FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2009
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission file number
0-15190
OSI Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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13-3159796
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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41 Pinelawn Road, Melville, New York
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11747
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(Address of principal executive offices)
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(Zip Code)
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631-962-2000
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
At November 2, 2009, the registrant had outstanding 58,047,476 shares of common stock, $.01 par value.
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands except per share data)
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September 30,
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December 31,
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2009
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2008
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ASSETS
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Current assets:
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|
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Cash and cash equivalents
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$
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143,424
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$
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272,936
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Investment securities
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396,340
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240,328
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Restricted investment securities
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2,304
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2,247
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Accounts receivable
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111,756
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100,242
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Inventory
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19,522
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20,139
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Interest receivable
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1,713
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1,428
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Prepaid expenses and other current assets
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16,087
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6,719
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Assets related to discontinued operations
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917
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Deferred tax assets net
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43,051
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45,425
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Total current assets
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734,197
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690,381
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Property, equipment and leasehold improvements net
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92,460
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43,443
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Debt issuance costs net
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4,367
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5,632
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Goodwill
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38,850
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38,648
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Other intangible assets net
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7,781
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7,711
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Other assets
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51,758
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14,591
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Deferred tax assets net
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237,382
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273,797
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$
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1,166,795
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$
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1,074,203
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$
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53,902
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$
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49,052
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Unearned revenue current
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10,436
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10,547
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Liabilities related to discontinued operations
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2,753
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1,522
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Total current liabilities
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67,091
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61,121
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Other liabilities:
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Rent obligations and deferred rent expenses
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4,843
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8,154
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Unearned revenue long-term
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30,626
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33,398
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Convertible senior subordinated notes net
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379,586
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369,095
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Accrued post-retirement benefit cost and other
|
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4,697
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3,890
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|
|
|
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|
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Total liabilities
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486,843
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475,658
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Commitments and contingencies
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Stockholders equity:
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Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued at
September 30, 2009 and December 31, 2008
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Common stock, $.01 par value; 200,000 shares authorized, 61,401 and 61,124
shares issued at September 30, 2009 and December 31, 2008, respectively
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614
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611
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Additional paid-in capital
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1,785,107
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1,761,179
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Accumulated deficit
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(1,006,621
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)
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(1,057,118
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)
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Accumulated other comprehensive income (loss)
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3,071
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(3,908
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)
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782,171
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700,764
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Less: Treasury stock, at cost; 3,396 shares at September 30, 2009 and December 31, 2008
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(102,219
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)
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(102,219
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)
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Total stockholders equity
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679,952
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598,545
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$
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1,166,795
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$
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1,074,203
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See accompanying notes to consolidated financial statements.
1
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2009
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2008
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2009
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2008
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Revenues:
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Tarceva-related revenues
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$
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88,735
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$
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80,708
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$
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257,914
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$
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251,006
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Other revenues
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22,712
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13,864
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46,276
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29,955
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|
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Total revenues
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111,447
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|
94,572
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304,190
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280,961
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Operating expenses:
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Cost of goods sold
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1,607
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2,517
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6,460
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|
|
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6,748
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Research and development
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38,546
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33,054
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111,129
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94,009
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Acquired in-process research and development
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5,000
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|
|
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5,000
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|
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Selling, general and administrative
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24,677
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22,262
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74,065
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|
|
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69,985
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|
Restructuring costs related to site consolidation (see Note 12)
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|
1,148
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|
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|
|
|
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1,148
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|
|
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Amortization of intangibles
|
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|
229
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|
|
|
646
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|
|
|
693
|
|
|
|
1,884
|
|
|
|
|
|
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Total operating expenses
|
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|
71,207
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|
|
|
58,479
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|
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|
198,495
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172,626
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|
|
|
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|
|
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|
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|
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Operating income from continuing operations
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40,240
|
|
|
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36,093
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|
|
|
105,695
|
|
|
|
108,335
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Investment income net
|
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|
1,624
|
|
|
|
2,976
|
|
|
|
5,795
|
|
|
|
9,670
|
|
Interest expense
|
|
|
(6,534
|
)
|
|
|
(6,202
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)
|
|
|
(19,319
|
)
|
|
|
(18,696
|
)
|
Other (expense) income net
|
|
|
(184
|
)
|
|
|
(518
|
)
|
|
|
(2,906
|
)
|
|
|
(2,424
|
)
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
35,146
|
|
|
|
32,349
|
|
|
|
89,265
|
|
|
|
96,885
|
|
Income tax provision
|
|
|
17,282
|
|
|
|
987
|
|
|
|
38,389
|
|
|
|
2,761
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
17,864
|
|
|
|
31,362
|
|
|
|
50,876
|
|
|
|
94,124
|
|
Income (loss) from discontinued operations net of tax
|
|
|
(298
|
)
|
|
|
20,281
|
|
|
|
(379
|
)
|
|
|
5,936
|
|
|
|
|
|
|
Net income
|
|
$
|
17,566
|
|
|
$
|
51,643
|
|
|
$
|
50,497
|
|
|
$
|
100,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Basic and diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.31
|
|
|
$
|
0.55
|
|
|
$
|
0.88
|
|
|
$
|
1.65
|
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
0.35
|
|
|
|
(0.01
|
)
|
|
|
0.10
|
|
Net income
|
|
$
|
0.30
|
|
|
$
|
0.90
|
|
|
$
|
0.87
|
|
|
$
|
1.75
|
|
Diluted income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.30
|
|
|
$
|
0.53
|
|
|
$
|
0.87
|
|
|
$
|
1.62
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
0.33
|
|
|
|
(0.01
|
)
|
|
|
0.10
|
|
Net income
|
|
$
|
0.30
|
|
|
$
|
0.87
|
|
|
$
|
0.86
|
|
|
$
|
1.71
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
57,973
|
|
|
|
57,437
|
|
|
|
57,900
|
|
|
|
57,218
|
|
Diluted shares
|
|
|
60,510
|
|
|
|
60,663
|
|
|
|
60,492
|
|
|
|
60,447
|
|
See accompanying notes to consolidated financial statements.
2
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2009
|
|
2008
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,497
|
|
|
$
|
100,060
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,185
|
|
|
|
7,584
|
|
Loss on sale
of eye disease business and non-cash impairment charges
|
|
|
|
|
|
|
14,107
|
|
Impairment of assets
|
|
|
559
|
|
|
|
|
|
Impact of inventory step-up related to inventory sold
|
|
|
|
|
|
|
51
|
|
Amortization of debt discount and debt issuance costs
|
|
|
11,755
|
|
|
|
11,452
|
|
Amortization of premiums and discounts on investments
|
|
|
(71
|
)
|
|
|
(517
|
)
|
Acquired in-process research and development charge
|
|
|
5,000
|
|
|
|
|
|
Non-cash compensation charge
|
|
|
18,500
|
|
|
|
14,892
|
|
Deferred tax provision
|
|
|
36,404
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(9,914
|
)
|
|
|
3,481
|
|
Inventory
|
|
|
616
|
|
|
|
220
|
|
Prepaid expenses and other current assets
|
|
|
(9,253
|
)
|
|
|
3,446
|
|
Other assets
|
|
|
(4,295
|
)
|
|
|
(1,163
|
)
|
Accounts payable and accrued expenses
|
|
|
6,063
|
|
|
|
(15,179
|
)
|
Unearned revenue
|
|
|
(2,583
|
)
|
|
|
(33,826
|
)
|
Accrued post-retirement benefit cost and other
|
|
|
(33
|
)
|
|
|
10
|
|
|
|
|
Net cash provided by operating activities
|
|
|
110,430
|
|
|
|
104,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of
short and long-term available-for-sale securities
|
|
|
(452,908
|
)
|
|
|
(273,933
|
)
|
Maturities and sales of short and long-term available-for-sale securities
|
|
|
285,478
|
|
|
|
162,190
|
|
Additions to property, equipment and leasehold improvements
|
|
|
(57,877
|
)
|
|
|
(3,304
|
)
|
Purchase of intangible assets
|
|
|
|
|
|
|
(8,000
|
)
|
Purchase of intellectual property (acquired in-process research and
development)
|
|
|
(5,000
|
)
|
|
|
|
|
Purchase of equity investments
|
|
|
(15,000
|
)
|
|
|
|
|
Other
|
|
|
(13
|
)
|
|
|
(1,415
|
)
|
|
|
|
Net cash (used in) investing activities
|
|
|
(245,320
|
)
|
|
|
(124,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options,
employee stock purchase plan, and other
|
|
|
5,523
|
|
|
|
15,468
|
|
Employee taxes paid related to equity awards
|
|
|
(90
|
)
|
|
|
(785
|
)
|
Proceeds from the issuance of convertible senior subordinated notes
|
|
|
|
|
|
|
200,000
|
|
Debt issuance costs
|
|
|
|
|
|
|
(6,730
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
(64,998
|
)
|
Repurchase of a portion of the 2023 Notes
|
|
|
|
|
|
|
(50,050
|
)
|
|
|
|
Net cash provided by financing activities
|
|
|
5,433
|
|
|
|
92,905
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(129,457
|
)
|
|
|
73,061
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(55
|
)
|
|
|
(1,043
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
272,936
|
|
|
|
162,737
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
143,424
|
|
|
$
|
234,755
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
1,775
|
|
|
$
|
1,738
|
|
|
|
|
Cash paid for interest
|
|
$
|
10,398
|
|
|
$
|
8,520
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In this Quarterly Report on Form 10-Q, OSI, our company, we, us, and our refer to
OSI Pharmaceuticals, Inc. and its subsidiaries. We own or have rights to use various copyrights,
trademarks and trade names used in our business, including Tarceva
®
(erlotinib) and Novantrone
®
(mitoxantrone for injection concentrate). This
Form 10-Q also includes trademarks, service marks and trade names of other companies. As a result
of our decision to divest the eye disease business previously held by our wholly-owned subsidiary,
Oldtech, Inc. (formerly (OSI) Eyetech, Inc.), or (OSI) Eyetech, the operating results for (OSI)
Eyetech are shown as discontinued operations for all periods presented in the accompanying
consolidated statement of operations. We completed the divestiture of the remaining assets of our
eye disease business to Eyetech Inc. in August 2008. The (OSI) Eyetech-related assets and
liabilities which, as a result of the divestiture, were sold or are in the process of being wound
down, have been classified as assets and liabilities related to discontinued operations in our
September 30, 2009 and December 31, 2008 consolidated balance sheets.
(1)
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for
interim financial information and with the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments considered necessary for a
fair presentation have been included. Operating results for the three and nine months ended
September 30, 2009 are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2009. For further information, refer to the consolidated financial
statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.
On July 1, 2009, the Financial Accounting Standards Board Accounting Standards Codification,
or FASB ASC, became the single official source of authoritative, nongovernmental GAAP standards,
superseding all previous accounting standards. Accordingly, all references to GAAP standards within
our 10-Q have been revised to reference the new accounting literature. The Codification does not
change GAAP and did not impact our financial position or results of operations.
Certain reclassifications have been made to the consolidated statements of operations for the
three and nine months ended September 30, 2008 to conform to the presentation for the three and
nine months ended September 30, 2009. These reclassifications include a reclassification of
revenue categories within total revenues to conform to the presentation for the three and nine
months ended September 30, 2009.
The consolidated statement of operations for the three and nine months ended September 30,
2008 and the balance sheet as of December 31, 2008 reflect the retrospective application of FASB
ASC Subtopic No. 470-20, which includes the accounting literature formerly known as FASB Staff Position Accounting Principles Board, or FSP APB, 14-1, Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement). See Notes 15 and 16 below for further
explanation of the impact of adopting this standard had on our financial statements.
4
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
We evaluated all events or transactions that occurred after September 30, 2009 up through the
filing of this Form 10-Q on November 6, 2009. During this period we did not have any material
recognized or unrecognized subsequent events.
(2)
Revenue Recognition
Tarceva-related revenues include net revenue from unconsolidated joint business and
Tarceva-related milestones and royalties. Other revenues include license, milestone, royalties and
commissions from sources other than Tarceva. Our revenue recognition policies with respect to
these revenue sources are described below.
(a)
Tarceva-Related Revenues: Net Revenue from Unconsolidated Joint Business
Net revenue from unconsolidated joint business is related to our co-promotion and
manufacturing agreements with Genentech, Inc., a wholly-owned subsidiary of Roche, and our U.S.
collaborator for Tarceva. It consists of our share of the pretax co-promotion profit generated
from our co-promotion arrangement with Genentech for Tarceva, the reimbursement from
Genentech of most of our sales and marketing costs related to Tarceva and the reimbursement from Genentech
of our manufacturing costs related to Tarceva. Under the co-promotion arrangement, all U.S. sales
of Tarceva and associated costs and expenses are recognized by Genentech. Genentech is also
responsible for estimating reserves for anticipated returns, rebates and allowances of Tarceva and
monitoring the adequacy of these reserves. If actual future results differ from our estimates and
Genentechs, we may need to record an adjustment which could have an effect on earnings in the
period containing the adjustment.
For the three months ended September 30, 2009 and 2008, Genentech recorded approximately $118
million and $110 million, respectively, in net sales of Tarceva in the United States and its
territories. For the nine months ended September 30, 2009 and 2008, Genentech recorded
approximately $342 million and $340 million, respectively, in net sales of Tarceva in the United
States and its territories. We record our 50% share of the co-promotion pretax profit on a
quarterly basis, as set forth in our agreement with Genentech. Pretax co-promotion profit under
the co-promotion arrangement is derived by calculating U.S. net sales of Tarceva to third-party
customers and deducting costs of sales, distribution and selling and marketing expenses incurred by
Genentech and us. The reimbursement of our sales and marketing costs related to Tarceva is
recognized as revenue as the related costs are incurred. We defer the recognition of the
reimbursement of our manufacturing costs related to Tarceva until the time Genentech ships the
product to third-party customers, at which time our risk of inventory loss no longer exists. The
unearned revenue related to shipments by our third party manufacturers of Tarceva to Genentech that
have not been shipped to third-party customers was $6.7 million and $6.6 million as of September
30, 2009 and December 31, 2008, respectively, and is included in unearned revenue-current in the
accompanying consolidated balance sheets.
For the three months ended September 30, 2009 and 2008, revenues from our share of the pretax
co-promotion profit generated from our co-promotion arrangement with Genentech for Tarceva and the
reimbursement from Genentech of most of our sales and marketing costs related to Tarceva were $49.0
million and $42.9 million, respectively, and revenues from the reim-
5
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
bursement of our manufacturing costs were $1.9 million and $2.6 million, respectively. For the
nine months ended September 30, 2009 and 2008, revenues from our share of the pretax co-promotion
profit generated from our co-promotion arrangement with Genentech for Tarceva and the
reimbursement from Genentech of most of our sales and marketing costs related to Tarceva were $141.8
million and $139.7 million, respectively, and revenues from the reimbursement of our manufacturing
costs were $6.8 million and $7.5 million, respectively.
(b)
Royalties
We estimate royalty revenue and royalty receivables in the periods these royalties are earned,
in advance of collection, when collections are reasonably assured.
Our estimate of royalty revenue
and receivables is based upon communication with our collaborators. Differences between actual
royalty revenues and estimated royalty revenues are adjusted in the period in which they become
known, typically the following quarter. Historically, such adjustments have not been material to
our consolidated financial position or results of operations.
The royalty amount with respect to ex-U.S. Tarceva sales is calculated by converting the
Tarceva sales for each country in their respective local currency into Roches functional currency
(Swiss francs) and then to U.S. dollars. The royalties are paid to us in U.S. dollars on a
quarterly basis. As a result, fluctuations in the value of the U.S. dollar and Swiss franc against
the local currencies in which Tarceva is sold, will impact our royalty revenue.
(c)
License and Milestones
Our revenue recognition policies for all nonrefundable upfront license fees and milestone
arrangements are in accordance with the guidance provided in the Securities and Exchange
Commission, or SEC, Staff Accounting Bulletin No. 104, Revenue Recognition. In addition, we have
applied the guidance in FASB ASC Subtopic No. 605-25, which includes the accounting literature
formerly known as Emerging Issues Task Force Issue, or EITF Issue, 00-21, Revenue Arrangements
with Multiple Deliverables, for recognizing revenue in multiple-element revenue arrangements
entered into or materially amended after June 15, 2003, with respect to upfront and milestone
payments received under collaborative research agreements.
Milestones which have been received from Genentech after June 2004 and the remaining unearned
upfront fee as of June 2004 are being recognized over the expected performance period of our
Manufacturing and Supply Agreement with Genentech. The unrecognized unearned revenue related to
the milestones and upfront payment received from Genentech was $25.6 million as of September 30,
2009, of which $2.3 million was classified as short-term and the balance of $23.3 million was
classified as long-term in the accompanying consolidated balance sheet. The unrecognized unearned
revenue related to the milestones and upfront payment received from Genentech was $27.3 million as
of December 31, 2008, of which $2.3 million was classified as short-term and the balance of $25.0
million was classified as long-term in the accompanying consolidated balance sheet. Milestone
payments received from Roche are recorded as unearned
revenue and recognized over the expected remaining term of the
research collaboration, at that time, on a
straight-line basis. The unearned revenue related to the milestones we received from Roche was $8.7
million as of September 30, 2009, of which $1.4 million was classified as short-term and the
balance of
6
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
$7.3 million was classified as long-term in the accompanying consolidated balance sheet. The
unearned revenue related to the milestones we received from Roche was $9.7 million as of December
31, 2008, of which $1.6 million was classified as short-term and the balance of $8.1 million was
classified as long-term in the accompanying consolidated balance sheet.
We have entered into several worldwide non-exclusive license agreements under our dipeptidyl
peptidase IV, or DPIV, patent portfolio covering the use of DPIV inhibitors for the treatment of
type 2 diabetes and related indications. In addition to upfront fees received from these
agreements, we are entitled to receive milestone payments upon the achievement of certain events
and royalty payments on net sales. Under the terms of the agreements, we recognized royalties of
(i) $17.3 million and $12.8 million for the three months ended September 30, 2009 and 2008,
respectively, and (ii) $40.1 million and $26.8 million for the nine months ended September 30, 2009
and 2008, respectively.
The other revenues line item in the accompanying consolidated statements of operations for the
three and nine months ended September 30, 2009 also includes a $5 million milestone payment related
to a non-exclusive licensing agreement under our DPIV patent portfolio.
(3)
Product Development and Commercialization Agreements
As part of our business strategy we periodically enter into collaboration agreements that
provide either us or our collaborators with rights to develop, manufacture and sell drug products
using certain know-how, technology and patent rights. The terms of these collaboration agreements
may entitle us to receive or make milestone payments upon the achievement of certain product
research and development, or R&D, objectives and receive or pay royalties on future sales of
commercial products resulting from the collaboration.
On January 1, 2009, we adopted a new accounting standard which provides for enhanced
disclosure of collaborative relationships and requires that certain transactions between
collaborators be recorded in the income statement on either a gross or net basis, depending on the
characteristics of the collaboration relationship. We evaluated our collaborative agreements for
proper income statement classification based on the nature of the underlying activity. If payments
to and from our collaborative partners are not within the scope of other authoritative accounting
literature, the income statement classification for the payments is based on a reasonable, rational
analogy to authoritative accounting literature that is applied in a consistent manner. Amounts due
from our collaborative partners related to development activities are generally reflected as a
reduction of R&D expense because the performance of contract development services is not central to
our operations. For collaborations for commercialized products, if we are the principal, we record
revenue and the corresponding operating costs in their respective line items within our
consolidated statement of operations. If we are not the principal, we record operating costs as a
reduction of revenue. The principal is the party that is responsible for delivering the product or
service to the customer, has latitude with respect to establishing price, and bears the risks and
rewards of providing product or service to the customer, including inventory and credit risk. The
application of this new accounting standard did not affect our financial position or results of
operations for the three and nine months ended September 30, 2009, however it resulted in enhanced
disclosures of our collaboration activities.
7
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
For the three and nine months ended September 30, 2009, we recorded $5.3 million and $15.9
million, respectively, of reimbursed costs from our collaborators as a reduction in R&D expenses,
compared to $4.0 million and $8.9 million, respectively, for the three and nine months ended
September 30, 2008.
(a)
Genentech and Roche
On January 8, 2001, we entered into an alliance with Genentech and Roche for the global
co-development and commercialization of Tarceva. We have entered into separate agreements with
both Genentech and Roche with respect to the alliance, as well as a Tripartite Agreement.
Under
the Tripartite Agreement, we agreed with Genentech and Roche to optimize the use of
each partys resources to develop Tarceva in certain countries around the world and share certain
global development costs; to share information generated under a global development plan; to
facilitate attainment of necessary regulatory approvals of Tarceva for commercial marketing and
sale in certain countries around the world; and to work together on such matters as the parties
agree from time to time during the development of Tarceva. We, as well as Genentech and Roche, may
conduct clinical and pre-clinical activities for additional indications for Tarceva not called for
under the global development plan, subject to certain conditions. The Tripartite Agreement will
terminate when either the OSI/Genentech collaboration agreement or the OSI/Roche agreement
terminates. Any reimbursement from or payments to Genentech or Roche for R&D costs under the cost
sharing arrangement of the Tripartite Agreement are recorded as an increase or decrease to R&D
expenses in the accompanying consolidated statements of operations.
Under the OSI/Genentech collaboration agreement, we agreed to collaborate in the product
development of Tarceva with the goals of obtaining regulatory approval for commercial marketing and
sale in the United States of products resulting from the collaboration, and subsequently,
supporting the commercialization of the product. Consistent with the development plan and with the
approval of a joint steering committee, we agreed with Genentech as to who will own and be
responsible for the filing of drug approval applications with the U.S. Food and Drug
Administration, or FDA, other than the first new drug application, or NDA, which we owned and
filed, and the first supplemental NDA, which we owned and filed. Genentech has primary
responsibility for the design and implementation of all product launch activities and the
promotion, marketing and sales of all products resulting from the collaboration in the United
States, its territories and Puerto Rico.
We have certain co-promotion rights under the OSI/Genentech collaboration agreement, which are
defined in amendments to the agreement effective as of June 4, 2004 and April 11, 2007. We have
agreed with Genentech that OSI employees will comprise 50% of the combined U.S. sales force through
the end of the 2010 calendar year, after which time the size and composition
of the sales force may be adjusted. We share equally in the operating profits or
losses on products resulting from the collaboration. Under the OSI/Genentech collaboration
agreement, we granted to Genentech a royalty-free non-transferable (except under certain
circumstances), non-sublicensable (except under certain circumstances), co-exclusive license under
our patents and know-how related to Tarceva to use, sell, offer for sale and import products
resulting from
8
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
the collaboration in the United States, its territories and Puerto Rico. In addition,
Genentech granted to us a royalty-free non-transferable (except under certain circumstances),
non-sublicensable (except under certain circumstances), co-exclusive license to certain patents and
know-how held by Genentech to use, make, have made, sell, offer for sale and import products
resulting from the collaboration in the United States, its territories and Puerto Rico. We have
primary responsibility for patent filings for the base patents protecting Tarceva and, in addition,
we have the right, but not the obligation, to institute, prosecute and control patent infringement
claims relating to the base patents.
In connection with our collaboration with Genentech, Genentech recognizes all U.S. sales of
Tarceva. We recognize revenues from our alliance with Genentech, which consists of our 50% share
of the pre-tax profits (loss) generated from the sales of Tarceva in the United States. We also
recognize manufacturing revenue from the sale of inventory to Genentech for commercial sales of
Tarceva in the United States and reimbursement from Genentech of our Tarceva-related commercial
expenses. In addition, we are entitled to milestones under certain circumstances. We receive
royalties on sales of Tarceva outside of the United States by Roche.
The OSI/Genentech collaboration agreement continues until the date on which neither we nor
Genentech are entitled to receive a share of the operating profits or losses on any products
resulting from the collaboration, that is, until the date that we and Genentech mutually agree to
terminate the collaboration or until either party exercises its early termination rights. The
OSI/Genentech collaboration agreement is subject to early termination in the event of certain
customary defaults, such as material breach of the agreement and bankruptcy. The provisions of the
agreement allowing us to co-promote are also subject to termination by Genentech upon a material
breach by us of the agreement, which remains uncured, or upon a pattern of nonmaterial breaches
which remains uncured. In addition, Genentech has the right to terminate the OSI/Genentech
collaboration agreement with six months prior written notice.
Effective June 4, 2004, we entered into a Manufacturing and Supply Agreement with Genentech
that defined each partys responsibilities with respect to the manufacture and supply of clinical
and commercial quantities of Tarceva. Under certain circumstances, if we fail to supply such
clinical and commercial quantities, Genentech has the right, but not the obligation, to assume
responsibility for such supply. The Manufacturing and Supply Agreement will terminate upon the
termination of the OSI/Genentech collaboration agreement.
Under the OSI/Roche agreement, we granted to Roche a license to our intellectual property
rights with respect to Tarceva. Roche is collaborating with us and Genentech in the continued
development of Tarceva and is responsible for marketing and commercialization of Tarceva outside of
the United States in certain territories as defined in the agreement. The grant is
royalty-bearing, non-transferable (except under certain circumstances), non-sublicensable (except
under certain circumstances), and provides for the sole and exclusive license to use, sell, offer
for sale and import products resulting from the development of Tarceva worldwide, other than the
territories covered by the OSI/Genentech collaboration agreement. In addition, Roche has the
right, which it has exercised, to manufacture commercial supplies of Tarceva for its
territory, subject to certain exceptions. Roche is obligated to pay us certain milestone payments
and royalty payments on sales of products resulting from the collaboration including Tarceva. We
have
9
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
primary responsibility for patent filings for the base patents protecting Tarceva and, in
addition, we have the right, but not the obligation, to institute, prosecute and control patent
infringement claims relating to the base patents. The OSI/Roche agreement continues until the date
on which we are no longer entitled to receive a royalty on products resulting from the development
of Tarceva, that is, until the date of expiration or revocation or complete rejection of the last
to expire patent covering Tarceva or, in countries where there is no valid patent covering Tarceva,
on the tenth anniversary of the first commercial sale of Tarceva in that country, or until either
party exercises early termination rights. The OSI/Roche agreement is subject to early termination
in the event of certain customary defaults, such as material breach of the agreement and
bankruptcy. In addition, Roche has the right to terminate the agreement on a country-by-country
basis with six months prior written notice and we have the right to terminate the agreement on a
country-by-country basis if Roche has not launched or marketed a product in such country under
certain circumstances.
(b)
AVEO
On September 28, 2007, we entered into a small molecule drug discovery and translational
research collaboration with AVEO Pharmaceuticals, Inc., or AVEO. The purpose of this collaboration
is the development of therapies that target the underlying mechanisms of epithelial-to-mesenchymal
transition, or EMT, in cancer. EMT is a process of emerging significance in tumor development and
disease progression and the focal point of our proprietary oncology research under the
collaboration. We are collaborating with AVEO to develop proprietary target-driven tumor models
for use in drug screening and biomarker validation, and intend to employ these models in support of
our oncology drug discovery and clinical programs. Under the terms of this original collaboration
agreement, we paid AVEO a $10.0 million upfront cash payment (which included $2.5 million research
funding for the first year of the collaboration) and purchased $5.5 million of AVEO preferred
stock. We also agreed to provide AVEO with future research funding, as well as milestones and
royalties upon successful development and commercialization of products from the collaboration.
$7.5 million of the upfront payment was recognized as an acquired in-process R&D charge. The $2.5
million of first year research funding was recognized as a prepaid asset and was amortized over one
year, the period AVEO delivered research services under the collaboration. The acquired preferred
stock is recorded as a cost based investment in other assets in the accompanying consolidated
balance sheets.
In July 2009, we expanded our drug discovery and translational research collaboration with
AVEO in an effort to validate cancer targets and deploy key elements of AVEOs proprietary
translational research platform in support of our clinical development programs. Under the terms of
the expanded collaboration, we paid AVEO a $5.0 million upfront cash payment and purchased $15.0
million of AVEO preferred stock. The $5.0 million payment was recognized as an acquired in-process
R&D charge in the quarter ended September 30, 2009 because it was deemed to be related to
in-process technology, which was deemed to have no alternative future use. We will also provide
AVEO with research funding over the next two years to support the
collaboration and we obtained an option to further expand the collaboration which would
require us to make an additional payment to AVEO the amount of which
would be determined if the option is exercised. We are also required to pay AVEO milestones and
10
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
royalties upon achievement of certain clinical and regulatory events and successful
development and commercialization of products coming out of the collaboration.
(4)
Income Per Share
Basic income per share is computed by dividing net income by the weighted-average number of
common shares outstanding during the reporting period. Diluted income per common share is computed
by dividing net income plus interest on dilutive convertible debt by the weighted-average number of
common shares outstanding during the reporting period, increased to include all additional common
shares that would have been outstanding assuming potentially dilutive common share equivalents had
been issued. Dilutive common share equivalents include the dilutive effect of the common stock
underlying in-the-money stock options, and are calculated based on the average share price for each
period using the treasury stock method.
Under the treasury stock method, the exercise price of an option, the average amount of
compensation cost, if any, for future service that we have not yet recognized, and the amount of
tax benefits that would be recorded in additional paid-in capital, if any, when the option is
exercised, are assumed to be used to repurchase shares in the current period. Dilutive common
share equivalents also reflect the dilutive effect of unvested restricted stock units, deferred
stock units and restricted stock and the conversion of convertible debt which is calculated using
the if-converted method. In addition, in computing the dilutive effect of convertible debt, the
numerator is adjusted to add back the after-tax amount of interest and debt issuance cost
recognized in the period. As of September 30, 2009, our outstanding convertible senior debt
consisted of our 3.25% Convertible Senior Subordinated Notes due 2023, or our 2023 Notes, our 2%
Convertible Senior Subordinated Notes due 2025, or our 2025 Notes, and our 3% Convertible Senior
Subordinated Notes due 2038, or our 2038 Notes.
As discussed in Notes 15 and 16 below, our retrospective adoption of FASB ASC Subtopic No.
470-20, which includes the accounting literature formerly known as FSP APB 14-1, resulted in our
recognition of additional interest expense, decreasing our net income for the three and nine months
ended September 30, 2009 and 2008 and causing us to resequence our senior subordinated convertible
notes for dilutive calculation purposes under the if-converted method for the three and nine
months ended September 30, 2008.
11
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The computations for basic and diluted income per share from continuing operations were as
follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
Net income from continuing operations basic
|
|
$
|
17,864
|
|
|
$
|
31,362
|
|
|
$
|
50,876
|
|
|
$
|
94,124
|
|
Add: Interest and issuance costs related to convertible notes
net of tax
|
|
|
495
|
|
|
|
910
|
|
|
|
1,486
|
|
|
|
3,557
|
|
|
|
|
|
|
Net income from continuing operations diluted
|
|
$
|
18,359
|
|
|
$
|
32,272
|
|
|
$
|
52,362
|
|
|
$
|
97,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
57,973
|
|
|
|
57,437
|
|
|
|
57,900
|
|
|
|
57,218
|
|
Dilutive effect of options and restricted stock
|
|
|
539
|
|
|
|
1,227
|
|
|
|
594
|
|
|
|
821
|
|
Dilutive effect of 2023 Notes
|
|
|
1,998
|
|
|
|
1,999
|
|
|
|
1,998
|
|
|
|
2,408
|
|
Dilutive effect of 2025 Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of 2038 Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and dilutive potential
common shares diluted
|
|
|
60,510
|
|
|
|
60,663
|
|
|
|
60,492
|
|
|
|
60,447
|
|
|
|
|
|
|
Net income per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
0.55
|
|
|
$
|
0.88
|
|
|
$
|
1.65
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.30
|
|
|
$
|
0.53
|
|
|
$
|
0.87
|
|
|
$
|
1.62
|
|
|
|
|
|
|
Under the if-converted method, approximately 3.9 million common share equivalents related to
our 2025 Notes, and approximately 2.7 million common share equivalents related to our 2038 Notes,
were not included in diluted earnings per share for the three and nine months ended September 30,
2009 and 2008 because their effect would be anti-dilutive. The table below sets forth (in
thousands) the common share equivalents related to convertible notes and equity plans and the
interest expense related to the convertible notes not included in dilutive shares because their
effect would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
Common share equivalents convertible notes
|
|
|
6,618
|
|
|
|
6,618
|
|
|
|
6,618
|
|
|
|
6,536
|
|
Common share equivalents equity plans
|
|
|
3,152
|
|
|
|
1,451
|
|
|
|
2,805
|
|
|
|
2,702
|
|
Convertible note interest and issuance expense not
added back under the if-converted method
|
|
$
|
3,715
|
|
|
$
|
5,737
|
|
|
$
|
10,968
|
|
|
$
|
16,749
|
|
12
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(5)
Comprehensive Income
Comprehensive income, which includes foreign currency translation adjustments, post-retirement
adjustments, unrealized gains or losses on our available-for-sale securities and unrealized gains
or losses on our qualified derivative instruments, for the three and nine months ended September
30, 2009 and 2008, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
Net income
|
|
$
|
17,566
|
|
|
$
|
51,643
|
|
|
$
|
50,497
|
|
|
$
|
100,060
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(2,024
|
)
|
|
|
(3,010
|
)
|
|
|
2,367
|
|
|
|
(2,900
|
)
|
Post-retirement plan
|
|
|
(8
|
)
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
Unrealized holding gains (losses) arising during period
|
|
|
3,448
|
|
|
|
(1,385
|
)
|
|
|
4,653
|
|
|
|
(1,582
|
)
|
Unrealized losses on derivative instruments
|
|
|
(8
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
18,974
|
|
|
$
|
47,248
|
|
|
$
|
57,476
|
|
|
$
|
95,578
|
|
|
|
|
|
|
The components of accumulated other comprehensive income (loss) was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
(1,372
|
)
|
|
$
|
(3,739
|
)
|
Post-retirement plan
|
|
|
354
|
|
|
|
378
|
|
Unrealized gain (loss) on available-for-sale securities, net of
tax
|
|
|
4,106
|
|
|
|
(547
|
)
|
Unrealized losses on derivative instruments, net of tax
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) )
|
|
$
|
3,071
|
|
|
$
|
(3,908
|
)
|
|
|
|
|
|
|
|
(6)
Fair Value Measurements
FASB ASC Subtopic No. 820-10, which incorporates accounting literature formerly known as
Statement of Financial Accounting Standards, or SFAS, No. 157, Fair Value Measurements and FSP
FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability
have Significantly Decreased and Identifying Transactions that Are Not Orderly, defines fair value
as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (i.e., the exit price).
FASB ASC Section No. 820-10-35 establishes a three-tier fair value hierarchy which prioritizes
the inputs used in measuring fair value. The three tiers include:
(i)
Level 1
quoted prices in active markets for identical assets and liabilities;
(ii)
Level 2
observable inputs other than quoted prices in non-active markets for identical
assets and liabilities or quoted prices for similar assets or liabilities in active markets; and
13
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(iii)
Level 3
unobservable inputs for which little or no market data exists, requiring
management to develop its own assumptions.
Except for our cash equivalents, our financial assets and liabilities have been classified as
Level 2. These assets and liabilities have been initially valued at the transaction price and
subsequently valued typically utilizing third party pricing services. The pricing services use many
inputs to determine value, including reportable trades, benchmark yields, credit spreads,
broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. We
validate the prices provided by our third party pricing services by reviewing their pricing methods
and matrices, obtaining market values from other pricing sources and analyzing pricing data in
certain instances.
Investment securities at September 30, 2009 consisted primarily of U.S. government agency
securities and debt securities of financial institutions and corporations. The following table
summarizes the fair value at September 30, 2009, and the classification by level of input within
the fair value hierarchy set forth above, of our cash equivalents, investment securities,
restricted investments, derivatives and convertible senior subordinated notes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Market for
|
|
Other
|
|
Significant
|
|
|
|
|
As Reflected
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
on the
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
Balance Sheet
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
119,392
|
|
|
$
|
119,392
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
119,392
|
|
Investment securities
|
|
|
396,340
|
|
|
|
|
|
|
|
396,340
|
|
|
|
|
|
|
|
396,340
|
|
Restricted investments
|
|
|
2,304
|
|
|
|
|
|
|
|
2,304
|
|
|
|
|
|
|
|
2,304
|
|
Other assets
|
|
|
19,956
|
|
|
|
18,521
|
|
|
|
1,435
|
|
|
|
|
|
|
|
19,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (see Note 8)
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2038 Notes (Face value $200,000)
|
|
|
174,426
|
|
|
|
|
|
|
|
182,420
|
|
|
|
|
|
|
|
182,420
|
|
2025 Notes (Face value $115,000)
|
|
|
105,210
|
|
|
|
|
|
|
|
146,545
|
|
|
|
|
|
|
|
146,545
|
|
2023 Notes (Face value $99,950)
|
|
|
99,950
|
|
|
|
|
|
|
|
93,933
|
|
|
|
|
|
|
|
93,933
|
|
The $143.4 million of cash and cash equivalents reported in the accompanying consolidated
balance sheets as of September 30, 2009 included $119.4 million of cash equivalents consisting of
money market funds and commercial paper with original maturities at the date of purchase of three
months or less, which are carried at cost, and not marked-to-market.
14
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Investment securities at December 31, 2008 consisted primarily of U.S. government agency
securities and debt securities of financial institutions and corporations. The following table
summarizes the fair value at December 31, 2008 and the classification by level of input within the
fair value hierarchy set forth above of our cash equivalents, investment securities, restricted
investments and convertible senior subordinated notes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Market for
|
|
Other
|
|
Significant
|
|
|
|
|
As Reflected
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
on the
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
Balance Sheet
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
250,380
|
|
|
$
|
248,181
|
|
|
$
|
2,201
|
|
|
$
|
|
|
|
$
|
250,382
|
|
Investment securities
|
|
|
240,328
|
|
|
|
|
|
|
|
240,328
|
|
|
|
|
|
|
|
240,328
|
|
Restricted investments
|
|
|
2,247
|
|
|
|
|
|
|
|
2,247
|
|
|
|
|
|
|
|
2,247
|
|
Other assets
|
|
|
1,104
|
|
|
|
|
|
|
|
1,104
|
|
|
|
|
|
|
|
1,104
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2038 Notes (Face value $200,000)
|
|
|
169,326
|
|
|
|
|
|
|
|
161,220
|
|
|
|
|
|
|
|
161,220
|
|
2025 Notes (Face value $115,000)
|
|
|
99,819
|
|
|
|
|
|
|
|
157,010
|
|
|
|
|
|
|
|
157,010
|
|
2023 Notes (Face value $99,950)
|
|
|
99,950
|
|
|
|
|
|
|
|
85,407
|
|
|
|
|
|
|
|
85,407
|
|
The $272.9 million of cash and cash equivalents reported in the accompanying consolidated
balance sheet as of December 31, 2008, included $250.4 million of cash equivalents consisting of
money market funds and commercial paper with original maturities of three months or less, which are
carried at cost, and not marked-to-market.
Our convertible senior subordinated notes are not marked-to-market and are shown in the
accompanying consolidated balance sheets at their original issuance value, net of amortized
discount. The estimated fair value of our convertible senior subordinated notes as of September 30,
2009 and December 31, 2008 is provided as disclosure only.
Included in other assets in the accompanying consolidated balance sheets as of September 30,
2009 and December 31, 2008 was $22.5 million and $7.5 million, respectively, of cost-based equity
investments in non-public biotechnology companies. The determination of fair value of these
investments was not deemed practical given that the cost of such determination would be excessive
relative to the materiality of these investments to our financial position. We do not believe that
any of these investments were impaired as of September 30, 2009.
The carrying amounts reflected in the accompanying consolidated balance sheets for cash,
accounts receivable, due from unconsolidated joint business, other current assets, accounts payable
and accrued expenses approximate fair value due to their short-term nature.
(7)
Investments
As of September 30, 2009, approximately 55% of our cash equivalents and investment securities
consisted of AAA rated and A1 rated securities, including our money market funds, which are AAA
rated. The remainder of our investment securities consisted primarily of investment grade corporate
debt. The overall average credit rating of our portfolio of investment securities was AA/Aa2 as of
September 30, 2009. We have established guidelines relative to the diversification of our
investments and their maturities with the principal objectives of capital preservation and
liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in
yields and interest rates.
15
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following is a summary of available-for-sale securities as of September 30, 2009 and
December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
September 30, 2009
|
|
Costs
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
U.S. government and U.S. government agency
securities
|
|
$
|
43,404
|
|
|
$
|
232
|
|
|
$
|
|
|
|
$
|
43,636
|
|
Corporate and financial institutions debt
|
|
|
351,496
|
|
|
|
1,418
|
|
|
|
(210
|
)
|
|
|
352,704
|
|
|
|
|
Total investment securities
|
|
|
394,900
|
|
|
|
1,650
|
|
|
|
(210
|
)
|
|
|
396,340
|
|
Restricted investments
|
|
|
2,302
|
|
|
|
2
|
|
|
|
|
|
|
|
2,304
|
|
Other assets (available-for-sale equity investments)
|
|
|
13,474
|
|
|
|
5,101
|
|
|
|
|
|
|
|
18,575
|
|
|
|
|
Total
|
|
$
|
410,676
|
|
|
$
|
6,753
|
|
|
$
|
(210
|
)
|
|
$
|
417,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
December 31, 2008
|
|
Costs
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
U.S. government and U.S. government agency
securities
|
|
$
|
66,007
|
|
|
$
|
607
|
|
|
$
|
|
|
|
$
|
66,614
|
|
Corporate and financial institutions debt
|
|
|
170,634
|
|
|
|
74
|
|
|
|
(1,247
|
)
|
|
|
169,461
|
|
Municipal securities
|
|
|
4,237
|
|
|
|
16
|
|
|
|
|
|
|
|
4,253
|
|
|
|
|
Total investment securities
|
|
|
240,878
|
|
|
|
697
|
|
|
|
(1,247
|
)
|
|
|
240,328
|
|
Restricted investments
|
|
|
2,244
|
|
|
|
3
|
|
|
|
|
|
|
|
2,247
|
|
|
|
|
Total
|
|
$
|
243,122
|
|
|
$
|
700
|
|
|
$
|
(1,247
|
)
|
|
$
|
242,575
|
|
|
|
|
Net realized gains (losses) on sales of investment securities during the three and nine months
ended September 30, 2009 were $172,000 and $389,000, respectively, compared to $0 and $5,600 for
the three and nine months ended September 30, 2008, respectively.
The gross unrealized losses on our investments were $210,000 as of September 30, 2009, all of
which occurred during 2009. For available-for-sale debt securities with unrealized losses,
management performs an analysis to assess whether we intend to sell or whether we would more likely
than not be required to sell the security before the expected recovery of the amortized cost basis.
Where we intend to sell a security, or may be required to do so, the securitys decline in fair
value is deemed to be other-than-temporary and the full amount of the unrealized loss is recorded
within earnings as an impairment loss.
Regardless of our intent to sell a security, we perform additional analysis on all securities
with unrealized losses to evaluate losses associated with the creditworthiness of the security.
Credit losses are identified where we do not expect to receive cash flows sufficient to recover the
amortized cost basis of a security.
16
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Maturities of investment securities classified as available-for-sale were as follows at
September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Fair Value
|
|
|
|
2009
|
|
$
|
34,028
|
|
|
$
|
34,037
|
|
2010
|
|
|
258,060
|
|
|
|
258,951
|
|
2011
|
|
|
85,812
|
|
|
|
86,333
|
|
2012
|
|
|
17,000
|
|
|
|
17,019
|
|
|
|
|
|
|
$
|
394,900
|
|
|
$
|
396,340
|
|
|
|
|
(8)
Derivatives
Our business is subject to foreign exchange rate risk resulting primarily from our operations
in the United Kingdom and the U.S. dollar royalties we receive from Roche which are derived from
local country sales of Tarceva outside of the United States. In the second quarter of 2009, we
initiated a foreign currency hedging program with a risk management objective to reduce volatility
to earnings and cash flows due to changes in foreign exchange rates, primarily through the use of
foreign currency forwards and collars. We do not use derivatives for speculative trading purposes
and are not a party to leveraged derivatives.
We recognize our derivative instruments as either assets or liabilities at fair value in the
accompanying consolidated balance sheets. As discussed further in Note 6 to the consolidated
financial statements, fair value is determined in accordance with FASB ASC Subtopic No. 820-10,
which incorporates the accounting literature formerly known as FAS No. 157 Fair Value
Measurements. The accounting for changes in the fair value of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship and, further, on the
type of hedging relationship. For derivatives designated as hedges
under FASB ASC Subtopic No.
815-20, which incorporates the accounting literature formerly known as SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, we formally assess, both at inception and
periodically thereafter, whether the hedging derivatives are highly effective in offsetting changes
in either the fair value or cash flows of the hedged item.
We enter into foreign currency forwards and collars to protect against possible changes in
value of certain anticipated foreign currency cash flows resulting from changes in foreign currency
exchange rates, primarily associated with royalties received from Euro-denominated sales or
non-functional currency royalty revenues earned by our international operations. We hedge a portion
of our projected international royalties over a short-term period, generally less than one year. As
of September 30, 2009, we had $12.1 million notional equivalent of outstanding foreign currency
collars.
Our foreign exchange contracts are designated as cash flow hedges, and accordingly, the
effective portion of gains and losses on these contracts are reported as a gain or loss in
accumulated other comprehensive income, or AOCI, in the accompanying consolidated balance sheets
and reclassified to earnings in the same periods during which the hedged transactions affect
earnings. At that time, the effective portion of the fair value of these foreign exchange contracts
is included in royalty revenue in the accompanying consolidated
statements of operations. As of
17
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2009, the amount expected to be reclassified into earnings over the next 12
months was approximately $17,000 of losses.
The fair values of our derivative financial instruments designated as hedging instruments and
included in the accompanying consolidated balance sheets as of September 30, 2009 are presented as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet
|
|
|
|
Balance Sheet
|
|
|
|
|
Location
|
|
Fair Value
|
|
Location
|
|
Fair Value
|
Foreign currency contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
|
Accounts payable and accrued expenses
|
|
$ 28
|
|
|
|
|
|
|
|
|
|
The amounts of the gains and losses related to our derivative financial instruments designated
as hedging instruments are presented as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss
|
|
|
Location of Gain or (Loss)
|
|
|
|
|
Recognized in AOCI on Derivatives
|
|
|
Reclassified from AOCI into
|
|
|
Amount of Loss Reclassified from AOCI
|
|
(Effective Portion)
|
|
|
Earnings (Effective Portion)
|
|
|
into Earnings (Effective Portion)
(a)
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
2009
|
|
|
2009
|
|
|
|
|
|
2009
|
|
|
2009
|
|
$
|
(8
|
)
|
|
$
|
(17
|
)
|
|
Royalty revenue
|
|
$
|
(34
|
)
|
|
$
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
There were $18,000 and $26,000 of losses recognized in earnings related to the ineffective
portion of our foreign currency hedges for the three and nine months ended September 30, 2009,
respectively. There were no amounts excluded from the assessment of hedge effectiveness for
both the three and nine months ended September 30, 2009.
|
As a matter of policy, we assess the credit worthiness of our counterparties prior to entering
into a foreign exchange contract as well as periodically throughout the contract period to assess
credit risk. The counterparties to these contracts are major financial institutions. We do not
have significant exposure to any one counterparty. Our exposure to credit loss in the event of
nonperformance by any of the counterparties is limited to only the recognized, but not realized,
gain attributable to the contracts. Management believes risk of default under these hedging
contracts is remote and in any event would not be material to our consolidated financial results.
Our foreign exchange contracts are also subject to certain financial and default based termination
provisions as outlined within the counterparty agreements. If these events were to occur without
satisfactory and timely remediation, the counterparties would have the right, but not the
obligation, to close the contracts under early termination provisions. In such circumstances, the
counterparties could request immediate settlement for amounts that approximate the then-current
fair values of the contracts.
18
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(9)
Accounting for EquityBased Compensation
Total net equity-based compensation expense is attributable to the amortization of the grant
date fair value of stock options, restricted stock, restricted stock units and deferred stock units
granted. Compensation expense related to continuing operations and attributable to equity-based
compensation for the three months ended September 30, 2009 and 2008 was $6.0 million and $5.1
million, respectively. Compensation expense related to continuing operations and attributable to
equity-based compensation for the nine months ended September 30, 2009 and 2008 was $18.5 million
and $14.9 million, respectively.
We estimate the fair value of stock-based awards using the Black-Scholes option-pricing model.
We believe that the valuation technique and the approach utilized to develop the underlying
assumptions are appropriate in calculating the fair values of our granted stock options. Estimates
of fair value are not intended to predict actual future events or the value ultimately realized by
the employees who receive equity awards. Historically, we have satisfied the exercise of options
by issuing previously unissued shares.
For the three and nine months ended September 30, 2009, we granted options to purchase 86,180
and 425,890 shares of common stock, respectively.
The per share weighted average fair value of stock options granted during the three months
ended September 30, 2009 and 2008 was $13.54 and $21.40, respectively. The per share weighted
average fair value of stock options granted during the nine months ended September 30, 2009 and
2008 was $16.26 and $18.03, respectively. In addition to the exercise and grant date prices of the
awards, certain weighted average assumptions that were used to estimate the fair value of stock
option grants in the respective periods are listed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
50.58
|
%
|
|
|
49.62
|
%
|
|
|
50.25
|
%
|
|
|
48.68
|
%
|
Risk-free interest rate
|
|
|
1.70
|
%
|
|
|
3.73
|
%
|
|
|
1.90
|
%
|
|
|
3.67
|
%
|
Expected term (years)
|
|
|
4.97
|
|
|
|
4.67
|
|
|
|
5.35
|
|
|
|
4.67
|
|
(10)
Inventory
Tarceva inventory is stated at the lower of cost or market, with cost being determined using
the weighted average method. Inventory is comprised of three components: raw materials, which are
purchased directly by us; work-in-process, which is primarily active pharmaceutical ingredient, or
API, where title has transferred from our contract manufacturer to us; and finished goods, which
are packaged product ready for commercial sale.
19
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Inventory at September 30, 2009 and December 31, 2008 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Raw materials
|
|
$
|
533
|
|
|
$
|
676
|
|
Work-in-process
|
|
|
8,855
|
|
|
|
8,532
|
|
Finished goods on hand
|
|
|
3,931
|
|
|
|
4,897
|
|
Inventory subject to return
|
|
|
6,203
|
|
|
|
6,034
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
19,522
|
|
|
$
|
20,139
|
|
|
|
|
|
|
|
|
Inventory subject to return represents the amount of Tarceva shipped to Genentech which
has not been recognized as revenue.
(11)
Other Intangible Assets Net
The components of other intangible assets-net were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
Carrying
|
|
Accumulated
|
|
Net Book
|
|
Carrying
|
|
Accumulated
|
|
Net Book
|
|
|
Amount
|
|
Amortization
|
|
Value
|
|
Amount
|
|
Amortization
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangibles
|
|
$
|
10,279
|
|
|
$
|
(2,498
|
)
|
|
$
|
7,781
|
|
|
$
|
9,386
|
|
|
$
|
(1,675
|
)
|
|
$
|
7,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2008, we entered into an amended license agreement pursuant to
which we terminated our obligation to pay royalties to a licensor of certain intellectual property
with whom we had a cross-license related to our DPIV patent estate in consideration for an $8.0
million upfront payment and potential future milestones. The upfront payment has been recorded as
an intangible asset and is being amortized on a straight-line basis from February 2008 through
February 2019, the expiration date of the last to expire patent covered under the license
agreement. Future milestones, if any, will be recorded when probable and amortized to expense from
that date.
Certain of our other intangible assets are recorded on the books of Prosidion Limited, our
U.K. subsidiary, and denominated in British pounds sterling. As a result, the balance reported
fluctuates based upon the changes in exchange rates.
Amortization expense relating to continuing operations for our intangible assets was $229,000
and $693,000, respectively, for the three and nine months ended September 30, 2009 compared to
$646,000 and $1.9 million, respectively, for the three and nine months ended September 30, 2008.
Amortization expense is estimated to be $223,000 for the remaining three months of 2009 and
$891,000 for each of the years 2010 through 2014.
20
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(12)
Consolidation of Facilities
(a)
Ardsley, New York
In July 2009, we announced our plan to consolidate our U.S. operations and completed the
purchase of property, consisting of a 43 acre pre-existing research and development campus, located
in Ardsley, New York, for approximately $27 million. We will be consolidating approximately 350
current employees from our facilities in Melville and Farmingdale, New York, Boulder, Colorado and
Cedar Knolls, New Jersey, into Ardsley, New York. We expect to incur approximately $60 million to
$70 million of capital-related renovation costs over the next fifteen months. In addition, we
expect to incur approximately $25 million to $30 million in restructuring-related costs over the
next two years, which primarily relate to labor-related and relocation costs. We also expect to
recognize additional charges related to exiting leased facilities when these facilities cease to be
used.
As of September 30, 2009, we have made payments of approximately $8.1 million in retention
bonuses and accrued an additional $3.4 million in retention bonuses which will be paid in the
fourth quarter of 2009. These bonuses of $11.5 million will be recognized as an expense over the
requisite service period, which is expected to be complete in September 2011. For the three and
nine months ended September 30, 2009, $434,000 of retention bonuses have been amortized and are
included in the restructuring costs line item on our accompanying consolidated statements of
operations. The remaining $11.1 million of unamortized retention bonuses are included in the
prepaid expenses and other assets line items on the accompanying consolidated balance sheets as of
September 30, 2009.
As a result of our intent to cease to use our current sites in Farmingdale, New York, Boulder,
Colorado and Cedar Knolls, New Jersey, we have revised the estimated useful life of the leasehold
improvements to expire at the end of 2010 and, as a result, have recorded an additional $1.2
million depreciation charge in the third quarter of 2009. We anticipate that these incremental
charges related to revised estimated useful lives will continue to be recorded through the end of
2010.
The activity for the three and nine months ended September 30, 2009 was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
Opening balance, prepaid
|
|
$
|
|
|
|
$
|
|
|
Cash payments and accrual for retention bonuses
|
|
|
11,520
|
|
|
|
11,520
|
|
Amortization of paid retention bonuses
|
|
|
(434
|
)
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
Ending balance, prepaid
|
|
$
|
11,086
|
|
|
$
|
11,086
|
|
|
|
|
|
|
|
|
(b)
Oxford, England
In August 2004, we announced the decision to consolidate all of our U.K.-based oncology R&D
activities into our New York locations. During the year ended December 31, 2005, we recorded a
charge of $4.4 million, in selling, general and administrative expenses for estimated
21
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
facility lease return costs and the remaining rental obligation net of estimated sublease rental
income, within the guidance of FASB ASC Subtopic No. 420-10, which incorporates the accounting
literature formerly known as SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. In the first quarter of 2009, we completed the purchase of the previously leased
research facilities for $3.8 million. As a result of this transaction, refurbishment costs of $1.7
million that were previously accrued have been applied against the acquisition cost of the
building.
The activity for the three and nine months ended September 30, 2009 and 2008 was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
Opening liability
|
|
$
|
|
|
|
$
|
2,366
|
|
|
$
|
1,899
|
|
|
$
|
2,882
|
|
Cash paid for rent
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
(780
|
)
|
Refurbishment adjustment
|
|
|
|
|
|
|
|
|
|
|
(1,674
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
(234
|
)
|
|
|
(225
|
)
|
|
|
(124
|
)
|
|
|
|
|
|
Ending liability
|
|
$
|
|
|
|
$
|
1,978
|
|
|
$
|
|
|
|
$
|
1,978
|
|
|
|
|
|
|
(c)
Eyetech Acquired Facilities
In connection with the acquisition of Eyetech Pharmaceuticals, Inc., or Eyetech, in November
2005, we consolidated facilities in Massachusetts, New York City and Colorado and recognized a
liability for the present value of the future lease payments for each facility offset by sublease
income. The outstanding liabilities as of December 31, 2008 and September 30, 2009 are not
included in the liabilities related to discontinued operations since the obligations were not
transferred in the divestiture of the eye disease business. The liabilities are included in the
accompanying consolidated balance sheets.
The activity for the three and nine months ended September 30, 2009 and 2008 was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
Opening liability
|
|
$
|
2,233
|
|
|
$
|
2,569
|
|
|
$
|
2,295
|
|
|
$
|
3,282
|
|
Accretion expense
|
|
|
36
|
|
|
|
40
|
|
|
|
113
|
|
|
|
120
|
|
Cash paid for rent
|
|
|
(1,294
|
)
|
|
|
(1,193
|
)
|
|
|
(3,887
|
)
|
|
|
(4,498
|
)
|
Sublease income
|
|
|
1,089
|
|
|
|
1,140
|
|
|
|
3,543
|
|
|
|
3,652
|
|
|
|
|
|
|
Ending liability
|
|
$
|
2,064
|
|
|
$
|
2,556
|
|
|
$
|
2,064
|
|
|
$
|
2,556
|
|
|
|
|
|
|
(13)
Employee Post-retirement Plan and Other
(a)
Employee Post-retirement Plan
Prior to April 18, 2007, we provided post-retirement medical and life insurance benefits to
eligible employees, board members and qualified dependents. Eligibility was determined based on
age and service requirements. These benefits are subject to deductibles, co-payment
22
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
provisions and other limitations. On April 18, 2007, we curtailed our post-retirement medical and
life insurance plan and grandfathered those employees, board members and qualified dependents who
were eligible to participate in the plan on that date. Only those grandfathered participants will
continue to be entitled to receive benefits under the plan. These benefits are subject to
deductibles, co-payments and other limitations. The cost of post-retirement medical and life
insurance benefits is being accrued over the active service periods of employees to the date they
attain full eligibility for such benefits. The accrued post-retirement benefit cost at September
30, 2009 and December 31, 2008 totaled $2.6 million and $2.7 million, respectively.
Net post-retirement benefit cost for the three and nine months ended September 30, 2009 and
2008 included the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Interest costs on accumulated post-retirement
benefits obligation
|
|
$
|
33
|
|
|
$
|
44
|
|
|
$
|
101
|
|
|
$
|
132
|
|
Amortization of gain
|
|
|
(8
|
)
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Net post-retirement benefit cost
|
|
$
|
25
|
|
|
$
|
44
|
|
|
$
|
77
|
|
|
$
|
132
|
|
|
|
|
|
|
(b)
Sabbatical Leave Accrual
Sabbatical leave is generally defined as an employees entitlement to paid time off after
working for an entity for a specified period of time. The employee continues to be a compensated
employee and is not required to perform any duties for the entity during the sabbatical leave. We
provide a sabbatical leave of four weeks for employees who have achieved 15 years of service.
Included in accrued post-retirement benefit costs and other as of September 30, 2009 and December
31, 2008 was $528,000 and $468,000, respectively, of accrued sabbatical leave.
(c)
Nonqualified Deferred Compensation Plan
Effective July 2007, we adopted a nonqualified deferred compensation plan which permits
certain employees and directors to elect annually to defer a portion of their compensation, and as
of September 30, 2009 and December 31, 2008, we had accrued $1,526,000 and $682,000 related to this
plan, respectively. The employees select among various investment alternatives, with the
investments held in a separate trust.
(14)
Income Taxes
For the three and nine months ended September 30, 2009, we recorded a provision for income
taxes of $17.3 million and $38.4 million, respectively, related to income from continuing
operations of which approximately $16.1 million and $36.4 million, respectively, represent a
deferred or non-cash tax expense. Included in these deferred tax amounts is a $3.3 million net
operating loss, or NOL, valuation allowance adjustment recorded in the quarter ended September 30,
2009, as a discrete item. The remainder of these provisions represent our cash tax expense, which
consists principally of our estimated expense related to the U.S. alternative minimum tax. The NOL
valuation adjustment of $3.3 million relates to our decision to consolidate our U.S. facili-
23
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
ties into our new site in Ardsley, New York and will limit our ability to use certain state
deferred tax assets, principally our NOLs in the state of Colorado. For the three and nine months
ended September 30, 2008, we recorded a provision for income taxes of $987,000 and $2.8 million,
respectively, related to income from continuing operations, which represented our estimated cash
tax expense principally related to the U.S. alternative minimum tax.
The $280.4 million of net deferred tax assets reflected on the accompanying consolidated
balance sheet as of September 30, 2009 reflect managements assessment that it is more likely than
not that we will be able to generate sufficient future taxable income in the United States to
utilize those deferred tax assets, based on our current estimates and assumptions. If these
estimates and assumptions change in the future, we may be required to record additional valuation
allowances against our deferred tax assets resulting in additional income tax expense in our
consolidated statements of operations. These deferred tax assets consist principally of (i) U.S.
NOLs, (ii) research tax credit carry forwards related to equity-based compensation incurred prior
to our recording equity-based compensation as compensation expense beginning in 2006, and (iii)
NOLs generated in the United Kingdom. As of September 30, 2009, we had recorded approximately $100
million of valuation allowance against our deferred tax assets. In the event that the deferred
taxes associated with approximately $23 million of the U.K. NOLs related to our Prosidion
subsidiary were to be realized in the future, there could be an offsetting U.S. income tax expense
because the Prosidion subsidiary is currently treated as a branch for U.S. income tax purposes. On
a quarterly basis, management evaluates the realizability of our deferred tax assets and assesses
the need for additional valuation allowances.
(15)
Convertible Debt
The principal amount of our convertible senior subordinated notes totaled approximately $415
million at September 30, 2009 and December 31, 2008, and was comprised of our 2023 Notes, our 2025
Notes and our 2038 Notes.
FASB ASC Subtopic No. 470-20, which incorporates the accounting literature formerly known as
FSP APB 14-1, is effective for financial statements issued for fiscal years beginning after
December 15, 2008. FASB ASC Subtopic No. 470-20 requires an issuer of certain convertible debt
instruments that have a net settlement feature and may be settled in cash upon conversion to
separately account for the liability (i.e., debt) and equity (i.e., conversion feature) components
of the instrument in a manner that reflects the issuers nonconvertible debt borrowing rate. The
issuer must determine the carrying amount of the liability component of any outstanding debt
instruments by estimating the fair value of a similar liability without the conversion option. The
amount of the equity component is then calculated by deducting the fair value of the liability
component from the principal amount of the convertible debt instrument.
The application of FASB ASC Subtopic No. 470-20 impacted the carrying value of our 2025 Notes
and 2038 Notes, and we retrospectively recognized this impact from the date that the notes were
originally issued. The new accounting literature did not impact our
2023 Notes as these Notes are
only convertible in stock.
24
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following is a summary of the outstanding indebtedness under our convertible senior
subordinated notes as of September 30, 2009 and December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
Net Carrying
|
|
|
|
|
|
|
|
|
|
Net Carrying
|
Long-term
|
|
Principal
|
|
Discount
|
|
Value
|
|
Principal
|
|
Discount
|
|
Value
|
|
|
|
|
|
2023 Notes 3.25%
|
|
$
|
99,950
|
|
|
$
|
|
|
|
$
|
99,950
|
|
|
$
|
99,950
|
|
|
$
|
|
|
|
$
|
99,950
|
|
2025 Notes 2.00%
|
|
|
115,000
|
|
|
|
9,790
|
|
|
|
105,210
|
|
|
|
115,000
|
|
|
|
15,181
|
|
|
|
99,819
|
|
2038 Notes 3.00%
|
|
|
200,000
|
|
|
|
25,574
|
|
|
|
174,426
|
|
|
|
200,000
|
|
|
|
30,674
|
|
|
|
169,326
|
|
|
|
|
|
|
|
|
$
|
414,950
|
|
|
$
|
35,364
|
|
|
$
|
379,586
|
|
|
$
|
414,950
|
|
|
$
|
45,855
|
|
|
$
|
369,095
|
|
|
|
|
|
|
The effective interest rate used in determining the liability component of our 2038 Notes
and 2025 Notes was 7.51% and 9.39%, respectively. As a result of bifurcating the conversion
feature from the debt component for our convertible notes at the effective interest rate, we
recorded $33.3 million and $37.0 million as a debt discount with a corresponding increase to
additional paid-in capital for the 2025 Notes and 2038 Notes, respectively. The discount on the
2025 Notes and 2038 Notes will be amortized on a straight-line basis through December 2010 and
January 2013, respectively. The cash interest expense for the three and nine months ended
September 30, 2009 for our 2025 Notes was $575,000 and $1.7 million, respectively, relating to the
2% stated coupon rate. The cash interest expense for the three and nine months ended September 30,
2009 for our 2038 Notes was $1.5 million and $4.5 million, respectively, relating to the 3.0%
stated coupon rate. The non-cash interest expense relating to the amortization of the discount for
our 2025 Notes for the three and nine months ended September 30, 2009 was $1.9 million and $5.4
million, respectively, compared to $1.7 million and $4.9 million for the three and nine months
ended September 30, 2008, respectively. The non-cash interest expense relating to the amortization
of the discount for our 2038 Notes for the three and nine months ended September 30, 2009 was $1.7
million and $5.1 million, respectively, compared to $1.6 million and $4.7 million for the three and
nine months ended September 30, 2008, respectively.
(16)
Change in Accounting Principle
On January 1, 2009, we adopted the provisions of FASB ASC Subtopic No. 470-20 as a change in
accounting principle. We have retrospectively adopted FASB ASC Subtopic No. 470-20 and restated
the accompanying consolidated statement of operations for the three and nine months ended September
30, 2008 and the statement of cash flows for the nine months ended September 30, 2008, and also
restated the accompanying December 31, 2008 consolidated balance sheet for the cumulative impact of
adopting this guidance.
The application of accounting literature FASB ASC Subtopic No. 470-20 resulted in our
recognition of additional interest expense, decreasing our net income for the three and nine months
ended September 30, 2008. It also required us to resequence our senior subordinated convertible
notes for dilutive calculation purposes under the if-converted method.
25
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The impact of retrospective adoption on our statement of operations for the three months ended
September 30, 2008 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
September 30,
|
|
As Adjusted
|
|
|
|
|
2008 as
|
|
and
|
|
|
|
|
Originally
|
|
Currently
|
|
Effect of
|
|
|
Reported
|
|
Reported
|
|
Change
|
|
|
|
Revenues
|
|
$
|
94,572
|
|
|
$
|
94,572
|
|
|
$
|
|
|
Operating expenses
|
|
|
58,479
|
|
|
|
58,479
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
36,093
|
|
|
|
36,093
|
|
|
|
|
|
Interest expense
|
|
|
(2,894
|
)
|
|
|
(6,202
|
)
|
|
|
(3,308
|
)
|
Investment income & other expense
|
|
|
2,333
|
|
|
|
2,458
|
|
|
|
125
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
|
35,532
|
|
|
|
32,349
|
|
|
|
(3,183
|
)
|
Income tax provision
|
|
|
987
|
|
|
|
987
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
34,545
|
|
|
|
31,362
|
|
|
|
(3,183
|
)
|
Loss from discontinued operations
|
|
|
20,281
|
|
|
|
20,281
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
54,826
|
|
|
$
|
51,643
|
|
|
$
|
(3,183
|
)
|
|
|
|
The following table reflects the impact of retrospective adoption on our diluted income
per share as originally reported for the three months ended September 30, 2008 (in thousands except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
September 30,
|
|
As Adjusted
|
|
|
|
|
2008 as
|
|
and
|
|
|
|
|
Originally
|
|
Currently
|
|
Effect of
|
|
|
Reported
|
|
Reported
|
|
Change
|
|
|
|
Net income from continuing operations basic
|
|
$
|
34,545
|
|
|
$
|
31,362
|
|
|
$
|
(3,183
|
)
|
Add: Interest and issuance costs related to
convertible debt net of tax
|
|
|
1,667
|
|
|
|
910
|
|
|
|
(757
|
)
|
|
|
|
Net income from continuing operations diluted
|
|
$
|
36,212
|
|
|
$
|
32,272
|
|
|
$
|
(3,940
|
)
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
57,437
|
|
|
|
57,437
|
|
|
|
|
|
Dilutive effect of options and restricted stock
|
|
|
1,227
|
|
|
|
1,227
|
|
|
|
|
|
Dilutive effect of 2023 Notes
|
|
|
1,999
|
|
|
|
1,999
|
|
|
|
|
|
Dilutive effect of 2025 Notes
|
|
|
3,908
|
|
|
|
|
|
|
|
(3,908
|
)
|
Dilutive effect of 2038 Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and dilutive potential
common shares diluted
|
|
|
64,571
|
|
|
|
60,663
|
|
|
|
(3,908
|
)
|
|
|
|
Net income per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.60
|
|
|
$
|
0.55
|
|
|
$
|
(0.05
|
)
|
Diluted
|
|
$
|
0.56
|
|
|
$
|
0.53
|
|
|
$
|
(0.03
|
)
|
26
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The impact of retrospective adoption on our statement of operations for the nine months
ended September 30, 2008 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
September 30,
|
|
As Adjusted
|
|
|
|
|
2008 as
|
|
and
|
|
|
|
|
Originally
|
|
Currently
|
|
Effect of
|
|
|
Reported
|
|
Reported
|
|
Change
|
|
|
|
Revenues
|
|
$
|
280,961
|
|
|
$
|
280,961
|
|
|
$
|
|
|
Operating expenses
|
|
|
172,626
|
|
|
|
172,626
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
108,335
|
|
|
|
108,335
|
|
|
|
|
|
Interest expense
|
|
|
(9,040
|
)
|
|
|
(18,696
|
)
|
|
|
(9,656
|
)
|
Investment income & other expense
|
|
|
6,891
|
|
|
|
7,246
|
|
|
|
355
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
|
106,186
|
|
|
|
96,885
|
|
|
|
(9,301
|
)
|
Income tax provision
|
|
|
2,761
|
|
|
|
2,761
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
103,425
|
|
|
|
94,124
|
|
|
|
(9,301
|
)
|
Loss from discontinued operations
|
|
|
5,936
|
|
|
|
5,936
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
109,361
|
|
|
$
|
100,060
|
|
|
$
|
(9,301
|
)
|
|
|
|
The following table reflects the impact of retrospective adoption on our diluted income
per share as originally reported for the nine months ended September 30, 2008 (in thousands except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
September 30,
|
|
As Adjusted
|
|
|
|
|
2008 as
|
|
and
|
|
|
|
|
Originally
|
|
Currently
|
|
Effect of
|
|
|
Reported
|
|
Reported
|
|
Change
|
|
|
|
Net income from continuing operations basic
|
|
$
|
103,425
|
|
|
$
|
94,124
|
|
|
$
|
(9,301
|
)
|
Add: Interest and issuance costs related to
convertible debt net of tax
|
|
|
5,829
|
|
|
|
3,557
|
|
|
|
(2,272
|
)
|
|
|
|
Net income from continuing operations diluted
|
|
$
|
109,254
|
|
|
$
|
97,681
|
|
|
$
|
(11,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
57,218
|
|
|
|
57,218
|
|
|
|
|
|
Dilutive effect of options and restricted stock
|
|
|
821
|
|
|
|
821
|
|
|
|
|
|
Dilutive effect of 2023 Notes
|
|
|
2,408
|
|
|
|
2,408
|
|
|
|
|
|
Dilutive effect of 2025 Notes
|
|
|
3,908
|
|
|
|
|
|
|
|
(3,908
|
)
|
Dilutive effect of 2038 Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and dilutive
potential common shares diluted
|
|
|
64,355
|
|
|
|
60,447
|
|
|
|
(3,908
|
)
|
|
|
|
Net income per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.81
|
|
|
$
|
1.65
|
|
|
$
|
(0.16
|
)
|
Diluted
|
|
$
|
1.70
|
|
|
$
|
1.62
|
|
|
$
|
(0.08
|
)
|
27
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The impact of retrospective adoption on our consolidated balance sheet as of December 31, 2008
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
December 31,
|
|
and
|
|
|
|
|
2008 as
|
|
Currently
|
|
Effect of
|
|
|
Reported
|
|
Reported
|
|
Change
|
|
|
|
Current assets
|
|
$
|
690,381
|
|
|
$
|
690,381
|
|
|
$
|
|
|
Deferred tax assets net
|
|
|
291,205
|
|
|
|
273,797
|
|
|
|
(17,408
|
)
|
Debt issuance costs net
|
|
|
7,080
|
|
|
|
5,632
|
|
|
|
(1,448
|
)
|
Other Assets non current
|
|
|
104,393
|
|
|
|
104,393
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,093,059
|
|
|
$
|
1,074,203
|
|
|
$
|
(18,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
61,121
|
|
|
$
|
61,121
|
|
|
$
|
|
|
Non-current liabilities
|
|
|
45,442
|
|
|
|
45,442
|
|
|
|
|
|
Convertible senior subordinated notes non-current
|
|
|
414,950
|
|
|
|
369,095
|
|
|
|
(45,855
|
)
|
|
|
|
Total liabilities
|
|
|
521,513
|
|
|
|
475,658
|
|
|
|
(45,855
|
)
|
|
|
|
Common and preferred stock, net of treasury
stock
|
|
|
(101,608
|
)
|
|
|
(101,608
|
)
|
|
|
|
|
Additional paid-in-capital
|
|
|
1,693,263
|
|
|
|
1,761,179
|
|
|
|
67,916
|
|
Accumulated deficit
|
|
|
(1,016,201
|
)
|
|
|
(1,057,118
|
)
|
|
|
(40,917
|
)
|
Accumulated other comprehensive loss
|
|
|
(3,908
|
)
|
|
|
(3,908
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
571,546
|
|
|
|
598,545
|
|
|
|
26,999
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,093,059
|
|
|
$
|
1,074,203
|
|
|
$
|
(18,856
|
)
|
|
|
|
(17)
Eyetech Discontinued Operations
As a result of our decision to divest our eye disease business in November 2006, the results
of operations of (OSI) Eyetech for the current and prior period have been reported as discontinued
operations. In addition, assets and liabilities of (OSI) Eyetech have been classified as assets
and liabilities related to discontinued operations.
Operating results of (OSI) Eyetech for the three and nine months ended September 30, 2009 and
2008 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
Net revenue
|
|
$
|
300
|
|
|
$
|
30,594
|
|
|
$
|
970
|
|
|
$
|
43,212
|
|
Pretax income (loss)
|
|
$
|
(491
|
)
|
|
$
|
19,469
|
|
|
$
|
(624
|
)
|
|
$
|
4,749
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
(298
|
)
|
|
$
|
20,281
|
|
|
$
|
(379
|
)
|
|
$
|
5,936
|
|
As of September 30, 2009, certain assets and liabilities related to the eye disease
business were classified as assets or liabilities related to discontinued operations.
28
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The summary of the assets and liabilities related to discontinued operations as of September
30, 2009 and December 31, 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
|
|
|
$
|
917
|
|
|
|
|
|
|
|
|
Assets related to discontinued operations
|
|
$
|
|
|
|
$
|
917
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,753
|
|
|
$
|
1,522
|
|
|
|
|
|
|
|
|
Liabilities related to discontinued operations
|
|
$
|
2,753
|
|
|
$
|
1,522
|
|
|
|
|
|
|
|
|
On August 1, 2008, we completed the sale of the remaining assets of our eye disease
business to Eyetech Inc., a newly formed corporation whose shareholders consist primarily of the
Macugen
®
(pegaptinib sodium injection) sales team. We have determined that, in
accordance with the relevant literature, Eyetech Inc. qualifies as a variable interest entity, or
VIE, but as we are not its primary beneficiary, consolidation is not required. Under this
guidance, an entity is required to be classified as a VIE where (i) the reporting company, or its
related parties, participated significantly in the design of the entity, or where substantially all
of the activities of the entity either involve or are conducted on behalf of the reporting company
or its related parties, and (ii) its equity investors do not have a controlling financial interest
or where the entity is unable to finance its activities without additional financial support from
other parties. Based on this test, Eyetech Inc. qualifies as a VIE due to its inability at the
time of its acquisition of the remaining assets of our eye disease business to finance its
activities without additional financial support from third parties, and due to the fact that
Michael G. Atieh, our former Executive Vice President, Chief Financial Officer and Treasurer, was a
stockholder in Eyetech Inc. at the time of the acquisition, participated in the design of the
entity and agreed to serve as its part-time executive chairman following his retirement from OSI in
January 2009.
The relevant literature further requires the consolidation of entities which are determined to
be VIEs when the reporting company determines itself to be the primary beneficiary in other
words, the entity that will absorb a majority of the VIEs expected losses or receive a majority of
the VIEs expected residual returns. We have determined that OSI is not the primary beneficiary of
Eyetech Inc. as (i) OSI does not hold an equity position in Eyetech Inc., (ii) OSIs ongoing
interest in this entity is limited to OSIs contingent right to receive future royalties and
milestones, and (iii) OSI does not have liability for future losses.
(
OSI) Eyetech Divestiture Severance Costs
As a result of our decision to exit the eye disease business in November 2006, we committed to
a plan to re-scale the eye disease business. The plan included the consolidation of facilities as
well as a reduction in the workforce for transitional employees throughout 2007 and 2008. The
remaining liability is expected to be paid during 2009.
29
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The activity for the three and nine months ended September 30, 2009 and 2008 was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
Opening liability
|
|
$
|
253
|
|
|
$
|
1,981
|
|
|
$
|
387
|
|
|
$
|
800
|
|
Accrual for severance and retention bonuses
|
|
|
54
|
|
|
|
313
|
|
|
|
81
|
|
|
|
1,678
|
|
Cash paid for severance and retention bonuses
|
|
|
(3
|
)
|
|
|
(1,775
|
)
|
|
|
(164
|
)
|
|
|
(1,959
|
)
|
|
|
|
|
|
Ending liability
|
|
$
|
304
|
|
|
$
|
519
|
|
|
$
|
304
|
|
|
$
|
519
|
|
|
|
|
|
|
(18)
New Accounting Standards
Recently Adopted Standards
In August 2009, the FASB issued Accounting Standards Update No. 2009-05, or FASB ASU No.
2009-05, Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value.
This update provides guidance on the allowable techniques to use when a quoted price in an active
market for an identical liability is not available. It also clarifies the classification of the
liability for Level 1 fair value measurement. The adoption of FASB ASU No. 2009-05 in the third
quarter of 2009 did not have a material impact on our financial position, results of operations or
cash flows for the three and nine months ended September 30, 2009.
Recently Issued Standards (Not Yet Adopted)
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, or ASU No. 2009-13,
Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements which establishes a
hierarchy for determining the selling price of a deliverable and provide guidance on determining a
best estimate of selling price. ASU No. 2009-13 provides accounting principles and application
guidance on whether multiple deliverables exist, how the arrangement should be separated, and the
consideration allocated. This guidance eliminates the requirement to establish the fair value of
undelivered products and services and instead provides for separate revenue recognition based upon
managements estimate of the selling price for an undelivered item when there is no other means to
determine the fair value of that undelivered item. ASU No. 2009-13 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June
15, 2010. We are assessing the potential impact of adoption of this standard.
In June 2009, the FASB issued FAS 167, Amendments to FASB Interpretation No. 46(R), which
amends the consolidation guidance applicable to variable interest entities to require an enterprise
to determine whether its variable interest or interests give it a controlling financial interest in
a variable interest entity. The amendments will significantly affect the overall
consolidation analysis by replacing the existing quantitative approach for identifying which
enterprise should consolidate a variable interest entity. FAS 167 is effective as of the beginning
of the first fiscal year that begins after November 15, 2009. This statement will be effective for
us beginning in fiscal year 2010. We are assessing the potential impact of adoption of this
standard.
30
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Overview
We are a profitable biotechnology company that discovers, develops and commercializes
innovative molecular targeted therapies, or MTTs, addressing major unmet medical needs in oncology
and diabetes and obesity. Our strategic focus is in the area of personalized medicine. We are
building upon the knowledge and insights from our flagship product, Tarceva, in order to establish
a leadership role in turning the promise of personalized medicine into practice in oncology and in
pioneering the adoption of personalized medicine approaches in diabetes and obesity. We are
leveraging our targeted therapy expertise in drug discovery, development and translational research
to deliver innovative, differentiated new medicines to the right patients, in the right
combinations and at the right doses. We believe this approach optimally positions us to accomplish
more rapid and cost-effective drug development aimed at providing meaningful clinical benefit to
the patients who can gain the most from our innovations. We further believe that, with increasing
healthcare cost constraints and competition, leadership in personalized medicine approaches will
define the successful biopharmaceutical companies of the future.
Our largest area of focus is oncology where our business is anchored by Tarceva, a small
molecule inhibitor of the epidermal growth factor receptor, or EGFR, which is our primary source of
revenues. In November 2004, Tarceva was approved by the U.S. Food and Drug Administration, or FDA,
for the treatment of advanced non-small cell lung cancer, or NSCLC, in patients who have failed at
least one prior chemotherapy regimen and, subsequently, in November 2005, for the treatment of
patients with locally advanced and metastatic pancreatic cancer in combination with the
chemotherapy agent, gemcitabine. Tarceva was also approved for sale in the European Union, or EU,
for the treatment of advanced NSCLC in September 2005 and, in January 2007, as a first-line therapy
for metastatic pancreatic cancer in combination with gemcitabine. In October 2007, Tarceva was
approved in Japan for the treatment of patients with nonresectable, recurrent and advanced NSCLC
which is aggravated following therapy, and launched in Japan at the end of 2007. Tarceva, which as
of November 1, 2009, was approved for sale in 106 countries for advanced NSCLC after failure of
chemotherapy and 78 countries for pancreatic cancer, achieved global sales of over $1.1 billion for
2008. We co-promote Tarceva in the United States with Genentech, Inc., a wholly-owned subsidiary
of our international collaborator, Roche. We share profits equally in the U.S. and receive
royalties on sales outside of the United States.
Prosidion Limited, our U.K. subsidiary which conducts our research and development, or R&D,
programs in diabetes and obesity, contributes an important second source of revenues through the
licensing of our patent estate relating to the use of dipeptidyl peptidase IV, or DPIV, inhibitors
for the treatment of type 2 diabetes and related indications. As of November 1, 2009, twelve
pharmaceutical companies have non-exclusive licenses to these patents, which provide us with
potential future milestones and royalties. Our royalty revenues from this patent estate for the
nine months ended September 30, 2009 were approximately $40 million.
31
We expect that our revenues from Tarceva and our DPIV patent estate, combined with our
diligent management of expenses, will continue to provide us with the capital resources necessary
to make disciplined investments in R&D, in order to support the continued growth of Tarceva and our
internal pipeline of clinical and pre-clinical assets. As part of our lifecycle plan for Tarceva,
we, together with Genentech and Roche, continue to invest in a broad clinical development program
directed at maximizing Tarcevas long-term potential, including a number of large, randomized
clinical trials designed to expand Tarcevas use in NSCLC. We have also prioritized investment in
a portfolio of potentially differentiated and competitive drug candidates and technologies in
oncology and diabetes and obesity. As a result, we have successfully advanced four drug candidates
into clinical trials over the past two years, all of which were the result of our internal
discovery efforts.
In oncology, we have an emerging pipeline of MTTs in clinical and late-stage pre-clinical
development which we intend to develop and commercialize independently. These include OSI-906 (an
inhibitor of the insulin-like growth factor 1 receptor, or IGF-1R, with potential utility for the
treatment of most major solid tumor types), which entered Phase I open-label dose escalation
studies in June 2007; OSI-027 (a next generation mammalian target of rapamycin, or mTOR, kinase
inhibitor), which entered Phase I studies in July 2008; and OSI-296 (a novel, potent tyrosine
kinase inhibitor, or TKI, developed as an epithelial-to-mesenchymal transition, or EMT, inhibitor),
which is in late-stage pre-clinical development. Two later stage studies for OSI-906 were
commenced in the third quarter of 2009: a Phase III study evaluating the use of OSI-906 for
patients with locally advanced or metastatic adrenocortical carcinoma, and a Phase I/II study
evaluating OSI-906 in combination with chemotherapy in ovarian cancer patients. These studies are
more fully described in the Quarterly Update section below. In addition, we have two
anti-angiogenesis agents, OSI-930 and OSI-632, for which we are seeking development partners. In
October 2009, we entered into an agreement granting rights to Simcere Pharmaceutical Co., Ltd., a
Chinese pharmaceutical company, to develop, manufacture and market OSI-930 in China. Each of
these MTTs, as well as Tarceva, are small molecules designed to be administered orally rather than
by the less convenient intravenous infusion methods characteristic of most anti-cancer drugs. The
focus of our proprietary oncology research efforts is on understanding multiple elements of tumor
biology including the dependence of certain tumor cells on activated oncogenic signaling
pathways, or onco-addiction, and compensatory signaling but with a particular focus on the
biological process EMT which is of emerging significance in understanding tumor development and
disease progression. This research has grown out of our translational research efforts to
understand which patients may optimally benefit from Tarceva. Our EMT research investment,
together with related insights into mechanisms such as compensatory signaling, is the cornerstone
of our personalized medicine approach in oncology, and should allow us to better design
combinations of MTTs for specific sub-sets of cancer patients. This, in turn, may enable us to
realize significant improvements in patient outcomes and to enhance our competitive position in the
oncology marketplace.
We also have R&D programs in diabetes and obesity which are conducted through Prosidion. Our
discovery efforts in diabetes and obesity are concentrated around the neuroendocrine control of
bodyweight and glycemia, which focuses on central or peripheral nervous system or hormonal
approaches to the control of bodyweight for the treatment of obesity, as well as the lowering of
blood glucose together with meaningful weight loss for the treatment of type 2 diabetes. Two
compounds from our diabetes and obesity research efforts, PSN821 and PSN602,
32
entered clinical trials in 2008. PSN821 is an orally administered G protein-coupled receptor
119, or GPR119, agonist with potential anti-diabetic and appetite suppressing features, and PSN602
is an oral dual serotonin and noradrenaline reuptake inhibitor and 5-HT
1A
agonist for
the treatment of obesity.
Quarterly Update
On July 7, 2009, we announced our plans to consolidate our U.S. operations onto a single
campus located in Ardsley, New York in Westchester County. On July 20, 2009, we completed the
purchase of the 43-acre site, which consists of approximately 400,000 square feet of existing
office and laboratory space, for $27 million and expect to incur approximately $60 million to $70
million of capital-related renovation costs over the next fifteen months. In addition, we expect to
incur approximately $25 million to $30 million in restructuring-related costs over the next two
years, which primarily relate to labor-related and
relocation-related costs. We also expect to recognize additional
charges related to existing leased facilities when these facilities
cease to be used. We will
continue to operate our diabetes/obesity franchise in Oxford, England.
On July 13, 2009, we, along with Genentech, announced that the SATURN study met a key
secondary endpoint of extending overall survival in patients with advanced NSCLC when Tarceva was
used as single agent, maintenance therapy in patients who did not progress following first-line
treatment with platinum-based chemotherapy. On August 1, 2009, we announced further results from
the SATURN study, as presented at the 13th World Conference on Lung Cancer held in San Francisco.
The study showed that patients with NSCLC treated with Tarceva had a 23% improvement in overall
survival compared with patients who received placebo (hazard ratio=0.81; p-value=0.0088; a hazard
ratio of less than one for survival indicates a reduced risk of death). The hazard ratio, which
assesses risk in the overall trial population, is widely recognized as the best measure of overall
benefit in large randomized clinical trials. The median survival (a single point estimate of
benefit) for patients receiving Tarceva was 12 months versus a median survival of 11 months for
patients receiving placebo. The study confirmed that a broad spectrum of patients with advanced
NSCLC experienced a survival benefit from Tarceva. Specific analysis of patients in the study whose
tumors were confirmed to be EGFR wild-type i.e., not having an EGFR activating mutation
experienced a 30% improvement in survival (hazard ratio=0.77; p-value=0.0243). The majority of
patients with NSCLC are EGFR wild-type. Overall survival for the patient sub-group with EGFR
mutations is still immature with the median survival not yet being reached in patients with EGFR
mutations receiving Tarceva. Determination of overall survival in this sub-group has been
confounded by the fact that two-thirds of the patients with EGFR mutations who received placebo
rather than Tarceva then crossed over to receive Tarceva or another EGFR therapy. We believe that,
assuming it is approved for use as maintenance therapy following initial chemotherapy, Tarceva will
provide a new, convenient, non-chemotherapy treatment option for patients without exposing them to
the continuous burden and lifestyle constraints of long-term chemotherapy.
On July 21, 2009, we, together with AVEO Pharmaceuticals, Inc., or AVEO, announced that we had
expanded our existing drug discovery and translational research collaboration. As part of the
expanded collaboration, we made a $5 million upfront payment to AVEO and purchased an additional
$15 million of AVEO preferred equity. The alliance is anchored around developing molecular
targeted therapies to target the underlying mechanisms of EMT in cancer and to develop proprietary
datasets of associated patient selection biomarkers to support our tar-
33
geted medicine pipeline. Together, we and AVEO are expanding our efforts to validate cancer
targets and to deploy key elements of AVEOs proprietary translational research platform in support
of our clinical development programs.
On September 3, 2009, we announced the initiation of two clinical trials with OSI-906, our
IGF-1R inhibitor. The first study is a Phase III, multi-center study that will evaluate the use of
OSI-906 for patients with locally advanced or metastatic adrenocortical carcinoma. The study is
designed to determine overall survival for patients receiving single-agent OSI-906 versus placebo
and will also evaluate progression free-survival, disease control rate, overall response rate as
well as safety. The second study is a Phase I/II trial evaluating OSI-906 in combination with the
chemotherapy Taxol
®
(paclitaxel) primarily in patients with recurrent epithelial ovarian
cancer. In addition, we intend to initiate a registration-oriented combination study of OSI-906
with Tarceva in NSCLC. Initial indications of monotherapy activity for OSI-906 in NSCLC and our
translational research data suggesting that compensatory signaling mechanisms and EMT phenomena may
make a combination of Tarceva and OSI-906 synergistically effective in the NSCLC setting provide
the rationale for this clinical trial, which is intended to begin in 2010.
On September 17, 2009, we announced that the U.S. Patent & Trademark Office issued a Notice
of Allowance in our reissue application for U.S. Patent No. 5,747,498, the composition of matter
patent for Tarceva, or the 498 patent. In February 2008, we had filed an application to reissue
the 498 patent in order to correct certain errors relating to the claiming of compounds, other
than Tarceva, which fall outside of the scope of the main claim in the patent. The reissue
application looked to correct these errors by deleting surplus compounds from the claims. Like most
composition of matter patents, the 498 patent claims many compounds in addition to Tarceva.
Tarceva itself is accurately described in the 498 patent. The reissued patent will replace the
original 498 patent and will have the same November 2018 expiration date. At the time of reissue,
a new patent number will be assigned. The reissued patent will include new claims that solely
identify Tarceva.
Subsequent Events
In October 2009, Roche communicated to us that an exploratory data sweep for survival of
ATLAS, a Phase III study in patients with advanced NSCLC who received Tarceva
in combination with Avastin as first-line maintenance therapy, was not positive. Survival was a
secondary endpoint in the ATLAS study and the study was not powered to detect a significant
difference in overall survival. We did not opt-in to the ATLAS study because the study was not
designed to be registrational. If the study were to result in an ATLAS-related change to the
Tarceva label we would likely be required to opt-in and pay our retrospective share of the study
costs and a penalty. We are not currently forecasting any opt-in payments for this study.
Critical Accounting Policies
For a discussion of our critical accounting policies, see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for
the fiscal year ended December 31, 2008. There have been no material changes to our critical
accounting policies for the nine month period ended September 30, 2009.
34
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(In thousands)
|
|
2009
|
|
2008
|
|
$ Change
|
|
2009
|
|
2008
|
|
$ Change
|
|
|
|
|
|
Tarceva-related revenues
|
|
$
|
88,735
|
|
|
$
|
80,708
|
|
|
$
|
8,027
|
|
|
$
|
257,914
|
|
|
$
|
251,006
|
|
|
$
|
6,908
|
|
Other revenues
|
|
|
22,712
|
|
|
|
13,864
|
|
|
|
8,848
|
|
|
|
46,276
|
|
|
|
29,955
|
|
|
|
16,321
|
|
|
|
|
|
|
Total revenues
|
|
$
|
111,447
|
|
|
$
|
94,572
|
|
|
$
|
16,875
|
|
|
$
|
304,190
|
|
|
$
|
280,961
|
|
|
$
|
23,229
|
|
|
|
|
|
|
Tarceva-Related Revenues
Tarceva-related revenues for the three and nine months ended September 30, 2009 were $88.7
million and $257.9 million, respectively, compared to Tarceva-related revenues for the three and
nine months ended September 30, 2008 which were $80.7 million and $251 million, respectively.
Tarceva-related revenues include net revenue from our unconsolidated joint business,
Tarceva-related royalties and Tarceva-related milestones.
Net Revenue from Unconsolidated Joint Business
Net revenue from unconsolidated joint business is related to our co-promotion and
manufacturing agreements with Genentech for Tarceva. For the three and nine months ended September
30, 2009, Genentech recorded net sales of Tarceva in the United States and its territories of
approximately $118 million and $342 million, respectively, compared to approximately $110 million
and $340 million for the three and nine months ended September 30, 2008, respectively. The increase
in net sales of Tarceva for the three months ended September 30, 2009 compared to the same period
last year was primarily a result of price increases and a lower level of reserve adjustments in
2009, partially offset by lower unit volume sales. The increase in net sales of Tarceva for the
nine months ended September 30, 2009 compared to the same period last year was primarily a result
of price increases, partially offset by a higher level of reserve adjustments in 2009 and by lower
unit volume sales. On a sequential quarter-over-quarter basis, sales of Tarceva for the three
months ended September 30, 2009 increased $5.3 million from approximately $113 million for the
three months ended June 30, 2009, primarily as a result of a lower level of reserve adjustments
recorded for the three months ended September 30, 2009 and a price increase that occurred in
September 2009.
Our share of Tarceva net sales is reduced by the costs incurred for cost of goods sold and for
the sales and marketing of the product. For the three and nine months ended September 30, 2009, we
reported net revenues from our unconsolidated joint business for Tarceva of $50.8 million and
$148.5 million, respectively, compared to $45.5 million and $147.2 million for the three and nine
months ended September 30, 2008, respectively. The increase in net revenue from unconsolidated
joint business for the three months ended September 30, 2009 was primarily due to higher net sales,
higher reimbursement of our marketing and sales costs and lower overall sales and marketing costs
incurred by the collaboration. The increase in net revenue from unconsolidated joint business for
the nine months ended September 30, 2009 was primarily due to higher net sales and higher
reimbursement of our marketing and sales costs, partially offset by higher overall sales and
marketing costs incurred by the collaboration.
35
Tarceva-Related Royalties
We receive royalties from Roche of approximately 20% on net sales of Tarceva outside of the
United States and its territories. The royalty amount is calculated by converting the respective
countries Tarceva sales in local currency to Roches functional currency (Swiss francs) and then
to U.S. dollars. The royalties are paid to us in U.S. dollars on a quarterly basis. As a result,
fluctuations in the value of the U.S. dollar against the Swiss franc and local currencies in which
Tarceva is sold will impact our earnings. For the three and nine months ended September 30, 2009,
Roche reported U.S. dollar equivalent rest of world sales of approximately $183 million and $528
million, respectively, compared to approximately $169 million and $498 million in the same periods
last year, respectively. For the three and nine months ended September 30, 2009, we recorded $36.9
million and $106.6 million in royalty revenue from these sales, respectively, compared to $34.2
million and $100.8 million in the same periods last year, respectively. The increase in royalty
revenue for the three and nine months ended September 30, 2009 was primarily due to increased sales
volume outside the United States, partially offset by the negative impact of net unfavorable
changes in foreign exchange rates.
Tarceva-Related Milestones
Milestone revenue from Tarceva includes the recognition of the ratable portion of upfront fees
from Genentech and milestone payments received from Genentech and Roche to date in connection with
various regulatory acceptances and approvals for Tarceva in the United States, Europe and Japan.
These payments were initially deferred and are being recognized as revenue ratably over the term of
the agreement. The ratable portions of the upfront fee and milestone payments recognized as revenue
for the three and nine months ended September 30, 2009 were $921,000 and $2.8 million,
respectively, compared to $979,000 and $2.9 million for the same periods last year, respectively.
The unrecognized deferred revenue related to these upfront fees and milestone payments received was
$34.3 million and $37.1 million as of September 30, 2009 and December 31, 2008, respectively. We
also will be entitled to additional milestone payments from Genentech and Roche upon the occurrence
of certain regulatory approvals and filings with respect to Tarceva. Additional milestone payments
will be due from Genentech and Roche upon approval of adjuvant indications in the United States and
Europe. The ultimate receipt of these additional milestone payments is contingent upon the
applicable regulatory approvals and other future events.
Other Revenues
Other revenues for the three and nine months ended September 30, 2009 were $22.7 million and
$46.3 million, respectively, compared to $13.9 million and $30.0 million for the same periods last
year, respectively, and include non-Tarceva related license, milestone, royalty and commission
revenues.
We recognized $17.3 million and $40.1 million of royalty revenue for the three and nine months
ended September 30, 2009, respectively, compared to $12.8 million and $26.8 million for the same
periods last year, respectively, from previously granted worldwide non-exclusive license agreements
entered into by Prosidion under our DPIV patent estate covering the use of DPIV inhibitors for
treatment of type 2 diabetes and related indications. Our royalty revenue for
36
the three and nine months ended September, 2009 and 2008 was principally derived from sales of
Mercks DPIV inhibitor product, Januvia
®
(sitagliptin), and its combination product,
Janumet
®
(sitagliptin/metformin). We also derived royalty revenue from sales of Novartis
AGs DPIV inhibitor product, Galvus
®
(vildagliptin), and its combination product
Eucreas
®
(vildagliptin/metformin), and Bristol-Myers Squibbs DPIV inhibitor Onglyza
(saxagliptin).
Other revenues for the three and nine months ended September 30, 2009 also include a $5
million milestone payment related to a non-exclusive licensing agreement under our DPIV patent
portfolio.
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(In thousands)
|
|
2009
|
|
2008
|
|
$ Change
|
|
2009
|
|
2008
|
|
$ Change
|
|
|
|
|
|
Cost of goods sold
|
|
$
|
1,607
|
|
|
$
|
2,517
|
|
|
$
|
(910
|
)
|
|
$
|
6,460
|
|
|
$
|
6,748
|
|
|
$
|
(288
|
)
|
Research and development
|
|
|
38,546
|
|
|
|
33,054
|
|
|
|
5,492
|
|
|
|
111,129
|
|
|
|
94,009
|
|
|
|
17,120
|
|
Acquired in-process research and
development
|
|
|
5,000
|
|
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
5,000
|
|
Selling, general and administrative
|
|
|
24,677
|
|
|
|
22,262
|
|
|
|
2,415
|
|
|
|
74,065
|
|
|
|
69,985
|
|
|
|
4,080
|
|
Restructuring costs
|
|
|
1,148
|
|
|
|
|
|
|
|
1,148
|
|
|
|
1,148
|
|
|
|
|
|
|
|
1,148
|
|
Amortization of intangibles
|
|
|
229
|
|
|
|
646
|
|
|
|
(417
|
)
|
|
|
693
|
|
|
|
1,884
|
|
|
|
(1,191
|
)
|
|
|
|
|
|
|
|
$
|
71,207
|
|
|
$
|
58,479
|
|
|
$
|
12,728
|
|
|
$
|
198,495
|
|
|
$
|
172,626
|
|
|
$
|
25,869
|
|
|
|
|
|
|
Cost of Goods Sold
Total cost of goods sold for the three and nine months ended September 30, 2009 was $1.6
million and $6.5 million, respectively, compared to $2.5 million and $6.7 million for the three and
nine months ended September 30, 2008, respectively, and represents the cost of goods sold related
to Tarceva.
Research and Development
R&D expenses for the three and nine months ended September 30, 2009 increased $5.5 million and
$17.1 million, respectively, compared to the same periods last year. The increase was primarily
due to an increase in R&D expenses related to non-Tarceva oncology programs, in particular OSI-906,
our IGF-1R inhibitor candidate and our diabetes and obesity programs, and equity-based
compensation, partially offset by a decline in R&D expenses for Tarceva.
We manage the ongoing development program for Tarceva with our collaborators, Genentech and
Roche, through a global development committee under a Tripartite Agreement among the parties.
Together with our collaborators, we have implemented a broad-based global development strategy for
Tarceva that implements simultaneous clinical programs currently designed to expand the number of
approved indications for Tarceva and evaluate the use of Tarceva in new and/or novel combinations.
Since 2001, we and our collaborators have committed an aggregate of approximately $930 million to
the global development plan to be shared by the three parties. As of September 30, 2009, we had
invested in excess of $266 million in the development of Tarceva, representing our share of the
costs incurred through September 30, 2009 under the tripartite global development plan and
additional investments outside of the plan.
37
We consider the active management and development of our clinical pipeline crucial to the
long-term process of getting a clinical candidate approved by the regulatory authorities and
brought to market. We manage our overall research, development and in-licensing efforts in a
highly disciplined manner designed to advance only high quality, differentiated agents into
clinical development. The duration of each phase of clinical development and the probabilities of
success for approval of drug candidates entering clinical development will be impacted by a variety
of factors, including the quality of the molecule, the validity of the target and disease
indication, early clinical data, investment in the program, competition and commercial viability.
Because we manage our pipeline in a dynamic and disciplined manner, it is difficult to give
accurate guidance on the anticipated proportion of our R&D investments assigned to any one program
prior to the Phase III stage of development, or to the future cash inflows from these programs.
For the three and nine months ended September 30, 2009, we invested a total of $14.1 million and
$40.0 million, respectively, in research, and $24.4 million and $71.1 million, respectively, in
pre-clinical and clinical development. For the three and nine months ended September 30, 2008, we
invested a total of $13.0 million and $38.3 million, respectively, in research, and $20.1 million
and $55.7 million, respectively, in pre-clinical and clinical development. We believe that this
represents an appropriate level of investment in R&D for our company when balanced against our
goals of financial performance and the creation of longer-term shareholder value.
Acquired In-process Research and Development
In July 2009, we expanded our drug discovery and translational research collaboration with
AVEO. The purpose of this collaboration is the development of molecular targeted therapies that
target the underlying mechanisms of EMT in cancer. Under the terms of our amended collaboration, we
delivered to AVEO an upfront cash payment of $5.0 million for access to certain additional AVEO
technology and purchased $15.0 million of AVEOs preferred stock. We also expanded our obligation
to provide AVEO with certain future research funding, and obtained an option to expand the
collaboration which would require us to make an additional payments to AVEO. We are also required
to pay AVEO milestones and royalties upon achievement of certain clinical and regulatory events and
successful development and commercialization of products coming out of the collaboration. We will
use the AVEO technology to support our early development activities, and as such, this technology
is deemed to have no alternative future use. Commercialization is not expected in the near term, as
is the case with many early research efforts. Accordingly, we expensed the $5.0 million payment as
acquired in-process R&D in the third quarter of 2009.
Selling, General and Administrative
Selling, general and administrative expenses increased by $2.4 million for the three months
ended September 30, 2009 compared to the same period last year. The increase was primarily due to
increases in commercial expenses, equity-based compensation and general corporate expenses.
Selling, general and administrative expenses increased by $4.0 million for the nine months ended
September 30, 2009 compared to the same period last year. The increase was primarily due to
increases in equity-based compensation, commercial expenses, general corporate expenses and legal
costs, partially offset by a decline in consulting expenses.
38
Restructuring Costs
In connection with our decision to consolidate our U.S. operations onto a single campus
located in Ardsley, New York in Westchester County, we incurred restructuring costs of $1.1
million. On July 20, 2009, we completed the purchase of the 43-acre site, which consists of
approximately 400,000 square feet of existing office and laboratory space, for $27 million and
expect to incur approximately $60 million to $70 million of capital-related renovation costs over
the next 15 months. In addition, we expect to incur approximately $25 million to $30 million in
restructuring-related cost over the next two years, which primarily relates to labor-related and
relocation costs. We also expect to recognize additional exit-related charges related to our
facilities when these facilities cease to be used.
Other Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(In thousands)
|
|
2009
|
|
2008
|
|
$ Change
|
|
2009
|
|
2008
|
|
$ Change
|
|
|
|
|
|
Investment income-net
|
|
$
|
1,624
|
|
|
$
|
2,976
|
|
|
$
|
(1,352
|
)
|
|
$
|
5,795
|
|
|
$
|
9,670
|
|
|
$
|
(3,875
|
)
|
Interest expense
|
|
|
(6,534
|
)
|
|
|
(6,202
|
)
|
|
|
(332
|
)
|
|
|
(19,319
|
)
|
|
|
(18,696
|
)
|
|
|
(623
|
)
|
Other income (expense)-net
|
|
|
(184
|
)
|
|
|
(518
|
)
|
|
|
334
|
|
|
|
(2,906
|
)
|
|
|
(2,424
|
)
|
|
|
(482
|
)
|
|
|
|
|
|
Total other income (expense)
|
|
$
|
(5,094
|
)
|
|
$
|
(3,744
|
)
|
|
$
|
(1,350
|
)
|
|
$
|
(16,430
|
)
|
|
$
|
(11,450
|
)
|
|
$
|
(4,980
|
)
|
|
|
|
|
|
Investment income for the three and nine months ended September 30, 2009 decreased by $1.4
million and $3.9 million, respectively, compared to the same periods last year, primarily due to
lower rates of return on our investments, despite an increase in the funds available for
investment.
Interest expense for the three and nine months ended September 30, 2009 and 2008 remained
relatively constant and relates to the interest on our 3.25% Convertible Senior Subordinated Notes
due 2023, or our 2023 Notes, our 2% Convertible Senior Subordinated Notes due 2025, or our 2025
Notes, and our 3% Convertible Senior Subordinated Notes due 2038, or our 2038 Notes. Included in
interest expense is non-cash imputed interest expense of $3.6 million and $10.5 million for the
three and nine months ended September 30, 2009, respectively, compared to $3.3 million and $9.7
million for the same periods last year, respectively, related to our retrospective application of
Financial Accounting Standards Board or, FASB, Accounting Standards Codification, or ASC, Subtopic
No. 470-20, which includes accounting literature formerly known as FASB Staff Position APB 14-1,
Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (including
partial cash settlement). See Notes 15 and 16 to the consolidated financial statements for
additional information.
Other income (expense)-net for the periods includes the amortization of debt issuance costs
related to our senior subordinated convertible notes, and other miscellaneous income and expense
items. The decrease in other income (expense)-net for the three months ended September 30, 2009 is
primarily related to realized foreign exchange gains, partially offset by lower amortization costs
associated with our 2023 Notes. The increase in other income (expense)-net for the nine months
ended September 30, 2009 is primarily related to realized foreign exchange losses, partially offset
by lower amortization costs associated with our 2023 Notes and costs associated with the repurchase
of a portion of our 2023 Notes in 2008.
39
Income taxes
For the three and nine months ended September 30, 2009, we recorded a provision for income
taxes of $17.3 million and $38.4 million, respectively, related to income from continuing
operations of which approximately $16.1 million and $36.4 million, respectively, represent a
deferred or non-cash tax expense. Included in these deferred tax amounts is a $3.3 million net
operating loss, or NOL, valuation allowance adjustment recorded in the quarter ended September 30,
2009 as a discrete item. The remainder of these provisions represent our cash tax expense, which
consists principally of our estimated expense related to the U.S. alternative minimum tax. The NOL
valuation adjustment of $3.3 million relates to our decision to consolidate our U.S. facilities
into our new site in Ardsley, New York and will limit our ability to use certain state deferred tax
assets, principally NOLs in the state of Colorado. For the three and nine months ended September
30, 2008, we recorded a provision for income taxes of $987,000 and $2.8 million, respectively,
related to income from continuing operations, which represented our estimated cash tax expense
principally related to the U.S. alternative minimum tax.
Discontinued Operations
The three and nine months ended September 30, 2009 includes a loss from discontinued
operations of $298,000 and $379,000, respectively, related to the operations of our discontinued
eye disease business, compared to income of $20.3 million and $5.9 million for the same periods
last year, respectively. The income in 2008 primarily relates to the sale of the remaining assets
of our eye disease business in 2008.
Liquidity and Capital Resources
At September 30, 2009, cash and investments, including restricted securities, were $542.1
million compared to $515.5 million at December 31, 2008. The increase of $26.6 million was
primarily due to cash flow from operations, partially offset by the use of funds for licensing and
collaboration activities, to purchase property, plant and equipment and to purchase approximately
$13 million worth of shares of HBM BioVentures, Ltd., a publicly traded Swiss venture fund.
Through diligent management of our business, in particular our expenses, we have sustained our
profitability and strengthened our financial position. If we continue to execute on our internal
plans, we expect over the next two years that our R&D investments, costs associated with our
recently announced facility consolidation, capital requirements and the potential redemption of our
2025 Notes in December 2010 could be funded from our current cash and investment balances and the
generation of cash flow from Tarceva and our DPIV patent estate licenses. Certain potential
exceptions to this include the possible need to fund strategic acquisitions of products, businesses
and/or other projects should we identify any such strategic opportunities in the future.
Commitments and Contingencies
Our major outstanding contractual obligations relate to our senior subordinated convertible
notes and our facility leases. The following table summarizes our significant contractual ob-
40
ligations at September 30, 2009 and the effect such obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
Total
|
|
1 year
|
|
1-3 years
|
|
3-5 years
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations (a)
|
|
$
|
669,377
|
|
|
$
|
11,548
|
|
|
$
|
23,097
|
|
|
$
|
23,097
|
|
|
$
|
611,635
|
|
Operating lease obligations
|
|
|
94,564
|
|
|
|
2,294
|
|
|
|
18,390
|
|
|
|
17,118
|
|
|
|
56,762
|
|
Purchase obligations (b)
|
|
|
94,600
|
|
|
|
37,600
|
|
|
|
37,100
|
|
|
|
13,537
|
|
|
|
6,363
|
|
Capital commitments
|
|
|
460
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations related to exit activities
|
|
|
3,664
|
|
|
|
3,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
862,665
|
|
|
$
|
55,566
|
|
|
$
|
78,587
|
|
|
$
|
53,752
|
|
|
$
|
674,760
|
|
|
|
|
|
|
|
(a)
|
|
All senior convertible notes assume the payment of interest through their respective maturity
dates and the payment of their outstanding principal balance at their respective maturity
dates. This includes interest payments at a rate of (i) 3.25% per annum relating to the
$99.95 million principal amount of our 2023 Notes, (ii) 2% per annum relating to the $115.0
million principal amount of our 2025 Notes, and (iii) 3% per annum relating to the $200.0
million principal amount of our 2038 Notes. The holders of our 2023 Notes have the right to
require us to purchase, for cash, all of our 2023 Notes, or a portion thereof, in September
2013. In the event that the holders of our 2023 Notes exercise this right, we will have the
option of delivering to the holders a specified number of shares of our common stock in lieu
of cash as set forth in the indenture for our 2023 Notes. Holders of our 2025 Notes have the
right to require us to purchase, for cash, all of our 2025 Notes, or a portion thereof, in
December 2010. Holders of our 2038 Notes have the right to require us to purchase, for cash,
all of our 2038 Notes, or a portion thereof, in January 2013.
|
|
(b)
|
|
Includes inventory commitments, commercial and research commitments and other significant
purchase commitments other than commitments to purchase capital
equipment. Also includes our share of the remaining future commitment related to
the Tarceva global development costs of approximately $87 million.
|
Other significant commitments and contingencies not in the table above include the
following:
|
|
|
As part of our purchase of the 43-acre site in Westchester, New York, which consists
of approximately 400,000 square feet of existing office and laboratory space, we expect
to incur approximately $60 million to $70 million of capital-related renovation costs
over the next fifteen months. In addition, we expect to incur approximately $25
million to $30 million in restructuring-related costs over the next two years, which
primarily relates to labor-related and relocation-related costs. We
also expect to recognize additional charges related to existing
leased facilities when these facilities cease to be used.
|
|
|
|
|
We are committed to share certain commercialization costs relating to Tarceva with
Genentech. Under the terms of our agreement, there are no contractually determined
amounts for future commercial costs.
|
41
|
|
|
Under agreements with external clinical research organizations, or CROs, we will
continue to incur expenses relating to clinical trials of Tarceva and other clinical
candidates. The timing and amount of these disbursements can be based upon the
achievement of certain milestones, patient enrollment, services rendered or as expenses
are incurred by the CROs; therefore, we cannot reasonably estimate the potential timing
of these payments.
|
|
|
|
|
We have a retirement plan which provides post-retirement medical and life insurance
benefits to eligible employees, board members and qualified dependents. We curtailed
this plan in 2007; however, certain employees, board members and qualified dependents
remain eligible for these benefits. Eligibility is determined based on age and years
of service. We had accrued liability for post-retirement benefit costs of $2.6 million
at September 30, 2009.
|
|
|
|
|
Under certain license and collaboration agreements with pharmaceutical companies and
educational institutions, we are required to pay royalties and/or milestone payments
upon the successful development and commercialization of products. However, successful
research and development of pharmaceutical products is high risk, and most products
fail to reach the market. Therefore, at this time, the amount and timing of the
payments, if any, are not known.
|
|
|
|
|
Under certain license and other agreements, we are required to pay license fees for
the use of technologies and products in our research and development activities or
milestone payments upon the achievement of certain predetermined conditions. These
license fees are not deemed material to our consolidated financial statements and the
amount and timing of the milestone payments, if any, are not known due to the
uncertainty surrounding the successful research, development and commercialization of
the products.
|
New Accounting Standards
Recently Adopted Standards
In August 2009, the FASB issued Accounting Standards Update No. 2009-05, or FASB ASU No.
2009-05, Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value.
This update provides guidance on the allowable techniques to use when a quoted price in an active
market for an identical liability is not available. It also clarifies the classification of the
liability for Level 1 fair value measurement. The adoption of FASB ASU No. 2009-05 in the third
quarter of 2009 did not have a material impact on our financial position, results of operations or
cash flows for the three and nine months ended September 30, 2009.
Recently Issued Standards (Not Yet Adopted)
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, or ASU No. 2009-13,
Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements
42
which
establishes a hierarchy for determining the selling price of a deliverable and provides
guidance on determining a best estimate of selling price. ASU No. 2009-13 provides accounting
principles and application guidance on whether multiple deliverables exist, how the arrangement
should be separated, and the consideration allocated. This guidance eliminates the requirement to
establish the fair value of undelivered products and services and instead provides for separate
revenue recognition based upon managements estimate of the selling price for an undelivered item
when there is no other means to determine the fair value of that undelivered item. ASU No. 2009-13
is effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. We are assessing the potential impact of adoption of
this standard.
In June 2009, the FASB issued FAS 167, Amendments to FASB Interpretation No. 46(R), which
amends the consolidation guidance applicable to variable interest entities to require an enterprise
to determine whether its variable interest or interests give it a controlling financial interest in
a variable interest entity. The amendments will significantly affect the overall consolidation
analysis by replacing the existing quantitative approach for identifying which enterprise should
consolidate a variable interest entity. FAS 167 is effective as of the beginning of the first
fiscal year that begins after November 15, 2009. This statement will be effective for us beginning
in fiscal year 2010. We are assessing the potential impact of adoption of this standard.
Forward Looking Statements
A number of the matters and subject areas discussed in this Item 2, Managements Discussion
and Analysis of Financial Condition and Results of Operations, and elsewhere in this report that
are not historical or current facts, deal with potential future circumstances and developments.
The discussion of these matters and subject areas is qualified by the inherent risks and
uncertainties surrounding future expectations generally, and these discussions may materially
differ from our actual future experience involving any one or more of these matters and subject
areas. These forward-looking statements are also subject generally to the other risks and
uncertainties that are described below and described in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, and our quarterly Report on Form 10-Q for the quarter ended
June 30, 2009.
43
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our cash flow and earnings are subject to fluctuations due to changes in interest rates in our
investment portfolio of debt securities and to foreign currency exchange rates. We maintain an
investment portfolio of various issuers, types and maturities. These securities are generally
classified as available-for-sale and consequently, are recorded on the balance sheet at fair value
with unrealized gains or losses reported as a component of accumulated other comprehensive income
(loss) included in stockholders equity. We consider our restricted investment securities to be
held-to-maturity. These securities are reported at their amortized cost, which includes the direct
costs to acquire the securities, plus the amortization of any discount or premium, and accrued
interest earned on the securities. We do not use or hold derivative financial instruments in our
investment portfolio.
At September 30, 2009, we maintained a portion of our cash and cash equivalents in financial
instruments with original maturities of three months or less. We also maintained an investment
portfolio principally comprised of government and government agency obligations and corporate
obligations that are subject to interest rate risk and will decline in value if interest rates
increase.
A hypothetical 10% change in interest rates would have resulted in a $98,000 and $352,000
change in our net income for the three and nine months ended September 30, 2009, respectively.
Our limited investments in certain biotechnology companies are carried on the cost method of
accounting. Other-than-temporary losses are recorded against earnings in the same period the loss
was deemed to have occurred.
The royalty revenue we receive from Roche is calculated by converting the Tarceva sales for
each country in their respective local currency to Roches functional currency (Swiss francs) and
then to U.S. dollars. The royalties are paid to us in U.S. dollars on a quarterly basis. As a
result, fluctuations in the value of the U.S. dollar and Swiss franc against foreign currencies will impact our
earnings. A hypothetical 10% change in exchange rates would have resulted in an approximately $2.2
million and $6.5 million change to our net income for the three and nine months ended September 30,
2009, respectively.
The principal amount of our convertible senior subordinated notes totaled $415 million at
September 30, 2009, and was comprised of our 2023 Notes which bear interest at a fixed rate of
3.25%, our 2025 Notes which bear interest at a fixed rate of 2% and our 2038 Notes which bear
interest at a fixed rate of 3%. Underlying market risk exists related to an increase in our stock
price or an increase in interest rates which may make the conversion of the 2023 Notes, 2025 Notes
or 2038 Notes to common stock beneficial to the holders of such notes. Conversion of the 2023
Notes, 2025 Notes or 2038 Notes would have a dilutive effect on any future earnings and earnings
per common share.
44
Item 4. Controls and Procedures
Attached to this Quarterly Report on Form 10-Q as Exhibits 31.1 and 31.2, there are two
certifications, or the Section 302 Certifications, one by each of our Chief Executive Officer, or
CEO, and our Chief Financial Officer, or CFO. This Item 4 contains information concerning the
evaluation of our disclosure controls and procedures and internal control over financial reporting
that is referred to in the Section 302 Certifications and this information should be read in
conjunction with the Section 302 Certifications for a more complete understanding of the topics
presented.
Evaluation of Our Disclosure Controls and Procedures
. Our disclosure and control procedures
are designed to provide reasonable assurance that the controls and procedures will meet their
objectives. The Securities and Exchange Commission requires that as of the end of the period
covered by this Quarterly Report on Form 10-Q, the CEO and the CFO evaluate the effectiveness of
the design and operation of our disclosure controls and procedures (as defined in Rule 13(a)-15(e))
under the Securities Exchange Act of 1934, as amended, and report on the effectiveness of the
design and operation of our disclosure controls and procedures. Accordingly, under the supervision
and with the participation of our management, including our CEO and CFO, we evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of the end
of the period covered by this Quarterly Report on Form 10-Q.
CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures
. Based
upon their evaluation of the disclosure controls and procedures, our CEO and CFO have concluded
that our disclosure controls and procedures are effective at the reasonable assurance level to
ensure that material information relating to OSI and our consolidated subsidiaries is made known to
management, including the CEO and CFO, on a timely basis and during the period in which this
Quarterly Report on Form 10-Q was being prepared.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal
control over financial reporting (as defined in Rule 13(a)-15(f)) under the Exchange Act identified
in connection with the evaluation of such internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q, that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
45
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In March 2009, we filed lawsuits in the U.S. District Court in Delaware against Teva
Pharmaceuticals, U.S.A., Inc., or Teva U.S.A., and Mylan Pharmaceuticals, Inc. for infringement of
three patents associated with Tarceva: U.S. Patent Nos. 5,747,498, 6,900,221 and 7,087,613. The
lawsuits are based on abbreviated new drug applications, or ANDAs, filed by Teva U.S.A. and Mylan
seeking permission to manufacture and market a generic version of Tarceva before the expiration of
the three patents. The filing of these lawsuits restricts the U.S. Food and Drug Administration
from approving the ANDAs for either of these generic pharmaceutical companies until seven and
one-half years have elapsed from the date of Tarcevas initial approval (i.e., May 18, 2012). This
period of protection, referred to as the statutory litigation stay period, may end early; however,
in the event of an adverse court action, such as if we were to lose a patent infringement case
against either Teva U.S.A. or Mylan before the statutory litigation stay period expires (i.e., the
court finds the patent invalid, unenforceable, or not infringed) or if we fail to reasonably
cooperate in expediting the litigation. On the other hand, if we were to prevail in an
infringement action against Teva U.S.A. and/or Mylan, the ANDAs filed by these generic
pharmaceutical companies cannot be approved until the patent held to be infringed expires.
We and Roche are currently seeking to enforce our composition of matter patent against CIPLA,
Ltd. with respect to a generic form of Tarceva launched by CIPLA in India in January 2008. We and
Roche filed a lawsuit against CIPLA in the High Court of Delhi in New Delhi, India in January 2008,
which included a request that the court issue a preliminary injunction to prevent CIPLA from
manufacturing and distributing Tarceva in India. The court denied this request in March 2008 and
this decision was affirmed on appeal in April 2009. In August 2009, a special leave petition
against this decision was dismissed by the Supreme Court of India. The infringement trial in India
is currently ongoing.
Item 1A. Risk Factors
There have been no material changes to the risk factors as previously disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2008, as updated by our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2009.
46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table reflects shares of common stock withheld from executive officers to
satisfy their tax withholding obligations arising upon the vesting of restricted stock awards
granted under our Amended and Restated Stock Incentive Plan.
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Maximum Number
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(or Approximate
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Total Number of
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Dollar Value) of
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Shares Purchased
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Shares that May
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as Part of Pub-
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Yet be Purchased
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Total number of
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Average Price Paid
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licly Announced
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Under the Plans or
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Period
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Shares Purchased
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per Share
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Plans or Programs
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Programs
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July 1, 2009- July
31, 2009
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1,536
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$
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30.38
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N/A
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N/A
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Aug. 1, 2009-Aug.
31, 2009
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Sept. 1, 2009-Sept.
30, 2009
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Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
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3.1
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Restated Certificate of Incorporation of OSI Pharmaceuticals, Inc.,
filed by the Company as an exhibit to the Form 10-K for the fiscal
year ended September 30, 2001 (file no. 000-15190), and incorporated
herein by reference.
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3.2
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Second Amended and Restated Bylaws of OSI Pharmaceuticals, Inc.,
filed by the Company as an exhibit to the Form 10-K for the fiscal
year ended December 31, 2008 (file no. 000-15190), and incorporated
herein by reference.
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10.1*
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Consulting and Confidential Disclosure Agreement, dated October 1,
2009, between OSI Pharmaceuticals, Inc. and Dr. H. M. (Bob) Pinedo.
(Filed herewith)
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10.2
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Manufacturing and Supply Agreement, dated December 27, 2004, by and
among OSI Pharmaceuticals, Inc., Charkit Chemical Corporation and
Sumitomo Chemical Co., Ltd. (Filed herewith)
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47
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10.3
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Manufacturing and Supply Agreement, dated November 7, 2005, by and
among OSI Pharmaceuticals, Inc., Davos Chemical Corporation and
Dipharma SpA. (Filed herewith)
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10.4
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Purchase and Sale Agreement, dated July 6, 2009, between OSI
Pharmaceuticals, Inc. and Millsaw Realty L.P., filed by the Company
as an exhibit to the Form 10-Q for the quarter ended June 30, 2009
(file no. 000-15190) and incorporated herein by reference.
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31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
or 15d-14(a). (Filed herewith)
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31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
or 15d-14(a). (Filed herewith)
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C. §
1350. (Filed herewith)
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32.2
|
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Certification of Chief Financial Officer pursuant to 18 U.S.C. §
1350. (Filed herewith)
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*
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Indicates a management contract or compensatory plan, contract or arrangement in which
directors or executive officers participate.
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Portions of this exhibit have been redacted and are subject to a confidential treatment
request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities and Exchange Act of 1934, as amended.
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48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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OSI PHARMACEUTICALS, INC.
(Registrant)
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Date: November 6, 2009
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/s/ Colin Goddard, Ph.D.
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Colin Goddard, Ph.D.
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|
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Chief Executive Officer
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Date: November 6, 2009
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/s/ Pierre Legault
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Pierre Legault
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Executive Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer)
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49
INDEX TO EXHIBITS
Exhibit
|
|
|
3.1
|
|
Restated Certificate of Incorporation of OSI Pharmaceuticals, Inc.,
filed by the Company as an exhibit to the Form 10-K for the fiscal
year ended September 30, 2001 (file no. 000-15190), and incorporated
herein by reference.
|
|
|
|
3.2
|
|
Second Amended and Restated Bylaws of OSI Pharmaceuticals, Inc.,
filed by the Company as an exhibit to the Form 10-K for the fiscal
year ended December 31, 2008 (file no. 000-15190), and incorporated
herein by reference.
|
|
|
|
10.1*
|
|
Consulting and Confidential Disclosure Agreement, dated October 1,
2009, between OSI Pharmaceuticals, Inc. and Dr. H. M. (Bob) Pinedo.
(Filed herewith)
|
|
|
|
10.2
|
|
Manufacturing and Supply Agreement, dated December 27, 2004, by and
among OSI Pharmaceuticals, Inc., Charkit Chemical Corporation and
Sumitomo Chemical Co., Ltd. (Filed herewith)
|
|
|
|
10.3
|
|
Manufacturing and Supply Agreement, dated November 7, 2005, by and
among OSI Pharmaceuticals, Inc., Davos Chemical Corporation and
Dipharma SpA. (Filed herewith)
|
|
|
|
10.4
|
|
Purchase and Sale Agreement, dated July 6, 2009, between OSI
Pharmaceuticals, Inc. and Millsaw Realty L.P., filed by the Company
as an exhibit to the Form 10-Q for the quarter ended June 30, 2009
(file no. 000-15190) and incorporated herein by reference.
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
or 15d-14(a). (Filed herewith)
|
|
|
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31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
or 15d-14(a). (Filed herewith)
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. §
1350. (Filed herewith)
|
|
|
|
32.3
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. §
1350. (Filed herewith)
|
|
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|
*
|
|
Indicates a management contract or compensatory plan, contract or arrangement in which
directors or executive officers participate.
|
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|
|
Portions of this exhibit have been redacted and are subject to a confidential treatment
request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities and Exchange Act of 1934, as amended.
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50
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