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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K/A**

**(Amendment No. 1)**

 

| **x**                                            | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|--------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                             |                                                                                          |
| **For the Fiscal Year Ended  December 31, 2009** |
|                                             |
| **OR**                                           |
|                                             |                                                                                          |
| **o**                                            | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from                  to                  **

 

**Commissionfile number 0-27628**

 

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**SUPERGEN, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                      | ** ** | **91-1841574**         |
|-----------------------------------|------------|------------------------|
| (State or other jurisdiction      |       | (IRS Employer          |
| of incorporation or organization) |       | Identification Number) |

 

| **4140 Dublin Blvd., Suite 200, Dublin, CA** | ** ** | **94568**  |
|----------------------------------------------|------------|------------|
| (Address of principal executive offices)     |       | (Zip Code) |

 

Registrant’s telephonenumber, including area code:  **(925) 560-0100**

 

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Securities registeredpursuant to Section 12(b) of the Act:

 

| **Title of each class:**  | ** ** | **Name of each exchange on which registered:** |
|------------------------------------------|------------|------------------------------------------------------------------------------|
| Common Stock, $0.001 par value per share |       | The NASDAQ Stock Market LLC                                                  |

 

Securities registeredpursuant to Section 12(g) of the Act:  **None**

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act.  Yes o  No x

 

Indicateby check mark if the registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Act.  Yes o  No x

 

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

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).  Yes o  No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. o

 

Indicateby check mark whether registrant is a large accelerated filer, an acceleratedfiler, a non-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 ofthe Exchange Act. (Check one):

 

| Large accelerated filer o                |   | Accelerated filer x         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer o                  |   | Smaller reporting company o |
| (do not check if a smaller reporting company) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).  Yes o  No x.

 

Theaggregate market value of the voting stock held by non-affiliates of theRegistrant (based on the closing sale price of the Common Stock as reported onthe Nasdaq Stock Market on June 30, 2009, the last business day of theRegistrant’s most recently completed second fiscal quarter) was approximately$117,441,154.  This determination ofaffiliate status is not necessarily a conclusive determination for otherpurposes.  The number of outstandingshares of the Registrant’s Common Stock as of the close of business on March 5,2010 was 60,215,632.

 

**DOCUMENTS INCORPORATED BYREFERENCE**

 

Items10, 11, 12, 13 and 14 of Part III incorporate by reference information from thedefinitive proxy statement for the Registrant’s Annual Meeting of Stockholders.

 

 

 

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**EXPLANATORY NOTE**

 

SuperGen, Inc. (“SuperGen,” the “Company,” “we,” “us,”or “our”) is filing this Amendment No. 1 on Form 10-K/A (“Amendment”) toits Annual Report on Form 10-K for the year ended December 31, 2009,as filed with the Securities and Exchange Commission on March 15, 2010 (“Form 10-K”).

 

We are filing this Amendment to re-file thecomplete text of those items for which we have included supplementalinformation, as follows:

 

·                  Part I, Item 1, Business — our “Patents and Proprietary Technology”section has been supplemented with additional information about our patents;

 

·                  Part II, Item 7, Management’s Discussion and Analysis of FinancialCondition and Results of Operations — our “Results of Operations” section hasbeen supplemented with additional information about our research anddevelopment expenses;

 

·                  Part II, Item 9A, Controls and Procedures, has been modified to includeadditional language;

 

·                  Part III, Item 11, Executive Compensation, has been modified to includesupplemental information in the Compensation Discussion and Analysis section,as well as a revised Summary Compensation Table.

 

This Amendment contains currently datedcertifications of our Chief Executive Officer and Chief Financial Officer.

 

This Amendment does not reflect events occurringafter the filing of the Form 10-K, or after the filing of the definitiveProxy Statement for our 2010 Annual Meeting of Stockholders, as filed with theSecurities and Exchange Commission on April 30, 2010 (the “Proxy Statement”),and does not update disclosures contained in either the Form 10-K or ProxyStatement, or modify or amend the Form 10-K or Proxy Statement except asspecifically described in this explanatory note.

 

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**SUPERGEN, INC.**

 

**2009 ANNUAL REPORT ON FORM 10-K/A**

 

**AMENDMENT NO. 1**

 

**TABLE OF CONTENTS**

 
| ** **    | ** **                                                                                  | **Page** |
|---------------|---------------------------------------------------------------------------------------------|----------|
|          |                                                                                        |     |
| PART I   |                                                                                        |     |
|          |                                                                                        |     |
| Item 1.       | Business                                                                                    | 1        |
|          |                                                                                        |     |
| PART II  |                                                                                        |     |
|          |                                                                                        |     |
| Item 7.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 17       |
| Item 9A.      | Controls and  Procedures                                                                    | 27       |
|          |                                                                                        |     |
| PART III |                                                                                        |     |
|          |                                                                                        |     |
| Item 11.      | Executive Compensation                                                                      | 29       |
|          |                                                                                        |     |
| PART IV  |                                                                                        |     |
|          |                                                                                        |     |
| Item 15.      | Exhibits  and Financial Statement Schedules                                                 | 46       |
|          |                                                                                        |     |
| SIGNATURES    | S-1                                                                                         |

 

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***Special Note RegardingForward-Looking Statements***

 

*Our disclosure and analysis inthis report contain forward-looking statements within the meaning of Section 27Aof the Securities Act and Section 21E of the Exchange Act, and within themeaning of the Private Securities Litigation Reform Act of 1995.Forward-looking statements provide our current expectations or forecasts offuture events.  When we use the words “anticipate,”“estimate,” “project,” “intend,” “expect,” “plan,” “believe,” “should,” “likely”and similar expressions, we are making forward-looking statements.  In particular, these statements includestatements such as: our estimates about profitability; our forecasts regardingour revenues and research and development expenses; and our statementsregarding the sufficiency of our cash to meet our operating needs.  Our actual results could differ materiallyfrom those predicted in the forward-looking statements as a result of risks anduncertainties including, but not limited to, delays and risks associated withconducting and managing our clinical trials; the commercial success of Dacogen;developing products and obtaining regulatory approval; our ability to establishand maintain collaboration relationships; competition; our ability to protectour intellectual property; our expectations about the joint development programwith GSK; our dependence on third party suppliers; risks associated with thehiring and loss of key personnel; adverse changes in the specific markets forour products; and our ability to launch and commercialize our products.  Certain unknown or immaterial risks anduncertainties can also affect our forward-looking statements. Consequently, noforward-looking statement can be guaranteed and you should not rely on theseforward-looking statements.*

 

*The forward-looking statementsreflect our position as of the date of this report, and we undertake noobligation to update any forward-looking statements, whether as a result of newinformation, future events or otherwise. You are advised, however, to consultany further disclosures we make on related subjects in our Quarterly Reports onForm 10-Q, Current Reports on Form 8-K, or other filings. Also notethat we provide a cautionary discussion of risks and uncertainties relevant toour business under Item 1A—Risk Factors in this report. These are currentlyknown and material risks that we believe could cause our actual results todiffer materially from expected and historical results. Other unknown andimmaterial risks besides those listed in this report could also adverselyaffect us.*

 

**PART I**

 

**ITEM 1.  BUSINESS.**

 

We incorporated in March 1991 as a Californiacorporation and changed our state of incorporation to Delaware in May 1997.Our executive offices are located at 4140 Dublin Blvd., Suite 200, Dublin,CA, 94568 and our telephone number at that address is (925) 560-0100.  We maintain a website on the internet atwww.supergen.com.  This is a textualreference only. We do not incorporate the information on our website into thisannual report on Form 10-K, and you should not consider any informationon, or that can be accessed through, our website as part of this annual reporton Form 10-K.

 

**Overview**

 

We are a pharmaceutical company dedicatedprimarily to the discovery and development of therapies to treat patients withcancer.  Historically we acquiredproducts that were developed by other companies and applied additionaldevelopmental effort to expand sales or advance these products clinicallytowards potential approval for marketing. In 2006, Dacogen® (decitabine) for Injection received approval formarketing in the United States, our commercial infrastructure and products weresold, and we acquired a discovery and development company to internallydiscover and develop our own products. These changes were implemented to mitigate the escalating risk ofcompetitive in-licensing and maximize the return on both existing resources andour incoming royalty and milestone revenue.

 

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Our new drug application (“NDA”) for Dacogenwas approved by the United States Food and Drug Administration (“FDA”) in May 2006for the treatment of patients with myelodysplastic syndromes (“MDS”).  In August 2004, we had executed anagreement granting MGI PHARMA Inc. (“MGI”) exclusive worldwide rights to thedevelopment, manufacture, commercialization and distribution of Dacogen.  In July 2006, MGI executed an agreementto sublicense Dacogen to Janssen-Cilag GmbH, a Johnson & Johnsoncompany, granting exclusive development and commercialization rights in allterritories outside North America. Janssen-Cilag companies are responsible for conducting regulatory andcommercial activities related to Dacogen in all territories outside NorthAmerica, while MGI retains all commercialization rights and responsibility forall activities in the United States, Canada and Mexico.  MGI was acquired by Eisai Corporation ofNorth America in January 2008.

 

Our current primary developmental effortsrevolve around the products progressing out of our acquisition of MontigenPharmaceuticals, Inc. (“Montigen”), a small-molecule drug discoverycompany, in 2006.  We initiated Phase Iin-human clinical trials in June 2007 and initiated Phase Ib clinicaltrials in late 2007 for the first Montigen product, amuvatinib (MP-470), a DNArepair suppressor.  In early 2009, weinitiated clinical trials for a second internally developed product, SGI-1776,a PIM kinase inhibitor.

 

In October 2009, we entered into aCommercial License and Research Agreement with GlaxoSmithKline (“GSK”).  Pursuant to the terms of this agreement, wewill collaborate with GSK over a period of five years to discover and developspecific epigenetic therapeutics.  At theend of the research term, or earlier if GSK elects, GSK may exercise its optionto 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 theresulting products worldwide.  Uponexecution of the agreement, we received an upfront payment of $2 million fromGSK, as well as a $3 million investment in shares of our common stock, sold ata 10% premium to market price.  GSK isobligated to make certain additional payments to us if and when the compoundsreach specified developmental milestones, as well as payments to us if and whenthe compounds that GSK has licensed achieve certain regulatory milestones.  The agreement further provides that, if thelicensed compounds derived from the joint research team become products, GSKwill pay us sales milestone payments as well as royalties on annual net salesof such products.  Total potentialdevelopment and commercialization milestones payable to us could exceed $375million.  The tiered royalties, intodouble digit magnitudes, will be paid on a country-by-country andproduct-by-product basis.

 

**Strategy**

 

We are a pharmaceutical company dedicated tothe discovery and development of therapies to treat patients with cancer.  Our founding strategy was to acquire rightsto late stage clinical products and commercialize these products by executingselective developmental and commercialization strategies that might allow theseproducts to come into the market and be utilized by the widest possible patientpopulations. The competition for late-stage compounds that can be obtainedthrough licensure or acquisition, that have shown initial efficacy in humans,has increased significantly with most major pharmaceutical companies takingpositions in this market.  Theacquisition of Montigen mitigates the competitive risk of in-licensure and mayallow us to out-license selective products to our licensing competitors orother pharmaceutical companies.  Ourprimary objective is to become a leading developer and seller of therapies forpatients suffering from cancer.  Key elementsof our strategy include the following:

 

*Discover and advance into clinicaltrials at least one product about every twelve to eighteen months.*  Our drug discovery group hasbeen optimizing our proprietary process called CLIMBTM that allows a small teamof chemists and biologists to model difficult or previously unknown cancer targetsfor computerized drug creation and development. The flexibility and relatively low cost of both human and developmentalcapital for this type of discovery and development has allowed us to transitionfrom being just a licensee to becoming a potential licensor.

 

*Focus on drug targets that aredifficult to screen by traditional methods*.  Most established pharmaceutical companies usesome version of a high through-put screening. However, this methodology does not work well for a wide variety of complextargets.  Our modeling process hasdemonstrated an ability to create lead candidates for these complex targets,including protein-to-protein interaction targets that might be disrupted bysmall molecules to be used as potential therapeutics.

 

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*Capitalize on our existingclinical expertise and regulatory development to maximize the commercial valueof our products.*  Computer and animal models are only modestlypredictive of how a product might work in humans.  We have acquired significant expertise atplanning, managing, and filing clinical data in both the United States andEurope.  Proving the concept that a specificdrug will translate into an approvable, commercially viable product in humansis a difficult task.  Some drugcandidates demonstrate this “proof of concept” very early in non-clinicaldevelopment, while other drug candidates might need to be compared clinicallyto existing therapies to achieve such a proof of concept.  Typically this proof of concept comes inPhase II trials where it is demonstrated that a drug candidate can destroytumors in specific diseases through a specific process.  As product candidates move from non-clinicalinto Phase I and Phase II clinical studies, the potential value of the drugcandidates should increase as the proof of concept is achieved.  Historically, products that are in Phase II trialscommand a higher in-licensing value than products that are still in Phase Itrials.  We believe our clinical andregulatory expertise facilitates efficient use of our resources to achieveappropriate proof of concept.

 

**CLIMB Discovery Process**

 

Traditional drug discovery processes mayrequire five or more years before presenting a candidate suitable for theclinic.  This lengthy timeline leads tohigh research and development costs. Utilizing our CLIMB platform, we have effectively streamlined thediscovery and lead optimization process in order to get potentially life-savingtherapeutics to the clinical testing stage of development faster and at a lowercost.  CLIMB is SuperGen’s approach tosmall molecule drug discovery, which merges the rapid screening of compoundlibraries with computational chemistry and systems biology techniques toidentify drug leads that bind to target proteins.

 

CLIMB is an iterative and evolving process,incorporating techniques from computational design to laboratory bench biologyand chemistry, to yield targeted therapeutics for use in the clinic. Intraditional small molecule screening, very large physical libraries of millionsof compounds may be created and screened in order to identify the few thatinteract selectively with a disease-related protein target.  This approach has worked fairly well forsimple or very well characterized targets, but is very time and costintensive.  Since CLIMB works with avirtual library of compounds and compound fragments to screen against targetmodels, we can screen up to three million virtual compounds per day againstvery complex targets.

 

CLIMB has been used to create models andidentify products that have exhibited considerable activity while physicallyscreening as few as several hundred rationally-selected compounds.  This reduces the time from targetidentification to clinical candidate by several years, and decreases the costof drug development.  As part of CLIMB,our software development team is actively involved in the creation ofalgorithms to integrate computation, biochemistry, medicinal chemistry andsystems biology to improve the predictive properties of our models andstreamline the drug discovery process even further.

 

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**Products in Research andDevelopment**

 

The chart below lists our current productsor projects in development:

 

 

*Amuvatinib (MP-470) — DNA RepairSuppressor*

 

Amuvatinib is a multi-targeted TyrosineKinase Inhibitor that is specific for mutant forms of c-kit, PDGFRa, andFLT3.  These protein kinase targets areinvolved in the growth and proliferation of cancer cells.  Amuvatinib is also a suppressor of Rad51, aDNA repair protein which is involved in resistance to a variety of chemotherapyagents and radiation.  We submitted anInvestigational New Drug Application (“IND”) to the FDA in March 2007, andinitiated a first-in-human Phase I single agent amuvatinib trial in June 2007.

 

Amuvatinibhas a wide therapeutic window and shows minimal toxicity in the expectedtherapeutic dose range, despite suppressing several signaling pathways withincells.  We have evaluated amuvatinib as adry powder mix and as a lipid suspension formulation in multiple Phase Istudies as a single agent in healthy volunteers and in cancer patients, as wellas in combination with five standard of care chemotherapy regimens in differenttumor types.  Across these studies, over170 patients/healthy volunteers received at least one dose of amuvatinib.  As a single agent in cancer patients,gastrointestinal toxicity was the major adverse event noted at doses up to 1500mg/day with the dry powder formulation. In the combination trial, preliminary data indicated twelve partialresponses and numerous durable stable disease per RECIST criteria, mostly withthe paclitaxel/carboplatin and carboplatin/etoposide standard of carechemotherapy regimens in combination with oral amuvatinib.  Tumor types demonstrating clinical benefitinclude neuroendocrine, non-small cell lung, small cell lung, breast andendometrial carcinoma.  The safetyprofile of amuvatinib in combination with standard of care was consistent withhistorical published data for each chemotherapeutic with no apparent increasein severity or prolongation of reported events.

 

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Wecompleted an additional Phase I pharmacokinetic study in healthy male volunteersto determine the relative bioavailability and define the safety profile of thelipid suspension capsules compared with the dry powder mix capsules.  In a randomized, two-way crossover study, exposurelevels of amuvatinib following administration of a single dose of the lipidsuspension formulation (3 x 30 mg capsules) were higher than those observedfollowing the administration of the single dose dry powder formulation (1 x 100mg capsule). The relativebioavailability favored the lipid suspension formulation, adjusted for dose,with an overall increase in exposure by twofold.

 

Weare also performing non-clinical studies with collaborators to further ourunderstanding of the mechanisms of amuvatinib in DNA repair pathways, as wellas the effects of the drug in combination studies in multiple solid tumormodels.  Pending full analysis of theresponses in the Phase I studies and completion of the ongoing non-clinicalprograms, we intend to initiate one or more Phase II studies evaluating thesafety and efficacy of amuvatinib lipid suspension formulation in tumor typesthat have demonstrated clinical benefit in the Phase I developmentprogram.  The initial Phase II study isanticipated to be launched during the second half of 2010.

 

*SGI-1776 — Pim Kinase Inhibitor*

 

Pim kinases are proteins that play a pivotalsurvival role in cancer cells. Over-expression of Pim kinases in cells prevents programmed cell deaththat normally occurs when cells malfunction and can lead to unchecked cellsurvival, or cancer.  Our Pim kinaseinhibitor, SGI-1776, is a novel, orally administered, small molecule anticancercompound that effectively blocks the pro-survival activity of Pim kinases,allowing these potentially malignant cells to self-abort.  Our IND for SGI-1776 received clearance fromthe FDA in November 2008, and we initiated a Phase I clinical trial toevaluate the safety, tolerability, and pharmacokinetic profile of SGI-1776 inthe first half of 2009.  The firstin-human clinical trial program has enrolled patients with solid tumors withspecific emphasis on hormone and docetaxel refractory prostate cancer andrefractory non-Hodgkin’s lymphomas. These tumor types have been reported to over-express the Pim kinasefamily of proteins at a high frequency. Over-expression of Pim-1 kinase has been shown to be a marker of poorprognosis in these tumors.  A secondPhase I/II study is being planned in patients with refractory acute or chronicmyeloid or lymphatic leukemias in which Pim kinases are also over-expressed,and correlated with poor prognosis and drug resistance.  This study is anticipated to be launchedduring the first half of 2010.

 

*SGI-110 — DNMT1 Inhibitor*

 

In normal cells, silencing of unnecessary genes iscommonly carried out by DNA methylation through the action of DNAMethyltransferase enzymes.  However, thismachinery can be usurped during the process of tumorigenesis, resulting in theinactivation of tumor suppressor genes and ultimately cancer.  Inhibition of DNMT-1 activity in cancer cellscauses the suppressed genes to become unmethylated and re-expressed.  These re-expressed tumor suppressor genesinterfere with the cancer cells proliferative pathways and lead to celldeath.  We have developed a compoundcalled SGI-110 which targets and blocks the mechanism by which methylationoccurs, thus allowing re-expression of tumor suppressor genes in tumors.  SGI-110 is currently in the pre-clinicaldevelopment stage with an anticipated IND filing in 2010.  The initial Phase I/II study will evaluatemultiple schedules in relapsed/refractory MDS and acute myeloid leukemia (AML).

 

*Discovery Programs*

 

*JAK2 Inhibitor*

 

Janus kinases (JAK) are a family of non-receptorintracellular tyrosine kinases that transduce signaling from type I and IIcytokine receptors, which possess no catalytic kinase activity, to the signaltransducers and activators of transcription (STAT) proteins which translocateinto the nucleus to initiate the growth and

 

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differentiation programs associated with thevarious receptor cytokine complexes. The JAK/STAT pathways play an importantrole in a diverse array of cellular processes, including cell survival, proliferation,differentiation and apoptosis. Activation of JAK kinases through mutation or aberrant signaling hasbeen associated with disease progression in immune disorders,myeloproliferative disorders, and cancers.

 

*AxlInhibitor*

 

Axlkinase is a receptor tyrosine kinase implicated in tumorigenesis.  Over-expression of Axl is associated withincreased cellular transformation, cell survival, proliferation, migration,angiogenesis, and adhesion.  Theoncogenic potential of Axl was first discovered in chronic myelogenous leukemia(CML) and has been shown to play a role in the development of acute myelogenousleukemia (AML) and myelodysplasia.  Axlkinase is an exciting target for small molecule drug discovery.  A series of small molecule inhibitors were discoveredand are being developed for potency and selectivity against Axl.

 

*ETK/BMX Inhibitors*

 

Epithelial and endothelial tyrosine kinase (ETK),also known as bone marrow X kinase (BMX), is a nonreceptor tyrosine kinase thatplays a central role in the proliferation, differentiation, apoptosis,adhesion, motility, and tumorigenicity of epithelial cells.  ETK has been reported to be over-expressed inseveral aggressive metastatic carcinomas, such as hepatocellular carcinoma,cholangiocarcinoma, and prostate cancer. ETK kinase signals downstream of several important oncogenes, includingSrc, focal adhension kinase, and phosphatidylinositol 3-kinase and has beenshown to be vital to the tumorigenic effects of such proteins.  Taken together, these findings suggest ETK isan exciting potential therapeutic target in multiple tumor types.  We have designed and developed a novel classof potent small molecule inhibitors with specificity toward ETK.  Initial leads from this class of inhibitorshave activity against ETK at low nM concentrations in a biochemical ETK kinaseassay, and show good selectivity across a diverse panel of kinases.

 

**Products Sublicensed or Sold**

 

*Dacogen*

 

In September 2004, we executed anagreement granting MGI exclusive worldwide rights to the development,manufacture, commercialization and distribution of Dacogen.  Under the terms of the agreement, MGI made a$40 million equity investment in us and agreed to pay up to $45 million inspecific regulatory and commercialization milestones.  To date, we have received $32.5 million ofthese milestones.  The Dacogen licensehas also created for us a royalty income stream on worldwide net sales startingat 20% and escalating to a maximum of 30%.

 

InJuly 2006, MGI executed an agreement to sublicense Dacogen toJanssen-Cilag, a Johnson & Johnson company, granting exclusivedevelopment and commercialization rights in all territories outside NorthAmerica.  In accordance with our licenseagreement with MGI, we are entitled to receive 50% of certain payments MGIreceives as a result of any sublicenses. We received $5 million, or 50% of the $10 million upfront payment MGIreceived, and, as a result of both the original agreement with MGI and thissublicense with Janssen-Cilag, we may receive up to $17.5 million in futuremilestone payments as they are achieved for Dacogen globally.  Janssen-Cilag is responsible for conductingregulatory and commercial activities related to Dacogen in all territoriesoutside North America, while MGI retains all commercialization rights andresponsibility for all activities in the United States, Canada and Mexico.  MGI was acquired by Eisai Corporation ofNorth America in January 2008.

 

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*Nipent*

 

We used to sell our drug Nipent in theUnited States and the European Union (“EU”) for the treatment of hairy cellleukemia, a type of B-lymphocytic leukemia, and it was our principal source ofrevenue from 1997-2006.  We sold theNorth American rights to Nipent to Mayne Pharma (“Mayne”) in August 2006,and sold the remaining worldwide rights to Nipent to Mayne in April 2007.  Mayne was acquired by Hospira, Inc. in February 2007.

 

**Acquisition of New Products andTechnologies**

 

We are continually reviewing new productdevelopment opportunities in an effort to enhance and create a broader productpipeline for future development.

 

In 2006, we completed our acquisition of Montigen, a privately held, oncology-focuseddrug discovery and development company headquartered in Salt Lake City,Utah.  Montigen’s assets included itsresearch and development team, a proprietary drug discovery technology platformand optimization process, CLIMB, and late-stage non-clinical compounds.  Pursuant to the terms of the mergeragreement, we paid the Montigen stockholders a total of $17.9 million upon theclosing of the transaction, consisting of $9.0 million in cash and $8.9 millionin shares of SuperGen common stock.  In April 2007,we paid the former Montigen stockholders a milestone payment of approximately$10.0 million, which was paid in shares of our common stock.  In November 2008, we paid the formerMontigen stockholders another milestone payment of approximately $5.2 million,which was paid in a combination of approximately $2.8 million in cash and 1.5million shares of our common stock.  Wehave an obligation to pay the Montigen stockholders an additional $6.8 millionin shares of our stock, contingent upon achievement of one additionalregulatory milestone.

 

**Researchand Development**

 

Because of the stage of our development andthe nature of our business, we expend significant resources on research anddevelopment activities.  We expended$29.7 million in 2009, $32.7 million in 2008, and $23.4 million in 2007 onresearch and development activities.  Weconduct research internally and also through collaborations with third parties,and we intend to maintain our strong commitment to our research and developmentefforts in the future.  Our majorresearch and development projects are focused on our drug discovery andnon-clinical activities as well as Phase I and Phase Ib clinical trials foramuvatinib and SGI-1776.

 

**Salesand Marketing**

 

We currently have no employees focused onsales, marketing, and sales support. Our marketing efforts are handled by ourCorporate Communications and Business Development group.

 

**Manufacturing**

 

We currently outsource manufacturing of allour drug compounds to qualified United States and foreign suppliers. We expectto continue to outsource manufacturing in the near term.  We believe our current suppliers will be ableto efficiently manufacture our proprietary compounds in sufficient quantitiesand on a timely basis, maintaining product quality and compliance with FDA andforeign regulations.  We maintainoversight of the quality of our third-party manufacturers through ongoingaudits, rigorous review, control over documented operating procedures, andthorough analytical testing by qualified, contracted laboratories.  We believe that our current strategy ofoutsourcing manufacturing is cost-effective because we avoid the high fixedcosts of plant, equipment, and large manufacturing staffs.

 

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The FDA must approve our drug manufacturingsites and deem a manufacturer acceptable under current good manufacturingpractices (“GMPs”) before release of active pharmaceutical ingredients (“API”)and finished dosage forms for clinical testing.

 

We intend to continue evaluating ourmanufacturing requirements and may establish or acquire our own facilities tomanufacture our products for distribution if doing so would be cost effectiveor improve control and flexibility of product supply.

 

**GovernmentRegulation: New Drug Development and Approval Process**

 

Regulation by governmental authorities inthe United States and other countries is a significant factor in themanufacture and marketing of pharmaceuticals and in our ongoing research anddevelopment activities.  All of our drugproducts will require regulatory approval by governmental agencies prior tocommercialization.  In particular, humantherapeutic products are subject to rigorous non-clinical testing, clinicaltrials, and other pre-marketing approval requirements by the FDA and regulatoryauthorities in other countries.  In theUnited States, various federal, and in some cases state statutes andregulations, also govern or have an impact upon the manufacturing, safety,labeling, storage, record-keeping and marketing of such products. The lengthyprocess of seeking required approvals and the continuing need for compliancewith applicable statutes and regulations require the expenditure of substantialresources.  Regulatory approval, when andif obtained, may be limited in scope which may significantly limit theindicated uses for which a product may be marketed.  Further, approved drugs, as well as theirmanufacturers, are subject to ongoing review and inspections which could revealpreviously unknown problems with such products, which may result inrestrictions on their manufacture, sale or use or in their withdrawal from themarket.

 

The process for new drug approval has threemajor stages, discovery, non-clinical and clinical:

 

*Drug discovery.*  In the initial stages of smallmolecule drug discovery, potential biological targets are identified, thesetargets are characterized, and then large numbers of potential compounds arescreened for activity. This drug discovery process can take several years.  Once a company defines a lead compound, thenext steps are to conduct further preliminary studies on the mechanism ofaction, *in vitro* (test tube) screening againstparticular disease targets and some *in vivo*(animal) screening.  If results aresatisfactory, the compound progresses from discovery to non-clinicaldevelopment.

 

*Non-clinical testing.*  During the non-clinical testingstage, laboratory and animal studies are conducted to show biological activityof the compound against the disease target and the compound is evaluated forsafety.  These tests can take severalyears to complete and must be conducted in compliance with Good LaboratoryPractice (“GLP”) regulations.   If thecompound passes these hurdles, animal toxicology studies are initiated.  If the results demonstrate acceptable levelsof toxicity, the compound emerges from non-clinical testing and moves into theclinical phase.

 

*Clinical testing — TheInvestigational New Drug Application.*  After appropriate animal testing is evaluatedand the candidate molecule is found to have an acceptable safety profile, wemay decide to expand the development programs to a clinical setting.  To accomplish this in the United States anIND is submitted to the FDA.  INDapplications include the known chemistry of the compound, how the compound ismanufactured, the results of animal studies and other previous experiments, themethod by which the drug is expected to work in the human body, a proposedclinical development plan and how, where and by whom the proposed new clinicalstudies will be conducted.  Healthauthorities in Europe and the rest of the world require a similar clinicaltrial application.  If the controllingauthority does not object, we may initiate human testing.  All clinical trials must be conducted inaccordance with globally-accepted standards of good clinical practices (“GCPs”).  This means we have specific obligations toprotect trial subjects and potential patients, monitor the study, collect thedata and prepare a report of the study. Clinical trial applications must be updated with new informationobtained during the course of the trials.

 

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Clinical protocols must be approved byindependent reviewers, referred to as Institutional Review Boards (“IRB”) inthe United States and Ethical Committees (“EC”) in Europe.  The IRB/EC is charged with providing anindependent assessment of the appropriateness of the study, particularlyfocusing on the safety of the patients that might enroll in the study.  The IRB’s/EC’s responsibilities continuewhile the study is ongoing, focusing on protecting the rights and safety ofthose enrolled in the study.

 

We have an obligation to provide progressreports on clinical trials at least annually to the FDA.  The FDA may, at any time during a clinicaltrial, impose a “clinical hold” if it has serious safety concerns about atrial.  If this occurs, the clinicaltrial cannot continue until the FDA is satisfied that it is appropriate toproceed.

 

*ClinicalDevelopment Plan.*  Clinical trials are typically conducted inthree sequential phases, but the phases may overlap.

 

·                  *Phase I clinical trials.*  After an IND becomes effective,Phase I human clinical trials can begin. These trials generally involve 20 to40 heavily pre-treated cancer patients who may have a wide variety of cancersand typically take approximately one year to complete. These trials aredesigned to evaluate a drug’s safety profile and may include studies to assessthe optimal safe dosage range.  Phase Iclinical studies may evaluate how a drug is absorbed, distributed, metabolizedand excreted from the body.  Phase Istudies may be expanded to Phase Ib trials that test the research compound incombination with other agents to define the combined safety and dosingparameters.

 

·                  *Phase II clinical trials.*  In Phase II clinical trials,studies are conducted in patients who have the specific targeted disease.  The primary purpose of these trials is todemonstrate preliminary efficacy of the drug in the target patientpopulation.  These studies typically takea few years to complete.  Once trial datais obtained that a specific dose and schedule is creating clinical efficacythat appears to be superior to other treatments, advancement to Phase III canbegin.

 

·                  *Phase III clinical trials.*  These trials are typicallylarge, involving several hundred or even thousands of patients.  Phase III trials typically compare aninvestigational agent against a control product or the standard of care, whichcould be a product or treatment already approved for use in that disease.  The data generated in these studies aremonitored regularly by clinical monitors as well as the participatingphysician.  There are specific requirementsfor the reporting of any adverse reactions that may result from the use of thedrug.  Clinical monitors visit the sitesregularly and transmit the data back to the company for analysis and ultimatelyfor presentation to the FDA.

 

*Marketing  application.*  Companies have the opportunity to interactwith health authorities during the course of a drug development program.  Most companies take advantage of this accessto gain further insights about the kind of data that will be expected in theirmarketing application.  After completionof the clinical trial phase, a company must compile all of the chemistry,manufacturing, non-clinical and clinical data into a marketingapplication.  In the United States, thisis called an NDA; in the EU it is called a Marketing Authorization Application(“MAA”).  This is a significant amount ofinformation, often in excess of 100,000 pages, and it will be independentlyreviewed by these health authorities.

 

Both the FDA and the European MedicinesEvaluation Agency (“EMEA”) review these submissions for overall content andcompleteness before accepting them for review and may request additionalinformation. Once an application is accepted for filing, each agencyindependently begins its in-depth review. In both the United States and Europe, there are specified timeframes forthe completion of review.  This processmay be extended if an agency requests additional information or clarificationregarding the data provided in the submission.

 

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In the United States, the FDA may refer theapplication to an appropriate advisory committee for a recommendation as towhether the application should be approved, but the FDA is not bound by thisrecommendation.  The review processconcludes with the issuance of a “complete response” letter from the FDA.  If FDA evaluations of the NDA and themanufacturing facilities are favorable, the FDA will approve the application.  If the FDA’s evaluation of the NDA submissionor manufacturing facilities is not favorable, the FDA will reject theapplication in the complete response.  This complete response will describe specific deficiencies, and, when possible,will outline recommended actions the applicant might take to get theapplication ready for approval.  When andif any deficiencies are corrected, and actions are completed to the FDA’ssatisfaction, the FDA will issue an approval letter authorizingcommercialization of the drug for specific indications.  The review and approval process in Europe hassubstantial similarities to that outlined for the United States.

 

*Marketing approval.*  Once a health authority grantsmarketing approval for a drug, it can then be made available in that country orregion.  Periodic safety reports must besubmitted to health authorities as a way to monitor the use of new drugsintroduced to the market.  Regulatory agenciesaround the world place great emphasis on pharmacovigilance, the process ofmonitoring the safety of a drug when it is released for general use, as thereal world setting is very different from the controlled environment ofclinical trials.

 

*Phase IV clinical trials and postmarketing studies.*  In addition to studies that might have beenrequested by health authorities as a condition of approval, clinical trials maybe conducted to generate more information about the drug after initial approvalof the product; including use for additional indications, the use of new dosageforms or new dosing regimens.  Thesestudies may generate approved label changes and publications that providefurther information to patients and the medical community.

 

*Fast Track.*  The FDA Modernization Act of1997 specifies that the FDA can assign a fast track designation to a new drugor biologic product that is intended for the treatment of a serious orlife-threatening condition and has the potential to address unmet medical needsfor such a condition. Under this program, the sponsoring company may requestthis designation at any time during the development of the product.  The FDA must determine whether the productqualifies within 60 days of receipt of the sponsoring company’s request.For a product designated as fast track, the FDA has the ability to define afaster review, including allowing the sponsor to provide the NDA in discretesections. This process is called a “rolling” NDA and is intended to acceleratethe review and approval process.

 

*Priority Review.*  This is a designation by the FDAfor a review period of 6 months, instead of the standard 10 months defined byfederal regulation.

 

*Accelerated Approval*.  This is a program intended tomake promising products for life-threatening diseases available on the marketon the basis of preliminary evidence prior to formal demonstration of patientbenefit.

 

*Approvals in the European Union.*  In 1993, the EU established asystem for the registration of medicinal products in the EU whereby marketingauthorization may be submitted at either a centralized or decentralized level.The centralized procedure is administered by the EMEA and is mandatory for theapproval of biotechnology products and is available, at the applicant’s option,for other innovative products.  Thecentralized procedure provides for the granting of a single marketingauthorization that is valid in all EU member states.  A mutual recognition procedure is availableat the request of the applicant for all medicinal products that are not subjectto the mandatory centralized procedure, under a decentralized procedure.

 

*Approvals outside of the UnitedStates and European Union.*  Applications to market a new drug productmust be made to virtually all countries prior to marketing.  The approval procedure and the time requiredfor approval vary from country to country and may involve additional testingand cost.  There can be no assurance thatapprovals will be granted on a timely basis or at all.  In addition, pricing approval is required inmany countries and there can be no assurance that the resulting prices would besufficient to generate an acceptable return on investment.

 

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*Off-Label Use.*  Drugs are approved for aspecific use (“label use”) that is then set forth in the document (“label”)accompanying the dispensed drug. Physicians may prescribe drugs for uses that are not approved in theproduct’s label. Such “off-label” prescribing may be used by physicians acrossmedical specialties.  The FDA does notregulate the behavior of physicians in their choice of treatments but it doeslimit a manufacturer’s communications on the subject of off-label use.  Companies cannot promote FDA approved drugsfor off-label uses, nor can companies promote the use of a drug before it isapproved.

 

*OtherGovernment Regulations*

 

As a United States-based company, inaddition to laws and regulations enforced by the FDA, we are also subject toregulation by other agencies under the Occupational Safety and Health Act, theEnvironmental Protection Act, the Toxic Substances Control Act, the ResourceConservation and Recovery Act and other present and potential future federal,state or local laws and regulations. These agencies have specialized responsibilities to monitor thecontrolled use of hazardous materials such as chemicals, viruses and variousradioactive compounds.

 

**MarketExclusivity**

 

The commercial success of a product, once itis approved for marketing, will depend primarily on a company’s ability tocreate and sustain market share and exclusivity. Market exclusivity can begained and maintained by a number of methods, including, but not limitedto:  patents, trade secrets, know-how,trademarks, branding and special market exclusivity provided by regulations.

 

*OrphanDrug Designation*

 

TheUnited States, European Union, Japan and Australia have all enacted regulationsto encourage the development of drugs intended to treat rare diseases.  Orphan drug designation must be requestedbefore submitting an application for marketing approval. After the granting ofan orphan drug designation, the chemical identity of the therapeutic agent andits potential treatment use are disclosed publicly.  If and when a product with orphan drug statusreceives marketing approval for the orphan indication, the product is entitledto marketing exclusivity, which means the regulatory authority may not approveany other applications to market the same drug for the same indication forseven years in the United States, ten years in Europe and Japan and four yearsin Australia.

 

*Data Exclusivity and GenericCopies*

 

There is an abbreviated regulatory reviewand approval process for a generic copy of an approved innovator drugproduct.  The generic copy can beapproved on the basis of an application that is usually limited tomanufacturing and biologic equivalence data, by referring to the non-clinicaland clinical data that were the bases of approval of the innovator product.  The copy can be approved after expiration ofrelevant patents and any regulatory exclusivity afforded by specialcircumstances.  A new chemical entity has5 and 10 years of regulatory exclusivity in the United States and EuropeanUnion, respectively, precluding approval of a generic copy.  Additional exclusivity can be afforded in theUnited States by approval of a product or use that has orphan drug status (7years), or that requires review of new clinical data (3 years), or that is anexpansion of use to a pediatric population (6 months).  These exclusivities are independent, andcould run sequentially, effectively extending the period of regulatoryexclusivity.  There is no assurance thatsuch special regulatory exclusivities are applicable for our compounds.  Separate from regulatory data exclusivity isthe exclusivity conferred by the Hatch Waxman Act based on patent protection ofthe drug.  A company seeking to market ageneric might, after the lapse of regulatory data exclusivity, successfullychallenge the patent protection of the marketed drug, thereby shortening itsexclusive marketing period.

 

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*Patentsand Proprietary Technology*

 

Patents are very important to us inestablishing proprietary rights to the products we develop or license. Thepatent positions of pharmaceutical and biotechnology companies, including ours,can be uncertain and involve complex legal, scientific, and factualquestions.  See “*RiskFactors—Our ability to protect our intellectual property rights will becritically important to the success of our business, and we may not be able toprotect these rights in the United States or abroad*.”

 

We actively pursue patent protection whenapplicable for our proprietary products and technologies, whether they aredeveloped in-house or acquired from third parties. We attempt to protect ourintellectual property position by filing United States and foreign patentapplications related to our proprietary technology, inventions and improvementsthat are important to the development of our business.  Importantly, we are prosecuting a number ofpatent applications directed to various compounds in our pipeline, includingthose from our Discovery group. Additionally, we have been granted patents and have received patentlicenses relating to our proprietary formulation technology, non-oncology andnon-core technologies.

 

There can be no assurance that the patentsgranted or licensed to us will afford adequate legal protection againstcompetitors or provide significant proprietary protection or competitiveadvantage. The patents granted or licensed to us could be held invalid orunenforceable by a court, or infringed or circumvented by others. In addition,third parties could also obtain patents that we would need to license orcircumvent. Competitors or potential competitors may have filed patentapplications or received patents, and may obtain additional patents andproprietary rights relating to proteins, small molecules, compounds, orprocesses that are competitive with the products we are developing.

 

In general, we obtain licenses from variousparties we deem necessary or desirable for the development, manufacture, use,or sale of our products or product candidates. Some of our proprietary productsare dependent upon compliance with other licenses and agreements. Theselicenses and agreements may require us to make royalty and other payments, toreasonably exploit the underlying technology of applicable patents, and tocomply with regulatory filings. If we fail to comply with these and other termsin these licenses and agreements, we could lose the underlying rights to one ormore of these potential products, which would adversely affect our productdevelopment and harm our business.

 

We also have patents, licenses to patentsand pending patent applications outside of the United States, such as inEurope, Australia, Japan, Canada, China, Israel and India. Limitations onpatent protection in these countries, and the differences in what constitutespatentable subject matter in these countries outside the United States, maylimit the protection we have on patents issued or licensed to us outside theUnited States. In addition, laws of foreign countries may not protect ourintellectual property to the same extent as would laws in the United States. Tominimize our costs and expenses and maintain effective protection, we focus ourforeign patent and licensing activities primarily in the European Union,Canada, Australia and Japan. In determining whether or not to seek a patent orto license any patent in other specific foreign countries, we weigh therelevant costs and benefits, and consider, among other things, the marketpotential and profitability, the scope of patent protection afforded by the lawof the jurisdiction and its enforceability, and the nature of terms with anypotential licensees. Failure to obtain adequate patent protection for ourproprietary drugs and technology would impair our ability to be commerciallycompetitive in these markets.

 

SuperGen has 120 issued patents and 271 pendingpatent applications.  Of the totalpatents and pending patent applications those that relate to each of ourmaterial commercial product or product candidate are described in furtherdetail below:

 

·                  Decitabine, a product we have exclusively licensed to Eisai:  there are 11 issued patents and 30 patentapplications, having projected expiration dates ranging from June 5, 2022to September 27, 2024, granted or pending in the jurisdictions of theU.S., Australia, Canada, Europe, Japan, China, India and Hong Kong.

 

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·                  SGI-110, our DNMT1 inhibitor: there is one issued patent and seven patent applications, each having aprojected expiration date of September 29, 2025, granted or pending in thejurisdictions of the U.S., the European Patent Office (the “EPO”), Israel,China, South Africa, Malaysia, Vietnam and New Zealand.

 

·                  Amuvatinib, our TK Inhibitor and DNA Repair Suppressor:  there are four issued patents and eightpatent applications, having projected expiration dates ranging from October 14,2024 to March 1, 2027, granted or pending in the jurisdictions of theU.S., the EPO, Australia and Canada.

 

·                  SGI-1776, our PIM kinase inhibitor: there is one issued patent and 11 patent applications, each having aprojected expiration date of November 6, 2027, granted or pending in thejurisdictions of the U.S., the EPO, Hong Kong, India, Malaysia, Brazil,Canada, Japan, Russia, Vietnam and China.

 

·                  Our discovery JAK2 inhibitor: there are 17 patent applications, having projected expiration datesranging from February 29, 2028 to July 25, 2029, pending in thejurisdictions of the U.S., the EPO, Taiwan, Australia, Brazil, Canada, China, Indonesia, India,Japan, Korea, Mexico, New Zealand and Hong Kong.

 

·                  Our discovery AXL inhibitor: there are 13 patent applications, havingprojected expiration dates ranging from April 11, 2028 to February 8,2030, pending in the jurisdictions of the U.S., the EPO, Australia, Canada,China, Japan, Korea, New Zealand and Taiwan.

 

·                  Relating to our GlaxoSmithKline discovery collaboration:  there are three patent applications, havingprojected expiration dates of February 26, 2030, pending in thejurisdictions of the U.S., the Patent Cooperation Treaty participants andTaiwan.

 

*TradeSecrets and Trademarks*

 

We also rely on trade secret protection for certainproprietary technology. To protect our trade secrets and our other confidentialinformation, we pursue a policy of having our employees and consultants executeproprietary information agreements upon commencement of employment orconsulting relationships with us. These agreements provide that all confidentialinformation developed or made known to the individual during the course of therelationship is confidential except in specified circumstances.  Further, we minimize the dissemination of ourtrade secrets by limiting the knowledge of staff only to the specific knowledgeof a trade secret to what they need to know, and protective sequestering oftrade secrets behind, for example, locks and passwords.

 

**Competition**

 

The pharmaceutical industry in general andthe oncology sector in particular is highly competitive and subject tosignificant and rapid technological change. There are many companies, both public and private, including well-knownpharmaceutical companies that are engaged in the discovery and development ofproducts for some of the applications that we are pursuing.  Some of our competitors and probablecompetitors include ArQule, Array BioPharma, Astex Tx, Crystal Genomics,Exelixis, Infinity, Plexxikon, Vertex, Sanofi-Aventis, Bristol-MyersSquibb Company, Celgene, Eli Lilly & Co., GSK, Novartis AG, Pfizer,and others.

 

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Many of our competitors have substantiallygreater financial, research and development, and manufacturing resources thanwe do and may represent substantial long-term competition for us.  Some of our competitors have receivedregulatory approval for products or are developing or testing productcandidates that compete directly with our product candidates.  For example, amuvatinib faces competitionfrom a multitude of other investigational drugs which are multi-targetedtyrosine kinase inhibitors and inhibitors of the DNA repair pathway.  We also expect that there will be otherinhibitors of Pim kinases that will emerge as competition for SGI-1776 as wellas other investigational drugs progressing through our discovery pipeline.  In addition, Dacogen faces competition from5-aza-cytidine and other drugs in development to treat MDS.

 

Many of these competitors, either alone ortogether with their customers and partners, have significantly greaterexperience than we do in discovering products, undertaking non-clinical testingand clinical trials, obtaining FDA and other regulatory approvals, andmanufacturing and marketing products. Accordingly, our competitors may succeed in obtaining patent protection,receiving FDA or other foreign marketing approval or commercializing productsbefore we do.  If we elect to commencecommercial product sales of our product candidates, we could be at adisadvantage relative to many companies with greater marketing andmanufacturing capabilities, areas in which we have limited or no experience.

 

Factors affecting competition in thepharmaceutical industry vary depending on the extent to which competitors areable to achieve an advantage based on superior differentiation of theirproducts’ greater institutional knowledge or depth of resources.  If we are able to establish and maintain acompetitive advantage based on the ability of CLIMB to discover new drugcandidates more quickly and against targets not accessible by many competitors,our advantage will likely depend primarily on the ability of our CLIMBtechnology to make accurate predictions about the effectiveness and safety ofour drug candidates as well as our ability to effectively and rapidly developinvestigational drugs.

 

Extensive research and development effortsand rapid technological progress characterize the industry in which wecompete.  Although we believe that ourproprietary drug discovery capabilities afford us a competitive advantagerelative to other discovery and development companies competing in oncology, weexpect competitive intensity in this pharmaceutical segment to continue and increaseover time.  Discoveries by others mayrender CLIMB and our current and potential products noncompetitive.  Our competitive position also depends on ourability to attract and retain qualified scientific and other personnel at allour geographic locations, develop effective proprietary products, implementdevelopment plans, obtain patent protection and secure adequate capitalresources.

 

**Employees**

 

As of December 31, 2009, we had 80full-time employees. We use consultants and temporary employees to complementour staffing. Our employees are not subject to any collective bargainingagreements, and we consider our relations with employees to be good.

 

**Executive Officers**

 
| **Name**                        | ** ** | **Age** | ** ** | **Position**                                    |
|---------------------------------|------------|---------|------------|-------------------------------------------------|
| James S. J. Manuso, Ph.D.       |       | 61      |       | President, Chief Executive Officer and Director |
| Mohammad Azab, M.D., M.Sc., MBA |       | 54      |       | Chief Medical Officer                           |
| Michael Molkentin               |       | 55      |       | Chief Financial Officer                         |

 

*James S.J. Manuso, Ph.D.,* has served as our president and chief executive officer since January 1,2004, as our chief executive officer-elect from September 2003 to December 2003and as a director since February 2001. Dr. Manuso is co-founder and immediate past president and chiefexecutive officer of Galenica Pharmaceuticals, Inc.  Dr. Manuso co-founded and was generalpartner of PrimeTech Partners, a biotechnology venture management partnership,from 1998 to 2002, and co-founder and managing general partner of The ChannelGroup LLC, an international life sciences corporate advisory firm. He was alsopresident of Manuso, Alexander & Associates, Inc., managementconsultants and financial advisors to pharmaceutical and

 

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biotechnology companies.  Dr. Manuso was a vice president anddirector of Health Care Planning and Development for The Equitable Companies(now Group Axa), where he also served as acting medical director.  He currently serves on the boards of NovelosTherapeutics, Inc. (NVLT:OB) and privately-held KineMed, Inc.  Previously, he served on the boards ofMerrion Pharmaceuticals Ltd. (MERR:IEX; Dublin, Ireland), InflazymePharmaceuticals, Inc., Symbiontics, Inc., Quark Biotech, Inc.,Galenica Pharmaceuticals, Inc., and Supratek Pharma, Inc.  Dr. Manuso earned a B.A. with Honors inEconomics and Chemistry from New York University, a Ph.D. in ExperimentalPsychophysiology from the Graduate Faculty of The New School University, aCertificate in Health Systems Management from Harvard Business School, and anExecutive M.B.A. from Columbia Business School. Dr. Manuso is the author of over 30 chapters, articles and books ontopics including health care cost containment and biotechnology companymanagement.  He has taught and lecturedat Columbia, New York University, Georgetown, Polytechnic University, andWaseda University (Japan).  He hasdelivered invited addresses at meetings of the American Management Association,the American Medical Association, the Securities Industry Association, the BiotechnologyIndustry Organization, and many other professional associations.  Dr. Manuso previously served as vicepresident and a member of the Board of Trustees of the Greater San FranciscoBay Area Leukemia & Lymphoma Society.

 

*Mohammad Azab, M.D., M.Sc., MBA*, joined SuperGen as chief medical officer in July 2009.  He possesses more than 20 years of experiencein worldwide drug development, clinical research, and medical affairs,resulting in eight approved drugs, including six in oncology.  Most recently, he was president and chiefexecutive officer of Intradigm Corporation, a privately held Palo Alto, CAcompany developing siRNA cancer therapeutics. Previously, Dr. Azab served as executive vice president of researchand development, and chief medical officer, of Vancouver, BritishColumbia-based QLT Inc., where he led clinical development for now-approveddrugs in oncology, gastro-intestinal, and ophthalmologic indications.  Prior to this, he served as oncology drugteam leader at UK-based Zeneca Pharmaceuticals, now Astra Zeneca, where he heldresponsibilities in global clinical development and regulatorysubmissions.  In this capacity, hemanaged the approval of drugs for prostate, breast, colorectal, and lung cancerindications.  Before Zeneca, Dr. Azabwas an international medical manager in oncology at Sanofi Pharmaceuticals, nowSanofi-Aventis, in Gentilly, France.  Dr. Azabreceived his medical degree in 1979 from Cairo University.  He practiced as a medical oncologist andreceived post-graduate training and degrees in oncology research and statisticsfrom the University of Paris-Sud and the University of Pierre and Marie Curiein France.  He has published more than100 medical papers and abstracts.  He isan active member of the American Society of Clinical Oncology, the AmericanAssociation of Cancer Research, and the European Society of MedicalOncology.  Dr. Azab received an MBA,with Distinction, from the Richard Ivey School of Business, University ofWestern Ontario.

 

*Michael Molkentin* joined us as chief financial officer and corporate secretary in October 2003.Prior to joining us, Mr. Molkentin served as interim chief financialofficer at Aradigm Corporation from May 2000 to September 2002.  From January 1995 to April 2000, Mr. Molkentinserved as division controller for Thermo Finnigan Corporation, a subsidiary ofThermo Electron.  Mr. Molkentinserved in a variety of financial management positions with technologycompanies, including field controller of Vanstar Corporation, controller ofRepublic Telcom Systems, Inc. and corporate controller of ComputerAutomation, Inc.  Mr. Molkentinis a CPA and received a B.B.A. in accounting from Bernard M. Baruch College inNew York City, New York.

 

**Segment and Geographic AreaFinancial Information**

 

We operate in one business segment — humantherapeutics.  We had no product revenuein 2009 or 2008.  In 2007, 100% of ourproduct revenue was from the EU.

 

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**Available Information**

 

We are subject to the information requirements ofthe Securities Exchange Act of 1934 (the “Exchange Act”).  Therefore, we file periodic reports, proxystatements, and other information with the Securities and Exchange Commission (“SEC”).  Such reports, proxy statements, and otherinformation may be obtained by visiting the Public Reference Room of theSEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at1-800-SEC-0330.  In addition, the SECmaintains a website (www.sec.gov) that contains reports, proxy and informationstatements, and other information regarding issuers that file electronically.

 

Financial and other information about us isavailable on our website at www.supergen.com.  We make available on our website, free of charge, copies of our annualreport on Form 10-K, quarterly reports on Form 10-Q, current reportson Form 8-K, and amendments to those reports filed or furnished pursuantto Section 13(a) or 15(d) of the Exchange Act as soon asreasonably practicable after filing such material electronically or otherwisefurnishing it to the SEC.  Information onour website does not constitute a part of this annual report on Form 10-K.

 

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**PART II**

 

**ITEM7.****                       ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS.**

 

*You should read the followingdiscussion together with our consolidated financial statements and relatednotes included elsewhere in this report. The results discussed below are not necessarily indicative of theresults to be expected in any future periods. Our disclosure and analysis in this section of the report also containforward-looking statements.  When we usethe words “anticipate,” “estimate,” “project,” “intend,” “expect,” “plan,” “believe,”“should,” “likely” and similar expressions, we are making forward-lookingstatements. Forward-looking statements provide our current expectations orforecasts of future events.  Inparticular, these statements include statements such as: our estimates aboutprofitability; the percentage of royalties we expect to earn on Dacogen salesunder our agreement with MGI/Eisai; our forecasts regarding our research anddevelopment expenses; our expectations about the joint development program withGSK; and our statements regarding the sufficiency of our cash to meet ouroperating needs.  Our actual results coulddiffer materially from those predicted in the forward-looking statements as aresult of risks and uncertainties including, but not limited to:  the commercial success of Dacogen; delays andrisks associated with conducting and managing our clinical trials; developingproducts and obtaining regulatory approval; ability to establish and maintaincollaborative relationships; competition; ability to obtain funding; ability toprotect our intellectual property; our dependence on third party suppliers;risks associated with the hiring and loss of key personnel; adverse changes inthe specific markets for our products; and our ability to launch andcommercialize products.  Certain unknownor immaterial risks and uncertainties can also affect our forward-looking statements.Consequently, no forward-looking statement can be guaranteed and you should notrely on these forward-looking statements. For a discussion of the known and material risks that could affect ouractual results, please see the “Risk Factors” section of this report.  We undertake no obligation to update anyforward-looking statements, whether as a result of new information, futureevents or otherwise.  Readers shouldcarefully review the Risk Factors section as well as other reports or documentswe file from time to time with the Securities and Exchange Commission.*

 

**Overview**

 

We are a pharmaceutical company dedicated tothe discovery and development of novel cancer therapeutics in epigenetic andcell signaling modulation.  We developproducts through biochemical and clinical proof of concept to partner forfurther development and commercialization. We have a number of Aurora-A and Tyrosine Kinase inhibitors and DNAmethyltransferase clinical and pre-clinical products under development.  In 2006, Dacogen received approval formarketing in the United States, during 2006 and 2007 we sold the North Americanand remaining worldwide rights to Nipent to Mayne Pharma, in 2006 we acquired adrug discovery and development company to complement our ongoing licensingefforts, and in October 2009 we entered into a multi-year collaborationwith GlaxoSmithKline to discover and develop cancer therapeutics based onepigenetic targets.  These changes wereimplemented to mitigate the ongoing risk of competitive in-licensing and tomaximize the return on both existing resources and our incoming royalty andmilestone revenue.

 

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

 

*Dacogen.*  Dacogen is approved by the FDAfor the treatment of patients with MDS. In September 2004, we executed an agreement granting MGI/Eisai exclusiveworldwide rights to the development, manufacture, commercialization anddistribution of Dacogen.  Under the termsof the agreement, MGI/Eisai made a $40 million equity investment in our companyand agreed to pay up to $45 million in specific regulatory and

 

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commercialization milestone payments.  To date, we have received $32.5 million ofthese milestone payments, including $20 million upon first commercial sale ofDacogen in the U.S. in May 2006.  Inaccordance with our agreement with MGI/Eisai, we are entitled to receive aroyalty on worldwide net sales starting at 20% and escalating to a maximum of30%.  Our royalty revenues have increasedfrom $22.3 million in 2007, to $38.4 million in 2008, and $41.2 million in2009.  We recognize royalty revenue whenthe royalty statement is received from MGI/Eisai because we do not havesufficient ability to accurately estimate Dacogen sales prior to that time.

 

In July 2006, MGI/Eisai executed anagreement to sublicense Dacogen to Janssen-Cilag, a Johnson & Johnsoncompany, granting exclusive development and commercialization rights in allterritories outside North America.  Inaccordance with our agreement with MGI/Eisai, we are entitled to receive 50% ofcertain payments MGI/Eisai receives as a result of any sublicenses.  We received $5 million, 50% of the $10million upfront payment MGI/Eisai received, and, as a result of both theoriginal agreement with MGI/Eisai and this sublicense with Janssen-Cilag, wemay receive up to $17.5 million in future milestone payments as they areachieved for Dacogen globally. Janssen-Cilag companies will be responsible for conducting regulatoryand commercial activities related to Dacogen in all territories outside NorthAmerica, while MGI/Eisai retains all commercialization rights andresponsibility for all activities in the United States, Canada and Mexico.

 

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

 

On August 22, 2006, we closed a transactionwith Mayne Pharma (USA), Inc., whereby Mayne acquired the North Americanrights to Nipent and our SurfaceSafe cleaning system.  Pursuant to the Asset Acquisition Agreement,we received cash proceeds of $13.4 million upon closing of thetransaction.  In addition to the initialpayment and holdbacks, we had the right to receive annual deferred paymentstotaling $14.1 million over the following five years based on achievement ofspecific sales targets.  These annualdeferred payments might be accelerated under certain circumstances, including achange of control of Mayne.  Such achange of control occurred in February 2007 when Mayne was acquired byHospira, Inc. and we received $10.3 million of the deferred payments.  We continued to maintain our commercialoperations organization to support the sales and marketing of Nipent during thesix month transition period, which ended on February 21, 2007.  We were reimbursed by Mayne/Hospira for allNipent sales and marketing costs during the transition period, includingemployee salaries and overhead.

 

In April 2007, we closed another transactionwith Mayne/Hospira, completing the sale of the remaining worldwide rights forNipent for total consideration of up to $8.3 million.  We received an initial up-front payment of$3.75 million as a condition of the closing, plus an additional $389,000 forthe carrying value of the remaining Nipent inventory.   The balance of the purchase price is payablein five annual installments on the anniversary of the closing date.

 

In September 2007, we received a salesmilestone payment of $1.8 million from Mayne/Hospira and in December 2007received $6 million in supply holdback payments.  In February 2008, we received a $1million indemnification holdback from Mayne/Hospira relating to the sale of theNorth American rights. In May 2008, we received $400,000, the first annualinstallment payment relating to the sale of the remaining worldwide rights, andin November 2008 we received the remaining $250,000 indemnificationholdback.  In March 2009, wereceived $500,000, the second annual installment payment relating to the saleof the remaining worldwide rights.  We donot expect to receive any further payments from the sale of the North Americanrights.

 

*Montigen Acquisition. *In April 2006, weacquired Montigen, a privately-held oncology-focused drug discovery anddevelopment company headquartered in Salt Lake City, Utah.  Montigen’s assets included its research anddevelopment team, a proprietary drug discovery technology platform andoptimization process known as CLIMB, and late-stage non-clinical compounds targetingAurora-A Kinase and members of the Tyrosine Kinase receptor family.

 

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Pursuant to the terms of the merger agreement withMontigen, we paid the Montigen stockholders a total of $17.9 million upon theclosing of the transaction in cash and shares of SuperGen common stock.  The merger agreement also specified anadditional $22 million due to the Montigen stockholders, payable in shares ofSuperGen common stock, contingent upon achievement of specific regulatorymilestones.  The first Montigen compoundwas cleared in April 2007 by the FDA to begin Phase I clinical trials,which triggered the first milestone payment to the former Montigen stockholdersof approximately $10 million which we paid in shares of our common stock.  A second Montigen compound was cleared in November 2008by the FDA to begin Phase I clinical trials, which triggered a milestonepayment of $5.2 million, which we paid in a combination of cash and shares ofour common stock.

 

*GSK Collaboration.*  In October 2009, we enteredinto a multi-year collaboration with GSK to discover and develop cancertherapeutics based on epigenetic targets. Epigenetics refer to the regulation of genes with mechanisms other thanchanges to the underlying DNA sequence. Epigenetic processes are widely believed to play a central role in thedevelopment and progression of almost all cancers.  Pursuant to the terms of the transaction, wewill collaborate with GSK over a period of five years to discover and developspecific epigenetic therapeutics.  At theend of the research term, or earlier if GSK elects, GSK may exercise its optionto license from us the compounds that are the result of the joint researcheffort, in order to continue the development and ultimately commercialize andsell the products worldwide.

 

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

 

All of our current products are in the developmentor clinical trial stage, and will require substantial additional investments inresearch and development, clinical trials, regulatory and sales and marketingactivities to commercialize these product candidates.  Conducting clinical trials is a lengthy,time-consuming, and expensive process involving inherent uncertainties andrisks, and our studies may be insufficient to demonstrate safety and efficacyto support FDA approval of any of our product candidates.

 

As a result of our substantial research anddevelopment expenditures and minimal product revenues, we have incurredcumulative losses of $356.6 million through December 31, 2009, and havenot consistently generated enough funds through our operations to support ourbusiness. We expect to continue to incur operating losses over the next fewyears.

 

Ultimately, our ability to become profitable willdepend upon a variety of factors, including regulatory approvals of ourproducts, the timing of the introduction and market acceptance of our productsand competing products, MGI/Eisai’s success in selling Dacogen, the success ofour joint development program with GSK, the launch of new products and ourability to control our ongoing costs and operating expenses.  If our drug discovery and research effortsare not successful, or if the results from our clinical trials are notpositive, we may not be able to get sufficient funding to continue our trialsor conduct new trials, and we would be forced to scale down or cease ourbusiness operations.  Moreover, if ourproducts are not approved or commercially accepted we will remain unprofitablefor longer than we currently anticipate. Additionally, we might be forced to substantially scale down ouroperations or sell certain of our assets, and it is likely the price of ourstock would decline precipitously.

 

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**Critical Accounting Policies**

 

Our management discussion and analysis ofour financial condition and results of operations is based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andreported disclosures. On an on-going basis, we evaluate our estimates,including those related to revenue and gain recognition, the valuation ofinvestments and stock-based compensation. We base our estimates on historical experience and on various otherassumptions that we believe are reasonable under the circumstances, the resultsof which form the basis for making judgments about the carrying values ofassets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates under different assumptions orconditions.

 

Our significant accounting policies are more fullydisclosed in Note 1 to our consolidated financial statements.  However, some of our accounting policies areparticularly important to the portrayal of our financial position and resultsof operations and require the application of significant judgment by ourmanagement.  We believe the followingcritical accounting policies, among others, affect our more significantjudgments and estimates used in the preparation of our consolidated financialstatements.

 

*Stock-Based Compensation*

 

Weaccount for stock-based compensation based upon the fair value estimated on themeasurement date of our stock awards using the Black-Scholes option-pricingmodel based on assumptions for volatility, risk-free interest rates, expectedlife of the award, and dividends (if any). Expected volatility is determined based on a blend of historical volatilityand implied volatility of our common stock based on the period of timecorresponding to the expected life of the stock options.  The expected life of our stock options isbased on our historical data and represents the period of time that stock optionsgranted are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve ineffect at the time of grant commensurate with the expected life assumption.

 

Weare using the straight-line attribution method to recognize stock-basedcompensation expense. The amount of stock-based compensation recognized duringa period is based on the value of the portion of the awards that are ultimatelyexpected to vest, including awards that vest based on certain performancecriteria.  For the awards that vest basedon certain performance criteria we estimate the probability that the awardswill vest as well as the time period over which they are expected to vest andrefine these estimates as necessary each reporting period.  We estimate forfeitures at the time of grantand revise them, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates.  The term “forfeitures”is distinct from “cancellations” or “expirations” and represents only theunvested portion of the surrendered option. This analysis is re-evaluatedannually and the forfeiture rate is adjusted as necessary.  Ultimately, the actual expense recognizedover the vesting period will only be for those shares that vest.

 

Asof December 31, 2009, there was $2.1 million of total unrecognizedcompensation cost related to unvested stock-based awards.  This cost is expected to be recognized over aweighted average period of 2.06 years.

 

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*Revenue and Gain Recognition*

 

Advance payments received in excess of amountsearned are classified as deferred revenue until earned.  We enter into revenue arrangements withmultiple deliverables, such as intellectual property rights and research anddevelopment services.  For thesearrangements, we generally do not meet the criteria to separate thedeliverables for revenue recognition and we treat the deliverables as acombined unit of accounting.  As such,non-refundable up-front payments received in connection with research andlicense agreements are deferred and recognized on a straight-line basis overthe relevant estimated periods of continuing involvement, generally theresearch term.  We re-evaluate the periodof continuing involvement each reporting period and adjust our estimatesaccordingly.  We recognize milestone feesupon completion of specified substantive at-risk milestones according to therelated contract terms.

 

MGI/Eisai is required to pay us royaltiesstarting at 20% and escalating to a maximum of 30% of net worldwide Dacogensales within 45 days after the end of each calendar quarter. We recognizeroyalty revenue when we receive the royalty statement from MGI/Eisai because wedo not have sufficient ability to accurately estimate Dacogen sales prior tothis time.

 

The determination of the gain on sale of productsfrom the sale of the rights to Nipent to Mayne/Hospira involves the estimationof our price protection exposure as we are obligated to reimburse Mayne/Hospirafor three years for amounts paid to a new supplier of Nipent in excess ofcertain amounts.  The remaining balanceof the deferred gain on sale of products of $50,000 at December 31, 2009,reduced from $125,000 at December 31, 2008, consists of the estimatedprice protection exposure for the remaining year of the underlying agreementand is subject to management estimates and assumptions based on all availableinformation including updated estimates of manufacturing yields and requirementsand sales trends.

 

*Impairment of Investments inFinancial Instruments*

 

Investments in financial instruments arecarried at fair value based on quoted market prices, with unrealized gains andlosses included in accumulated other comprehensive income or loss instockholders’ equity.  Our investmentportfolio includes equity securities that could subject us to material equitymarket 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 valueof a financial instrument may be subject to a write-down resulting in a chargeagainst earnings.  The determination ofwhether a decline in fair value is other than temporary requires significantjudgment, and could have a material impact on our balance sheet and results ofoperations.  Our management reviews thesecurities within our portfolio for other than temporary declines in value on aregular basis.  As of December 31,2009, the gross unrealized losses on available for sale investments was $59,000(less than 0.1% of our portfolio value) and such losses were not attributed tochanges in credit risk.  The prices ofsome of our marketable equity securities are subject to considerablevolatility.  Currently we own 2,384,211shares of AVI and recorded an other-than-temporary decline in value of $3.1million related to this investment during the year ended December 31,2008.  As of December 31, 2009, thegross unrealized gain on our investment in AVI was approximately $811,000.  Decreases in the fair value of our securitiesmay continue to significantly impact our results of operations.

 

Investments in equity securities withoutreadily determinable fair value are carried at cost.  We periodically review those carried costs,amounting to $500,000 as of December 31, 2009 and evaluate whether animpairment has occurred. The determination of whether an impairment hasoccurred requires significant judgment, as each investment has unique marketand development opportunities.

 

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**Recent Accounting Pronouncements**

 

In October 2009, the FASB issued ASU2009-13, which amends ASC Topic 605, Revenue Recognition, to change theexisting criteria for separating consideration in multiple-deliverablearrangements and require companies to allocate revenue in multiple-elementarrangements based on an element’s estimated selling price if vendor-specificor other third-party evidence of value is not available.  ASU 2009-13 is effective for us beginning January 1,2011.  Earlier application ispermitted.  We are currently evaluatingthe impact of the pending adoption of the ASU on our consolidated financialstatements and cannot estimate the impact of adoption at this time.

 

**Results of Operations**

*** ***
| **Revenues (in thousands)** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Royalty revenue                       |       | $        | 41,156     |     | $          | 38,422   |       | $ | 22,333 |   |
| Development and license  revenue      |       | 97       |       | —   |       | —   |       |
| Net product revenue                   |       | —   |       | —   |       | 621      |       |
| Total revenues                        |       | $        | 41,253     |     | $          | 38,422   |       | $ | 22,954 |   |

 

The increases in royalty revenue are due to higherDacogen product sales by MGI/Eisai. MGI/Eisai is required to pay us royalties starting at 20% and escalatingto a maximum of 30% of net Dacogen sales within 45 days after the end of eachcalendar quarter.  We recognize royaltyrevenue when we receive the royalty statements from MGI/Eisai because we do nothave sufficient ability to accurately estimate Dacogen sales prior to thistime.  Therefore, the royalty revenuesrecorded in 2009 represent MGI/Eisai’s Dacogen sales for the fourth quarter of2008 and the first three quarters of 2009. The royalty revenues recorded in 2008 represent MGI/Eisai’s Dacogensales for the fourth quarter of 2007 and the first three quarters of 2008.  The royalty revenues recorded in 2007represent MGI/Eisai’s Dacogen sales for the fourth quarter of 2006 and thefirst three quarters of 2007.

 

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

 

The elimination of net product revenue is due tothe disposal of our remaining commercial products in 2007.  Our net product revenue had previouslyconsisted of sales of Nipent and generic mitomycin.  We sold the rights to mitomycin to IntasPharmaceuticals in April 2007 and sold the remaining worldwide rights toNipent to Mayne/Hospira in April 2007.

 
| **Costs and operating expenses (in thousands)** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cost of product revenue                                                  |       | $        | —     |     | $          | —   |       | $ | 221 |   |
| Research and  development                                                |       | 29,689   |       | 32,685   |       | 23,423   |       |
| Selling, general and  administrative                                     |       | 8,994    |       | 11,119   |       | 13,520   |       |
| Acquired in-process  research and development                            |       | —   |       | 5,185    |       | 9,967    |       |
| Gain on sale of  products                                                |       | (595     | )          | (2,236   | )          | (33,677  | )          |
| Total costs and  operating expenses                                      |       | $        | 38,088     |     | $          | 46,753   |       | $ | 13,454 |   |

 

The decrease in cost of product revenue is due tothe disposal of our commercial products in 2006 and 2007 as noted in thediscussion of the decline in our product revenue above.

 

The increase in research and development expensesfrom 2007 to 2008 was due to higher drug discovery research costs associatedwith the acquisition of Montigen in 2006, clinical trial costs related to theinitiation of Phase I and Phase Ib studies for amuvatinib in 2007, anddevelopment and formulation costs for SGI-1776 in 2008.   The decrease in research and developmentexpenses from 2008 to 2009 is primarily due to lower contracted outsideresearch and development services for several of our drug candidates and lowerclinical trial costs related to our Phase I and Phase Ib clinical trials foramuvatinib.

 

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We conduct research internally and throughcollaborations with third parties as we continue to maintain a strong commitmentto our research and development efforts. Our research and development activities consist primarily of drugdiscovery, drug development, and pre-clinical and clinical development, as weadvance our existing product candidates through clinical trials.  Our research and development expenses consistprimarily of salaries, employee benefits and other personnel related costs;stock-based compensation expense; laboratory equipment and supplies;third-party consultant fees and contract labor; costs for pre-clinical andclinical trials, including clinical research organizations; other outsourcedresearch; depreciation expense; corporate overhead; and allocated facilitycosts.

 

We do not allocate certain of our internal researchand development costs such as salaries and other personnel related costs,corporate overhead and facility costs to our development programs on aproject-by-project basis.  These costsare incurred across and contribute to many discovery, research and developmentprograms including a broad range of scientific research projects, many of whichfail in the early stages of discovery and development.  We do allocate direct salaries and thirdparty costs to certain major development programs that are generally in laterstages of pre-clinical or clinical development. Our scientists record their time to such specific projects whenappropriate; however, many activities simultaneously benefit multiple projectsand cannot be readily attributed to a specific program.  Accordingly, the accurate assignment of timeand costs to a specific project is difficult and does not give a trueindication of the actual costs of a particular project on a fully burdenedbasis.  Below is a summary of third partycosts and direct salaries that are identifiable for our major drug programs:

 
| **Third Party Costs and Direct  Salaries Identifiable by Project  (in thousands)** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **Cumulative To  Date** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|------------------------------|------------|
| Amuvatinib                                                                                                                 |       | $        | 4,601      |     | $          | 6,786    |       | $                            | 2,614      |   | $ | 16,039 |   |
| SGI-1776                                                                                                                   |       | 3,243    |       | 4,093    |       | 324      |       | 7,703                        |       |
| SGI-110                                                                                                                    |       | 2,088    |       | 1,688    |       | 170      |       | 3,946                        |       |
| All other projects                                                                                                         |       | 3,216    |       | 3,530    |       | 4,861    |       | 16,302                       |       |
|                                                                                                                            |            |          |            |          |            |          |            |                              |            |  |  |  |  |

 

Conducting clinical trials is a lengthy, expensiveand uncertain process. Completion of clinical trials may take several years ormore.  The length of time generallyvaries substantially according to the type, complexity, novelty and intendeduse of the product candidate.  Ourclinical trials may be suspended at any time if we or the FDA believe thepatients participating in our studies are exposed to unacceptable healthrisks.  We may encounter problems in ourstudies which will cause us or the FDA to delay or suspend the studies.  Because of these uncertainties, we cannotpredict when or whether we will successfully complete the development of ourproduct candidates or the ultimate product development cost for any of ourproduct candidates.

 

The decrease in selling, general and administrativeexpenses from 2007 to 2008 relates primarily to lower costs associated withsales and marketing programs due to the sale of our North American andworldwide rights to Nipent and Surface Safe to Mayne, lower costs related toour European operations, and lower stock-based compensation expense due to ourlower stock price in recent years.  Wesold the rights to mitomycin to Intas Pharmaceuticals in April 2007 andsold the remaining worldwide rights to Nipent to Mayne Pharma in April 2007.  The decrease in selling, general, andadministrative expenses from 2008 to 2009 relates primarily to lowerstock-based compensation and legal expenses, as well as the elimination of administrativecosts related to our European operations, which were liquidated in October 2008.

 

Acquired in-process research and developmentexpenses relate to our acquisition of Montigen Pharmaceuticals in April 2006.  In April 2007, the first Montigen compoundreceived clearance from the FDA to begin Phase I clinical trials, triggeringthe first milestone payment to the former Montigen stockholders of $9,967,000,which we paid through the issuance of 1,477,000 shares of our common stock, andwhich was recorded as acquired in-process research and development expense inthe year ended December 31, 2007. In November 2008, a second Montigen compound received clearancefrom the FDA to begin Phase I clinical trials, triggering a second milestonepayment of $5,185,000, which was paid through a combination of cash and theissuance of common stock.  We had nosimilar transactions in 2009.

 

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Gain on sale of products recorded in the year endedDecember 31, 2007 relates to the sale of our worldwide rights to Nipentand Surface Safe to Mayne/Hospira and the sale of mitomycin, paclitaxel, andetoposide to Intas Pharmaceuticals, as well as the first annual sales milestonepayment of $1.8 million received from Mayne/Hospira in September 2007relating to the achievement of certain Nipent sales targets and $6 million insupply holdbacks received in December 2007.  During 2008 we received a $1 millionindemnification holdback relating to the sale of the North American Nipentrights, a $250,000 indemnification holdback, and a $400,000 annual paymentrelating to the sale of the remaining worldwide Nipent rights.  In addition, in 2008 we reduced our priceprotection reserve by $426,000 and reversed $160,000 of residual productsreturn reserve for Nipent as the reserve was no longer required due to theexpiration of the contractual return period. The sum of these 2008 transactions, $2,236,000, was recorded as a gainon sale of products during the year ended December 31. 2008.  Gain on sale of products for the year ended December 31,2009 represented the receipt of a $500,000 annual payment from Mayne/Hospirarelating to the sale of the worldwide rights for Nipent, a $75,000 reduction ofour price protection reserve, and $20,000 relating to the reversal of aresidual products return reserve that was no longer required due to theexpiration of the contractual return period.

 
| **Other income (expense) (in thousands)** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Interest income                                               |       | $        | 686        |     | $          | 2,193    |       | $ | 4,017 |   |
| Other than temporary  decline in value of investments         |       | —   |       | (3,055   | )          | (65      | )          |
| Other income                                                  |       | —   |       | 34       |       | 40       |       |
| Income tax benefit  (provision)                               |       | 886      |       | 48       |       | (411     | )          |
|                                                               |            |          |            |          |            |          |            |  |  |  |

 

The declines in interest income have been dueprimarily to significant declines in interest rates.

 

During the years ended December 31,2008 and 2007, we recorded write-downs of $3,055,000 and $65,000, respectively,related to other than temporary declines in the values of two of our equityinvestments.   We had no similarwrite-downs in 2009.

 

Other income primarily representedtransaction gains on foreign currency exchange relating to activities of oursubsidiary EuroGen.  EuroGen discontinuedselling Nipent in 2007, and EuroGen was liquidated as of October 1, 2008.

 

In 2009, we recorded a tax benefit of$886,000, which was primarily due to the Worker, Home Ownership and BusinessAssistance Act of 2009, signed into law on November 6, 2009, that allowedfor certain net operating losses to be used to eliminate or refund alternativeminimum tax, as well as monetization of research credits and other state taxbenefits.  In 2008, we recorded a taxbenefit of $48,000 due to estimated refundable research and development taxcredits under a 2008 Housing Rescue bill. The tax provision recorded in 2007 reflected federal and state incometaxes at statutory rates and the application of net operating losscarryforwards, offset by certain non-deductible expenses, including acquiredin-process research and development expense.

 

**Liquidity and Capital Resources**

 

Our cash, cash equivalents, and current andnon-current marketable securities totaled $100.8 million at December 31,2009, compared to $88.3 million at December 31, 2008.

 

Net cash provided by operating activitieswas $8.7 million in 2009, and consisted primarily of the net income of $4.7million, depreciation of $1.2 million, stock based compensation expense of $2.5million, and an increase in deferred revenue from entering into the GSK agreementsin 2009 of $2.4 million, offset in part by an

 

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$818,000 increase in income tax receivable and a$1.1 million decrease in accounts payable and other liabilities.  Net cash used in operating activities was$1.7 million in 2008, and consisted primarily of the net loss of $9.1 millionand recognition of gain on sale of products of $1.6 million, offset in part bynon-cash depreciation and amortization of $1.6 million, other than temporarydeclines in the value of investments of $3.1 million, stock based compensationexpense of $2.8 million, and non-cash acquired in-process research anddevelopment expenses of $2.4 million. Net cash used in operating activities was $5.8 million in 2007, andconsisted primarily of the net income of $13.1 million, plus the non-cashimpacts of acquired in-process research and development expenses of $10million, non-cash stock-based compensation expense of $4.3 million, anddepreciation and amortization of $2 million. We also had a decrease in accounts receivable of $1.9 million due to thesale of our commercial operations, all more than offset by a decrease inaccounts payable and other liabilities of $2.8 million, and the recognition ofand change in the deferred gain on sale of products of $34.6 million.

 

Net cash used in investing activities was$52.6 million in 2009, and consisted primarily of $133.3 million for thepurchase of marketable securities and $1 million for purchases of property andequipment, offset in part by $81.2 million in maturities of marketablesecurities.  Net cash used in investingactivities was $27.6 million in 2008, and consisted primarily of purchases of marketablesecurities of $46 million and property and equipment of $1.1 million, offset inpart by proceeds from maturities of marketable securities of $17.9 million andthe sale of products of $1.6 million. Net cash provided by investing activities was $12.4 million in 2007, andconsisted primarily of milestone payments of $17.1 million from Mayne relatingto the sale of the North American rights to Nipent, $5.1 million from Mayne forthe sale of the remaining worldwide rights to Nipent, $1.5 million in maturitiesof marketable securities, and $1.2 million for the sale of products to Intas, partially offset by $10.9million for purchases of marketable securities and $1.7 million for purchasesof property and equipment.

 

Net cash provided by financing activitieswas $2.7 million in 2009, and related primarily to proceeds from the issuanceof common stock to GSK, as well as proceeds from the issuance of common stockupon exercise of stock options and issuances under our employee stock purchaseplan.  Net cash provided by financingactivities was $142,000 in 2008 and $3.8 million in 2007, and consisted ofproceeds from the issuance of common stock upon exercise of stock options andwarrants as well as issuances under our employee stock purchase plan.

 

Our contractual obligations as of December 31,2009 are as follows (in thousands):

 
| ** **                          | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **Total**                                 | ** ** | **< 1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After 5 years** | ** ** |
| Operating leases, net  of subleases |       | $                                         | 2,801      |   | $ | 2,279 |   | $ | 522 |   | $ | — |   | $ | — |   |
| Total contractual cash  obligations |       | $                                         | 2,801      |   | $ | 2,279 |   | $ | 522 |   | $ | — |   | $ | — |   |

 

Our principal administrative facility is currentlylocated in leased general office space, containing approximately 50,000 squarefeet, in Dublin, California, under a lease that expires in November 2010.  Our drug formulation laboratory operationsare located in a 10,000 square foot industrial building that we own inPleasanton, California.  We are currentlyleasing 11,700 square feet of space for our drug discovery laboratoryoperations in Salt Lake City, Utah.  Thelease on this space expires in May 2012. We are currently exploring various options to address our space needs inall three locations, which would significantly increase our future leaseobligations beyond those noted in the table above.

 

Avicine will require significant additionalexpenditures to complete the clinical development necessary to gain marketingapproval from the FDA and equivalent foreign regulatory agencies.  As part of our agreement with AVI BioPharma,we are obligated to make additional payments to AVI based on successfulachievement of developmental, regulatory approval, and commercializationmilestones over the next several years that could total $80 million.  However, no significant development effortshave been incurred for Avicine since 2003 and none 

 

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are anticipated in the near future.  We are unable to determine precisely when andif our payment obligations under our agreement with AVI will become due asthese obligations are based on milestone events the achievement of which issubject to a significant number of risks and uncertainties.  Because some of the milestone events are revenue-relatedand the payment obligation would not be triggered absent our receipt ofrevenues, we may be able to use funds generated from revenues to make themilestone payments if they become due.

 

We have financed our operations primarilythrough the issuance of equity and debt securities, the receipt of milestone,royalty and other payments in connection with collaborative agreements, and thesale of non-core assets.  Based on ourcurrent forecasted product development activities, we believe that our currentcash, cash equivalents, marketable securities and other investments willsatisfy our cash requirements through at least December 31, 2011.  We may pursue additional financing options,including the selling of additional shares of stock in public or privateofferings.

 

We believe that our need for additionalfunding will increase in the future, especially if we acquire new producttechnologies for development and sale, and our ability to continue raisingfunds from external sources will be critical to our success.  We continue to actively consider futurecontractual arrangements that would require significant financialcommitments.  If we experience currentlyunanticipated cash requirements, we could require additional capital muchsooner than presently anticipated. We may raise money by the sale of our equitysecurities or debt, or the exercise of outstanding stock options by the holdersof such options.  However, givenuncertain market conditions and the volatility of our stock price, we may notbe able to sell our securities in public offerings or private placements atprices and on terms that are favorable to us, if at all.  We may also choose to obtain funding throughlicensing and other contractual agreements. Such arrangements may require us to relinquish our rights to ourtechnologies, products or marketing territories, or to grant licenses on termsthat are not favorable to us.  If we failto obtain adequate funding in a timely manner, or at all, we will be forced toscale back our product development activities or our operations in a mannerthat will ensure we can discharge our obligations as they come due in theordinary course of business.

 

**Off-Balance Sheet Arrangements**

 

We do not have any off-balance sheetarrangements that are currently material or reasonably likely to be material toour consolidated financial position or results of operations.

 

**Liquidation of EuroGen Pharmaceuticals**

 

We established our European subsidiary, EuroGenPharmaceuticals, Ltd.  in 2001 toexpand our commercial presence in Europe. Since that time, we changed our strategic focus due to the sublicense ofDacogen to MGI/Eisai in 2004 and the sale of Nipent to Mayne/Hospira in 2006and 2007.  As a result, in May 2008,we decided to discontinue our European operations and liquidate EuroGen.  The liquidation was substantially completedby October 1, 2008.  As part of thisliquidation, we terminated the two employees at EuroGen as of September 30,2008.  As part of the employmentagreements with these two employees, we were required to provide them with atwelve month notification period prior to termination.  They continued to provide services from the May 2008notification date through September 30, 2008, during which time they werecompensated with their normal salary and benefits.  At their termination date, we were obligatedto pay these employees severance through the remainder of the twelve monthnotification period.  During the yearended December 31, 2008, we recorded total severance costs of $420,000,which were recorded in selling, general and administrative expenses.  We do not expect to incur any furtherseverance costs related to this liquidation.

 

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**Income Taxes**

 

As of December 31, 2009,we have net operating loss carryforwards for federal income tax purposes ofapproximately $264 million which expire in the years 2012 through 2029, netoperating loss carryforwards for state income tax purposes of approximately$136 million which expire in the years 2010 through 2029, federal research anddevelopment credit carryforwards of approximately $11 million, which expire inthe years 2010 through 2029, and state research and development carryforwardsof approximately $10 million, some of which expire in 2022 and some of whichhave no expiration.  The realization ofthese future tax benefits is dependent upon our ability to generate sufficienttaxable income within the carryforward period. Because of our history of operating losses, we believe that thesebenefits are not currently likely to be realized, and, accordingly, the netdeferred tax assets have been fully offset by a valuation allowance.

 

Utilization of our net operating loss carryforwardsmay be subject to substantial annual limitations due to ownership changelimitations provided by the Internal Revenue Code and similar stateprovisions.  Such an annual limitationcould result in the expiration of the net operating losses before utilization.

 

We have no unrecognized taxbenefits as of December 31, 2009.** **No interest and penalties expenseswere recognized in the statements of operations for the years ended December 31,2007, 2008 and 2009.  We are subject toincome tax examinations for U.S. Federal income taxes and state income taxesfrom 1994 forward due to net operating losses in tax years 1994 through2005.  We are subject to tax examinationsin the United Kingdom from 2001 forward. We do not anticipate that total unrecognized tax benefits willsignificantly change prior to December 31, 2010.

 

**ITEM9A.  CONTROLS AND PROCEDURES.**

 

**Evaluation of Disclosure Controls and Procedures.**

 

We carried out an evaluation, under the supervisionof and with the participation of our management, including our Chief ExecutiveOfficer and our Chief Financial Officer, of the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended) as of the end of the periodcovered by this amended report.  Based onthe evaluation, our Chief Executive Officer and Chief Financial Officer haveconcluded that as of December 31, 2009, our disclosure controls andprocedures were effective.

 

**Management’s Report on Internal Control overFinancial Reporting**

 

Our management is responsible for establishing andmaintaining an adequate internal control structure and procedures for financialreporting as defined in Exchange Act Rules 13a-15(f) and15d-15(f).  Our internal control overfinancial reporting is a process designed by, or under the supervision of, ourChief Executive Officer and Chief Financial Officer and effected by our boardof directors, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles. Our internal control over financial reportingincludes those policies and procedures that:

 

·                  pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect our transactions and dispositions of assets;

·                  provide reasonable assurance that transactions are recorded as necessaryto permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures arebeing made only in accordance with authorizations of our management and ourboard of directors; and

·                  provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of our assets that could have amaterial effect on our financial statements.

 

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Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures maydeteriorate.

 

Under the supervision of and with the participationof our management, including our Chief Executive Officer and our ChiefFinancial Officer, our management has assessed the effectiveness of internalcontrol over financial reporting as of December 31, 2009.  Our assessment was based on criteria setforth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)Internal Control-Integrated Framework. Based on using the COSO criteria, we believe our internal control overfinancial reporting as of December 31, 2009 was effective.

 

Ernst & Young LLP, our independentregistered public accounting firm, has issued an attestation report that theCompany’s internal control over financial reporting was effective as of December 31,2009.

 

**Changes in Internal Control over FinancialReporting**

 

There were no changes in our internal control overfinancial reporting that occurred during the fourth quarter of 2009 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART III**

 

**ITEM11.  EXECUTIVE COMPENSATION.**

 

**COMPENSATION DISCUSSION ANDANALYSIS**

 

**Overviewof Compensation Program and Philosophy**

 

Our executive compensation programs are designed tomeet the following objectives:

 

·                  Attract and retain qualified executives with a view to the highlycompetitive nature of the marketplace in the San Francisco Bay Areabiotechnology industry and other industries from which we may seek executive talent;

·                  Provide an executive compensation structure that is not only competitivein our geographic area and industry sector, but is internally equitable andconsistent based on the level of responsibilities for each executive position;

·                  Motivate and reward our executives to perform to the best of theirabilities;

·                  Align our financial results and compensation paid to executive officerswith a goal to achieve our current year and longer-term strategic businessgoals and objectives; and

·                  Ensure that our executives are not motivated to incur excessive riskthat could jeopardize the Company.

 

These objectives fit within our overallcompensation philosophy by helping to continuously improve the Company’sperformance, secure the future potential of our business, enhance stockholdervalue, and provide proper compliance with regulatory and related requirements.

 

To meet these objectives, we have implemented anexecutive compensation program based on the following policies:

 

·                  Pay executive base salaries that are competitive with the practices ofother San Francisco Bay Area biotechnology companies and other relevantindustries that are similar in size;

·                  Pay for performance through a management bonus plan that is based upon shorter-termincentives and through merit increases based on company and personalperformance, as well as market data; and

·                  Pay for performance through equity compensation awards that provide alonger-term incentive to retain our executives.

 

The Compensation Committee is responsible forensuring compliance with these objectives and policies and, accordingly, isempowered to review and approve the annual compensation arrangements of theCompany’s executive officers, including annual base salary, annual incentivebonus, equity compensation, and other benefits or perquisites.  The Company’s executive team was comprised ofthe following individuals during 2009:

 

·                  James S.J. Manuso, Ph.D. — President and Chief Executive Officer

·                  Mohammad Azab, M.D. — Chief Medical Officer

·                  Michael Molkentin, C.P.A. — Chief Financial Officer

·                  David J. Bearss, Ph.D. — Former Chief Scientific Officer (left theCompany in October 2009)

·                  Gregory Berk, M.D. — Former Chief Medical Officer (left the Company in May 2009)

 

Throughout this Proxy Statement, our executive teammay be referred to by name, title or referred to as the “executive officers”and comprises our “Named Executive Officers.”

 

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** **

**Role ofour Compensation Committee**

 

Our Compensation Committee approves, administersand interprets our executive compensation program, and with respect to our NamedExecutive Officers, the 2003 Stock Plan. This Committee is appointed by the Board, and consists entirely ofdirectors who are independent for purposes of the listing standards of theNasdaq Stock Market, “outside directors” for purposes of Section 162(m) of theInternal Revenue Code of 1986, as amended, and “non-employee directors” forpurposes of Rule 16b-3 under the Exchange Act. The Compensation Committee is comprised of Walter J. Lack (chairman) andThomas V. Girardi and operates under a written charter that is periodicallyreviewed and revised by the Compensation Committee and the Board.  A copy of this charter is available forreview in the corporate governance section of our website at www.supergen.com.  The Compensation Committee held one meetingin 2009 and approved several other matters by unanimous written consent.

 

*Role of Executive Officers inCompensation Decisions*

 

Dr. Manuso, our president and chief executiveofficer (CEO), reviews the performance of each executive officer, and presents hisfindings to the Compensation Committee, together with recommendations forcompensation structures applicable to the fiscal year under consideration.  The Compensation Committee considers thesefindings and recommendations, but makes its own final determinations.  The Compensation Committee alone or inconsultation with the full Board reviews Dr. Manuso’s performance.

 

*Role of Compensation Consultantsand Surveys*

 

The Compensation Committee has adopted a policywhere it has the sole authority to hire and fire outside compensationconsultants to assist the Committee in analyzing executive compensation anddischarging its related responsibilities. The Compensation Committee did not retain a compensation consultant toassist in determining or recommending the amount or form of executivecompensation since it did not anticipate making substantial changes in theamounts and form of executive compensation for our executive officers based onthe Company’s overall performance during 2009.

 

For 2009, the Compensation Committee primarilyutilized two compensation surveys in evaluating the various elements of thecompensation of our executive officers. The two surveys were the following:

 

·                  Radford Global Life Sciences Survey (“Radford Survey”) — uses peer groupinformation from over 156 participants in the 50 to 149 employee size categoryregarding all elements of compensation, including base salary, bonus, andequity for new hires and existing employees of all levels, including executiveofficers.  There are 48 participants inthe San Francisco Bay Area in the 50 to 149 employee size category to providecomparative data for our Dublin/Pleasanton locations, and 39 participants inthe mountain states to provide comparative data for our Salt Lake Citylocation.

 

·                  BioWorld Executive Compensation Survey — analyzes information from proxystatements and annual reports of approximately 203 publicly tradedbiotechnology companies that were filed with the U.S. Securities and ExchangeCommission for fiscal year 2008.  Thissurvey summarizes compensation data for up to seven officer level positions.

 

**2009 and 2010 Performance Priorities**

 

Executiveincentive compensation decisions are primarily based upon the achievement orprogress towards Company-wide performance objectives, the execution ofoperational and business specific strategic objectives, and the officer’sindividual performance.  Our performanceobjectives are both qualitative and quantitative.  These performance objectives may be modifiedby the Compensation Committee based on changes 

 

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inmarket conditions or the business environment in which we operate.  The Compensation Committee may include orexclude certain items related to the ongoing operations when calculatingfinancial measures including gains or losses not anticipated or properlyreflecting the cash flow or economic contribution of a transaction during the annualperformance period under review.  TheCompensation Committee believes that our overall performance as adiscovery-based drug development company is a more significant factor in ourcompensation decisions than our performance against any specific individualpredetermined goal.

 

TheCompensation Committee determines the amount payable, if any, to its namedexecutive officers as an annual performance bonus relating to the 2009 and 2010years based upon its determination as to the Company’s achievement of the 2009and 2010 performance priorities.  However, this determination is notmechanical.  As noted above, theCompensation Committee also factors in, as the most significant factor inmaking its determination, the Company’s progress in its transition to adiscovery-based drug development company. Thus, while there is no specific weighting accorded to each of theenumerated performance priorities for 2009 and 2010 or the officer’s individualperformance, the Compensation Committee considers them of roughly equal weight,with the most weight given to the judgment regarding the Company’s progress andoverall performance as a discovery-based drug development company.  As described below, in 2009 the Companysignificantly exceeded the performance goals in each of the performancepriority areas.  Moreover, theCompensation Committee determined that the Company’s overall performance as adiscovery-based drug development company in 2009 was outstanding.

 

*2009 Performance Priorities*

 

At the beginning of 2009, the CompensationCommittee established performance priorities in four key areas for the Company:

 

1.  *Financial performance* — Properly manage annual cash burn andyear-end cash balance by targeting reasonable ranges for loss from operations,net loss, cash used in operations and cash on hand at the end of 2009.  The target range for loss from operations andcash used in operations is plus or minus 20% from the approved financialtargets, while the target range for cash, cash equivalents and marketablesecurities is plus or minus 10% of a targeted combined balance of $75 millionat the end of the performance period.

 

The Company achieved the primary financialperformance priorities for 2009. We recorded income from operations of $3.2million, which was 125% better than the anticipated annual loss from operationsof $12.5 million, which was the target. Our recorded net income of $4.7 million was 143% better than thetargeted annual loss of $10.9 million. The cash provided by our operatingactivities of $8.7 million was 222% better than the targeted  annual amount of cash used in operatingactivities of $7.1 million, and unrestricted cash, cash equivalents andmarketable securities of $100.8 million exceeded the year-end target of $75million by 34%.

 

2.  *Business development* — Initiate and execute at least onebusiness development transaction with terms, conditions and economic valueconsistent with other market transactions being executed for similar typeproducts within the pharmaceutical industry sector in which we compete.

 

The Company achieved this business developmentpriority for 2009 by executing a collaboration agreement with GlaxoSmithKline (“GSK”)to discover and develop specific epigenetic therapeutics.  Total potential development and commercialmilestones payable to the Company could exceed $375 million.

 

3.  *Product development*— Advance to lead product candidacy, INDenabling research and/or IND filing one or more new product developmentcandidates while advancing clinical-stage compounds.

 

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The Company achieved the product developmentpriority for 2009 with the advancement of several candidates in the clinical andpre-clinical stage and with multiple unannounced potential candidates in thediscovery stage process.

 

4.  *Organizational development* — Invest in essentialinfrastructure by recruiting additional talent for key operating positions witha focus on retaining, training and developing current organizational resourcesrequired to advance our drug research and business developmentinitiatives.  The Company is targetingheadcount growth primarily in the research and development area with a focus ondiscovery, pre-clinical, manufacturing, and clinical operations.

 

The Company made progress with the organizationaldevelopment priority with the addition of several key new hires in research anddevelopment and clinical operations areas. In addition, the Company assessed its future strategic organizationalneeds and initiated an organizational adjustment which was executed in early2009 and reduced overall personnel by approximately 8% at that time.

 

The Compensation Committee believed the successfulexecution overall of our 2009 Performance Priorities, including theconsideration of other actions not included in the specific priorities, wouldimprove our overall performance and enhance stockholder value over the longterm.  The Compensation Committeecontinues to believe that the strategic shift from a specialty pharmaceuticalcompany dependent on acquiring drugs from third parties into a discovery-baseddrug development company will not necessarily result in a short-term increasein stockholder value.  In fact, the developmentof a novel and growing drug development pipeline, including the targeting,development and execution of new business development transactions andrelationships, will require significant ongoing effort and achievement by ourexecutive officers and other personnel during 2010 and beyond.

 

*2010 Performance Priorities*

 

At the beginning of 2010, the CompensationCommittee established initial performance priorities in four key areas for theCompany:

 

1.  *Financial performance* — Properly manage annual cash burn andyear-end cash balance by targeting reasonable ranges for loss from operations,net loss, cash used in operations and cash on hand at the end of 2010.  The target range for income (loss) fromoperations and cash provided by (used in) operations is plus or minus 15% fromthe approved financial targets, while the target range for cash, cashequivalents and marketable securities is plus or minus 10% of a targetedcombined balance of $85 million at the end of the performance period.

 

2.  *Business development* - Initiate and execute at least onebusiness development transaction with terms, conditions and economic valueconsistent with other market transactions being executed for similar typeproducts within the pharmaceutical industry sector in which we compete.

 

3.  *Product development*— Advance to lead product candidacy, INDenabling research and/or IND filing one or more new product developmentcandidates while advancing clinical-stage compounds.

 

4.  *Organizational development* — Invest in essential infrastructureby recruiting additional talent for key operating positions with a focus onretaining, training and developing current organizational resources required toadvance our drug research and business development initiatives.  The Company is targeting headcount growthprimarily in the research and development area with a focus on discovery,pre-clinical, manufacturing, regulatory and clinical operations.

 

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The Compensation Committee believes the 2010Performance Priorities identified above are reasonably attainable, but willrequire significant and sustained effort on the part of all our Named ExecutiveOfficers and employees.  The CompensationCommittee believes that successful execution of our performance priorities willimprove our overall performance and ultimately enhance stockholder value overthe long term.

 

*Chief Executive Officer AnnualBonuses*

 

For 2009, our chief executive officer Dr. Manuso’starget annual bonus was $350,000 under a new executive employment agreementeffective April 1, 2009.  There was nothreshold bonus or maximum bonus.  TheCompensation Committee assessed the 2009 performance of Dr. Manuso byconferring with the independent members of the Board of Directors.  Inaddition to assessing Dr. Manuso’s contribution to the achievement of the 2009performance priorities, the independent members of the Board of Directors andthe Compensation Committee also considered other qualitative elementsfurthering the long-term success of the Company.  Other elements discussed and consideredinclude organizational leadership qualities, development and execution ofbusiness, product and operational development strategies and opportunities,development and execution of investor relations and other programs enhancingorganizational visibility in the financial community, expanding the shareholderbase, regulatory compliance, and overall financial stewardship of financialresources.  After receiving this input,the Compensation Committee determined that the 2009 performance of Dr. Manusowas excellent.  Due to the Company’sstrong performance, with respect to both overall performance as adiscovery-based drug development company and performance against the enumeratedperformance priorities, and based upon the Compensation Committee’s subjectiveappraisal of Dr. Manuso’s 2009 performance, Dr. Manuso was awarded his fulltarget bonus of $350,000.  Moreover, theCompensation Committee exercised its discretion to award Dr. Manuso anadditional bonus payment of $150,000, based upon the Company’s and his superior2009 performance.

 

In addition to the bonuses earned above, Dr. Manusoalso earned a $150,000 guaranteed bonus on January 7, 2009 under terms of aprior executive compensation agreement that was superseded on April 1, 2009with a new executive employment agreement.

 

For 2010, Dr. Manuso has a target annual bonus of$650,000.  There is no specified thresholdbonus or maximum bonus for Dr. Manuso for 2010.

 

*Named Executive Officer AnnualBonuses*

 

Our other named executive officers who receivedannual bonuses on account of the full 2009 fiscal year, Messrs. Azab andMolkentin had a 2009 target payout equal to 30% of their annual base salary anda maximum payout of 50% of their 2009 annual base salary.  The Compensation Committee assessed the 2009performance of Messrs. Azab and Molkentin by conferring with Dr. Manuso.  The Compensation Committee and Dr. Manuso realizethat the current size of the organization demands greater cross functionalexpertise and/or understanding with the multiple aspects of a drug discoveryoperation, and that many similar qualities and characteristics are required ofits executives, and thus considered when assessing an officer’s contributionwith the execution and achievement of any relevant annual performance or otherpriorities.  Therefore, additionalcategories or areas were considered by the Compensation Committee whenassessing the executive’s individual performance and organizationalcontributions.

 

*Chief Medical Officer: *Inaddition to assessing Dr. Azab’s contribution to the achievement of the 2009performance priorities, the Compensation Committee also considered other qualitativeelements furthering the future success of the Company.  Other elements discussed and consideredincluded Dr. Azab’s organizational leadership qualities, contribution to thedevelopment and execution of product development and clinical trial programs andstrategies, development and execution of external relations and programsenhancing the organization’s visibility and interactions within the scientificcommunity, and compliance and constructive interaction with the appropriateregulatory bodies.

 

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*Chief Financial Officer:*  In addition to assessing Mr.Molkentin’s contribution to the achievement of the 2009 performance priorities,the Compensation Committee also considered other qualitative elementsfurthering the long-term success of the organization.  Other elements discussed and consideredincluded organizational leadership qualities, development and execution ofbusiness and operational development strategies and opportunities, assistancein the development and execution of investor relations and other programsenhancing the organization’s visibility in the financial community and amongits shareholder base, development and demonstration of overall financialstewardship and management of financial assets, and timely and accurate filingwith all regulatory requirements and compliance associated with the managementof multiple general and administrative functions.

 

After considering the organizational achievementsof the various annual performance priorities, the above categories, and Dr.Manuso’s input, the Compensation Committee determined that the 2009 performanceof Messrs. Azab and Molkentin was superb. There were no threshold-level bonuses for either Dr. Azab or Mr.Molkentin.  Based upon the Company’s 2009achievement both in the enumerated performance priority areas and upon theCompany’s overall 2009 performance as a discovery-based drug development company,and based upon the Committee’s subjective appraisal of their individualperformances, the Compensation Committee approved an annual bonus payout equalto 45% of Dr. Azab’s annual base salary and equal to 43% of Mr. Molkentin’sannual base salary.  Dr. Azab’s 2009annual bonus was pro-rated to reflect his partial year of service.

 

For 2010, Messrs. Azab and Molkentin have a targetannual bonus equal to 30% of their annual base salary and a maximum payoutequal to 50% of their annual base salary. The Compensation Committee, however, retains the discretion to payoutside of this range based upon its qualitative determinations.

 

**Elements of Compensation for President and ChiefExecutive Officer**

 

*Original Employment Agreement*

 

On September 22, 2006, the Company and James S.J.Manuso, Ph.D. executed an Executive Employment and Confidential Information andInvention Assignment Agreement (“Original Agreement”).  Dr. Manuso is the Company’s current CEO andthe agreement provided for the continuation of his service for the three yearperiod or from January 1, 2007 through December 31, 2009. The prior three yearemployment agreement expired on December 31, 2006.  We do not have employment agreements with anyother executive officer.

 

The Original Agreement provided for (i) an initialbase salary of $515,000, adjusted annually at twice the percentage increase inthe Consumer Price Index, (ii) a guaranteed annual bonus of $150,000 providedDr. Manuso remained continuously employed during the applicable year of the payment,(iii) a potential annual performance-based bonus of up to $350,000 to be paidno later than March 15 of the following year based on achievement of criteriaestablished by the Compensation Committee in conjunction with the Board, (iv)relocation expenses not to exceed $75,000 in the event of an involuntarytermination that would be subject to tax equalization adjustments, (v) anautomobile allowance and related auto insurance of up to $29,000, and (vi) lifeinsurance coverage of $2 million.

 

In addition, we provide the CEO with certainbenefits that are available to all our employees.  We do not provide pension arrangements,deferred compensation or other similar benefits to our CEO, except for certaintermination benefits as described in detail under the section of this ProxyStatement entitled “*Potential Payments UponInvoluntary Termination or a Change of Control.*”

 

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The Original Agreement also provided for grants ofthe following stock options:

 

·                  On January 1, 2007 (or the first business day following the effectivedate of the Original Agreement), and on each anniversary thereafter during theterm of the agreement, an annual option to purchase 360,000 shares of theCompany’s common stock at a per share exercise price equal to the fair marketvalue on the date of grant.  Each annualoption vests as to 1/12th of the shares at the end of each month fromthe grant date.

·                  On January 3, 2007, an option to purchase 1,000,000 shares of theCompany’s common stock at a per share price equal to the fair market value onthe date of grant, which vests only upon achieving specified multipleperformance milestones.  Eight performancemilestones are specified in the agreement that, if achieved, would trigger thevesting of the related portion of the option grant.

 

Pursuant to the Original Agreement, including allunvested performance options granted under the prior employment agreement whichexpired on December 31, 2006, in the event of an involuntary termination or achange of control of the Company prior to the granting of all of the annualoptions and any unvested performance options, the securities underlying allungranted and unvested annual options and all unvested performance options willbecome fully vested in their entirety and any ungranted annual options shallimmediately be granted and vested.

 

*Amended Agreement*

 

On October 28, 2008, the Company and Dr.Manuso executed an Amended and Restated Executive Employment and ConfidentialInformation and Invention Assignment Agreement (the “Amended Agreement”).  The Amended Agreement replaced in itsentirety the Original Agreement that the Company entered into withDr. Manuso effective January 1, 2007. The new and modified provisions of the Amended Agreement were intendedto bring it into compliance with Section 409A of the Internal Revenue Codeof 1986, as amended, and to effect certain other changes.

 

The changes primarily involved the timing ofcompensatory payments payable pursuant to the Amended Agreement, as well as achange to the definition of “involuntary termination” and the addition of a newsection relating to Section 409A considerations.  The substance ofthe bonus and stock option sections of the Amended Agreement remainedunchanged.  In addition, a proviso was added to the Amended Agreement toclarify that if Dr. Manuso is involuntarily terminated prior to theoccurrence of a change of control transaction, he may be eligible for certainseverance benefits as described in the section of this Proxy Statement entitled“*Potential Payments Upon Involuntary Termination ora Change of Control*.”

 

*2009 Guaranteed Bonus andPerformance-Based Bonuses:*  The guaranteed annual cash bonus of $150,000was paid for the third year of the Amended Agreement on January 7, 2009.  On February 9, 2009, the CompensationCommittee approved a performance-based bonus award of $350,000 to Dr. Manuso,based on achievements and performance of the Company during 2008.  In addition, on February 9, 2009, theCompensation Committee approved the vesting of 100,000 shares of the 150,000share performance-based stock option granted in connection with the AmendedAgreement.

 

On January 11, 2010, the Compensation Committeeapproved two performance-based cash bonus awards to Dr. Manuso.  A bonus of $350,000 was granted in connectionwith the Amended Agreement, as well as an additional bonus of $150,000.  The Compensation Committee determined toaward both bonuses after reviewing the achievements and performance of theCompany during 2009 and Dr. Manuso’s instrumental efforts in that regard.  The cash bonuses were paid on January 21,2010.

 

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*New Executive Employment andConfidential Information and Invention Assignment Agreement Effective April 1,2009:*

 

On April 1, 2009, the Company and Dr. Manusoexecuted an Executive Employment and Confidential Information and InventionAssignment Agreement (the “New Agreement”).  The New Agreement, whichsupersedes and replaces the Amended Agreement, covers the period from April 1,2009 through March 31, 2012.

 

The New Agreement provided for a base salary of$574,752 for the remainder of 2009, increasing to $625,000 on January 1,2010.  The base salary will be adjusted annually thereafter at twice thepercentage increase in the Consumer Price Index.  The New Agreement also providedfor a performance-based bonus of up to $350,000 for 2009 (as described above),and performance bonuses of up to $650,000 per year for the remaining term ofthe agreement, with each performance bonus to be paid based on achievingcriteria established by the Compensation Committee.  The New Agreementdoes not include any guaranteed bonuses. In addition, the New Agreement provides for life insurance coverage of$2 million, an annual automobile allowance of $25,000 for 2009, increasing to$30,000 for each year thereafter, and relocation expenses not to exceed$100,000 in the event of an involuntary termination of employment.

 

The New Agreement alsoprovides for grants of the following stock options:

 

·                  On April 1, 2009, concurrently with the execution of the agreement,Dr. Manuso was granted an option to purchase 1,200,000 shares of theCompany’s common stock at a per share price equal to the fair market value thedate of grant, with vesting subject to the achievement of specified performancemilestones (the “Performance Option”). Ten performance milestone thresholds are specified in the agreementthat, if achieved over the three-year term of the agreement, would trigger thevesting of the related portion of the Performance Option.  The Performance Option representsapproximately 63% of the total potential options that may be granted throughoutthe term of the New Agreement.

·                  On or about April 1, 2010 and on each anniversary thereafter duringthe term of the agreement, an option to purchase 360,000 shares of the Company’scommon stock at a per share exercise price equal to the fair market value onthe date of grant (the “Annual Options”).  Each Annual Option will vest asto 1/12th of the shares at the end of each month from the grant date.

·                  The New Agreement also provides for the continued vesting of theperformance options granted pursuant to Dr. Manuso’s previous employmentagreements with the Company, provided the performance milestones are met whilehe remains employed with the Company.

 

Pursuant to the New Agreement, in the event of achange of control of the Company prior to: (i) the granting of all of theAnnual Options, then all Annual Options yet to be granted will immediately begranted and 100% of the then-unvested shares subject to the Annual Options willvest and become exercisable and (ii) the vesting of the PerformanceOption, then 100% of the then-unvested shares will immediately vest and becomeexercisable.  If Dr. Manuso’s employment terminates for specifiedreasons within one year following a change of control, he will receive thefollowing benefits: (1) a lump sum payment equal to eighteen months ofbase salary; (2) a lump sum payment equal to any unpaid bonuses (not toexceed $1 million); and (3) full acceleration of the vesting of anythen-unvested stock options.

 

**Elementsof Compensation for Other Executive Officers**

 

The compensation for our other executive officershas three primary components:

 

·          Base salary;

·          Participation in the bonus plan; and

·          Participation in annual equity compensation awards.

 

In addition, we provide our other executiveofficers with certain benefits that are available to all our employees.  We do not provide pension arrangements,deferred compensation or other similar benefits to our executive officers,except for certain termination benefits as described in detail under thesection of this Proxy Statement entitled “*Potential Payments UponInvoluntary Termination or a Change of Control*.”

 

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We do not have any employment agreements with ourother executive officers that provide for benefits upon involuntary terminationor change of control, but we do have an Officer Severance Benefit Plan thatdescribes the recommended severance in the event of an involuntary terminationfor the other executive officers.  Anybenefit paid under this plan is subject to approval by the CompensationCommittee.  We also have accelerationprovisions relating to the vesting for option grants in the event ofinvoluntary termination of service following a change of control transaction,as well as an extension of time to exercise such grants following suchinvoluntary termination, to the sooner of twelve months from such terminationor the original expiration date of the option.

 

We believe that this combination of compensationelements provides an appropriate mix of fixed and variable pay, balancesshort-term operational performance with long-term stockholder value, andfacilitates executive retention and recruitment.

 

*Base Salaries*

 

Base salaries are designed to meet competitivenorms and reward exemplary performance on an annual basis.  In establishing base salaries for ourexecutive officers, the Compensation Committee relies on data from the RadfordSurvey, the BioWorld Executive Compensation Survey as well as general marketsources, to compare base salaries against those for companies with similarnumbers of employees and located in similar geographic areas.  Based on the competitive landscape, theCompensation Committee initially targets Named Executive Officers’ salaries tobe in the 50th to 90th percentile of peer group companies.

 

For 2009, the Compensation Committee reviewed thebase salaries to determine if annual merit increases were to be awarded to theother executive officers based on the achievement of our shorter-termobjectives, progress and/or achievement of the Company’s 2009 PerformancePriorities and the individual’s annual performance while considering changes inmarket conditions.  The CompensationCommittee determined that these goals were achieved and awarded a meritincrease to Dr. Mohammad Azab, our Chief Medical Officer (“CMO”), and Mr.Michael Molkentin, our Chief Financial Officer (“CFO”).  As discussed below, the merit increasesbecame effective January 1, 2010.

 

*Bonus Plan*

 

We have a performance-based bonus plan that isintended to motivate and reward all employees, including our other executiveofficers, to perform well and contribute to the achievement of our shorter-termobjectives.  The amount of bonus isdetermined based on a target percentage of base salary of an executive officer’sposition, the progress and/or achievement of the Company’s performancepriorities, and the results of the officer’s individual annual performancereview while also reflecting changes in market conditions.  The bonus is paid in cash.

 

*2009 Bonus Awards:*  For 2009, the CompensationCommittee reviewed the bonus plan to determine if bonuses were to be awarded tothe other executive officers based on the achievement of our shorter-termobjectives, progress and/or achievement of the Company’s 2009 PerformancePriorities and the executive officer’s individual performance.  The Compensation Committee determined thatthese goals were achieved and awarded a bonus to our CMO and CFO.  The initial bonus awards for 2009 were targetedbetween the 50th and 

 

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90th percentile of peer group companies usingprimarily Radford Survey data.  Theactual bonus awards for 2009 were calculated as a percent of the officer’sprior year annual base salary and were paid in 2010.  The actual bonus awards for 2009 as a percentof base salary for the other executive officers were as follows:

 
| ** **                                 | ** ** | **Actual Bonus  Award** | ** ** | **Bonus Award Target Range  (Percentile)** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|-----------------------------------------------------------|------------|
| **Name and Position**            | ** ** | **Percentage (1)**      | ** ** | **50th**                                                  | ** ** | **90th** | ** ** |
| Mohammad Azab*Chief Medical Officer*       |       | 45                           | %(2)       | 30                                                        | %          | 50 | % |
| Michael Molkentin*Chief Financial Officer* |       | 43                           | %          | 30                                                        | %          | 50 | % |

 

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(1) Calculated as a percent of prior year annual base salary

(2)  Theactual bonus award amount was prorated for the period of time the position wasactually filled as CMO.

 

*2010 Bonus Award Targets:*  The bonus awards for 2010 areinitially targeted to be within the 50th to 90th percentile of peer group companies.  The bonus awards are typically expressed as apercent of the executive officer’s base salary. Considering current year Radford Survey data, the modified bonus awardas a percent of base salary for the other executive officers is as follows:

 
| ** **                                 | ** ** | **Bonus Award Target Range (Percentile)** | ** ** |
|--------------------------------------------|------------|---------------------------------------------------------------|------------|
| **Name and Position**            | ** ** | **50th**                                                      | ** ** | **90th** | ** ** |
| Mohammad Azab*Chief Medical Officer*       |       | 30                                                            | %          | 50 | % |
| Michael Molkentin*Chief Financial Officer* |       | 30                                                            | %          | 50 | % |

 

After completion of the 2010 fiscal year, theCompensation Committee will determine if bonuses are to be awarded to the otherexecutive officers and at what levels based on the achievement of the Company’sshorter-term objectives, progress and/or achievement of the 2010 PerformancePriorities and the executive officer’s individual performance.

 

*Summary of Grant Policies*

 

Our Compensation Committee regularly monitors theenvironment in which we operate and makes changes to our equity compensationprogram to help us meet our goals, including the achievement of long-termstockholder value.  We may use variousforms of equity compensation to motivate and reward long-term performance andencourage our employees, including the executive officers, to participate inthe ownership of the Company. Historically, we have granted equity awards to our executive officers inthe form of stock options.  In spite ofthe evolution of the accounting treatment of certain types of awards, whichrequires a company to recognize as an expense the fair value of stock optionsand other stock-based compensation granted to employees, the CompensationCommittee has determined that it is in the best interests of the Company andour stockholders to continue this practice. The Compensation Committee utilizes a vesting schedule to encourage ourexecutive officers to continue in the employ of SuperGen and to encourageexecutive officers to maintain a long-term perspective.  With respect to the CEO, a substantialportion of his equity awards vest only upon achievement of specific performancemilestones.  In determining the size ofstock option grants, the Compensation Committee considers information providedby the Radford Survey, as well as general market sources, and focuses on theexecutive officers’ current and expected future value to the Company and thecompetitive influence of peer organizations. The Compensation Committee also considers the number of granted andunvested options held by the executive officer.

 

The Board and the Compensation Committee have notadopted formal policies regarding the timing of granting equity compensationawards.  For example, the CompensationCommittee has not established a set date for equity compensation awards, butrather, has acted in a timely manner following the annual performance reviewprocess completed for all our employees, including the executive officers,which typically occurs during the first quarter of each fiscal year.  Equity compensation grants are approved bythe Compensation Committee at 

 

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scheduled meetings of the committee or by unanimouswritten consent.  The timing of suchactions is driven by the Compensation Committee’s need to conduct particularbusiness, such as an equity compensation grant, and not by the Company’s stockprice.  The exercise price or calculationprice used in connection with any equity compensation grant is determined asthe closing price for the Company’s common stock on NASDAQ on the date of themeeting at which the grant is approved. The Compensation Committee has not granted, nor does it intend in thefuture to grant, equity compensation awards in anticipation of the release ofmaterial nonpublic information that is likely to result in changes to the priceof our common stock, such as a significant positive or negative earningsannouncement.  Similarly, ourCompensation Committee has not timed, nor does it intend in the future to time,the release of material nonpublic information based on equity award grantdates.  We do not reprice or exchangeunderwater options without stockholder approval.

 

*Equity Compensation*

 

*2009 Equity Awards:*  For the 2009 annual period, theCompensation Committee reviewed outstanding executive officer equitycompensation to determine if equity awards were to be granted to the executiveofficers other than our CEO to motivate and reward longer-term performance,enhance retention and encourage participation in the ownership of theCompany.  The equity compensation grantswere based on the achievement of our shorter-term objectives, progress and/orachievement of the Company’s 2009 Performance Priorities and the executiveofficer’s annual performance review.  TheCompensation Committee determined that these goals were achieved and awardedadditional option grants to our CMO and CFO. The equity awards were originally targeted between the 50th and 90th percentile of peer group companies primarilyusing the Radford Survey.  Equitycompensation is made in the sole discretion of the Compensation Committee andis based on market information provided primarily by Radford Survey data,including recommendations by the CEO and other market considerations.  The actual equity awards based on the 2009period under review for the executive officers other than our CEO were asfollows:

 
| ** **                                 | ** ** | **Actual Equity** | ** ** | **Equity Award Target Range (#)** | ** ** |
|--------------------------------------------|------------|------------------------|------------|-------------------------------------------------------|------------|
| **Name and Position**            | ** ** | **Award (#)**     | ** ** | **50th**                                              | ** ** | **90th** | ** ** |
| Mohammad Azab*Chief Medical Officer*       |       | 60,000                 | (1)        | 50,000                                                |       | 150,000 |   |
| Michael Molkentin*Chief Financial Officer* |       | 110,000                |       | 50,000                                                |       | 150,000 |   |

 

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(1)  Theactual equity award represents a prorated award for the period of time theposition was actually filled as CMO.

 

*2010 Equity Award Targets:*  The equity awards for 2010 areinitially targeted to be within the 50th to 90th percentile of peer group companies.  Considering current year Radford Survey data,the modified equity award target for the other executive officers is asfollows:

 
| ** **                                 | ** ** | **Equity Award Target Range (#)** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------|------------|
| **Name and Position**            | ** ** | **50th**                                              | ** ** | **90th** | ** ** |
| Mohammad Azab*Chief Medical Officer*       |       | 60,000                                                |       | 160,000 |   |
| Michael Molkentin*Chief Financial Officer* |       | 60,000                                                |       | 160,000 |   |

 

After completion of the 2010 fiscal year, theCompensation Committee will determine if equity awards are to be awarded to theexecutive officers other than our CEO and at what level based on theachievement of the Company’s shorter-term objectives, progress and/orachievement of the 2010 Performance Priorities and the executive officer’sindividual performance.

 

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**Summary of Compensation Committee Actions forOther Executive Officers**

 

On March 12, 2009, the Compensation Committeeapproved 2009 annual salaries, cash bonus awards, and granted options for theachievement of the Company’s 2008 Performance Priorities and annual performanceto the following executive officers:

 
| **Name and Position**                  | ** ** | **Annual Salary  (1)** | ** ** | **Cash Bonus  Award** | ** ** | **Stock Option  Grants (#)(2)** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|-------------------------------------------|------------|
| David J. Bearss*Former Chief Scientific Officer* |       | $                           | 328,000    |                       | $          | 57,000                                    |       | 45,000 |   |
| Gregory Berk*Former Chief Medical Officer*       |       | 383,000                     |       | 112,000                    |       | 80,000                                    |       |
| Michael Molkentin*Chief Financial Officer*       |       | 327,000                     |       | 119,000                    |       | 80,000                                    |       |
|                                                  |            |                             |            |                            |            |                                           |            |  |  |

 

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(1)       Annualsalaries retroactive to January 1, 2009.

(2)       Optiongrants are subject to terms and conditions of the 2003 Stock Plan, as amended,and will vest monthly over a period of 48 months.

 

On March 4, 2010, the Compensation Committeeapproved 2010 annual salaries, including cash bonus awards, and granted optionsfor the achievement of the Company’s 2009 Performance Priorities and annualperformance to the following executive officers:

 
| **Name and Position**            | ** ** | **Annual Salary  (1)** | ** ** | **Cash Bonus  Award** | ** ** | **Stock Option  Grants (#)(2)** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|-------------------------------------------|------------|
| Mohammad Azab*Chief Medical Officer*       |       | $                           | 393,000    |                       | $          | 78,000                                    |       | 60,000 |   |
| Michael Molkentin*Chief Financial Officer* |       | 342,000                     |       | 141,000                    |       | 110,000                                   |       |
|                                            |            |                             |            |                            |            |                                           |            |  |  |

 

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(1)       Annualsalaries are retroactive to January 1, 2010.

(2)       Optiongrants are subject to terms and conditions of the 2003 Stock Plan, as amended,and will vest monthly over a period of 48 months.

 

**GenerallyAvailable Benefit Programs**

 

We also offer a number of other benefits to ouremployees and all executive officers including medical, prescription, dentaland vision insurance, long-term and short-term disability insurance, life andaccidental death and dismemberment insurance, health and dependent careflexible spending accounts, paid holidays, floating holidays, vacation,personal time off, and employee assistance programs.

 

We believe that these benefit programs generallyenhance employee productivity and loyalty to the Company.  The main objectives of our benefit programsare to give all our employees access to quality healthcare, financialprotection from unforeseen events, assistance in achieving retirement financialgoals, and enhanced health and productivity. These benefit programs typically do not specifically factor intodecisions regarding an individual employee’s or executive officer’s totalcompensation or equity award package. The availability of these benefit programs are influenced more bycompetitive market considerations for biotech and other industries against whomwe compete to either retain our current employees or attract new talent.

 

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*401(k) Plan*

 

We also maintain a 401(k) Plan toprovide retirement benefits through tax deferred salary deductions for allemployees.  We make matching employercontributions, at rates varying from 1% to 3%, up to a maximum of $6,000annually, based on the rate of the employee’s 401(k) payrollcontribution.  Our matching contributionsvest ratably over five years.

 

**Internal Revenue Code Section 162(m) Implicationsfor Executive Compensation**

 

The Compensation Committee is responsible foraddressing issues raised by Section 162(m) of the Internal RevenueCode.  Section 162(m) limitsthe Company’s tax deduction for compensation paid to certain executive officersthat does not qualify as “performance based” to $1 million per executiveofficer.  The Compensation Committeebelieves that the stockholders’ interests are served by maintaining thediscretion and flexibility in our executive compensation programs.  Accordingly, the Compensation Committee mayapprove executive compensation that is not fully deductible.  If our stockholders approve Proposal Twoherein, that will enable us to continue to qualify certain awards under our 2003Stock Plan as deductible performance-based compensation.

 

**Compensation Committee Interlocksand Insider Participation**

 

Our Compensation Committee was formed in January 1993.  The Compensation Committee is composed of Mr. Lack(Chairman) and Mr. Girardi, who are independent directors of the Company.  Neither of these persons was an employee ofthe Company or any of its subsidiaries, nor were there any CompensationCommittee interlocks or other relationships during 2009 requiring disclosureunder Item 407(e)(4) of Regulation S-K of the Securities Act of 1933, asamended.

 

**Potential Payments Upon Involuntary Termination orChange of Control**

 

Dr. Manuso’s New Agreement requires specificpayments and/or benefits to be provided to Dr. Manuso in the event of aninvoluntary termination of employment without cause following a change ofcontrol of the Company.  If aninvoluntary termination for cause occurs, Dr. Manuso will not receive anyadditional severance-type benefits under the New Agreement.

 

Dr. Manuso’s New Agreement defines “change ofcontrol” as the occurrence of any of the following events:

 

·      Any“person” (as such term is used in Sections 13(d) and 14(d) of theExchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 ofthe Exchange Act), directly or indirectly, of securities of the Companyrepresenting 50% or more of the total voting power represented by the Company’sthen outstanding voting securities;

 

·      Theconsummation of the sale or disposition by the Company of all or substantiallyall of the Company’s assets; or

 

·      Theconsummation of a merger or consolidation of the Company with any othercorporation, other than a merger or consolidation which would result in thevoting securities of the Company outstanding immediately prior theretocontinuing to represent (either by remaining outstanding or by being convertedinto voting securities of the surviving entity or its parent) at least 50% ofthe total voting power represented by the voting securities of the Company orsuch surviving entity or its parent outstanding immediately after such mergeror consolidation.

 

“Involuntary Termination,” as used in the NewAgreement, means the following:

 

·      WithoutDr. Manuso’s express written consent, a material diminution of his duties,position or responsibilities relative to his duties, position orresponsibilities in effect immediately prior to such reduction;

 

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·      WithoutDr. Manuso’s express written consent, a material diminution by the Companyof his base salary as in effect immediately prior to such reduction;

 

·      Anymaterial breach by the Company of any of the terms of the New Agreement;

 

·      WithoutDr. Manuso’s express written consent, his relocation to a facility or alocation more than fifty miles from the current location of the Company, whichthe Company and Dr. Manuso agree would constitute a material change in thegeographic location at which he  mustperform services to the Company, or

 

·      Anypurported termination of Dr. Manuso other than for cause.

 

“Cause,” as used in theNew Agreement, means the following:

 

·      Anyact of personal dishonesty taken by Dr. Manuso in connection with hisemployment which is intended to result in his personal enrichment;

 

·      Dr. Manuso’sconviction of a felony;

 

·      Anyact by Dr. Manuso that constitutes material misconduct and is injurious tothe Company; or

 

·      Continuedviolations by Dr. Manuso of his obligations to the Company.

 

Under the New Agreement, Dr. Manuso may notresign for an Involuntary Termination without first providing theCompany with:

 

·      Awritten notice within ninety days of the event that he believes constitutes anInvoluntary Termination specifically identifying the acts or omissionsconstituting the grounds for an Involuntary Termination, and

 

·      Areasonable cure period of not less than thirty days following the date of suchnotice.

 

The New Agreement provides that if Dr. Manuso’semployment with the Company is terminated by the Company as a result of anInvoluntary Termination and following a change of control, he would receive:

 

·      Alump sum payment equivalent to eighteen months of his then current base salary;

 

·      Alump sum payment equivalent to any unpaid amount of bonus due to him (up to amaximum of $1 million);

 

·      Reimbursementfor all reasonable relocation expenses to him or his family’s relocation fromCalifornia to New York, including, but not limited to, short-term hotel costsor apartment rental for a period not to exceed six months, with the totalrelocation not to exceed $100,000. Additional cash compensation would be paid to fully offset taxes, or taxequalized, attributable to him as a result of payment of such reasonablerelocation expenses;

 

·      Fullacceleration of the vesting of any then-unvested stock options held by him orany annual stock options not yet granted to him.

 

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*Estimated Value of InvoluntaryTermination or Change of Control Benefits for Other Executive Officers*

 

Though the Company does not have employmentagreements with any executive officer other than Dr. Manuso, we do have anOfficer Severance Benefit Plan that describes the recommended severance in theevent of certain involuntary terminations for all the Company’s executiveofficers, where applicable.  EffectiveOctober 28, 2008, the Company revised its Officer Severance Benefit Plan,which provides for severance payments, career transition assistance and COBRAcontinuation coverage for the Company’s executive officers in the event theyare involuntarily terminated, to bring it into compliance withSection 409A of the Internal Revenue Code.

 

Benefits under the Officer Severance Benefit Planinclude the following:

 

·      *Cash Severance Benefit.*  Each eligible executive officer shall receive a cash severancebenefit in an amount equal to the sum of (a) two weeks of such eligibleexecutive officer’s base salary, which shall be paid in lieu of notice oftermination of employment, (b) an additional thirty-nine weeks of sucheligible executive officer’s base salary, (c) an additional two weeks ofsuch eligible executive officer’s base salary for each full year of servicecompleted, and (d) an additional one week of such eligible executiveofficer’s base salary for any partial year of service completed provided thatsuch partial year of service is greater than six months in length.

 

·      *Career Transition Assistance.*  Following an eligible executive officer’s termination ofemployment, career transition services shall be provided through anoutplacement service provider for a period of nine months.  Outplacement services currently cost theCompany approximately $8,500 per executive officer.

 

·      *COBRA Continuation Coverage.*  Each eligible executive officer who is enrolled in a health,dental, or vision plan sponsored by the Company may be eligible under COBRA tocontinue coverage under such health, dental, or vision plan (or to convert toan individual policy), at the time of his or her termination ofemployment.  If COBRA is elected by an eligible executive officer, theCompany shall pay COBRA premiums on behalf of the executive officer during thenumber of weeks of base salary in respect of which the amount paid to theeligible executive officer under the Cash Severance Benefit section, asdescribed above, was calculated.

 

Eligible executive officers are required to signand not revoke a release of claims in favor of the Company as a condition toreceiving benefits.  No benefits arepayable upon any voluntary termination, upon any involuntary termination formisconduct or poor job performance or upon certain other terminations ofemployment.  The Officer SeveranceBenefit Plan does not provide any income tax gross-ups for golden parachuteexcise taxes nor do we otherwise provide golden parachute excise tax gross-upsto our executive officers.

 

In addition to the Officer Severance Benefit Plan,our Named Executive Officers have double-trigger 100% vesting acceleration ontheir Company stock options. Specifically, if our Named Executive Officers are involuntarilyterminated other than for cause following a change of control, then 100% of theshares subject to their outstanding stock options accelerate as tovesting.  Additionally, in such event,their stock option post-termination exercise period is extended from threemonths after employment termination to twelve months after employment terminationor, if earlier, the original maximum term of the option.

 

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**2009 Potential Payments UponTermination Table**

 
| ** **         | ** ** | ** **                    | ** ** | **Severance**    | ** ** | **Bonus**        | ** ** | **Accelerated**      | ** ** | ** **         | ** ** |
|--------------------|------------|-------------------------------|------------|------------------|------------|------------------|------------|----------------------|------------|--------------------|------------|
| **Name**           | ** ** | **Termination Scenario** | ** ** | **($) (1)** | ** ** | **($) (2)** | ** ** | **Vesting ($)** | ** ** | **Other ($)** | ** ** |
| James S.J. Manuso  |       | Change of control             |       | 862,128          |       | 1,000,000        |       | 731,000              | (3)        | 144,118            | (6)        |
|               |       | Involuntary  (without cause)  |       | 862,128          |       | 1,000,000        |       | —               |       | 144,118            | (6)        |
|               |       | For  cause                    |       | —           |       | —           |       | —               |       | —             |       |
| Mohammad  Azab     |       | Change  of control            |       | 303,558          |       | —           |       | 10,400               | (4)        | 10,407             | (7)        |
|               |       | Involuntary  (without cause)  |       | 303,558          |       | —           |       | —               |       | 10,407             | (7)        |
|               |       | For  cause                    |       | —           |       | —           |       | —               |       | —             |       |
| Michael  Molkentin |       | Change  of control            |       | 333,288          |       | —           |       | 77,630               | (5)        | 11,353             | (7)        |
|               |       | Involuntary  (without cause)  |       | 333,288          |       | —           |       | —               |       | 11,353             | (7)        |
|               |       | For  cause                    |       | —           |       | —           |       | —               |       | —             |       |

 

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| (1) | Assumes  “severance” payment made to the Named Executive Officer as of the last  business day of the fiscal year or December 31, 2009.                                                                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Represents  bonus payout for remaining term of the employment agreement, not to exceed $1  million.                                                                                                                                                                                                                                                                                                                                                                          |
| (3) | Represents  accelerated vesting of 2,000,000 previously granted unvested  performance-based stock options and the granting and vesting of 720,000  ungranted annual stock options remaining under the term of the New Agreement.  The exercise price related to 850,000 of these options was under the fair  market value of SuperGen’s stock as of December 31, 2009, and therefore,  these options had an intrinsic value of $731,000 at December 31, 2009. |
| (4) | Represents  accelerated vesting of 260,000 previously granted unvested stock options. The  exercise price related to all of these options was under the fair market  value of SuperGen’s stock as of December 31, 2009, and therefore,  resulting in an intrinsic value of $10,400 at December 31, 2009.                                                                                                                                                      |
| (5) | Represents  accelerated vesting of 136,109 previously granted unvested stock options. The  exercise price of 119,000 of those options was under the fair market value of  SuperGen’s stock as of December 31, 2009, resulting in an intrinsic  value of $77,630 at December 31, 2009.                                                                                                                                                                         |
| (6) | Represents  reimbursement for relocation expenses not to exceed $100,000, which are  subject to tax equalization adjustments, and employer-paid medical coverage  for total estimated severance period.                                                                                                                                                                                                                                                                      |
| (7) | Represents  employer-paid medical coverage for total estimated severance period.                                                                                                                                                                                                                                                                                                                                                                                             |

 

The actual amount of the benefits paid to the NamedExecutive Officers in the event of an involuntary termination or a change ofcontrol can only be determined at the time of the executive’s actualtermination from the Company.

 

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**2009Summary Compensation Table**

 

Thefollowing table presents the total compensation earned by each of the NamedExecutive Officers during the fiscal year ended December 31, 2009.

 
| **Name and  Principal Position** | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Option Awards  ($) (1)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|--------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|--------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| James S.J. Manuso                          |       | 2009     |       | 574,237         |       | 650,000        | (2)        | 1,670,653                            |       | 36,644                                | (3)        | 2,781,534      |       |
| *President and Chief Executive  Officer*   |       | 2008     |       | 560,406         |       | 500,000        |       | 727,308                              |       | 40,748                                |       | 1,828,462      |       |
|                                       | 2007       |     | 512,731    |            | 500,000    |           | 3,888,340  |                                 | 33,721     |                                  | 4,834,692  |           |
|                                       |       |     |       |            |       |           |       |                                 |       |                                  |       |           |       |
| Mohammad Azab (4)                     |       | 2009     |       | 141,044         |       | 78,000         |       | 427,076                              |       | —                                |       | 568,120        |       |
| *Chief  Medical Officer*                   |       | 2008     |       | —          |       | —         |       | —                               |       | —                                |       | —         |       |
|                                       |       | 2007     |       | —          |       | —         |       | —                               |       | —                                |       | —         |       |
|                                       |       |     |       |            |       |           |       |                                 |       |                                  |       |           |       |
| David J. Bearss  (5)                  |       | 2009     |       | 306,658         |       | —         |       | 45,594                               |       | 6,000                                 | (7)        | 415,252        |       |
| *Former Chief Scientific Officer*          |       | 2008     |       | 236,486         |       | 57,000         |       | 102,366                              |       | 6,000                                 |       | 389,732        |       |
|                                       | 2007       |     | —     |            | 44,880     |           | —     |                                 | —     |                                  | —     |           |
|                                       |       |     |       |            |       |           |       |                                 |       |                                  |       |           |       |
| Gregory Berk (6)                      |       | 2009     |       | 175,476         |       | —         |       | 81,056                               |       | 335,720                               | (8)        | 704,252        |       |
| *Former Chief Medical Officer*             |       | 2008     |       | 370,125         |       | 112,000        |       | 150,380                              |       | 6,000                                 |       | 617,505        |       |
|                                       | 2007       |     | 193,622    |            | 111,000    |           | 565,230    |                                 | —     |                                  | 778,852    |           |
|                                       |       |     |       |            |       |           |       |                                 |       |                                  |       |           |       |
| Michael Molkentin                          |       | 2009     |       | 326,375         |       | 141,000        |       | 81,056                               |       | 6,000                                 | (7)        | 532,431        |       |
| *Chief Financial Officer*                  |       | 2008     |       | 310,076         |       | 119,000        |       | 144,365                              |       | 6,000                                 |       | 567,441        |       |
|                                       | 2007       |     | 265,398    |            | 107,000    |           | 128,502    |                                 | 6,000      |                                  | 476,580    |           |

 

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| (1) | Reflects the aggregate  grant date fair value using the Black-Scholes  option pricing model for option awards granted during the year computed  in accordance with ASC 718, Compensation-Stock Compensation. The value of the  option awards reported for 2008 and 2007 have been revised from prior years’  proxy disclosure to reflect their grant date fair value in accordance with  the revised SEC disclosure requirements relating to such awards. The  assumptions used in the valuation of these awards are set forth in the notes  to our consolidated financial statements, which are included in our Annual  Report on Form 10-K for the year ended December 31, 2009, filed  with the SEC on March 15, 2010. These amounts do not correspond to the  actual value that could be realized by each Named Executive Officer. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Amount  includes a $150,000 guaranteed bonus earned and paid on January 7, 2009  under terms of a prior executive employment agreement, in addition to a  $350,000 annual bonus and a $150,000 discretionary bonus earned under the new  executive employment agreement effective April 1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (3) | Includes  $26,804 for car allowances, $6,000 for 401(k) Company match, and $3,840  for life insurance premiums.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (4) | Dr. Azab  joined the Company in July 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (5) | Dr. Bearss  was first appointed as an executive officer of the Company in  November 2008. The prior year’s compensation is not shown as he was not  an executive officer in 2007. Dr. Bearss left the Company in  October 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (6) | Dr. Berk left the Company in May 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (7) | Represents 401(k) Company match.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (8) | Includes $4,278 for 401(k) Company match and  $331,442 in severance pay.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

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**PART IV**

 

**ITEM 15.****    ****EXHIBITSAND FINANCIAL STATEMENT SCHEDULES.**

 
| **Exhibit********Number** | ** ** | **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 Section 13 or15(d) of the Securities Exchange Act of 1934, the Registrant has dulycaused this Amendment No. 1 to the Report on Form 10-K/A to be signedon its behalf by the undersigned, thereunto duly authorized, on this 8th day ofDecember 2010.

 
|   | SUPERGEN, INC. |
|--------|---------------------|
|   |                |   |
|   | By:                 | /s/  JAMES S. J. MANUSO |
|   |                | James S.J. Manuso*Chief Executive Officer,  President and Director* |

 

**POWER OF ATTORNEY**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this Amendment No. 1 to  the Report on Form 10-K/A has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated:

 
| **Signature**               | ** ** | **Title**                                       | ** ** | **Date**              |
|-----------------------------|------------|-------------------------------------------------|------------|-----------------------|
|                        |       |                                            |       |                  |
| /S/  JAMES S.J. MANUSO      |       | Chief Executive Officer, President and Director |       | December 8, 2010 |
| (James S.J. Manuso)         |       | (Principal Executive Officer)                   |       |                  |
|                        |       |                                            |       |                  |
| /S/ MICHAEL MOLKENTIN       |       | Chief Financial Officer                         |       | December 8, 2010 |
| (Michael Molkentin)         |       | (Principal Financial and Accounting Officer)    |       |                  |
|                        |       |                                            |       |                  |
| *                           |       | Director                                        |       | December 8, 2010 |
| (Charles J. Casamento)      |       |                                            |       |                  |
|                        |       |                                            |       |                  |
| *                           |       | Director                                        |       | December 8, 2010 |
| (Thomas V. Girardi)         |       |                                            |       |                  |
|                        |       |                                            |       |                  |
| *                           |       | Director                                        |       | December 8, 2010 |
| (Allan R. Goldberg)         |       |                                            |       |                  |
|                        |       |                                            |       |                  |
| *                           |       | Director                                        |       | December 8, 2010 |
| (Walter J. Lack)            |       |                                            |       |                  |
|                        |       |                                            |       |                  |
| *                           |       | Director                                        |       | December 8, 2010 |
| (Michael D. Young)          |       |                                            |       |                  |
|                        |       |                                            |       |                  |
| * By: /S/ JAMES S.J. MANUSO |       |                                            |       |                  |
| James S.J. Manuso           |       |                                            |       |                  |
| Attorney-in-Fact            |       |                                            |       |                  |

 

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