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TABLE OF CONTENTS

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q

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

For the Quarterly Period Ended March 31, 2011

or

o

 

TRANSITION 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
of incorporation or organization)
  (IRS Employer
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 ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

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

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o
(do not check if a smaller reporting company)
  Smaller Reporting Company 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 ý

         The number of shares of the registrant's Common Stock, $.001 par value, outstanding as of May 2, 2011 was 60,374,473.


Table of Contents


TABLE OF CONTENTS

 
   
  Page
No.

PART I

 

FINANCIAL INFORMATION

   

 

Item 1—Financial Statements (Unaudited)

   

 

Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010

 
3

 

Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2011 and 2010

 
4

 

Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2011 and 2010

 
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

 
24

 

Item 6—Exhibits

 
40

SIGNATURES

 
41

2


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SUPERGEN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 
  March 31,
2011
  December 31,
2010
 
 
  (Unaudited)
   
 

ASSETS

 

Current assets:

             
 

Cash and cash equivalents

  $ 24,817   $ 25,554  
 

Marketable securities

    100,159     89,699  
 

Income tax receivable

        40  
 

Prepaid expenses and other current assets

    1,428     1,330  
           
   

Total current assets

    126,404     116,623  

Marketable securities, non-current

    4,505     5,124  

Property, plant and equipment, net

    4,044     3,932  

Goodwill

    731     731  

Restricted cash

        2,134  

Other assets

    555     554  
           
   

Total assets

  $ 136,239   $ 129,098  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

             
 

Accounts payable

  $ 2,828   $ 1,198  
 

Accrued compensation

    3,523     3,556  
 

Other accrued liabilities

    782     773  
 

Deferred revenue

    509     509  
 

Deferred rent

    14     12  
           
   

Total current liabilities

    7,656     6,048  

Deferred rent, non-current

    15     9  

Deferred revenue, non-current

    1,302     1,429  
           
   

Total liabilities

    8,973     7,486  
           

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; 60,367,997 and 60,357,593 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively

    60     60  
 

Additional paid in capital

    460,217     459,482  
 

Accumulated other comprehensive income

    1,811     2,382  
 

Accumulated deficit

    (334,822 )   (340,312 )
           
   

Total stockholders' equity

    127,266     121,612  
           
   

Total liabilities and stockholders' equity

  $ 136,239   $ 129,098  
           

See accompanying notes to consolidated financial statements

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SUPERGEN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 
  Three months ended
March 31,
 
 
  2011   2010  

Revenues:

             
 

Royalty revenue

  $ 16,971   $ 14,293  
 

Development and license revenue

    127     127  
           
   

Total revenues

    17,098     14,420  

Operating expenses:

             
 

Research and development

    7,992     7,436  
 

General and administrative

    3,621     2,361  
           
   

Total operating expenses

    11,613     9,797  
           

Income from operations

    5,485     4,623  

Interest income

    49     51  
           

Income before income tax provision

    5,534     4,674  

Income tax provision

    (44 )    
           

Net income

  $ 5,490   $ 4,674  
           

Net income per common share:

             
 

Basic

  $ 0.09   $ 0.08  
           
 

Diluted

  $ 0.09   $ 0.08  
           

Weighted average shares outstanding:

             
 

Basic

    60,364     60,210  
           
 

Diluted

    61,026     60,747  
           

See accompanying notes to consolidated financial statements

4


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SUPERGEN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
  Three months ended
March 31,
 
 
  2011   2010  

Operating activities:

             
 

Net income

  $ 5,490   $ 4,674  
 

Adjustments to reconcile net income to net cash provided by operating activities:

             
   

Depreciation

    286     305  
   

Stock-based compensation expense

    711     247  
   

Changes in operating assets and liabilities:

             
     

Income tax receivable

    40     11  
     

Prepaid expenses and other assets

    (99 )   (154 )
     

Restricted cash

    2,134     (10 )
     

Accounts payable and other liabilities

    1,614     519  
     

Deferred revenue

    (127 )   (128 )
           

Net cash provided by operating activities

    10,049     5,464  
           

Investing activities:

             
 

Purchases of marketable securities

    (31,014 )   (41,628 )
 

Sales and maturities of marketable securities

    20,602     47,026  
 

Purchases of property and equipment

    (398 )   (207 )
           

Net cash provided by (used in) investing activities

    (10,810 )   5,191  
           

Financing activities:

             
 

Proceeds from issuances of common stock

    24     153  
           

Net cash provided by financing activities

    24     153  
           

Net increase (decrease) in cash and cash equivalents

    (737 )   10,808  

Cash and cash equivalents at beginning of period

    25,554     7,682  
           

Cash and cash equivalents at end of period

  $ 24,817   $ 18,490  
           

Supplemental Disclosure of Cash Flow Information:

             
 

Income taxes paid in cash during the period

  $ 39   $  

See accompanying notes to consolidated financial statements

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements of SuperGen, Inc. ("we," "SuperGen" or the "Company") have been prepared in accordance with generally accepted accounting principles ("GAAP") 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, 2011 are not necessarily indicative of results that may be expected for the year ending December 31, 2011.

        The balance sheet at December 31, 2010 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. Certain balances have been reclassified to conform with the presentation at March 31, 2011. Specifically, Payable to AVI BioPharma, Inc. has been combined with Other accrued liabilities.

        These unaudited financial statements should be read in conjunction with the Company's audited financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

NOTE 2. STOCK-BASED COMPENSATION

        Stock Option Plans.    We have authorized 18,263,000 shares of common stock for issuance following the grant of incentive stock options or nonstatutory stock options to employees, directors, and consultants under our stock option plans. 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). Options that have performance-based vesting criteria become exercisable in accordance with the milestones determined by the Board of Directors.

        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, 2010 and is scheduled to end on May 13, 2011.

        We recognized $711,000 and $247,000, respectively, in stock-based compensation expense for the three months ended March 31, 2011 and 2010. These amounts have been recorded in research and development expenses or general and administrative expenses, based on the home department of our employees.

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(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 weighted-average assumptions noted in the following table:

 
  Three months ended
March 31,
 
 
  2011   2010  

Risk-free interest rate

    2.59 %   3.17 %

Dividend yield

         

Expected volatility

    57.76 %   60.19 %

Expected life (in years)

    6.23     6.32  

        We compute expected volatility using 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. We do not rely exclusively on implied volatility because options on SuperGen stock with remaining terms of greater than one year are not regularly traded in the market. The expected life of stock options granted is based exclusively on historical data and represents the weighted average period of time that stock options granted are expected to be outstanding. The expected life is applied to one group as a whole as we do not expect substantially different exercise or post-vesting termination behavior among our employee and director population. 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. The dividend yield is zero as we do not expect to pay any dividends in the foreseeable future. We currently estimate when and if performance-based options will be earned. If the awards are not considered probable of achievement, no amount of stock-based compensation is recognized. If we consider the award to be probable of vesting, expense is recorded over the estimated service period.

        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. We estimate forfeiture rates at the time of grant and revise them, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We used estimated forfeiture rates of 7.89% and 8.60% for the three month periods ended March 31, 2011 and 2010, respectively. The term "forfeitures" is distinct from "cancellations" or "expirations" and represents only the unvested portion of a surrendered option. The forfeiture rate is re-evaluated annually and is adjusted as necessary based upon historical data. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(Unaudited)

NOTE 2. STOCK-BASED COMPENSATION (Continued)

        A summary of the Company's stock options as of March 31, 2011 and activity 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 January 1, 2011

    11,131,949   $ 4.62              

Granted

    480,000     2.79              

Exercised

    (10,404 )   2.32              

Forfeited

                     

Expired

    (71,916 )   12.05              
                         

Balance at March 31, 2011

    11,529,629   $ 4.50     6.23   $ 4,114,463  
                         

Vested or expected to vest at March 31, 2011

    10,843,635   $ 4.51     6.15   $ 3,819,378  
                         

Exercisable at March 31, 2011

    7,274,332   $ 4.79     5.37   $ 1,994,059  
                         

        The weighted-average grant-date fair value of options granted during the three months ended March 31, 2011 was $1.58. 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, 2011 was $9,000 and the total amount of cash received from exercise of these options was $24,000.

        As of March 31, 2011, there was $3,473,000 of total unrecognized compensation expense related to unvested stock-based awards that vest based upon service conditions or vest based upon performance conditions and are probable of vesting. This expense is expected to be recognized over a weighted average period of 2.78 years.

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 which invest primarily in U.S. government obligations. 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 cash equivalents and marketable securities as available-for-sale, with unrealized gains and losses included as a component of equity.

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(Unaudited)

NOTE 3. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

        The following is a summary of available-for-sale securities (in thousands):

At March 31, 2011
  Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Fair
Value
 

Money market funds

  $ 1,076   $   $   $ 1,076  

U.S. corporate debt securities

    27,394             27,394  

Debt securities issued by U.S. government and U.S. government agencies

    92,331     35     (4 )   92,362  

Marketable equity securities

    2,725     1,780         4,505  
                   
 

Total

  $ 123,526   $ 1,815   $ (4 ) $ 125,337  
                   

At December 31, 2010

                         

Money market funds

  $ 1,044   $   $   $ 1,044  

U.S. corporate debt securities

    35,413             35,413  

Debt securities issued by U.S. government and U.S. government agencies

    77,173     8     (24 )   77,157  

Marketable equity securities

    2,726     2,398         5,124  
                   
 

Total

  $ 116,356   $ 2,406   $ (24 ) $ 118,738  
                   

        The available-for-sale securities are classified on the balance sheet as follows (in thousands):

 
  Fair Value  
 
  March 31,
2011
  December 31,
2010
 

Amounts included in cash and cash equivalents

  $ 20,673   $ 23,915  

Marketable securities, current

    100,159     89,699  

Marketable securities, non-current

    4,505     5,124  
           
 

Total

  $ 125,337   $ 118,738  
           

        At March 31, 2011, all of our debt securities were due in one year or less based on their contractual maturities.

        In the three month periods ended March 31, 2011 and 2010, realized gains and losses calculated using the specific identification method were immaterial.

        We evaluate investments with unrealized losses to determine if the losses are other than temporary. In making this determination, we consider the financial condition and near-term prospects of the issuers, the magnitude of the losses compared to the investments' amortized cost, changes in the credit quality of the issuer, the length of time the investments have been in an unrealized loss position, and whether it is more likely than not that we will hold the investment for a period of time sufficient for a recovery of our cost basis.

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(Unaudited)

NOTE 3. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)

Equity Investments

        Equity investments in securities without readily determinable fair value, which consist of investments in privately held companies, are carried at cost. As of March 31, 2011 and December 31, 2010, we held one such non-marketable security with a carrying amount of $500,000. This investment is included in other assets in the condensed consolidated balance sheets. We periodically review this investment and evaluate whether an impairment has occurred. We monitor the liquidity and financing activities of the issuer of this security and evaluate, among other factors, the financial condition of and business outlook of the issuer, including key operational and cash flow metrics and current market conditions, as well as our intent and ability to retain the investment. We believe this equity investment continues to be realizable.

NOTE 4. FAIR VALUE MEASUREMENTS

        Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following three levels of inputs may be used to measure fair value under the fair value hierarchy:

    Level 1—Quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

    Level 2—Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

    Level 3—Unobservable inputs that are supported by little or no market activity.

        If the inputs used to measure the financial assets and liabilities fall within more than one of the different levels described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

        As of March 31, 2011, we held $125,337,000 of cash equivalents and marketable securities consisting of equity securities, high quality marketable debt instruments of the U.S. government and U.S. government agencies, commercial paper, and a money market fund. We have adopted an investment policy and established guidelines relating to credit quality, diversification and maturities of our investments to preserve principal and maintain liquidity. All investment securities are issued by or guaranteed by the U.S. government and its federal agencies or have a credit rating of at least long-term of A or short-term of A1/P1 as determined by Moody's Investors Service and/or Standard & Poor's. We do not have any direct investments in auction-rate securities or securities that are collateralized by assets that include mortgages or subprime debt.

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(Unaudited)

NOTE 4. FAIR VALUE MEASUREMENTS (Continued)

        The fair value measurements of our cash equivalents and available-for-sale marketable securities are identified at the following levels within the fair value hierarchy (in thousands):

 
  Fair Value Measurements Using    
 
 
  Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
  Total  

At March 31, 2011

                         

Money market funds

  $   $ 1,076       $ 1,076  

Commercial paper

        27,394         27,394  

U.S. government and U.S government agency notes

        92,362         92,362  

Equity securities

    4,505             4,505  
                   

  $ 4,505   $ 120,832       $ 125.337  
                   

At December 31, 2010

                         

Money market funds

  $   $ 1,044       $ 1,044  

Commercial paper

        35,413         35,413  

U.S. government and U.S. government agency notes

        77,157         77,157  

Equity securities

    5,124             5,124  
                   

  $ 5,124   $ 113,614       $ 118,738  
                   

NOTE 5. REVENUE RECOGNITION

        On January 1, 2011, we prospectively adopted Financial Accounting Standards Board Accounting Standards Update 2009-13, Multiple Deliverable Revenue Arrangements ("ASU 2009-13"), and Accounting Standards Update 2010-17, Revenue Recognition—Milestone Method ("ASU 2010-17"). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to potentially enable vendors to account for products or services separately rather than as a combined unit, and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. The ASU also significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASU 2010-17 amends previous standards to define a milestone and clarify that the milestone method of revenue recognition is a valid application of the proportional performance model when applied to research or development arrangements. Accordingly, we have made an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The adoption of these pronouncements did not have a material effect on our consolidated financial statements in the three months ended March 31, 2011. However, ASU 2009-13 may have a material effect upon any collaboration agreements that we enter into in future periods.

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(Unaudited)

NOTE 6. LICENSE AGREEMENT WITH MGI PHARMA, INC./EISAI CORPORATION

        In August 2004, we entered into a license agreement with MGI PHARMA, Inc., a Minnesota corporation ("MGI") relating to Dacogen® (decitabine) for Injection, an anti-cancer therapeutic. 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 royalties from MGI on all sales of licensed product worldwide.

        In May 2006, the United States Food and Drug Administration ("FDA") approved Dacogen for the treatment of patients with myelodysplastic syndromes ("MDS") and MGI commenced commercial sales of Dacogen in the United States. In July 2006, MGI executed an agreement to sublicense Dacogen to Janssen-Cilag, a Johnson & Johnson company, granting exclusive development and commercialization rights in all territories outside North America. MGI was acquired by Eisai Corporation of North America ("Eisai") in January 2008.

        Eisai is required to pay us royalties starting at 20% and escalating to a maximum of 30% of net worldwide Dacogen sales within 45 days after the end of each calendar quarter. We recognize royalty revenue when we receive the royalty statement from Eisai because we do not have sufficient ability to accurately estimate Dacogen sales prior to that time. During the three months ended March 31, 2011 and 2010, we recorded royalty revenue of $16,971,000 and $14,293,000, respectively.

NOTE 7. AGREEMENTS WITH GLAXOSMITHKLINE

        In October 2009, we entered into agreements with GlaxoSmithKline ("GSK") under which we will collaborate with GSK over a period of five years to discover and develop specific epigenetic therapeutics.

        The total deferred revenue related to GSK of $2,545,000 is being recognized ratably over five years, the expected term of our substantive performance obligations under the collaboration. We recognized $127,000 of the deferred revenue as development and license revenue in both the three months ended March 31, 2011 and 2010.

        As noted in further detail in our Annual Report on Form 10-K for the year ended December 31, 2010, GSK is obligated to make certain additional payments to us if and when the compounds reach specified developmental goals, as well as payments to us if and when the compounds that GSK has licensed achieve certain regulatory goals. The License Agreement further provides that if the licensed compounds derived from the joint research team become products, GSK will pay us sales achievement payments as well as royalties on annual net sales of such products. Total potential development and commercialization payments payable to us could exceed $375 million.

        Revenues associated with substantive, at-risk milestones pursuant this collaborative agreement, representing $75 million of the total noted above, will be recognized upon achievement of the milestones through option exercise by GSK. We consider a milestone to be substantive at the inception of the arrangement if it is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from our performance to achieve the milestone, it relates solely to past performance, and it is reasonable relative to all of the deliverables and payment terms within the arrangement. Non-refundable contingent future

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(Unaudited)

NOTE 7. AGREEMENTS WITH GLAXOSMITHKLINE (Continued)


amounts receivable in connection with future events specified in the collaboration agreement that are not considered milestones will be recognized as revenue when payments are earned from our collaborators through completion of any underlying performance obligations, the amounts are fixed or determinable, and collectibility is reasonably assured.

NOTE 8. COMPREHENSIVE INCOME

        The following table is a reconciliation of our net income to comprehensive income (in thousands):

 
  Three months ended
March 31,
 
 
  2011   2010  

Net income

  $ 5,490   $ 4,674  

Other comprehensive income (loss)—Change in unrealized gain (loss) on investments

    (571 )   (647 )
           

Comprehensive income

  $ 4,919   $ 4,027  
           

NOTE 9. BASIC AND DILUTED NET INCOME PER SHARE

        Basic net income per share is calculated by dividing the net income by the weighted-average number of common shares outstanding for the period, without consideration of potential common shares. Diluted net income per share is computed by dividing the net income by the weighted-average number of common shares outstanding for the period and dilutive potential common shares for the period determined using the treasury-stock method. For purposes of this calculation, options to purchase stock are considered to be potential common shares and are only included in the calculation of diluted net income per share when their effect is dilutive.

        The following table is a reconciliation of the denominator used in the calculation of basic and diluted earnings per share (in thousands):

 
  Three months ended
March 31,
 
 
  2011   2010  

Weighted-average common shares outstanding used in calculation of basic earnings per share

    60,364     60,210  

Dilutive stock options

    662     537  
           

Weighted-average common shares outstanding used in calculation of diluted earnings per share

    61,026     60,747  
           

Weighted-average outstanding stock options not included in diluted net income per share calculation as they had an antidilutive effect

    8,708     7,039  
           

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(Unaudited)

NOTE 10. INCOME TAXES

        We recorded a tax provision of $44,000 for the three months ended March 31, 2011, which was based on the Company's estimated effective tax rate for the year, taking into account the available net operating loss carryforwards and estimated research and development tax credits.

        We have no unrecognized tax benefits as of March 31, 2011. We do not anticipate that our total unrecognized tax benefits will significantly change prior to March 31, 2012.

        Our policy is to recognize interest and penalties related to income taxes as a component of income tax expense and there have been no such interest and penalties recorded for any of the periods presented. We are subject to income tax examinations for U.S. federal income taxes and state income taxes from 1999 forward due to net operating losses in tax years 1999 through 2008. We are subject to tax examinations in the United Kingdom from 2001 forward.

NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS

        There were no new accounting pronouncements during the three months ended March 31, 2011 that are expected to have a material impact on our consolidated financial statements or related disclosures.

NOTE 12. SUBSEQUENT EVENT—AGREEMENT TO ACQUIRE ASTEX THERAPEUTICS LIMITED

        On April 6, 2011, we entered into an Implementation Agreement with Astex Therapeutics Limited ("Astex"), a U.K. corporation, by which we will acquire the share capital of Astex (the "Transaction"). The Implementation Agreement has been unanimously approved by the boards of directors of both SuperGen and Astex. If the Transaction is completed, we intend to change our name to Astex Pharmaceuticals, Inc. and to list our shares under the NASDAQ symbol "ASTX."

        Subject to the terms and conditions of the Implementation Agreement and a scheme of arrangement under U.K. law, at the closing date of the Transaction, we plan to pay $25 million in cash and issue shares in SuperGen stock representing 35% of the total post closing shares of SuperGen. Subsequently, we plan to pay deferred consideration of $30 million, to be paid at the discretion of the audit committee of the combined company in either stock or cash or a combination of stock and cash, over a period of 30 months.

        Consummation of the Transaction is subject to various customary closing conditions, including (i) the approval of the issuance of the new SuperGen shares by the stockholders of SuperGen, (ii) the approval of the Transaction by the shareholders of Astex, (iii) the absence of any order or injunction of a court of competent jurisdiction that prohibits the consummation of the Transaction, (iv) the absence of certain governmental restraints, (v) subject to certain exceptions, the accuracy of the representations and warranties of each party, and (vi) the performance in all material respects by each party of its obligations under the Implementation Agreement.

        The Implementation Agreement contains certain termination rights for both SuperGen and Astex and provides that in certain specified circumstances, we must pay Astex a termination fee of $6 million (generally in the event the Board of Directors of SuperGen changes its recommendation that its

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SUPERGEN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MARCH 31, 2011

(Unaudited)

NOTE 12. SUBSEQUENT EVENT—AGREEMENT TO ACQUIRE ASTEX THERAPEUTICS LIMITED (Continued)


stockholders adopt the Implementation Agreement, in order to pursue a superior acquisition proposal from a third party).

        Concurrently with the execution of the Implementation Agreement, Astex entered into support agreements with each director of SuperGen, pursuant to which each director agreed to vote his shares of SuperGen common stock (which in the aggregate represent approximately one percent of the outstanding shares of SuperGen common stock) in favor of all proposals to approve the Transaction and any related matters.

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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 condensed 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 profitability; the percentage of royalties we expect to earn on Dacogen sales under our agreement with Eisai; our forecasts regarding our operating expenses; our expectations about the joint development program with GSK; our statements regarding the sufficiency of our cash to meet our operating needs; and statements about our proposed transaction with Astex Therapeutics. 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: the commercial success of Dacogen; delays and risks associated with conducting and managing our clinical trials; developing products and obtaining regulatory approval; ability to establish and maintain collaborative 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 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 primarily to the discovery and development of novel cancer therapeutics in epigenetic and cell signaling modulation. We develop products through biochemical and clinical proof of concept to partner for further development and commercialization. Our primary developmental efforts revolve around the products progressing out of our small-molecule drug discovery programs. We commenced Phase I clinical trials for amuvatinib, a multi-targeted kinase inhibitor and DNA repair suppressor in June 2007, and we are anticipating the commencement of a Phase II trial in small cell lung cancer with this product in the first half of 2011. In 2010, SGI-110, our small molecule, DNA hypomethylating agent, received clearance from the FDA to advance into Phase I trials. We announced the dosing of the first patients in the Phase I trial in early 2011. In addition, we initiated clinical trials for a second internally developed product, SGI-1776, a PIM kinase inhibitor. This clinical program was terminated in late 2010 due to specific cardiac toxicity. We intend to continue the larger discovery effort targeted at PIM kinases to ultimately identify alternative product candidates with more favorable safety profiles.

        We currently receive royalty revenues relating to sales of Dacogen for treatment of patients with myelodysplastic syndromes ("MDS"), which is licensed to Eisai.

        All of our current products are in the development or clinical trial stage, and will require substantial additional investments in research and development, clinical trials, regulatory and sales and marketing activities to commercialize these 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.

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        As a result of our substantial research and development expenditures and minimal product revenues, we have incurred cumulative losses of $334.8 million through March 31, 2011, and have not consistently generated enough funds through our operations to support our business. We expect to be close to break-even or have modest operating income over the next few years and, although we were profitable in the years ended December 31, 2009 and 2010, we may never achieve sustained profitability.

        Ultimately, our ability to sustain profitability 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, Eisai's success in selling Dacogen, the success of our joint development program with GSK, the launch of new products and our ability to control our ongoing costs and operating expenses. If our drug discovery and research efforts are not successful, or 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.

        Dacogen.    Dacogen was approved by the FDA in 2006 for the treatment of patients with MDS. In 2004, we executed an agreement granting Eisai exclusive worldwide rights to the development, manufacture, commercialization and distribution of Dacogen. We are entitled to receive a royalty on worldwide net sales of Dacogen starting at 20% and escalating to a maximum of 30%. We recognize royalty revenue when the royalty statement is received from Eisai because we do not have sufficient ability to accurately estimate Dacogen sales prior to that time.

        In 2006, Eisai executed an agreement to sublicense Dacogen to Cilag, a Johnson & Johnson company, granting exclusive development and commercialization rights in all territories outside North America. Cilag is responsible for conducting regulatory and commercial activities related to Dacogen in all territories outside North America, while Eisai retains all commercialization rights and responsibility for all activities in the United States, Canada and Mexico. As a result of both the original agreement with Eisai and the sublicense with Cilag, we may receive up to $17.5 million in future contingent payments dependent upon achievements for Dacogen globally.

        Nipent.    Nipent is approved by the FDA and EMA 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.

        In 2006, we sold the North American rights to Nipent and our SurfaceSafe cleaning system to Hospira. In 2007, we closed another transaction with Hospira, completing the sale of the remaining worldwide rights for Nipent. The balance of the purchase price relating to the sale of the worldwide rights was payable in five annual installments on the anniversary of the closing date, totaling $3 million. Through March 31, 2011, we have received three of the annual installments totaling $1.6 million. We expect to receive the remaining balance of $1.4 million in two annual installments of $700,000 each in 2011 and 2012.

        Montigen Acquisition.    In April 2006, we acquired 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 platform and optimization process known as CLIMB, and late-stage non-clinical compounds targeting Aurora-A Kinase and members of the Tyrosine Kinase receptor family.

        In addition to the consideration paid at the closing of the transaction, the merger agreement specified $22 million due to the former Montigen stockholders, payable in shares of our common stock,

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contingent upon achievement of specific regulatory events. In April 2007, we paid the first contingent payment of $10 million, and in November 2008, we paid the second contingent payment of $5.2 million, leaving one remaining future contingent payment of $6.8 million that is payable in shares of our common stock, or partially in cash, upon notification by the FDA of the first filing of an NDA for a product containing as the active ingredient a compound identified using the CLIMB technology.

        GSK Collaboration.    In October 2009, we entered into a multi-year collaboration with GSK to discover and develop cancer therapeutics based on epigenetic targets. Epigenetics refer to the regulation of genes with mechanisms other than changes to the underlying DNA sequence. Epigenetic processes are widely believed to play a central role in the development and progression of almost all cancers. Pursuant to the terms of the transaction, we will collaborate with GSK over a period of five years to discover and develop specific epigenetic therapeutics. At the end of the research term, or earlier if GSK elects, GSK may exercise its option to license from us the compounds that are the result of the joint research effort, in order to continue the development and ultimately commercialize and sell the products worldwide.

        In connection with the transaction, we received $5 million upfront, inclusive of a $3 million purchase by GSK of shares of our common stock, priced at a premium to market. In addition, GSK is obligated to make certain payments to us if and when the compounds reach specified developmental milestones, as well as payments to us if and when the compounds that GSK has licensed achieve certain regulatory milestones. The agreement further provides that, if the licensed compounds derived from the joint research team become products, GSK will pay us additional payments contingent upon certain levels of sales as well as royalties on net sales of such products. The royalties will be paid on a country-by-country and product-by-product basis. Total potential development and sales-related contingent payments payable to us could exceed $375 million. In addition, we may receive tiered royalties into double digit magnitudes, payable on net sales of any resulting products.

Recent Developments

        On April 6, 2011, we entered into an Implementation Agreement with Astex Therapeutics Limited, a U.K. corporation, by which we will acquire Astex (the "Transaction"). The Implementation Agreement has been unanimously approved by the boards of directors of both SuperGen and Astex. After the Transaction, we intend to change our name to Astex Pharmaceuticals, Inc. and to list our shares under the NASDAQ symbol "ASTX."

        Subject to the terms and conditions of the Implementation Agreement and a scheme of arrangement under U.K. law, at the effective time of the Transaction, in exchange for all the share capital of Astex, we plan to pay $25 million in cash and issue shares in SuperGen stock representing 35% of the total post closing shares of SuperGen. Subsequently, we plan to pay deferred consideration of $30 million, to be paid at the discretion of the audit committee of the combined company in either stock or cash or a combination of stock and cash.

        Astex Therapeutics is a privately held U.K.-based biotechnology company that discovers and develops novel small molecule therapeutics. Using its fragment-based drug discovery platform, Pyramid™, Astex has built a pipeline of molecularly-targeted oncology drugs, of which three are currently being tested in clinical trials with others in discovery and pre-clinical development. In addition to its proprietary research programs, Astex's productivity in discovery has been endorsed through numerous partnerships with major pharmaceutical companies.

        Consummation of the Transaction is subject to various customary closing conditions, including (i) the approval of the issuance of the new SuperGen shares by the stockholders of SuperGen, (ii) the approval of the Transaction by the shareholders of Astex, (iii) the absence of any order or injunction of a court of competent jurisdiction that prohibits the consummation of the Transaction, (iv) the absence of certain governmental restraints, (v) subject to certain exceptions, the accuracy of the representations

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and warranties of each party, and (vi) the performance in all material respects by each party of its obligations under the Implementation Agreement. For more detailed information, including benefits, risks and uncertainties regarding the Transaction, please see the Company's Proxy Statement filed on May 2, 2011, which is incorporated herein by reference.

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, valuation of investments, stock-based compensation, and deferred tax assets. 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 2010 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.

    Stock-Based Compensation

        We account for stock-based compensation at the fair value estimated on the measurement 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, including awards that vest based on certain performance criteria. We estimate forfeitures at the time of grant and revise them, 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 is re-evaluated quarterly and the forfeiture rate is adjusted as necessary based upon historical data. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

        As of March 31, 2011, there was $3.5 million of total unrecognized compensation cost related to unvested stock-based awards that vest based upon service conditions or vest based upon performance conditions and are probable of vesting. This cost is expected to be recognized over a weighted average period of 2.78 years.

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    Revenue Recognition

        Eisai is required to pay us royalties starting at 20% and escalating to a maximum of 30% of net worldwide Dacogen sales within 45 days after the end of each calendar quarter. During the three month period ended March 31, 2011, we recorded royalty revenue of $17.0 million. Because we do not have sufficient ability to accurately estimate Dacogen sales, we recognize royalty revenue when we receive the royalty statement from Eisai. In accordance with our license agreement with Eisai, we are entitled to receive 50% of any payments Eisai receives as a result of any sublicenses.

        Development and license revenue relates to the agreements we entered into with GSK in October 2009. In connection with the agreements, we received an upfront payment of $2 million, in addition to a $3 million equity investment by GSK at above-market price. As our substantive performance obligations under the agreements are estimated to be completed over a five year period, the $2 million upfront payment and the premium paid on the $3 million equity investment of $0.5 million are being recognized as revenue ratably over 60 months. We assess the substantive performance period on a quarterly basis and will change it if appropriate based upon our latest expectations.

    Impairment of Investments in Financial Instruments

        Investments in financial instruments are carried at fair value based on quoted market prices, 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 equity market risk and corporate and U.S. government (or U.S. governmental agency) obligations that subject us to varying levels of credit risk. An other than temporary decline in fair value of a financial instrument will 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. As of March 31, 2011, the gross unrealized losses on available for sale debt securities was approximately $4,000, and such losses were not attributed to changes in credit risk. The prices of some of our marketable equity securities are subject to considerable volatility. Currently we own 2,384,211 shares of AVI Bio Pharma, Inc. ("AVI") and recorded an other-than-temporary decline in value of $3.1 million related to this investment during the year ended December 31, 2008. However, as of March 31, 2011, the gross unrealized gain on our investment in AVI, representing the fair value of the investment less its adjusted cost basis, was approximately $1.8 million. Decreases in the fair value of our 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, amounting to $500,000 as of March 31, 2011, and evaluate whether an impairment has occurred. The determination of whether an impairment has occurred requires significant judgment, as each investment has unique market and development opportunities.

    Deferred Tax Assets

        We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If it were determined that we would be able to realize all or part of our deferred tax assets in the future, a decrease in the valuation allowance would increase income in the period in which such determination was made. Likewise, if we determine that we would not be able to realize all or part of our deferred tax assets in the future, an increase in the valuation allowance would be charged to income in the period in which such determination was made. We evaluate the ability to realize our deferred tax assets on a quarterly basis.

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Results of Operations

Three months ended March 31, 2011 compared to three months ended March 31, 2010:

 
  Three months ended
March 31,
  Change  
Revenues
  2011   2010   Dollar   Percent  
 
  (Dollars in thousands)
 

Royalty revenue

  $ 16,971   $ 14,293   $ 2,678     18.74 %

Development and license revenue

    127     127          

        The increase in royalty revenue from 2010 to 2011 is due to higher Dacogen product sales by Eisai. Eisai is required to pay us royalties starting at 20% and escalating to a maximum of 30% of net worldwide 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 when we receive the royalty statements from Eisai. Therefore, royalty revenues recognized in the first quarters of 2011 and 2010 relate to worldwide Dacogen sales for the fourth quarters of 2010 and 2009, respectively.

        Development and license revenue relates to the agreements we entered into with GSK in October 2009. In connection with the agreements, we received an upfront payment of $2 million, in addition to a $3 million equity investment by GSK at above-market price. As our substantive performance obligations under the agreements are estimated to be completed over a five year period, the $2 million upfront payment and the premium paid on the $3 million equity investment of $0.5 million are being recognized ratably over 60 months as development and license revenue.

 
  Three months ended
March 31,
  Change  
Operating expenses
  2011   2010   Dollar   Percent  
 
  (Dollars in thousands)
 

Research and development

  $ 7,992   $ 7,436   $ 556     7.48 %

General and administrative

    3,621     2,361     1,260     53.37  

        The increase in research and development expenses was primarily due to higher contracted outside research and development services for our various drug candidates and clinical trial costs related to SGI-110.

        The increase in general and administrative expenses relates primarily to higher stock compensation expenses and higher corporate communication, legal, accounting, and financial advisor expenses related to the potential acquisition of Astex Therapeutics Limited.

 
  Three months ended
March 31,
  Change  
Other income (expense)
  2011   2010   Dollar   Percent  
 
  (Dollars in thousands)
 

Interest income

  $ 49   $ 51   $ (2 )   (3.92 )%

Income tax provision

    (44 )       44      

        The decrease in interest income was due primarily to lower interest rates for the three months ended March 31, 2011 compared to the comparable period in 2010.

        The tax provision recorded for the three months ended March 31, 2011 was based on our estimated effective tax rate for the year, taking into account estimated net operating loss carrybacks and refundable research and development tax credits.

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Liquidity and Capital Resources

        Our cash, cash equivalents, and marketable securities totaled $129.5 million at March 31, 2011 compared to $120.4 million at December 31, 2010.

        Net cash provided by operating activities was $10,049,000 for the three months March 31, 2011, and consisted primarily of the net income of $5,490,000 plus stock based compensation expense of $711,000, depreciation of $286,000, an increase in accounts payable and other liabilities of $1,614,000, and the release of our restricted cash of $2,134,000 due to the expiration of the underlying lease term and related collateral requirement. Net cash provided by operating activities was $5,464,000 for the three months ended March 31, 2010, and consisted primarily of net income of $4,674,000 plus depreciation of $305,000, stock based compensation of $247,000, and an increase in accounts payable and other liabilities of $519,000, partially offset by an increase in prepaid expenses and decline in deferred revenue.

        Net cash used in investing activities was $10,810,000 for the three months ended March 31, 2011 and consisted of $31,014,000 for purchases of marketable securities and $398,000 for purchases of property and equipment, offset by $20,602,000 in proceeds from maturities of marketable securities. Net cash provided by investing activities was $5,191,000 for the three months ended March 31, 2010, and consisted primarily of $47,026,000 in proceeds from maturities of marketable securities, offset by $41,628,000 for purchases of marketable securities and $207,000 for purchases of property and equipment.

        Net cash provided by financing activities was $24,000 and $153,000 in the three months ended March 31, 2011 and March 31, 2010, respectively, and consisted in both periods of proceeds from the exercise of stock options.

        We have financed our operations primarily through the issuance of equity and debt securities and the receipt of royalties, payments in connection with collaborative agreements, and the sale of products. We believe that our current cash, cash equivalents, and short-term marketable securities will satisfy our cash requirements through 2012, with or without consideration of the potential acquisition of Astex. However, we may decide, if necessary, 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 licensed products and development activities.

        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, 2010, we have $6.8 million in future contingent payments due to the former Montigen stockholders, which we are contractually obligated to pay in shares of our common stock, but may pay partially in cash.

        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. 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 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.

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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 and government agency 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 debt securities portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio. Our marketable securities portfolio is primarily invested in securities with maturities 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.

Item 4.    Controls and Procedures

(a)
Evaluation of disclosure controls and procedures.

        As of March 31, 2011, 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. Based on this evaluation, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose 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.

(b)
Changes in internal control over financial reporting.

        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.

        Set forth below and elsewhere in this report and in other documents we file with the SEC are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. The descriptions below include any material changes to and supersede the descriptions of the risk factors affecting our business previously disclosed in "Part I, Item IA. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2010.

Risks Related to Our Financial Condition and Common Stock

If Dacogen is not commercially successful, our future revenues would be limited and our business would be harmed.

        Dacogen is approved in the United States and has been granted Orphan Drug exclusivity by the FDA through May 2013, with potential extension to November 2013 with additional regulatory filings by Eisai, but there is no guarantee that new patients and physicians will continue to use it for the treatment of patients. Once the Orphan Drug exclusivity period ends, Dacogen may be susceptible to generic entry by other pharmaceutical companies. This type of generic market entry typically causes sales of the trade name drug to decline. If Eisai's sales of Dacogen decrease, our royalty revenue will decrease commensurately, and we cannot be assured that Eisai will commit the resources to expand sales of Dacogen. Currently, the royalty revenue we receive from Eisai is our primary source of revenue, and we are dependent on Dacogen royalty revenue to fund our operations.

        Dacogen is approved for the treatment of MDS in the United States and 29 smaller countries globally, but is not yet approved in Europe or Japan. In July 2006, Eisai sublicensed Dacogen to Cilag, giving Cilag responsibility for conducting regulatory activities related to Dacogen and granting it exclusive development and commercialization rights in Europe and all territories outside North America. We received 50% of the $10 million upfront payment and, as a result of both the original agreement with Eisai and the sublicense with Cilag, may receive up to $17.5 million in future contingent payments upon achievement of global regulatory and sales targets. During 2010, Eisai completed a randomized Phase III clinical trial of Dacogen in elderly patients with AML and although the primary endpoint of the study was not met, a supplemental marketing application in the U.S is planned for the second quarter of 2011. Cilag is also planning to submit a corresponding marketing application for Dacogen in Europe in 2011. However, if Dacogen is not approved for additional indications in the U.S. or is never approved in Europe or Japan, we will receive decreasing, and ultimately no, royalty payments from commercial sales by Cilag or Eisai for these territories and our future revenues and business will be harmed.

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Our license agreement with Eisai may not produce the full financial benefits that we are anticipating, which could cause our business to suffer.

        We expect to record development and license revenue from contingent payments to be made to us by Eisai upon the achievement of regulatory and commercialization events. However, we may never receive such payments because the events may never occur, either because of failure to secure regulatory approval of Dacogen in Europe or Japan, or due to Eisai's or 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 Eisai will pay us (i) a certain portion of revenues payable to Eisai as a result of Eisai sublicensing the rights to market, sell and/or distribute Dacogen, to the extent such revenues are in excess of the contingent payments already due to us under our agreement with Eisai, and (ii) a 20% royalty increasing to a maximum of 30% on annual worldwide net sales of Dacogen. We cannot guarantee that we will receive these payments, and we cannot be assured that Eisai will commit the resources to expand sales of Dacogen in North America, or that Cilag will commit the resources to sell it in Europe, Japan, and elsewhere, or that either company will be successful in doing so. Because we are heavily reliant on royalties and contingent payments relating to Dacogen to fund our operations, the failure to receive the contingent payments and/or royalty revenue from sales of Dacogen would cause our business to suffer.

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

        Part of our strategy is to partner with, or out-license selective products to, other pharmaceutical companies in order to mitigate the cost of developing a drug through clinical trials to commercialization. The agreement with GSK is an example of this strategy, providing for the joint development of compounds that we will discover using our CLIMB technology, followed by the option for GSK to take one or more of the jointly developed compounds and further develop, commercialize, and sell the resulting product worldwide. The agreement provides for milestone payments to be paid to us during the development process, but the majority of the payments will not occur unless and until GSK exercises its option to license one or more compounds from us. We will spend our own cash and other resources during the joint development process, and we cannot guarantee that any successful compounds will result from our joint development efforts. Further, even if we discover and develop one or more viable compounds, we cannot guarantee that GSK will exercise its option to license any such compounds from us. If GSK chooses not to exercise its license option, we may continue to develop the compounds on our own, but the post-option exercise developmental and sales milestone payments described in the agreement, which we have estimated to be approximately $300 million, plus additional royalty revenues, will never be realized. If our joint development program with GSK is not successful, and if we cannot earn revenue from collaborative arrangements such as this agreement, our future revenues and business will be harmed.

We have a history of operating losses and we may 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 and other payments from collaborators, sales of our products, royalty revenue, and product revenues primarily from sales of Nipent. The North American rights to Nipent were sold in August 2006 and we sold the remaining worldwide rights in April 2007. Our substantial research and development expenditures and limited revenues have resulted in significant net losses. We have incurred cumulative losses of $334.8 million from inception through March 31, 2011, and we have not generated sufficient revenues to support our business during that time. We expect to be close to break-even or have modest operating income over the next few years and, although we were profitable in the years ended December 31, 2009 and 2010, we may never achieve sustained profitability.

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        Whether we achieve sustained profitability depends primarily on the following factors:

    successful sales of Dacogen in North America by Eisai;

    obtaining regulatory approval in Europe and Asia and the successful commercialization of Dacogen outside of North America by Cilag;

    limiting or preventing delays in production of Dacogen;

    the success of our joint development program with GSK and whether GSK exercises its option to further develop and commercialize any of the compounds resulting from the joint development effort;

    our ability to discover and develop additional novel therapeutics that might advance through our internal clinical development infrastructure;

    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 the discovery, development, and manufacturing of our novel compounds, as well as general and administrative costs related to conducting our business; and

    costs and expenses associated with entering into and performing under licensing, joint development, 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, either developed internally or through acquisitions, 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, developing future products, and conducting research and development, including clinical trials for our product candidates. Based on our currently forecasted product development activities, we anticipate that our capital resources will be adequate to fund operations and capital expenditures at least through 2012. However, if we experience unanticipated cash requirements during this period, we could require additional funds much sooner. In February 2009 we filed a $100 million shelf registration statement on Form S-3 with the SEC, which gives us the flexibility to raise funds through the sale of a variety of securities. We may raise money by the sale of our equity securities or debt, or the exercise of outstanding stock options by the holders of such 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/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 Eisai. 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.

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

        Our investments in marketable securities are carried at fair value with unrealized gains and losses included in accumulated other comprehensive gain or loss in stockholders' equity. However, we are exposed to equity price risk on our equity investment in AVI. 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 trade below their adjusted cost basis in future periods, we may incur additional impairment charges relating to this investment, which in turn will affect our results of operations.

        Currently we own 2.4 million shares of AVI and recorded an other-than-temporary decline in value of $3.1 million related to this investment during the year ended December 31, 2008. We evaluate investments with unrealized losses to determine if the losses are other than temporary. In making these determinations, we consider the financial condition and near-term prospects of the issuers, the magnitude of the losses compared to the investments' cost, the length of time the investments have been in an unrealized loss position, and our ability and intent to hold the investments for a reasonable period of time sufficient for a recovery of fair value. It is possible that we may record another other than temporary decline in value related to AVI in the future.

Product Development and Regulatory Risks

Our product candidates will require significant additional development.

        Many of our product candidates are in the development, rather than the clinical trial stage. However, we must significantly develop all of our product candidates before we can market them, or before they will become desirable for partnering or licensing. Although we believe that our preclinical and pilot clinical studies support further development of these product candidates, the results we have obtained to date do not necessarily indicate what the results of further testing would be, including controlled human clinical testing. All of the product candidates that we are currently developing will require extensive clinical testing before we can submit any regulatory application for their commercial use.

Our product development efforts may ultimately fail.

        Our product candidates are subject to the risks of failure inherent in the development of pharmaceutical products. These risks include the following:

    some of our product candidates may be found to be unsafe or ineffective, or may fail to receive the necessary regulatory clearances in a timely manner, if at all;

    even if safe and effective, our product candidates may be difficult to manufacture on a large scale or may be uneconomical to market;

    the proprietary rights of third parties may preclude us from marketing such products; and

    third parties may market more effective or less costly products for treatment of the same diseases.

        As a result, we cannot be certain that any of our products will be successfully developed, receive required governmental approvals on a timely basis, become commercially viable or achieve market acceptance.

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

        All of our product candidates will require the commitment of substantial resources and regulatory approval. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through non-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. We are currently conducting clinical trials on our products amuvatinib and SGI-110. We also expect to commence other 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, non-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 also have ongoing research and non-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 non-clinical trials, we might not be able to 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. 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

    governmental 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 requirements of the FDA and other regulatory authorities, and are subject to continuous oversight by these authorities, and institutional

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review boards and ethical committees. 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 for all of our products in clinical development. GCPs are enforced 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 regulatory authorities may require us to perform additional studies before approving our applications. Our non-clinical safety studies must be conducted according to the principles of good laboratory practice regulations. In addition, our clinical trials must be conducted with product candidates produced under current good manufacturing practice regulations, 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 or inconclusive.

        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. In 2010, we terminated clinical trials for SGI-1776 due to safety concerns.

        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 non-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.

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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 good manufacturing practices 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.

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 some of 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 product candidates. 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;

    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, and entail higher costs.

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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 develop substantially equivalent processes for the production of our product candidates. We may not be able to contract with any of these companies on acceptable terms, if at all.

If our suppliers cannot provide the components we require, our future 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 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 future sales of our products.

        Some suppliers may be our only source for a particular component, which would make 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 future 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. For example, in our collaborative relationship with GSK, we expect to offset the costs of further development of the drugs we jointly develop with GSK, if and when GSK exercises its option to license such jointly developed drugs.

        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

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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;

    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, such as our relationship with GSK. 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 ownership of or acquired licenses to numerous

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patents covering various aspects of our proprietary drugs and technologies. In addition, we are prosecuting a number of patent applications for new drug candidates that we are actively developing at this time.

        We also have patents, licenses to patents, and pending patent applications in Europe, Australia, Japan, Canada, China and Israel 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. 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. Furthermore, regulatory marketing exclusivity is for a limited time period, which may not be an adequate period for our business interests.

        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 other 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. There are many companies, both public and private, including well-known pharmaceutical companies that are engaged in the discovery and development of products for some of the applications that we are pursuing. Some of our competitors and probable competitors include ArQule, Array BioPharma, Astex Therapeutics, Crystal Genomics,

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Exelixis, Infinity, Plexxikon, Vertex, Sanofi-Aventis, Bristol-Myers Squibb Company, Celgene, Eli Lilly & Co., GSK, Novartis AG, Pfizer, and others.

        Many of our competitors have substantially greater financial, research and development, and manufacturing resources than we do and may represent substantial long-term competition for us. 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, amuvatinib faces competition from a multitude of other investigational drugs which are multi-targeted tyrosine kinase inhibitors and inhibitors of the DNA repair pathway. We also expect that there will be other inhibitors of PIM kinases that will emerge as competition for investigational drugs progressing through our discovery pipeline. In addition, Dacogen faces competition from 5-aza-cytidine and other drugs in development to treat MDS.

        Many of these competitors, either alone or together with their customers and partners, have significantly greater experience than we do in discovering products, undertaking non-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 or foreign marketing approval or commercializing products before we do. If we elect to commence commercial product sales of our product candidates, we could be at a disadvantage relative to many companies with greater marketing and manufacturing capabilities, in areas that we may have limited or no experience.

        Factors affecting competition in the pharmaceutical industry vary depending on the extent to which competitors are able to achieve an advantage based on superior differentiation of their products, greater institutional knowledge, or depth of resources. If we are able to establish and maintain a competitive advantage based on the ability of CLIMB to discover new drug candidates more quickly and against targets not accessible by many competitors, our advantage will likely depend primarily on the ability of our CLIMB technology to make accurate predictions about the effectiveness and safety of our drug candidates as well as our ability to effectively and rapidly develop investigational drugs.

        Extensive research and development efforts and rapid technological progress characterize the industry in which we compete. Although we believe that our proprietary drug discovery capabilities afford us a competitive advantage relative to other discovery and development companies competing in oncology, we expect competitive intensity in this pharmaceutical segment to continue and increase over time. Discoveries by others may render CLIMB and our current and potential products noncompetitive. Our competitive position also depends on our ability to attract and retain qualified scientific and other personnel at all our geographic locations, develop effective proprietary products, implement development plans, obtain patent protection and secure adequate capital resources.

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;

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    establish superior proprietary positions; or

    obtain FDA or foreign regulatory 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.

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 million per occurrence and $10 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.

        Our success is dependent on key personnel, including members of our senior management and scientific staff at all our geographic locations. 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 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, non-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, other natural disasters, or any man-made disasters. Although we have a contingency recovery plan, any significant business interruption could cause delays in our drug development and future revenue and harm our business.

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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.

        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.

Risks Related to the Proposed Acquisition of Astex Therapeutics Limited

We may fail to realize some or all of the anticipated benefits of the proposed Transaction, which may adversely affect the value of our common stock.

        The success of the Transaction will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining SuperGen and Astex. However, to realize these anticipated benefits and cost savings, we must successfully combine the acquired business with our legacy operations and integrate our respective operations, technologies and personnel following the closing. If we are not able to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits and cost savings of the Transaction may not be realized fully or at all or may take longer to realize than expected and the value of SuperGen's common stock may be adversely affected. In addition, the overall integration of the businesses is a complex, time-consuming and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt our operations following closing.

        We have operated and, until the closing, will continue to operate independently of Astex. It is possible that the integration process could result in the loss of key employees and other senior management, result in the disruption of our business or adversely affect our ability to maintain our research and development operations, or to otherwise achieve the anticipated benefits of the Transaction.

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        Specifically, risks in integrating Astex into our operations in order to realize the anticipated benefits of the Transaction include, among other factors:

    failure to effectively coordinate research and drug candidate development efforts to communicate our product capabilities and expected product roadmap following closing;

    failure to compete effectively against companies already serving the broader market opportunities expected to be available to us and our expanded drug offerings;

    failure to successfully integrate and harmonize financial reporting and information technology systems of SuperGen and Astex;

    retaining Astex's relationships with pharmaceutical company partners;

    integrating a senior management team from SuperGen and Astex, as well as integrating members from both companies on the board of directors of the post-closing company;

    retaining key SuperGen employees and retaining and integrating key employees from Astex;

    coordinating research and development activities to enhance the introduction of new drug development methodologies and drug discovery platforms acquired in the Transaction;

    coordinating operations across time zones, continents and cultures;

    managing effectively the diversion of management's attention from business matters to integration issues;

    combining research and development capabilities effectively and quickly;

    integrating partnership efforts so that new partners acquired with the Transaction can easily do business with us;

    transitioning all facilities to a common information technology environment; and

    combining our business culture with the business culture of Astex.

        In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual cost synergies, if achieved at all, may be lower than we expect and may take longer to achieve than anticipated. If we are not able to adequately address these challenges, we may be unable to successfully integrate the operations of the business acquired from Astex into our own, or to realize the anticipated benefits of the integration following the closing. The anticipated benefits and synergies assume a successful integration and are based on projections, which are inherently uncertain, and other assumptions. Even if integration is successful, anticipated benefits and synergies may not be achieved. An inability to realize the full extent of, or any of, the anticipated benefits of the Transaction, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which may affect the value of the shares of our common stock after the closing. Some examples of how we may not realize anticipated benefits include the risk of the following:

    cost of development programs may be higher than forecasted;

    forecasted contingent payments from collaborations may not be received as anticipated; and

    exchange risk associated with any existing or anticipated cash denominated in another currency may reduce the expected value actually received when translated into British Pounds Sterling.

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Failure to complete the Transaction could negatively impact our stock price and our future business and financial results.

        If the Transaction is not completed, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Transaction, we will be subject to a number of risks, including the following:

    we may be required to pay Astex a termination fee of up to $6 million if the Transaction is terminated under certain circumstances;

    we will be required to pay certain costs relating to the Transaction, including substantial legal, accounting and related consulting fees, whether or not the Transaction is completed;

    under the Implementation Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Transaction that may affect our ability to execute certain of our business strategies; and

    matters relating to the Transaction (including integration planning) may require substantial commitments of time and resources by our management, which could otherwise have been devoted to other opportunities that may have been beneficial to us as an independent company.

        We also could be subject to litigation related to any failure to complete the Transaction or related to any enforcement proceeding commenced against us to perform our obligations under the Implementation Agreement. If the Transaction is not completed, these risks may materialize and may adversely affect our business, financial results and stock price.

We will incur significant Transaction and Transaction-related costs.

        We expect to incur a number of non-recurring costs associated with combining the operations of Astex with our own business. The substantial majority of non-recurring expenses resulting will be comprised of Transaction costs related to the execution of the Transaction, facilities and systems consolidation costs and employment-related costs. We will also incur Transaction fees and costs related to formulating integration plans. Additional unanticipated costs may be incurred in the integration of the businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset incremental Transaction and Transaction-related costs over time, this net benefit may not be achieved in the near term, or at all.

We must continue to retain, motivate and recruit executives and other key employees, which may be difficult in light of uncertainty regarding the Transaction, and failure to do so could negatively affect our operations.

        For the Transaction to be successful, during the period before the Transaction is completed, we must continue to retain, motivate and recruit executives and other key employees. We also must be successful at retaining key employees following the closing. Experienced executives are in high demand and competition for their talents can be intense. Employees may experience uncertainty about their future role with us until, or even after, strategies with regard to our operations and product development following the closing are announced or executed. These potential distractions of the Transaction may adversely affect our ability to attract, motivate and retain executives and other key employees and keep them focused on applicable strategies and goals. A failure to retain and motivate executives and other key employees during the period prior to or after the closing could have a material and adverse impact on our business.

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Some of our current directors and executive officers have interests in the Transaction that may differ from the interests of our stockholders, and these persons may have conflicts of interest in recommending to our stockholders that they approve of the share issuance to Astex.

        Some of the members of management and the SuperGen board of directors may have interests in the Transaction that differ from, or are in addition to, their interests as stockholders. These interests include:

    the rights of certain officers to receive payments or other benefits, including grants or the vesting of equity awards, following the closing; and

    the continuing service of several of SuperGen's existing directors and executive officers following the closing.

        These interests could cause management or members of the SuperGen board of directors to have a conflict of interest in recommending approval of the share issuance to Astex to our stockholders.

Sales by former Astex securityholders of shares of our common stock acquired in the Transaction could cause our stock price to decrease.

        The sale of shares of common stock that certain Astex securityholders receive in the Transaction will be restricted by the terms of a lock-up agreement with us and, potentially, a coordinated selling agreement among those holders, but these shareholders may begin to sell 25% of these shares two months after the closing date, with another 25% of the shares to be released every two months until all shares are fully tradable eight months after the closing date. The sale of a substantial number of shares of common stock by former Astex securityholders or by our other stockholders within a short period of time could cause our stock price to decrease, and make it more difficult for us to raise funds through future offerings of common stock.

Our obligation to pay a termination fee under certain circumstances and the restrictions on our ability to solicit or engage in negotiations with respect to other acquisition proposals may discourage other transactions which may be favorable to our stockholders.

        Until the Transaction is completed or the Implementation Agreement is terminated, with limited exceptions, the Implementation Agreement prohibits us from entering into, soliciting or engaging in negotiations with respect to acquisition proposals or other business combinations with a party other than Astex. We have agreed to pay Astex a termination fee of $6 million under specified circumstances. These provisions could discourage other companies from proposing alternative transactions which may be more favorable to our stockholders than the Transaction.

SuperGen's existing stockholders will experience dilution of their percentage ownership of SuperGen common stock.

        Pursuant to the Implementation Agreement, SuperGen initially would be issuing new shares of common stock to certain Astex securityholders, which would represent approximately 35% of the total outstanding voting power of all SuperGen stockholders following the closing. The issuance of these shares would cause SuperGen's current stockholders to experience immediate and significant dilution in their percentage ownership of SuperGen's outstanding common stock. Moreover, our current stockholders would experience additional dilution in the event that our Audit Committee determines to pay some or all of the $30 million in deferred consideration in the form of shares of our common stock. We are also assuming certain outstanding options of Astex in the Transaction; if these options (as converted) were to be exercised, our existing stockholders would suffer additional dilution.

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Following the closing, certain former Astex securityholders will hold over a third of the outstanding SuperGen common stock, which could limit the influence of SuperGen's other stockholders over the election of directors and other significant corporate actions or discourage third parties from proposing a change in our control.

        Immediately after the closing of the Transaction, certain former Astex securityholders, as a group comprised of approximately 13 entities (counting any affiliated shareholders as one entity) who previously held preferred shares in Astex, would own approximately 35% of the total outstanding shares of SuperGen common stock, and would have designated four of the members serving on the nine-member board of directors of the combined entity. Accordingly, as a group, if the former Astex shareholders do not sell their SuperGen shares received in the Transaction, they would be able to exert significant influence over the outcome of a range of corporate matters, including significant corporate transactions requiring a stockholder vote, such as a merger or a sale of the combined company or its assets. This potential concentration of ownership and influence in management and board decision-making could also harm the price of SuperGen common stock following the closing by, among other things, discouraging a potential acquirer from seeking to acquire shares of SuperGen common stock (whether by making a tender offer or otherwise) or otherwise attempting to obtain control of the combined company. If any of the deferred consideration were to be paid in shares of SuperGen common stock, although the size of the group of former Astex securityholders holding SuperGen shares would increase (due to the distribution of deferred consideration shares to ordinary shareholders as well as preferred shareholders), the expanded group would hold an even greater percentage of the outstanding post-closing stock of SuperGen, thereby exacerbating the risk of concentrated ownership.

        Furthermore, the ownership position of the former Astex securityholders could discourage a third party from proposing a change of control or other strategic transaction concerning SuperGen. As a result, our common stock could trade at prices that do not reflect a "control premium" to the same extent as do the stocks of similarly situated companies that do not have a group of stockholders with an ownership interest as large as the former Astex shareholders' collective ownership interest.

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, 2011


 

 

 

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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