- Supergen released 2q2011 earnings on 8/3/11 - click here for PR.
- Click here for complete transcript from Seeking Alpha (usual caveats about their poor transcription quality applies)
- As always, complete research and due diligence info can be found on the SUPG page [sorry it is still somewhat incomplete].
- Note that the Supergen-Astex merger closed 7/20/2011..so the 6/30 results do not reflect this but all future discussion and guidance do reflect the combined entity.
- My complete notes are below the jump - please be advised that there is more of my commentary [always marked out in color/italics] than usual, partly because I have had a couple weeks to reflect on the call's comments, and partly because I am just that aghast about just how terrible the Montigen acquisition and past few years have been for SUPG, aside from cashing the Dacogen royalty checks:
- Note: this was first cc w/ Astex executives (president and chief business officer of combined company)
- in 3q11, will change symbol to ASTX and name to Astex Pharma
- WIll make presentations at upcoming Rodman & Renshaw and UBS conferences
- 2q2011 dacogen royalties +18% y/y
- ~$129m cash 6/30/11
- Last week started physcial transfer of discovery/preclinical/manufacturing operations to Astex's Cambridge, UK site. Total net reduction in force (RIF) of 44 employees which is 24% of current 184x headcount by ye2011 (primarily affects R&D). Will wind down Salt Lake City, UT (CLIMB disovery and R&D) and Pleasanton, CA (formulaton) sites. - Much more on implications of this below.
- Expect nominal 2011 annual net operating loss (this differs from original 2011 guidance of a net profit)
- Portfolio review/prioritization is underway and results will be presented at a future analyst day
- AT13387 - imatinib combo phase 2 trial for GIST tumors recently started
- AT7519 single agent and combo with velcase phase 2 trial underway in multiple myeloma supported by MMRF
- AT9283 - dual aurora/jak2 kinase inhibitor, single agent multiple myeloma phase 2 trial in conjunction with Canadian NCI
- AZD5363 - phase 1 trial underway, run by AZN
- LEE011 - CDK4 inhibitor currently in phase 1 trial run by NVS
- Amuvatinib - phase 2 trial was launched at several prominent cancer centers, currently screening pts. Plan to enroll 21-50 pts at least 13 ctrs (odd...this initiation was not announced in a press release...also note they did not say any pts had been enrolled)
- SGI-110 - progressing well in enrollment of phase 1/2 trial. In 2012 potentially the end of phase 2 proof of concept (POC) data will be available
- Dacogen - both Eisai and JNJ filed in 2q2011 (US and EU respectively) for approval in indication of elderly AML. 3/6/2012 is the US PDUFA date
- 7/202011 closed Astex deal and now updated guidance for combined company (more detailed vs typical guidance).
- 2h2011: the combined entity will operate at or near cash flow neutrality
- 2h2011 - also increased estimated dacogen royalty revenue (from "up to $55m" to "up to 57.5m"...they have sandbagged this the last couple years) and increased milestones/development revenue via Astex up to $6.5m (SUPG alone guidance was only $025m amortization of GSK epigenetics collaboration upfront fee)
- 2011 R&D expenses now will be $50m, G&A $17m for the full year
- 2h2011 forcasting net loss of $8m and calendar yr 2011 net loss of $2m
- Issued 32.4m shares to Astex holders at closing, so there are $92.8m total shares outstanding now
- Question and Answer session:
We are in the process of considering a spinout that will once again be called Montigen and incorporate CLIMB... working on this presently. Pleasanton operation could be sold as standalone preclinical CMC and formulation operation. Have not written off these operations completely. They are not dead, attempting to monetize these for shareholders [So the unanswered answer to the question is yes. Big ouch but not a surprise to me after the failures or delays with basically every CLIMB-derived product]. Former Salt Lake City employees cuold become part of the newly spun-out company. We have not yet commented in detail on portfolio prioritization which would also have implications for the intiative I've described [ie, amuvatinib, and/or preclinical CLIMB candidates will be given to the spinout...I'd bet money that amuvatinib will be spun out, along with everything else that came from CLIMB. The only question mark would seem to be SGI-110...based on the discussion in q%a session below I think ASTX will keep this (along with Dacogen royalties of course) to tout as follow-on to Dacogen. Or maybe give to spinoff with right to reacquire later?]
2) 2h2011 you are forecasting a doubling expenses? Is this R&D cost increase going to continue going forward?
Guidance is for 2h $44m operating expenses. No comment on 2012 guidance at this time. Will work to balance costs and revenues in a meaningful way. This year includes many one time costs from the merger ($2.6m for legal, accounting, severance)...plus accounting for intaglible assets for programs acquired (non cash items in futrue periods.. 2h11 6 month period will include $3.6m of expense for this). Our 7 clinical programs [3 are partnered] offer opportunities for future monetization and value creation in the future
3) I see that Montigen management is registered to present at our upcoming conference...so does that mean this spinout has been contemplated for some time and could be completed shortly? [This question from a Rodman and Renshaw analyst]
It is our intentuion to rapidly develop a standalone busenss and ensure it has cash to operate for forseeable future [translation, SUPG is going to have to deposit a chunk of its cash hoard with the spinoff, effectively adding to the cost of the failed Montigen acquisition and/or the cost of the Astex buyout needed to replenish the failed pipeline]. We will be more explicit about this and the montigen execs will present at the R&R conference (click here for details). We believe we'll be able to retain a core group of Salt Lake City discovery employees. Will integrate thru acquisition one more drug and will include another drug [sure to be amuvatinib in my opinion] such that spinout will have two phase 2 drugs along w/ discovery stage assets [ie, more CLIMB junk that has gone nowhere for years] and potentially a corporate deal [would have to be referring to the GSK epigenetics deal that has achieved no milestones since signing in 2009]. clearly would be our intention to retain a meaningful portion of equity in the spinout. Won't comment on which SUPG assets would be included in montigen spinout, haven't completed portfolio review [though as I written above, it is quite clear]. Would be costly for combined Astex Pharma ASTX to pursue and ramp up every program.
4) What are next Astex clinical asset milestones?
3 compounds in open label phase 2 trials - just started recently. In 6-12 months will begin to get data from these, hope for positive signals of activity.
Potential early assets to partner next 6 months?
2 programs in lead optimization: XIAP target for oncology- anticipate selecting candiate for preclinical development in next 6-9 months. Also similar stage HCV program (allosteric NS3 inhibitor - click here for pipeline details) - this one outside of primary focus of ASTX, so is a primary candiate for partnerhsip going forward.
5) Decision to continue to manage for cash flow neutrality vs "stepping on the gas" and take advantage of former and future Astex capabilities. why that choice?
We have not yet had combined board meeting or officer retreat, but currently maintaining out previous stance [ie, near cash flow neutral]. As we enter 2012, want to maximize potential of all assets (choose among further investment, partner, divest, integrate into Montigen). On 3q11 call will update guidance. Astex 2011 r&d expenses estimate at 13-17m pounds. astex had 17.2m L ye2010 cash (~$27m), slightly less upon closing but >$20m
6) Looks like Dacogen growth rate falling in 2h11? Is this due to vidaza loss of exlcusivity? Remember we recognize royalty revenue a quarter in arrears. Based on IMS data, has been consistent modest growth. Eisai recently reported 2q11 results with good growth [$60m US sales 2q2011 from $47m 2q2010]. To our knowledge there is no Vidaza generic on market yet [this echoes statement made by CELG, seller of Vidaza, recently]....so basically this questioner (Robin Davison - Edison Investment Research Limited) was clueless, but maybe this was an Astex analyst.
7) How much cash at merger closing?
Don't have exact figure for you...had $129m at 6/30, Astex had $20m+ at closing, paid Astex $25m at closing, so can estimate.
8) Re the GSK epigenetics collaboration, will this work move to UK?
We are considering a variety of alternatives. The bulk of the original work was undertaken in Salt Lake and it progresses. Can't comment at this time. [These comments reinforce my belief that this program will be part of Montigen spinout]
9) Any change to philosophy of developing drugs thru phase 2 only?
We have taken to commercialization in the past, so are capable, but not in current position to do that because of where drugs are in development. Will consider this in yrs ahead to maximize shareholder value. Could involve development beyond phase 2 POC. We will have a number of phase 2 POC readouts in 2012
10) When will portfolio review be complete?
We believe will be in position to comment on next (3q11) conference call. Have been very busy w/ merger closing and major RIF.
11) Dacogen pricing changes? What is Dacogen market like for AML?
There was small % annual dacogen price increase, no other major changes. AML market is about the same size as current MDS market. MDS market is growing slightly overall. Dacogen share via IMS is inching slightly higher , slightly over 40% now. There is US reimbursement supprort for both indications, but don't know current MDS/AML split of use. Seeing trend that more cycles is beneficial. We do not disclose avg # cycles per pt (MDS is more indolent, get more cycles. AML is more acute, get less cycles).
12) How much of total revenue is from AML in US?
We really don't have clarity on this. IMS data is extrapolated from 85% of end users (physicians)
13) From what we're hearing, FDA rejection may not affect current use in AML?
That's a good point. And certainly the focus of discussion on the regulatory front may be different in EU vs US
Don't have exact figure for you...had $129m at 6/30, Astex had $20m+ at closing, paid Astex $25m at closing, so can estimate.
8) Re the GSK epigenetics collaboration, will this work move to UK?
We are considering a variety of alternatives. The bulk of the original work was undertaken in Salt Lake and it progresses. Can't comment at this time. [These comments reinforce my belief that this program will be part of Montigen spinout]
9) Any change to philosophy of developing drugs thru phase 2 only?
We have taken to commercialization in the past, so are capable, but not in current position to do that because of where drugs are in development. Will consider this in yrs ahead to maximize shareholder value. Could involve development beyond phase 2 POC. We will have a number of phase 2 POC readouts in 2012
10) When will portfolio review be complete?
We believe will be in position to comment on next (3q11) conference call. Have been very busy w/ merger closing and major RIF.
11) Dacogen pricing changes? What is Dacogen market like for AML?
There was small % annual dacogen price increase, no other major changes. AML market is about the same size as current MDS market. MDS market is growing slightly overall. Dacogen share via IMS is inching slightly higher , slightly over 40% now. There is US reimbursement supprort for both indications, but don't know current MDS/AML split of use. Seeing trend that more cycles is beneficial. We do not disclose avg # cycles per pt (MDS is more indolent, get more cycles. AML is more acute, get less cycles).
12) How much of total revenue is from AML in US?
We really don't have clarity on this. IMS data is extrapolated from 85% of end users (physicians)
13) From what we're hearing, FDA rejection may not affect current use in AML?
That's a good point. And certainly the focus of discussion on the regulatory front may be different in EU vs US
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