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Last May,

Pharmion

(PHRM)

shares soared after the Food and Drug Administration approved Vidaza, the company's drug to treat a cancer-like bone marrow disease known as myelodysplastic syndrome, or MDS. But Pharmion's good fortune sent already-battered

SuperGen

(SUPG)

shares even lower, as investors saw the Vidaza approval as yet another obstacle to the company's ability to get its own MDS drug, Dacogen, across the FDA finish line.

But recent events suggest that SuperGen's outlook is improving.

Last Wednesday,

MGI Pharmaceuticals

(MOGN)

inked a

deal in which it took an equity stake in SuperGen and will co-market Dacogen. MGI Pharma is a strong biotech firm and a good marketing partner for Dacogen, so the deal certainly helped improve SuperGen's credibility and likely assuaged concerns about Dacogen's approvability. SuperGen is expected to complete its FDA filing of Dacogen before the end of the third quarter.

SuperGen shares were recently down 17 cents, or 2.4%, to $6.79, still up approximately 50% from the stock's 52-week low of $4.50, reached on July 22.

But boding even better for Dacogen's future, in my opinion, is the fact that last May's Vidaza approval, instead of setting a higher bar for Dacogen, might have actually paved the way for an easier approval.

That's my revised take on the situation after reading a mostly

TheStreet Recommends

negative review

of Vidaza written by the FDA's medical review team. In short, the FDA staff found numerous problems with Pharmion's Vidaza application and did not recommend the drug's approval, according to the FDA's Web site. But FDA decision-makers apparently overruled the conclusion of their own staff -- an uncommon but not unprecedented development -- and granted Vidaza full approval.

Taken as a whole, the data SuperGen has collected for Dacogen is as good, or better, than the data collected by Pharmion for Vidaza. This suggests that the FDA should approve Dacogen, too, which means I'm no longer as

skeptical about SuperGen's outlook as I was back in May.

What does this mean for SuperGen shares? One hedge fund manager, long SuperGen, believes a Dacogen approval warrants a share price in the midteens, at the very least -- and potentially higher if bears loosen their current grip on the biotech sector.

Before SuperGen started running into trouble last spring, the stock was trading in the $10-$11 range. The stock hit its 52-week high of $14.14 intraday on March 31.

Rodman & Renshaw biotech analyst Elemer Piros raised his SuperGen price target to $21 from $17 based on higher commercial potential for Dacogen arising from the MGI Pharma deal. Fair value for Dacogen, alone, is $15, says Piros. He rates SuperGen a market outperformer; his firm has a banking relationship with the company.

The clinical trial that forms the basis of Pharmion's Vidaza filing actually dates back to 1994, so the data has been fairly well dissected. But what is new is the disclosure of the FDA's internal debate over the Vidaza data. The agency did not convene an advisory committee meeting for Vidaza, which is where the public -- including investors -- typically learn what FDA reviewers like, or dislike, about drugs under review.

In Vidaza's case, the FDA's statistical reviewer raised a list of red flags about the quality of the drug's data and the way in which Pharmion analyzed the clinical study. While not disputing the fact that Vidaza appeared to benefit patients with MDS, the reviewer felt that Pharmion's efficacy claims for the drug were not supported by the data.

"In this statistical reviewer's opinion, the data and results of the one, small, phase III study suggests activity of azacitidine

Vidaza in patients with MDS. However, results are not adequate to support the sponsor's efficacy claim as such, since they are based on retrospective statistical design, retrospective data collection and analyses," according to the FDA's statistical review of Vidaza.

Typically, you'd assume that this sort of criticism might have hurt Pharmion's chances at getting approval for Vidaza. But as noted above, the FDA granted Vidaza full approval for the treatment of MDS, and the agency made its announcement one month earlier than expected.

We still don't know precisely what persuaded the FDA to overrule the recommendation of its own statistical reviewer, but Vidaza likely had in its favor the fact that MDS is a serious, life-threatening disease with no previously approved treatment. And even if the statistical analysis of the Vidaza study was fuzzy, the drug did appear to have clinical benefit for patients.

The same thing can be said for SuperGen and its effort to get Dacogen approved for MDS. I won't rehash all the details from the pivotal Dacogen study that was released in April -- go

here to re-read my coverage of the results -- but recall that only one of two statistical tests used by SuperGen confirmed what it says were positive results. Moreover, the Dacogen data were mixed when the study was broken down to examine efficacy for the different subtypes of MDS.

But in light of the kid gloves used by the FDA to approve Vidaza, the potential roadblocks to a similar Dacogen approval today look more like speed bumps. Moreover, it's not unreasonable to argue that the FDA is getting more convincing clinical data on Dacogen than it received for Vidaza. As part of its clinical study, SuperGen has shown that MDS patients taking Dacogen progressed more slowly to a form of leukemia or death compared to patients given only supportive care. No such survival data were collected in Pharmion's study of Vidaza.

While investors are tightly focused on Dacogen, don't forget that SuperGen has another drug, Orathecin, currently under review at the FDA as a treatment for pancreatic cancer. At this point, investors have ascribed virtually no value to Orathecin because its approval has been considered a long shot, at best, and the drug's commercial potential is rather small. The FDA is expected to issue an approval decision on Orathecin by Nov. 26. If the drug is rejected or otherwise delayed, it shouldn't come as any real surprise and SuperGen shares shouldn't suffer.

But if Orathecin is actually approved -- and there is always that chance -- it will be another reason for investors to once again warm to the SuperGen story.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

adam.feuerstein@thestreet.com.