**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe Quarterly Period Ended June 30, 2007**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from                  to                  **

**Commissionfile number 0-27628**

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**SUPERGEN, INC.**

(Exact name of registrantas specified in its charter)

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

 

**(925) 560 - 0100**

(Registrant’s telephonenumber, including area code)

**Not applicable**

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

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 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

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

Large accelerated filer  o                    Acceleratedfiler  x                    Non-acceleratedfiler  o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o  Nox.

The number of shares ofthe registrant’s Common Stock, $.001 par value, outstanding as ofAugust 1, 2007 was 57,478,163.

 

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**TABLEOF CONTENTS**
|                  | ** ** | ** **                                                                                                              | ** ** | **Page No.** |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|--------------|
| **PART I**  | ** ** | **FINANCIAL INFORMATION**                                                                                               | ** ** | ** **   |
|             |       | Item 1—Financial  Statements (Unaudited)                                                                           |       |         |
|             |       | Condensed Consolidated  Balance Sheets as of June 30, 2007 and December 31, 2006                         |       | 3            |
|             |       | Condensed Consolidated  Statements of Operations for the three and six month periods ended  June 30, 2007 and 2006 |       | 4            |
|             |       | Condensed Consolidated  Statements of Cash Flows for the six month periods ended June 30, 2007  and 2006           |       | 5            |
|             |       | Notes to Condensed  Consolidated Financial Statements                                                                   |       | 6            |
|             |       | Item 2—Management’s  Discussion and Analysis of Financial Condition and Results of Operations                 |       | 17           |
|             |       | Item 3—Quantitative and  Qualitative Disclosures About Market Risk                                                 |       | 26           |
|             |       | Item 4—Controls and Procedures                                                                                     |       | 26           |
| **PART II** | ** ** | **OTHER INFORMATION**                                                                                                   |       |         |
|             |       | Item 1A—Risk Factors                                                                                               |       | 28           |
|             |       | Item 4—Submission of Matters  to a Vote of Security Holders                                                        |       | 39           |
|             |       | Item 6—Exhibits                                                                                                    |       | 40           |
| **SIGNATURES**   |       | 41                                                                                                                      |

 

2

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

| ** **                                                                                                                                                                             | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                             | ** ** | **(Unaudited)**         | ** ** | **(Note 1)**           | ** ** |
| **ASSETS**                                                                                                                                                                             | ** ** |                    | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                        |       |                    |       |                        |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                              |       |                    | $          | 77,764                      |       |   |   | $ | 67,704 |   |   |
| Marketable securities                                                                                                                                                                  |       |                    | 1,499      |                        |       |   | — |   |   |
| Accounts receivable, net                                                                                                                                                               |       |                    | 257        |                        |       |   | 489 |   |   |
| Development revenue receivable from MGI PHARMA, Inc.                                                                                                                                   |       |                    | 29         |                        |       |   | 29 |   |   |
| Accounts receivable from Mayne Pharma                                                                                                                                                  |       |                    | 91         |                        |       |   | 1,502 |   |   |
| Inventories, net                                                                                                                                                                       |       |                    | —     |                        |       |   | 223 |   |   |
| Prepaid distribution and marketing rights                                                                                                                                              |       |                    | —     |                        |       |   | 630 |   |   |
| Prepaid expenses and other current assets                                                                                                                                              |       |                    | 1,515      |                        |       |   | 1,111 |   |   |
| Total current assets                                                                                                                                                                   |       |                    | 81,155     |                        |       |   | 71,688 |   |   |
| Marketable securities, non-current                                                                                                                                                     |       |                    | 7,293      |                        |       |   | 179 |   |   |
| Investment in stock of related parties                                                                                                                                                 |       |                    | —     |                        |       |   | 659 |   |   |
| Property, plant and equipment, net                                                                                                                                                     |       |                    | 3,861      |                        |       |   | 3,752 |   |   |
| Goodwill                                                                                                                                                                               |       |                    | 731        |                        |       |   | 731 |   |   |
| Other intangibles, net                                                                                                                                                                 |       |                    | 745        |                        |       |   | 958 |   |   |
| Restricted cash and investments, non-current                                                                                                                                           |       |                    | 2,683      |                        |       |   | 10,043 |   |   |
| Other assets                                                                                                                                                                           |       |                    | 8          |                        |       |   | 36 |   |   |
| Total assets                                                                                                                                                                           |       |                    | $          | 96,476                      |       |   |   | $ | 88,046 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                         | ** ** |                    | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                   |       |                    |       |                        |       |   |   |   |   |
| Accounts payable and accrued liabilities                                                                                                                                               |       |                    | $          | 4,033                       |       |   |   | $ | 5,202 |   |   |
| Payable to AVI BioPharma, Inc.                                                                                                                                                    |       |                    | 565        |                        |       |   | 565 |   |   |
| Deferred gain on sale of products to Mayne Pharma                                                                                                                                      |       |                    | 907        |                        |       |   | 11,754 |   |   |
| Deferred revenue                                                                                                                                                                       |       |                    | —     |                        |       |   | 459 |   |   |
| Accrued payroll and employee benefits                                                                                                                                                  |       |                    | 1,608      |                        |       |   | 3,296 |   |   |
| Total current liabilities                                                                                                                                                              |       |                    | 7,113      |                        |       |   | 21,276 |   |   |
| Deferred rent                                                                                                                                                                          |       |                    | 896        |                        |       |   | 938 |   |   |
| Total liabilities                                                                                                                                                                      |       |                    | 8,009      |                        |       |   | 22,214 |   |   |
| Commitments and  contingencies                                                                                                                                                         |       |                    |       |                        |       |   |   |   |   |
| Stockholders’  equity:                                                                                                                                                            |       |                    |       |                        |       |   |   |   |   |
| Preferred stock, $.001 par value; 2,000,000 shares  authorized; none outstanding                                                                                                       |       |                    | —     |                        |       |   | — |   |   |
| Common stock, $.001 par value; 150,000,000 shares  authorized; 57,473,573 and 55,177,377 shares issued and outstanding at  June 30, 2007 and December 31, 2006, respectively |       |                    | 57         |                        |       |   | 55 |   |   |
| Additional paid in capital                                                                                                                                                             |       |                    | 445,000    |                        |       |   | 429,147 |   |   |
| Accumulated other comprehensive income                                                                                                                                                 |       |                    | 954        |                        |       |   | 1,922 |   |   |
| Accumulated deficit                                                                                                                                                                    |       |                    | (357,544   | )                           |       |   | (365,292 | ) |   |
| Total stockholders’ equity                                                                                                                                                        |       |                    | 88,467     |                        |       |   | 65,832 |   |   |
| Total liabilities  and stockholders’ equity                                                                                                                                       |       |                    | $          | 96,476                      |       |   |   | $ | 88,046 |   |   |

 

See accompanying notes to condensed consolidated financial statements

3

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

| ** **                                                                                         | ** ** | **Three months ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                         | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                                         | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:                                                                                          |       |                             |       |                           |       |   |   |   |   |
| Net product revenue                                                                                |       | $                                | —     |                           | $          | 3,984 |   | $ | 621 |   | $ | 6,868 |   |
| Development and license revenue from MGI PHARMA, Inc.                                         |       | —                           |       | 20,000                         |       | — |   | 20,000 |   |
| Royalty revenue                                                                                    |       | 4,619                            |       | —                         |       | 8,413 |   | — |   |
| Total revenues                                                                                     |       | 4,619                            |       | 23,984                         |       | 9,034 |   | 26,868 |   |
| Costs and  operating expenses:                                                                     |       |                             |       |                           |       |   |   |   |   |
| Cost of product revenue                                                                            |       | —                           |       | 847                            |       | 221 |   | 1,395 |   |
| Research and development                                                                           |       | 5,953                            |       | 3,837                          |       | 11,015 |   | 6,858 |   |
| Selling, general, and administrative                                                               |       | 3,697                            |       | 6,066                          |       | 7,273 |   | 12,559 |   |
| Acquired in-process research and development                                                       |       | 9,967                            |       | 16,318                         |       | 9,967 |   | 16,318 |   |
| Gain on sale of products                                                                           |       | (25,849                          | )          | —                         |       | (25,849 | ) | — |   |
| Total costs and operating expenses                                                                 |       | (6,232                           | )          | 27,068                         |       | 2,627 |   | 37,130 |   |
| Income (loss) from operations                                                                      |       | 10,851                           |       | (3,084                         | )          | 6,407 |   | (10,262 | ) |
| Interest income                                                                                    |       | 1,040                            |       | 462                            |       | 1,984 |   | 998 |   |
| Gain on  disposition of investment in AVI BioPharma stock resulting from exercise  of warrant |       | —                           |       | —                         |       | — |   | 780 |   |
| Other income                                                                                       |       | 19                               |       | —                         |       | 20 |   | — |   |
| Change in  valuation of derivatives                                                                |       | —                           |       | 7,000                          |       | — |   | 674 |   |
| Income (loss)  before income tax                                                                   |       | 11,910                           |       | 4,378                          |       | 8,411 |   | (7,810 | ) |
| Income tax provision                                                                               |       | (833                             | )          | (35                            | )          | (663 | ) | (35 | ) |
| Net income (loss)                                                                                  |       | $                                | 11,077     |                           | $          | 4,343 |   | $ | 7,748 |   | $ | (7,845 | ) |
| Net income (loss) per  common share:                                                               |       |                             |       |                           |       |   |   |   |   |
| Basic                                                                                              |       | $                                | 0.19       |                           | $          | 0.08 |   | $ | 0.14 |   | $ | (0.15 | ) |
| Diluted                                                                                            |       | $                                | 0.19       |                           | $          | 0.08 |   | $ | 0.14 |   | $ | (0.15 | ) |
| Weighted average shares  outstanding:                                                              |       |                             |       |                           |       |   |   |   |   |
| Basic                                                                                              |       | 57,010                           |       | 53,187                         |       | 56,237 |   | 52,477 |   |
| Diluted                                                                                            |       | 58,143                           |       | 53,671                         |       | 57,087 |   | 52,477 |   |

 

See accompanying notes to condensed consolidated financial statements

4

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

| ** **                                                                                           | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                           | ** ** | **June 30,**              | ** ** |
| ** **                                                                                           | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| Operating activities:                                                                                |       |                           |       |   |   |
| Net income (loss)                                                                                    |       | $                              | 7,748      |   | $ | (7,845 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                           |       |   |   |
| Depreciation                                                                                         |       | 482                            |       | 368 |   |
| Amortization of intangibles and distribution and  marketing rights                                   |       | 843                            |       | 509 |   |
| Change in valuation of derivatives                                                                   |       | —                         |       | (674 | ) |
| Stock compensation expense                                                                           |       | 2,258                          |       | 1,474 |   |
| Gain on disposition of investment in AVI BioPharma  stock                                            |       | —                         |       | (780 | ) |
| Cash paid for distribution and marketing rights                                                      |       | —                         |       | (2,100 | ) |
| Recognition of gain on sale of products                                                              |       | (14,324                        | )          | — |   |
| Acquired in-process research and development                                                         |       | 9,967                          |       | 16,318 |   |
| Changes in  operating assets and liabilities:                                                        |       |                           |       |   |   |
| Accounts receivable and development revenue  receivable                                              |       | 1,643                          |       | 3,212 |   |
| Inventories                                                                                          |       | 223                            |       | 632 |   |
| Prepaid expenses and other assets                                                                    |       | (376                           | )          | (351 | ) |
| Restricted cash and investments                                                                      |       | (63                            | )          | (44 | ) |
| Accounts payable and other liabilities                                                               |       | (2,899                         | )          | (1,678 | ) |
| Deferred gain on sale of products                                                                    |       | (10,847                        | )          | — |   |
| Deferred revenue                                                                                     |       | (459                           | )          | 504 |   |
| Net cash provided by (used in) operating activities                                                  |       | (5,804                         | )          | 9,545 |   |
| Investing activities:                                                                                |       |                           |       |   |   |
| Purchases of marketable securities                                                                   |       | (1,499                         | )          | — |   |
| Maturities of marketable securities                                                                  |       | —                         |       | 1,500 |   |
| Purchases of property and equipment                                                                  |       | (591                           | )          | (272 | ) |
| Proceeds from sale of products                                                                       |       | 14,324                         |       | — |   |
| Acquisition of Montigen net assets, net of cash  acquired                                            |       | —                         |       | (8,693 | ) |
| Net cash provided  by (used in) investing activities                                                 |       | 12,234                         |       | (7,465 | ) |
| Financing activities:                                                                                |       |                           |       |   |   |
| Proceeds from issuance of common stock, net of  issuance costs                                       |       | 3,630                          |       | 677 |   |
| Net cash provided  by financing activities                                                           |       | 3,630                          |       | 677 |   |
| Net increase in  cash and cash equivalents                                                           |       | 10,060                         |       | 2,757 |   |
| Cash and cash equivalents  at beginning of period                                                    |       | 67,704                         |       | 47,664 |   |
| Cash and cash  equivalents at end of period                                                          |       | $                              | 77,764     |   | $ | 50,421 |   |
| Supplemental  Disclosure of Non-Cash Financing Activities:                                           |       |                           |       |   |   |
| Common stock issued  in connection with Montigen acquisition                                         |       | $                              | 9,967      |   | $ | 8,947 |   |

 

See accompanying notes to condensed consolidated financial statements

5

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2007 (Unaudited)**

**NOTE 1.   BASIS OFPRESENTATION**

The accompanying condensed unaudited consolidatedfinancial statements of SuperGen, Inc. (“we,” “SuperGen” or the “Company”)have been prepared in accordance with generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by generally accepted accountingprinciples for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair presentation have been included. Operating results for the three andsix month periods ended June 30, 2007 are not necessarily indicative ofresults that may be expected for the year ending December 31, 2007.

The balance sheet at December 31, 2006 has beenderived from the audited financial statements at that date, but does notinclude all the information and footnotes required by generally acceptedaccounting principles for complete financial statements. Certain balances inthe Company’s 2006 condensed consolidated financial statements have beenreclassified to conform to the presentation in 2007.

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

**NOTE 2.   STOCK-BASEDCOMPENSATION**

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

*StockOption Plans.**  *Wehave 12,263,000 shares of common stock authorized for issuance upon the grantof incentive stock options or nonstatutory stock options to employees,directors, and consultants under our 2003 Stock Plan. The number of shares tobe purchased, their price, and the terms of payment are determined by our Boardof Directors, provided that the exercise price for incentive stock optionscannot be less than the fair market value on the date of grant. The optionsgranted generally expire ten years after the date of grant and becomeexercisable at such times and under such conditions as determined by the Boardof Directors (generally over a four or five year period).

*EmployeeStock Purchase Plan.*   We also have an employeestock purchase plan (“ESPP”) that allows eligible employees to purchase commonstock at a price per share equal to 85% of the lower of the fair market valueof the common stock at the beginning or end of each six month period during theterm of the ESPP. The current offering period began May 15, 2007 and isscheduled to end on November 14, 2007. Upon adoption of SFAS 123R, webegan recording stock-based compensation expense related to the ESPP.

We recognized $1,106,000 and $754,000, respectively,in stock based compensation expense for the three months ended June 30,2007 and 2006. We recognized $2,258,000 and $1,444,000, respectively, in stockbased compensation expense for the six months ended June 30, 2007 and2006. These amounts have been recorded in research and development expense orselling, general and administrative expenses, based on the home department ofour employees.

6

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

**NOTE 2.**   STOCK-BASED COMPENSATION (Continued)

The fair value of eachstock award is estimated on the grant date using the Black-Scholesoption-pricing model based on the assumptions noted in the following table:

| ** **                | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|---------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                | ** ** | **  2007  **                | ** ** | **  2006  **              | ** ** | **  2007  ** | ** ** | **  2006  ** | ** ** |
| Risk-free  interest rate  |       |                                            | 4.99       | %                                             |       |   | 4.95 | % |   |   | 4.68 | % |   |   | 4.74 | % |   |
| Dividend yield            |       |                                            | —     |                                          |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Expected  volatility      |       |                                            | 62.12      | %                                             |       |   | 68.26 | % |   |   | 61.06 | % |   |   | 66.0 | % |   |
| Expected life (in  years) |       |                                            | 5.51       |                                          |       |   | 5.18 |   |   |   | 5.22 |   |   |   | 5.18 |   |   |
| Forfeiture rate           |       |                                            | 9.63       | %                                             |       |   | 12.02 | % |   |   | 9.63 | % |   |   | 12.02 | % |   |

 

Asummary of the Company’s stock option activity as of June 30, 2007, andchanges during the six months then ended is presented below:

| ** **                                        | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------|------------|
| Balance at  December 31, 2006                |       |                     | 6,615,153  |                                   |       |                                                | $          | 8.75                            |       |   |   |   |   |   |   |   |
| Granted                                           |       |                     | 2,040,144  |                                   |       |                                                | 5.34       |                            |       |   |   |   |   |   |   |
| Exercised                                         |       |                     | (252,236   | )                                      |       |                                                | 3.87       |                            |       |   |   |   |   |   |   |
| Forfeited                                         |       |                     | (113,057   | )                                      |       |                                                | 5.38       |                            |       |   |   |   |   |   |   |
| Expired                                           |       |                     | (467,580   | )                                      |       |                                                | 10.40      |                            |       |   |   |   |   |   |   |
| Balance at  June 30, 2007                    |       |                     | 7,822,424  |                                   |       |                                                | $          | 7.97                            |       |   |   | 6.71 |   |   | $ | 3,696,566 |   |
| Vested or  expected to vest at June 30, 2007 |       |                     | 7,300,387  |                                   |       |                                                | $          | 8.06                            |       |   |   | 6.57 |   |   | $ | 3,543,805 |   |
| Exercisable at  June 30, 2007                |       |                     | 5,124,895  |                                   |       |                                                | $          | 8.71                            |       |   |   | 5.61 |   |   | $ | 2,882,109 |   |

 

The weighted-average grant-date fair value of optionsgranted during the six months ended June 30, 2007 was $3.04. The totalintrinsic value of options exercised (i.e. the difference between the marketprice at exercise and the price paid to exercise the options) during the six monthsended June 30, 2007 was $476,000 and the total amount of cashreceived from exercise of these options was $970,000.

As of June 30, 2007,there was $6,427,000 of total unrecognized compensation cost related tounvested stock-based awards. This cost is expected to be recognized over aweighted average period of 2.16 years. We expect approximately 2,175,492 inunvested options to vest at some point in the future. Options expected to vestis calculated by applying an estimated forfeiture rate to the unvested options.

**NOTE 3.   CASH, CASHEQUIVALENTS, AND MARKETABLE SECURITIES**

Cash and cash equivalents include bank demanddeposits, certificates of deposit, investments in debt securities withmaturities of three months or less when purchased, and an interest in moneymarket funds 

7

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

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

which invest primarily inU.S. government obligations and commercial paper. These instruments are highlyliquid and are subject to insignificant risk.

Investments in marketable securities consist of equitysecurities and corporate or government debt securities that have a readilyascertainable market value and are readily marketable. We report theseinvestments at fair value. We designate all marketable securities asavailable-for-sale, with unrealized gains and losses included as a component ofequity.

Thefollowing is a summary of available-for-sale securities as of June 30,2007 (in thousands):

| ** **                                          | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
| U.S. corporate  debt securities                     |       |                | $          | 73,184                       |       |                          |       | $               | 8          |   |   |   | $ | — |   |   | $ | 73,192 |   |
| Debt securities  issued by U.S. government agencies |       |                | 1,500      |                         |       |                          | —     |            |       |   | (1 | ) |   | 1,499 |   |
| Marketable equity  securities                       |       |                | 5,846      |                         |       |                          | 954        |            |       |   | (7 | ) |   | 6,793 |   |
| Total                                               |       |                | $          | 80,530                       |       |                          |       | $               | 962        |   |   |   | $ | (8 | ) |   | $ | 81,484 |   |

 

Theavailable-for-sale securities are classified on the balance sheet as ofJune 30, 2007 as follows (in thousands):

| ** **                                     | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|------------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
| Amounts included  in cash and cash equivalents |       |                | $          | 73,184                       |       |                          |       | $               | 8          |   |   |   | $ | — |   |   | $ | 73,192 |   |
| Marketable  securities, current                |       |                | 1,500      |                         |       |                          | —     |            |       |   | (1 | ) |   | 1,499 |   |
| Marketable  securities, non-current            |       |                | 5,846      |                         |       |                          | 954        |            |       |   | (7 | ) |   | 6,793 |   |
| Total                                          |       |                | $          | 80,530                       |       |                          |       | $               | 962        |   |   |   | $ | (8 | ) |   | $ | 81,484 |   |

 

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

| ** **                               | ** ** | **Fair Value**     | ** ** |
|------------------------------------------|------------|-------------------------|------------|
| ** **                               | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
| Debt securities  due in one year or less |       | $                       | 74,691     |   |   | $ | 64,031 |   |   |
| Marketable equity  securities            |       | 6,793                   |       |   | 7,761 |   |   |
| Total                                    |       | $                       | 81,484     |   |   | $ | 71,792 |   |   |

 

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

**NOTE 4.   INVENTORIES**

Inventoriesconsist of the following (in thousands):

| ** **      | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------|------------|-------------------------|------------|-----------------------------|------------|
| Work in process |       |                    | —     |                        |       |   | $ | 126 |   |   |
| Finished goods  |       |                    | —     |                        |       |   | 97 |   |   |
| Total           |       |                    | —     |                        |       |   | $ | 223 |   |   |

 

**NOTE5.   LICENSE AND STOCK PURCHASE AGREEMENTS WITH MGI PHARMA, INC.**

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

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

In May 2006, the FDAapproved Dacogen for the treatment of patients with MDS and MGI commencedcommercial sales of Dacogen in the United States. In July 2006, MGIexecuted an agreement to sublicense Dacogen to Cilag GmbH, a Johnson &Johnson company, granting exclusive development and commercialization rights inall territories outside North America.

MGI is required to pay usroyalties starting at 20% and escalating to a maximum of 30% of net worldwideDacogen sales within 45 days after the end of each calendar quarter. Werecognize royalty revenue on a cash basis when we receive it from MGI becausewe do not have sufficient ability to accurately estimate Dacogen sales. Duringthe three and six months ended June 30, 2007, we recorded royalty revenueof $4,619,000 and $8,413,000, respectively. We did not recognize royaltyrevenue during the comparable periods in 2006.

**NOTE 6.   ACQUISITIONOF MONTIGEN PHARMACEUTICALS, INC.**

OnApril 4, 2006, wecompleted our acquisition of Montigen Pharmaceuticals, Inc. (“Montigen”),a privately-held oncology-focused drug discovery and development companyheadquartered in Salt Lake City, Utah. Montigen’s assets included its researchand development team, a proprietary drug discovery 

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

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

technology platform andoptimization process, CLIMBTM, and late-stage pre-clinical compounds targetingAurora-A Kinase and members of the Tyrosine Kinase receptor family.

Pursuant to the terms of the acquisition, we paid theMontigen stockholders a total of $17.9 million upon the closing of thetransaction in cash and shares of SuperGen common stock. We are required to paythe former Montigen stockholders an additional $22.0 million in shares ofSuperGen common stock, contingent upon achievement of specific regulatorymilestones. In April 2007, the first Montigen compound received clearancefrom the FDA to begin Phase I clinical trials, triggering the first contingentmilestone payment to the former Montigen stockholders of $10.0 million, whichwe paid through the issuance of 1,477,000 shares of our common stock. Thecalculation of the number of shares used for the payment was based on theaverage closing price of our stock on the five days preceding the payment. Thispayment has been recorded as additional acquired in-process research anddevelopment expense.

The acquisition of Montigen was accounted for as anacquisition of assets rather than as a business combination. The results ofoperations of Montigen since April 4, 2006 have been included in ourconsolidated financial statements and primarily consist of research anddevelopment expenses.

The values assigned to assembled workforce and CLIMBtechnology platform are being amortized over three years, the estimated usefullives of the assets. The accumulated amortization of the assembled workforceand CLIMB technology was $98,000 and $434,000, respectively, at June 30,2007. The accumulated amortization of the assembled workforce and CLIMBtechnology was $20,000 and $87,000, respectively, at June 30, 2006.

The remaining $12.0million in future contingent regulatory milestone payments that may becomepayable to the former Montigen stockholders will be recorded as additionalacquired in-process research and development expense when the relatedmilestones are achieved. These payments will be made in shares of our stock.

**NOTE 7.   ASSETACQUISITION AGREEMENTS WITH MAYNE PHARMA**

**Sale of NorthAmerican Rights**

OnAugust 22, 2006, we closed a transaction with Mayne Pharma(USA), Inc. (“Mayne”), pursuant to which Mayne acquired the North Americanrights to Nipent® and our SurfaceSafe® cleaning system. We received cashproceeds of $13,395,000, which represented the purchase price per the assetacquisition agreement, reduced by a number of adjustments and holdbacks, asfollows (in thousands):

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

 

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

**NOTE 7.**   ASSETACQUISITION AGREEMENTS WITH MAYNE PHARMA (Continued)

The $5.0 million supply holdback is being retained byMayne until the following three events occur: (1) the qualification of anFDA approved manufacturer of Nipent, (2) the execution of a commercialsupply agreement between Mayne and the approved manufacturer, and(3) acceptance of the first delivery under the commercial supplyagreement. The $1.0 million indemnification holdback will be retained by Maynefor 18 months to cover any potential claims.

In addition to the initial payment and holdbacks, weare entitled to receive annual deferred payments totaling $14,140,000 over thenext five years based on achievement of specific annual sales targets by Mayne.These annual deferred payments could be accelerated under certaincircumstances, including a change of control at Mayne. In February 2007,such a change in control occurred when Mayne was acquired byHospira, Inc.. As a result, we received an accelerated milestone paymentof $10,312,000 from Mayne.

In conjunction with this transaction, we also enteredinto certain related agreements including the following:

*Transition Services Agreement*—Weagreed to provide certain transition services to Mayne. This includedutilization of our sales and marketing personnel during a six month transitionperiod, for which we were reimbursed by Mayne. In addition, Mayne agreed toprovide certain transition services, without charge related to supportingapproval of a specified manufacturer of Nipent in Europe. During the three monthsended March 31, 2007, we billed $481,000 for services provided to Mayne,which was recorded as a reduction of our selling, general and administrativeoperating expenses. The transition services period ended on February 21,2007.

*Supply Agreement*—To support ourEuropean business, Mayne agreed to provide us with a supply of Nipentindefinitely or until the sale to Mayne of the remaining worldwide rights forNipent was finalized. There were not any purchases of Nipent from Mayne duringthe six months ended June 30, 2007. The sale of the remaining worldwiderights to Mayne was completed on April 2, 2007.

We have a number of additional obligations under theasset acquisition agreement, including the following:

*Reimbursement of Costs for Alternate Supply*—Weare obligated to reimburse Mayne up to $1 million for transferringmanufacturing and purification capabilities related to crude pentostatin fromthe existing manufacturer to Mayne’s specified facility. During the six monthsended June 30, 2007, we recorded $551,000 for alternate supply costreimbursements, and have paid $693,000 to date, leaving a remaining obligationof $307,000.

*Development Plan Payments*—We areobligated to pay all remaining amounts due under a validation and supplyagreement for qualification of a Nipent manufacturing facility. This provisionrelates directly to the $5 million supply holdback described above. During thesix months ended June 30, 2007, we recorded $35,000 of costs related tothis obligation, and have paid $485,000 to date.

*Price Protection*—We are obligatedto reimburse Mayne for three years for amounts paid to a new supplier of Nipentin excess of the amounts referenced in the Supply Agreement described above. 

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

**NOTE 7.**   ASSET ACQUISITION AGREEMENTS WITH MAYNE PHARMA (Continued)

Mayne has negotiated a manufacturing supply agreementwith an FDA approved manufacturing site, and based on historical sales trendsand manufacturing yields and forecasts of future sales and manufacturingyields, we have estimated our price protection exposure over the three yearperiod to be $600,000 although no maximum amount is specified in the agreement.This amount is included in the total deferred gain in the accompanying balancesheet and will be paid to Mayne as the amounts are due.

*Retentionand Severance Costs*—We were obligated to pay all retentionand severance costs for employees that continued to perform services under theTransition Services Agreement. Since our employees were required to stay withthe Company and perform transition related services before they could collecttheir retention and severance, we accrued the retention and severance costs asthey were earned. During the six months June 30, 2007, we recorded$187,000 of retention and severance costs, recorded in selling, general andadministrative expenses. We recorded total retention and severance costs of$1,826,000 through the end of the transition services period, which ended onFebruary 21, 2007.

**Sale of RemainingWorldwide Rights**

On April 2, 2007, weclosed another transaction with Mayne completing the sale of the remainingworldwide rights for Nipent for total consideration of up to $8.3 million. Wereceived an initial up-front payment of $3,750,000 as a condition of theclosing, plus an additional $389,000 for the carrying value of the remainingNipent inventory. The balance of the purchase price is guaranteed and payablein five installments over a five year period on the anniversary of the closingdate, except for $1.25 million in holdbacks. The holdbacks consist of a$1.0 million supply holdback, which is related to the North American$5.0 million supply holdback, and a $250,000 indemnification holdback thatwill be retained by Mayne for 18 months.

**Recognition of Gainon Sale**

From the initial cashproceeds from the North American transaction of $13,395,000, the acceleratedmilestone payment of $10,312,000, and $4,012,000 in net proceeds from the saleof the remaining worldwide rights, we deducted the value of net assetsdelivered to Mayne, including inventory, prepaid expenses, and manufacturingequipment, certain legal fees, and the reimbursement of alternative supplycosts, and have deferred amounts for alternative supply reimbursements andprice protection exposure. This resulted in a remaining net gain of$24,601,000, which has been recognized during the quarter ended June 30,2007. The gain recognized during the current quarter included proceeds receivedin prior periods related to the sale of the North American rights to Nipentthat were previously recorded on the balance sheet as a deferred gain becauseMayne entered into a supply agreement with an FDA approved manufacturing siteduring the quarter ended June 30, 2007, and as a result, we were able toestimate our price protection exposure. The remaining balance of the deferredgain of $907,000 at June 30, 2007 consists of $307,000 in remainingobligations related to Mayne’s alternative supply reimbursement and $600,000for estimated price protection exposure.

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

**NOTE 7.**   ASSET ACQUISITION AGREEMENTS WITH MAYNE PHARMA (Continued)

Due to the Company’sdetermination that the Nipent operations sold to Mayne did not represent aseparate component of the Company and the Company’s continuing involvement withthe Nipent operations, resulting from entering into the related agreements andthe additional obligations as described above, the Company has reflectedactivities related to the Nipent and Surface Safe businesses in operatingactivities for all periods presented.

**NOTE 8.   NIPENTEUROPEAN MARKETING AND DISTRIBUTION RIGHTS**

**Wyeth DistributionRights**

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

During the transition period, we continued to shipvials of Nipent to Wyeth for sale and distribution in various countries inEurope. On a monthly basis, Wyeth remitted to SuperGen an additional amount,defined in the amended and restated supply agreement as the “net profit,” basedon Wyeth’s sales of Nipent. The net profit was computed as Wyeth’s invoiced netsales, less the product acquisition cost from SuperGen, less 5% transfer feeand less 5% distribution fee. Recurring remittances to SuperGen could beadjusted by any Wyeth invoiced trade receivable that were overdue by 60 days ormore. At the time distribution rights transferred, we repurchased any unsoldinventory held by Wyeth with a shelf life greater than 12 months.

We recorded the initial$2.1 million payment to Wyeth as Prepaid distribution and marketing rights, andamortized it as a reduction of product revenue over 10 months, whichcorresponds to the termination acceleration period of June 2006 throughMarch 2007. This payment was fully amortized at March 31, 2007. Werecognized the revenue, and related cost of revenue, when the vials weredelivered to the end customer by Wyeth. We determined that Wyeth’s ability tocollect from the end customer is reasonably assured. During the six monthsended June 30, 2007, we recorded $257,000 of net profit from Wyeth, whichwas included in net product revenue.

**NOTE 9.   SALE OFPRODUCTS TO INTAS**

In April 2007, wesold the rights to anticancer agents mitomycin and paclitaxel to IntasPharmaceuticals Ltd. for an aggregate purchase price of $1.2 million. We alsosold related inventory with the transaction for $146,000. In May 2007, wesold the rights to generic etoposide to Intas for $70,000. After deductinginventory costs and other fees, we recognized a net gain of $1,248,000 duringthe three months ended June 30, 2007 relating to the sale of thesenon-core assets.

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

**NOTE 10.   CONVERTIBLEDEBT FINANCING DERIVATIVE LIABILITY AND COLLATERAL**

In June 2003, weclosed a private placement transaction in which we issued Senior ConvertibleNotes (“June Notes”) in the aggregate principal amount of $21.25 million.In connection with the issuance of the June Notes, we issued to the noteholders warrants to purchase the 2,634,211 shares of AVI BioPharma, Inc. thatwe own (“AVI Shares”) at an exercise price of $5.00 per share. The warrantsrepresented a derivative under Statement of Financial Accounting Standards (“SFAS”) 133 thatmust be recorded at fair value. Changes in the fair value of the derivativehave been recognized in earnings. During the three and six months endedJune 30, 2006, we recorded changes in the value of this derivative of $7,000,000and $674,000, respectively. There were no similar charges in the three and sixmonths ended June 30, 2007 as the warrants expired on December 31,2006.

During the six months ended June 30, 2006, one ofthe warrant holders exercised 300,000 warrants. As part of this transaction, wereceived $1,500,000 in cash and transferred 300,000 of the AVI Shares to thewarrant holder. We recognized a gain on disposition of the shares of $780,000,representing the difference between our carrying value of the shares and theproceeds we received.

In connection with theissuance of the warrants to acquire the AVI Shares, the AVI Shares had beenpledged into a collateral account. At December 31, 2006, the fair value ofthe pledged 2,334,211 AVI Shares were included in the accompanying balancesheet under non-current Restricted cash and investments, with an additional50,000 unrestricted shares of AVI included in Investment in stock of relatedparties. As noted above, the warrants expired on December 31, 2006, and the2,334,211 pledged shares were released from the collateral account. AtJune 30, 2007, all 2,384,211 AVI Shares are included in Marketablesecurities, non-current. We reflect temporary changes in the value of thoseshares as part of accumulated other comprehensive income or loss instockholders’ equity.

**NOTE 11.   COMPREHENSIVEINCOME/LOSS**

Comprehensive income or loss consists primarily of thenet income or loss and changes in unrealized gains or losses on investments.For the three months ended June 30, 2007, total comprehensive incomeamounted to $11,326,000, compared to a comprehensive loss of $4,804,000 for thethree months ended June 30, 2006. We recorded unrealized gains oninvestments of $249,000 for the three months ended June 30, 2007 comparedto unrealized losses on investments of $9,147,000 for the three months endedJune 30, 2006.

For the six months endedJune 30, 2007, total comprehensive income amounted to $6,779,000, comparedto a comprehensive loss of $7,346,000 for the six months ended June 30,2006. For the six months ended June 30, 2007, we recorded unrealizedlosses on investments of $968,000, compared to $499,000 in unrealized gains forthe six months ended June 30, 2006.

**NOTE 12.   BASIC ANDDILUTED EARNINGS/LOSS PER SHARE**

Basic net income (loss) per share is calculated bydividing the net income (loss) by the weighted-average number of common sharesoutstanding for the period, without consideration for potential common shares. Dilutednet income (loss) per share is computed by dividing the net income (loss) bythe weighted-average number of common shares outstanding for the period anddilutive potential common 

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

**NOTE 12.**   BASIC AND DILUTED EARNINGS/LOSS PER SHARE (Continued)

shares for the perioddetermined using the treasury-stock method. For purposes of this calculation,options to purchase stock and warrants are considered to be potential commonshares and are only included in the calculation of diluted net income (loss)per share when their effect is dilutive.

Thefollowing table is a reconciliation of the denominator used in the calculationof basic and diluted earnings per share (in thousands):

| ** **                                                                                                                       | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Weighted-average  common shares outstanding used in calculation of basic earnings per share                                      |       | 57,010                                          |       | 53,187                                        |       | 56,237 |   | 52,477 |   |
| Dilutive stock  options and warrants                                                                                             |       | 1,133                                           |       | 484                                           |       | 850 |   | — |   |
| Weighted-average  common shares outstanding used in calculation of diluted earnings per share                                    |       | 58,143                                          |       | 53,671                                        |       | 57,087 |   | 52,477 |   |
| Outstanding stock  options and warrants not included in dilutive net income (loss) per share as  they had an antidilutive effect |       | 6,167                                           |       | 10,248                                        |       | 6,785 |   | 13,334 |   |

 

**NOTE 13.   INCOMETAXES**

We have recorded a tax provision of $833,000 for thethree months ended June 30, 2007, and $663,000 for the six months endedJune 30, 2007, based on the Company’s estimated effective tax rate for theyear. The effective tax rate is based on the anticipated alternative minimumtaxes and state income taxes that will be incurred in the current year. Werecorded a comparable tax provision of $35,000 for the three and six monthsended June 30, 2006.

We adopted the provisions of Financial AccountingStandards Board (“FASB”) Interpretation No. 48, “Accounting forUncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. There was noimpact on our consolidated financial position, results of operations and cashflows as a result of adoption. We have no unrecognized tax benefit, asdescribed in FIN 48, as of June 30, 2007. Also, there are no accruedamounts for interest and penalties.

Our policy will be torecognize interest and penalties related to income taxes as a component ofincome tax expense. We are subject to income tax examinations for U.S. Federalincomes taxes and state income taxes from 1992 forward due to net operatinglosses in tax years 1992 through 2005. We are subject to tax examinations inthe United Kingdom from 2001 forward. We do not anticipate that totalunrecognized tax benefits will significantly change prior to June 30,2008.

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**SUPERGEN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) JUNE 30, 2007 (Unaudited)**

**NOTE 14.   RECENTACCOUNTING PRONOUNCEMENTS**

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

In June 2007, the Emerging Issues Task Force (“EITF”)reached a consensus on EITF No. 07-03, *Accounting forNonrefundable Advance Payments for Goods or Services to Be Used in FutureResearch and Development Activities*(“EITF 07-03”).EITF 07-03 specifies the timing of expense recognition for nonrefundableadvance payments for goods or services that will be used or rendered forresearch and development activities. EITF 07-03 is effective for fiscalyears beginning after December 15, 2007, and early adoption is notpermitted. As a result, EITF 07-03 is effective for the Company in thefirst quarter of fiscal 2008. We are currently evaluating the impact ofEITF 07-03 and have not yet determined the effect on our financial positionor results of operations.

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

*You should read the following discussion together withour consolidated financial statements and related notes included elsewhere inthis report. The results discussed below are not necessarily indicative of theresults to be expected in any future periods. Ourdisclosure and analysis in this section of the report also contain forward-lookingstatements. When we use the words “anticipate,” “estimate,” “project,” “intend,”“expect,” “plan,” “believe,” “should,” “likely” and similar expressions, we aremaking forward-looking statements. Forward-looking statementsprovide our current expectations or forecasts of future events. In particular,these statements include statements such as: our estimates about becomingprofitable; the percentage of royalties we expect to earn on Dacogen salesunder our agreement with MGI; our forecasts regarding our research anddevelopment expenses; and our statements regarding the sufficiency of our cashto meet our operating needs. Our actual results could differ materially fromthose predicted in the forward-looking statements as a result of risksand uncertainties including, but not limited to, delays and risks associatedwith conducting and managing our clinical trials; developing products andobtaining regulatory approval; ability to establish and maintain collaborationrelationships; competition; ability to obtain funding; ability to protect ourintellectual property; our dependence on third party suppliers; risksassociated with the hiring and loss of key personnel; adverse changes in thespecific markets for our products; and our ability to launch and commercializeour products. Certain unknown or immaterial risks and uncertainties can alsoaffect our forward-looking statements. Consequently, no forward-lookingstatement can be guaranteed and you should not rely on these forward-lookingstatements. For a discussion of the known and material risks that couldaffect our actual results, please see the “Risk Factors” section of thisreport. We undertake no obligation to update any forward-looking statements,whether as a result of new information, future events or otherwise. Readersshould carefully review the Risk Factors section as well as other reports ordocuments we file from time to time with the Securities and ExchangeCommission.*

**Overview**

We are a pharmaceutical company dedicated to thediscovery, rapid development and commercialization of therapies to treatpatients with cancer. We have a number of Aurora-A and Tyrosine Kinaseinhibitors and DNA methyltransferase pre-clinical products under development.In 2006, Dacogen received approval for marketing in the United States, during2006 and 2007 we sold the North American and remaining worldwide rights toNipent to Mayne Pharma, and we acquired a drug discovery and developmentcompany to complement our ongoing licensing efforts. 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 have devotedsubstantially all of our resources to our product development efforts. Our pastdevelopment efforts have been focused on the key compounds of Dacogen andNipent.

*Dacogen.**  *Dacogen isapproved by the FDA for the treatment of patients with MDS.

In September 2004, we executed an agreementgranting MGI exclusive worldwide rights to the development, manufacture,commercialization and distribution of Dacogen. Under the terms of theagreement, MGI made a $40.0 million equity investment in our company and willpay up to $45.0 million in specific regulatory and commercialization milestonepayments. To date, we have received $32.5 million of these milestone payments,including $20.0 million upon first commercial sale of Dacogen in the U.S. in May 2006. In accordance with ouragreement with MGI, we are entitled to receive a royalty on worldwide net salesstarting at 20% and escalating to a maximum of 30%. During the six months endedJune 30, 2007, we recorded royalty revenue of $8.4 million. Because we donot have sufficient ability to accurately estimate Dacogen sales, we recognizeroyalty revenue on a cash basis when we receive it from MGI.

In July 2006, MGI executed an agreement to sublicenseDacogen to Janssen-Cilag, a Johnson & Johnson company, grantingexclusive development and commercialization rights in all territories outside 

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

*Nipent.**  *Nipent isapproved by the FDA and EMEA for the treatment of hairy cell leukemia. Nipentwas marketed by us in the United States until August 2006, and distributedin Europe through March 2007.

On June 1, 2006, we entered into an amended andrestated supply agreement with Wyeth to terminate the European distribution ofNipent by Wyeth and transition distribution to SuperGen. The originaldistribution and supply agreement with Wyeth would have terminated on its ownterms at no cost to SuperGen over a period of time, varying by country, throughMarch 2007. Under the amended agreement, distribution rights transitionedfor most countries, except Spain and France, on December 1, 2006. Spainand France transitioned in February 2007. During the transition period, weshipped vials of Nipent to Wyeth for sale and distribution in various countriesin Europe. On December 1, 2006, we repurchased most of the unsold Europeaninventory held by Wyeth with a shelf life greater than 12 months, andrepurchased the inventories for Spain and France in February 2007.

On August 22, 2006, we closed a transaction withMayne Pharma (USA), Inc., whereby Mayne acquired the North American rightsto Nipent and our SurfaceSafe cleaning system. Pursuant to the AssetAcquisition Agreement, we received cash proceeds of $13.4 million upon closingof the transaction. In addition to the initial payment and holdbacks, we hadthe right to receive annual deferred payments totaling $14.1 million over thefollowing five years based on achievement of specific sales targets. Theseannual deferred payments may be accelerated under certain circumstances,including a change of control of Mayne. Such a change of control occurred inFebruary 2007 when Mayne was acquired by Hospira, and we received $10.3million 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 havebeen reimbursed by Mayne for all Nipent sales and marketing costs during thetransition period, including employee salaries and overhead.

On April 2, 2007, we closed another transactionwith Mayne completing the sale of the remaining worldwide rights for Nipent fortotal consideration of up to $8.3 million. We received an initial up-frontpayment of $3,750,000 as a condition of the closing, plus an additional $389,000for the carrying value of the remaining Nipent inventory. The balance of thepurchase price is guaranteed and payable in five installments over a five yearperiod on the anniversary of the closing date, except for $1.25 million thatwill be received when certain contractual conditions are met.

*MontigenAcquisition.**  *In April 2006, we completed ouracquisition of Montigen, a privately-held oncology-focused drug discovery anddevelopment company headquartered in Salt Lake City, Utah. Montigen’s assets includedits research and development team, a proprietary drug discovery technologyplatform and optimization process known as CLIMB, and late-stage pre-clinicalcompounds targeting Aurora-A Kinase and members of the Tyrosine Kinase receptorfamily.

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. We willpay the Montigen stockholders an additional $22.0 million in shares of SuperGencommon stock, contingent upon achievement of specific regulatory milestones.The first Montigen compound was cleared in April 2007 by the FDA to beginPhase I clinical trials, which triggered the first milestone payment to theformer Montigen stockholders of $10.0 million paid in shares of our commonstock.

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To date, our product revenues have been limited andwere derived primarily from sales of Nipent for the treatment of hairy cellleukemia, which was marketed in the United States until August 2006 and inEurope through March 2007. Most of our products are still in thedevelopment stage, and we will require substantial additional investments inresearch and development, clinical trials, regulatory and in sales and marketingactivities to commercialize current and future product candidates. Conductingclinical trials is a lengthy, time-consuming, and expensive process involvinginherent uncertainties and risks, and our studies may be insufficient todemonstrate safety and efficacy to support FDA approval of any of our productcandidates.

As a result of our substantial research anddevelopment expenditures and minimal product revenues, we have incurredcumulative losses of $357.5 million through June 30, 2007, and have nevergenerated enough funds through our operations to support our business. Weexpect to continue to incur operating losses at least through 2008.

Ultimately, our ability tobecome profitable will depend upon a variety of factors, including regulatoryapprovals of our products, the timing of the introduction and market acceptanceof our products and competing products, MGI’s success in selling Dacogen, thelaunch of new products and our ability to control our ongoing costs andoperating expenses. If our drug discovery and research efforts are notsuccessful, or if the results from our clinical trials are not positive, we maynot be able to get sufficient funding to continue our trials or conduct newtrials, and we would be forced to scale down or cease our business operations.Moreover, if our products are not approved or commercially accepted we willremain unprofitable for longer than we currently anticipate. Additionally, wemight be forced to substantially scale down our operations or sell certain ofour assets, and it is likely the price of our stock would declineprecipitously.

**Critical AccountingPolicies**

Our management discussion and analysis of ourfinancial condition and results of operations is based upon our condensedconsolidated 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 recognition, intangible assets, valuation ofinvestments and derivative instruments. We base our estimates on historicalexperience and on various other assumptions that we believe are reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

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

*Stock-BasedCompensation*

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

The fair value of each stock award is estimated on thegrant date using the Black-Scholes option-pricing model based on assumptionsfor volatility, risk-free interest rates, expected life of the option, anddividends (if any). Expected volatility is determined based on a blend ofhistorical volatility and implied 

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volatility of our commonstock based on the period of time corresponding to the expected life of the stockoptions. The expected life of our stock options is based on our historical dataand represents the period of time that stock options granted are expected to beoutstanding. The risk-free interest rate is based on the U.S. Treasury yieldcurve in effect at the time of grant commensurate with the expected lifeassumption.

We are using the straight-line attribution method torecognize stock based compensation expense. The amount of stock-basedcompensation recognized during a period is based on the value of the portion ofthe awards that are ultimately expected to vest. SFAS 123R requires forfeituresto be estimated at the time of grant and revised, if necessary, in subsequentperiods if actual forfeitures differ 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-evaluatedquarterly and the forfeiture rate is adjusted as necessary. Ultimately, theactual expense recognized over the vesting period will only be for those sharesthat vest.

As of June 30, 2007,there was $6,427,000 of total unrecognized compensation cost related tounvested stock-based awards. This cost is expected to be recognized over aweighted average period of 2.16 years. We expect approximately 2,175,492 inunvested options to vest at some point in the future. Options expected to vestis calculated by applying an estimated forfeiture rate to the unvested options.

*Revenue and GainRecognition*

Our net product revenues have related principally toNipent. We recognized sales revenue upon shipment and related transfer of titleto customers, and when collectibility is reasonably assured.

Cash advance payments received in connection withdistribution agreements, license agreements, or research grants are generallydeferred and recognized ratably over the period of the respective agreements oruntil services are performed. We recognize cost reimbursement revenue undercollaborative agreements as the related research and development costs areincurred. We recognize milestone fees upon completion of specified milestonesaccording to contract terms. Deferred revenue represents the portion of suchcash advance payments received that have not been earned.

We accounted for our $2.1 million payment to Wyeth inJune 2006 as Prepaid distribution and marketing rights, which wereamortized against revenue over 10 months, equaling the termination accelerationperiod of June 2006 through March 2007. The amortization of $630,000through the six months ended June 30, 2007 was reflected as a reduction ofproduct revenue. Proceeds from our initial product shipments to Wyeth weredeferred and were recognized as revenue (and related cost of revenue) when theproduct was delivered to the end customer by Wyeth. Under the terms of ouramended license agreement with Wyeth, we received an additional amount of netprofit based on Wyeth’s sales of Nipent. During the six months endedJune 30, 2007, we received $257,000 of net profit, which was included innet product revenue.

MGI is required to pay us royalties starting at 20%and escalating to a maximum of 30% of net worldwide Dacogen sales within 45days after the end of each calendar quarter. During the six month period endedJune 30, 2007, we recorded royalty revenue of $8.4 million. Because we donot have sufficient ability to accurately estimate Dacogen sales, we recognizeroyalty revenue on a cash basis when we receive it from MGI. In accordance withour license agreement with MGI, we are entitled to receive 50% of any paymentsMGI receives as a result of any sublicenses. We received $5.0 million, 50% ofthe $10 million upfront payment MGI received, and, as a result of both theoriginal agreement with MGI and a sublicense with Cilag GmbH, may receive up to$23.75 million in future milestone payments as they are achieved for Dacogenglobally.

We received initial cashproceeds from the North American transaction with Mayne Pharma of $13,395,000.From the initial cash proceeds from the agreement of $13,395,000, theaccelerated milestone 

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paymentof $10,312,000, and $4,012,000 in net proceeds from the sale of the remainingworldwide rights, we deducted the value of net assets delivered to Mayne,including inventory, prepaid expenses, and manufacturing equipment, certainlegal fees, and the reimbursement of alternative supply costs, and havedeferred amounts for alternative supply reimbursements and price protectionexposure. This resulted in a remaining net gain of $24,601,000, which has beenrecognized during the quarter ended June 30, 2007. The gain recognizedduring the current quarter included proceeds received in prior periods relatedto the sale of the North American rights to Nipent that were previouslyrecorded on the balance sheet as a deferred gain because Mayne entered into asupply agreement with an FDA approved manufacturing site during the quarterended June 30, 2007, and as a result, we were able to estimate our priceprotection exposure. The remaining balance of the deferred gain of $907,000 atJune 30, 2007 consists of $307,000 in remaining obligations toward theMayne’s alternative supply reimbursement and $600,000 for potential priceprotection exposure.

*Goodwill andIntangible Assets*

We have intangible assetsrelated to goodwill and other acquired intangibles such as acquired workforce,CLIMB process technology, trademarks, covenants not to compete, and customerlists. The determination of related estimated useful lives and whether or notthese assets are impaired involves significant judgment. Changes in strategyand/or market conditions could significantly impact these judgments and requireadjustments to recorded asset balances. We review intangible assets, as well asother long-lived assets, for impairment whenever events or circumstancesindicate that the carrying amount may not be fully recoverable. Additionally,we review goodwill for impairment annually in accordance with FASB StatementNo. 142, “Goodwill and Other Intangible Assets.”

*Valuation ofInvestments in Financial Instruments*

Investments in financial instruments are carried atfair value with unrealized gains and losses included in Accumulated othercomprehensive income or loss in stockholders’ equity. Our investment portfolioincludes equity securities that could subject us to material market risk andcorporate and U.S. government (or U.S. governmental agency) obligations thatsubject us to varying levels of credit risk. If the fair value of a financialinstrument has declined below its carrying value for a period in excess of sixconsecutive months or if the decline is due to a significant adverse event,such that the carrying amount of these investments may not be fullyrecoverable, the impairment is considered to be other than temporary. An otherthan temporary decline in fair value of a financial instrument would be subjectto a write-down resulting in a charge against 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 the securities within our portfolio forother than temporary declines in value on a regular basis. The prices of someof our marketable securities, are subject to considerable volatility. Decreasesin the fair value of these securities may significantly impact our results ofoperations.

Investments in equity securities without readilydeterminable fair value are carried at cost. We periodically review thosecarried costs and evaluate whether an impairment has occurred. Thedetermination of whether an impairment has occurred requires significantjudgment, as each investment may have unique market or developmentopportunities.

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**Results ofOperations**

*Three months ended June 30, 2007 compared tothree months ended June 30, 2006:*

| ** **                                       | ** ** | **Three months ended  June 30,** | ** ** | **Change** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|------------|------------|
| **Revenues**                                     | ** ** | ** **                                      | ** ** | **2007**   | ** ** | **2006** | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                                       | ** ** | **(Dollars in thousands)**            | ** ** |
| Net product  revenue                             |       | $                                               | —     |       | $          | 3,984 |   | $ | (3,984 | ) |   | (100.0 | )% |   |
| Development and  license revenue from MGI PHARMA |       | —                                          |       | 20,000     |       | (20,000 | ) |   | (100.0 | ) |   |
| Royalty revenue                                  |       | 4,619                                           |       | —     |       | 4,619 |   |   | — |   |   |
|                                                  |            |                                                 |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

The decrease in net product revenue for the threemonths ended June 30, 2007 was due primarily to the sale of our worldwiderights to Nipent and Surface Safe to Mayne Pharma.

Inaccordance with our license agreement with MGI PHARMA, MGI is required to paycertain milestone payments upon achievement, and royalties starting at 20% andescalating to a maximum of 30% of net worldwide Dacogen sales within 45 daysafter the end of each calendar quarter. During the three months endedJune 30, 2007, we recorded royalty revenue of $4,619,000 related toDacogen sales as reported by MGI for the first quarter of 2007. Because we do nothave sufficient ability to accurately estimate Dacogen sales, we recognizeroyalty revenue on a cash basis when we receive it from MGI. Dacogen wasapproved for sale by the FDA in May 2006, which resulted in a $20.0milestone payment from MGI during the three months ended June 30, 2006.

| ** **                                      | ** ** | **Three months ended  June 30,** | ** ** | **Change** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|------------|------------|
| **Costs and operating expenses** | ** ** | ** **                                      | ** ** | **2007**   | ** ** | **2006** | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                                      | ** ** | **(Dollars in thousands)**            | ** ** |
| Cost of product  revenue                        |       | $                                               | —     |       | $          | 847 |   | $ | (847 | ) |   | (100.0 | )% |   |
| Research and  development                       |       | 5,953                                           |       | 3,837      |       | 2,116 |   |   | 55.1 |   |   |
| Selling, general  and administrative            |       | 3,697                                           |       | 6,066      |       | (2,369 | ) |   | (39.1 | ) |   |
| Acquired  in-process research and development   |       | 9,967                                           |       | 16,318     |       | (6,351 | ) |   | (38.9 | ) |   |
| Gain on sale of products                        |       | (25,849                                         | )          | —     |       | (25,849 | ) |   | — |   |   |
|                                                 |            |                                                 |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

The decline in cost of product revenue was primarilydue to the sale of our worldwide rights to Nipent and Surface Safe to MaynePharma.

The increase in research and development expenses wasdue to higher drug discovery research costs associated with the acquisition ofMontigen facility in Salt Lake City, Utah in April 2006 and clinical trialcosts related to the initiation of Phase I studies for MP470, offset by lowerclinical research and supply costs related to Nipent.

The decrease in selling, general and administrativeexpenses for the three months ended June 30, 2007 relates primarily tolower costs associated with sales and marketing programs due to the sale ofNipent and Surface Safe to Mayne, offset by higher expenses relating to therecording of stock compensation expense and legal and accounting fees.

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,which was recorded as acquired in-process research and development expense inthe three months ended June 30, 2007. Acquired in-process research anddevelopment expense of $16,318,000 recorded in the three months endedJune 30, 2006 related to the valuation of our acquisition of Montigen inApril 2006. The value assigned to acquired 

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in-process researchand development represented the fair value of Montigen’s incomplete researchand development programs that had not yet reached technological feasibility andhad no alternative future use as of the acquisition date.

Gainon sale of products recorded in the three months ended June 30, 2007relates to the sale of our worldwide rights to Nipent and Surface Safe to MaynePharma and the sale of mitomycin, paclitaxel, and etoposide to IntasPharmaceuticals.

| ** **                           | ** ** | **Three months ended  June 30,** | ** ** | **Change**                                               | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------|------------|
| **Other income (expense)** | ** ** | ** **                                      | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                           | ** ** | **(Dollars in thousands)**            | ** ** |
| Interest income                      |       |                                            | $          | 1,040                                                    |       |   |   | $ | 462 |   |   | $ | 578 |   |   | 125.1 | % |   |
| Other income                         |       |                                            | 19         |                                                     |       |   | — |   |   | 19 |   |   | — |   |   |
| Change in valuation of  derivatives  |       |                                            | —     |                                                     |       |   | 7,000 |   |   | (7,000 | ) |   | (100.0 | ) |   |
|                                      |            |                                                 |            |                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The increase in interest income was due to higheravailable cash and marketable securities balances and an increase in interestrates for the three months ended June 30, 2007, compared to the sameperiod in 2006.

The warrants issued in theJune 2003 convertible debt transaction represented a derivative instrumentand were revalued each quarter using the Black-Scholes pricing model. Duringthe second quarter of 2006, the value of this derivative had declined by $7.0million, due to an decrease in the market value of the underlying shares of AVIat June 30, 2006. The warrants expired on December 31, 2006, so therewas no corresponding transaction during the second quarter of 2007.

*Six months ended June 30, 2007 compared to threemonths ended June 30, 2006:*

| ** **                                       | ** ** | **Six months ended  June 30,** | ** ** | **Change** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------|------------|------------|------------|
| **Revenues**                                     | ** ** | ** **                                    | ** ** | **2007**   | ** ** | **2006** | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                                       | ** ** | **(Dollars in thousands)**          | ** ** |
| Net product  revenue                             |       | $                                             | 621        |       | $          | 6,868 |   | $ | (6,247 | ) |   | (91.0 | )% |   |
| Development and  license revenue from MGI PHARMA |       | —                                        |       | 20,000     |       | (20,000 | ) |   | (100.0 | ) |   |
| Royalty revenue                                  |       | 8,413                                         |       | —     |       | 8,413 |   |   | — |   |   |
|                                                  |            |                                               |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

The decrease in net product revenue for the six monthsended June 30, 2007 was due primarily to the sale of our worldwide rightsto Nipent and Surface Safe to Mayne Pharma. Net product revenues in 2007 relateonly to sales in Europe through March 31, 2007.

During the six months ended June 30, 2007, werecorded royalty revenue of $8,413,000 related to Dacogen sales for the fourthquarter of 2006 and first quarter of 2007. MGI 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. Because we do nothave sufficient ability to accurately estimate Dacogen sales, we recognizeroyalty revenue on a cash basis when we receive it from MGI. Dacogen wasapproved for sale by the FDA in May 2006, which resulted in a $20.0milestone payment from MGI during the six months ended June 30, 2006.

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| ** **                                      | ** ** | **Six months ended  June 30,** | ** ** | **Change** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------|------------|------------|------------|
| **Costs and operating expenses** | ** ** | ** **                                    | ** ** | **2007**   | ** ** | **2006** | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                                      | ** ** | **(Dollars in thousands)**          | ** ** |
| Cost of product  revenue                        |       | $                                             | 221        |       | $          | 1,395 |   | $ | (1,174 | ) |   | (84.2 | )% |   |
| Research and  development                       |       | 11,015                                        |       | 6,858      |       | 4,157 |   |   | 60.6 |   |   |
| Selling, general  and administrative            |       | 7,273                                         |       | 12,559     |       | (5,286 | ) |   | (42.1 | ) |   |
| Acquired  in-process research and development   |       | 9,967                                         |       | 16,318     |       | (6,351 | ) |   | (38.9 | ) |   |
| Gain on sale of products                        |       | (25,849                                       | )          | —     |       | 25,849 |   |   | — |   |   |
|                                                 |            |                                               |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

The decline in cost of product revenue was due to thesale of our worldwide rights to Nipent and Surface Safe to Mayne Pharma.

The increase in research and development expenses wasdue to higher drug discovery research costs associated with the acquisition ofMontigen facility in Salt Lake City, Utah in April 2006 and clinical trialcosts related to the initiation of Phase I studies for MP470, offset by lowerclinical research and supply costs related to Nipent.

The decrease in selling, general and administrativeexpenses for the six months ended June 30, 2007 relates primarily to lowercosts associated with sales and marketing programs due to the sale of ourworldwide rights to Nipent and Surface Safe to Mayne, offset by higher expensesrelating to the recording of stock compensation expense and accounting fees.

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,which was recorded as acquired in-process research and development expense inthe six months ended June 30, 2007. Acquired in-process research anddevelopment expense recorded in the six months ended June 30, 2006 relatedto the valuation of our acquisition of Montigen in April 2006. The valueassigned to acquired in-process research and development represented the fairvalue of Montigen’s incomplete research and development programs that had notyet reached technological feasibility and had no alternative future use as ofthe acquisition date.

Gainon sale of products recorded in the six months ended June 30, 2007 relatesto the sale of our worldwide rights to Nipent and Surface Safe to Mayne Pharmaand the sale of mitomycin, paclitaxel, and etoposide to Intas Pharmaceuticals.

| ** **                           | ** ** | **Six months ended  June 30,** | ** ** | **Change** | ** ** |
|--------------------------------------|------------|-----------------------------------------------|------------|------------|------------|
| **Other income (expense)** | ** ** | ** **                                    | ** ** | **2007**   | ** ** | **2006** | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                           | ** ** | **(Dollars in thousands)**          | ** ** |
| Interest income                      |       | $                                             | 1,984      |       | $          | 998 |   | $ | 986 |   |   | 98.8 | % |   |
| Gain on  disposition of AVI stock    |       | —                                        |       | 780        |       | (780 | ) |   | (100.0 | ) |   |
| Other income                         |       | 20                                            |       | —     |       | 20 |   |   | — |   |   |
| Change in valuation of  derivatives  |       | —                                        |       | 674        |       | (674 | ) |   | (100.0 | ) |   |
|                                      |            |                                               |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

The increase in interest income was due to higheravailable cash and marketable securities balances and an increase in interestrates for the six months ended June 30, 2007, compared to the same periodin 2006.

As part of our June 2003 convertible debttransaction, we issued to the note holders warrants to purchase 2,634,211shares of AVI at $5.00 per share. During the six months ended June 30,2006, one of the warrant holders exercised 300,000 warrants. As part of thistransaction, we received $1,500,000 in cash and transferred 300,000 of the AVIShares to the warrant holder. We recognized a gain on disposition of 

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the shares of $780,000,representing the difference between our $2.40 per share adjusted cost basis ofthe shares and the exercise price. We had no similar transaction during the sixmonths ended June 30, 2007.

The warrants issued in theJune 2003 convertible debt transaction represented a derivative instrumentand were revalued each quarter using the Black-Scholes pricing model. Duringthe half of 2006, the value of this derivative had decreased by $674,000. Thewarrants expired on December 31, 2006, so there was no correspondingtransaction during the six months ended June 30, 2007.

**Income Taxes**

We have recorded a taxprovision of $833,000 for the three months ended June 30, 2007, and$663,000 for the six months ended June 30, 2007, based on the Company’sestimated effective tax rate for the year. The effective tax rate is based onthe anticipated alternative minimum taxes and state income taxes that will beincurred in the current year. We recorded a comparable tax provision of $35,000for the three and six months ended June 30, 2006.

**Liquidity andCapital Resources**

Our cash, cash equivalents, and marketable securitiestotaled $86,556,000 at June 30, 2007 compared to $67,883,000 atDecember 31, 2006. Included in the 2007 total are 2,384,211 shares ofregistered stock of AVI, which had a market value of $6,676,000 atJune 30, 2007. In connection with the issuance of the warrants to acquirethe AVI Shares in 2003, the majority of the AVI Shares had been pledged into acollateral account. The warrants expired on December 31, 2006, and2,334,211 pledged shares were released from the collateral account. AtDecember 31, 2006, 2,334,211 of the AVI Shares were included in Restrictedcash and investments and 50,000 shares were included in Investment in stock ofrelated parties. At June 30, 2007, all AVI Shares are included inMarketable securities, non-current.

Net cash used in operating activities was $5,804,000in the six months ended June 30, 2007, and consisted primarily of netincome of $7,748,000, non-cash acquired in-process research and development of$9,967,000, non-cash stock compensation expense of $2,258,000, and a decreasein accounts receivable of $1,643,000, offset by a decrease in accounts payableand other liabilities of $2,899,000 and the recognition of and change in thedeferred gain on sale of products of $25,171,000. Net cash provided byoperating activities was $9,545,000 in the six months ended June 30, 2006,and consisted primarily of the net loss of $7,845,000, a cash option of$2,100,000 paid to Wyeth for Nipent European distribution rights, and$1,678,000 decrease in accounts payable and accrued liabilities, offset bynon-cash stock compensation expense of $1,474,000, acquired in-process researchand development expense of $16,318,000, and a decrease in accounts receivableof $3,212,000.

Net cash provided by investing activities was$12,234,000 in the six months ended June 30, 2007, and consisted primarilyof the payments from Mayne Pharma of $14,324,000 due to a change in control atMayne and the sale of the remaining worldwide Nipent rights, offset by$1,499,000 paid for the purchase of marketable securities. Net cash used ininvesting activities was $7,465,000 in the six months ended June 30, 2006,which consisted of $8,693,000 related to the acquisition of the net assets ofMontigen, offset by the proceeds of $1,500,000 from disposition of shares ofAVI BioPharma as a result of the exercise of warrants.

Net cash provided by financing activities was$3,630,000 and $677,000 in the six monthsended June 30, 2007 and 2006, respectively, and both consisted ofproceeds from the exercise of stock options or warrants.

We have financed our operations primarily through theissuance of equity and debt securities and the receipt of milestone payments inconnection with collaborative agreements. We believe that our current cash,cash equivalents, marketable securities and other investments will satisfy ourcash requirements through 2008. However, it is our intention to consider additionalfinancing options, including the selling of additional shares of stock in apublic or private offering and/or exploring marketing partnership 

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opportunities for existingor newly acquired or licensed products and development activities resulting fromthe acquired research and discovery operation based in Salt Lake City, Utah.

In addition to the contractual obligations disclosedin Management’s Discussion and Analysis included in our annual report onForm 10-K for the year ended December 31, 2006, effectiveApril 4, 2006, we have $12.0 million in future contingent regulatorymilestone payments due to the Montigen stockholders, which would be payable inshares of SuperGen stock.

We believe that our needfor additional funding will increase in the future and that our continuedability to raise funds from external sources will be critical to our success.We continue to actively consider future contractual arrangements that wouldrequire significant financial commitments. If we experience currently unanticipatedcash requirements, we could require additional capital much sooner thanpresently anticipated. We may raise money by the sale of our equity securitiesor debt, or the exercise of outstanding warrants and stock options by theholders of such warrants or options. However, given uncertain market conditionsand the volatility of our stock price, we may not be able to sell oursecurities in public offerings or private placements at prices and on termsthat are favorable to us, if at all. We may also choose to obtain fundingthrough licensing and other contractual agreements. Such arrangements mayrequire us to relinquish our rights to our technologies, products or marketingterritories, or to grant licenses on terms that 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.

**Item 3.**                        Quantitativeand Qualitative Disclosures About Market Risk

**Interest Rate Risk**

Due to the short-term nature of our interest bearingassets, which consist primarily of certificates of deposit, United Statescorporate obligations, and United States government obligations, we believethat our exposure to interest rate market risk would not significantly affectour operations.

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

**Foreign Currency Risk**

We have foreign operationsbased in Europe. Accordingly, we are subject to exposure from adverse movementsin foreign currency exchange rates. To date, the effect of changes in foreigncurrency exchange rates on revenue and operating expenses has not beenmaterial. Operating expenses incurred by our foreign subsidiaries aredenominated primarily in local currencies. We currently do not use financialinstruments to hedge these operating expenses. We will assess our need toutilize financial instruments to hedge currency exposures on an ongoing basis.

**Item 4.**                        ControlsAnd Procedures

(a)          Evaluationof disclosure controls and procedures.

As of June 30, 2007, ourmanagement evaluated, with the participation of our chief executive officer andour chief financial officer, the effectiveness of our disclosure controls andprocedures as of the end of the period covered by this quarterly report onForm 10-Q. Except as noted below, there have been no changes in ourinternal control over financial reporting that occurred during this quarterlyperiod that have 

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materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting. Based on this quarter’s evaluation, our chiefexecutive officer and our chief financial officer have concluded that due tothe material weakness that was identified as of December 31, 2006, ourdisclosure controls and procedures are not effective to ensure that informationwe are required to disclose in reports that we file or submit under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within thetime periods specified in Securities and Exchange Commission rules andforms.

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

The Company determinedthat as of December 31, 2006 a material weakness existed in the Company’sability to maintain effective internal controls over the application ofgenerally accepted accounting principles (“GAAP”) to non-routine and complextransactions due to insufficient GAAP expertise commensurate with the Company’sfinancial reporting requirements. As a result of this material weakness, errorswere identified in the following two areas: (1) In connection with itsperiodic assessment of goodwill for impairment, the Company inappropriatelyevaluated goodwill for impairment below the reporting unit level, and(2) The Company did not determine whether the computations in the reportsused to record compensation cost for share based payments appropriately appliedthe estimated forfeiture rate such that compensation cost recognized for theyear ended December 31, 2006 was at least equal to the portion of thegrant-date value of the awards that were vested at that date. As a result,adjustments to correct the identified errors were recorded in the consolidatedfinancial statements for the year ended December 31, 2006 related togoodwill, additional paid in capital, and costs and operating expenses.

*Remediation EffortsRelated to Material Weakness in Internal Control Over Financial Reporting*

In response to thematerial weakness in internal controls described above, we have taken steps toimprove our ability to maintain effective internal controls over theapplication of GAAP to non-routine and complex transactions to meet ourfinancial reporting requirements. Specific measures we have begun to adoptinclude:

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

·       Providingadditional training to all personnel in the application of GAAP to reduce thelikelihood of a material misstatement of our annual or interim financialstatements.

(b)         Changes ininternal control over financial reporting.

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

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**SUPERGEN, INC.**

**PART II -OTHER INFORMATION**

**Item 1A.**                RiskFactors

*The followingsection lists some, but not all, of the risks and uncertainties that may have amaterial adverse effect on our business, financial condition and results ofoperations. You should carefully consider these risks in evaluating our companyand business. Our business operations may be impaired if any of the followingrisks actually occur, and by additional risks and uncertainties that we do notknow of or that we currently consider immaterial. In such case, the tradingprice of our common stock could decline.*

*This report also contains forward-looking statementsthat involve risks and uncertainties. Our actual results could differmaterially from those anticipated in the forward-looking statements as a resultof certain factors, including the risks described below and elsewhere in thisreport.*

***Risks Related to Dacogen and Nipent***

*Dacogen may not becommercially successful.*

Even though Dacogen hasbeen approved in the United States and even if it receives regulatory approvalin Europe on a future date, patients and physicians may not readily accept it,which would result in lower than projected sales and cause substantial harm toour business through the receipt of lower royalty revenue from MGI. Inaddition, pursuant to our license agreement with MGI, we are expecting toreceive payments from MGI in connection with the achievement of certaincommercial­ization milestones. If these commercialization milestones are notmet, we will not receive these payments and our financial condition andbusiness would be harmed.

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

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

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

*Our right to receive a significant portion of theconsideration in the transaction with Mayne Pharma is subject to contingenciesbeyond our control.*

In August 2006 wesold the North American rights to Nipent and Surface Safe to Mayne Pharma(USA), Inc. for a total aggregate consideration of approximately $34.0million. $5.0 million of that aggregate amount is a supply holdback, thepayment of which is contingent upon acceptance of the first delivery under acommercial supply agreement between Mayne and the manufacturer. We cannotcontrol the timing of this event. In addition, over $3.8 million of theaggregate consideration will not be paid to us unless and until Mayne achievesspecified targets for sales of Nipent, over the next three years. 

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Achievementof these sales targets are beyond our control. Further, $1.0 million is subjectto an indemnification holdback to be held by Mayne until February 2008 tocover any potential claims. In April 2007 we sold the remaining worldwiderights to Nipent to Mayne for approximately $8.3 million. $1.0 million of thataggregate purchase price is subject to a supply holdback related to the NorthAmerican supply holdback, and $250,000 is an indemnification holdback to beheld by Mayne until October 2008 to cover any potential claims. If theconditions for the release of the supply holdbacks are not met, if there areclaims against the indemnification holdbacks, and/or we are not entitled to theapproximately $3.8 million of deferred payments under the North Americantransaction, we will not have received full value for Nipent. If we are notable to sell our revenue generating and otherwise valuable assets for fullvalue, our financial condition and business will be harmed.

***Risks Related to Our Financial Condition and CommonStock***

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

Since inception, we have funded our research anddevelopment activities primarily from private placements and public offeringsof our securities, milestone payments and revenues generated primarily fromsales of Nipent. The North American rights to Nipent were sold to Mayne Pharmain August 2006 and we sold the remaining worldwide rights to Nipent toMayne in April 2007. Our substantial research and development expendituresand limited revenues have resulted in significant net losses. We have incurredcumulative losses of $357.5 million from inception through June 30, 2007,and our products have not generated sufficient revenues to support our businessduring that time. We expect to continue to incur substantial operating lossesat least through 2008 and may never achieve profitability.

Whether we achieveprofitability depends primarily on the following factors:

·       successfulsales of Dacogen in North America by MGI;

·       obtainingregulatory approval in Europe and the successful commercialization of Dacogenoutside of North America by the Janssen-Cilag companies;

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

·       ourability to bring to market other proprietary products that are advancingthrough our internal clinical development infrastructure;

·       ourability to successfully expand our product pipeline through in-licensing andproduct acquisition;

·       ourresearch and development efforts, including the timing and costs of clinicaltrials;

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

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

·       costsand expenses associated with entering into licensing and other collaborativeagreements.

Our products and productcandidates, even if successfully developed and approved, may not generatesufficient or sustainable revenues to enable us to achieve or sustainprofitability.

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

We will continue to spendsubstantial resources on expanding our product pipeline, selling anddistributing future products, and conducting research and development,including clinical trials for our 

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productcandidates. We anticipate that our capital resources will be adequate to fundoperations and capital expenditures at least through 2008. However, if weexperience unanticipated cash requirements during this period, we could requireadditional funds much sooner. We may raise money by the sale of our equitysecurities or debt, or the exercise of outstanding warrants and stock optionsby the holders of such warrants and options. However, given uncertain marketconditions and the volatility of our stock price, we may not be able to sellour securities in public offerings or private placements at prices and/or onterms that are favorable to us, if at all. Also, the dilutive effect ofadditional financings could adversely affect our per share results. We may alsochoose to obtain funding through licensing and other contractual agreements.For example, we licensed the worldwide rights to the development,commercialization and distribution of Dacogen to MGI. Such arrangements mayrequire us to relinquish our rights to our technologies, products or marketingterritories, or to grant licenses on terms that are not favorable to us. If wefail to obtain adequate funding in a timely manner, or at all, we will beforced to scale back our product development activities, or be forced to ceaseour operations.

*Our collaborative relationship with MGI may notproduce the financial benefits that we are anticipating, which could cause ourbusiness to suffer.*

In addition to raisingmoney by selling our equity securities to MGI in connection with the licenseagreement, we also expect to record development and license revenue frompayments made to us by MGI upon the achievement of regulatory andcommercialization milestones. However, we may fail to achieve these milestones,either because we are unable to secure regulatory approval of Dacogen in Europeor Asia or due to MGI’s or Janssen-Cilag’s inability to expend the resources togrow or commence sales of Dacogen as prescribed by the license agreement. Inaddition, the license agreement provides that MGI will pay us (i) acertain portion of revenues payable to MGI as a result of MGI sublicensing therights to market, sell and/or distribute Dacogen, to the extent such revenuesare in excess of the milestone payments, and (ii) a 20% royalty increasingto a maximum of 30% on annual worldwide net sales of Dacogen. We cannotguarantee that we will continue to receive these payments, and we cannot beassured that MGI will expend the resources to expand sales of Dacogen in NorthAmerica, or that the Janssen-Cilag companies will expend the resources to sellit in Europe and elsewhere, or that either company be successful in doing so.

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

Our investments arecarried at fair value with unrealized gains and losses included in accumulatedother comprehensive income or loss in stockholders’ equity. However, we areexposed to equity price risk on our equity investment in AVI. Currently we own2,384,211 shares of AVI. During the year ended December 31, 2004, werecorded a write-down of $7.9 million related to an other than temporarydecline in the value of our equity investment in AVI, resulting in a reductionof our cost basis in the AVI shares. Under our accounting policy, marketableequity securities are presumed to be impaired if their fair value is less thantheir cost basis for more than six months, absent compelling evidence to thecontrary. As of June 30, 2004, the AVI shares had been trading below ouroriginal cost basis for more than six months. Since there was no compellingevidence to the contrary, we recorded the impairment charge of$7.9 million in our results of operations. The amount of the charge wasbased on the difference between the market price of the shares as ofJune 30, 2004 and our adjusted cost basis. The public trading prices ofthe AVI shares have fluctuated significantly since we purchased them andcould continue to do so. If the public trading prices of these shares continueto trade below their new cost basis in future periods, we may incur additionalimpairment charges relating to this investment, which in turn will affect ourresults of operations.

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***Product Development and Regulatory Risks***

*Before we can seek regulatory approval of any of ourproduct candidates, we must complete clinical trials, which are expensive andhave uncertain outcomes.*

Most of our products are in the developmental stageand, prior to their sale, will require regulatory approval and the commitmentof substantial resources. Before obtaining regulatory approvals for thecommercial sale of any of our product candidates, we must demonstrate throughpre-clinical testing and clinical trials that our product candidates are safeand effective for use in humans.

We have a portfolio of cancer drugs in various stagesof development. In addition, we expect to commence new clinical trials fromtime to time in the course of our business as our product development workcontinues. Conducting clinical trials is a lengthy, time consuming andexpensive process and the results are inherently uncertain. We have incurredand will continue to incur substantial expense for, and we have devoted andexpect to continue to devote a significant amount of time to, pre-clinicaltesting and clinical trials. However, regulatory authorities may not permit usto undertake any additional clinical trials for our product candidates. If weare unable to complete our clinical trials, our business will be severelyharmed and the price of our stock will likely decline.

We have ongoing researchand pre-clinical projects that may lead to product candidates, but we have notbegun clinical trials for these projects. If we do not successfully completeour pre-clinical trials, we could not commence clinical trials as planned.

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

Completion ofclinical trials may take several years or more. The length of a clinical trialvaries substantially according to the type, complexity, novelty and intendeduse of the product candidate. The length of time and complexity of thesestudies make statistical analysis difficult and regulatory approvalunpredictable. The commencement and rate of completion of our clinical trialsmay be delayed by many factors, including:

·       ineffectivenessof the study compound, or perceptions by physicians that the compound is noteffective for a particular indication;

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

·       inabilityto obtain FDA approval of our clinical trial protocols;

·       slowerthan expected rate of patient recruitment;

·       inabilityto adequately follow patients after treatment;

·       difficultyin managing multiple clinical sites;

·       unforeseensafety issues;

·       lackof efficacy demonstrated during the clinical trials; or

·       governmentor regulatory delays.

If we are unable toachieve a satisfactory rate of completion of our clinical trials, our businesswill be significantly harmed.

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*We may be required to suspend, repeat or terminate ourclinical trials if they are not conducted in compliance with regulatoryrequirements.*

Our clinical trials mustbe conducted in accordance with the FDA’s regulations and are subject tocontinuous oversight by the FDA and institutional review boards at the medicalinstitutions where the clinical trials are conducted. We outsource certainaspects of our research and development activities to contract research organizations(“CROs”). We have agreements with these CROs for certain of our clinicalprograms. We and our CROs are required to comply with good clinical practice(“GCP”) regulations and guidelines enforced by the FDA for all of our productsin clinical development. The FDA enforces GCPs through periodic inspections ofstudy sponsors, principal investigators, and study sites. If our CROs or wefail to comply with applicable GCPs, the clinical data generated in our studiesmay be deemed unreliable and the FDA may require us to perform additionalstudies before approving our applications. In addition, our clinical trialsmust be conducted with product candidates produced under current goodmanufacturing practices (“GMPs”), and may require a large number of test subjects.Our failure to comply with these regulations may require us to repeat clinicalstudies, which would delay the regulatory approval process.

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

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

We may encounter other problems and failures in ourstudies that would cause us or the FDA to delay or suspend the studies. Even ifwe achieve positive interim results in clinical trials, these results do notnecessarily predict final results, and acceptable results in early trials maynot be repeated in later trials. A number of companies in the pharmaceuticalindustry have suffered significant setbacks in advanced clinical trials, evenafter achieving promising results in earlier trials.

Negative or inconclusiveresults during a clinical trial could cause us to terminate or repeat aclinical trial. The potential failures would delay development of our productcandidates, hinder our ability to conduct related pre-clinical testing andclinical trials and further delay the commencement of the regulatory approvalprocess. Further, the failures or perceived failures in our clinical trialswould delay our product development and the regulatory approval process, damageour business prospects, make it difficult for us to establish collaboration andpartnership relationships and negatively affect our reputation and competitiveposition in the pharmaceutical industry. Finally, if we are required to conductother clinical trials for the product candidates, the additional trials wouldrequire substantial funding and time, and we may be unable to obtain funding toconduct such clinical trials.

*Our failure to obtain regulatory approvals to marketour product candidates in foreign countries and delays caused by governmentregulation would adversely affect our anticipated revenues.*

Sales of our products in foreign jurisdictions will besubject to separate regulatory requirements and marketing approvals. Approvalin the United States, or in any one foreign jurisdiction, does not ensureapproval in any other jurisdiction. The process of obtaining foreign approvalsmay result in significant delays, difficulties and expenses for us, and mayrequire additional clinical trials. Although many of the regulations applicableto our products in these foreign countries are similar to those promulgated bythe FDA, many of these requirements also vary widely from country to country,which could delay the introduction of our products in those countries. Failureto comply with these regulatory requirements or to obtain required approvalswould impair our ability to commercialize our products in foreign markets.

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Even if regulatoryapproval of our products is obtained, later discovery of previously unknownproblems may result in restrictions of a product, including withdrawal of thatproduct from the market. Further, governmental approval may subject us toongoing requirements for post-marketing studies. For example, despite receiptof governmental approval, the facilities of our third-party manufacturersare still subject to unannounced inspections by the FDA and must continue tocomply with GMPs and other regulations. These regulations govern all areas ofproduction, record keeping, personnel and quality control. If we or our third-partymanufacturers fail to comply with any of the manufacturing regulations, we maybe subject to, among other things, product seizures, recalls, fines,injunctions, suspensions or revocations of marketing licenses, operatingrestrictions and criminal prosecution.

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

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

We currently outsourcecertain of our research and development programs involving the controlled useof biohazardous materials. We believe our collaborators have in place safetyprocedures for these materials that comply with governmental standards.Nevertheless, if an accident does occur, our research and product development willbe negatively affected.

***Additional Risks Associated with Our Business***

*If the third-party manufacturers upon whom werely fail to produce our products in the volumes that we require on a timelybasis, or fail to comply with stringent regulations applicable topharmaceutical drug manufacturers, we may face delays in the delivery of, or beunable to meet demand for, our products.*

Because we have nomanufacturing facilities, we rely on third parties for manufacturing activitiesrelated to all of our products. As we develop new products, we must establishand maintain relationships with manufacturers to produce and package sufficientsupplies of our finished pharmaceutical products. Reliance on third partymanufacturing presents the following risks:

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

·       inabilityto fulfill our future commercial needs if market demand for our productsincreases suddenly, which would require us to seek new manufacturingarrangements and may result in substantial delays in meeting market demand;

·       potentialrelinquishment or sharing of intellectual property rights to any improvementsin the manufacturing processes or new manufacturing processes for our products;and

·       unannouncedongoing inspections by the FDA and corresponding state agencies for compliancewith GMPs, regulations and foreign standards, and failure to comply with any ofthese regulations and standards may subject us to, among other things, productseizures, recalls, fines, injunctions, suspensions or revocations of marketinglicenses, operating restrictions and criminal prosecution.

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Any of these factors coulddelay clinical trials or commercialization of our product candidates underdevelopment, interfere with current sales and entail higher costs.

*Our business may beharmed if the manufacture of our products is interrupted or discontinued.*

We may be unable tomaintain our relationships with our third-party manufacturers. If we needto replace or seek new manufacturing arrangements, we may have difficultylocating and entering into arrangements with qualified contract manufacturerson acceptable terms, if at all. We are aware of only a limited number ofcompanies on a worldwide basis who operate manufacturing facilities in whichour products can be manufactured to our specifications and in compliance withGMPs. It could take several months, or significantly longer, for a new contractmanufacturing facility to obtain FDA approval and to develop substantiallyequivalent processes for the production of our products. We may not be able tocontract with any of these companies on acceptable terms, if at all. Forexample, the company that had been purifying Nipent filed for reorganizationunder Chapter 11 and ceased operations in late 2004. We contracted with anothermanufacturer for the purification of Nipent, which has recently receivedqualification by the FDA and equivalent European authorities. If the newmanufacturer experiences difficulties or goes out of business, we will beunable to satisfy the conditions necessary to receive from Mayne Pharma the$6.0 million held back from us pursuant to the terms of that transaction.

*If our supplierscannot provide the components we require, our product sales and revenue couldbe harmed.*

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

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

Vendors may decide tolimit or eliminate sales of certain products to the medical industry due toproduct liability or other concerns. In the event one of our sole sourcesuppliers decides not to manufacture the component, goes out of business, ordecides to cut off our supply, we may be unable to locate replacement supplysources, or the sources that we may locate may not provide us with similarreliability or pricing and our business could suffer. If we cannot obtain anecessary component, we may need to find, test and obtain regulatory approvalfor a replacement component, produce the component or redesign the relatedproduct, which would cause significant delay and could increase ourmanufacturing costs. Any of these events could adversely impact our sales andresults of operations.

*If we are not able to maintain and successfullyestablish new collaborative and licensing arrangements with third parties, ourproduct development and business will be harmed.*

Our business model is based on establishingcollaborative relationships with other parties both to license compounds uponwhich our products and technologies are based and to manufacture our productsor our collaborators’ products. It is critical that we gain access to compoundsand technologies to license for further development. Due to the expense of thedrug approval process we must have relationships with 

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established pharmaceuticalcompanies to offset some of our development costs in exchange for a combinationof development, marketing and distribution rights.

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

·       ourability to negotiate acceptable collaborative arrangements;

·       thecollaboration making us less attractive to potential acquirers;

·       freedomof our collaborative partners to pursue alternative technologies either ontheir own or with others, including our competitors, for the diseases targetedby our programs and products;

·       thepotential failure of our partners to fulfill their contractual obligations ortheir decision to terminate our relationships, in which event we may berequired to seek other partners, or expend substantial resources to pursuethese activities independently; and

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

In addition, ourcollaborators may undergo business combinations, which could have the effect ofmaking the collaboration with us less attractive to them for a number ofreasons. For example, if an existing collaborator purchases a company that isone of our competitors, that company may be less willing to continue itscollaboration with us. A company that has a strategy of purchasing companieswith attractive technologies might have less incentive to enter into acollaboration agreement with us. Moreover, disputes may arise with respect tothe ownership of rights to any technology or products developed with anycurrent or future collaborator. Lengthy negotiations with potentialcollaborators or disagreements between us and our collaborators may lead todelays in or termination of the research, development or commercialization ofproduct candidates or result in time consuming and expensive litigation orarbitration.

*Our collaborative relationships with third partiescould cause us to expend significant funds on development costs with noassurance of financial return.*

From time to time we enterinto collaborative relationships with third parties to co-develop and marketproducts. These relationships require substantial financial commitments fromus, and at the same time the product developments are subject to the sameregulatory requirements, risks and uncertainties associated with thedevelopment of our other product candidates. The compounds that are the subjectof these collaborative agreements may prove to be ineffective, may fail toreceive regulatory approvals, may be unprotectable by patents or otherintellectual property rights, or may not be otherwise commercially viable. Ifthese collaborative relationships are not successful, our product developmentswill be adversely affected, and our investments and efforts devoted to theproduct developments will be wasted.

*Our ability to protect our intellectual propertyrights will be critically important to the success of our business, and we maynot be able to protect these rights in the United States or abroad.*

The success of our operations depends in part on ourability to obtain patents, protect trade secrets, operate without infringingthe proprietary rights of others and enforce our proprietary rights againstaccused infringers.

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We actively pursue a policy of seeking patentprotection when applicable for our proprietary products and technologies,whether they are developed in-house or acquired from third parties. Weattempt to protect our intellectual property position by filing United Statesand foreign patent applications related to our proprietary technology,inventions and improvements that are important to the development of ourbusiness. To date, we have ownership of or acquired licenses to over 75 U.S.patents covering various aspects of our proprietary drugs and technologies,including 40 patents for various aspects of our drug Orathecin and relatedproducts, and six patents for various aspects of Dacogen and related products.In addition, we are prosecuting a number of patent applications for new drugcandidates that we are actively developing at this time.

We also have patents, licenses to patents, and pendingpatent applications in Europe, Australia, Japan, Canada, China and Israelamong other countries. Limitations on patent protection, and the differences inwhat constitutes patentable subject matter, may limit the protection we have onpatents issued or licensed to us in these countries. In addition, laws offoreign countries may not protect our intellectual property to the same extentas would laws in the United States. To minimize our costs and expenses andmaintain effective protection, we focus our foreign patent and licensingactivities primarily in the European Union, Canada, Australia and Japan. Indetermining whether or not to seek patent protection or to license any patentin a foreign country, we weigh the relevant costs and benefits, and consider,among other things, the market potential and profitability, the scope of patentprotection afforded by the law of the jurisdiction and its enforceability, andthe nature of terms with any potential licensees. Failure to obtain adequatepatent protection for our proprietary drugs and technology would impair ourability to be commercially competitive in these markets.

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

In addition to pursuing patent protection inappropriate instances, we also rely on trade secret protection or regulatorymarketing exclusivity for unpatented proprietary technology. However, tradesecrets are difficult to protect. Our trade secrets or those of ourcollaborators may become known or may be independently discovered by others.

In the pharmaceutical industry there has been, and webelieve that there will continue to be, significant litigation regarding patentand other intellectual property rights. Claims may be brought against us in thefuture based on patents held by others. These persons could bring legal actionsagainst us claiming damages and seeking to enjoin clinical testing,manufacturing and marketing of the affected product. If we become involved inlitigation, it could consume a substantial portion of our resources, regardlessof the outcome of the litigation. If a lawsuit against us is successful, inaddition to any potential liability for damages, we could be required to obtaina license to continue to manufacture or market the affected product. We cannotassure you that we would prevail in a lawsuit filed against us or that we couldobtain any licenses required under any patents on acceptable terms, if at all.

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

*If we fail tocompete effectively against other pharmaceutical companies, our business willsuffer.*

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

Many of our competitors and research institutions areaddressing the same diseases and disease indications and working on products totreat such diseases as we are, and have substantially greater financial,research and development, manufacturing and marketing experience and resourcesthan we do. Some of our competitors have received regulatory approval forproducts, or are developing or testing product candidates that compete directlywith, our product candidates. For example, Dacogen faces competition fromPharmion’s Vidaza and Celgene’s Revlimid.

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

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

Our competitive positionsin our generic drugs are uncertain and subject to risks. The market for genericdrugs, including the pricing for generic drugs, is extremely competitive. As aresult, unless our generic drugs are the first or among the initial few tolaunch, there is a high risk that our products would not gain meaningful marketshare, or we would not be able to maintain our price and continue the productline. Moreover, marketing of generic drugs is also subject to regulatoryapproval, and if we were not able to obtain such approval before ourcompetitors, we would lose our competitive advantage. Failure to maintain ourcompetitive position could have a material adverse effect on our business andresults of operations.

*The pharmaceutical industry in general and theoncology sector in particular is subject to significant and rapid technologicalchange. Developments by competitors may render our product candidates ortechnologies obsolete or non-competitive.*

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

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

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

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·       produceand market their products more successfully than we do;

·       establishsuperior proprietary positions; or

·       obtainFDA approval for labeling claims that are more favorable than those for ourproducts.

We will also faceincreasing competition from lower-cost generic products after patents on ourproprietary products expire. Loss of patent protection typically leads to arapid decline in sales for that product and could affect our future results. Asnew products enter the market, our products may become obsolete or ourcompetitors’ products may be more effective or more effectively marketed andsold than our products. Technological advances, competitive forces and loss ofintellectual property protection rights for our products may render ourproducts obsolete.

*We may be subjectto product liability lawsuits and our insurance may be inadequate to coverdamages.*

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

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

Further, our success isdependent on key personnel, including members of our senior management andscientific staff. If any of our executive officers decides to leave and wecannot locate a qualified replacement in time to allow a smooth transition, ourbusiness operation may be adversely affected. To successfully expand ouroperations, we will need to attract and retain additional highly skilledindividuals, particularly in the areas of clinical administration, pre-clinicaland development research, manufacturing and finance. We compete with othercompanies for the services of existing and potential employees, however to theextent these employees favor larger, more established employers, we may be at adisadvantage.

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

Our operations arevulnerable to interruption by fire, power loss, floods, telecommunicationsfailure and other events beyond our control. In addition, our operations aresusceptible to disruption as a result of natural disasters such as earthquakes.So far we have never experienced any significant disruption of our operationsas a result of earthquakes or other natural disasters. Although we have acontingency recovery plan, any significant business interruption could causedelays in our drug development and sales and harm our business.

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*Provisions in our certificate of incorporation, bylawsand applicable Delaware law may prevent or discourage third parties orstockholders from attempting to replace our management.*

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

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

·       eliminationof cumulative voting; and

·       eliminationof stockholder action by written consent.

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

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

We believe that thebenefits of increased protection of our potential ability to negotiate with theproponents of unfriendly or unsolicited proposals to acquire or restructure usoutweigh the disadvantages of discouraging those proposals because, among otherthings, negotiation of those proposals could result in an improvement of theirterms. Nevertheless, these provisions are expected to discourage differenttypes of coercive takeover practices and inadequate takeover bids and toencourage persons seeking to acquire control of our company to first negotiatewith us, and may have the effect of preventing or discouraging third parties orstockholders from attempting to replace our management.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

The Company’s Annual Meeting of Stockholders was heldon June 14, 2007. The results of the voting were as follows:

Proposal1:             Election of the Boardof Directors of the Company.

| ** **            | ** ** | ** ** | ** ** | **Votes**     | ** ** |
|-----------------------|------------|------------|------------|---------------|------------|
| **Nominee**           | ** ** | ** ** | ** ** | **Votes For** | ** ** | **Withheld** | ** ** |
| James S.J. Manuso     |       | 38,517,122 |       | 8,236,943     |       |
| Charles J.  Casamento |       | 44,090,221 |       | 2,663,844     |       |
| Thomas V. Girardi     |       | 33,345,085 |       | 13,408,980    |       |
| Allan R. Goldberg     |       | 44,251,587 |       | 2,502,478     |       |
| Walter J. Lack        |       | 44,116,565 |       | 2,637,500     |       |
| Michael D. Young      |       | 44,315,014 |       | 2,439,051     |       |
|                       |            |            |            |               |            |  |  |

 

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Proposal2:             Ratification ofErnst & Young LLP as independent registered public accounting firm forthe year ending December 31, 2007:

| Votes For:        |   | 44,004,711 |   |
|-------------------|--------|------------|--------|
| Votes Against:    |   | 1,593,388  |   |
| Votes Abstaining: |   | 1,155,966  |   |

 

**Item6.**                        Exhibits
| **Exhibit** | ** ** | ** **                                                                                                                                                                                  |
|-------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **No.**     | ** ** | ** **                                                                                                                                                                                  | ** ** | **Description of Document** |
| 31.1        |       | Certification of Chief  Executive Officer under Section 302(a) of the Sarbanes-Oxley Act of  2002                                                                                 |
| 31.2        |       | Certification of  Chief Financial Officer under Section 302(a) of the Sarbanes-Oxley  Act of 2002                                                                                 |
| 32.1        |       | Certifications of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act Of 2002 |
|             |            |                                                                                                                                                                                             |  |  |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                         |           | SUPERGEN, INC. |
|-------------------------|----------------|---------------------|
| Date:    | August 9, 2007 |                | By: | /s/ JAMES S.J. MANUSO |   |
|                    |           |                | James S.J. Manuso, Ph.D. |
|                    |           |                | *President and Chief Executive Officer   (Principal Executive Officer)* |
|                    |           | By:                 | /s/ MICHAEL MOLKENTIN |   |
|                    |           |                | Michael Molkentin |
|                    |           |                | *Chief Financial Officer* |
|                    |           |                | *(Principal Financial and Accounting Officer)* |
|                         |                |                     |  |  |  |

 

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