeth were deferred and were recognized as revenue (and related cost of revenue) when the product was delivered to the end customer by Wyeth. Under the terms of our amended license agreement with Wyeth, we receive an additional amount of net profit based on Wyeth’s sales of Nipent. During the three months ended March 31, 2007, we received $257,000 of net profit, which was included in net product revenue.

MGI is required to pay us royalties of 20% to 30% of net Dacogen sales within 45 days after the end of each calendar quarter. During the three month period ended March 31, 2007, we recorded royalty revenue of $3.8 million. Because we do not have sufficient ability to accurately estimate Dacogen sales, we recognize royalty revenue on a cash basis when we receive it from MGI. In accordance with our license agreement with MGI, we are entitled to receive 50% of any payments MGI receives as a result of any

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sublicenses. We received $5.0 million, 50% of the $10 million upfront payment MGI received, and, as a result of both the original agreement with MGI and a sublicense with Cilag GmbH, may receive up to $23.75 million in future milestone payments as they are achieved for Dacogen globally.

We received initial cash proceeds from the Asset Acquisition Agreement with Mayne Pharma of $13,395,000. From the initial cash proceeds and the accelerated milestone payment of $10,312,000, we deducted the value of net assets delivered to Mayne, including inventory, prepaid expenses, and manufacturing equipment, and also deducted the reimbursement of alternative supply costs, resulting in a remaining net gain of $21,863,000. However, due to the uncertainty regarding the price protection exposure noted in Note 7, we have deferred the entire net gain as of March 31, 2007. We expect that Mayne and the new supplier will have completed negotiations on a commercial supply agreement by the end of the second quarter of 2007.

Goodwill and Intangible Assets

We have intangible assets related to goodwill and other acquired intangibles such as acquired workforce, CLIMB process technology, trademarks, covenants not to compete, and customer lists. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgment. Changes in strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded asset balances. We review intangible assets, as well as other long-lived assets, for impairment whenever events or circumstances indicate that the carrying amount may not be fully recoverable. Additionally, we review goodwill for impairment annually in accordance with FASB Statement No. 142, “Goodwill and Other Intangible Assets.”

Valuation of Investments in Financial Instruments

Investments in financial instruments are carried at fair value with unrealized gains and losses included in Accumulated other comprehensive income or loss in stockholders’ equity. Our investment portfolio includes equity securities that could subject us to material market risk and corporate obligations that subject us to varying levels of credit risk. If the fair value of a financial instrument has declined below its carrying value for a period in excess of six consecutive months or if the decline is due to a significant adverse event, such that the carrying amount of these investments may not be fully recoverable, the impairment is considered to be other than temporary. An other than temporary decline in fair value of a financial instrument would be subject to a write-down resulting in a charge against earnings. The determination of whether a decline in fair value is other than temporary requires significant judgment, and could have a material impact on our balance sheet and results of operations. Our management reviews the securities within our portfolio for other than temporary declines in value on a regular basis. The prices of some of our marketable securities, in particular AVI, are subject to considerable volatility. Decreases in the fair value of these securities may significantly impact our results of operations.

Investments in equity securities without readily determinable fair value are carried at cost. We periodically review those carried costs and evaluate whether an impairment has occurred. The determination of whether an impairment has occurred requires significant judgment, as each investment may have unique market or development opportunities.

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Results of Operations

Three months ended March 31, 2007 compared to three months ended March 31, 2006:

	Three months ended
	March 31,				Change
Revenues	2007		2006		Dollar			Percent
	(Dollars in thousands)
Net product revenue	$	621	$	2,884	$	(2,263	)		(78.5	)%
Royalty revenue	3,794		—		3,794				—

The decrease in net product revenue for the three months ended March 31, 2007 was due primarily to the sale of our North American rights to Nipent and Surface Safe to Mayne Pharma effective on August 22, 2006. Net product revenues in 2007 relate only to sales in Europe.

During the three months ended March 31, 2007, we recorded royalty revenue of $3,794,000 related to Dacogen sales for the fourth quarter of 2006. MGI is required to pay us royalties of 20% to 30% of net Dacogen sales within 45 days after the end of each calendar quarter. Because we do not have sufficient ability to accurately estimate Dacogen sales, we recognize royalty revenue on a cash basis when we receive it from MGI. Dacogen was approved for sale by the FDA in May 2006.

	Three months ended
	March 31,				Change
Costs and operating expenses	2007		2006		Dollar			Percent
	(Dollars in thousands)
Cost of product revenue	$	221	$	548	$	(327	)		(59.7	)%
Research and development	5,063		3,021		2,042				67.6
Selling, general and administrative	3,575		6,493		(2,918		)		(44.9	)

The decline in cost of product revenue was due to the sale of our North American rights to Nipent and Surface Safe to Mayne Pharma effective on August 22, 2006.

The increase in research and development expenses was due to higher drug discovery research costs associated with the acquisition of Montigen facility in Salt Lake City, Utah in April 2006 and employee stock compensation costs recorded as a result of the implementation of SFAS 123R, offset by lower clinical research and supply costs related to Nipent.

The decrease in selling, general and administrative expenses for the three months ended March 31, 2007 relates primarily to lower costs associated with sales and marketing programs due to the sale of Nipent and Surface Safe to Mayne in August 2006, offset by higher expenses relating to the recording of stock compensation expense as a result of the implementation of SFAS 123R.

	Three months ended
	March 31,					Change
Other income (expense)	2007		2006			Dollar			Percent
	(Dollars in thousands)
Interest income	$	944	$	536		$	408			76.1	%
Gain on disposition of AVI stock	—		780			(780		)		(100.0	)
Foreign currency transaction gain	1		—			1				—
Change in valuation of derivatives	—		(6,326		)	(6,326		)		(100.0	)

The increase in interest income was due to higher available cash and marketable securities balances and an increase in interest rates for the three months ended March 31, 2007, compared to the same period in 2006.

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As part of our June 2003 convertible debt transaction, we issued to the note holders warrants to purchase 2,634,211 shares of AVI at $5.00 per share. During the three months ended March 31, 2006, one of the warrant holders exercised 300,000 warrants. As part of this transaction, we received $1,500,000 in cash and transferred 300,000 of the AVI Shares to the warrant holder. We recognized a gain on disposition of the shares of $780,000, representing the difference between our $2.40 per share adjusted cost basis of the shares and the exercise price. We had no similar transaction during the three months ended March 31, 2007.

The warrants issued in the June 2003 convertible debt transaction represent a derivative instrument and are revalued each quarter using the Black-Scholes pricing model. During the first quarter of 2006, the value of this derivative had increased by $6,326,000, due to an increase in the market value of the underlying shares of AVI at March 31, 2006. The warrants expired on December 31, 2006, so there was no corresponding transaction during the three months ended March 31, 2007.

Liquidity and Capital Resources

Our cash, cash equivalents, and marketable securities totaled $74,546,000 at March 31, 2007 compared to $67,883,000 at December 31, 2006. In addition, we held 2,384,211 shares of registered stock of AVI, which had a market value of $6,390,000 at March 31, 2007. In connection with the issuance of the warrants to acquire the AVI Shares in 2003, the AVI Shares had been pledged into a collateral account. The warrants expired on December 31, 2006, and 2,334,211 pledged shares were released from the collateral account. At March 31, 2007, all 2,384,211 AVI Shares are included in Investment in stock of related parties.

Net cash used in operating activities was $5,514,000 in the first quarter of 2007, and consisted primarily of the net loss of $3,329,000 and a decrease in accounts payable and other liabilities of $3,446,000, offset by non-cash stock compensation expense of $1,152,000. Net cash used in operating activities was $1,274,000 in the first quarter of 2006, and consisted primarily of the net loss of $12,188,000, offset by an increase in the valuation of derivatives of $6,326,000 and a decrease in accounts receivable of $5,451,000.

Net cash provided by investing activities was $10,101,000 in the first quarter of 2007, and consisted primarily of the accelerated milestone payments from Mayne Pharma of $10,312,000 due to a change in control at Mayne. Net cash provided by investing activities was $1,491,000 in the first quarter of 2006, and related primarily to the proceeds of $1,500,000 from disposition of shares of AVI BioPharma as a result of the exercise of warrants.

Net cash provided by financing activities was $2,103,000 and $541,000 in the first quarter of 2007 and 2006, respectively, and both consisted of proceeds from the exercise of stock options or warrants.

We have financed our operations primarily through the issuance of equity and debt securities and the receipt of milestone payments in connection with collaborative agreements. We believe that our current cash, cash equivalents, marketable securities and other investments will satisfy our cash requirements through 2008. However, it is our intention to consider additional financing options, including the selling of additional shares of stock in a public or private offering and/or exploring marketing partnership opportunities for existing or newly acquired or licensed products and development activities resulting from the acquired research operation based in Salt Lake City, Utah.

In addition to the contractual obligations disclosed in Management’s Discussion and Analysis included in our annual report on Form 10-K for the year ended December 31, 2006, effective April 4, 2006, we have $22.0 million in future contingent regulatory milestone payments due to the Montigen stockholders, which would be payable in shares of SuperGen stock. The first portion of this milestone

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payment, for $10.0 million, was paid in shares of our common stock in April 2007, which will be recorded as additional acquired in-process research and development expense in the second quarter of 2007.

We believe that our need for additional funding will increase in the future and that our continued ability to raise funds from external sources will be critical to our success. We continue to actively consider future contractual arrangements that would require significant financial commitments. If we experience currently unanticipated cash requirements, we could require additional capital much sooner than presently anticipated. We may raise money by the sale of our equity securities or debt, or the exercise of outstanding warrants and stock options by the holders of such warrants or options. However, given uncertain market conditions and the volatility of our stock price, we may not be able to sell our securities in public offerings or private placements at prices and on terms that are favorable to us, if at all. We may also choose to obtain funding through licensing and other contractual agreements. Such arrangements may require us to relinquish our rights to our technologies, products or marketing territories, or to grant licenses on terms that are not favorable to us. If we fail to obtain adequate funding in a timely manner, or at all, we will be forced to scale back our product development activities or our operations in a manner that will ensure we can discharge our obligations as they come due in the ordinary course of business.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Due to the short-term nature of our interest bearing assets, which consist primarily of certificates of deposit, United States corporate obligations, and United States government obligations, we believe that our exposure to interest rate market risk would not significantly affect our operations.

Our investment policy is to manage our marketable securities portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio. Our marketable securities portfolio is primarily invested in corporate debt securities with an average maturity of under one year and a minimum investment grade rating of A or A-1 or better to minimize credit risk. Although changes in interest rates may affect the fair value of the marketable securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments were to be sold prior to maturity.

Foreign Currency Risk

We currently sell our product primarily in Europe. Accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. To date, the effect of changes in foreign currency exchange rates on revenue and operating expenses has not been material. Operating expenses incurred by our foreign subsidiaries are denominated primarily in local currencies. We currently do not use financial instruments to hedge these operating expenses. We will assess our need to utilize financial instruments to hedge currency exposures on an ongoing basis.

Item 4.Controls And Procedures

(a)   Evaluation of disclosure controls and procedures.

As of March 31, 2007, our management evaluated, with the participation of our chief executive officer and our chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Except as noted below, there have been no changes in our internal control over financial reporting that occurred during this quarterly period that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this quarter’s evaluation, our chief executive officer and our chief financial officer have concluded that due to the material weakness that was identified as of December 31, 2006, our disclosure controls and procedures are not effective to ensure that information we are required to disclose

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in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be prevented or detected. Our management’s assessment of our internal control over financial reporting performed during the preparation of our consolidated financial statements as of December 31, 2006 identified the following material weakness (as defined by the Public Company Accounting Oversight Board) in our internal control over financial reporting:

The Company determined that as of December 31, 2006 a material weakness existed in the Company’s ability to maintain effective internal controls over the application of generally accepted accounting principles (“GAAP”) to non-routine and complex transactions due to insufficient GAAP expertise commensurate with the Company’s financial reporting requirements. As a result of this material weakness, errors were identified in the following two areas: (1) In connection with its periodic assessment of goodwill for impairment, the Company inappropriately evaluated goodwill for impairment below the reporting unit level, and (2) The Company did not determine whether the computations in the reports used to record compensation cost for share based payments appropriately applied the estimated forfeiture rate such that compensation cost recognized for the year ended December 31, 2006 was at least equal to the portion of the grant-date value of the awards that were vested at that date. As a result, adjustments to correct the identified errors were recorded in the consolidated financial statements for the year ended December 31, 2006 related to goodwill, additional paid in capital, and costs and operating expenses.

Remediation Efforts Related to Material Weakness in Internal Control Over Financial Reporting

In response to the material weakness in internal controls described above, we have taken steps to improve our ability to maintain effective internal controls over the application of GAAP to non-routine and complex transactions to meet our financial reporting requirements. Specific measures we have begun to adopt include:

·Assessing and enhancing the experience and knowledge of personnel used in applying GAAP and determining when it is appropriate to consult with third party specialists on non-routine and complex accounting transactions.

·Providing additional training to all personnel in the application of GAAP to reduce the likelihood of a material misstatement of our annual or interim financial statements.

(b)   Changes in internal control over financial reporting.

Except as noted above, there were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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SUPERGEN, INC.

PART II - OTHER INFORMATION

Item 1A.Risk Factors

The following section lists some, but not all, of the risks and uncertainties that may have a material adverse effect on our business, financial condition and results of operations. You should carefully consider these risks in evaluating our company and business. Our business operations may be impaired if any of the following risks actually occur, and by additional risks and uncertainties that we do not know of or that we currently consider immaterial. In such case, the trading price of our common stock could decline.

This report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this report.

Risks Related to Dacogen and Nipent

Dacogen may not be commercially successful.

Even though Dacogen has been approved in the United States and even if it receives regulatory approval in Europe at a future date, patients and physicians may not readily accept it, which would result in lower than projected sales and cause substantial harm to our business through the receipt of lower royalty revenue from MGI. In addition, pursuant to our license agreement with MGI, we are expecting to receive payments from MGI in connection with the achievement of certain commercialization milestones. If these commercialization milestones are not met, we will not receive these payments and our financial condition and business would be harmed.

If Dacogen does not receive regulatory approval in Europe, our future revenues may be limited and our business would be harmed.

Our European subsidiary, EuroGen Pharmaceuticals Ltd., submitted an MAA for Dacogen to the EMEA, which submission was accepted for review on October 25, 2004. MGI and SuperGen determined that additional clinical data will be required to continue the review of Dacogen in Europe. Therefore, we withdrew the MAA for Dacogen in November 2005.

In July 2006, MGI announced that it had sublicensed Dacogen to Cilag GmbH, a Johnson & Johnson company, granting exclusive development and commercialization rights in all territories outside North America. We received 50% of the $10 million upfront payment and, as a result of both the original agreement with MGI and this sublicense with Cilag GmbH, may receive up to $23.75 million in future milestone payments as they are achieved for Dacogen sales globally. Cilag will be responsible for conducting regulatory and commercial activities related to Dacogen in all territories outside North America, while MGI retains all commercialization rights and responsibility for all activities in the United States, Canada and Mexico. However, if Dacogen is never approved in Europe, we will not receive any of the expected royalty payments for commercial sales by Janssen-Cilag and our business will be harmed.

Our right to receive a significant portion of the consideration in the transaction with Mayne Pharma is subject to contingencies beyond our control.

In August 2006 we sold the North American rights to Nipent and Surface Safe to Mayne Pharma (USA), Inc. for a total aggregate consideration of approximately $34.0 million. $5.0 million of that aggregate amount is a supply holdback, and Mayne is not obligated to release this holdback to us until our Nipent manufacturer has been qualified and approved by the FDA and Mayne has successfully negotiated a commercial supply agreement with the product manufacturer. We cannot control or influence this approval process. In addition, over $3.8 million of the aggregate consideration will not be paid to us unless

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and until Mayne achieves specified targets for sales of Nipent, over the next five years. Achievement of these sales targets are beyond our control. If the conditions for the release of the supply holdback are not met, and/or we are not entitled to the approximately $3.8 million of deferred payments, we will not have received full value for Nipent. If we are not able to sell our revenue generating and otherwise valuable assets for full value, our financial condition and business will be harmed.

Risks Related to Our Financial Condition and Common Stock

We have a history of operating losses and we expect to continue to incur losses for the foreseeable future.

Since inception, we have funded our research and development activities primarily from private placements and public offerings of our securities, milestone payments and revenues generated primarily from sales of Nipent. The North American rights to Nipent were sold to Mayne Pharma in August 2006 and we recently sold the remaining worldwide rights to Nipent to Mayne in April 2007. Our substantial research and development expenditures and limited revenues have resulted in significant net losses. We have incurred cumulative losses of $368.6 million from inception through March 31, 2007, and our products have not generated sufficient revenues to support our business during that time. We expect to continue to incur substantial operating losses at least through 2008 and may never achieve profitability.

Whether we achieve profitability depends primarily on the following factors:

·the successful commercialization of Dacogen in North America by MGI;

·obtaining regulatory approval in Europe and the successful commercialization of Dacogen outside of North America by the Janssen-Cilag companies;

·delays in production of Dacogen or inadequate commercial sales of other products, after regulatory approvals have been received;

·our ability to bring to market other proprietary products that are advancing through our internal clinical development infrastructure;

·our ability to successfully expand our product pipeline through in-licensing and product acquisition;

·our research and development efforts, including the timing and costs of clinical trials;

·our competition’s ability to develop and bring to market competing products;

·our ability to control costs and expenses associated with manufacturing, distributing and selling our products, as well as general and administrative costs related to conducting our business; and

·costs and expenses associated with entering into licensing and other collaborative agreements.

Our products and product candidates, even if successfully developed and approved, may not generate sufficient or sustainable revenues to enable us to achieve or sustain profitability.

We will require additional funding to expand our product pipeline and commercialize new drugs, and if we are unable to raise the necessary capital or to do so on acceptable terms, our planned expansion and continued chances of survival could be harmed.

We will continue to spend substantial resources on expanding our product pipeline, selling and distributing future products, and conducting research and development, including clinical trials for our product candidates. We anticipate that our capital resources will be adequate to fund operations and capital expenditures at least through 2008. However, if we experience unanticipated cash requirements during this period, we could require additional funds much sooner. We may raise money by the sale of our equity securities or debt, or the exercise of outstanding warrants and stock options by the holders of such warrants and options. However, given uncertain market conditions and the volatility of our stock price, we

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may not be able to sell our securities in public offerings or private placements at prices and/or on terms that are favorable to us, if at all. Also, the dilutive effect of additional financings could adversely affect our per share results. We may also choose to obtain funding through licensing and other contractual agreements. For example, we licensed the worldwide rights to the development, commercialization and distribution of Dacogen to MGI. Such arrangements may require us to relinquish our rights to our technologies, products or marketing territories, or to grant licenses on terms that are not favorable to us. If we fail to obtain adequate funding in a timely manner, or at all, we will be forced to scale back our product development activities, or be forced to cease our operations.

Our collaborative relationship with MGI may not produce the financial benefits that we are anticipating, which could cause our business to suffer.

In addition to raising money by selling our equity securities to MGI in connection with the license agreement, we also expect to record development and license revenue from payments made to us by MGI upon the achievement of regulatory and commercialization milestones. However, we may fail to achieve these milestones, either because we are unable to secure regulatory approval of Dacogen in Europe or Asia or due to MGI’s or Janssen-Cilag’s inability to expend the resources to grow or commence sales of Dacogen as prescribed by the license agreement. In addition, the license agreement provides that MGI will pay us (i) a certain portion of revenues payable to MGI as a result of MGI sublicensing the rights to market, sell and/or distribute Dacogen, to the extent such revenues are in excess of the milestone payments, and (ii) a 20% royalty increasing to a maximum of 30% on annual worldwide net sales of Dacogen. We cannot guarantee that we will continue to receive these payments, and we cannot be assured that MGI will expend the resources to expand sales of Dacogen in North America, or that the Janssen-Cilag companies will expend the resources to sell it in Europe and elsewhere, or that either company be successful in doing so.

Our equity investment in AVI exposes us to equity price risk and any impairment charge would affect our results of operations.

Our investments are carried at fair value with unrealized gains and losses included in accumulated other comprehensive income or loss in stockholders’ equity. However, we are exposed to equity price risk on our equity investment in AVI. Currently we own 2,384,211 shares of AVI. During the year ended December 31, 2004, we recorded a write-down of $7.9 million related to an other than temporary decline in the value of our equity investment in AVI, resulting in a reduction of our cost basis in the AVI shares. Under our accounting policy, marketable equity securities are presumed to be impaired if their fair value is less than their cost basis for more than six months, absent compelling evidence to the contrary. As of June 30, 2004, the AVI shares had been trading below our original cost basis for more than six months. Since there was no compelling evidence to the contrary, we recorded the impairment charge of $7.9 million in our results of operations. The amount of the charge was based on the difference between the market price of the shares as of June 30, 2004 and our adjusted cost basis. The public trading prices of the AVI shares have fluctuated significantly since we purchased them and could continue to do so. If the public trading prices of these shares continue to trade below their new cost basis in future periods, we may incur additional impairment charges relating to this investment, which in turn will affect our results of operations.

Product Development and Regulatory Risks

Before we can seek regulatory approval of any of our product candidates, we must complete clinical trials, which are expensive and have uncertain outcomes.

Most of our products are in the developmental stage and, prior to their sale, will require regulatory approval and the commitment of substantial resources. Before obtaining regulatory approvals for the

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commercial sale of any of our product candidates, we must demonstrate through pre-clinical testing and clinical trials that our product candidates are safe and effective for use in humans.

We have a portfolio of cancer drugs in various stages of development. In addition, we expect to commence new clinical trials from time to time in the course of our business as our product development work continues. Conducting clinical trials is a lengthy, time consuming and expensive process and the results are inherently uncertain. We have incurred and will continue to incur substantial expense for, and we have devoted and expect to continue to devote a significant amount of time to, pre-clinical testing and clinical trials. However, regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates. If we are unable to complete our clinical trials, our business will be severely harmed and the price of our stock will likely decline.

We have ongoing research and pre-clinical projects that may lead to product candidates, but we have not begun clinical trials for these projects. If we do not successfully complete our pre-clinical trials, we could not commence clinical trials as planned.

Our clinical trials may be delayed or terminated, which would prevent us from seeking necessary regulatory approvals.

Completion of clinical trials may take several years or more. The length of a clinical trial varies substantially according to the type, complexity, novelty and intended use of the product candidate. For example, our three Phase III Orathecin clinical trials lasted from 1998 through the end of 2003. The length of time and complexity of these studies make statistical analysis difficult and regulatory approval unpredictable. The commencement and rate of completion of our clinical trials may be delayed by many factors, including:

·ineffectiveness of the study compound, or perceptions by physicians that the compound is not effective for a particular indication;

·inability to manufacture sufficient quantities of compounds for use in clinical trials;

·inability to obtain FDA approval of our clinical trial protocols;

·slower than expected rate of patient recruitment;

·inability to adequately follow patients after treatment;

·difficulty in managing multiple clinical sites;

·unforeseen safety issues;

·lack of efficacy demonstrated during the clinical trials; or

·government or regulatory delays.

If we are unable to achieve a satisfactory rate of completion of our clinical trials, our business will be significantly harmed.

We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in compliance with regulatory requirements.

Our clinical trials must be conducted in accordance with the FDA’s regulations and are subject to continuous oversight by the FDA and institutional review boards at the medical institutions where the clinical trials are conducted. We outsource certain aspects of our research and development activities to contract research organizations (“CROs”). We have agreements with these CROs for certain of our clinical programs. We and our CROs are required to comply with good clinical practice (“GCP”) regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA

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enforces GCPs through periodic inspections of study sponsors, principal investigators, and study sites. If our CROs or we fail to comply with applicable GCPs, the clinical data generated in our studies may be deemed unreliable and the FDA may require us to perform additional studies before approving our applications. In addition, our clinical trials must be conducted with product candidates produced under current good manufacturing practices (“GMPs”), and may require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process.

We may be required to suspend, repeat or terminate our clinical trials if later trial results fail to demonstrate safety and efficacy, or if the results are negative, inconclusive or if they fail to demonstrate safety or efficacy.

Our clinical trials may be suspended at any time if we or the FDA believe the patients participating in our studies are exposed to unacceptable health risks or if we or the FDA find deficiencies in the conduct of these trials. Adverse medical events during a clinical trial could cause us to terminate or repeat a clinical trial.

We may encounter other problems and failures in our studies that would cause us or the FDA to delay or suspend the studies. Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials.

Negative or inconclusive results during a clinical trial could cause us to terminate or repeat a clinical trial. The potential failures would delay development of our product candidates, hinder our ability to conduct related pre-clinical testing and clinical trials and further delay the commencement of the regulatory approval process. Further, the failures or perceived failures in our clinical trials would delay our product development and the regulatory approval process, damage our business prospects, make it difficult for us to establish collaboration and partnership relationships and negatively affect our reputation and competitive position in the pharmaceutical industry. Finally, if we are required to conduct other clinical trials for the product candidates, the additional trials would require substantial funding and time, and we may be unable to obtain funding to conduct such clinical trials.

Our failure to obtain regulatory approvals to market our product candidates in foreign countries and delays caused by government regulation would adversely affect our anticipated revenues.

Sales of our products in foreign jurisdictions will be subject to separate regulatory requirements and marketing approvals. Approval in the United States, or in any one foreign jurisdiction, does not ensure approval in any other jurisdiction. The process of obtaining foreign approvals may result in significant delays, difficulties and expenses for us, and may require additional clinical trials. Although many of the regulations applicable to our products in these foreign countries are similar to those promulgated by the FDA, many of these requirements also vary widely from country to country, which could delay the introduction of our products in those countries. Failure to comply with these regulatory requirements or to obtain required approvals would impair our ability to commercialize our products in foreign markets.

Even if regulatory approval of our products is obtained, later discovery of previously unknown problems may result in restrictions of a product, including withdrawal of that product from the market. Further, governmental approval may subject us to ongoing requirements for post-marketing studies. For example, despite receipt of governmental approval, the facilities of our third-party manufacturers are still subject to unannounced inspections by the FDA and must continue to comply with GMPs and other regulations. These regulations govern all areas of production, record keeping, personnel and quality control. If we or our third-party manufacturers fail to comply with any of the manufacturing regulations, we may be subject to, among other things, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecution.

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If we are unable to comply with environmental laws and regulations, our business may be harmed.

We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. We currently maintain a supply of biohazardous materials at our facilities. We believe our safety procedures for these materials comply with all applicable environmental laws and regulations, and we carry insurance coverage we believe is adequate for the size of our business. However, we cannot entirely eliminate the risk of accidental contamination or injury from these materials. If an accident or environmental discharge occurs, we could be held liable for any resulting damages, which could exceed our insurance coverage and financial resources.

We currently outsource certain of our research and development programs involving the controlled use of biohazardous materials. We believe our collaborators have in place safety procedures for these materials that comply with governmental standards. Nevertheless, if an accident does occur, our research and product development will be negatively affected.

Additional Risks Associated with Our Business

If the third-party manufacturers upon whom we rely fail to produce our products in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the delivery of, or be unable to meet demand for, our products.

Because we have no manufacturing facilities, we rely on third parties for manufacturing activities related to all of our products. As we develop new products, we must establish and maintain relationships with manufacturers to produce and package sufficient supplies of our finished pharmaceutical products. Reliance on third party manufacturing presents the following risks:

·delays in scale-up to quantities needed for multiple clinical trials, or failure to (a) manufacture such quantities to our specifications or (b) deliver such quantities on the dates we require, which could cause delay or suspension of clinical trials, regulatory submissions and commercialization of our products;

·inability to fulfill our future commercial needs if market demand for our products increases suddenly, which would require us to seek new manufacturing arrangements and may result in substantial delays in meeting market demand;

·potential relinquishment or sharing of intellectual property rights to any improvements in the manufacturing processes or new manufacturing processes for our products; and

·unannounced ongoing inspections by the FDA and corresponding state agencies for compliance with GMPs, regulations and foreign standards, and failure to comply with any of these regulations and standards may subject us to, among other things, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecution.

Any of these factors could delay clinical trials or commercialization of our product candidates under development, interfere with current sales and entail higher costs.

Our business may be harmed if the manufacture of our products is interrupted or discontinued.

We may be unable to maintain our relationships with our third-party manufacturers. If we need to replace or seek new manufacturing arrangements, we may have difficulty locating and entering into arrangements with qualified contract manufacturers on acceptable terms, if at all. We are aware of only a limited number of companies on a worldwide basis who operate manufacturing facilities in which our products can be manufactured to our specifications and in compliance with GMPs. It could take several months, or significantly longer, for a new contract manufacturing facility to obtain FDA approval and to

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develop substantially equivalent processes for the production of our products. We may not be able to contract with any of these companies on acceptable terms, if at all. For example, the company that had been purifying Nipent filed for reorganization under Chapter 11 and ceased operations in late 2004. We contracted with another manufacturer for the purification of Nipent, but this manufacturer has not yet received qualification by the FDA. If the new manufacturer fails to get final FDA qualification or goes out of business, we will be unable to satisfy the conditions necessary to receive from Mayne Pharma the $5.0 million held back from us pursuant to the terms of that transaction.

If our suppliers cannot provide the components we require, our product sales and revenue could be harmed.

We rely on third-party suppliers to provide us with numerous components used in our products under development. Relying on third-party suppliers makes us vulnerable to component failures and interruptions in supply, either of which could impair our ability to conduct clinical trials or to ship our products to our customers on a timely basis. Using third-party suppliers makes it difficult and sometimes impossible for us to maintain quality control, manage inventory and production schedules and control production costs. Vendor lead times to supply us with ordered components vary significantly and can exceed six months or more. Both now and as we expand our need for manufacturing capacity, we cannot be sure that our suppliers will furnish us with required components when we need them. These factors could make it difficult for us to effectively and efficiently manufacture our products, and could adversely impact our clinical trials, product development and sales of our products.

Some suppliers are our only source for a particular component, which makes us vulnerable to cost increases and supply interruptions. We generally rely on one manufacturer for each product.

Vendors may decide to limit or eliminate sales of certain products to the medical industry due to product liability or other concerns. In the event one of our sole source suppliers decides not to manufacture the component, goes out of business, or decides to cut off our supply, we may be unable to locate replacement supply sources, or the sources that we may locate may not provide us with similar reliability or pricing and our business could suffer. If we cannot obtain a necessary component, we may need to find, test and obtain regulatory approval for a replacement component, produce the component or redesign the related product, which would cause significant delay and could increase our manufacturing costs. Any of these events could adversely impact our sales and results of operations.

If we are not able to maintain and successfully establish new collaborative and licensing arrangements with third parties, our product development and business will be harmed.

Our business model is based on establishing collaborative relationships with other parties both to license compounds upon which our products and technologies are based and to manufacture our products or our collaborators’ products. It is critical that we gain access to compounds and technologies to license for further development. Due to the expense of the drug approval process we must have relationships with established pharmaceutical companies to offset some of our development costs in exchange for a combination of development, marketing and distribution rights.

From time to time we enter into discussions with various companies regarding the establishment of new collaborations. If we are not successful in establishing new partners for our product candidates, we may not be able to pursue further development of such product candidates and/or may have to reduce or cease our current development programs, which would materially harm our business. Even if we are successful in establishing new collaborations, they are subject to numerous risks and uncertainties including:

·our ability to negotiate acceptable collaborative arrangements;

·the collaboration making us less attractive to potential acquirers;

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·freedom of our collaborative partners to pursue alternative technologies either on their own or with others, including our competitors, for the diseases targeted by our programs and products;

·the potential failure of our partners to fulfill their contractual obligations or their decision to terminate our relationships, in which event we may be required to seek other partners, or expend substantial resources to pursue these activities independently; and

·our ability to manage, interact and coordinate our timelines and objectives with our collaborative partners may not be successful.

In addition, our collaborators may undergo business combinations, which could have the effect of making the collaboration with us less attractive to them for a number of reasons. For example, if an existing collaborator purchases a company that is one of our competitors, that company may be less willing to continue its collaboration with us. A company that has a strategy of purchasing companies with attractive technologies might have less incentive to enter into a collaboration agreement with us. Moreover, disputes may arise with respect to the ownership of rights to any technology or products developed with any current or future collaborator. Lengthy negotiations with potential collaborators or disagreements between us and our collaborators may lead to delays in or termination of the research, development or commercialization of product candidates or result in time consuming and expensive litigation or arbitration.

Our collaborative relationships with third parties could cause us to expend significant funds on development costs with no assurance of financial return.

From time to time we enter into collaborative relationships with third parties to co-develop and market products. These relationships require substantial financial commitments from us, and at the same time the product developments are subject to the same regulatory requirements, risks and uncertainties associated with the development of our other product candidates. The compounds that are the subject of these collaborative agreements may prove to be ineffective, may fail to receive regulatory approvals, may be unprotectable by patents or other intellectual property rights, or may not be otherwise commercially viable. If these collaborative relationships are not successful, our product developments will be adversely affected, and our investments and efforts devoted to the product developments will be wasted.

Our ability to protect our intellectual property rights will be critically important to the success of our business, and we may not be able to protect these rights in the United States or abroad.

The success of our operations depends in part on our ability to obtain patents, protect trade secrets, operate without infringing the proprietary rights of others and enforce our proprietary rights against accused infringers.

We actively pursue a policy of seeking patent protection when applicable for our proprietary products and technologies, whether they are developed in-house or acquired from third parties. We attempt to protect our intellectual property position by filing United States and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. To date, we have acquired licenses to or assignments of over 65 U.S. patents covering various aspects of our proprietary drugs and technologies, including 41 patents for various aspects of Orathecin and related products, six patents for various aspects of Dacogen and related products. We have been granted patents and have received patent licenses relating to our proprietary formulation technology, non-oncology and non-core technologies, among which at least 10 patents are issued or licensed to us. In addition, we are prosecuting a number of patent applications for drug candidates that we are not actively developing at this time.

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We also have patents, licenses to patents and pending patent applications in Europe, Australia, Japan, Canada, Mexico, China, Israel and India among other countries. Limitations on patent protection, and the differences in what constitutes patentable subject matter, may limit the protection we have on patents issued or licensed to us in these countries. In addition, laws of foreign countries may not protect our intellectual property to the same extent as would laws in the United States. To minimize our costs and expenses and maintain effective protection, we focus our foreign patent and licensing activities primarily in the European Union, Canada, Australia and Japan. In determining whether or not to seek patent protection or to license any patent in a foreign country, we weigh the relevant costs and benefits, and consider, among other things, the market potential and profitability, the scope of patent protection afforded by the law of the jurisdiction and its enforceability, and the nature of terms with any potential licensees. Failure to obtain adequate patent protection for our proprietary drugs and technology would impair our ability to be commercially competitive in these markets.

The pharmaceutical industry is characterized by a large number of patent filings involving complex legal and factual questions, and therefore we cannot predict with certainty whether our patents will be enforced effectively. Competitors may have filed applications for, or been issued patents on, products or processes that compete with or are similar to ours. We may not be aware of all of the patents potentially adverse to our interests which may have been issued to others. In addition, third parties may challenge, invalidate or circumvent any of our patents. Thus, any patents that we own or license from third parties may not provide adequate protection against competitors, if at all. Our pending patent applications and those we may file in the future, or those we may license from third parties, may not result in patents being issued with adequate claim scope, if at all.

In addition to pursuing patent protection in appropriate instances, we also rely on trade secret protection or regulatory marketing exclusivity for unpatented proprietary technology. However, trade secrets are difficult to protect. Our trade secrets or those of our collaborators may become known or may be independently discovered by others.

In the pharmaceutical industry there has been, and we believe that there will continue to be, significant litigation regarding patent and other intellectual property rights. Claims may be brought against us in the future based on patents held by others. These persons could bring legal actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing of the affected product. If we become involved in litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If a lawsuit against us is successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the affected product. We cannot assure you that we would prevail in a lawsuit filed against us or that we could obtain any licenses required under any patents on acceptable terms, if at all.

Our proprietary products are dependent upon compliance with numerous licenses and agreements. These licenses and agreements require us to make royalty and other payments, reasonably exploit the underlying technology of the applicable patents, and comply with regulatory filings. If we fail to comply with these licenses and agreements, we could lose the underlying rights to one or more of these potential products, which would adversely affect our product development and harm our business.

If we fail to compete effectively against other pharmaceutical companies, our business will suffer.

The pharmaceutical industry in general and the oncology sector in particular is highly competitive and subject to significant and rapid technological change. Our competitors and probable competitors include companies such as Aventis SG, Bristol-Myers Squibb Company, Celgene, Eli Lilly & Co., GlaxoSmithKline, Novartis AG, Pfizer, Pharmion Corp. and others.

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Many of our competitors and research institutions are addressing the same diseases and disease indications and working on products to treat such diseases as we are, and have substantially greater financial, research and development, manufacturing and marketing experience and resources than we do. Some of our competitors have received regulatory approval for products, or are developing or testing product candidates that compete directly with, our product candidates. For example, Dacogen faces competition from Pharmion’s Vidaza, and Celgene’s Revlimid.

Many of these competitors have significantly greater experience than we do in developing products, undertaking pre-clinical testing and clinical trials, obtaining FDA and other regulatory approvals, and manufacturing and marketing products. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products before we do. If we commence sales of our product candidates, we will be competing against companies with greater marketing expertise and manufacturing capabilities, areas in which we have limited or no experience.

We also face intense competition from other companies for collaborative relationships, for establishing relationships with academic and research institutions, and for licenses to proprietary technology.

Our competitive positions in our generic drugs are uncertain and subject to risks. The market for generic drugs, including the pricing for generic drugs, is extremely competitive. As a result, unless our generic drugs are the first or among the initial few to launch, there is a high risk that our products would not gain meaningful market share, or we would not be able to maintain our price and continue the product line. Moreover, marketing of generic drugs is also subject to regulatory approval, and if we were not able to obtain such approval before our competitors, we would lose our competitive advantage. Failure to maintain our competitive position could have a material adverse effect on our business and results of operations.

The pharmaceutical industry in general and the oncology sector in particular is subject to significant and rapid technological change. Developments by competitors may render our product candidates or technologies obsolete or non-competitive.

Our competitors may succeed in developing technologies or products that are more effective than ours. Additionally, our products that are under patent protection face intense competition from competitors’ proprietary products. This competition may increase as new products enter the market.

A number of our competitors have substantially more capital, research and development, regulatory, manufacturing, marketing, human and other resources and experience than we have. As a result, our competitors may:

·develop products that are more effective or less costly than any of our current or future products or that render our products obsolete;

·produce and market their products more successfully than we do;

·establish superior proprietary positions; or

·obtain FDA approval for labeling claims that are more favorable than those for our products.

We will also face increasing competition from lower-cost generic products after patents on our proprietary products expire. Loss of patent protection typically leads to a rapid decline in sales for that product and could affect our future results. As new products enter the market, our products may become obsolete or our competitors’ products may be more effective or more effectively marketed and sold than our products. Technological advances, competitive forces and loss of intellectual property protection rights for our products may render our products obsolete.

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We may be subject to product liability lawsuits and our insurance may be inadequate to cover damages.

Clinical trials and commercial use of our current and potential products may expose us to liability claims from the use or sale of these products. Consumers, healthcare providers, pharmaceutical companies and others selling such products might make claims of this kind. We may experience financial losses in the future due to product liability claims. We have obtained limited product liability insurance coverage for our products and clinical trials, under which the coverage limits are $10.0 million per occurrence and $10.0 million in the aggregate. We do not know whether this coverage will be adequate to protect us in the event of a claim. We may not be able to obtain or maintain insurance coverage in the future at a reasonable cost or in sufficient amounts to protect us against losses. If third parties bring a successful product liability claim or series of claims against us for uninsured liabilities or in excess of insured liabilities, we may not have sufficient financial resources to complete development or commercialization of any of our product candidates and our business and results of operations will be adversely affected.

If we are unable to attract and retain additional, highly skilled personnel required for the expansion of our activities, our business will suffer.

Further, our success is dependent on key personnel, including members of our senior management and scientific staff. If any of our executive officers decides to leave and we cannot locate a qualified replacement in time to allow a smooth transition, our business operation may be adversely affected. To successfully expand our operations, we will need to attract and retain additional highly skilled individuals, particularly in the areas of clinical administration, pre-clinical and development research, manufacturing and finance. We compete with other companies for the services of existing and potential employees, however to the extent these employees favor larger, more established employers, we may be at a disadvantage.

Earthquake or other natural or man-made disasters and business interruptions could adversely affect our business.

Our operations are vulnerable to interruption by fire, power loss, floods, telecommunications failure and other events beyond our control. In addition, our operations are susceptible to disruption as a result of natural disasters such as earthquakes. So far we have never experienced any significant disruption of our operations as a result of earthquakes or other natural disasters. Although we have a contingency recovery plan, any significant business interruption could cause delays in our drug development and sales and harm our business.

Provisions in our certificate of incorporation, bylaws and applicable Delaware law may prevent or discourage third parties or stockholders from attempting to replace our management.

Anti-takeover provisions of our certificate of incorporation and bylaws make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include:

·authorization of the issuance of up to 2,000,000 shares of our preferred stock;

·elimination of cumulative voting; and

·elimination of stockholder action by written consent.

Our bylaws establish procedures, including notice procedures, with regard to the nomination, other than by or at the direction of our board of directors, of candidates for election as directors or for stockholder proposals to be submitted at stockholder meetings.

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We are also subject to Section 203 of the Delaware General Corporation Law, an anti-takeover provision. In general, Section 203 of the Delaware General Corporation Law prevents a stockholder owning 15% or more of a corporation’s outstanding voting stock from engaging in business combinations with a Delaware corporation for three years following the date the stockholder acquired 15% or more of a corporation’s outstanding voting stock. This restriction is subject to exceptions, including the approval of the board of directors and of the holders of at least two-thirds of the outstanding shares of voting stock not owned by the interested stockholder.

We believe that the benefits of increased protection of our potential ability to negotiate with the proponents of unfriendly or unsolicited proposals to acquire or restructure us outweigh the disadvantages of discouraging those proposals because, among other things, negotiation of those proposals could result in an improvement of their terms. Nevertheless, these provisions are expected to discourage different types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with us, and may have the effect of preventing or discouraging third parties or stockholders from attempting to replace our management.

Item 6.Exhibits

Exhibit
No.	Description of Document
31.1	Certification of Chief Executive Officer under Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer under Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			SUPERGEN, INC.
Date:	May 10, 2007	By:	/s/ JAMES S.J. MANUSO
			James S.J. Manuso, Ph.D.
			President and Chief Executive Officer (Principal Executive Officer)
		By:	/s/ MICHAEL MOLKENTIN
			Michael Molkentin
			Chief Financial Officer (Principal Financial and Accounting Officer)

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