Notes: SUPG proxy re Astex merger and shareholders meeting

SUPG filed a preliminary proxy on Friday 4/22/11.  Click here for the PDF version  Fair warning- it's 364 pages!

Here are some notes (I'll integrate this info in the Supergen research page as well as time allows):

• Assumption and conversion of Astex's outstanding warrants and options would increase the SUPG fully diluted share count by up to 2.5m shares
• Counting the ~32m shares to be issued at closing (giving Astex holders 35% stake in combined company), no more than 52.5m shares total can be issues (~47% stake)- $30m deferred payments are due to Astex shareholders in cash and/or stock.  The share price would have to drop substantially for this limit to be relevant
• "On an ongoing basis, SuperGen has monitored the marketplace concerning strategic opportunities to strengthen our business, and specifically ramped up this review since 2005. ...We originally became interested in Astex in early 2009 as part of this process, specifically because we believed that their high throughput crystallography and fragment-chemistry based drug discovery process represented a best-in-class technology that was complementary to our established drug development capabilities. In addition, we sought more clinical-stage assets that would not deplete unduly our cash reserves, while also offering a possible vehicle for generating future revenue stream to offset the lapsing of Dacogen's Orphan Drug designation in the U.S. in November 2013."
• Conversations between SUPG and Astex CEO's regarding transaction began in January 2009, with a formal confidentiality agreement put in place in March 2009
• Spring of 2009, SUPG met with Astex management and had discussions with several other potential acquisition targets
• May 2009- talks broke down due to differing views on valuations, deal environment, and terms
• Late 2009 and early 2010- considered other possibilities, staying as stand-alone entity, and selling SUPG, but continued to think that Astex was best potential fit- so resumed talks with Astex in April 2010, and after several meetings, issued a Letter of Intent in May 2010
• Due diligence, site visits, exchanges and revisions of term sheets took place during Spring, Summer, and Fall 2010, leading to a proposal in December 2010 that largely reflected the final deal terms announced in April 2010
• SUPG's financial advisor valued Astex based on a peer group of  "selected Phase II clinical stage pharmaceutical companies currently involved in partnerships with large pharmaceutical companies: Micromet, Inc., Array BioPharma, Inc., Idera Pharmaceuticals, Inc., Cyclacel Pharmaceuticals, Inc., Curis Inc., Oxford BioMedica PLC, Transgene SA, Geron Corporation, Marina Biotech Inc., Lpath Inc.  This selected companies' analysis resulted in a mean and a median enterprise value of approximately $176 million and $136 million, respectively, and indicated an implied reference range for Astex of approximately $145 million to $175 million."
• The advisor Houlihan Lokey also valued Astex based on the following comparable buyouts: calculated multiples of enterprise value based on the estimated purchase prices paid in the following deals: Abbott Laboratories purchase of Facet Biotech Corporation; Eisai, Inc. purchase of AkaRx, Inc.; YM BioSciences Inc. purchase of Cytopia Limited; Celldex Therapeutics, Inc. purchase of CuraGen Corporation; Ligand Pharmaceuticals Inc. purchase of Pharmacopeia, Inc.; and Eisai, Inc. purchase of Morphotek, Inc. This selected transactions analysis resulted in a mean and a median for upfront payments of approximately $238 million and $290 million, respectively, a mean and a median for contingent payments of approximately $54 million and $0, respectively, and indicated an implied reference range for Astex of approximately $160 million to $190 million.
• A sum of parts valuation was also made based on partnered programs, unpartnered candidates, and technology platform, resulting in "an implied enterprise value reference range for Astex as of March 28, 2011 of approximately $157 million to $238 million."
• Similarly, valuation models for Supergen's business were calculated and reflected a range of $211 to $263m
• Lockup agreement: Astex shareholders can sell 25% of shares each at 2, 4, 6, and 8 months after deal closing
• Description of Astex discovery platform: "Pyramid defines a process by which a range of high throughput biophysical and computational techniques are used to experimentally characterize the interactions of very low molecular weight compounds (fragments) with their target proteins. Although there are many advantages of a fragment-based approach to drug discovery, there are significant technical challenges to overcome before the approach can be used effectively. The fundamental challenge is one of detection. Because fragments are so small, they will have fewer interactions with target proteins than larger, more complex compounds. This means they will bind to their targets with very low affinity. Conventional screening systems based on bioassays are designed to detect binding that occurs at higher affinities than is typically observed with fragments. As such, fragments cannot be detected using conventional screening methods. Accordingly, a fundamental challenge in establishing a fragment-based drug discovery capability is the development of efficient screening systems that can detect the binding of fragments. Astex's Pyramid drug discovery platform addresses limitations in conventional high throughput screening and other forms of fragment-based screening by combining high throughput X-ray crystallography, NMR spectroscopy, calorimetry and other biophysical methods with advanced computational techniques and structure-based design to enable Astex's chemists to design, synthesize and test novel fragment-derived drug molecules in a seamlessly integrated process." See below for Astex pipeline compounds:

Un-partnered pipeline and discovery programs:

• AT7519 "is a small molecule targeted inhibitor of several cyclin-dependent kinases that regulate two important disease processes: the cell replication cycle and gene expression. A Phase II study of AT7519 in combination with bortezomib in patients with multiple myeloma has commenced at multiple centers in the US with funding support from the Multiple Myeloma Research Foundation. In addition, two Phase II trials of AT7519 to treat patients with chronic lymphocytic leukaemia and mantle cell lymphoma are planned and will be sponsored by the National Cancer Institute of Canada (NCIC)  Clinical Trials Group in Canada. Novartis has an option to license worldwide development and commercialization rights to AT7519 under our December 2005 collaboration and license agreement."
• AT9283 "is a small molecule inhibitor of kinases including aurora A and B, and JAK2. Initial clinical trials have demonstrated early signals of efficacy in patients with haematological malignancies. AT9283 is being investigated in a Phase II clinical trial in a chemotherapy refractory, multiple myeloma patient population in a trial being sponsored by the NCIC Clinical Trials Group in Canada and in a Phase I trial in paediatric patients with advanced solid tumours under the sponsorship of Cancer Research U.K. An additional paediatric leukaemia trial being sponsored by Cancer Research U.K. is due to begin during 2011. Astex retains all commercial rights in this compound."
• AT13387 is a small molecule inhibitor of Hsp90, a so called "heat shock" protein believed to be responsible for supporting many tumour cells becoming cancerous. Hsp90 acts as a "molecular chaperone" stabilising and preventing the breakdown of key cancer forming (oncogenic) proteins. AT13387 is currently completing a Phase I study designed to assess the safety and tolerability of the drug in patients with advanced refractory tumours. This study, which is investigating two different dosing schedules, is being conducted at multiple clinical sites in the U.S. The study is also intended to provide early evidence of clinical efficacy. Based upon the initial results of this Phase I study, Astex has initiated a Phase II study in patients with refractory gastro-intestinal stromal tumours. In November 2009, we entered into a Cooperative Research and Development Award with the US National Cancer Institute (NCI) to support the further clinical development of AT13387 over the next 5 years with a number of single agent and combination Phase I/II and Phase II studies planned. Astex retains all commercial rights in this compound."
• AT13148 "is an orally active multi-targeted small molecule inhibitor of Protein Kinase B, or PKB, PKB/Akt, a key enzyme in an important tumour cell survival pathway. More than 50 per cent of all tumours have an abnormality in this pathway. In September 2008 Astex announced a partnership with Cancer Research U.K. and Cancer Research Technology Limited to take AT13148 into development under the organization's Clinical Development Partnerships program. Under the terms of this agreement, Cancer Research U.K.'s Drug Development Office will carry out further development work on the agent, some of which will be undertaken by The Institute of Cancer Research (ICR) and,if successful, AT13148 will be taken into Phase I clinical trials. Astex retains all commercial rights in the compound."
• Preclinical HCV NS3 Inhibitors "Astex has a project focused on the discovery of small molecule inhibitors of hepatitis C virus (HCV) NS3—a key protein involved in viral replication. The compounds act as allosteric modulators of the NS3 protein resulting in inhibition of the enzyme activities of both protease and helicase in wild type and in drug resistant variants of HCV that have arisen in the clinic during treatment with active site inhibitors. As such, the compounds offer the potential to be differentiated from existing HCV protease inhibitors. Astex retains all commercial rights to the resulting drug candidates from this program. The project is currently in the lead optimization stage."
• Preclinical  IAP Inhibitors "Astex has a project focused on identifying and developing novel, small molecule, non-peptidomimetic modulators of inhibitors of apoptosis proteins (IAP) for development as anti-cancer agents. Astex has identified two chemically distinct lead series, with a range of selectivity profiles. Current optimization has now identified examples of selective and pan-selective agents that are active in vivo and which Astex believes have potential both in a combination setting and for use as a single agent. Astex retains all commercial rights to the resulting drug candidates from this program. The project is currently in the lead optimization phase."

Partnered pipeline and discovery programs:

• LEE011 is a selective inhibitor of the key cell cycle enzymes cyclin-dependent kinase 4 and cyclin-dependent kinase 6, and derives from the collaboration and licence agreement with Novartis announced in December 2005, aimed at developing novel cancer therapies targeting the cell cycle. LEE011 entered Phase I human clinical trials in January 2011. Novartis has worldwide development and commercialization rights to this compound.
• AZD5363 is an orally bioavailable PKB/Akt inhibitor, and derives from the collaboration and licence agreement with AstraZeneca announced in July 2005, aimed at developing novel cancer therapies targeting a key tumour cell survival pathway. AZD5363 entered Phase I human clinical trials in April 2011. AstraZeneca has worldwide development and commercialization rights to this compound.
• AZDyyyy. In October 2010 we announced that AstraZeneca had selected a candidate drug from the collaboration and licence agreement announced in March 2003 aimed at identifying novel, small molecule inhibitors of beta-secretase—a key enzyme implicated in the progression of Alzheimer's disease. Inhibitors to block the action of this enzyme could prevent the build-up of beta-amyloid which may help slow the progression of, or stop, the disease. AstraZeneca has worldwide development and commercialization rights to this compound.
• FGFR Inhibitors—In June 2008, Astex entered into a collaboration and licence agreement with Janssen (JNJ) which granted them a worldwide exclusive license to develop and commercialize compounds arising from Astex's novel FGFR inhibitor program, and the parties also established a new drug discovery alliance focused on the identification of novel inhibitors against two additional cancer drug targets. Astex continues to conduct research work under the collaboration.

Astex collaboration details:

• " In November 2009 Astex entered into a multi-target collaboration and licence agreement with GSK. Pursuant to the terms of the agreement, Astex will apply its fragment-based drug discovery platform, Pyramid, to multiple targets identified by GSK, with the objective of identifying and developing new candidate drugs. The targets have been selected from multiple therapeutic areas within GSK. In connection with the agreement, Astex received a £12.5 million upfront payment [recognized over 48 months] and in addition, GSK purchased £7.5 million of our Preferred C shares at a price of £4.82 per share. GSK is obligated to make certain payments to Astex if and when the projects reach defined research, development and regulatory milestones. The agreement further provides that, if the compounds derived from the joint research program become commercial products, GSK will pay Astex tiered royalties on annual net sales of such products. The royalties will be paid on a country-by-country and product-by-product basis. Total potential research, development and regulatory milestones payable to Astex could exceed £300 million [earned L3.1m in milestones in 2010]."
• "In June 2008 Astex entered into a collaboration and licence agreement focused on the research, development and commercialization of novel drugs for the treatment of cancer with Janssen (JNJ). The agreement grants Janssen a worldwide exclusive license to develop and commercialize compounds arising from our novel FGFR inhibitor program, and Astex also established a new drug discovery alliance focused on the identification of novel inhibitors against two additional cancer drug targets. The collaborative program with Janssen on FGFR inhibitors is currently in preclinical development. In connection with the transaction, Astex received a £5 million upfront payment [recognized over 24 months] and in addition, Johnson and Johnson Development Corporation, or JJDC, purchased £7.5 million of our Preferred C shares at a price of £4.82 per share. Janssen has paid for a defined number of our employees working on the projects on the basis of full time equivalents (FTEs). Reimbursements for FTEs are included in deferred revenue and recognized as the services are rendered. The agreement provides for Janssen to select compounds for further development and commercialization at the end of the research phase. Janssen is obligated to make certain payments to Astex if and when the projects reach defined  discovery, development and regulatory milestones. The agreement further provides that, if the compounds derived from the joint research program become commercial products, Janssen will pay Astex tiered royalties on sales of FGFR inhibitors and additional royalties on new products developed under the other research programs. The royalties will be paid on a country-by-country and product-by-product basis. Total potential research payments, development and regulatory milestones payable to Astex could exceed £270 million [earned milestones of L1.1m in 2010 0 in 2009, and L0.8m in 2008] ."
• "Astex has completed the research phase of a collaboration and licence agreement with Novartis signed in December 2005 which is focussed on the research, development and commercialization of novel cell cycle control drugs for the treatment of cancer and other human diseases. Further activities continue at Novartis under this agreement with the clinical candidate LEE011 entering human clinical trials in January 2011. In addition, Novartis has an option to purchase a worldwide license to develop and commercialize our compound AT7519, currently in Phase II clinical development. In connection with the agreement Astex received a $10 million upfront payment and in addition Novartis purchased £8.7 million of our Preferred C shares at a price of £4.82 per share in April 2007. Novartis is obligated to make certain payments to Astex if and when the projects reach defined development and regulatory milestones. The agreement further provides that, if the compounds derived from the joint research program become products, Novartis will pay Astex royalties on annual net sales of such products. The royalties will be paid on a country-by-country and product-by-product basis. Total potential research payments, development and regulatory milestones payable to Astex could exceed £180 million."
• "Astex has completed the research phase [by the end of 2006] of a collaboration and license agreement signed in July 2005 with AstraZeneca relating to the discovery of novel drugs against PKB. Further activities continue at AstraZeneca under this agreement with the clinical candidate AZ5363 entering human clinical trials in early 2011. In connection with the AstraZeneca agreement Astex received a £2.75 million upfront payment. AstraZeneca is obliged to make certain payments to Astex if and when the projects reach defined development and regulatory milestones. The agreement further provides that, if the compounds derived from the joint research program become commercial products, AstraZeneca will pay Astex sales milestone payments as well as royalties on annual net sales of such products. The royalties will be paid on a country-by-country and product-by-product basis. In addition, Astex may receive tiered royalties payable on net sales of resulting products. Total potential research, development and sales milestones payable to Astex could exceed £150 million."
• "Astex has completed the research phase [by the end of 2006] of a collaboration and licence agreement signed in February 2003 with AstraZeneca relating to the discovery of novel drugs against a key protein target, beta-secretase implicated in the onset of Alzheimer's disease. Further activities continue at AstraZeneca under this agreement with the selection of a clinical candidate by AstraZeneca announced in October 2010. In connection with the 2003 agreement, AstraZeneca is obligated to make certain payments to Astex if and when the projects reach defined development and regulatory milestones. The agreement further provides that, if the compounds derived from the joint research program become products, AstraZeneca will pay Astex sales milestone payments as well as royalties on annual net sales of such products. The royalties will be paid on a country-by-country and product-by-product basis. Total potential research, development and sales milestones payable to Astex could exceed $40 million."
• Astex has no debt (paid off in June 2010), but has L12m in future lease obligations in the UK
• The estimated total value of the deal is $140m ($85m in stock at closing, $25m cash at closing, $27m value of deferred payments, $3m in option/warrants assumed)
• This merger does not seem to trigger change in control payments to SUPG CEO Manuso. Presumably some such payments due to Astex management?