UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from to
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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
Incorporation or Organization)
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(I.R.S. Employer Identification
No.)
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41 Pinelawn Road, Melville, N.Y.
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11747
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(Address of Principal Executive
Offices)
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(Zip Code)
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Registrants Telephone Number, including area code
(631) 962-2000
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.01 per share
Series SRPA Junior Participating
Preferred Stock Purchase Rights
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The NASDAQ Stock Market LLC
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Securities Registered Pursuant to Section 12(g) of the
Act: None
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, 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
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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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):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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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
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No
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As of June 30, 2009, the aggregate market value of the
registrants voting stock held by non-affiliates was
$1,097,775,521. For purposes of this calculation, shares of
common stock held by directors, officers and stockholders whose
ownership exceeds five percent of the common stock outstanding
at June 30, 2009 were excluded. Exclusion of shares held by
any person should not be construed to indicate that the person
possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of the registrant, or
that the person is controlled by or under common control with
the registrant.
As of February 15, 2010, there were 58,309,364 shares
of the registrants common stock, par value $.01 per share,
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for
its 2010 annual meeting of stockholders are incorporated by
reference into Part III of this
Form 10-K.
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
i
In this
Form 10-K,
OSI, the Company, we,
us, and our refer to OSI
Pharmaceuticals, Inc. and subsidiaries. (OSI)
Eyetech refers to Oldtech, Inc. (formerly, (OSI) Eyetech,
Inc.), our wholly-owned subsidiary.
We own or have rights to various copyrights, trademarks and
trade names used in our business including
Tarceva
®
(erlotinib) and
Novantrone
®
(mitoxantrone for injection concentrate). This
Form 10-K
also includes other trademarks, service marks and trade names of
other companies.
ii
PART I
We are a biotechnology company committed to building a
scientifically strong and financially successful top tier
biopharmaceutical organization that discovers, develops and
commercializes innovative molecular targeted therapies, or MTTs,
addressing major unmet medical needs in oncology, 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 substantial
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 achieved global sales of
over $1.2 billion in 2009. As of February 15, 2010,
Tarceva was approved for sale in 109 countries for the treatment
of advanced non-small cell lung cancer, or NSCLC, in patients
who have failed at least one prior chemotherapy regimen and 80
countries for the treatment of patients with advanced pancreatic
cancer in combination with the chemotherapy agent, gemcitabine.
Our largest markets for Tarceva are the United States, the
European Union, or EU, Japan and China. We co-promote Tarceva in
the United States with Genentech, Inc., a wholly-owned member of
the Roche Group, where we share profits equally, and we receive
royalties on sales outside of the United States from our
international collaborator, Roche.
Our research and development, or R&D, programs in diabetes
and obesity are conducted at our wholly owned subsidiary in
Oxford, England and contribute 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
February 15, 2010, twelve pharmaceutical companies have
non-exclusive licenses to these patents, which provide us with
upfront payments as well as potential milestones and royalties.
As of December 31, 2009, this patent estate has generated
approximately $178 million in upfront license fees,
milestones and royalties.
We expect that our global revenues from Tarceva and our DPIV
patent estate 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 (including
studies focused on validating the activity of Tarceva in
treating patients whose lung tumors harbor an activating
mutation) and new disease settings, such as hepatocellular
carcinoma, or HCC. We have also prioritized investment in a
portfolio of potentially differentiated and competitive drug
candidates and technologies in oncology and diabetes and
obesity. We will continue to explore opportunities to
selectively acquire attractive pipeline assets, technologies and
companies where these types of acquisitions strongly supplement
and complement our internal R&D efforts in oncology and
diabetes and obesity.
Our development efforts in oncology focus on our pipeline of
MTTs in clinical and late-stage pre-clinical development which
we intend to develop and commercialize independently in major
markets. Our lead oncology compound is OSI-906, an inhibitor of
the insulin-like growth factor 1 and the insulin receptors, or
IGF-1R/IR, with potential utility for the treatment of many
solid tumor types, which entered Phase I studies in June 2007,
and commenced its first Phase III efficacy study for the
treatment of advanced adrenocortical cancer, or ACC, in the
third quarter of 2009. Based on promising results from our Phase
I trials, we have embarked on a broad clinical development
program for OSI-906, both for use as a single agent and in
combination with other therapies. These studies include current
Phase I/II and Phase III trials in ovarian cancer and ACC,
respectively, as well as anticipated
1
Phase II and Phase III studies that will explore the
use of OSI-906 for the treatment of NSCLC (in combination with
Tarceva) and HCC. We are also developing OSI-027, a next
generation mammalian target of rapamycin, or mTOR, kinase
inhibitor, which entered Phase I studies in July 2008. Unlike
existing agents targeting the mTOR pathway, OSI-027 inhibits
both the TORC1 and TORC2 signaling complexes, potentially
allowing complete truncation of aberrant cell signaling through
this pathway. Each of these MTTs, as well as Tarceva, are small
molecules designed to be administered orally as a tablet 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 with a particular focus on
the biological process of
epithelial-to-mesenchymal
transition, or 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 cancer, and should allow
us to better design combinations of MTTs for specific
sub-sets
of
cancer patients. These translational research efforts include
programs designed to develop diagnostic tools derived from
genetic signature technologies that will enable us to better
identify those patients who will most benefit from our targeted
therapies. 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 research and development programs in diabetes and
obesity. 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. Our lead compound for the treatment of diabetes and
obesity is PSN821, an orally administered G protein-coupled
receptor 119, or GPR119, agonist with potential anti-diabetic
and appetite suppressing features, which entered Phase I studies
in the third quarter of 2008. This program represents an
opportunity to develop an oral next-generation GLP-1 modulator
that can both control hypoglycemia and induce weight loss.
Strategy
Our strategic focus is on turning the promise of innovative,
personalized medicine into practice in our industry. In pursuing
this strategy, we seek to appropriately balance our financial
performance with disciplined, focused and selective investments
in R&D designed to realize long term growth for our
company. We anticipate that the continued growth of our global
revenues from Tarceva and our DPIV patent estate, coupled with
disciplined expense management, will allow us to support both a
broad lifecycle plan for Tarceva and continue to make R&D
investments in those programs that we believe can produce novel,
differentiated,
first-in-class
or
best-in-class
drug candidates, such as OSI-906, OSI-027 and PSN821. Our longer
term growth strategy seeks to maintain significant ownership and
control over these drug candidates throughout their development
and commercial lifecycles.
We are also committed to continuing to be a selective acquiror
of attractive pipeline assets, technologies and companies to
supplement and complement our internal oncology and diabetes and
obesity R&D efforts. Our area of focus includes both
highly-differentiated pre-clinical and early stage clinical
assets, as well as later stage clinical compounds that offer
near term revenue potential. As part of this initiative, we
entered into a strategic relationship in 2009 with HBM Partners
AG an affiliate of HBM BioVentures AG, a life
sciences-focused venture fund that is publicly traded on the SIX
Swiss Exchange to collaborate with us in an advisory
role on venture investments and other transactions involving
promising companies, compounds, products and technologies in the
oncology and diabetes and obesity fields. We successfully
completed our first transaction at the end of 2009 with PhaseBio
Pharmaceuticals, Inc. and anticipate executing on additional
transactions in 2010.
2
The goal of our R&D efforts is to pursue novel personalized
medicine therapies by discovering and developing innovative,
differentiated agents that deliver the right medicines, to the
right patients, in the right combinations and at the right
doses. We believe that this approach will lead to:
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More rapid and cost-effective drug development;
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The discovery and development of drugs that deliver meaningful
clinical benefit to patients; and
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Increased availability of innovative medicines to the patients
who can benefit from them the most.
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For over a decade, we have demonstrated our ability to discover
MTTs in both oncology and diabetes and obesity, and this remains
at the core of our efforts to build a differentiated pipeline.
These discovery efforts have been guided by our translational
research program, which seeks to accelerate the process of
transforming scientific discoveries arising from the laboratory
and the clinic into new drugs and treatment options for
patients. Our translational research program has led us to
explore the use of biomarkers to predict, detect and monitor
disease, and has directed our research focus towards the biology
of EMT in oncology and neuroendocrine control in diabetes and
obesity. In oncology, we have learned from our translational
research efforts for Tarceva that developing and exploiting a
comprehensive understanding of the biology of EMT may be a key
to determining patient selection and combination of MTTs for the
treatment of cancer. We have, therefore, invested both
internally and externally through collaborations, such as our
alliance with AVEO Pharmaceuticals, Inc. in order to establish a
leadership position in the understanding of this process and
establish contextual models of human cancer biology in order to
explore the implications of EMT and phenomena such as
compensatory signaling mechanisms on oncology drug discovery and
development. We believe that our EMT-driven approach to oncology
research will provide us with a pathway to selecting responsive
patient populations and obtaining the efficacy improvements that
will result in meaningful steps forward in patient care and that
will be needed in order to compete in a growing and increasingly
competitive market for oncology therapeutics. Similarly, in
diabetes and obesity, we believe that our focus on the
neuroendocrine control of bodyweight and glycemia may allow us
to pioneer personalized medicine approaches in the future.
We also believe that a key element to disciplined management of
our R&D efforts is the pursuit of an out-licensing or
partnering strategy for any program or candidate that we
determine no longer meets our criteria as a core asset. For
example, 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 (our antiangiogenesis agent) in China.
Our
Marketed Product Tarceva
Overview
Tarceva is an oral,
once-a-day,
small molecule therapeutic designed to inhibit the receptor
tyrosine kinase activity of the protein product of the HER1/EGFR
gene. HER1/EGFR is a key component of the HER signaling pathway,
which plays a role in the abnormal growth of many cancer cells.
EGFR inhibitors were designed to arrest the growth of tumors,
referred to as cytostasis; however, under certain circumstances,
EGFR inhibition can lead to apoptosis, or programmed cell death,
which in turn results in tumor shrinkage. The HER1/EGFR gene is
over-expressed, mutated or amplified in approximately 40% to 60%
of all solid cancers and contributes to the abnormal growth
signaling in these cancer cells. There is a strong scientific
rationale and a substantial potential market for EGFR
inhibitors. The initial focus of our development program has
been on NSCLC and pancreatic cancer. We, together with our
collaborators or other third parties, are continuing to explore
the use of Tarceva in other tumor types, including HCC, ovarian
and colorectal cancers.
The American Cancer Society estimates that approximately 186,000
cancer patients in the United States were diagnosed with NSCLC
in 2009. Tarceva is approved for the treatment of NSCLC patients
in the second and third-line settings following a course of
front-line chemotherapy. Based on data from the Tandem Oncology
Monitor, a national audit in 2009 by Synovate, Inc. of cancer
patients receiving therapy, approximately 60,000 subsequent
courses of therapy were provided to NSCLC Stage IIIB/IV patients
in the United States following a course of front-line
chemotherapy. The American Cancer Society estimates that
approximately 35,000 cancer patients in the United States
died from pancreatic cancer in 2009, which makes it the fourth
leading cause of cancer death in the
3
United States. In the EU, based on information collected by the
International Agency for Research on Cancer in Lyon, France, the
third most common incident form of cancer in 2006 was lung
cancer, with approximately 380,000 cases. The International
Agency for Research on Cancer also reported that lung cancer was
the most common cause of cancer death in Europe, with
approximately 340,000 deaths in 2006.
We have an ongoing collaboration with Genentech and Roche for
the continued development and commercialization of Tarceva. We
co-promote Tarceva in the United States with Genentech and
receive a 50% share of net profits after the deduction of costs
of goods and certain sales and marketing expenses. We are also
responsible for manufacturing and supply of Tarceva in the
United States and receive reimbursement of manufacturing costs
from Genentech. Roche is responsible for sales outside of the
United States and we receive a royalty on net sales of
approximately 20%. Tarceva R&D expenses that are part of
the alliances global development program generally are
shared equally among the three parties.
Lifecycle
Plan
We, together with Genentech and Roche, continue to invest in
Tarceva through a broad development program. The goal of our
lifecycle plan for Tarceva is to maximize the long-term market
potential of our flagship product through a series of
rationally-designed clinical trials that reflect our
personalized medicine approach for Tarceva. Our clinical trial
strategy for Tarceva has three key objectives:
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Expand the use of Tarceva into other NSCLC treatment areas;
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Expand the use of Tarceva into additional tumor types and
further explore its utility in pancreatic cancer; and
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Develop therapies which combine Tarceva and other novel targeted
agents for the treatment of NSCLC and other tumor types.
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Studies
to Expand Tarceva into other NSCLC Treatment Areas.
EGFR Mutation Studies
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Approximately 12% of caucasian NSCLC patients and approximately
30% of NSCLC patients of Asian origin have lung tumors that
harbor activating mutations of the EGFR gene. Multiple small
Phase II studies and
sub-set
analyses of several larger Phase III studies (most
recently, the SATURN study, as discussed below) have shown that
Tarceva has considerable anti-tumor activity in these patients.
We, together with our partners at Roche, are aggressively
pursuing clinical studies and diagnostic tests in order to fully
validate the benefit of using Tarceva to treat these patients.
Given the significant clinical benefit anticipated for these
patients, these studies potentially represent a major
breakthrough in personalized medicine treatments for NSCLC and a
significant opportunity to broaden our Tarceva franchise.
Multiple studies are either ongoing or planned that explore the
use of Tarceva as a first-line treatment for NSCLC patients with
EGFR mutations based on clinical data that suggest that these
patients have an enhanced response to Tarceva. In Europe, Roche
and the Spanish Lung Cancer Group are collaborating on a
prospective, randomized Phase III trial to investigate
whether first-line treatment with Tarceva is superior to
chemotherapy in NSCLC patients with EGFR mutations, referred to
as the EURTAC study. Similarly, in Japan, we are collaborating
with Chugai Pharmaceutical Co., Ltd., or Chugai, on a
Phase II study of Tarceva as a first-line treatment for
NSCLC patients with EGFR mutations. We are also seeking a
business partner to ensure rapid development of a companion EGFR
mutation diagnostic test to facilitate potential approval of
Tarceva for the treatment of first-line NSCLC patients with EGFR
mutations in the U.S.
Tarceva Maintenance Therapy Studies
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SATURN Study (Phase III Study of Tarceva in
First-Line NSCLC Patients Following
Chemotherapy)
. In December 2009, the FDAs
Oncologic Drugs Advisory Committee, or ODAC, voted 12 to one
recommending against approval of Tarceva for use in patients
with advanced, recurrent or metastatic NSCLC who have not
experienced disease progression or unacceptable toxicity during
four cycles of front-line chemotherapy, which we refer to as
first-line maintenance therapy. The ODAC reviewed data from the
randomized 889-patient Phase III study, known as SATURN,
which showed that Tarceva resulted in statistically significant
improvement in both progression free survival, or PFS, and
overall survival (the studys primary and secondary
endpoints, respectively)
4
when administered as first-line maintenance therapy, compared to
placebo in the first-line maintenance setting. There were no new
or unexpected safety signals in the study, and adverse events
were consistent with those previously reported for Tarceva in
advanced NSCLC. The study was conducted under the auspices of
the FDAs special protocol assessment, or SPA. In January
2010, after the submission of additional data and analyses to
the FDA, we received notice that the FDA had extended the review
date of the supplemental new drug applications, or sNDA, for
Tarceva as a first-line maintenance therapy by an additional
90 days. The original review date under the Prescription
Drug User Fee Act was January 18, 2010, and we now
anticipate FDA action on the sNDA by April 18, 2010. We,
together with our collaborators, are working closely with the
FDA during this extended review period. We are also working with
Roche in its discussions with the EMEA for the Marketing
Authorization Application variation (the EU equivalent of a
U.S. sNDA) for Tarceva as a first-line maintenance therapy
in the EU.
ATLAS Study.
In October 2009,
Roche communicated to us that an exploratory data sweep for
survival of ATLAS, a Phase III study in patients with
advanced non-small cell lung cancer who received Tarceva in
combination with Avastin as first-line maintenance therapy, was
not positive. We did not opt-in (i.e., share in the
expenses) 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.
RADIANT Study (Adjuvant Tarceva after Surgery and
Chemotherapy in Patients with Stage IB-IIIA
NSCLC)
. Due to its demonstrated efficacy, safety
profile and convenience, we believe that Tarceva is well suited
for testing in the adjuvant treatment of patients with fully
resected stage IB through IIIA NSCLC. Over the last few years,
it has been demonstrated that certain patients with resectable
NSCLC may benefit from platinum-containing adjuvant
chemotherapy. This treatment paradigm is becoming the standard
of care in the United States and worldwide. In the 945-patient
RADIANT study, patients with fully resected NSCLC who are
EGFR-positive by immunohistochemistry, or IHC,
and/or
fluorescent
in situ
hybridization, or FISH, and who do or
do not receive platinum-containing adjuvant chemotherapy, are
randomized to receive Tarceva or placebo for up to two years.
This study has the potential to change the standard of care for
patients with early stage NSCLC. We expect to complete
enrollment in the first half of 2010, and assuming we meet this
enrollment target, we anticipate data from this trial in
2013/2014. This study is an important component of our later
stage lifecycle plan for Tarceva.
Phase II Studies in Never-smokers
. The Cancer and
Leukemia Group B, or CALGB, recently completed a randomized
Phase II study in previously untreated NSCLC patients with
adenocarcinoma who have never smoked or were previous light
smokers. For this study, 180 patients with Stage IIIB
or IV disease received either Tarceva alone or in
combination with the drugs carboplatin and paclitaxel. CALGB has
indicated that it plans on providing the results of this study
at the June 2010 meeting of the American Society of Clinical
Oncology. In addition, the Eastern Cooperative Oncology Group
has received approval from the Cancer Therapy Evaluation Program
for a similar Phase II study which would randomize patients
who have never smoked to either chemotherapy plus Avastin or
chemotherapy plus Avastin in combination with Tarceva. The
Southwest Oncology Group has also initiated a Phase II
study of Avastin and Tarceva in never-smokers. These studies
will add further insight to the results seen in retrospective
analyses of the never-smoker patients in the prior TRIBUTE and
BR.21 randomized Phase III studies. In TRIBUTE, a
first-line NSCLC study, the
sub-population
of patients who were never-smokers receiving Tarceva in
combination with chemotherapy had a median survival of
22.5 months, compared to 10.1 months for those
receiving chemotherapy alone. In BR.21, the hazard ratio for
benefit in never-smokers was 0.42, with a response rate of 24.7%
for those patients who received Tarceva alone. A hazard ratio is
the most widely accepted statistical measure of the difference
in overall survival for a population of patients in a clinical
study between the study drug and the control group. A hazard
ratio of less then one indicates a reduction in the risk of
death.
Tarceva Intercalated with Chemotherapy in First-Line
NSCLC.
In 2009, an investigator sponsored study in Asia was
completed that explored the use of Tarceva intercalated with
gemcitabine and a platinum-based chemotherapy in first-line
NSCLC patients. Based on favorable results from this study,
Roche has initiated a Phase III trial that seeks to confirm the
potential benefits of this scheduling regimen. There are also
two smaller Phase II studies ongoing in the United Studies
that are investigating intercalated chemotherapy treatment
regimens.
5
TITAN Study
. The TITAN study is a randomized 650-patient
Phase III study to evaluate the efficacy of Tarceva
compared to either of two chemotherapy agents,
Alimta
®
(pemetrexed) or
Taxotere
®
(docetaxel), following front-line chemotherapy in advanced,
recurrent metastatic NSCLC patients who have experienced rapid
disease progression or unacceptable toxicity. The TITAN study is
part of our post-marketing commitments agreed to with the FDA
upon the approval of Tarceva. Patients with progressive disease
as best response to platinum-containing chemotherapy are
eligible for enrollment in TITAN and are randomized to Tarceva
or chemotherapy (Alimta or Taxotere at the discretion of the
investigator). An agreement has been reached with the FDA and
European Medicines Agency, or EMEA, to curtail this study, due
to
lower-than-expected
enrollment. Although this study will only enroll approximately
two-thirds of the planned number of patients, we still expect it
to provide comparative data for Tarceva versus chemotherapy in
the
sub-set
of patients who rapidly progress on front-line chemotherapy.
Studies
to Refine the use of Tarceva in Pancreatic Cancer.
RACHEL Study.
Sub-set
analysis from the PA.3 study in pancreatic cancer suggests that
those patients who have a grade 2 Tarceva-related rash have an
approximately two-fold increase in their rate of survival. The
RACHEL study seeks to explore this observation in a prospective,
randomized fashion. This Phase II study is part of
Roches post-marketing commitments agreed to with the EU
regulatory authorities. Approximately 400 patients will be
entered into the study and will receive four weeks of the
standard gemcitabine plus 100 mg/day Tarceva regimen. Those
patients who have not either progressed or demonstrated a grade
2 or 3 rash will be randomized to either continue the standard
regimen or undergo a dose escalation protocol for the Tarceva
component of the regimen. This study is currently enrolling.
MARK Study
. The MARK study is a randomized Phase II
study in pancreatic cancer which is primarily designed to
provide extensive biomarker
follow-up.
This study is part of Roches post-marketing commitments
agreed to with the EU regulatory authorities. Approximately
200 patients whose cancer has progressed on prior
chemotherapy or who were considered unsuitable for chemotherapy
will be randomized to Tarceva monotherapy or placebo. This study
is currently enrolling.
Studies
to Expand Tarceva into Additional Tumor Types.
Hepatocellular Cancer.
Tarceva demonstrated clinical
activity in patients with HCC in two small single arm
Phase II trials. We are currently collaborating with Bayer
AG and Onyx Pharmaceuticals, Inc. on a Phase III trial that
compares Tarceva plus
Nexavar
®
(sorafenib) with placebo plus Nexavar, for the treatment of
advanced HCC. This trial, which is currently enrolling, is
primarily sponsored by Bayer and Onyx and has a target
enrollment of 700 patients.
Ovarian and Colorectal Cancer.
Additional collaborative
group Phase III trials are under way in both ovarian cancer
and colorectal cancer. The ovarian cancer study, which completed
enrollment in 2008, is an 830-patient Phase III trial being
conducted by the European Organization for Research into the
Treatment of Cancer, or EORTC, and follows a similar maintenance
design to the SATURN study, in which Tarceva is used as a
monotherapy following initial chemotherapy in patients whose
cancer has not progressed. Data from this study are expected in
2011. The colorectal cancer study is a 640-patient study being
conducted through a study group in the EU and also employs
Tarceva in a maintenance setting. This study tests Tarceva in
combination with Avastin as maintenance therapy compared to
Avastin alone in patients who have had a partial response or
stable disease after treatment in the first-line setting with
modified FOLFOX 7 (folinic acid, fluorouracil and oxaliplatin)
plus Avastin or modified XELOX (capecitabine plus oxaliplatin)
plus Avastin, two widely employed treatment regimens for
colorectal cancer.
Studies
that Combine Tarceva with other Targeted Agents.
We believe that there are a number of opportunities to combine
Tarceva with other targeted agents to create improved patient
outcomes, both for NSCLC as well as other tumor types. As
discussed below, we initiated a Phase I study in the fourth
quarter of 2008 exploring the combination of Tarceva with
OSI-906, our oral small molecule IGF-1/IR receptor inhibitor. We
also are actively exploring opportunities to combine Tarceva
with other targeted therapies through investigator sponsored
studies and partnerships with other pharmaceutical and
biotechnology companies, including
6
current studies with Novartis AG and ArQule, Inc. that combine
Tarceva with a mammalian target of rapamycin, or mTOR, and
mesenchymal-epithelial transition factor, or c-Met, inhibitor,
respectively.
Treatment Beyond Progression
. From an exploratory study
conducted at Memorial Sloan Kettering Cancer Center, it has been
reported that, in patients who progressed on EGFR tyrosine
kinase inhibitor, or TKI, therapy, there appeared to be
acceleration of disease progression when EGFR TKI therapy was
discontinued. Upon reintroduction of EGFR TKI therapy, disease
progression slowed. Based upon this observation, we believe
further study is warranted as to whether continuing Tarceva
therapy beyond disease progression by adding other drugs, and in
particular, other targeted agents with a focus on EMT-driven
combinations, provides a treatment benefit. Two
investigator-sponsored studies are currently exploring this
hypothesis.
Investigator
Sponsored Studies.
In addition to the studies listed above, there are over 130
ongoing or active studies investigating other Tarceva uses and
regimens, including both investigator-sponsored studies and
studies sponsored by the National Cancer Institute. These
studies are exploring monotherapy and combination uses of
Tarceva, including with other novel agents, in various tumor
types and with a variety of treatment modalities, such as
radiation and surgery. Some studies are also examining the use
of Tarceva earlier in the treatment paradigm in both the
adjuvant and chemoprevention settings. In general, many of these
studies are carried out at minimal cost to us or our
collaborators beyond the supply of Tarceva.
Sales
and Marketing
In order to maximize the Tarceva brand and to ensure the optimal
competitive positioning of Tarceva on a global basis, we entered
into a co-development and commercialization alliance with
Genentech and Roche in January 2001. Under the alliance,
Genentech leads the marketing efforts for Tarceva in the United
States and Roche sells and markets the drug in the rest of the
world. In addition, 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. Our oncology sales specialists currently perform sales
calls to certain high-volume physician call targets and
associated medical staff, in addition to attending our
promotional exhibit booths at medical meetings and tradeshows.
OSI/Genentech/Roche
Alliance
We manage the ongoing development program for Tarceva with
Genentech and Roche through a global development committee under
our co-development and commercialization alliance with Genentech
and Roche, the Tripartite Agreement. Following Roches
completion of the acquisition of the remaining outstanding
shares of Genentech in 2009, Roche assumed global responsibility
for managing the Tarceva alliance. Operationally, however,
Genentech continues to lead the marketing and selling efforts
for Tarceva in the United States and Roche continues to market
and sell Tarceva in the rest of the world. OSI and Genentech are
parties to a collaboration agreement which provides us with the
right to co-promote Tarceva. 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 as described as
follows. 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.
Genentech also has the right to terminate the OSI/Genentech
collaboration agreement with six months prior written
notice. Upon such termination, the sole right to commercialize
Tarceva in the United States would revert to us. The provisions
of the amendment allowing us to co-promote are also subject to
termination by Genentech upon a material breach of the amendment
by us, which remains uncured, or upon a pattern of non-material
breaches which remain uncured. In 2004, we signed a
Manufacturing and Supply Agreement with Genentech that clarified
our role in supplying Tarceva for the U.S. market. The
OSI/Genentech collaboration agreement may be assigned or
transferred by either party to any purchaser of all or
substantially all of such partys assets or all of its
capital stock, or to any successor corporation via merger or
consolidation.
We are also parties to an agreement with Roche whereby we have
provided Roche with the right to sell Tarceva worldwide except
for the United States, its territories, possessions and Puerto
Rico, in exchange for a royalty and
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milestones. 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. 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. We also
currently 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. Upon a termination, the
sole right to commercialize Tarceva in any terminated country
would revert to us. The OSI/Roche agreement may be assigned or
transferred by either party to any purchaser of all or
substantially all of such partys assets to which the
agreement relates or all of its capital stock, or to any
successor corporation via merger or consolidation.
Manufacturing
and Supply
We currently manage the supply of Tarceva in the United States
through third-party manufacturers. Under our collaboration
agreement with Genentech, we are responsible for the manufacture
and supply of erlotinib, the active pharmaceutical ingredient,
or API, and Tarceva tablets for pre-clinical and clinical trials
and for the supply of commercial quantities of Tarceva tablets
for sales within the United States. Under our collaboration
agreement with Roche, Roche is responsible for the manufacture
and supply of Tarceva tablets for sales outside of the United
States.
Erlotinib is manufactured in a three-step process with high
yield. Sumitomo Chemical Co., Ltd. and Dipharma S.p.A. are our
manufacturers of the API used for commercial supplies. Both of
these manufacturers also manufacture API for Tarceva clinical
trials. The Sumitomo agreement terminates in November 2011 and
the Dipharma agreement terminates in November 2012. Both
agreements automatically renew for an additional period of two
years unless terminated by either party on at least
12 months notice prior to the end of their respective
initial terms. Our agreements with these manufacturers are
subject to early termination in the event of certain customary
defaults, such as material breach of the agreement and
bankruptcy. In addition, we can terminate either agreement if
the manufacturer is unable to supply the requested amounts of
API in accordance with forecasts or if we discontinue the
commercialization of Tarceva.
Schwarz Pharma Manufacturing, Inc. is our manufacturer of
Tarceva tablets for clinical and commercial supplies, as well as
placebo for blinded clinical studies. The Schwarz agreement
terminates in February 2015 and is subject to early termination
in the event of certain customary defaults, such as material
breach of the agreement and bankruptcy. In addition, we can
terminate the Schwarz agreement if Tarceva is prohibited from
being manufactured, shipped, sold, or marketed by the FDA or
applicable regulatory authority or in the event of certain
product supply failures occurring during a specified period.
Our
Clinical Development Programs
We currently have three development candidates in ongoing
clinical trials in oncology and diabetes/obesity, all of which
are the result of our internal research efforts. Our long-term
strategy is to maintain significant control over these assets
and to commercialize them, in whole or in part, particularly in
the United States.
OSI-906.
OSI-906 is an oral small molecule
IGF-1R/IR inhibitor which we believe is among the first and most
advanced small molecule inhibitors against the IGF-1R/IR target
to enter clinical trials. In pre-clinical studies, OSI-906 has
demonstrated synergy with Tarceva and potential utility in a
number of different cancers, including NSCLC, breast,
pancreatic, prostate, colorectal, ACC, HCC and ovarian. We
believe that OSI-906 is potentially more effective than
antibodies, given its inhibition of the
P
AKT
survival pathway and its ability to modulate potential
compensatory signaling mechanisms in the tumor cell. We also
believe that its oral administration will provide more
scheduling flexibility and convenience than antibodies. Based on
encouraging data from our initial Phase I studies for OSI-906
that commenced in 2007, we have initiated a broad development
plan for OSI-906 that includes the following ongoing or planned
studies:
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ACC.
IGF-1R/IR signaling has been implicated
in the pathogenesis of ACC, an area of significant unmet medical
need. A significant proportion of patients with ACC have tumors
that over-express insulin-like
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growth factor 2, or IGF-2, an IGF-1R ligand, which we believe
offers a potential opportunity for patient selection. In the
third quarter of 2009, we commenced the first efficacy study of
OSI-906 a Phase III trial that compares OSI-906
versus placebo in patients with advanced ACC, with the primary
endpoint of overall survival. As ACC is a rare disease with a
high mortality rate, our strategy is to pursue approval with the
FDA as an orphan drug if the trial is successful,
and to investigate options for accelerated approval.
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NSCLC Maintenance.
As noted above, we
commenced a Phase I combination study of Tarceva and
OSI-906
based on pre-clinical data that support the importance of
compensatory signaling with the IGF-1R/IR and EGFR pathways. We
are currently conducting dose escalation studies with Tarceva
and OSI-906, with the goal of determining the recommended dose
for this combination in the first half of 2010. In the event
that we are able to obtain FDA approval for Tarceva in the
first-line maintenance setting, we expect to commence a
randomized Phase II NSCLC maintenance study of Tarceva plus
OSI-906 in patients whose cancer has not progressed following
first-line treatment with platinum-based chemotherapy.
Alternatively, we may commence a randomized Phase II study
of Tarceva plus OSI-906 in the second-line NSCLC setting.
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NSCLC with EGFR Mutations.
Tarceva has
demonstrated impressive benefit in patients with activating EGFR
mutations, however, secondary resistance eventually develops
resulting in disease relapse. OSI-906 in combination with
Tarceva may have the ability to improve patient outcomes through
compensatory signaling and by blocking one of the resistance
mechanisms to Tarceva. We are planning to initiate a randomized
Phase III clinical trial that combines OSI-906 and Tarceva
for the first-line treatment of advanced NSCLC patients with
EGFR mutations.
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Ovarian Cancer.
Preclinical data suggest
potential synergies between OSI-906 and paclitaxel in the
inhibition of IGF-1R/IR signaling pathway. We commenced a
randomized Phase I/II study in September 2009 of OSI-906 in
combination with paclitaxel for the treatment of advanced
ovarian cancer.
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HCC.
We are currently planning a Phase II
clinical trial evaluating OSI-906 as a single agent for the
treatment of advanced HCC after the failure of first-line
treatment, which we expect to commence in the second half of
2010. Similar to ACC, advanced HCC is a rare disease in which a
significant proportion of patients over express IGF-2 offering a
patients selection opportunity for IGFR-1R targeted therapy. HCC
has a high unmet medical need; therefore, we will investigate
accelerated approval options if our Phase II and subsequent
Phase III trials are successful.
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We are also exploring a number of other potential indications
for OSI-906 both as a single agent and in combination with other
targeted strategies, including breast and prostate cancers.
PSN821.
PSN821, a novel GPR119 agonist, is an
oral small molecule drug with potential anti-diabetic and
appetite suppressing effects, which is being developed for the
treatment of type 2 diabetes. GLP-1 modulation has been the
target of significant industry-wide R&D, with the goal of
realizing glucose dependent improvement in beta cell function,
and has led to the recent development and approval of GLP-1
peptide agonists such as Eli Lilly and Company and Amylin
Pharmaceuticals, Inc.s
Byetta
®
(exenatide injection) and DP-IV inhibitors such as
Merck & Co., Inc.s
Januvia
tm
(sitagliptin) and Bristol-Myers Squibb Companys, or
BMSs,
Onglyza
®
(saxagliptin). The peptide agonists can provide meaningful
weight loss in addition to effective glucose lowering but are
injectables that can cause nausea. The DP-IV inhibitors are more
convenient oral agents, but are less effective in glucose
lowering and do not provide meaningful weight loss. GPR119
agonists offer the potential for glucose lowering and meaningful
weight loss with oral convenience. In pre-clinical models,
PSN821 has been shown to release endogenous GLP-1 and increase
beta-cell cAMP leading to improved glucose control, delayed
gastric emptying, appetite suppression and weight loss. Based on
the pre-clinical data set, we believe that PSN821 has the
potential to be a
best-in-class
product. PSN821 is currently undergoing chemistry, manufacturing
and control, or CMC, development, as well as drug metabolism and
pharmacokinetics, or DMPK, and pre-clinical safety testing, to
support Phase IIb clinical studies planned to commence in the
first quarter of 2011. The
first-in-man
Phase I single ascending dose clinical study commenced in the
third quarter of 2008 and included both healthy volunteers and
patients with type 2 diabetes. A
14-day
Phase
I/IIa dosing clinical study is underway and includes both
healthy volunteers and patients with type 2 diabetes.
9
OSI-027.
OSI-027 is a small molecule
TORC1/TORC2 inhibitor which has the potential to supersede first
generation mTOR inhibitors. Unlike existing agents targeting the
mTOR pathway, OSI-027 inhibits both the TORC1 and TORC2
signaling complexes, allowing for the potential for complete
truncation of aberrant cell signaling through this pathway.
Inhibition of TORC1 and TORC2 has been shown in pre-clinical
studies to elicit robust anti-tumor activity but to carry an
appreciable toxicity burden. We commenced a Phase I clinical
trial of OSI-027 in July 2008, which is currently enrolling.
After some initial indications of unexpected toxicities, the
dose escalation process has recommenced and the study is
progressing.
Other
Internal and Partnered Development Programs
OSI-296.
OSI-296, a novel, potent tyrosine
kinase inhibitor developed to block compensatory signaling in
epithelial tumor cells, is among the first pre-clinical
candidate to emerge from our EMT technology platform. In
pre-clinical studies, OSI-296 has shown efficacy in a number of
EMT ligand-driven tumor models and has blocked ligand-driven EMT
and tumor growth. OSI-296 is in pre-clinical development. A
decision on whether to move this agent into full clinical
development will be made upon completion of IND-enabling safety
pharmacology and toxicology studies.
PSN010.
In January 2007, we outlicensed our
glucokinase activator, or GKA, program, including the small
molecule Phase I clinical candidate PSN010, to Eli Lilly. GKAs
are designed to have a dual effect in the pancreas and the liver
resulting in increased hepatic glucose uptake in the liver and
stimulated insulin secretion by the pancreas. Under the terms of
our license with Eli Lilly, Eli Lilly is responsible for all
aspects of clinical development, manufacturing and
commercialization of PSN010 or any
back-up
compound included within the licensed GKA program. In return for
such rights, we received an upfront payment of
$25.0 million and will potentially receive milestones and
other payments of up to $360.0 million and royalties based
on net sales of any product arising from the licensed GKA
program. The license agreement will remain in effect as long as
Eli Lilly is required to pay royalties to us under the
agreement. Eli Lilly is required to pay royalties on a
country-by-country
basis until, among other things, the expiration of the last to
expire patent covering PSN010 or any
back-up
compound included in the licensed program in such country. The
license agreement with Eli Lilly is subject to early termination
in the event of certain customary defaults, such as material
breach of the agreement and bankruptcy. In the event of a
termination of the agreement, licenses granted to Eli Lilly
shall revert back to us. Eli Lilly has indicated that it will
advance this program to Phase IIb studies in early 2010.
OSI-930.
OSI-930 is a multi-targeted TKI that
principally acts as a potent co-inhibitor of the receptor
tyrosine kinases c-kit and the vascular endothelial growth
factor receptor-2, or VEGFR-2. It is designed to target the
suppression of both cancer cell proliferation and blood vessel
growth, or angiogenesis, in selected tumors. We have completed
Phase I dose escalation studies of OSI-930 in healthy volunteer
patients and two Phase I dose escalation studies in cancer
patients, which has determined the maximum tolerated dose, or
MTD, for OSI-930 both as single agent and as a possible
combination therapy with Tarceva. Because of the large number of
VEGFR-2 inhibitors already on the market and currently in
development, we have focused on executing partnering
transactions for this development program. In October 2009, we
entered into an agreement granting rights to Simcere
Pharmaceutical to develop, manufacture and market OSI-930 in
China.
OSI-632.
OSI-632, an inhibitor of VEGFR-2, is
a clinical development candidate from our prior alliance with
Pfizer. Pfizer elected to discontinue development of OSI-632
(formerly CP-547,632) and, pursuant to our agreement with
Pfizer, it reverted to us and we have the right to pursue its
development. We are currently seeking a development partner for
this compound and have signed an option agreement with PanOptica
for the potential development of OSI-632 in ophthalmology.
PSN602.
PSN602 is a novel dual serotonin and
noradrenaline reuptake inhibitor which also elicits
5HT
1A
receptor agonism, which was being developed for the long-term
treatment of obesity. Inclusion of
5HT
1A
agonism has been shown in pre-clinical studies to counterbalance
the undesirable cardiovascular effects of increased
noradrenaline activity seen with other anti-obesity agents which
inhibit the reuptake of noradrenaline and serotonin, while
maintaining or improving upon efficacy. The
first-in-man
Phase I clinical study commenced in the second quarter of 2008
and included single and multiple ascending dosing in both
healthy lean and overweight/obese
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volunteers. In the fourth quarter of 2009, we elected to
discontinue this program due to lack of a sufficiently
competitive clinical profile and pre-clinical safety findings.
Our
Oncology and Diabetes and Obesity Discovery Efforts
Oncology
Research
Our oncology research efforts are broadly centered around both
translational research and drug discovery, each of which is
anchored by our continued focus on understanding multiple
elements of tumor biology including onco-addiction
and compensatory signaling but with a particular
focus on the biological process known as EMT and its reverse,
mesenchymal-to-epithelial
transition, or MET, both of which are important phenomena in
developmental biology that are becoming increasingly associated
with tumor biology. EMT is characterized by the combined loss of
epithelial cell junction proteins, such as
E-cadherin,
and the gain of mesenchymal markers, such as vimentin,
fibronectin or MMP-2. An increase in the proportion of cancer
cells in a tumor that exhibits the loss of
E-cadherin
and the acquisition of a more mesenchymal phenotype is believed
to correlate with poor prognosis in multiple epithelial derived
solid tumors. We believe that EMT may be a marker of tumor
progression, with tumors that express mesenchymal markers having
a greater tendency to be invasive and to metastasize than those
tumors only expressing epithelial markers. Because mesenchymal
tumor cells co-opt different sets of oncogenic signaling
pathways, we believe that EMT targets represent a novel
therapeutic opportunity.
Our early understanding of EMT emanated from work done by our
translational research group, which observed that Tarcevas
effects on different types of cancer cells appeared related to
the EMT status of these cancer cells. Pursuing EMT may allow us
to better understand which patients might more optimally benefit
from Tarceva or other MTTs. Retrospective analysis of tumor
samples from the TRIBUTE Phase III study of Tarceva in
combination with chemotherapy for the treatment of front-line
NSCLC patients, and subsequent retrospective analysis of tumor
samples from the BR. 21 Phase III study of monotherapy
Tarceva in patients who had received prior chemotherapy,
suggested that those patients whose tumors abundantly expressed
E-cadherin
responded better to Tarceva. By acquiring or co-opting a
mesenchymal phenotype, we believe that epithelial derived tumor
cells utilize different growth and survival pathways and become
less dependent on EGFR signaling and ultimately acquire or gain
the ability to migrate, invade and metastasize. These properties
suggest the need to target distinctly different signaling
pathways in order to effectively treat these tumors. As a result
of our study of the signaling changes associated with EMT, we
have deepened our understanding of compensatory signaling
mechanisms associated with pharmacological inhibition of certain
receptor tyrosine kinases, or RTKs. These RTKs are involved in
the regulation of EMT and tumor growth processes and therefore
are attractive therapeutic targets in oncology. For example, we
have determined that inhibition of EGFR in tumor cells by
Tarceva can lead to enhanced phosphorylation
and/or
activation of IGF-1R/IR. Conversely, inhibition of IGF-1R/IR can
result in increased phosphorylation of EGFR. This observation
provides the principal underpinning of our strategy to combine
OSI-906 and Tarceva. We believe that this phenomenon may also
apply to other RTKs, and this has caused us to focus on
identifying rational combinations of molecular-targeted agents
directed at EMT-linked targets in order to confront compensatory
signaling as a resistance mechanism in tumor cells. This new
insight is leading our development project teams to plan and
conduct studies of markers of EMT and EGFR signaling in
retrospective and prospective clinical trials for Tarceva. These
studies may enhance the likelihood of success of Tarceva in
additional indications by selecting those patients most likely
to better respond to therapy.
Given the importance and relevance of EMT to the therapeutic
activity of Tarceva, we have focused our oncology discovery
efforts on exploiting our understanding of the signaling
pathways that drive EMT and on identifying drug targets that
could lead to novel molecular targeted therapies. These research
efforts include: (i) discovering and validating EMT-related
targets; (ii) developing novel therapies and combinations
of therapies against EMT-related targets; (iii) developing
specialized animal models that recapitulate EMT processes;
(iv) designing rational combination strategies that address
compensatory signaling as an EMT-associated drug-resistance
mechanism; and (v) identifying and validating biomarkers to
support these programs.
In September 2007, we entered into a three-year oncology drug
discovery and translational research collaboration with AVEO to
help us to better understand the underlying mechanisms of the
process of EMT in cancer. A main focus of the collaboration is
the development of proprietary target-driven tumor models for
use in
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drug screening, translational research and biomarker validation.
As part of the collaboration, AVEO provides us with access to
its databases of tumor targets identified from AVEO genetic
screens focusing on tumor maintenance genes that drive EMT. AVEO
uses its proprietary technology platform of genetically-defined
mouse models of human cancer to develop for us
in vivo
tumor models that we believe more accurately portray
contextual tumor biology then traditional xenograft models.
These models are driven by EMT target genes of interest to us,
which validate key EMT targets and create tools for our oncology
discovery and translational research. Under the terms of the
collaboration, we are responsible for the development and
commercialization of all small molecule and non-antibody
clinical candidates that arise from the collaboration. We own
exclusively all small molecule intellectual property emanating
from the collaboration and AVEO retains the rights to any
antibodies and antibody-related biologics against targets from
the collaboration. In addition to an upfront payment, we pay
AVEO for ongoing research funding, and milestones and royalties
upon successful development and commercialization of products
from the collaboration. In July 2009, we expanded our
collaboration with AVEO and received a non-exclusive license to
use AVEOs proprietary bioinformatics platform and data as
well as the right to access a proprietary gene index related to
a specific target pathway. Further, as part of the expanded
collaboration, we received the right, exercisable upon payment
of an option fee, to obtain a non-exclusive perpetual license to
AVEOs bioinformatics platform, as well as certain of
AVEOs tumor models and tumor archives.
Diabetes
and Obesity Discovery
Our discovery efforts in diabetes and obesity currently focus on
innovative, small molecule, orally bioavailable MTTs for the
treatment of diabetes and obesity. The International Diabetes
Federation, or IDF, estimated in 2007 that up to
246 million people worldwide have diabetes and that this
number will reach 380 million by 2025. The IDF also
estimated that up to 3.8 million deaths worldwide each year
are a result of diabetes, representing the fourth leading cause
of death by disease globally. Diabetes is a chronic disease with
multiple complications, including cardiovascular and renal
disease, neuropathy, blindness and premature mortality. Type 2
diabetes accounted for approximately 90% of diabetics worldwide
as of 2007 and, while historically considered a disease found in
adults, it is increasingly occurring in obese children. As for
obesity, the World Heath Organization, or WHO, estimated in 2005
that over 1.6 billion adults worldwide were overweight, and
over 400 million adults were obese. The WHO estimates that
these figures will rise to 2.3 billion and
700 million, respectively, by 2015. Obesity is a major risk
factor for type 2 diabetes, cardiovascular disease,
musculo-skeletal disorders and certain cancers.
Beginning in 2008, we elected to concentrate our discovery
efforts around the neuroendocrine control of bodyweight and
glycaemia. This area covers 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. We believe that our focus in this area may ultimately
lead to the development of a research platform that will allow
us to identify biomarkers useful for the development of
personalized medicines for diabetes and obesity. We have applied
considerable effort in 2009 towards building a leading GPR119
agonist franchise, including research activities to support our
first-generation GPR119 agonist PSN821 as well as discovery
efforts directed towards identifying second-generation GPR119
agonists.
Our
Intellectual Property
Patents and other proprietary rights are vital to our business.
Our policy is to protect our intellectual property rights
through a variety of means, including applying for patents in
the United States and other major industrialized countries, to
operate without infringing on the valid proprietary rights of
others, and to prevent others from infringing our proprietary
rights. We also rely upon trade secrets and improvements,
unpatented proprietary know-how and continuing technological
innovations to develop and maintain our competitive position. In
this regard, we seek restrictions in our agreements with
third-parties, including research institutions, with respect to
the use and disclosure of our proprietary technology. We also
enter into confidentiality agreements with our employees,
consultants, scientific advisors and potential partners.
Tarceva-Related
Intellectual Property
We have obtained patents for erlotinib, the API for Tarceva, in
the United States, the EU, Japan, and a number of other
countries. We also pursue extensions of the patent term
and/or
of
the marketing exclusivity term in the
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countries where such extensions are available. We have been
granted patent term extensions that extend our U.S. patent
for erlotinib to November 2018 and corresponding patents in
Europe to March 2020 and in Japan to June 2020. We also intend
to seek pediatric exclusivity for Tarceva from the FDA, which,
if granted, would extend the U.S. patent for erlotinib by
an additional six months. We are currently pursuing
U.S. and international patents for new inventions
concerning various other formulations of erlotinib and related
intermediate chemicals and processes. We have obtained patents
covering a key polymorphic form of Tarceva throughout the world,
including in the United States and Europe, which expire in 2020.
We are also currently seeking patent protection for additional
methods of use for Tarceva, including the use of Tarceva in
combination with other compounds.
Separate and apart from this patent protection, the Drug Price
Competition and Patent Term Restoration Act of 1984, also known
as the Hatch-Waxman Act, entitles Tarceva to various periods of
non-patent statutory protection, known as marketing exclusivity.
The patent system and marketing exclusivity work in tandem to
protect our products. For Tarceva, under the Hatch-Waxman Act,
we had a five-year period of new chemical entity exclusivity,
which expired on November 18, 2009. On its own, this
exclusivity meant that another manufacturer could not submit an
abbreviated new drug application, or ANDA (i.e., an application
for approval of a generic version of our product), or a
505(b)(2) new drug application, or NDA (i.e., an application for
a modified version of Tarceva that relies to some degree on the
FDAs previous approval of our product), until the
marketing exclusivity period ended. There is an exception,
however, that allowed competitors to challenge our patents
beginning four years into the exclusivity period (i.e.,
beginning November 18, 2008) by alleging that one or
more of the patents listed in the FDAs Orange Book are
invalid, unenforceable
and/or
not
infringed and submitting an ANDA or 505(b)(2) NDA for a generic
or modified version of Tarceva. This patent challenge is
commonly known as a Paragraph IV certification. These
Paragraph IV certification challenges have become
increasingly common throughout the biotechnology and
pharmaceutical industries. Tarceva is currently covered by three
patents listed in the FDAs Approved Drugs Products List
(Orange Book).
In February 2009, we received Paragraph IV certifications
from two generic pharmaceutical companies Teva
Pharmaceuticals U.S.A., Inc., or Teva U.S.A., and Mylan
Pharmaceuticals, Inc. In March 2009, we filed lawsuits in the
U.S. District Court in Delaware against Teva U.S.A. and
Mylan for infringement of U.S. Patent No. 5,747,498,
or the 498 patent, U.S. Patent No. 6,900,221 and
U.S. Patent No. 7,087,613. The filing of these
lawsuits restricts the FDA from approving the ANDAs of Teva
U.S.A. and Mylan until seven and one-half years have elapsed
from the date of Tarcevas initial approval (i.e., until
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
the patent infringement case against either Teva U.S.A. or Mylan
before the statutory litigation stay period expires (i.e., the
court finds the patents invalid, unenforceable, or not
infringed) or if we were to fail to reasonably cooperate in
expediting the litigation. On the other hand, if we prevail in
the infringement action against Teva U.S.A.
and/or
Mylan, the ANDA with respect to such generic pharmaceutical
company cannot be approved until the patents held to be
infringed expire.
In light of the increasingly aggressive challenges by generic
companies to innovator intellectual property, we, together with
our collaborators, Genentech and Roche, continually assess the
intellectual property estate for Tarceva around the world. On
February 27, 2008, we filed with the U.S. Patent and
Trademark Office, or USPTO, an application to reissue the
498 patent. In addition, we also filed with the USPTO a
request for a certificate of correction with respect to the
498 patent seeking to correct errors of a clerical or
typographical nature. The USPTO granted the certificate of
correction in September 2008 and on December 29, 2009, the
USPTO granted reissue patent RE41,065, replacing the 498
patent. The reissue patent has the same November 18, 2018
expiration date (excluding any potential six-month pediatric
exclusivity period) as the original 498 patent. On
January 26, 2010, we submitted an unopposed motion for
leave to file an amended and supplemental complaint substituting
RE41,065 for the 498 patent in the consolidated litigation
with Teva U.S.A. and Mylan.
A patent corresponding to the 498 patent for Tarceva was
granted in February 2007 in India and we, along with our
collaborator Roche, successfully opposed a pre-grant opposition
to this patent by Natco Pharma, Ltd. in July 2007. We also
opposed Natco Pharmas request for a compulsory license to
manufacture Tarceva in India for export to Nepal and Natco
Pharma withdrew this request in September 2008. We and Roche are
also 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
13
Delhi, India in January 2008, alleging infringement of our
patent which included a request that the court issue a
preliminary injunction to prevent CIPLA from manufacturing and
distributing Tarceva in India. The court denied the request for
the preliminary injunction 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. On December 15, 2009 and
January 19, 2010, we filed lawsuits against Natco Pharma
and Dr. Reddys Laboratories Ltd., respectively, in
the High Court of Delhi in New Delhi, India to enforce our
composition of matter patent with respect to additional generic
forms of Tarceva launched by Natco Pharma and Dr Reddys
Laboratories in India.
We have also filed lawsuits against Allmed International, Inc.,
of San Jose California, Natco Pharma and the Ministry of
Health of Ukraine to enforce our patents against Allmed and
Natco Pharma with respect to a generic form of Tarceva
manufactured by Natco Pharma and distributed by Allmed in the
Ukraine, and to invalidate the administrative orders from the
Ministry of Health of Ukraine registering a generic version of
erlotinib on the state registration for medicinal products.
In addition, Teva Pharmaceutical Industries Ltd. filed an
opposition to the grant of a patent in Israel corresponding to
our U.S. patent directed to a particular polymorph of
Tarceva (U.S. Patent No. 6,900,221) in August 2007.
This Israeli proceeding will be delayed until prosecution of a
co-pending patent application in Israel is completed.
Other
Intellectual Property
The DPIV assets we acquired from Probiodrug AG in 2004 include a
portfolio of medical use patents. This portfolio contains a
number of patent families comprising issued and pending patents
and patent applications with claims relating to the use of DPIV
inhibitors for the treatment of diabetes and related
indications. We also have licensed
sub-licensable
rights to patents and patent applications claiming the use of
combinations of DPIV inhibitors with other anti-diabetic drugs
such as metformin. Our rights to this patent estate provide us
with a source of upfront payments, and milestone and royalty
revenue through the issuance of non-exclusive licenses to the
patent estate. As of February 15, 2010, twelve
pharmaceutical companies, including Merck, Novartis and BMS,
have licenses to this patent estate. These licenses provide us
with upfront payments, milestones and royalties which vary
according to the individual license agreements. As of
December 31, 2009, we have generated approximately
$178 million in upfront license fees, milestones and
royalties from the patent estate. In October 2006, Merck
received FDA approval for its DPIV inhibitor, Januvia. In March
2007, Merck received EU approval for Januvia and FDA approval
for
Janumet
tm
,
Mercks combination product of sitagliptin and metformin.
In July 2008, Merck also received EU approval for Janumet. In
September 2007, Novartis received EU approval for its DPIV
inhibitor,
Galvus
®
(vildagliptin), and in November 2007, received EU approval for
its combination product of vildagliptin and metformin,
Eucreas
®
.
In July 2009 and October 2009, BMS received FDA and EU approval,
respectively, for its DPIV inhibitor, Onglyza. We receive
royalty payments from sales of Januvia, Janumet, Galvus, Eucreas
and Onglyza.
The patents which are the subject of these DPIV licenses will
expire beginning in 2017. In March 2008, we announced that the
decision of Opposition Division of the European Patent Office to
revoke one of our European patents relating to the use of DPIV
inhibitors for lowering blood glucose levels had been upheld on
appeal. As a result, royalties on sales of DPIV inhibitor
products have been or will be reduced or eliminated in those
territories where the patent has been revoked and where there is
no other patent protection. Royalties may be restored, however,
if certain currently pending patents, which are the subject of
these licenses, are issued.
We have filed a number of U.S. and international patent
applications relating to the OSI-906, OSI-027 and OSI-930
compounds. We have been granted U.S. patents which protect
the OSI-906 compound until 2027, not including any potential
patent term extension under the Hatch-Waxman Act. We have
obtained a Notice of Allowance for the OSI-027 compound patent
application which, if granted, would provide patent protection
until 2027, not including any additional patent term adjustment
determined by the USPTO or patent term extension under the
Hatch-Waxman Act. In addition, we are seeking additional patent
term adjustments to extend the patent terms for the patents
directed to OSI-906 and OSI-027 beyond those determined by the
USPTO. We have also sought patent protection for PSN821, our
GPR119 agonist. We have been granted U.S. patents which
protect the OSI-930
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compound and method of use until 2024, not including any
potential patent term extension under the Hatch-Waxman Act.
We have assembled a large patent portfolio which includes over
1,000 granted patents. In addition to our Tarceva- and
DPIV-related patents, we have an extensive portfolio of patents
directed at composition of matter of our proprietary compounds,
in vitro models for drug discovery, clinical biomarkers and
assays, in vivo models, and method of use patents, including
various combination therapies. In addition, we have
approximately 1,000 pending patent applications world-wide.
Our
Competition
The pharmaceutical and biotechnology industries are very
competitive. We face, and will continue to face, intense
competition from large pharmaceutical companies, as well as from
numerous smaller biotechnology companies and academic and
research institutions. Our competitors are pursuing technologies
that are similar to those that comprise our technology platforms
and are pursuing the development of pharmaceutical products or
therapies that are directly competitive with ours. Some of these
competitors have greater capital resources than we do, which
provide them with potentially greater flexibility in the
development and marketing of their products. In the case of
Tarceva, we chose to seek partnerships with leading
biotechnology and pharmaceutical industry companies, Genentech
and Roche, in order to ensure our competitiveness on a global
basis.
The market for oncology products is very competitive, with many
products currently in Phase III development. Most major
pharmaceutical companies and many biotechnology companies,
including our collaborators for Tarceva, Genentech and Roche,
currently devote significant operating resources to the research
and development of new oncology drugs or additional indications
for oncology drugs which are already marketed.
The current competition to Tarceva for the treatment of NSCLC
includes existing chemotherapy options such as Alimta, Taxotere
and
Gemzar
®
(gemcitabine), as well as Avastin, which is approved in
combination with chemotherapy for the first-line treatment of
patients with unresectable, locally advanced, recurrent or
metastatic non-squamous NSCLC. Alimta was approved by regulatory
authorities in the United States and the EU in 2009 for the
first-line treatment of non-squamous NSCLC patients in
combination with cisplatin, and as a monotherapy in the
first-line maintenance setting. Based on the strength of its
Phase III clinical data, Alimta will be a particularly
strong competitor if Tarceva receives regulatory approval in the
first-line maintenance setting. Tarceva also competes with
AstraZeneca plcs
Iressa
®
(gefitinib) in the markets where Iressa is available, such as
Japan, Canada and, effective as of July 2009, the EU. Based on
its approval in the EU for the first-line treatment of NSCLC
patients with EGFR mutations, it is also possible that
AstraZeneca may seek to amend Iressas label in the United
States to include the treatment of NSCLC patients in this
setting.
Tarceva may also face competition in the future from a number of
compounds currently in clinical development for NSCLC. In
December 2009, Boehringer Ingelheim announced that it had
recently completed enrollment of a Phase III trial
investigating the use of its compound BIBW 2992, an orally
bioavailable dual receptor TKI, for the treatment of advanced
NSCLC. If BIBW 2992 were to receive regulatory approval in this
indication, it would be a direct competitor to Tarceva. In
December 2008, ImClone Systems, BMS and Merck KGaA announced
that they had submitted an application to the FDA to broaden the
use of
Erbitux
®
(cetuximab) to include first-line treatment of patients with
advanced NSCLC in combination with platinum-based chemotherapy.
The submission was based primarily on positive data from a
Phase III study, referred to as FLEX, of the combination of
Erbitux and chemotherapy in the treatment of first-line advanced
NSCLC. ImClone Systems and BMS subsequently announced in January
2009 that they had withdrawn this application, but stated that
they intend to resubmit the application in the future. Tarceva
may also face competition in the future from generic versions of
the branded products of our competitors as these products lose
their market exclusivity.
Other oncology drugs currently in clinical trials for the
treatment of NSCLC either as a single agent or as a combination
therapy, such as Amgen Inc.s
Vectibix
tm
(panitumumab), Millennium Pharmaceuticals, Inc.s
Velcade
®
(bortezomib), Pfizers
Sutent
®
(sunitinib malate) and Onyxs Nexavar, could compete for
market share in NSCLC in the future. We are aware of three
current or planned Phase III clinical trials evaluating
Sutent as a treatment for NSCLC, including a combination trial
with Tarceva which is presently enrolling.
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In the pancreatic cancer setting, Tarceva primarily competes
with Gemzar monotherapy in the first-line setting. In addition,
Tarcevas use in pancreatic cancer may be affected by
experimental use of other products, such as Abraxis BioScience,
LLCs
Abraxane
®
(paclitaxel protein-bound particles for injectable suspension),
for the treatment of pancreatic cancer in combination with
gemcitabine. Tarceva could face significant competition from
this combination therapy if it were to receive FDA approval for
the treatment of pancreatic cancer.
Our core clinical development programs could face competition in
the future if successful. OSI-906 could face competition from a
number of other pre-clinical and clinical candidates which
target IGF-1R/IR, including more advanced antibody clinical
candidates from ImClone Systems, Roche and Pfizer. BMS, Exelixis
Inc. and Insmed Incorporated have also conducted clinical trials
of small molecule IGF-1R inhibitors. OSI-027, a small molecule
inhibitor of both mTOR complexes, TORC1 and TORC2, could compete
with rapamycin analogs, such as Pfizers
Torisel
tm
(temsirolimus) and Novartis
Afinitor
®
(everolimus), which are known to inhibit the TORC1 complex.
OSI-906 and OSI-027 may also compete in the future with
therapeutic agents which target other molecular pathways or
cellular functions, but potentially have similar clinical
applications. PSN821, our GPR119 agonist for the treatment of
type 2 diabetes, would potentially compete with current and
future type 2 diabetes treatments, including GPR119 agonist
Phase I clinical candidates from Metabolex, Inc. and from Arena
Pharmaceuticals, Inc. in partnership with Ortho-McNeil-Janssen
Pharmaceuticals, Inc.
Government
Regulation
As developers and sellers of pharmaceutical products, we are
subject to, and any potential products discovered and developed
by us must comply with, comprehensive regulation by the FDA, the
Centers for Medicare and Medicaid Services and other regulatory
agencies in the United States and by comparable authorities in
other countries. These national agencies and other state and
local entities regulate, among other things, the pre-clinical
and clinical testing, safety, effectiveness, approval,
manufacture, quality, labeling, distribution, marketing, export,
storage, record keeping, advertising, promotion and
reimbursement of pharmaceutical and diagnostic products.
Key
FDA Regulations
FDA approval of our products is required before the products may
be commercialized in the United States. The process of obtaining
NDA approvals from the FDA can be costly and time consuming and
may be affected by unanticipated delays.
The process required by the FDA before a new drug
(pharmaceutical product) or a new route of administration of a
pharmaceutical product may be approved for marketing in the
United States generally involves:
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pre-clinical laboratory and animal tests;
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submission to the FDA of an investigational new drug
application, or IND, which must be in effect before clinical
trials may begin;
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adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug for its intended
indication(s);
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FDA compliance inspection
and/or
clearance of all manufacturers;
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submission to the FDA of an NDA; and
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FDA review of the NDA or product license application in order to
determine, among other things, whether the drug is safe,
effective and of appropriate quality for its intended uses.
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New indications or other changes to an already approved product
also must be approved by the FDA. A sNDA is a supplement to an
existing NDA that provides for changes to the NDA and therefore
requires FDA approval. There are two types of sNDAs depending on
the content and extent of the change: (i) supplements
requiring FDA approval before the change is made and
(ii) supplements for changes that may be made pending FDA
approval. Supplements to the labeling that change the indication
section require prior FDA approval before the change can be made
to the labeling. Clinical trials are necessary to support sNDAs
for new indications.
16
The FDA reviews all NDAs submitted before it accepts them for
filing. It may refuse to file the application and request
additional information rather than accept an NDA for filing, in
which case the application must be resubmitted with the
supplemental information. Once an NDA is accepted for filing,
the FDA begins an in-depth review of the application to
determine, among other things, whether a product is safe and
effective for its intended use. Drugs that successfully complete
NDA review may be marketed in the United States, subject to all
conditions imposed by the FDA. Data obtained from clinical
activities are not always conclusive and may be susceptible to
varying interpretations, which could delay, limit or prevent
regulatory approval. The FDA has substantial discretion in the
approval process and may disagree with an applicants
interpretation of the data submitted in its NDA. The FDA can
take an application to its advisory committee to get the
committees opinion on whether the application should be
approved. Though the FDA is not bound by the recommendation of
the advisory committee, it is rare for the FDA not to follow the
committees recommendation. If the FDA cannot approve an
NDA they will issue a complete response letter
describing the specific deficiencies and, where possible, will
outline recommended actions for the applicant to take before the
NDA can be approved. This may include conducting additional
studies.
Manufacturing procedures must conform to current good
manufacturing processes, or cGMPs, which must be followed at all
times. In complying with this requirement, manufacturers,
including a drug sponsors third-party contract
manufacturers, must continue to expend time, money and effort in
the area of production, quality assurance and quality control to
ensure compliance. Manufacturing establishments are subject to
periodic inspections by the FDA in order to assess, among other
things, compliance with cGMP. To supply products for use in the
United States, foreign manufacturing establishments also must
comply with cGMPs and are subject to periodic inspection by the
FDA or by regulatory authorities in certain countries under
reciprocal agreements with the FDA.
We are required to comply with requirements concerning
advertising and promotional labeling. Our advertising and
promotional labeling must be truthful, not misleading and
contain fair balance between claims of efficacy and safety. We
are prohibited from promoting any claim relating to safety and
efficacy that is not approved by the FDA, otherwise known as
off-label use of products. Physicians may prescribe
drugs for uses that are not described in the products
labeling and that differ from those approved by the FDA. Such
off-label uses are common across medical specialties, including
in the area of oncology. Physicians may believe that such
off-label uses are the best treatment for many patients in
varied circumstances. Although the FDA does not regulate the
behavior of physicians in their choice of treatments, the FDA
does restrict our communications to physicians and patients on
the subject of off-label use. Failure to comply with this
requirement could result in adverse publicity, significant
enforcement action by the FDA, including warning letters,
corrective advertising, orders to pull all promotional
materials, and substantial civil and criminal penalties. The
Department of Justice may also pursue enforcement actions
against off-label promotion which could result in criminal
and/or
civil
fines, as well as other restrictions on the future sales of our
products.
We are also required to comply with post-approval safety and
adverse event reporting requirements. Adverse events related to
our products must be reported to the FDA according to regulatory
timelines based on their severity and expectedness. Failure to
make required safety reports and to establish and maintain
related records could result in withdrawal of a marketing
application.
Violations of regulatory requirements at any stage, including
after approval, may result in various adverse consequences,
including the FDAs delay in approving or refusal to
approve a product, withdrawal or recall of an approved product
from the market, other voluntary or FDA-initiated action that
could delay further marketing and the imposition of criminal
penalties against the manufacturer and NDA holder. In addition,
later discovery of previously unknown problems may result in
restrictions being placed on the product, manufacturer or NDA
holder, including withdrawal of the product from the market.
The
Hatch-Waxman Act
As discussed above, the Hatch-Waxman Act entitles our products
to various periods of non-patent statutory protection, known as
marketing exclusivity, which works in tandem with the patent
system to protect our products. Thus, even if our patents are
successfully challenged by our competitors, another manufacturer
cannot submit an application for generic or modified versions of
our products until the respective marketing exclusivity periods
end.
17
Four years into this marketing exclusivity period, the
Hatch-Waxman Act permits another manufacturer to submit an
application for approval of generic or modified versions of our
products by alleging that one or more of the patents listed in
the FDAs Orange Book are invalid, unenforceable
and/or
not
infringed. This allegation is commonly known as a
Paragraph IV certification. If a Paragraph IV
certification is filed, the NDA and patent holders may bring a
patent infringement suit against the applicant. If this action
is brought within 45 days of receipt of the
Paragraph IV certification, the FDA cannot approve the ANDA
or 505(b)(2) application for 30 months from the date of our
receipt of the Paragraph IV certification. In addition, if
such patent infringement action is so commenced within such
45-day
period and occurs during the one-year period beginning on the
fourth anniversary of the commencement of the marketing
exclusivity period, the
30-month
period is extended by an amount of time such that the FDA cannot
approve the ANDA until seven and one-half years have elapsed
from the date of initial approval. This period of protection,
referred to as the statutory litigation stay period, may end
early, however, if, for example, we lose the patent infringement
case before the statutory litigation stay period expires (i.e.,
a 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 win the patent suit,
the ANDA or 505(b)(2) application cannot be approved until the
expiration of the patent held to be infringed.
Under the Hatch-Waxman Act, the life of our patents may be
extended to compensate for marketing time lost while developing
our products and awaiting FDA approval of our applications. The
extension cannot exceed five years, and the total life of the
patent with the extension cannot exceed 14 years from a
products approval date. The period of extension is
generally one-half of the time between the effective date of the
IND and the date of submission of the NDA, plus the time between
the date of submission of the NDA and the date of FDA approval
of the product. Only one patent claiming each approved product
is eligible for the extension. We have been granted patent term
extensions that extend our U.S. patent for erlotinib
through November 2018, and corresponding patents in Europe have
been extended through March 2020 under European legislation for
supplementary protection certificates and in Japan through June
2020.
Pricing
and Reimbursement
Insurance companies, health maintenance organizations, other
third-party payors and federal and state governments seek to
limit the amount they reimburse for our drugs. Although there
are currently no government price controls over private sector
purchases in the United States, federal legislation requires
pharmaceutical manufacturers to pay prescribed rebates on
certain drugs to enable them to be eligible for reimbursement
under certain public health care programs. Various states have
adopted mechanisms under Medicaid that seek to control drug
reimbursement, including by disfavoring certain higher priced
drugs and by seeking supplemental rebates from manufacturers.
Managed care has also become a potent force in the market place
that increases downward pressure on the prices of pharmaceutical
products.
Effective January 1, 2006, an expanded prescription drug
benefit for all Medicare beneficiaries, known as Medicare
Part D, commenced. This is a voluntary benefit that is
being implemented through private plans under contractual
arrangements with the federal government. Like pharmaceutical
coverage through private health insurance, Medicare Part D
plans establish formularies and other utilization management
tools that govern access to the drugs and biologicals that are
offered by each plan. These formularies can change on an annual
basis, subject to federal governmental review. These plans may
also require beneficiaries to provide
out-of-pocket
payments for such products. As a prescription medication,
reimbursement and payment for Tarceva is frequently administered
through Medicare Part D plans. As a result, changes in the
formularies or utilization management tools employed by these
plans can restrict patient access to Tarceva or increase the
out-of-pocket
cost for our drug, which in turn could negatively impact Tarceva
sales.
Regulatory approval of prices is required in most foreign
countries. Certain countries will condition their approval of a
product on the agreement of the seller not to sell that product
for more than a certain price in that country and in the past
have required price reductions after or in connection with
product approval. Certain foreign countries also require that
the price of an approved product be reduced after that product
has been marketed for a period of time. A number of European
countries, including Germany, Italy, Spain and the United
Kingdom, have implemented, or are considering, legislation that
would require pharmaceutical companies to sell their products
18
subject to reimbursement at a mandatory discount. Such mandatory
discounts would reduce the revenue we receive from our drug
sales in these countries.
Other
Regulation
In addition to regulations enforced by the FDA, we must also
comply with regulations under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and
other federal, state and local regulations. If products are made
available to authorized users of the Federal Supply Schedule of
the General Services Administration, additional laws and
requirements may apply. All of these activities are also
potentially subject to federal and state consumer protection and
unfair competition laws. In addition, our research and
development activities involve the controlled use of hazardous
materials, chemicals and various radioactive compounds, the
handling and disposal of which are governed by various state and
federal laws and regulations.
We are subject to various federal and state laws pertaining to
health care fraud and abuse, including anti-kickback
laws and false claims laws. Anti-kickback laws generally make it
illegal for a prescription drug manufacturer to knowingly and
willfully solicit, offer, receive, or pay any remuneration in
exchange for, or to induce, the referral of business, including
the recommendation, purchase or prescription of a particular
drug. False claims laws prohibit, among other things, anyone
from knowingly and willfully presenting, or causing to be
presented for payment to third party payors (including Medicare
and Medicaid), claims for reimbursed drugs or services that are
false or fraudulent, claims for items or services not provided
as claimed or claims for medically unnecessary items or
services. Violations of fraud and abuse laws may be punishable
by criminal
and/or
civil
sanctions, including imprisonment, fines and civil monetary
penalties, as well as the possibility of exclusion from federal
health care programs (including Medicare and Medicaid). In
addition, under some of these laws, there is an ability for
private individuals to bring similar actions. Further, there are
an increasing number of state laws that require manufacturers to
make reports to states on pricing and marketing information.
Many of these laws contain ambiguities as to what is required to
comply with the laws.
We are also subject to the U.S. Foreign Corrupt Practices
Act, or the FCPA, which prohibits corporations and individuals
from engaging in specified activities to obtain or retain
business or to influence a person working in an official
capacity. Under the FCPA, it is illegal to pay, offer to pay or
authorize the payment of anything of value to any foreign
government official, government staff member, political party or
political candidate in an attempt to obtain or retain business
or to otherwise influence a person working in an official
capacity. In 2009, we implemented a comprehensive anti-bribery
and FCPA compliance program that includes an audit of key
business activities, the adoption of an anti-bribery and FCPA
policy and targeted training for our employees.
In addition, federal and state laws protect the confidentiality
of certain health information, in particular individually
identifiable information, and restrict the use and disclosure of
that information. At the federal level, the Department of Health
and Human Services promulgated health information privacy and
security rules under the Health Insurance Portability and
Accountability Act of 1996. In addition, many state laws apply
to the use and disclosure of health information.
In January 2009, we elected to adopt the revised voluntary Code
on Interactions with Healthcare Professionals, or PhRMA Code,
promulgated by the Pharmaceutical Research and Manufacturers of
America. The updated PhRMA Code, which became effective in
January 2009, addresses interactions with respect to marketed
products and related pre-launch activities and reinforces the
intention that interactions with healthcare professionals are
professional exchanges designed to benefit patients and to
enhance the practice of medicine.
Ardsley
Site Consolidation
On July 7, 2009, we announced our plans to consolidate all
of 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
dollars. We are in the process of renovating the Ardsley site,
which we expect to complete by the end of 2010, at an estimated
cost of approximately $100 million. We also expect to incur
approximately $30 million in restructuring-related costs
through the end of 2011 in connection with the consolidation. We
anticipate that consolidating our
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oncology R&D, commercial, medical and other support
functions at a single site will enhance our oncology R&D
capabilities, confer a strategic value to our oncology
organization and result in substantial business efficiencies. We
expect to realize at least $15 million in annual
operational synergies from the consolidation starting in 2011.
In January 2010, we expanded our existing agreement with Novella
Clinical, Inc., a clinical research organization, to facilitate
the transition of our clinical operations in oncology to our
Ardsley, New York campus. Under the terms of the expanded
agreement, Novella has agreed to provide us with clinical
research and related services for a period of two years, hire
certain employees at our Boulder, Colorado facilities and
sublease a portion of these facilities, effective
February 1, 2010.
Our
Employees
We believe that our success is largely dependent upon our
ability to attract and retain qualified employees. As of
December 31, 2009, we had a total of 512 full-time and
23 part-time employees worldwide. As of February 1,
2010, approximately 70% of our
U.S.-based
employees have committed to moving with us to our new Ardsley
facility.
Available
Information
We file our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 electronically with the Securities and
Exchange Commission, or SEC. The public may read or copy any
materials we file with the SEC at the SECs Public
Reference Room at 100 F Street, NE, Washington, DC
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC. The address of
that site is
http://www.sec.gov
.
You may obtain a free copy of our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
and amendments to those reports on the day of filing with the
SEC on our website on the World Wide Web at
http://www.osip.com
or by contacting the Investor Relations Department at our
corporate offices by calling
(631) 962-2000
or sending an
e-mail
message to investorinfo@osip.com.
20
This report contains forward-looking statements that do not
convey historical information, but relate to predicted or
potential future events, such as statements of our plans,
strategies and intentions, or our future performance or goals
for our product development programs. These statements can often
be identified by the use of forward-looking terminology such as
believe, expect, intend,
may, will, should, or
anticipate or similar terminology. The statements
involve risks and uncertainties and are based on various
assumptions. Stockholders and prospective stockholders are
cautioned that these statements are only projections. In
addition, any forward-looking statement that we make is intended
to speak only as of the date on which we made the statement.
Except for our ongoing obligations to disclose material
information under the federal securities laws, we will not
update any forward-looking statement to reflect events or
circumstances that occur after the date on which the statement
is made. The following risks and uncertainties, among others,
may cause our actual results to differ materially from those
described in forward-looking statements made in this report or
presented elsewhere by management from time to time.
Risks
Related to Our Business
We
depend heavily on our principal marketed product, Tarceva, to
generate revenues in order to fund our operations.
We currently derive most of our revenues from our principal
marketed product, Tarceva, which represented approximately 84%
of our total revenues from continuing operations for the year
ended December 31, 2009. For the next several years, we
will continue to rely on Tarceva to generate the majority of our
revenues. Our ability to maintain or increase our revenues for
Tarceva will depend on, and may be limited by, a number of
factors, including the following:
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Our ability to maintain and expand the market share, both in the
United States and in the rest of the world, and revenues for
Tarceva in the treatment of second-line and third-line NSCLC and
for first-line pancreatic cancer, in the midst of numerous
competing products which are currently in late stage clinical
development;
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Whether data from clinical trials for additional indications are
positive and whether such data, if positive, will be sufficient
to achieve approval from the FDA and its foreign counterparts to
market and sell Tarceva in such additional indications;
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Whether physicians are willing to switch from existing treatment
methods, including traditional chemotherapy agents (where
certain reimbursement practices in the United States favor the
use of intravenously administered drugs), to Tarceva;
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Current and future pricing pressures on Tarceva, including as a
result of government-imposed price reductions, an increase in
imports of Tarceva from lower cost countries to higher cost
countries and pressure on physicians to reduce prescriptions of
higher priced medicines like Tarceva;
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Adequate coverage or reimbursement for Tarceva by third-party
payors, including private health coverage insurers and health
maintenance organizations; and
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The ability of patients to afford any required co-payments for
Tarceva. The risk that patients will not be able to afford the
co-payments for Tarceva may become particularly acute if the
recent global financial crisis is prolonged or worsens.
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If
Tarceva were to become the subject of problems related to its
efficacy, safety, or otherwise, or if new, more effective
treatments were introduced into the market, our revenues from
Tarceva could decrease.
If Tarceva becomes the subject of problems, including those
related to, among others:
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efficacy or safety concerns with the product, even if not
justified;
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unexpected side-effects;
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regulatory proceedings subjecting the product to potential
recall;
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pressure from competitive products;
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introduction of more effective treatments; or
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manufacturing or quality problems that would reduce or disrupt
product availability,
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our revenues from Tarceva could decrease. For example, efficacy
or safety concerns from time to time arise, whether or not
justified, that could lead to additional safety warnings on the
label, including a black box warning that highlights
significant safety concerns, or to the recall or withdrawal of
Tarceva. In the event of a recall or withdrawal of Tarceva, our
revenues would decline significantly.
Our
strategy includes expanding uses for Tarceva; however, there can
be no assurance that the positive results from the SATURN trial
will result in Tarceva receiving the required regulatory
approvals for expanded use in NSCLC nor that the data from other
clinical trials for additional indications will be positive or
sufficient to achieve approval from the FDA and its foreign
counterparts to market and sell Tarceva in such additional
indications.
In December 2009, the FDAs ODAC voted 12 to one
recommending against approval of Tarceva for first-line
maintenance use in people with NSCLC whose cancer has not
progressed following first-line treatment with platinum-based
chemotherapy, which we refer to as first-line maintenance. The
ODAC reviewed data from the pivotal Phase III study,
SATURN, which showed statistically significant improvement in
both PFS and overall survival when Tarceva was used in the
first-line maintenance setting, compared to placebo. In January
2010, we announced that the FDA had extended the review period
for the sNDA for Tarceva as a first-line maintenance therapy by
an additional 90 days. This extension followed our
submission of further data in support of the application. While
we believe that the SATURN trial data justifies the approval of
Tarceva as a first-line NSCLC maintenance therapy, there can be
no assurance that FDA or its foreign counterparts will approve
Tarceva in this indication. While the FDA is not obligated to
follow the recommendations of ODAC, it typically does. In
addition, even if Tarceva receives approval as a first line
maintenance therapy, there can be no assurances that Tarceva
will gain acceptance among prescribing physicians or that such
approval will result in increased Tarceva sales.
We are also conducting a number of other clinical trials which
seek to expand the existing indications for Tarceva. The results
from these clinical trials are difficult to predict; positive
results from pilot studies or other similar studies, including
subset analyses from prior studies, are not a guarantee of
success in subsequent studies. In addition, there can be no
guarantee that such studies, if positive, will result in
approvals from the FDA and its foreign counterparts for new
indications for Tarceva.
We
depend heavily on our co-development and marketing alliance with
Genentech and Roche for Tarceva. If Genentech or Roche terminate
these alliances, or are unable to meet their contractual
obligations, it could negatively impact our revenues and harm
our business until appropriate corrective measures have been
taken.
Tarceva is being developed and commercialized in an alliance
under co-development and marketing agreements with Genentech and
Roche. Following Roches completion of the acquisition of
the remaining outstanding shares of Genentech in 2009, Roche has
assumed global responsibility for managing the Tarceva alliance.
Operationally, however, Genentech continues to lead the sales
and marketing efforts of Tarceva in the United States, and Roche
continues to market and sell Tarceva in the rest of the world.
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 as
described as follows. 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. In addition, Genentech has the right to terminate
the OSI/Genentech collaboration agreement with six months
prior written notice. The provisions of the amendment to the
agreement allowing us to co-promote are also subject to
termination by Genentech upon a material breach of the amendment
by us, which remains uncured, or upon a pattern of nonmaterial
breaches which remain uncured.
22
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. 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. We also
currently have the right to terminate the agreement with respect
to a particular country under certain circumstances if Roche has
not launched or marketed a product in such country.
If we do not maintain a successful collaborative alliance with
Roche for the co-development and commercialization of Tarceva,
or if Roche is unable to meet its contractual obligations, we
may be forced to focus our efforts internally to further
commercialize and develop Tarceva without the assistance of a
marketing and promotion partner. This would require greater
financial resources and would result in us incurring greater
expenses and may cause a delay in market penetration while we
expand our commercial operations or seek alternative
collaborators. Such costs may exceed the increased revenues we
would receive from direct Tarceva sales, at least in the near
term.
If we
do not receive timely and accurate financial information from
Genentech and Roche regarding the development and sale of
Tarceva, we may be unable to accurately report our results of
operations.
Due to our collaborations with Genentech and Roche for Tarceva,
we are highly dependent on these companies for timely and
accurate information regarding the costs incurred in developing
and selling Tarceva, and any revenues realized from its sale, in
order to accurately report our results of operations. If we do
not receive timely and accurate information associated with the
co-promotion and development of Tarceva, we may be required to
record significant adjustments to our revenues or expenses in
future periods
and/or
restate our results for prior periods. Such inaccuracies or
restatements could cause a loss of investor confidence in our
financial reporting or lead to legal claims against us.
We are
responsible for the manufacture and supply of Tarceva in the
United States. Because we have no commercial manufacturing
facilities, we are dependent on two suppliers for the API for
Tarceva and a single supplier for the tableting of Tarceva in
the United States. If any of these third parties fails to meet
its obligations, our revenues from Tarceva could be negatively
affected.
We are responsible for manufacturing and supplying Tarceva in
the United States under the terms of a Manufacturing and Supply
Agreement entered into with Genentech in 2004. We rely on two
third-party suppliers to manufacture erlotinib, the API for
Tarceva. We also currently rely on a single manufacturer to
formulate the Tarceva tablets. If our relationships with any of
these manufacturers with respect to Tarceva terminate or if
these manufacturers are unable to meet their obligations, we
would need to find other sources of supply. Such alternative
sources of supply may be difficult to find on terms acceptable
to us or in a timely manner, and, if found, would require FDA
approval which could cause delays in the availability of
erlotinib and ultimately Tarceva tablets, which, in turn, would
negatively impact our revenues derived from Tarceva.
Our
business will be increasingly affected by pressures on drug
pricing, which may limit or reduce the prices we can charge for
Tarceva in the future and the pricing structure available to
future products emanating from our pipeline.
The growth of overall healthcare costs in many countries means
that governments and payors are under pressure to control
spending even more tightly. As a result, our business and the
pharmaceutical and biotechnology industries in general are
operating in an increasingly challenging environment with very
significant pricing pressures. These ongoing pressures include
government-imposed industry-wide price reductions, mandatory
pricing systems, an increase in imports of drugs from lower cost
countries to higher cost countries, shifting of the payment
burden to patients through higher co-payments and growing
pressure on physicians to reduce prescriptions of higher priced
medicines like Tarceva. We expect these efforts to continue as
healthcare payors in particular,
government-controlled health authorities, insurance companies
and managed care organizations increase their
efforts to reduce the overall cost of healthcare, which may
limit or reduce the prices we
23
can charge in the future for Tarceva and any future products
emanating from our pipeline. These pricing pressures could
become particularly acute if the current global financial crisis
is prolonged or worsens.
Our
revenues from our DPIV patent portfolio licenses are contingent
upon the ability of our licensees to successfully develop and
commercialize their products which are the subject of these
licenses and our ability to protect our intellectual property
rights in our DPIV patent estate.
We have licensed our DPIV medical use patent portfolio to
pharmaceutical companies that develop and commercialize DPIV
inhibitor products. We currently derive, or have the potential
to derive in the future, revenues from the milestone and royalty
obligations under these license agreements. Licensees include
Merck, whose product Januvia was approved by the FDA in October
2006 and in the EU in March 2007. Mercks combination
product with metformin, Janumet, was approved by the FDA in
March 2007 and in the EU in July 2008. Novartis is also a
licensee and it received EU regulatory approval for its product,
Galvus, in September 2007. Additionally, in November 2007,
Novartis received EU regulatory approval for its combination
product with metformin, Eucreas. BMS, which received FDA
approval for its DPIV inhibitor, Onglyza, in July 2009 and EU
approval in October 2009, is also a licensee of the DPIV estate.
There can be no assurance that the licensees of our DPIV patent
estate will receive any further approvals from the FDA or other
regulatory authorities. The amount of royalties and other
payments that we derive from our DPIV patent estate is not only
dependent on the extent to which products covered by the license
agreements receive regulatory approval but is also dependent on
how successful Merck, Novartis, BMS and other licensees are in
expanding the global market for DPIV inhibitor products, as well
as other factors that could affect their market share, such as
safety issues and generic competition. The extent to which we
receive revenue under such licenses also depends on our ability
to enforce and defend our patent rights in our DPIV portfolio.
As an example, in March 2008, we announced that the decision of
the Opposition Division of the European Patent Office to revoke
one of our European patents relating to the use of DPIV
inhibitor products for lowering blood glucose levels had been
upheld on appeal. As a result, royalties on sales of DPIV
inhibitor products have been or will be reduced or eliminated in
those territories where the patent has been revoked and where
there is no other patent protection. Our ability to receive
DPIV-related revenues also depends on the ability of our
licensees to enforce their patent rights on their DPIV-related
products, which may face Paragraph IV certification
challenges from generic drug companies under the Hatch-Waxman
Act upon the fourth anniversary of FDA approval. The first DPIV
product that may face such a challenge is Mercks Januvia,
which may be the subject of a Paragraph IV certification
beginning in October 2010. If Merck or our other licensees face
generic competition for their DPIV products before expiration of
our patent rights in our DPIV portfolio, sales from those
products will decline, adversely affecting the royalty revenues
we receive from those products.
Healthcare
reform measures could adversely affect our
business.
The United States government and governments in foreign
countries have shown significant interest in pursuing healthcare
reform in order to reduce costs of healthcare. Any
government-adopted reform measures could adversely impact the
pricing of Tarceva and our future products or the amount of
reimbursement available from governmental agencies or other
third-party payors. The pricing and reimbursement environment
for our products may become more challenging due to, among other
reasons, any new healthcare legislation passed by the
U.S. Congress, at the state level, or by foreign
governments. For example, in the United States, federal Medicare
proposals, along with state Medicaid drug payment changes and
healthcare reforms, could lower payments for our products or
create financial disincentives for plans to provide access to
Tarceva. Further, some states have proposed health care reform
legislation requiring greater price reductions and narrowing
coverage for drugs, which could impact our products.
Additionally, these proposals or separate state and federal
proposals could increase the costs of doing business in their
respective jurisdictions. While we cannot predict what, if any,
legislative or regulatory proposals will be adopted, the
announcement or adoption of such proposals could delay or
prevent our entry into new markets for our products, affect our
sales in the markets where we are already selling Tarceva and
materially and adversely affect our business, financial
condition and results of operations.
24
If our
competitors succeed in developing products and technologies that
are more effective than our own, or if scientific developments
change our understanding of the potential scope and utility of
our products, then our products and technologies may be rendered
less competitive.
We face significant competition from industry participants that
are pursuing products and technologies that are similar to those
we are pursuing and who are developing pharmaceutical products
that are competitive with our products and potential products.
Some of our industry competitors have greater capital resources
and larger overall research and development staffs and
facilities. With these additional resources, our competitors may
be able to respond to the rapid and significant technological
changes in the biotechnology and pharmaceutical industries
faster than we can. Our future success will depend in large part
on our ability to maintain a competitive position with respect
to these technologies. Rapid technological development, as well
as new scientific developments, may result in our compounds,
products or processes becoming obsolete before we can recover
any of the expenses incurred to develop them.
The current competition to Tarceva for the NSCLC indication
includes existing chemotherapy options such as Alimta, which has
been approved in the United States and the EU for the first-line
treatment of non-squamous NSCLC patients in combination with
cisplatin and as a monotherapy in the first-line maintenance
setting, Taxotere and Gemzar, as well as Avastin, which is
approved in combination with chemotherapy for the first-line
treatment of patients with unresectable, locally advanced,
recurrent or metastatic non-squamous NSCLC. Tarceva also
competes with AstraZenecas Iressa in the markets where
Iressa is available, such as Japan, Canada and the EU. Based on
Iressas approval in the EU in 2009, it is possible that
AstraZeneca may seek to amend Iressas label in the United
States to include the first-line treatment of NSCLC for patients
with EGFR mutations.
Tarceva may face competition in the future with a number of
compounds currently in development for NSCLC. In December 2009,
Boehringer Ingelheim announced that it had completed enrollment
of a Phase III trial investigating the use of its compound
BIBW 2992, an orally bioavailable, dual TKI for the treatment of
advanced NSCLC. If BIBW 2992 were to receive regulatory approval
in this indication, it would be a direct competitor to Tarceva.
In December 2008, ImClone Systems, BMS and Merck KGaA announced
that they had submitted an application to the FDA to broaden the
use of Erbitux to include first-line treatment of patients with
advanced NSCLC in combination with platinum based chemotherapy.
The submission was based primarily on positive data from a
Phase III study, referred to as FLEX, of the combination of
Erbitux and chemotherapy in the first-line treatment of advanced
NSCLC. ImClone Systems and BMS subsequently announced in January
2009 that they had withdrawn this application, but stated that
they intend to resubmit the application in the future, which
would result in additional competition for Tarceva if approved.
Tarceva may also face competition in the future from generic
versions of the branded products of our competitors as these
products lose their market exclusivity.
Other oncology drugs currently in clinical trials for the
treatment of NSCLC either as a single agent or as a combination
therapy, such as Amgens Vectibix, Millenniums
Velcade, Pfizers Sutent and Bayer and Onyxs Nexavar,
could compete for market share in NSCLC in the future. We are
aware of three current or planned Phase III clinical trials
evaluating Sutent as a treatment for NSCLC, including a
combination trial with Tarceva which is presently enrolling.
In the pancreatic cancer setting, Tarceva primarily competes
with Gemzar monotherapy in the first-line. In addition, Tarceva
use in pancreatic cancer may be affected by experimental use of
other products, such as Abraxis Biosciences Abraxane, for
the treatment of pancreatic cancer in combination with
gemcitabine. Tarceva could face significant competition from
this combination therapy if it were to receive FDA approval for
the treatment of pancreatic cancer.
Our core clinical development programs could face competition in
the future if successful. OSI-906, our oral small molecule
IGF-1R/IR inhibitor, could face competition from a number of
other pre-clinical and clinical candidates which target the
IGF-1R/IR, including more advanced antibody clinical candidates
from ImClone, Roche and Pfizer. BMS, Exelixis and Insmed have
also conducted clinical trials of small molecule IGF-1R
inhibitors. OSI-027, a small molecule inhibitor of both mTOR
complexes, TORC1 and TORC2, could compete with rapamycin
analogs, such as Pfizers Torisel and Novartis
Afinitor, which are known to inhibit the TORC1 complex. OSI-906
and OSI-027 may also compete in the future with therapeutic
agents which target other molecular pathways or cellular
functions, but potentially have similar clinical applications.
PSN821, our GPR119 agonist
25
Phase I clinical candidate for the treatment of type 2 diabetes,
would potentially compete with current and future type 2
diabetes treatments, including GPR119 agonist Phase I clinical
candidates from Metabolex and Arena Pharmaceuticals in
partnership with Ortho-McNeil-Janssen Pharmaceuticals.
Although
we have clinical and pre-clinical candidates in the pipeline for
oncology and diabetes and obesity that appear to be promising,
none of these potential products may reach the commercial market
for a number of reasons.
Successful research and development of pharmaceutical products
is high risk. Most products and development candidates fail to
reach the market. Our success depends on the discovery and
development of new drugs that we can commercialize. Many of our
pipeline candidates for our oncology and diabetes and obesity
clinical programs, including those that we deem to be core
assets, are at an early stage. Two of our three development
candidates OSI-027 and PSN821 are in
early stage clinical trials, and while OSI-906 has commenced
later-stage clinical trials for the treatment of ACC, there can
be no assurance that any of these candidates will become a
marketed drug.
The clinical candidates in our pipeline may never reach the
market for a number of reasons. They may be found ineffective or
may cause harmful side-effects during pre-clinical testing or
clinical trials or fail to receive necessary regulatory
approvals. Interim results of pre-clinical or clinical studies
are not necessarily predictive of their final results, and
acceptable results in early studies might not be seen in later
studies, in large part because earlier phases of studies are
often conducted on smaller groups of patients than later
studies, and without the same trial design features, such as
randomized controls and long-term patient
follow-up
and analysis. We may find that certain products cannot be
manufactured on a commercial scale and, therefore, they may not
be economical to produce. Our products could also fail to
achieve market acceptance or be precluded from commercialization
by proprietary rights of third parties.
We must provide the FDA and similar foreign regulatory
authorities with pre-clinical and clinical data that demonstrate
that our product candidates are safe and effective for each
target indication before they can be approved for commercial
distribution. The pre-clinical testing and clinical trials of
any product candidates that we develop must comply with
regulations by numerous federal, state and local government
authorities in the United States, principally the FDA, and by
similar agencies in other countries. Clinical development is a
long, expensive and uncertain process and is subject to delays.
We may encounter delays or rejections based on our inability to
enroll or keep enrolled enough patients to complete our clinical
trials, especially as new competitors are approved to enter into
the market. Patient enrollment depends on many factors,
including the size of the patient population, the nature of the
trial protocol, the proximity of patients to clinical sites, the
eligibility criteria for the trial and the existence of
competing clinical trials. Delays in patient enrollment may
result in increased costs and a longer than anticipated period
of time until data become available, which could have a harmful
effect on our ability to develop products.
A significant portion of the research that we are conducting
involves new and unproven technologies. Research programs to
identify disease targets and product candidates require
substantial technical, financial and human resources, whether or
not we ultimately identify any candidates. Our research programs
may initially show promise in identifying potential product
candidates, yet fail to yield candidates for clinical
development for a number of reasons, including difficulties in
formulation which cannot be overcome, inadequate intellectual
property protection and timing and competitive concerns.
Our
reliance on third parties, such as clinical research
organizations, or CROs, and manufacturers, may result in delays
in completing, or a failure to complete, clinical trials if they
fail to perform under our agreements with them.
In the course of product development, we engage CROs to conduct
and manage clinical studies and to manufacture API and drug
product. Because we have engaged, and intend to continue to
engage, CROs and third-party manufacturers to help us conduct
our clinical studies, obtain market approval for our drug
candidates and manufacture API and drug product, many important
aspects of this process have been, and will be, out of our
direct control. If the CROs or third-party manufacturers fail to
perform their obligations under our agreements with them or fail
to perform their responsibilities with respect to clinical
trials in compliance with good clinical practices, cGMPs,
regulations and guidelines enforced by the FDA and similar
foreign regulatory authorities, such trials may be materially
delayed or terminated, adversely impacting our ability to
commercialize our drug candidates.
26
Furthermore, any loss or delay in obtaining contracts with such
CROs and third-party manufacturers may also delay the completion
of our clinical trials and the market approval of drug
candidates.
Our
operating results could be adversely affected by fluctuations in
the value of the U.S. dollar against foreign
currencies.
A significant percentage of our revenues are derived from
royalties on sales of Tarceva outside of the United States
by Roche, and our operating expenses relating to our U.K.
subsidiary are denominated in British pounds sterling, or GBP.
As result, these Tarceva revenues and U.K. operating expenses
are affected by fluctuating foreign currency exchange rates. An
increase in the U.S. dollar relative to other currencies in
which we have revenues will cause our revenues to be lower than
with a stable exchange rate. Changes in exchange rates between
the GBP and the U.S. dollar can affect the recorded levels
of the assets, liabilities and expenses relating to our U.K.
operations. The primary foreign currencies in which we have
exchange rate fluctuation exposure are the Euro, the GBP and the
Swiss franc, but we also have exposure to exchange rate
fluctuation in other currencies. Exchange rates between these
currencies and U.S. dollars have fluctuated significantly
in recent years, particularly as the current global financial
crisis has unfolded, and may continue to do so in the future. We
cannot predict the impact of future exchange rate fluctuations
on our operating results.
We
cannot be certain that any hedging transactions we may enter
into will adequately protect us from significant changes in
foreign currency exchange rates which would potentially impact
our operating results negatively.
In order to manage our exposure to severe fluctuations in
foreign currency exchange rates, we have entered, and will
continue to enter, from time to time into hedging arrangements
with respect to a portion of our foreign currency exposure.
These contracts are intended to reduce the effects of variations
in currency exchange rates. Such transactions may expose us to
the risk of financial loss in certain circumstances, including
instances in which there is a change in the expected
differential between the underlying exchange rate in the hedging
agreement and actual exchange rate.
We may
not be able to make our required payments of interest and
principal under our outstanding indebtedness when due, and may
not be able to repurchase for cash our 2% convertible senior
subordinated notes due 2025, or our 2025 Notes, or our 3%
convertible senior subordinated notes due 2038, or our 2038
Notes, if required to do so in 2010 and 2013, respectively. If
we elect to repurchase our 3.25% convertible senior subordinated
notes due 2023, or our 2023 Notes, with our common shares, our
shareholders would experience dilution and our stock price may
decline.
Our aggregate debt under our 2023 Notes, 2025 Notes and 2038
Notes was approximately $335 million as of
December 31, 2009. While we are currently generating
sufficient net cash flow to satisfy our anticipated annual
interest payments on our outstanding convertible debt and have a
cash and short term investment balance in excess of our debt,
there can be no assurance that this will be the case in the
future. In addition, the holders of the 2023 Notes, the 2025
Notes and the 2038 Notes have the right to require us to
repurchase their notes in September 2013, December 2010, and
January 2013, respectively. While the 2023 Notes provide us with
the option of delivering our common stock in lieu of cash in the
event that the holders of the 2023 Notes require us to
repurchase all or a portion of their 2023 Notes, the 2025 Notes
and the 2038 Notes must be repurchased with cash. If we do not
have sufficient resources at the time these obligations are due,
we may be required to borrow additional funds or sell additional
equity to meet these obligations, but there can be no guarantee
that we will be able to raise such capital at the appropriate
time on favorable terms or at all. If we are unable to make our
annual interest payments or repay any of our convertible notes
when due, we will default on our 2023 Notes, the 2025 Notes and
the 2038 Notes, permitting the note holders to declare the notes
immediately due and payable. There can be no assurance that we
will have sufficient capital resources to repay our convertible
notes in the event that such a default right is triggered.
We may
incur risk in connection with the consolidation of our U.S.
operations to Ardsley, New York.
In July 2009, we announced plans to consolidate our
U.S. operations onto a single campus located in Ardsley,
New York in Westchester County. We anticipate that the majority
of the consolidation activities and expenses will
27
be completed by the end of 2010. As a consequence of the
consolidation, we face several risks including the disruption of
our ongoing business, the distraction of employees, increased
employee turnover and possible loss of key employees, which can
result in loss of productivity and a delay in the advancement of
some or all of our development activities in oncology.
Global
credit and financial market conditions could negatively impact
the value of our current portfolio of cash equivalents and
investment securities.
Our cash and cash equivalents are maintained in highly liquid
investments with maturities of 90 days or less at the time
of purchase. Our investment securities consist of readily
marketable debt securities with remaining maturities of more
than 90 days at the time of purchase. As of the date of
this filing, we are not aware of any material losses or other
significant deterioration in the fair value of our cash
equivalents or investment securities since December 31,
2009; however, no assurance can be given that further
deterioration in conditions of the global credit and financial
markets would not negatively impact our current portfolio of
cash equivalents and investment securities and, as result, our
financial condition.
Our
effective income tax rate may increase in the future, reducing
our net income.
Various internal and external factors may result in an increase
to our future effective income tax rate. These factors include,
but are not limited to, changes in U.S. and foreign tax
laws, regulations,
and/or
rates; the results of any tax examinations; changing
interpretations of existing U.S. and foreign tax laws or
regulations; changes in estimates of prior years items;
past and future levels of R&D spending; acquisitions;
changes in our corporate structure; and changes in overall
levels of income before taxes all of which may
result in periodic revisions to our effective income tax rate.
An increase in our effective income tax rate would have a
negative effect on our results from operations, reducing our net
income.
The
value of our strategic investments may decline, requiring us to
impair the value of these investments and thereby reducing our
net income.
As a key component of our business strategy, we have made, and
plan to continue to make, investments in companies that are in
relatively early stages of development. These investments are
generally illiquid and inherently risky, as the technologies or
products that these companies are pursuing are typically in the
early stages of development and may never materialize.
Impairments of these investments could occur for a number of
reasons, including adverse events with respect to the business
or prospects for the underlying companies or a deterioration of
market conditions. We may be required to record an impairment
charge on a portion or all of the value of these investments and
have recorded such impairment charges in the past. Any declines
in value of any of our investments that are deemed other than
temporary would reduce our net income in future periods when
determined.
Risks
Relating to Regulatory Matters
Generic
competitors can challenge our U.S. patents by filing an ANDA or
a 505(b)(2) NDA for a generic or a modified version of Tarceva
and negatively affect our competitive position.
Separate and apart from the protection provided under the
U.S. patent laws, Tarceva is also subject to the provisions
of the Hatch-Waxman Act which provides Tarceva with a five-year
period of marketing exclusivity following FDA approval on
November 18, 2004. The Hatch-Waxman Act prohibits the FDA
from accepting the filing of an ANDA application (for a generic
product) or a 505(b)(2) NDA (for a modified version of the
product) for such five-year period. There is an exception,
however, that allows competitors to challenge our patents
beginning four years into the exclusivity period (i.e.,
beginning November 18, 2008 for Tarceva) by alleging that
one or more of the patents listed in the FDAs Orange Book
are invalid, unenforceable
and/or
not
infringed and submitting an ANDA or 505(b)(2) NDA for a generic
or modified version of Tarceva. This patent challenge is
commonly known as a Paragraph IV certification. Within the
past several years, the generic industry has aggressively
pursued approvals of generic versions of innovator drugs at the
earliest possible point in time.
28
In February 2009, we received Paragraph IV certifications
from two generic companies Teva U.S.A and Mylan. In
March 2009, we filed lawsuits in U.S. District Court in
Delaware against Teva U.S.A. and Mylan for infringement of
U.S. Patent No. 5,747,498, U.S. Patent
No. 6,900,221 and U.S. Patent No. 7,087,613. The
filing of these lawsuits restricts the FDA from approving the
ANDAs of Teva U.S.A. and Mylan until seven and one-half years
have elapsed from the date of Tarcevas initial approval
(i.e., until 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 either patent infringement case before the
statutory litigation stay period expires (i.e., the court finds
the patents invalid, unenforceable, or not infringed) or if we
were to fail to reasonably cooperate in expediting the
litigation. On the other hand, if we prevail in either
infringement action, the ANDA cannot be approved until the
patents held to be infringed expire. Tarceva is currently
protected by three patents listed in the FDAs Approved
Drugs Products List (Orange Book).
Additionally, following the conclusion of the statutory
litigation stay period, or earlier date due to a loss of the
statutory litigation stay protection, if the ANDA or 505(b)(2)
NDA filing has been approved, a generic company may choose to
launch a generic version of Tarceva notwithstanding the pendency
of our infringement action or any appeal. This is referred to as
an at-risk launch and is an aggressive strategy
pursued by generic companies that has occurred more frequently
in the last few years. Any launch of a generic version of
Tarceva prior to the expiration of patent protection, whether as
a result of the loss of the patent infringement litigation or
due to an at-risk launch, will have a material adverse effect on
our revenues for Tarceva and our results of operations.
If we
do not receive adequate third-party reimbursement for the sales
of Tarceva, we may see a reduction in the profitability of
Tarceva.
Sales of Tarceva depend, in part, upon the extent to which the
costs of Tarceva are paid by health maintenance organizations,
managed care, pharmacy benefit and similar reimbursement
sources, or reimbursed by government health administration
authorities, private health coverage insurers and other
third-party payors. Such third-party payors continue to
aggressively challenge the prices charged for healthcare
products and services. Additionally, federal, state and foreign
governments have prioritized the containment of healthcare
costs, and drug prices have been targeted in this effort. If
these organizations and third-party payors do not consider
Tarceva to be cost-effective, they may not reimburse providers
of our products, or the level of reimbursement may reduce the
profitability of Tarceva. As an example, while the U.K.s
National Institute of Health and Clinical Excellence recommended
funding by the National Health Service for Tarceva in NSCLC, it
still has not recommended reimbursement for Tarceva for the
treatment of pancreatic cancer.
Beginning January 1, 2006, Medicare beneficiaries could
obtain expanded prescription drug coverage through a new
Medicare drug benefit that is administered by private,
Medicare-approved drug plans. This voluntary benefit allows
beneficiaries to choose among various Medicare prescription drug
plans based on cost and scope of coverage. Generally, such plans
include Tarceva within the scope of the plan, with beneficiaries
having to pay various amounts of copayments when obtaining
Tarceva. Since plans adjust their formularies on a regular
basis, we cannot provide assurance that Tarceva will continue to
be included in the same number of plans or at the same level of
coverage, and this could adversely affect our revenues. In
addition, new legislation may be proposed that could change the
Medicare prescription drug benefit and affect the payments for
Tarceva under the program.
Government
involvement and/or control over pricing of pharmaceutical
products can have a negative effect on the revenues that we
receive from Tarceva.
In some foreign countries, particularly Canada and the EU
countries, the pricing of prescription pharmaceuticals is
subject to governmental control. In these countries, pricing
negotiations with governmental authorities can take six to
12 months or longer after the receipt of regulatory
marketing approval for a product. To obtain reimbursement or
pricing approval in some countries, we may be required to
conduct a clinical trial that compares the cost-effectiveness of
our products to other available therapies. In most countries
within the EU, individual governments determine the pricing of
medicines, which can result in wide variations for the same
product, and member states of the EU may impose new or
additional cost-containment measures for drug products. Indeed,
in recent years, price reductions and rebates have been mandated
in several EU countries, including Germany, Italy, Spain and the
United Kingdom. Future mandatory price reductions in the EU or
Japan could adversely impact our
29
royalty revenues for Tarceva. In the United States, there is,
and we expect that there will continue to be, federal, state and
local legislation aimed at imposing pricing controls. If such
additional legislation is enacted, it would reduce the revenues
that we receive for Tarceva in the United States.
The
manufacture and packaging of pharmaceutical products, such as
Tarceva, are subject to the requirements of the FDA and similar
foreign regulatory bodies. If we or our third party
manufacturers fail to satisfy these requirements, our or their
product development and commercialization efforts may be
materially harmed.
The manufacture and packaging of pharmaceutical products, such
as Tarceva and our future product candidates, are regulated by
the FDA and similar foreign regulatory bodies and must be
conducted in accordance with the FDAs cGMPs and comparable
requirements of foreign regulatory bodies. There are a limited
number of manufacturers that operate under these cGMP
regulations who are both capable of manufacturing our products,
and willing to do so. Our failure or the failure of our third
party manufacturers to comply with applicable regulations,
requirements or guidelines could result in sanctions being
imposed on us or them, including fines, injunctions, civil
penalties, failure of regulatory authorities to grant marketing
approval of our products, delays, suspension or withdrawal of
approvals, license revocation, seizures or recalls of product,
operating restrictions and criminal prosecutions, any of which
could significantly and adversely affect our business. We cannot
be certain that we or our present or future suppliers will be
able to comply with the pharmaceutical cGMP regulations or other
FDA or foreign regulatory requirements. If we fail to meet our
manufacturing obligations for Tarceva, our collaborator,
Genentech, has the contractual right to take over the supply of
Tarceva in the United States.
Changes in the manufacturing process or procedure, including a
change in the location where a product is manufactured or a
change of a third party manufacturer, require prior FDA review
and/or
approval of the manufacturing process and procedures in
accordance with the FDAs cGMPs. This review may be costly
and time consuming and could delay or prevent the launch of a
product or the use of a facility to manufacture a product. In
addition, if we elect to manufacture products at the facility of
another third party, we will need to ensure that the new
facility and the manufacturing process are in substantial
compliance with cGMPs. Any such change in facility would be
subject to a pre-approval inspection by the FDA and the FDA
would require us to demonstrate product comparability. Foreign
regulatory agencies have similar requirements.
Any prolonged interruption in the operations of our
contractors manufacturing facilities could result in
cancellations of shipments, loss of product in the process of
being manufactured, a shortfall or stock-out of available
product inventory or a delay in clinical trials, any of which
could have a material adverse impact on our business. A number
of factors could cause prolonged interruptions in manufacturing.
In addition, the U.S. federal government and several states
impose drug pedigree law requirements designed to record the
chain of custody of prescription drugs. Compliance with these
pedigree laws may require implementation of tracking systems as
well as increased documentation and coordination with our
customers. Although there may be changes in these requirements
and government enforcement may vary, failure to comply could
result in fines or penalties, as well as supply disruptions that
could have a material adverse effect on our business.
The FDA and similar foreign regulatory bodies may also implement
new standards or change their interpretation and enforcement of
existing standards and requirements for manufacture, packaging
or testing of products at any time. If we are unable to comply,
we may be subject to regulatory, civil actions or penalties
which could significantly and adversely affect our business.
If
government agencies do not grant us or our collaborators
required approvals for any of our potential products in a timely
manner or at all, we or our collaborators will not be able to
distribute or sell our products currently under
development.
All of our potential products must undergo extensive regulatory
approval processes in the United States and other countries.
These regulatory processes, which include pre-clinical testing
and clinical trials of each compound to establish safety and
efficacy, can take many years and require the expenditure of
substantial resources. The FDA and the other regulatory agencies
in additional markets which are material to us and our
collaborators, including the EMEA and the Japanese Ministry of
Health, may delay or deny the approval of our potential
products. Although we have been successful in gaining regulatory
approval for Tarceva in the United States and our collaborators
have
30
gained approval for Tarceva in Canada, Japan, the EU and a
number of other territories, there can be no guarantee of
subsequent approvals for Tarceva in other territories or for
other indications in the United States or for other products in
the United States and other territories.
Delays or rejections may be encountered during any stage of the
regulatory process based upon the failure of the clinical data
to demonstrate compliance with, or upon the failure of the
product to meet, a regulatory agencys requirements for
safety, efficacy and quality. Any such delay could have a
negative effect on our business. A drug candidate cannot be
marketed in the United States until it has been approved by the
FDA. Once approved, drugs, as well as their manufacturers, are
subject to continuing and ongoing review, and discovery of
previously unknown problems with these products or the failure
to adhere to manufacturing or quality control requirements may
result in restrictions on their distribution, sale or use, or
their withdrawal from the market. The FDA also has the
authority, when approving a product, to impose significant
limitations on the product in the nature of warnings,
precautions and contra-indications, or restrictions on the
indicated use, conditions for use, labeling, advertising,
promotion, marketing, distribution
and/or
production of the product that could negatively affect the
profitability of a drug. Failure to comply with a Phase IV
commitment can lead to FDA action either to withdraw approval of
a drug or to limit the scope of approval.
Furthermore, once a drug is approved, it remains subject to
ongoing FDA regulation. For example, the FDAs Amendments
Act of 2007 provides the FDA with expanded authority over drug
products after approval. This legislation enhances the
FDAs authority with respect to post-marketing safety
surveillance, including, among other things, the authority to
require: (i) additional post-approval studies or clinical
trials; (ii) the submission of a proposed risk evaluation
and mitigation strategy; and (iii) label changes as a
result of safety findings. These requirements may affect our
ability to maintain marketing approval of our products or
require us to make significant expenditures to obtain or
maintain such approvals. This new law also enhances the
FDAs enforcement authority, as well as civil and criminal
penalties for violations.
Approved drugs may be marketed only for the indications and
claims approved by the FDA. If we fail to comply with the FDA
regulations prohibiting promotion of off-label uses and the
promotion of products for which marketing clearance has not been
obtained, the FDA, the Office of the Inspector General of the
U.S. Department of Health and Human Services, the
Department of Justice or state Attorneys General could bring an
enforcement action against us that would inhibit our marketing
capabilities and result in significant penalties. Additional
post-approval regulation by the FDA includes changes to the
product label, new or revised regulatory requirements for
manufacturing practices, written advisements to physicians or a
product recall.
The current regulatory framework could change or additional
regulations could arise at any stage during our product
development or marketing, which may affect our ability to obtain
or maintain approval of our products or require us to make
significant expenditures to obtain or maintain such approvals.
The ability to market and sell a drug product outside of the
United States is also subject to stringent and, in some cases,
equally complex regulatory processes that vary depending on the
jurisdiction.
Some
of our activities may subject us to risks under federal and
state laws prohibiting kickbacks and false or
fraudulent claims, which could subject us to potential civil and
criminal penalties and exclusion from federal healthcare
programs.
We are subject to the provisions of a federal law commonly known
as the Federal Health Care Programs anti-kickback law, and
several similar state laws, which prohibit, among other things,
payments intended to induce physicians or others either to
purchase or arrange for, or recommend the purchase of,
healthcare products or services. While the federal law applies
only to products or services for which payment may be made by a
federal healthcare program, state laws may apply regardless of
whether federal funds may be involved. These laws constrain the
sales, marketing and other activities of manufacturers of drugs
such as OSI, by limiting the kinds of financial arrangements
that manufacturers can have with hospitals, physicians and other
potential purchasers or prescribers of drugs. Other federal and
state laws generally prohibit individuals or entities from
knowingly and willfully presenting, or causing to be presented,
claims for payment from Medicare, Medicaid, or other third-party
payors that are false or fraudulent, or are for items or
services that were not provided as claimed. Anti-kickback and
false claims laws prescribe civil and criminal penalties for
noncompliance that can be substantial, including the
31
possibility of imprisonment, fines and exclusion from federal
healthcare programs (including Medicare and Medicaid).
Pharmaceutical companies have been the target of lawsuits and
investigations alleging violations of government regulation,
including claims asserting violations of the federal False
Claims Act, the federal health care programs anti-kickback
statute and other violations in connection with off-label
promotion of products and Medicare
and/or
Medicaid reimbursement, or related to claims under state laws,
including state anti-kickback and false claims laws. While we
continually strive to comply with these complex requirements,
interpretations of the applicability of these laws to marketing
practices is ever evolving and even an unsuccessful challenge
could cause adverse publicity and be costly to respond to.
If
Tarceva is imported into the United States, the EU or Japan from
countries where the cost of the drug is lower, it will
negatively affect our sales and profitability and harm our
business.
Our revenues for Tarceva will be adversely impacted if we face
competition in the United States, the EU, Japan or China from
lower priced imports from countries where government price
controls or other market dynamics have resulted in a lower price
for Tarceva. The ability of patients and other customers to
obtain these lower priced imports has grown significantly as a
result of the Internet, an expansion of pharmacies which
specifically target purchasers in countries where drug costs are
higher and other factors. Many of these foreign imports are
illegal under current law. However, the volume of imports
continues to rise due to the limited enforcement resources of
U.S. and foreign regulatory and customs authorities, and
political pressure in the United States, the EU and Japan to
permit the imports as a mechanism for expanding access to lower
priced medicines.
In the United States, in December 2003, federal legislation was
enacted to modify U.S. import laws and expand the ability
for lower priced pharmaceutical products to be imported from
Canada, where government price controls have been enacted. These
changes to the import laws will not take effect unless and until
the Secretary of Health and Human Services certifies that the
changes will lead to substantial savings for consumers and will
not create a public health safety issue. However, it is possible
that this Secretary, or a subsequent Secretary, could make such
a certification in the future. In addition, legislation has been
proposed to implement the changes to the import laws without any
requirement for certification from the Secretary of Health and
Human Services, and to broaden permissible imports in other
ways. Even if these changes to the import laws do not take
effect, and other changes are not enacted, lower priced imports
of products from Canada and elsewhere may continue to increase
due to market and political forces, and the limited enforcement
resources of the FDA, the U.S. Customs Service and other
government agencies. For example, state and local governments
have suggested that they may import drugs from Canada for
employees covered by state health plans or others, and some have
already enacted such plans.
In Europe, the importation of pharmaceutical products from
countries where prices are low to those where prices for those
products are higher, known as parallel trade, may increase.
Parallel trade occurs because third parties can exploit the
price differential by purchasing drug products in markets where
low prices apply and selling them to state authorities and other
purchasers in those markets where drugs can be sold at higher
prices. There are indications that parallel trade is affecting
markets in the EU, and the recent addition of countries from
central and eastern Europe to the EU could result in significant
increases in the parallel trading of drug products in that
region.
The availability of lower priced imports will decrease our sales
and thereby decrease our profitability. This impact could become
more significant in the future, and the impact could be even
greater if there is a further change in the law or if state or
local governments take further steps to permit lower priced
imports from abroad.
Changes
in laws, regulations, accepted clinical procedures or social
pressures could restrict our use of animals in testing and
therefore adversely affect our R&D
activities.
Certain of our R&D activities involve the use of laboratory
animals. Changes in laws, regulations or accepted clinical
procedures relating to the use of animals in testing may
adversely affect our business by delaying or interrupting our
R&D activities. In addition, social pressures that would
restrict the use of animals in testing, or actions or protests
against us or our collaborators by groups or individuals opposed
to animal testing, could also delay or interrupt our R&D
activities and could disrupt our U.S. and U.K. operations.
32
Risks
Related to Intellectual Property and Legal Matters
If we
cannot successfully protect, exploit or enforce our intellectual
property rights, our ability to develop and commercialize our
products, and receive revenues from licenses under our
intellectual property, will be adversely affected.
We hold numerous U.S. and foreign patents as well as
trademarks and trade secrets; we also have many pending
applications for additional patents. We intend to continue to
seek patent protection for, or maintain as trade secrets, the
potentially valuable intellectual property arising from our
research and development activities, including commercially
promising product candidates that we have discovered, developed
or acquired. Our success depends, in part, on our ability and
our collaborators ability to obtain and maintain patent
protection for new product candidates, maintain trade secret
protection and operate without infringing the valid and
enforceable proprietary rights of third parties. As with most
biotechnology and pharmaceutical companies, our patent position
is highly uncertain and involves complex legal and factual
questions. Without patent and other similar protection, other
companies could offer the same or substantially identical
products for sale without incurring the sizeable discovery and
development costs that we have incurred. Our ability to recover
these expenditures and realize profits upon the sale of products
could be diminished. The process of obtaining patents can be
time-consuming and expensive with no certainty of success. Even
if we spend the necessary time and money, a patent may not issue
or it may insufficiently protect the technology it was intended
to protect. Even if issued, such issuance is not conclusive as
to a patents validity or its enforceability.
Our patents may be challenged, narrowed, invalidated or
circumvented, which could limit our ability to prevent or stop
competitors from marketing similar products or may limit the
length of term of patent protection we may have for our
products. Specifically, we are currently involved in litigation
with Teva U.S.A. and Mylan, which have alleged that the three
patents listed in the Orange Book for Tarceva are invalid,
unenforceable, or will not be infringed by generic versions of
erlotinib for which these generic pharmaceutical companies have
sought FDA approval to commercialize in the United States. In
addition, a patent corresponding to the 498 patent was
granted in February 2007 in India and survived a pre-grant
opposition by Natco Pharma in July 2007. We and Roche, are
currently seeking to enforce this patent against CIPLA with
respect to a generic form of Tarceva launched by CIPLA in India.
Together with Roche, we filed a lawsuit against CIPLA in the
High Court of Delhi in New Delhi, India in January 2008,
alleging infringement of our patents which included a request
that the court issue a preliminary injunction to prevent CIPLA
from manufacturing and distributing Tarceva in India. The court
denied the request for a preliminary injunction 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. We recently filed
additional lawsuits in India against Natco Pharma and
Dr. Reddys Laboratories to enforce our composition of
matter patents for Tarceva against these companies, which have
launched generic forms of Tarceva in India. We have also filed
lawsuits against Allmed International, Inc., of San Jose
California, Natco Pharma and the Ministry of Health of Ukraine
to enforce our patents against Allmed and Natco Pharma with
respect to a generic form of Tarceva manufactured by Natco
Pharma and distributed by Allmed in the Ukraine, and to
invalidate the administrative orders from the Ministry of Health
of Ukraine registering a generic version of erlotinib on the
state registration for medicinal products.
In addition, Teva Pharmaceuticals filed an opposition to the
grant of a patent in Israel corresponding to our
U.S. patent directed to a particular polymorph of Tarceva
(U.S. Patent No. 6,900,221) in August 2007. This
Israeli proceeding will be delayed until prosecution of a
co-pending patent application in Israel is completed.
If we are unsuccessful in enforcing or defending our patents in
any of these proceedings and the patents are revoked without
possibility of appeal, this could reduce our future potential
royalty revenue from sales of Tarceva in these countries and
increase the possibility that generic Tarceva will be unlawfully
distributed
and/or
sold
into countries where we have patent exclusivity which, in turn,
would adversely impact our Tarceva revenues.
We can never be certain that we were first to develop technology
or that we were first to file a patent application for a
particular technology because most U.S. patent applications
are confidential until a patent publishes or issues, and
publications in the scientific or patent literature lag behind
actual discoveries. If our pending patent applications are not
approved for any reason or if we are unable to receive patent
protection for additional proprietary
33
technologies that we develop, the degree of future protection
for our proprietary rights will remain uncertain. Third parties
may independently develop similar or alternative technologies,
duplicate some or all of our technologies, design around our
patented technologies or challenge our pending or issued
patents. Furthermore, the laws of foreign countries may not
protect our intellectual property rights effectively or to the
same extent as the laws of the United States. In addition, some
countries do not offer patent protection for certain
biotechnology-related inventions. If our intellectual property
rights are not adequately protected, we may not be able to
commercialize our technologies, products or services and our
competitors could commercialize our technologies, which could
result in a decrease in our sales and market share that would
harm our business and operating results.
We are also party to licenses that give us rights to third-party
intellectual property that may be necessary or useful to our
business. Our success will depend in part on the ability of our
licensors to obtain, maintain and enforce our licensed
intellectual property, in particular, those patents to which we
have secured exclusive rights. Our licensors may not
successfully prosecute the patent applications to which we have
licenses. Even if patents issue in respect of these patent
applications, our licensors may fail to maintain these patents,
may determine not to pursue litigation against other companies
that are infringing these patents or may pursue such litigation
less aggressively than we would. Without protection for the
intellectual property we license, other companies might be able
to offer substantially identical products for sale, which could
adversely affect our competitive business position and harm our
business prospects.
If we
or our collaborators are required to obtain licenses from third
parties, our revenues and royalties on any commercialized
products could be reduced.
The development of some of our products may require the use of
technology developed by third parties. The extent to which
efforts by other researchers have resulted or will result in
patents and the extent to which we or our collaborators will be
forced to obtain licenses from others, if available, on
commercially reasonable terms is currently unknown. If we or our
collaborators must obtain licenses from third parties, fees must
be paid for such licenses, which would reduce the revenues and
royalties we may receive on commercialized products.
If we
are unable to protect the confidentiality of our proprietary
information and know-how, the value of our technology and
products could be negatively impacted.
In addition to patented technology, we rely upon unpatented
proprietary technology, trade secrets, processes and know-how.
We seek to protect this information in part by entering into
confidentiality agreements with our employees, consultants and
third parties. These agreements may be breached, and we may not
have adequate remedies for any such breach. In addition, our
trade secrets may otherwise become known or be independently
developed by competitors.
The
failure to prevail in litigation and/or the costs of litigation,
including patent infringement claims, could harm our financial
performance and business operations and could cause delays in
product introductions.
We are susceptible to litigation. For example, as a public
company, we are subject to claims asserting violations of
securities laws and derivative actions. In addition, from time
to time we may need to commence litigation in order to enforce
our patent rights by bringing an infringement action relating to
our patents against third parties, such as our current lawsuits
filed against Teva U.S.A. and Mylan for infringement of certain
Tarceva-related patents. Also, we cannot ensure that our
products or methods do not infringe upon the patents or other
intellectual property rights of third parties. As the
biotechnology and pharmaceutical industries expand and more
patents are filed and issued, the risk increases that our
patents or patent applications for our product candidates may
give rise to a declaration of interference by the USPTO, or to
administrative proceedings in foreign patent offices, or that
our activities lead to claims of patent infringement by other
companies, institutions or individuals. These entities or
persons could bring legal proceedings against us seeking
substantial damages or seeking to enjoin us from researching,
developing, manufacturing or marketing our products, which could
result in substantial costs and harm our reputation. If any of
these actions are successful, we may not only be required to pay
substantial damages for past use of the asserted intellectual
property but we may also be required to cease the infringing
activity or obtain the requisite licenses or rights to use the
technology, that may not be available to us on acceptable terms,
if at all. Litigation and other proceedings may also absorb
significant management time.
34
Litigation is inherently unpredictable and we may incur
substantial expense in defending ourselves or asserting our
rights in the litigation in which we are currently involved or
in new lawsuits or claims brought against us. Litigation can be
expensive to defend, regardless of whether a claim has merit,
and the defense of such actions may divert the attention of our
management that would otherwise be engaged in running our
business and utilize resources that would otherwise be used for
the business. In the event of an adverse determination in a
lawsuit or proceeding, or our failure to license essential
technology, our sales could be harmed
and/or
our
costs increase, which would harm our financial condition and our
stock price may decline. While we currently maintain insurance
that we believe is adequate, we are subject to the risk that our
insurance will not be sufficient to cover claims.
The
use of any of our potential products in clinical trials and the
sale of any approved products exposes us to liability
claims.
The nature of our business exposes us to potential liability
risks inherent in the research, development, manufacturing and
marketing of drug candidates and products. If any of our drug
candidates in clinical trials or our marketed products harm
people or allegedly harm people, we may be subject to costly and
damaging product liability claims. Many patients who participate
in clinical trials are already ill when they enter a trial. The
waivers we obtain may not be enforceable and may not protect us
from liability or the costs of product liability litigation.
While we currently maintain product liability insurance that we
believe is adequate, we are subject to the risk that our
insurance will not be sufficient to cover claims. There is also
a risk that adequate insurance coverage will not be available in
the future on commercially reasonable terms, if at all. The
successful assertion of an uninsured product liability or other
claim against us could cause us to incur significant expenses to
pay such a claim, could adversely affect our product development
and could cause a decline in our product revenues. Even a
successfully defended product liability claim could cause us to
incur significant expenses to defend such a claim, could
adversely affect our product development and could cause a
decline in our product revenues.
Risks
Related to Our Common Stock
Our
stock price remains volatile which could make it difficult for
our stockholders to resell our common stock at desirable
prices.
If our stock price falls, our stockholders may not be able to
sell their stock at desirable prices. When the stock prices of
companies in the NASDAQ Biotechnology Index fall, our stock
price will most likely fall as well. The stock price of
biotechnology and pharmaceutical companies, including our stock
price, has been volatile and may remain volatile for the
foreseeable future.
The following factors, among others, some of which are beyond
our control, may also cause our stock price to decline:
|
|
|
|
|
a decline in sales of Tarceva;
|
|
|
|
a decline in our business operating results or prospects;
|
|
|
|
a general economic slowdown in the United States, Europe or
other key international markets where Tarceva is sold;
|
|
|
|
adverse events with respect to our intellectual property;
|
|
|
|
a prolonged interruption in the manufacture or supply of Tarceva;
|
|
|
|
announcement or launching of technological innovations or new
therapeutic products by third parties;
|
|
|
|
positive or negative clinical efficacy or safety results from
our competitors products;
|
|
|
|
public concern as to the safety, or withdrawal, of our products
and potential products;
|
|
|
|
comments by securities analysts regarding us or our competitors
and general market conditions;
|
|
|
|
future sales of substantial amounts of our common stock by us or
existing stockholders;
|
|
|
|
negative developments concerning strategic alliance agreements;
|
|
|
|
changes in government regulation, including pricing controls,
that impact our products;
|
|
|
|
material delays in our key clinical trials;
|
35
|
|
|
|
|
negative or neutral clinical trial results, including clinical
trial results for additional indications for Tarceva;
|
|
|
|
delays with the FDA in the approval process for products and
clinical candidates; and
|
|
|
|
developments in laws or regulations that impact our patent or
other proprietary rights.
|
Our
governance documents and state law provide certain anti-takeover
measures which will discourage a third party from seeking to
acquire us and may impede the ability of stockholders to remove
and replace our board of directors and, therefore, our
management.
We have had a shareholder rights plan, commonly referred to as a
poison pill, since January 1999. The purpose of the
shareholder rights plan is to protect stockholders against
unsolicited attempts to acquire control of us that do not offer
a fair price to our stockholders as determined by our board of
directors. Under the plan, the acquisition of 17.5% or more of
our outstanding common stock by any person or group, unless
approved by our board of directors, will trigger the right of
our stockholders (other than the acquiror of 17.5% or more of
our common stock) to acquire additional shares of our common
stock, and, in certain cases, the stock of the potential
acquiror, at a 50% discount to market price, thus significantly
increasing the acquisition cost to a potential acquiror.
The shareholder rights plan may have the effect of dissuading a
potential hostile acquiror from making an offer for our common
stock at a price that represents a premium to the then-current
trading price. In addition, our certificate of incorporation and
by-laws contain certain additional anti-takeover protective
devices. For example,
|
|
|
|
|
no stockholder action may be taken without a meeting, without
prior notice and without a vote; solicitations by consent are
thus prohibited;
|
|
|
|
special meetings of stockholders may be called only by our board
of directors, or by our stockholders holding 20% of our
outstanding shares upon 90 days prior written notice;
|
|
|
|
nominations by stockholders of candidates for election to the
board of directors at our annual meeting of stockholders must be
made at least 45 days prior to the anniversary of the date
on which we first mailed our proxy materials for the prior
years annual meeting of stockholders; and
|
|
|
|
our board of directors has the authority, without further action
by the stockholders, to fix the rights and preferences, and
issue shares, of preferred stock. An issuance of preferred stock
with dividend and liquidation rights senior to the common stock
and convertible into a large number of shares of common stock
could prevent a potential acquiror from gaining effective
economic or voting control.
|
Further, we are subject to Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions,
restricts certain transactions and business combinations between
a corporation and a stockholder owning 15% or more of the
corporations outstanding voting stock for a period of
three years from the date the stockholder becomes a 15%
stockholder. In addition to discouraging a third party from
acquiring control of us, the foregoing provisions could impair
the ability of existing stockholders to remove and replace our
management
and/or
our
board of directors.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
There are no unresolved staff comments.
The following is a summary of the principal facilities which we
utilize in our operations:
Ardsley, New York.
In July 2009, we completed
the purchase of a
43-acre
site
at 420 Saw Mill River Road, Ardsley, New York for the purpose of
consolidating all of our U.S. operations into a single
location. We are in the process of renovating the Ardsley site,
which consists of approximately 400,000 square feet of
existing office and laboratory space, and expect to complete
most of the renovations by the end of 2010. Upon completion of
the consolidation, the Ardsley site will serve as the site of
all of our U.S. based operations, including our principal
executive, oncology R&D, commercial, medical, finance,
legal and administrative offices.
Melville, New York.
We own a facility at 41
Pinelawn Road, Melville, New York, consisting of approximately
60,000 square feet. The facility currently houses our
principal executive, oncology, finance, legal and administrative
offices.
36
Farmingdale, New York.
We lease a facility at
One BioScience Park Drive, Farmingdale, New York, consisting of
approximately 62,000 square feet. Our Farmingdale facility
currently contains our drug discovery laboratories for oncology.
Cedar Knolls, New Jersey.
We lease a facility
at 140 Hanover Avenue, Cedar Knolls, New Jersey, consisting of
approximately 25,000 square feet. Our Cedar Knolls facility
currently contains certain of our regulatory, quality control
and drug development operations for oncology.
Boulder, Colorado.
We lease two facilities in
Boulder, Colorado, which together currently house our clinical
and pre-clinical research, regulatory and drug development
operations for oncology. One facility is located at 2860
Wilderness Place, and consists of approximately
60,000 square feet and the other one is located at 2970
Wilderness Place, and consists of approximately
26,000 square feet. In February 2010, we subleased
approximately 11,000 square feet of our facility at 2970
Wilderness Place to Novella Clinical.
Oxford, England.
In 2009, we completed the
purchase of the two buildings that comprise our facility in
Oxford, England, consisting in total of approximately
88,000 square feet. This facility houses our diabetes and
obesity corporate and R&D operations, as well as certain
oncology development operations.
As part of the consolidation of our U.S. operations in
Ardsley, New York, we are currently assessing our options for
each of our leased facilities in Farmingdale, New York, Cedar
Knolls, New Jersey and Boulder Colorado, which we expect to
ultimately exit, and our owned facility in Melville, New York.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
In March 2009, we filed lawsuits in U.S. District Court in
Delaware against Teva U.S.A and Mylan for patent infringement of
the 498 patent, U.S. Patent No. 6,900,221 and
U.S. Patent No. 7,087,613. The filing of these
lawsuits restricts the FDA from approving the ANDAs of Teva
U.S.A. and Mylan until seven and one-half years have elapsed
from the date of Tarcevas initial approval (i.e., until
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
the 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 were to fail to reasonably cooperate in expediting the
litigation. On the other hand, if we prevail in the infringement
action against Teva U.S.A.
and/or
Mylan, the ANDA with respect to such generic pharmaceutical
company cannot be approved until the patent held to be infringed
expires.
We and Roche are also currently seeking to enforce
Tarcevas composition of matter patent against CIPLA, Ltd.
with respect to a generic form of Tarceva launched by CIPLA in
India in January 2008. We, together with 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 appealing this
decision was dismissed by the Supreme Court of India. The
infringement trial in India is currently ongoing. On
December 15, 2009 and January 19, 2010, we filed
lawsuits against Natco Pharma and Dr. Reddys
Laboratories, respectively, in the High Court of Delhi in New
Delhi, India to enforce our composition of matter patent with
respect to additional generic forms of Tarceva launched by Natco
Pharma and Dr Reddys Laboratories in India.
We have also filed lawsuits against Allmed International, Inc.,
of San Jose California, Natco Pharma and the Ministry of
Health of Ukraine to enforce our patents against Allmed and
Natco Pharma with respect to a generic form of Tarceva
manufactured by Natco Pharma and distributed by Allmed in the
Ukraine, and to invalidate the administrative orders from the
Ministry of Health of Ukraine received by Natco Pharma and
Allmed approving the sale of such generic products.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
There were no matters submitted to a vote of our security
holders during the fourth quarter of fiscal 2009.
37
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our common stock is traded in the
over-the-counter
market and is included for quotation on the NASDAQ National
Market under the symbol OSIP. The following is the range of high
and low sales prices by quarter for our common stock from
January 1, 2008 through December 31, 2009 as reported
on the NASDAQ National Market:
|
|
|
|
|
|
|
|
|
2009 FISCAL YEAR
|
|
HIGH
|
|
|
LOW
|
|
|
First Quarter
|
|
$
|
43.00
|
|
|
$
|
32.28
|
|
Second Quarter
|
|
$
|
38.30
|
|
|
$
|
27.07
|
|
Third Quarter
|
|
$
|
36.29
|
|
|
$
|
27.01
|
|
Fourth Quarter
|
|
$
|
35.90
|
|
|
$
|
30.31
|
|
|
|
|
|
|
|
|
|
|
2008 FISCAL YEAR
|
|
HIGH
|
|
|
LOW
|
|
|
First Quarter
|
|
$
|
49.21
|
|
|
$
|
33.46
|
|
Second Quarter
|
|
$
|
42.10
|
|
|
$
|
32.10
|
|
Third Quarter
|
|
$
|
53.71
|
|
|
$
|
41.21
|
|
Fourth Quarter
|
|
$
|
48.98
|
|
|
$
|
31.33
|
|
Holders
and Dividends
As of February 15, 2010, there were approximately 2,590
holders of record of our common stock. We have not paid any cash
dividends since inception and we do not intend to pay any cash
dividends in the foreseeable future. Declaration of dividends
will depend, among other things, upon future earnings, our
operating and financial condition, our capital requirements and
general business conditions.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Equity
Compensation Plan Information as of December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
remaining
|
|
|
|
|
|
|
|
|
|
available for
|
|
|
|
Number of
|
|
|
|
|
|
future issuance
|
|
|
|
securities to be
|
|
|
|
|
|
under equity
|
|
|
|
issued upon
|
|
|
Weighted-average
|
|
|
compensation
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
|
plans (excluding
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
securities
|
|
|
|
options, warrants
|
|
|
options, warrants
|
|
|
reflected in the
|
|
Plan category
|
|
and rights(a)
|
|
|
and rights(b)
|
|
|
first column)
|
|
|
Equity compensation plans approved by security holders
|
|
|
7,219,401
|
(c)
|
|
$
|
38.51
|
|
|
|
3,051,605
|
(e)
|
Equity compensation plans not approved by security holders
|
|
|
289,809
|
(d)
|
|
$
|
48.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,509,210
|
|
|
$
|
38.93
|
|
|
|
3,051,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
|
|
Includes stock options, restricted stock, restricted stock units
and deferred stock units.
|
|
b)
|
|
The weighted-average exercise price of outstanding options,
warrants and rights does not include restricted stock,
restricted stock units and deferred stock units, as they are
issued for no cash consideration.
|
|
c)
|
|
Consists of three plans: the 1997 Incentive and Non-Qualified
Stock Option Plan, the 1999 Incentive and Non-Qualified Stock
Option Plan and the Amended and Restated Stock Incentive Plan.
|
38
|
|
|
d)
|
|
In connection with the acquisition of certain oncology assets
from Gilead Sciences, Inc. on December 21, 2001, we adopted
a Non-Qualified Stock Option Plan for Former Employees of Gilead
Sciences, Inc. As of December 31, 2009, there was 190,419
of options outstanding with a grant price of $45.01 per share,
which represented the fair value of our stock at the date
granted. With respect to each option grant, one-third of the
options vested on the first anniversary of the date of grant and
the remainder vested ratably monthly thereafter for
24 months.
|
|
e)
|
|
Consists of 346,750 shares reserved for issuance under the
1995 Employee Stock Purchase Plan and the stock purchase plan
for our U.K.-based employees, and 2,704,855 shares reserved
for issuance under the Amended and Restated Stock Incentive Plan.
|
We have a policy of rewarding employees who achieve 10, 15, 20
and 25 years of continued service with our company with
100, 150 or 200 shares of our common stock depending on
years of service. We grant such shares of common stock on an
annual basis to those individuals who meet the stated
requirements.
Purchase
of Equity Securities by the Issuer and Affiliated
Purchasers
The following table reflects the repurchase of
$39.5 million principal amount of our 2023 Notes and the
repurchase of $40.0 million principal amount of our 2038
Notes, in the fourth quarter of 2009, as described in this
Form 10-K.
In addition, the table reflects shares of common stock withheld
from employees to satisfy their tax withholding obligations
arising upon the vesting of restricted equity awards granted
under our Amended and Restated Stock Incentive Plan.
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Maximum Number (or
|
|
|
|
|
|
|
Shares (or Units)
|
|
Approximate Dollar
|
|
|
|
|
|
|
Purchased as Part
|
|
Value) of Shares (or Units)
|
|
|
Total Number of
|
|
Average Price
|
|
of Publicly
|
|
that May Yet Be
|
|
|
Shares (or Units)
|
|
Paid per Share
|
|
Announced Plans or
|
|
Purchased Under the
|
Period
|
|
Purchased
|
|
(or Unit)
|
|
Programs
|
|
Plans or Programs
|
|
October 1, 2009
October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
November 1, 2009
November 30, 2009
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
December 1, 2009
December 31, 2009
|
|
|
113,581
|
(1)
|
|
$
|
34.02
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
789,364
|
(2)
|
|
$
|
50.02
|
|
|
|
|
|
|
|
|
|
|
|
|
541,852
|
(3)
|
|
$
|
73.82
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of shares of common stock withheld from employees to
satisfy their tax withholding obligations arising upon the
vesting of restricted equity awards granted under our Amended
and Restated Stock Incentive Plan.
|
|
(2)
|
|
In December 2009, we repurchased an aggregate of
$39.5 million principal amount of our 2023 Notes. These
were open market repurchases. The repurchased 2023 Notes were
subsequently cancelled. The table reflects the number of shares
of common stock into which the cancelled notes would have been
convertible if the holders of such notes exercised the right to
convert the notes at the conversion price of $50.02 prior to the
maturity of the 2023 Notes in accordance with the terms of the
Indenture for the 2023 Notes.
|
|
(3)
|
|
In December 2009, we repurchased an aggregate of
$40.0 million principal amount of our 2038 Notes. These
were open market repurchases. The repurchased 2038 Notes were
subsequently cancelled. The table reflects the number of shares
of common stock into which the cancelled notes would have been
convertible if the holders of such notes exercised the right to
convert the notes at the conversion price of $73.82 prior to the
maturity of the 2038 Notes in accordance with the terms of the
Indenture for the 2038 Notes.
|
39
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
The following table sets forth our selected consolidated
financial data as of and for the years ended December 31,
2009, 2008, 2007, 2006 and 2005. As a result of our decision to
divest the eye disease business previously held by our wholly
owned subsidiary, (OSI) Eyetech, the operating results for (OSI)
Eyetech are shown as discontinued operations for all periods
subsequent to our acquisition on November 14, 2005. The
consolidated statements of operations for the years ended
December 31, 2008, 2007, 2006 and 2005, and the
consolidated balance sheet data for the years ended
December 31, 2008, 2007, 2006 and 2005 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). The information below should be read in
conjunction with the consolidated financial statements and notes
thereto included elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
(In thousands, except per share data)
|
|
2009(a)
|
|
|
2008(b)
|
|
|
2007(c)
|
|
|
2006(d)
|
|
|
2005(e)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
428,148
|
|
|
$
|
379,388
|
|
|
$
|
341,030
|
|
|
$
|
241,037
|
|
|
$
|
138,423
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
8,786
|
|
|
|
9,315
|
|
|
|
9,399
|
|
|
|
8,671
|
|
|
|
5,035
|
|
Research and development
|
|
|
151,845
|
|
|
|
135,344
|
|
|
|
123,531
|
|
|
|
117,527
|
|
|
|
116,655
|
|
Acquired in-process research and development
|
|
|
6,500
|
|
|
|
4,000
|
|
|
|
9,664
|
|
|
|
|
|
|
|
3,542
|
|
Selling, general and administrative
|
|
|
102,989
|
|
|
|
94,930
|
|
|
|
99,159
|
|
|
|
107,458
|
|
|
|
89,205
|
|
Restructuring charges
|
|
|
4,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
920
|
|
|
|
2,489
|
|
|
|
1,840
|
|
|
|
1,809
|
|
|
|
15,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
152,654
|
|
|
|
133,310
|
|
|
|
97,437
|
|
|
|
5,572
|
|
|
|
(91,295
|
)
|
Other income (expense) net
|
|
|
(19,375
|
)
|
|
|
(12,650
|
)
|
|
|
2,108
|
|
|
|
(4,009
|
)
|
|
|
6,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
133,279
|
|
|
|
120,660
|
|
|
|
99,545
|
|
|
|
1,563
|
|
|
|
(85,187
|
)
|
Income tax provision (benefit) business
|
|
|
57,284
|
|
|
|
(316,049
|
)
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
75,995
|
|
|
|
436,709
|
|
|
|
96,813
|
|
|
|
1,563
|
|
|
|
(85,187
|
)
|
Income (loss) from discontinued operations net of tax
|
|
|
(64
|
)
|
|
|
4,884
|
|
|
|
(36,288
|
)
|
|
|
(610,930
|
)
|
|
|
(72,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before extraordinary gain
|
|
|
75,931
|
|
|
|
441,593
|
|
|
|
60,525
|
|
|
|
(609,367
|
)
|
|
|
(157,216
|
)
|
Extraordinary gain net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
75,931
|
|
|
$
|
441,593
|
|
|
$
|
60,525
|
|
|
$
|
(587,321
|
)
|
|
$
|
(157,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1.31
|
|
|
$
|
7.62
|
|
|
$
|
1.68
|
|
|
$
|
0.03
|
|
|
$
|
(1.64
|
)
|
Income (loss) from discontinued operation
|
|
|
(0.00
|
)
|
|
|
0.09
|
|
|
|
(0.63
|
)
|
|
|
(10.73
|
)
|
|
|
(1.38
|
)
|
Net income (loss) before extraordinary gain
|
|
|
1.31
|
|
|
|
7.70
|
|
|
|
1.05
|
|
|
|
(10.70
|
)
|
|
|
(3.02
|
)
|
Extraordinary gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.39
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.31
|
|
|
$
|
7.70
|
|
|
$
|
1.05
|
|
|
$
|
(10.31
|
)
|
|
$
|
(3.02
|
)
|
Diluted income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1.29
|
|
|
$
|
6.93
|
|
|
$
|
1.66
|
|
|
$
|
0.03
|
|
|
$
|
(1.64
|
)
|
Loss from discontinued operations
|
|
|
(0.00
|
)
|
|
|
0.07
|
|
|
|
(0.62
|
)
|
|
|
(10.60
|
)
|
|
|
(1.38
|
)
|
Net income (loss) before extraordinary gain
|
|
|
1.29
|
|
|
|
7.00
|
|
|
|
1.04
|
|
|
|
(10.57
|
)
|
|
|
(3.02
|
)
|
Extraordinary gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.38
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.29
|
|
|
$
|
7.00
|
|
|
$
|
1.04
|
|
|
$
|
(10.19
|
)
|
|
$
|
(3.02
|
)
|
Shares used in the calculation of income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
57,939
|
|
|
|
57,316
|
|
|
|
57,665
|
|
|
|
56,939
|
|
|
|
52,078
|
|
Diluted
|
|
|
60,452
|
|
|
|
66,911
|
|
|
|
58,333
|
|
|
|
57,645
|
|
|
|
52,078
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
(In thousands)
|
|
2009(a)
|
|
|
2008(b)
|
|
|
2007(c)
|
|
|
2006(d)
|
|
|
2005(e)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investment securities (unrestricted
and restricted)
|
|
$
|
471,895
|
|
|
$
|
515,511
|
|
|
$
|
305,098
|
|
|
$
|
216,368
|
|
|
$
|
179,606
|
|
Receivables
|
|
|
127,171
|
|
|
|
100,242
|
|
|
|
87,523
|
|
|
|
80,075
|
|
|
|
152,482
|
|
Working capital
|
|
|
508,866
|
|
|
|
629,330
|
|
|
|
197,631
|
|
|
|
266,496
|
|
|
|
276,171
|
|
Total assets
|
|
|
1,185,372
|
|
|
|
1,104,203
|
|
|
|
557,723
|
|
|
|
456,841
|
|
|
|
1,057,464
|
|
Long-term liabilities
|
|
|
290,095
|
|
|
|
444,537
|
|
|
|
145,142
|
|
|
|
321,740
|
|
|
|
304,608
|
|
Stockholders equity
|
|
|
711,748
|
|
|
|
598,545
|
|
|
|
160,087
|
|
|
|
55,519
|
|
|
|
610,527
|
|
|
|
|
(a)
|
|
The calendar 2009 consolidated financial statements include a
$6.5 million acquired in-process R&D charge related to
the expansion of our AVEO collaboration and the purchase of
intellectual property. In December 2009, we repurchased
$39.5 million and $40.0 million of outstanding
principal of our 2023 Notes and 2038 Notes, respectively. As of
December 31, 2009, the 2025 Notes have been reclassified as
short-term on the accompanying consolidated balance sheets,
since the holders of the Notes have a right to require us to
purchase all, or a portion thereof, for cash, on
December 15, 2010.
|
|
(b)
|
|
The calendar 2008 consolidated financial statements include a
$4.0 million acquired in-process R&D charge related to
the purchase of intellectual property and a $319.2 million
benefit, included in income tax provision (benefit), related to
the recognition of certain deferred tax assets. During 2008, we
issued $200.0 million principal amount of our 2038 Notes in
a private placement for net proceeds of approximately
$193 million, of which $65.0 million was used to
purchase, concurrently with the offering, 1.5 million
shares of our common stock. In addition, we repurchased
approximately $50 million of our 2023 Notes in 2008.
|
|
|
|
The calendar 2008 consolidated financial statements reflect the
retrospective application of accounting literature FASB ASC
Subtopic
No. 470-20
which includes the accounting literature formerly known as FSP
APB
14-1.
The application of this accounting literature resulted in a
$29.9 million decrease to net income, a $0.26 decrease in
diluted earnings per share, a $45.9 million decrease in
long-term liabilities and a $27.0 million increase in
stockholders equity.
|
|
(c)
|
|
The calendar 2007 consolidated financial statements include a
$9.7 million acquired in-process R&D charge related to
the payment made under our research collaboration with AVEO and
the purchase of AdipoGenix, Inc. intellectual property, and a
$4.1 million gain, included in other income
(expense) net, related to our decision to
curtail our post-retirement medical and life insurance plan. The
2023 Notes were classified as a current liability in the
December 31, 2007 consolidated balance sheets.
|
|
|
|
The calendar 2007 consolidated financial statements reflect the
retrospective application of accounting literature FASB ASC
Subtopic
No. 470-20.
The application of this accounting literature resulted in a
$5.8 million decrease to net income, a $0.07 decrease in
diluted earnings per share, a $21.8 million decrease in
long-term liabilities and a $21.1 million increase in
stockholders equity.
|
|
(d)
|
|
The calendar 2006 consolidated financial statements reflect the
retrospective application of accounting literature FASB ASC
Subtopic
No. 470-20
which includes the accounting literature formerly known as FSP
APB
14-1.
The application of this accounting literature resulted in a
$5.1 million decrease to net income, a $0.09 decrease in
diluted earnings per share, a $27.8 million decrease in
long-term liabilities and a $26.9 million increase in
stockholders equity.
|
|
|
|
The calendar 2006 loss from discontinued operations includes
$506.0 million of impairment charges related to (OSI)
Eyetech goodwill and (OSI) Eyetech amortizable intangibles
($320.3 million and $185.7 million, respectively) and
a $26.4 million charge for obsolete and expiring inventory.
A $22.0 million extraordinary gain was recognized in the
2006 calendar year as a result of reversing the accrued
contingent consideration recorded in connection with the
acquisition of Cell Pathways, Inc. in the 2003 fiscal year.
|
|
(e)
|
|
The calendar 2005 consolidated financial statements reflect the
retrospective application of accounting literature FASB ASC
Subtopic
No. 470-20
which includes the accounting literature formerly known as
|
41
|
|
|
|
|
FSP APB
14-1.
The
application of this accounting literature resulted in a $93,000
decrease to net income, a $33.2 million decrease in
long-term liabilities and a $32.1 million increase in
stockholders equity.
|
|
|
|
The calendar 2005 consolidated financial statements reflect:
(a) the acquisition of Eyetech Pharmaceuticals, Inc. in
November 2005 for aggregate consideration of $909.3 million
($637.4 million, net of cash and investments acquired),
including cash consideration of $702.1 million, the value
of 5.6 million shares of our common stock issued to Eyetech
shareholders, the value of converted stock options issued to
Eyetech shareholders and transaction-related costs incurred;
(b) an in-process R&D charge of $60.9 million
related to the acquisition of Eyetech recorded as a loss from
discontinued operations; (c) in-process R&D charges of
$3.5 million related to the acquisition of the minority
interest in Prosidion; and (d) the issuance of
$115.0 million principal amount of our 2025 Notes in a
private placement for net proceeds of $111.0 million, of
which approximately $24 million was used to purchase,
concurrently with the offering, 500,000 shares of our
common stock and a call spread option with respect to our common
stock.
|
42
Overview
We are a biotechnology company committed to building a
scientifically strong and financially successful top tier
biopharmaceutical organization that discovers, develops and
commercializes innovative molecular targeted therapies, or MTTs,
addressing major unmet medical needs in oncology, 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 substantial
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 revenues are presently derived from three primary sources:
(i) revenue from our joint collaboration with Genentech,
Inc. for the sale of Tarceva in the United States;
(ii) royalties we receive from Roche on sales of Tarceva in
the rest of the world; and (iii) revenue from licensees 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. For 2009, Tarceva global sales were
approximately $1.2 billion, which provided us with
$358.7 million of Tarceva-related revenues, while licenses
under our DPIV patent estate provided us with $67.0 million
of revenue, primarily from royalties. In 2009, our
Tarceva-related revenues grew by approximately 7% versus the
prior year, while the revenues from our DPIV patent estate grew
by approximately 63% over the same period. Our DPIV patent
estate represents an increasingly important source of revenues
and overall revenue growth for our company. As of
February 15, 2010, twelve pharmaceutical companies have
non-exclusive licenses to our DPIV patents, and three currently
have approved products on the market that are early in their
life cycle.
We expect that our global 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 research and
development, or 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 non-small cell lung cancer, or NSCLC (including studies
focused on validating the activity of Tarceva in treating
patients whose lung tumors harbor an activating mutation in the
EGFR gene), and explore opportunities in new disease settings
with other companies. We will also continue to deploy our
financial resources to selectively acquire attractive pipeline
assets, technologies and companies where these types of
acquisitions strongly supplement and complement our internal
R&D efforts in oncology and diabetes and obesity.
In July 2009, we announced plans to consolidate all of 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.
We are in the process of renovating the Ardsley site, which we
expect to fully occupy by the end of 2010, at an estimated cost
of approximately $100 million in 2010. We also expect to
incur approximately $30 million in restructuring-related
costs through the end of 2011. We anticipate that consolidating
our oncology R&D, commercial, medical and other support
functions into a single U.S. location will enhance the
strategic value of our oncology R&D capabilities and result
in business efficiencies and synergies.
We believe we have the right mix of size, longevity, R&D
capabilities, financial strength, and experience to emerge as a
leading top-tier midsized public biotechnology company. As we
enter 2010, we remain committed to fully realizing the value of
the Tarceva franchise for our shareholders. We are focused on
delivering shareholder value beyond the Tarceva franchise by
continuing to balance financial performance against the
necessary reinvestment in R&D to further leverage our
strong Tarceva franchise and develop a portfolio of follow-on
43
products largely derived from our innovative and differentiated
research platform and pipeline. By leveraging revenues from the
Tarceva franchise and the DPIV patent estate, maintaining
financial discipline around our R&D investments and
controlling our spending on general and administrative expenses,
we believe that we can deliver credible near term earnings
growth, while continuing to increase our investment in
attractive opportunities for long-term value creation for our
shareholders.
Critical
Accounting Policies
We prepare our consolidated financial statements in accordance
with U.S. generally accepted accounting principles. As
such, we are required to make certain estimates, judgments and
assumptions that we believe are reasonable based upon the
information available. These estimates and assumptions affect
the reported amounts of assets and liabilities as of the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the periods presented. Actual
results could differ significantly from our estimates and the
estimated amounts could differ significantly under different
assumptions and conditions. We believe that the following
discussion addresses our most critical accounting policies,
which are those that are most important to the portrayal of our
financial condition and results of operations and which require
our most difficult and subjective judgments, often as a result
of the need to make estimates about the effect of matters that
are inherently uncertain. Note 1 to the accompanying
consolidated financial statements includes a summary of the
significant accounting policies used in the preparation of the
consolidated financial statements.
Revenue
Recognition
Tarceva-related
Revenues
Tarceva-related revenues for the years ended December 31,
2009, 2008 and 2007 were $358.7 million,
$334.7 million and $267.8 million, respectively.
Tarceva-related revenues include net revenue from our
unconsolidated joint business, Tarceva-related royalties and
Tarceva-related milestone payments.
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. 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 our
sales and marketing costs related to Tarceva and the
reimbursement from Genentech of most of our manufacturing costs
related to Tarceva. Under the co-promotion arrangement, all
U.S. sales of Tarceva and associated costs and expenses,
except for a portion of our sales-related costs, are recognized
by Genentech. Genentech is also responsible for estimating
reserves for anticipated returns of Tarceva and monitoring the
adequacy of these reserves. We record our 50% share of the
co-promotion pretax profit 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. If actual future results differ from our and
Genentechs estimates, we may need to adjust these
estimates, which would have an effect on earnings in the period
of adjustment. The reimbursement of 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.
Royalties
We estimate royalty revenue and royalty receivables in the
periods these royalties are earned, in advance of collection.
Our estimate of royalty revenue and royalty receivables is based
upon communication with our collaborators and our licensees.
Differences between actual royalty revenue and estimated royalty
revenue 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 condition
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) using an exchange rate calculated on a
quarterly basis and then to U.S. dollars using an exchange
rate calculated on a
year-to-date
basis (as per
44
our agreement with Roche). 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 local currencies in which Tarceva is sold, will
impact our royalty revenue.
License
Fees and Milestones
Our revenue recognition policies for all nonrefundable upfront
license fees and milestone arrangements are in accordance with
ASC Topic 605, Revenue Recognition, and in
accordance with Securities and Exchange Commission, or SEC,
Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, as amended by SEC
Staff Accounting Bulletin No. 104, Revenue
Recognition. In addition, we follow the provisions of
Financial Accounting Standards Board, or FASB, Accounting
Standards Codification, or ASC, Subtopic
No. 605-25,
which includes the accounting literature formerly known as
Emerging Issues Task Force Issue
00-21,
Revenue Arrangements with Multiple Deliverables, for
multiple element revenue arrangements entered into or materially
amended after June 30, 2003. As a result of an amendment to
our collaboration agreement with Genentech in June 2004,
milestone payments received from Genentech after June 2004 and
the remaining portion of the unearned upfront fee are being
recognized in accordance with FASB ASC Subtopic
No. 605-25.
Milestones received from Genentech after June 2004 and the
remaining unearned upfront fee are being recognized over the
term of our Manufacturing and Supply Agreement with Genentech,
under which the last items of performance to be delivered to
Genentech are set forth, on a straight line basis. In March
2005, we agreed to a further global development plan and budget
with our collaborators, Genentech and Roche, for the continued
development of Tarceva. For revenue recognition purposes, the
revised development plan and budget for Tarceva was deemed a
material amendment to our Roche agreement and therefore, future
milestones received from Roche will be recognized in accordance
with FASB ASC Subtopic
No. 605-25.
Accordingly, milestone payments received from Roche after March
2005 have been and will be initially recorded as unearned
revenue and recognized over the expected performance period of
the research collaboration on a straight line basis.
Investments
and
Other-than-Temporary
Impairments
As of December 31, 2009, approximately 53% 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 principalweighted average overall credit
rating of our portfolio of cash equivalents and investment
securities was AA/Aa2 as of December 31, 2009. We have
established guidelines relative to the diversification of our
investments and their maturities with the principle objective of
capital preservation and liquidity. These guidelines are
periodically reviewed and modified to take advantage of trends
in yields and interest rates. We classify our investments as
available-for-sale
securities. These securities are recorded at their fair value.
Unrealized holding gains and losses, net of the related tax
effect, if any, on
available-for-sale
securities are excluded from earnings and are reported in
accumulated other comprehensive income (loss), a separate
component of stockholders equity, until realized or
recognized. The specific identification basis is utilized to
calculate the cost to determine realized gains and losses from
the sale of
available-for-sale
securities.
A decline in the fair value of any
available-for-sale
marketable security below its cost that is deemed to be
other-than-temporary
results in a reduction in its carrying amount to fair value. The
impairment is charged to operations and a new cost basis for the
security is then established. The determination of whether an
available-for-sale
marketable security is
other-than-temporarily
impaired requires significant judgment and consideration of
available quantitative and qualitative evidence in evaluating
the potential impairment. Factors evaluated to determine whether
the investment is
other-than-temporarily
impaired include: (i) whether there has been significant
deterioration in the issuers earnings performance, credit
rating or asset quality; (ii) the business prospects of the
issuer; (iii) adverse changes in the general market
conditions in which the issuer operates; (iv) the length of
time that the fair value has been below our cost; (v) our
expected future cash flows from the security; and (vi) our
intent and ability to retain the investment for a sufficient
period of time to allow for recovery in the market value of the
investment. However, even if an investor does not expect to sell
a debt security expected cash flows to be received must be
evaluated to determine if credit losses have occurred. In the
event of a credit loss, only the amount associated with the
credit loss is recognized in income. The amount of losses
relating to other factors, including those related to changes in
interest rates, are recorded in accumulated other comprehensive
income. The other-than-temporary impairment model for debt
securities also requires additional disclosure regarding the
calculation of credit losses and the factors considered in
reaching a conclusion that an investment is not
other-than-temporarily
45
impaired. Assumptions associated with these factors are subject
to future market and economic conditions, which could differ
from our assessment. During 2009 and 2008, we recorded a
$663,000 and $1.2 million impairment charge, respectively,
in other income (expense) related to an
other-than-temporary
decline in the fair value of common stock and warrants that we
previously received as part of a licensing transaction. During
2007, we did not recognize any
other-than-temporary
impairments.
Inventory
The valuation of inventory requires us to make certain
assumptions and judgments to estimate net realizable value.
Inventories are reviewed and adjusted for obsolescence and aging
based upon estimates of future demand, technology developments
and market conditions. We determine the cost of raw materials,
work-in-process
and finished goods inventories using the weighted average
method. Inventory costs include material, labor and
manufacturing overhead. Inventories are valued at the lower of
cost or market (realizable value). Our inventory is valued at
its market value where there is evidence that the utility of
goods will be less than cost and that such write-down should
occur in the current period. Accordingly, at the end of each
period we evaluate our inventory and adjust to net realizable
value the carrying value and excess quantities when necessary.
Inventory includes raw materials and
work-in-process
for Tarceva that may be used in the production of pre-clinical
and clinical product, which will be expensed to R&D cost
when consumed for these uses. Tarceva is stated at the lower of
cost or market, with cost being determined using the weighted
average method. As of December 31, 2009 and 2008 our
inventories were carried at original cost.
Stock-Based
Compensation
We recognize as compensation expense the total fair value of
employee stock awards, over the requisite employee service
period (generally the vesting period of the grant). We have used
and expect to continue to use the Black-Scholes option-pricing
model to compute the estimated fair value of stock-based awards
on the date of grant. The Black-Scholes option pricing model
includes assumptions regarding dividend yields, expected
volatility, expected option term and risk-free interest rates.
We estimate expected volatility based upon a combination of
historical, implied and adjusted historical volatility. The
risk-free interest rate is based on the U.S. treasury yield
curve in effect at the time of grant. The fair value of the
options is estimated at the date of grant using a Black-Scholes
option pricing model with the expected option term determined
using a Monte Carlo simulation model that incorporates
historical employee exercise behavior and post-vesting employee
termination rates.
The assumptions used in computing the fair value of stock-based
awards reflect our best estimates, but involve uncertainties
relating to market and other conditions, many of which are
outside of our control. As a result, if other assumptions or
estimates had been used, the stock-based compensation expense
that was recorded for the years ended December 31, 2009,
2008 and 2007 could have been materially different. Furthermore,
if different assumptions are used in future periods, stock-based
compensation expense could be materially impacted in the future.
Accruals
for Clinical Research Organization and Clinical Site
Costs
We record accruals for estimated clinical study costs. Clinical
study costs represent costs incurred by clinical research
organizations, or CROs, and clinical sites. These costs are
recorded as a component of R&D expenses. We analyze the
progress of the clinical trials, including levels of patient
enrollment
and/or
patient visits, invoices received and contracted costs, when
evaluating the adequacy of our accrued liabilities. Significant
judgments and estimates must be made and used in determining the
accrued balance in any accounting period. Actual costs incurred
may not match the estimated costs for a given accounting period.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and operating loss
and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on
46
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
For the year ended December 31, 2008, we recorded a
$316.0 million income tax benefit from continuing
operations, which included a favorable adjustment in the fourth
quarter of 2008 of $319.2 million resulting from the
reversal of a significant portion of the valuation allowance
against our net deferred tax assets. We made this adjustment
based on our determination that it is more likely than not that
we will generate sufficient taxable income to realize the
benefits of our deferred assets, primarily resulting from our
net operating losses, or NOLs. The determination was based upon
our assessment of our cumulative profitability in the United
States over the past three years and our expectation of future
taxable income.
As of December 31, 2009, we had remaining approximately
$656 million of NOLs related to our U.S. operations
and $77 million related to our foreign operations, which result
in approximately $201 million of net deferred tax assets.
The U.S. NOLs, which, subject to limitations, can be used
to offset our future U.S. taxable income, expire between
the years 2021 and 2026. Utilization of a portion of the
U.S. NOLs may be limited under U.S. Internal Revenue
Code Section 382. The U.K. NOLs, which can be used to
offset our future U.K. taxable income, do not expire. We have
also accumulated $65.7 million in additional other net
deferred tax assets based on temporary differences between book
and tax reporting.
We recognize any liabilities relating to tax uncertainties in
accordance with FASB ASC Subtopic
No. 740-10,
which includes the accounting literature formerly known as
Financial Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109. FASB ASC Subtopic
No. 740-10
clarifies the criteria that must be met prior to recognition of
the financial statement benefit of a position taken in a tax
return and includes a benefit recognition model with a two-step
approach consisting of a more-likely-than-not
recognition criteria, and a measurement attribute that measures
a given tax position as the largest amount of tax benefit that
has a greater than 50% likelihood of being realized upon
ultimate settlement. FASB ASC Subtopic
No. 740-10
also requires the recognition of liabilities created by
differences between tax positions taken in a tax return and
amounts recognized in the financial statements. As of
December 31, 2009 and 2008, we did not have any liabilities
relating to tax uncertainties.
Goodwill
and Other Long-Lived Assets
We account for goodwill and other intangible assets in
accordance with FASB ASC Topic No. 805, Business
Combinations, and FASB ASC Topic No. 350,
Intangible Assets Goodwill, which
includes the accounting literature formerly known as
SFAS No. 141, Business Combinations, and
Statement of Financial Accounting Standards, or SFAS,
No. 142, Goodwill and Other Intangible Assets.
FASB ASC Topic No. 805 requires that the purchase method of
accounting be used for all business combinations. It specifies
the criteria under which intangible assets acquired in a
business combination must meet in order to be recognized and
reported apart from goodwill. FASB ASC Topic No. 350
requires that goodwill and intangible assets determined to have
indefinite lives no longer be amortized but instead be tested
for impairment at least annually and whenever events or
circumstances occur that indicate impairment might have occurred.
Our identifiable intangible assets are subject to amortization.
FASB ASC Topic No. 350 requires that intangible assets with
finite useful lives be amortized over their respective estimated
useful lives and reviewed for impairment in accordance with FASB
ASC Topic No. 360. FASB ASC Topic No. 360 requires,
among other things, that long-lived assets be measured at the
lower of carrying amount or fair value, less cost to sell,
whether reported in continuing operations or in discontinued
operations. We review our intangibles with determinable lives
and other long-lived assets for impairment whenever events or
changes in circumstances indicate that impairment might have
occurred.
Our judgment regarding the existence of impairment indicators is
based on various information, including historical and projected
future operating results, changes in the manner of our use of
the acquired assets or our overall business strategy, and market
and economic trends. In the future, events could cause us to
conclude that impairment indicators exist and that certain other
intangibles and other long-lived assets are impaired which may
result in an adverse impact on our financial condition and
results of operations. As of December 31, 2009, we had
approximately $39 million of goodwill associated with our
oncology business. Our annual impairment assessment
47
(step 1 analysis) indicated that the current value of this
franchise was significantly more than the carrying value of the
assets associated with the oncology business, including the
goodwill.
Discontinued
Operations
On November 6, 2006, we announced our intention to divest
our eye disease business. During the first quarter of 2007, we
finalized our exit plan and began to actively market our eye
disease business assets. As a result of the finalization of our
plan to sell the business during the first quarter of 2007, in
accordance with the provision of FASB ASC Topic No. 360,
the results of operations of (OSI) Eyetech for the current and
prior periods 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, including those held for sale.
On August 1, 2008, we completed the sale of the remaining
assets of our eye disease business to Eyetech Inc., a newly
formed corporation. Under the terms of the transaction, the
principal assets we transferred to Eyetech Inc. consisted of
Macugen-related intellectual property and inventory, as well as
$5.8 million in working capital primarily in the form of
Macugen trade receivables, in exchange for potential
sales-related milestones of up to $185 million, a royalty
percentage on net sales depending on the level of Macugen sales
and the potential for an additional payment in the event of a
change of control transaction with respect to Eyetech Inc. We
have determined that Eyetech Inc. qualifies as a variable
interest entity, or VIE, but as we are not its primary
beneficiary, consolidation is not required. FASB ASC Subtopic
No. 810-10,
which includes the accounting literature formerly known as FASB
Interpretation No. 46(R), Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51,
requires an entity 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, we determined that
Eyetech Inc. qualified 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, is a stockholder in
Eyetech Inc., participated in the design of the entity and
agreed to serve as its part-time executive chairman upon his
retirement from our company.
FASB ASC Subtopic
No. 810-10
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 determined that we are not the primary
beneficiary of Eyetech Inc. as: (i) we do not hold an
equity position in Eyetech Inc.; (ii) our ongoing interest
in this entity is limited to our contingent right to receive
future royalties and milestones; and (iii) we do not have
liability for the future losses.
Change
in Accounting Principle
The consolidated statements of operations for the years ended
December 2008 and 2007, and the consolidated balance sheets 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 Note 15 to the accompanying
consolidated financial statements for further explanation of the
impact of adopting this standard had on our consolidated
financial statements.
Years
Ended December 31, 2009 and 2008
Results
of Operations
Net income for the year ended December 31, 2009 was
$75.9 million compared to $441.6 million for the year
ended December 31, 2008. Our net income from continuing
operations for the years ended December 31, 2009 and 2008
was $76.0 million and $436.7 million, respectively.
The decline in net income from continuing operations was
primarily due to a $319.2 million non-cash benefit recorded
in the fourth quarter of 2008 related to recognition of certain
net deferred tax assets (primarily related to our NOLs), offset
in part by an increase in Tarceva-related
48
revenues and royalties from our DPIV patent estate. Net income
for 2009 includes a net loss from discontinued operations of
$64,000 and net income for 2008 includes net income from
discontinued operations of $4.9 million. As a result of our
decision to exit the eye disease business and the finalization
of our exit plan in March 2007, the results of the eye disease
business are presented as discontinued operations for all
periods presented.
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
Tarceva-related revenues
|
|
$
|
358,730
|
|
|
$
|
334,653
|
|
|
$
|
24,077
|
|
Other revenues
|
|
|
69,418
|
|
|
|
44,735
|
|
|
|
24,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
428,148
|
|
|
$
|
379,388
|
|
|
$
|
48,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tarceva-Related
Revenues
Tarceva-related revenues for the years ended December 31,
2009 and 2008 were $358.7 million and $334.7 million,
respectively, and included 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 years ended December 31, 2009 and 2008,
Genentech recorded net sales of Tarceva in the United States and
its territories of approximately $479 million and
$457 million, respectively. The increase in net sales of
Tarceva for the year ended December 31, 2009 compared to
the prior year was primarily a result of price increases offset
in part by lower demand and a higher level of sales reserves
allowances in the year ended December 31, 2009. Our share
of these net sales is reduced by the cost of goods sold for
Tarceva and the costs related to the sales and marketing of the
product. For the year ended December 31, 2009, we reported
net revenues from our unconsolidated joint business for Tarceva
of $208.8 million compared to $196.1 million for the
same period last year. The increase in net revenue from
unconsolidated joint business for the year ended
December 31, 2009 was primarily due to higher Tarceva sales
and slightly lower combined sales and marketing costs incurred
under our collaboration with Genentech.
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 years ended December 31, 2009
and 2008, Roche reported U.S. dollar equivalent
rest-of-world
sales of approximately $724 million and $665 million,
respectively. For the years ended December 31, 2009 and
2008, we recorded $146.3 million and $134.6 million in
royalty revenue from these sales, respectively. The increase in
royalty revenue was primarily due to increased sales volume
outside the United States, partially offset by the net negative
impact of unfavorable changes in foreign exchange rates versus
the prior year period.
Tarceva-Related
Milestones
Milestone revenues from Tarceva include the recognition of the
ratable portion of upfront fees from Genentech and milestone
payments received from Genentech and Roche in connection with
various regulatory acceptances and approvals for Tarceva in the
United States, Europe and Japan. These payments were deferred
and are being recognized as revenue on a straight-line basis
over the estimated performance period. The ratable portions of
the upfront fees and milestone payments recognized as revenue
for the years ended December 31, 2009 and 2008 were
$3.7 million and $3.9 million, respectively. The
unrecognized deferred revenue related to these upfront fees and
49
milestone payments was $33.4 million and $37.1 million
as of December 31, 2009 and 2008, respectively. We are also
entitled to additional milestone payments from Genentech and
Roche upon the occurrence of certain regulatory approvals and
filings with respect to Tarceva. 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 years ended December 31, 2009 and
2008 were $69.4 million and $44.7 million,
respectively, and include non-Tarceva related license,
milestone, royalty and commission revenues.
We recognized $62.0 million and $41.1 million of
royalty revenue for the years ended December 31, 2009 and
2008, respectively, from previously granted worldwide
non-exclusive license agreements entered into under our DPIV
patent portfolio covering the use of DPIV inhibitors for
treatment of type 2 diabetes and related indications. Our
royalty revenue in 2009 and 2008 was principally derived from
sales of Mercks DPIV inhibitor product,
Januvia
tm
,
and its DPIV combination product with metformin,
Janumet
tm
.
We also derived royalty revenue from sales of Novartis
DPIV inhibitor products,
Galvus
®
and
Eucreas
®
and from Bristol-Meyers Squibbs, or BMSs, DPIV
inhibitor product
Onglyza
tm
.
The year ended December 31, 2009 also included a
$5 million milestone payment from BMS, which we recognized
because we had no future performance obligations. The amount of
license revenues generated from our DPIV patent estate can be
expected to fluctuate from year to year based on: (i) the
level of future product sales by our licensees; (ii) the
ability of our licensees to achieve specified events under the
license agreements which entitle us to milestone payments; and
(iii) our ability to enter into additional license
agreements in the future.
In October 2009, we licensed the rights to develop, manufacture,
and market in China our multi-targeted tyrosine kinase
inhibitor, OSI-930, to Simcere Pharmaceutical Co., Ltd., for a
$2.5 million upfront fee, potential development and sales
milestones, plus potential future royalties on sales. We
deferred the initial recognition of the $2.5 million
upfront fee based upon our obligation to provide technical and
other support for a period of up to 12 months from the date
of execution of the license agreement. For the year ended
December 31, 2009, we recognized approximately $625,000 of
the upfront fee as revenue.
In February 2008, we licensed to a third party our transforming
growth factor, or TGF ß3, compound for certain indications,
for an upfront fee of $2.0 million. We recognized the
$2.0 million payment as license revenue in the first
quarter of 2008 since we had no future performance obligations.
Pursuant to the terms of a cross license with Novartis AG,
approximately $350,000 of the amount we received was paid to
Novartis.
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
Cost of goods sold
|
|
$
|
8,786
|
|
|
$
|
9,315
|
|
|
$
|
(529
|
)
|
Research and development
|
|
|
151,845
|
|
|
|
135,344
|
|
|
|
16,501
|
|
Acquired in-process research and development
|
|
|
6,500
|
|
|
|
4,000
|
|
|
|
2,500
|
|
Selling, general and administrative
|
|
|
102,989
|
|
|
|
94,930
|
|
|
|
8,059
|
|
Restructuring costs
|
|
|
4,454
|
|
|
|
|
|
|
|
4,454
|
|
Amortization of intangibles
|
|
|
920
|
|
|
|
2,489
|
|
|
|
(1,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
275,494
|
|
|
$
|
246,078
|
|
|
$
|
29,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
Total cost of goods sold for the years ended December 31,
2009 and 2008 were $8.8 million and $9.3 million,
respectively, and related to Tarceva sales.
50
Research
and Development
R&D expenses increased by $16.5 million for the year
ended December 31, 2009 compared to the prior year. The
increase was primarily due to an increase in R&D expenses
related to non-Tarceva oncology programs and, in particular,
OSI-906, our insulin-like growth factor 1 and insulin receptor,
or IGF-1R/IR, inhibitor candidate, R&D expenses related to
our diabetes and obesity programs and, in particular, PSN821,
our GPR119 agonist candidate, and equity-based compensation.
These increases in R&D expenses were partially offset by a
decline in R&D expenses for Tarceva.
We consider the active management and development of our
clinical pipeline crucial to the long-term process of getting
follow-on products 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 years ended
December 31, 2009 and 2008, we invested a total of
$55.1 million and $54.3 million, respectively, in
research and $96.8 million and $81.0 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.
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, the collaborators have committed an
aggregate of approximately $930 million to the global
development plan to be shared by the three parties. As of
December 31, 2009, we had invested in excess of
$275 million in the development of Tarceva, representing
our share of the costs incurred through December 31, 2009
under the tripartite global development plan and additional
investments outside of the plan.
As we note in Item 1 of this Annual Report on
Form 10-K,
Business Our Marketed Product
Tarceva Lifecycle Plan, there are a number of
ongoing Phase III clinical trials that seek to expand the
use of Tarceva into new indications, both as a single agent and
as a combination therapy with other targeted anti-cancer agents.
With the exception of the TITAN, RADIANT, SATURN, and EURTAC
EGFR-mutation studies discussed in Item 1, we currently
provide limited or no financial support for these Phase III
clinical trials and generally receive limited information with
respect to their progress. As such, we cannot reasonably
estimate the completion dates for these studies, nor when, if
ever, these studies may provide us with a financial benefit.
With respect to the TITAN and RADIANT studies, the TITAN study
is part of our post-approval commitment for Tarceva and is
unlikely to result in a new indication for Tarceva. The RADIANT
study is not expected to result in data until 2013/2014. Given
the uncertainties of the drug development process, including
those uncertainties discussed in Item 1A of this Annual
Report on
Form 10-K
Risk Factors, we are not able to draw a conclusion
at this time regarding the likelihood of a future product launch
as a result of this study. With respect to the SATURN study, we
estimate that our share of the costs of completing this study
will be approximately $3 million. With respect to the
EURTAC
EGFR-mutation
study, we estimate that our share of the costs of completing
this study will be approximately $9.1 million. Our
estimated share of the costs to complete the EURTAC
EGFR-mutation study does not include the cost of developing a
companion diagnostic in the United States for EGFR-mutations
which, although not part of the study, may be a necessary step
for us to receive FDA approval for the use of Tarceva as a
monotherapy in first-line patients with EGFR mutations.
51
Acquired
In-Process Research and Development
In July 2009, we expanded our drug discovery and translational
research collaboration with AVEO Pharmaceuticals, Inc. The
purpose of this collaboration is the development of MTTs that
target the underlying mechanisms of
epithelial-to-mesenchymal
transition, or 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
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 commercialization of products from this
technology is not expected in the near term, as is the case with
many early research efforts. As this technology is deemed to be
related to in-process technology, which is deemed to have no
alternative future use, we expensed the $5.0 million
payment as acquired in-process R&D in the third quarter of
2009.
In the fourth quarter of 2009, for an upfront fee of
$1.5 million, we purchased from PhaseBio Pharmaceuticals,
Inc. an option to acquire for additional consideration, an
oxyntomodulin program. If we exercise this option, we will also
be required to pay milestones and royalties upon occurrence of
certain clinical and regulatory events and successful
development and commercialization of products. If we elect to
exercise the option, we will acquire technology to support our
early development activities and as such, the option is deemed
early stage with 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 $1.5 million
payment as acquired in-process R&D in the fourth quarter of
2009. Concurrent with the purchase of the option, we made an
$800,000 equity investment in PhaseBio which is recorded in
other assets on our consolidated balance sheets as a cost basis
investment.
In the fourth quarter of 2008, our U.K. subsidiary that conducts
our R&D programs in diabetes and obesity acquired
intellectual property and other assets from 7TM Pharma A/S for
$4.0 million. The $4.0 million acquisition cost was
recorded as an in-process R&D charge, since it was
associated with the intellectual property which was deemed to be
related to in-process technology with no alternative future use
and commercialization is not expected in the near term.
Selling,
General and Administrative
Selling, general and administrative expenses for the year ended
December 31, 2009 were $103.0 million, an increase of
$8.1 million from the same period last year. The increase
was primarily attributable to an increase in equity based
compensation, salaries, contributions, and general corporate
expenses.
Restructuring
Costs
In connection with our decision to consolidate our
U.S. operations onto a single campus located in Ardsley,
New York, we incurred restructuring costs of $4.5 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 $100 million of
capital-related renovation costs over the next 12 months.
In addition, we expect to incur approximately $30 million
in restructuring-related cost over the next two years, which
primarily relates to labor-related and relocation costs. We
incurred restructuring cost of $4.5 million for the year
ended December 31, 2009. We also expect to recognize
additional exit-related charges related to exiting our other
U.S. leased facilities when these facilities cease to be
used.
52
Other
Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(in thousands)
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
Investment
income-net
|
|
$
|
8,148
|
|
|
$
|
12,961
|
|
|
$
|
(4,813
|
)
|
Interest expense
|
|
|
(27,085
|
)
|
|
|
(27,243
|
)
|
|
|
158
|
|
Other income (expense)-net
|
|
|
(438
|
)
|
|
|
1,632
|
|
|
|
(2,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
$
|
(19,375
|
)
|
|
$
|
(12,650
|
)
|
|
$
|
(6,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income for the year ended December 31, 2009
declined $4.8 million compared to the same period last
year. Despite an increase in the average balance of funds
available for investments, investment income was negatively
impacted by lower rates of return on our investments.
Interest expense for the year ended December 31, 2009
remained relatively constant compared to the same period last
year. Our redemption of approximately $79 million of our
outstanding convertible senior subordinated notes in December
2009 did not significantly impact our interest expense for 2009
as the notes were not repurchased until December 2009.
Other income (expense) net was a $438,000 expense
for the year ended December 31, 2009 compared to
$1.6 million of income for the same period last year. The
change from income to expenses for the year ended
December 31, 2009 compared to last year is primarily a
result of favorable foreign exchange gains in 2008, partially
offset by net higher impairment charges recorded in 2008. The
impairment charges we recorded in 2008 were related to common
stock and warrants that we previously received as part of a
licensing transaction for which we concluded the decline in fair
value was
other-than-temporary.
Income
Taxes
Since the beginning of 2009, we have reported our tax provision
using an effective tax rate of approximately 40%. However, we
expect to continue paying taxes at the lower alternative minimum
tax rates for the next several years as we continue to utilize
our NOLs for tax return purposes.
For the year ended December 31, 2009, we recorded a tax
provision of $57.3 million on income generated from
continuing operations. We also recorded a tax charge of
$3.3 million related to state NOLs that no longer met the
threshold for recognition as a result of our decision to
consolidate our U.S. operations in Ardsley, New York. We
reduced the valuation allowance previously recorded against
certain deferred tax assets in the United Kingdom, which
resulted in the recognition of $18.5 million of deferred
tax benefits. The reduction of this valuation allowance is based
on the fact that we determined that it was more likely than not
that we will generate sufficient taxable income in the United
Kingdom to realize the benefits of these deferred tax assets,
which principally consist of NOLs. The reduction in the U.K.
valuation allowance did not result in a benefit to the
consolidated income tax provision because, concurrently, we
recognized an offsetting deferred tax liability of
$18.5 million in the United States. The recognition of the
U.S. deferred tax liability is a result of previously
recognized deferred tax assets recorded in the U.S. from
the treatment of Prosidion losses as a branch for
U.S. income tax purposes. Given our significant level of
NOLs in the United States and the United Kingdom, our cash
payments for income taxes in 2009 are primarily based on
alternative minimum tax rates.
Income
(Loss) from Discontinued Operations
On November 6, 2006, we announced our intention to divest
our eye disease business. During the first quarter of 2007, we
finalized our exit plan and began to actively market our eye
disease business assets. As a result of the finalization of our
plan to sell the business during the first quarter of 2007, the
results of operations of (OSI) Eyetech for the current and prior
periods have been reported as discontinued operations. In
addition, assets and liabilities of
53
(OSI) Eyetech have been classified as assets and liabilities
related to discontinued operations, including those held for
sale.
On August 1, 2008, we completed the sale of the remaining
assets of our eye disease business to Eyetech Inc. Under the
terms of the transaction, the principal assets we transferred to
Eyetech Inc. consisted of Macugen-related intellectual property
and inventory, as well as $5.8 million in working capital
primarily in the form of Macugen trade receivables, in exchange
for potential future milestone and royalty payments. Macugen net
product revenues for the seven months ended July 31, 2008,
or the last date that we held the remaining assets of our eye
disease business, were $7.2 million. Net loss for the year
ended December 31, 2009 was approximately $64,000 compared
to net income of $4.9 million, in the same period last
year. As a result of the sale of the remaining assets of our eye
disease business, during the year ended December 31, 2008,
we incurred $14.1 million of charges relating to the
write-down of the assets held for sale to their net realizable
value as well as transaction-related charges. We also
recognized: (i) the remaining balance of the
$27.9 million of unearned revenue as income in the third
quarter of 2008 as a result of the assignment to Eyetech, Inc.
of certain obligations under our amended and restated license
agreement with Pfizer; and (ii) a $2.0 million expense
in the third quarter of 2008 related to a third-party milestone
obligation for Macugen.
Years
Ended December 31, 2008 and 2007
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(in thousands)
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
Tarceva-related revenues
|
|
$
|
334,653
|
|
|
$
|
267,799
|
|
|
$
|
66,854
|
|
Other revenues
|
|
|
44,735
|
|
|
|
73,231
|
|
|
|
(28,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
379,388
|
|
|
$
|
341,030
|
|
|
$
|
38,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tarceva-Related
Revenues
Tarceva revenues for the years ended December 31, 2008 and
2007 were $334.7 million and $267.8 million,
respectively, and included net revenues 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 years ended December 31, 2008 and 2007,
Genentech recorded net sales of Tarceva in the United States and
its territories of approximately $457 million and
$417 million, respectively. The increase in net sales of
Tarceva for the year ended December 31, 2008 was primarily
a result of price increases and a lower level of reserve
adjustments recorded in the year ended December 31, 2008
compared to the year ended December 31, 2007, partially
offset by a slight decrease in demand. Our share of these net
sales is reduced by the cost of goods sold for Tarceva and the
costs related to the sales and marketing of the product. For the
year ended December 31, 2008, we reported net revenues from
our unconsolidated joint business for Tarceva of
$196.1 million compared to $168.8 million for the same
period last year. The increase in net revenue from
unconsolidated joint business for the year ended
December 31, 2008 was primarily due to higher sales, higher
reimbursement of our sales and marketing costs and overall lower
combined sales and marketing costs incurred by the collaboration.
Tarceva-Related
Royalties
We receive royalties from Roche of approximately 20% on net
sales of Tarceva outside of the United States and its
territories. For the years ended December 31, 2008 and
2007, Roche reported U.S. dollar equivalent sales of
approximately $665 million and $470 million,
respectively, and we recorded $134.6 million and
$95.2 million, respectively, in royalty revenue from these
sales. The increase in royalty revenue for the year ended
December 31,
54
2008 was primarily due to increased sales volume outside the
United States, including sales in Japan, which has been a market
for Tarceva since December 2007, and the net favorable impact of
foreign exchange rates.
Tarceva-Related
Milestones
Milestone revenues from Tarceva include the recognition of the
ratable portion of upfront fees from Genentech and milestone
payments received from Genentech and Roche 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. The ratable
portion of the upfront fees and milestone payments recognized as
revenue for the years ended December 31, 2008 and 2007 were
$3.9 million and $3.8 million, respectively. The
unrecognized deferred revenue related to these upfront fees and
milestone payments was $37.1 million and $41.0 million
as of December 31, 2008 and 2007, respectively.
Other
Revenues
Other revenues for the years ended December 31, 2008 and
2007 were $44.7 million and $73.2 million,
respectively, and include non-Tarceva related license,
milestone, royalty and commission revenues.
We recognized $41.1 million and $17.1 million of
royalty revenue for the years ended December 31, 2008 and
2007, respectively, from previously granted non-exclusive
license agreements entered into by Prosidion under our DPIV
patent portfolio covering the use of DPIV inhibitors for
treatment of type 2 diabetes and related indications. Our
royalty revenue in 2008 and 2007 was principally derived from
sales of Mercks DPIV inhibitor product, Januvia, and its
DPIV combination product with metformin, Janumet. We also
derived royalty revenue in 2008 from sales of Novartis
DPIV inhibitor products, Galvus and Eucreas. The year ended
December 31, 2007 also included $17.7 million of
upfront payments and milestones under the non-exclusive licenses
for our DPIV patent portfolio.
In February 2008, we licensed to a third party our TGF ß3
compound for certain indications, for an upfront fee of
$2.0 million. We recognized the $2.0 million payment
as license revenue in the first quarter of 2008 since we had no
future performance obligations. Pursuant to the terms of a cross
license with Novartis, approximately $350,000 of the amount we
received was paid to Novartis.
In January 2007, we licensed our glucokinase activator program,
including our clinical candidate PSN010, to Eli Lilly for an
upfront fee of $25.0 million and up to $360.0 million
in potential development and sales milestones and other
payments, plus royalties on any compounds successfully
commercialized from this program. For the year ended
December 31, 2007, we recognized the full
$25.0 million upfront fee based upon completion of our
obligation to provide technical support during a transitional
period of nine months from the date of execution. The license
agreement will remain in effect so long as Eli Lilly is required
to pay royalties to us under the agreement. Eli Lilly is
required to pay royalties on a
country-by-country
basis until, among other things, the expiration of the last to
expire patent covering PSN010 or any
back-up
compound included in the licensed program in such country. The
license agreement with Eli Lilly is subject to early termination
in the event of certain customary defaults, such as material
breach of the agreement and bankruptcy. In the event of a
termination of the agreement, licenses granted to Eli Lilly
shall revert back to us.
During the third quarter of 2007, we received $7.5 million
of license revenue from Renovo Group plc in connection with its
license agreement with Shire plc for its TGF ß3 drug
candidate
Juvista
®
.
Under our license agreement with Renovo for TGF ß3 for
certain indications, we are entitled to a fixed percentage of
any upfront payment, development and sales milestones and
royalties that Renovo receives from Shire under the license
agreement. We are contractually obligated under a cross-license
to pay Novartis 15% of any amounts we receive from Renovo.
During the fourth quarter of 2007, we recognized
$2.4 million of revenue from the consideration received as
a result of outlicensing OSI-7904L, an oncology clinical
candidate for which we had ceased development, to OncoVista
Innovative Therapies, Inc. The consideration included cash of
$500,000 and OncoVista common stock and warrants with a fair
value of $1.9 million. The common stock is publicly traded
and was recorded as an
available-for-sale
security. In the fourth quarter of 2008, we recorded a
$1.2 million impairment charge in other
55
income (expense)-net related to an
other-than-temporary
decline in fair value of the equity and warrants that we
previously received as part of a licensing transaction.
Included in other revenues are sales commissions earned on the
sales of
Novantrone
®
(mitoxantrone for injection concentrate) in the United States
for oncology indications. Sales commissions for the years ended
December 31, 2008 and 2007 were $171,000 and
$2.5 million, respectively. Sales commissions declined
significantly subsequent to April 2006 due to the patent
expiration of Novantrone in April 2006, which resulted in our
loss of market exclusivity for this product and the launch of
generic competitors.
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(in thousands)
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
Cost of goods sold
|
|
$
|
9,315
|
|
|
$
|
9,399
|
|
|
$
|
(84
|
)
|
Research and development
|
|
|
135,344
|
|
|
|
123,531
|
|
|
|
11,813
|
|
Acquired in-process research and development
|
|
|
4,000
|
|
|
|
9,664
|
|
|
|
(5,664
|
)
|
Selling, general and administrative
|
|
|
94,930
|
|
|
|
99,159
|
|
|
|
(4,229
|
)
|
Amortization of intangibles
|
|
|
2,489
|
|
|
|
1,840
|
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
246,078
|
|
|
$
|
243,593
|
|
|
$
|
2,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
Total cost of goods sold for the years ended December 31,
2008 and 2007 were $9.3 million and $9.4 million,
respectively and related to Tarceva sales.
Research
and Development
R&D expenses increased by $11.8 million for the year
ended December 31, 2008 compared to the year ended
December 31, 2007. The increase was primarily due to an
increase in R&D expenses related to non-Tarceva oncology
programs and equity-based compensation, partially offset by
declines in R&D expenses for Tarceva and for our diabetes
and obesity programs. For the years ended December 31, 2008
and 2007, we invested a total of $54.3 million and
$47.4 million, respectively, in research and
$81.0 million and $76.1 million, respectively, in
pre-clinical and clinical development.
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. As of December 31, 2008, we had invested in
excess of $245 million in the development of Tarceva,
representing our share of the costs incurred through
December 31, 2008 under the tripartite global development
plan and additional investments outside of the plan.
Acquired
In-Process Research and Development
In the fourth quarter of 2008, we acquired intellectual property
and other assets from 7TM Pharma for $4.0 million. The
$4.0 million acquisition cost was recorded as an in-process
R&D charge, since it was associated with the intellectual
property which was considered in-process R&D with no
alternative future use and commercialization is not expected in
the near term.
In September 2007, we entered into a small molecule drug
discovery and translational research collaboration with AVEO.
Under the terms of our collaboration, we delivered to AVEO an
upfront cash payment of $10.0 million, consisting of
$7.5 million for access to certain AVEO technology and
$2.5 million to fund the first year of research under the
collaboration, and purchased $5.5 million of AVEOs
preferred stock. We are also obligated to provide AVEO with
certain future research funding, as well as milestones and
royalties upon successful development and
56
commercialization of products from the collaboration. The AVEO
technology is deemed in-process R&D since it was intended
to be used to support our early development technologies and is
deemed to have no alternative future use. Accordingly, we
expensed the $7.5 million payment as acquired in-process
R&D in the third quarter of 2007.
In the fourth quarter of 2007, we acquired intellectual property
and laboratory equipment from AdipoGenix, Inc. for
$2.3 million. Of the $2.3 million purchase price,
$2.2 million was recorded as an in-process R&D charge
since it was associated with the intellectual property which was
deemed early stage with no future alternative use in accordance
with FASB ASC Topic 730 which includes the accounting literature
formerly known as SFAS No. 2, Accounting for
Research and Development Cost. The remainder of the cost
was allocated to the laboratory equipment acquired, based upon
its fair value, and capitalized.
Selling,
General and Administrative
Selling, general and administrative expenses for the year ended
December 31, 2008 were $94.9 million, a decrease of
$4.2 million compared to the year ended December 31,
2007. The decrease was primarily attributable to a decline in
license related fees and general corporate expenses, partially
offsetting higher equity based compensation and salaries.
Other
Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
(in thousands)
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
Investment
income-net
|
|
$
|
12,961
|
|
|
$
|
12,830
|
|
|
$
|
131
|
|
Interest expense
|
|
|
(27,243
|
)
|
|
|
(14,892
|
)
|
|
|
(12,351
|
)
|
Other income (expense)-net
|
|
|
1,632
|
|
|
|
4,170
|
|
|
|
(2,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
$
|
(12,650
|
)
|
|
$
|
2,108
|
|
|
$
|
(14,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income for the year ended December 31, 2008
remained relatively constant to the same period in 2007.
However, despite an increase in the funds available for
investments, investment income was negatively impacted by lower
rates of return on our investments.
Interest expense for the year ended December 31, 2008
increased by $12.3 million compared to the same period in
2007, due to the additional interest expense resulting from the
issuance of $200.0 million of our 2038 Notes in January
2008. The increase was partially offset by the repurchase of
$50.0 million of our 2023 Notes through the first three
quarters of 2008. Included in interest expense is non-cash
imputed interest expense of $13.0 million and
$6.0 million for the years ended December 31, 2008,
and 2007, respectively, related to our retrospective application
of FASB 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). The application of FASB ASC Subtopic
No. 470-20
impacted the carrying value and related interest expense
associated with our 2% Convertible Senior Subordinated
Notes due 2025, or our 2025 Notes, and 2038 Notes. See
Note 15 to the consolidated financial statements for
additional information.
Other income (expense) net was a $1.6 million
of income for the year ended December 31, 2008 compared to
$4.2 million of income for the same period in 2007. For the
year ended December 31, 2008, the $1.6 million of
income was primarily a result of $3.4 million of foreign
exchange gains recognized by our U.K. operations, partially
offset by a $1.2 million impairment charge related to
common stock and warrants that we previously received as part of
a licensing transaction for which we concluded the decline in
market value was
other-than-temporary.
The other income for the year ended December 31, 2007 was
primarily a result of a $4.0 million curtailment gain
related to our decision to curtail our post-retirement medical
and life insurance plan.
Income
Taxes
For the year ended December 31, 2008, we recorded a
$316.0 million income tax benefit from continuing
operations, which included a favorable adjustment of
$319.2 million in the fourth quarter of 2008 resulting from
the
57
reversal of a significant portion of our valuation allowance
related to our U.S. deferred tax assets. The reduction of
the valuation allowance is based on the fact that we determined
that it was more likely than not that we will generate
sufficient taxable income to realize the benefits of our
U.S. deferred assets, primarily resulting from our
U.S. NOLs. The determination was based upon our assessment
of our cumulative profitability in the United States over the
previous three years and our expectation of future taxable
income.
Loss from
Discontinued Operations
On August 1, 2008, we completed the sale of the remaining
assets of our eye disease business to Eyetech Inc. Under the
terms of the transaction, the principal assets we transferred to
Eyetech Inc. consisted of Macugen-related intellectual property
and inventory, as well as $5.8 million in working capital
primarily in the form of Macugen trade receivables, in exchange
for potential future milestone and royalty payments. Macugen net
product revenues for the seven months ended July 31, 2008,
or the last date that we held the remaining assets of our eye
disease business, were $7.2 million. Net income for the
year ended December 31, 2008 was $4.9 million compared
to net losses of $36.3 million, in the same period in 2007.
As a result of the sale of the remaining assets of our eye
disease business, during the year ended December 31, 2008
we incurred $14.1 million of charges relating to the
write-down of the assets held for sale to their net realizable
value as well as transaction-related charges. We also
recognized: (i) the remaining balance of the
$27.9 million of unearned revenue as income in the third
quarter of 2008 as a result of the assignment to Eyetech Inc. of
certain obligations under our amended and restated license
agreement with Pfizer; and (ii) a $2.0 million expense
in the third quarter of 2008 related to a third-party milestone
obligation for Macugen.
Liquidity
and Capital Resources
At December 31, 2009, cash and investments, including
restricted securities, were $471.9 million compared to
$515.5 million at December 31, 2008. The decline of
$43.6 million was primarily due to an increase in net cash
of $159.8 million generated from operating activities
offset by $75.0 million used to repurchase a portion of our
2023 and 2038 Notes, $69.0 million used for capital
purchases, including our Ardsley, New York and Oxford, United
Kingdom facilities, a $40.0 million equity investment in
HBM BioVentures AG and $15.0 million equity investment in
AVEO.
In December 2009, we repurchased $40.0 million of principal
amount of our 2038 Notes for $37.4 million, which reduced
the aggregate principal amount outstanding of the debt to
$160.0 million. In December 2009, we also repurchased
$39.5 million of principal amount of our 2023 Notes for
$37.6 million, which reduced the aggregate principal amount
outstanding of the debt to $60.5 million.
In connection with our decision to consolidate our
U.S. operations onto a single campus located in Ardsley,
New York in Westchester County, we expect to spend approximately
$100 million on capital-related renovations over the next
12 months. In addition, we expect to use approximately
$16 million of cash for restructuring-related payments.
As a result of our year over year revenue growth and 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,
capital requirements and the potential redemption of our 2025
Notes in December 2010, can be funded from existing cash
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
and/or
businesses should we identify any such strategic opportunities
in the future.
58
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
obligations at December 31, 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
|
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior convertible debt(a)
|
|
$
|
536,579
|
|
|
$
|
9,065
|
|
|
$
|
18,130
|
|
|
$
|
18,130
|
|
|
$
|
491,254
|
|
Operating leases
|
|
|
90,491
|
|
|
|
8,896
|
|
|
|
17,518
|
|
|
|
16,551
|
|
|
|
47,526
|
|
Purchase obligations(b)
|
|
|
85,400
|
|
|
|
35,100
|
|
|
|
36,700
|
|
|
|
8,600
|
|
|
|
5,000
|
|
Capital commitments
|
|
|
481
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations related to exit activities(c)
|
|
|
3,734
|
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
1,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
716,685
|
|
|
$
|
56,079
|
|
|
$
|
72,348
|
|
|
$
|
43,281
|
|
|
$
|
544,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Our senior convertible debt obligations assume the payment of
interest on our senior convertible notes through their
respective maturity dates and the payment of their outstanding
principal balance at their respective maturity dates. The
interest payments on our senior convertible notes are at a rate
of: (i) 3.25% per annum relating to the $60.5 million
principal amount of the 2023 Notes; (ii) 2% per annum
relating to the $115.0 million principal amount of the 2025
Notes; and (iii) 3% per annum relating to the
$160.0 million principal amount of the 2038 Notes. The
holders of the 2023 Notes have the right to require us to
purchase, for cash, all of the 2023 Notes, or a portion thereof,
in September 2013. In the event that the holders of the 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 the 2023
Notes. Holders of the 2025 Notes have the right to require us to
purchase, for cash, all of the 2025 Notes, or a portion thereof,
in December 2010. Holders of the 2038 Notes have the right to
require us to purchase, for cash, all of the 2038 Notes, or a
portion thereof, in January 2013.
|
|
(b)
|
|
Includes commercial and research commitments and other
significant purchase commitments. Also includes our share of the
remaining future estimated commitment related to the Tarceva
global development costs of approximately $79 million.
|
|
(c)
|
|
Includes expected payments for termination benefits and
estimated facility refurbishments. As discussed below, we
anticipate additional payments relating to plans to consolidate
operations.
|
Other
significant commitments and contingencies not included in the
table above include the following:
|
|
|
|
|
As part of our purchase of the
43-acre
site
in Ardsley, New York, which consists of approximately
400,000 square feet of existing office and laboratory
space, we expect to incur approximately $100 million of
capital-related renovation costs over the next twelve months. We
also expect to use approximately $16 million of cash over
the next two years, which primarily relate to labor-related and
relocation-related costs. We also expect to recognize additional
charges over the next 6 to 12 months related to our leased
facilities in the U.S. 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.
|
|
|
|
Under agreements with external 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 and therefore, we cannot reasonably
estimate the potential timing of these payments. These
agreements are cancellable on short notice.
|
59
|
|
|
|
|
Under certain license and collaboration agreements with
pharmaceutical companies and educational institutions, we are
required to pay royalties, milestone
and/or
other
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
R&D 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.
|
|
|
|
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 an accrued
liability for post-retirement benefit costs of $2.7 million
at December 31, 2009.
|
Accounting
Pronouncements
See Note 22, Accounting Pronouncements, to the
accompanying consolidated financial statements for a discussion
of our new accounting pronouncements.
Forward
Looking Statements
A number of the matters and subject areas discussed in this
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, in
Item 1, Business, 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 in this report in Item 1A, Risk
Factors.
|
|
ITEM 7A.
|
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
as defined by FASB ASC Topic No. 320, which includes the
accounting literature formerly known as SFAS No. 115,
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. These securities are reported at
their amortized cost, which includes the direct costs to acquire
the securities, including the amortization of any discount or
premium, and accrued interest earned on the securities. We have
not used or held derivative financial instruments in our
investment portfolio.
A hypothetical 10% change in interest rates during the twelve
months ended December 31, 2009 would have resulted in a
$426,000 change in our net income for 2009.
Our limited investments in certain biotechnology companies are
carried on the equity method or cost method of accounting using
the guidance of applicable accounting literature.
Other-than-temporary
losses are recorded against earnings in the same period the loss
was deemed to have occurred.
60
The royalty revenue we receive from Roche on net sales of
Tarceva outside of the United States 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
foreign currencies will impact our earnings. A hypothetical 10%
change in current rates during the year ended December 31,
2009 would have resulted in an approximate $8.7 million
change to our net income for 2009, excluding the impact of any
hedges.
Our convertible senior subordinated notes totaled
$335.5 million at December 31, 2009, and were
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 book value per common share.
61
|
|
ITEM 8.
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
Index to Consolidated Financial Statements:
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
65
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
68
|
|
62
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Stockholders
OSI Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of
OSI Pharmaceuticals, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the years in the three-year period ended
December 31, 2009. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of OSI Pharmaceuticals, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, the consolidated financial statements have been
adjusted for the retrospective application of Financial
Accounting Standards Board Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash
Settlement), (included in FASB ASC Subtopic
470-20,
Debt Debt with Conversion and Other
Options), which became effective January 1, 2009.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), OSI
Pharmaceuticals, Inc.s internal control over financial
reporting as of December 31, 2009, based on criteria
established in
Internal Control Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated February 24, 2010 expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
/s/ KPMG LLP
Melville, New York
February 24, 2010
63
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(In thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
98,179
|
|
|
$
|
272,936
|
|
Available-for-sale
securities
|
|
|
371,410
|
|
|
|
240,328
|
|
Restricted investment securities
|
|
|
2,306
|
|
|
|
2,247
|
|
Accounts receivables net
|
|
|
127,171
|
|
|
|
100,242
|
|
Inventory
|
|
|
19,138
|
|
|
|
20,139
|
|
Accrued investment income receivable
|
|
|
1,888
|
|
|
|
1,428
|
|
Prepaid expenses and other current assets
|
|
|
16,137
|
|
|
|
6,719
|
|
Assets related to discontinued operations
|
|
|
427
|
|
|
|
917
|
|
Deferred tax assets
|
|
|
55,739
|
|
|
|
45,495
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
692,395
|
|
|
|
690,451
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements net
|
|
|
101,544
|
|
|
|
43,443
|
|
Debt issuance costs net
|
|
|
2,720
|
|
|
|
5,632
|
|
Goodwill
|
|
|
38,873
|
|
|
|
38,648
|
|
Other intangible assets net
|
|
|
7,638
|
|
|
|
7,711
|
|
Other assets
|
|
|
80,505
|
|
|
|
14,591
|
|
Deferred tax assets
|
|
|
261,697
|
|
|
|
303,727
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,185,372
|
|
|
$
|
1,104,203
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
62,293
|
|
|
$
|
49,052
|
|
Unearned revenue current
|
|
|
11,841
|
|
|
|
10,547
|
|
Liabilities related to discontinued operations
|
|
|
1,238
|
|
|
|
1,522
|
|
Convertible senior subordinated notes net
|
|
|
107,062
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
1,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
183,529
|
|
|
|
61,121
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Rent obligations and deferred rent expense
|
|
|
4,829
|
|
|
|
8,154
|
|
Unearned revenue long-term
|
|
|
29,705
|
|
|
|
33,398
|
|
Convertible senior subordinated notes net
|
|
|
201,262
|
|
|
|
369,095
|
|
Accrued post-retirement benefit cost and other
|
|
|
5,045
|
|
|
|
3,890
|
|
Deferred tax liabilities
|
|
|
49,254
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
473,624
|
|
|
|
505,658
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 5,000 shares
authorized; no shares issued at
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 200,000 shares
authorized, 61,636 and 61,124 shares issued at
December 31, 2009 and 2008, respectively
|
|
|
616
|
|
|
|
611
|
|
Additional paid-in capital
|
|
|
1,787,386
|
|
|
|
1,761,179
|
|
Accumulated deficit
|
|
|
(981,187
|
)
|
|
|
(1,057,118
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
7,152
|
|
|
|
(3,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
813,967
|
|
|
|
700,764
|
|
Less: treasury stock, at cost; 3,396 shares at
December 31, 2009 and 2008
|
|
|
(102,219
|
)
|
|
|
(102,219
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
711,748
|
|
|
|
598,545
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,185,372
|
|
|
$
|
1,104,203
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
64
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tarceva-related revenues
|
|
$
|
358,730
|
|
|
$
|
334,653
|
|
|
$
|
267,799
|
|
Other revenues
|
|
|
69,418
|
|
|
|
44,735
|
|
|
|
73,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
428,148
|
|
|
|
379,388
|
|
|
|
341,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
8,786
|
|
|
|
9,315
|
|
|
|
9,399
|
|
Research and development
|
|
|
151,845
|
|
|
|
135,344
|
|
|
|
123,531
|
|
Acquired in-process research and development
|
|
|
6,500
|
|
|
|
4,000
|
|
|
|
9,664
|
|
Selling, general and administrative
|
|
|
102,989
|
|
|
|
94,930
|
|
|
|
99,159
|
|
Restructuring charges
|
|
|
4,454
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
920
|
|
|
|
2,489
|
|
|
|
1,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
275,494
|
|
|
|
246,078
|
|
|
|
243,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
152,654
|
|
|
|
133,310
|
|
|
|
97,437
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income net
|
|
|
8,148
|
|
|
|
12,961
|
|
|
|
12,830
|
|
Interest expense
|
|
|
(27,085
|
)
|
|
|
(27,243
|
)
|
|
|
(14,892
|
)
|
Other income (expense) net
|
|
|
(438
|
)
|
|
|
1,632
|
|
|
|
4,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
133,279
|
|
|
|
120,660
|
|
|
|
99,545
|
|
Income tax (benefit) provision
|
|
|
57,284
|
|
|
|
(316,049
|
)
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
75,995
|
|
|
|
436,709
|
|
|
|
96,813
|
|
Income (loss) from discontinued operations net of tax
|
|
|
(64
|
)
|
|
|
4,884
|
|
|
|
(36,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
75,931
|
|
|
$
|
441,593
|
|
|
$
|
60,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.31
|
|
|
$
|
7.62
|
|
|
$
|
1.68
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
0.09
|
|
|
|
(0.63
|
)
|
Net income
|
|
$
|
1.31
|
|
|
$
|
7.70
|
|
|
$
|
1.05
|
|
Diluted income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.29
|
|
|
$
|
6.93
|
|
|
$
|
1.66
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
0.07
|
|
|
|
(0.62
|
)
|
Net income
|
|
$
|
1.29
|
|
|
$
|
7.00
|
|
|
$
|
1.04
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
57,939
|
|
|
|
57,316
|
|
|
|
57,665
|
|
Diluted shares
|
|
|
60,452
|
|
|
|
66,911
|
|
|
|
58,333
|
|
See accompanying notes to consolidated financial statements.
65
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Equity
|
|
|
Balance at December 31, 2006
|
|
|
59,179
|
|
|
$
|
592
|
|
|
$
|
1,649,030
|
|
|
$
|
(1,559,236
|
)
|
|
$
|
2,354
|
|
|
$
|
(37,221
|
)
|
|
$
|
55,519
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,525
|
|
|
|
|
|
|
|
|
|
|
|
60,525
|
|
Unrealized gain on investment securities net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
486
|
|
|
|
|
|
|
|
486
|
|
Curtailment of post-retirement plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,316
|
|
|
|
|
|
|
|
1,316
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
1,052
|
|
|
|
11
|
|
|
|
25,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,633
|
|
Issuance of common stock under employee purchase plan and other
|
|
|
26
|
|
|
|
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
776
|
|
Issuance of restricted stock to employees
|
|
|
95
|
|
|
|
1
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
15,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
60,352
|
|
|
|
604
|
|
|
|
1,690,893
|
|
|
|
(1,498,711
|
)
|
|
|
4,522
|
|
|
|
(37,221
|
)
|
|
|
160,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441,593
|
|
|
|
|
|
|
|
|
|
|
|
441,593
|
|
Unrealized loss on investment securities net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(727
|
)
|
|
|
|
|
|
|
(727
|
)
|
Post-retirement plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
378
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,081
|
)
|
|
|
|
|
|
|
(8,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value attributed to the equity component of the 2038 Notes
|
|
|
|
|
|
|
|
|
|
|
35,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,760
|
|
Stock options exercised
|
|
|
568
|
|
|
|
5
|
|
|
|
15,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,738
|
|
Issuance of common stock under employee purchase plan and other
|
|
|
25
|
|
|
|
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
843
|
|
Issuance of restricted stock to employees
|
|
|
179
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Equity-based compensation expense net of share settlements
|
|
|
|
|
|
|
|
|
|
|
17,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,494
|
|
Purchase of treasury stock- 1,453 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,998
|
)
|
|
|
(64,998
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
61,124
|
|
|
|
611
|
|
|
|
1,761,179
|
|
|
|
(1,057,118
|
)
|
|
|
(3,908
|
)
|
|
|
(102,219
|
)
|
|
|
598,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,931
|
|
|
|
|
|
|
|
|
|
|
|
75,931
|
|
Unrealized gain on investment securities net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,957
|
|
|
|
|
|
|
|
4,957
|
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
145
|
|
Post-retirement plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
(141
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,099
|
|
|
|
|
|
|
|
6,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
256
|
|
|
|
3
|
|
|
|
5,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,695
|
|
Issuance of common stock under employee purchase plan and other
|
|
|
68
|
|
|
|
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
Issuance of restricted stock to employees
|
|
|
188
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Equity-based compensation expense net of share settlements
|
|
|
|
|
|
|
|
|
|
|
21,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,316
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Repurchase of a portion of the value attributed to the equity
component of the 2038 Notes
|
|
|
|
|
|
|
|
|
|
|
(1,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
61,636
|
|
|
$
|
616
|
|
|
$
|
1,787,386
|
|
|
$
|
(981,187
|
)
|
|
$
|
7,152
|
|
|
$
|
(102,219
|
)
|
|
$
|
711,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
66
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
75,931
|
|
|
$
|
441,593
|
|
|
$
|
60,525
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation charge
|
|
|
25,269
|
|
|
|
20,727
|
|
|
|
17,099
|
|
Deferred tax provision
|
|
|
52,772
|
|
|
|
(319,221
|
)
|
|
|
|
|
Amortization of debt discount and debt issuance costs
|
|
|
15,093
|
|
|
|
15,182
|
|
|
|
7,657
|
|
Amortization of premiums and discounts on investments
|
|
|
560
|
|
|
|
(1,151
|
)
|
|
|
(2,578
|
)
|
Depreciation and amortization
|
|
|
10,056
|
|
|
|
10,501
|
|
|
|
10,608
|
|
Acquired in-process research and development charge
|
|
|
6,500
|
|
|
|
4,000
|
|
|
|
9,664
|
|
Impairment of assets
|
|
|
663
|
|
|
|
1,217
|
|
|
|
10,765
|
|
Gain on repurchase of portion of 2023 and 2038 Notes
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
Impact of inventory
step-up
related to inventory sold
|
|
|
|
|
|
|
51
|
|
|
|
2,365
|
|
Loss on sale of eye disease business and non-cash impairment
charges
|
|
|
|
|
|
|
14,136
|
|
|
|
|
|
Loss on sale and disposals of equipment
|
|
|
|
|
|
|
9
|
|
|
|
1,471
|
|
Gain on sale of intellectual property
|
|
|
|
|
|
|
|
|
|
|
(7,892
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(25,105
|
)
|
|
|
(4,895
|
)
|
|
|
(23,262
|
)
|
Inventory
|
|
|
1,000
|
|
|
|
536
|
|
|
|
12
|
|
Prepaid expenses and other current assets
|
|
|
(8,740
|
)
|
|
|
2,994
|
|
|
|
(1,054
|
)
|
Other assets
|
|
|
(4,527
|
)
|
|
|
(67
|
)
|
|
|
(1,077
|
)
|
Accounts payable and accrued expenses
|
|
|
13,505
|
|
|
|
(12,926
|
)
|
|
|
6,038
|
|
Collaboration profit share payable
|
|
|
|
|
|
|
|
|
|
|
(9,257
|
)
|
Unearned revenue
|
|
|
(2,398
|
)
|
|
|
(33,616
|
)
|
|
|
(1,331
|
)
|
Accrued post-retirement benefit cost and other
|
|
|
(43
|
)
|
|
|
(134
|
)
|
|
|
(3,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
159,760
|
|
|
|
138,936
|
|
|
|
75,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of short and long-term
available-for-sale
securities
|
|
|
(601,754
|
)
|
|
|
(337,355
|
)
|
|
|
(258,085
|
)
|
Sales of short and long-term
available-for-sale
securities
|
|
|
234,136
|
|
|
|
149,141
|
|
|
|
76,012
|
|
Maturities of short and long-term
available-for-sale
securities
|
|
|
237,495
|
|
|
|
88,424
|
|
|
|
211,616
|
|
Additions to property, equipment and leasehold improvements
|
|
|
(69,178
|
)
|
|
|
(4,977
|
)
|
|
|
(4,332
|
)
|
Purchase of equity investments
|
|
|
(56,009
|
)
|
|
|
|
|
|
|
|
|
Purchase of intellectual property (acquired in-process research
and development)
|
|
|
(6,500
|
)
|
|
|
(4,886
|
)
|
|
|
(9,664
|
)
|
Proceeds from sale of fixed assets
|
|
|
34
|
|
|
|
|
|
|
|
335
|
|
Purchase of compound library assets
|
|
|
(47
|
)
|
|
|
(257
|
)
|
|
|
(3
|
)
|
Proceeds from sale of intellectual property
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
Purchase of intangible assets
|
|
|
|
|
|
|
(8,000
|
)
|
|
|
|
|
Payments made in connection with disposal of eye disease business
|
|
|
|
|
|
|
(1,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(261,823
|
)
|
|
|
(119,150
|
)
|
|
|
19,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of a portion of the 2023 and 2038 Notes
|
|
|
(75,038
|
)
|
|
|
(50,050
|
)
|
|
|
|
|
Proceeds from the exercise of stock options, employee purchase
plan, and other
|
|
|
6,776
|
|
|
|
17,038
|
|
|
|
26,409
|
|
Employees taxes paid related to equity awards
|
|
|
(3,951
|
)
|
|
|
(3,233
|
)
|
|
|
(1,654
|
)
|
Proceeds from the issuance of convertible senior subordinated
notes
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
Debt issuance costs paid
|
|
|
|
|
|
|
(6,730
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(64,998
|
)
|
|
|
|
|
Excess tax benefits from stock-based compensation
|
|
|
5
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(72,208
|
)
|
|
|
92,483
|
|
|
|
24,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(174,271
|
)
|
|
|
112,269
|
|
|
|
120,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(486
|
)
|
|
|
(2,070
|
)
|
|
|
266
|
|
Cash and cash equivalents at beginning of year
|
|
|
272,936
|
|
|
|
162,737
|
|
|
|
42,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
98,179
|
|
|
$
|
272,936
|
|
|
$
|
162,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
2,665
|
|
|
$
|
2,108
|
|
|
$
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
11,548
|
|
|
$
|
9,770
|
|
|
$
|
7,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and warrants received from sale of intellectual property
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
67
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
In this Annual Report on
Form 10-K,
OSI, our company, we,
us, and our refer to OSI
Pharmaceuticals, Inc. and subsidiaries.
|
|
(1)
|
Summary
of Significant Accounting Policies
|
|
|
(a)
|
Principles
of Consolidation
|
The consolidated financial statements are presented in
accordance with accounting principles generally accepted in the
United States. Our consolidated financial statements include the
accounts of OSI Pharmaceuticals, Inc., and our wholly-owned
subsidiaries, Oldtech Inc. (formerly known as (OSI) Eyetech,
Inc.), Prosidion Limited, OSI Pharmaceuticals (U.K.) Limited, or
OSI U.K., OSI Delaware Corp. and OSI Investment Holdings GmbH.
This report on
Form 10-K
includes the statement of operations, statement of cash flows
and statement of stockholders equity for the years ended
December 31, 2009, 2008 and 2007. All intercompany balances
and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the consolidated
statements of operations for the years ended December 31,
2007 and 2008 to conform to the presentation for the fiscal year
ended December 31, 2009. These reclassifications include
reclassification of debt issuance costs within other income
(expense) and the reclassification of deferred tax assets and
liabilities within the consolidated balance sheets, to conform
to the 2009 fiscal year presentation.
Tarceva-related revenues includes net revenue from
unconsolidated joint business and Tarceva-related milestones and
royalties. Other revenues include license, milestone, royalty
and commission from sources other than Tarceva. Our revenue
recognition polices with respect to these revenue sources are
described below.
|
|
(i)
|
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 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 our
sales and marketing costs related to Tarceva and the
reimbursement from Genentech of most of our manufacturing costs
related to Tarceva. Under the co-promotion arrangement, all
U.S. sales of Tarceva and associated costs and expenses,
except for a portion of our sales-related costs, are recognized
by Genentech. Genentech is also responsible for estimating
reserves for anticipated returns of Tarceva and monitoring the
adequacy of these reserves. We record our 50% share of the
co-promotion pretax profit 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. If actual future results differ from our and
Genentechs estimates, we may need to adjust these
estimates, which would have an effect on earnings in the period
of adjustment. The reimbursement of 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 $6.3 million and $6.6 million as of
December 31, 2009 and 2008, respectively, and is included
in unearned revenue-current in the accompanying consolidated
balance sheets.
For the years ended December 31, 2009, 2008 and 2007,
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 our sales and
marketing costs related to Tarceva were $199.5 million,
$186.2 million and
68
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$159.0 million, respectively, and revenues from the
reimbursement of our manufacturing costs were $9.3 million,
$9.9 million and $9.7 million, respectively.
We estimate royalty revenue and royalty receivables in the
periods these royalties are earned, in advance of collection.
Our estimate of royalty revenue and royalty receivables is based
upon communication with our collaborators and our licensees.
Differences between actual royalty revenue and estimated royalty
revenue 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 Tarceva sales in the rest of
the world 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 against
foreign currencies will impact our royalty revenue.
|
|
(iii)
|
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
Commissions, or SECs, SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in
Financial Statements, as amended by SEC Staff Accounting
Bulletin No. 104, Revenue Recognition. In
addition, we follow the provisions of Financial Accounting
Standards Board, or FASB, Accounting Standards Codification, or
ASC, 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
multiple-element revenue arrangements entered into or materially
amended after June 30, 2003. As a result of an amendment to
our collaboration agreement with Genentech in June 2004,
$1.8 million milestone payments received from Genentech
after June 2004 and the remaining unearned portion of the
upfront fee as of June 2004 are being recognized over the
expected performance period of our Manufacturing and Supply
Agreement with Genentech.
We received a total of $25.0 million in upfront fees from
Genentech and Roche, our ex-U.S. collaborator for Tarceva,
in January 2001, which was being recognized on a straight-line
basis over the expected performance period of our required
research and development, or R&D, efforts under the
Tripartite Agreement with Genentech and Roche. The upfront fee
from Roche was fully recognized as of December 31, 2004.
Since September 2004, we have received $34.0 million in
milestone payments from Genentech based upon certain
U.S. Food and Drug Administration, or the FDA, filings and
approvals of Tarceva in accordance with our agreement with
Genentech. As a result of the amendment to our collaboration
agreement with Genentech in June 2004, these payments are, and
any future milestone payments will be, recognized in accordance
with FASB ASC Subtopic 605-25. The unrecognized unearned revenue
related to the milestones and upfront payment received from
Genentech was $25.0 million as of December 31, 2009,
of which $2.3 million was classified as short-term and the
balance of $22.7 million was classified as long-term in the
accompanying consolidated balance sheets. 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 sheets.
In March 2005, we agreed to a further global development plan
and budget with our collaborators, Genentech and Roche, for the
continued development of Tarceva. For revenue recognition
purposes, the revised development plan and budget for Tarceva
was deemed a material amendment to our Roche agreement and
therefore, future milestones received from Roche will be
recognized in accordance with FASB ASC Subtopic
No. 605-25.
Accordingly, milestone payments received from Roche after March
2005 have been, and will be, initially recorded
69
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
as unearned revenue and recognized over the expected performance
period of the research collaboration on a straight-line basis.
Since March of 2005, we have received $14.0 million of
milestone payments from Roche as a result of various approvals.
The unearned revenue related to the milestones we received from
Roche was $8.3 million as of December 31, 2009, of
which $1.4 million was classified as short-term and the
balance of $6.9 million was classified as long-term in the
accompanying consolidated balance sheets. 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 sheets.
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 total revenues of $67.0 million,
$41.1 million and $34.7 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
In January 2007, we licensed our glucokinase activator, or GKA,
program, including our clinical candidate PSN010, to Eli Lilly
and Company for an upfront fee of $25.0 million and up to
$360.0 million in potential development and sales
milestones and other payments, plus royalties on any compounds
successfully commercialized from this program. We recognized the
upfront fee as revenue in 2007 since we had no future
performance obligation under the agreement beyond the end of
2007.
Included in other revenues are sales commissions earned on the
sales of the drug, Novantrone, in the United States for oncology
indications pursuant to a co-promotion agreement dated
March 11, 2003 with Ares Trading S.A., an affiliate of
Merck Serono, S.A. Merck Serono markets Novantrone in multiple
sclerosis indications and records all U.S. sales for all
indications including oncology indications. Sales commissions
from Novantrone on net oncology sales are recognized in the
period the sales occur based on the estimated split between
oncology sales and multiple sclerosis sales.
|
|
(d)
|
Research
and Development Costs
|
R&D costs are charged to operations as incurred and include
direct costs of R&D-related personnel and equipment,
contracted costs and an allocation of laboratory facility and
other core scientific services. Included in R&D costs are
our net share of development expenses related to the Tripartite
Agreement with Genentech and Roche (see Note 2(a)). Our
R&D costs related to the Tripartite Agreement include
estimates by the parties to the agreement. If actual future
results vary, we may need to adjust these estimates, which could
have an effect on our earnings in the period of adjustment.
Historically such adjustments have not been material to our
consolidated financial condition or results of operations.
|
|
(e)
|
Acquired
In-Process Research and Development
|
In accordance with FASB ASC Topic No. 730, Research
and Development, formerly known as Statement of Financial
Accounting Standards, or SFAS, No. 2, Accounting for
Research and Development Costs, costs to acquire
in-process R&D projects and technologies which have no
alternative future use and which have not reached technological
feasibility at the date of acquisition are expensed as incurred.
|
|
(f)
|
Cash
and Cash Equivalents
|
We characterize money market funds, treasury bills, commercial
paper and time deposits with maturities of three months or less
at the date of purchase as cash equivalents. Such cash
equivalents amounted to $60.7 million and
$194.3 million as of December 31, 2009 and 2008,
respectively.
70
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(g)
|
Investment
Securities
|
Investment securities at December 31, 2009 and 2008
consisted primarily of U.S. government securities,
U.S. government agency securities and debt securities of
financial institutions and corporations with strong credit
ratings. We classify our investments as
available-for-sale
securities. These securities are recorded at their fair value.
Unrealized holding gains and losses, net of the related tax
effect, if any, on
available-for-sale
securities are excluded from earnings and are reported in
accumulated other comprehensive income (loss), a separate
component of stockholders equity, until realized or
recognized. The specific identification basis is utilized to
calculate the cost to determine realized gains and losses from
the sale of
available-for-sale
securities. Dividend and interest income are recognized when
earned. A portion of our marketable investments have stated
maturities greater than one year. We have classified these
investments as current assets based upon the classification as
available-for-sale
and the underlying liquidity of the assets.
Certain of our facility leases have outstanding letters of
credit issued by commercial banks which serve as security for
our performance under the leases. Included in restricted
investment securities as of December 31, 2009 and 2008 were
$2.4 million and $2.2 million, respectively, of
investments to secure these letters of credit.
We have certain investments in privately-owned companies that
are carried on the cost method of accounting. Our investments
are recorded as a cost-based investment and will be reviewed for
impairment each reporting period based upon, among other things,
any negative changes in investments business or future prospects
or other impairment indicators. Losses are recorded against
earnings in the period that the decrease in value of the
investment is deemed to be other than temporary.
|
|
(h)
|
Other-Than-Temporary
Impairments of
Available-For-Sale
Marketable Securities
|
A decline in the fair value of any
available-for-sale
marketable security below its cost that is deemed to be
other-than-temporary
results in a reduction in its carrying amount to fair value. The
impairment is charged to operations and a new cost basis for the
security is then established. The determination of whether an
available-for-sale
marketable security is
other-than-temporarily
impaired requires significant judgment and consideration of
available quantitative and qualitative evidence in evaluating
the potential impairment. Factors evaluated to determine whether
the investment is
other-than-temporarily
impaired include: (i) significant deterioration in the
issuers earnings performance, credit rating or asset
quality; (ii) the business prospects of the issuer;
(iii) adverse changes in the general market conditions in
which the issuer operates; (iv) the length of time that the
fair value has been below our cost; (v) our expected future
cash flows from the security; and (vi) our intent and
ability to retain the investment for a sufficient period of time
to allow for recovery in the market value of the investment.
However, even if a investor does not expect to sell a debt
security expected cash flows to be received must be evaluated to
determine if credit losses have occurred. In the event of a
credit loss, only the amount associated with the credit loss is
recognized in income. The amount of losses relating to other
factors, including those related to changes in interest rates,
are recorded in accumulated other comprehensive income. The
other-than-temporary
impairment model for debt securities also requires additional
disclosure regarding the calculation of credit losses and the
factors considered in reaching a conclusion that an investment
is not other-than-temporarily impaired. Assumptions associated
with these factors are subject to future market and economic
conditions, which could differ from our assessment. During 2009
and 2008, we recorded a $663,000 and $1.2 million
impairment charge, respectively, in other income (expense)
related to an
other-than-temporary
decline in the fair value of common stock and warrants that we
previously received as part of a licensing transaction. During
2007, we did not recognize any
other-than-temporary
impairments.
|
|
(i)
|
Goodwill
and Intangible Assets
|
We account for goodwill and other intangible assets in
accordance with FASB ASC Topic No. 805, Business
Combinations, and FASB ASC Topic No. 350,
Intangibles Goodwill and Other. The
accounting guidance in ASC Topic No. 805 requires that the
purchase method of accounting be used for all business
combinations. It
71
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
specifies the criteria which intangible assets acquired in a
business combination must meet in order to be recognized and
reported apart from goodwill. ASC Topic No. 350 requires
that goodwill and intangible assets determined to have
indefinite lives no longer be amortized but instead be tested
for impairment at least annually and whenever events or
circumstances occur that indicate impairment might have
occurred. ASC Topic No. 350 also requires that intangible
assets with estimable useful lives be amortized over their
respective estimated useful lives and reviewed for impairment
whenever events or circumstances indicate that impairment might
have occurred.
As a result of our R&D programs, including programs funded
pursuant to R&D funding agreements, we have applied for a
number of patents in the United States and abroad. Costs
incurred in connection with patent applications for our R&D
programs have been expensed as incurred.
|
|
(j)
|
Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of
|
In accordance with FASB ASC Subtopic
No. 360-10,
Assets: Property, Plant and Equipment: Impairment,
we review long-lived assets to determine whether an event or
change in circumstances indicates the carrying value of the
asset may not be recoverable. We base our evaluation on such
impairment indicators as the nature of the assets, the future
economic benefit of the assets and any historical or future
profitability measurements, as well as other external market
conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that
the carrying amount of the asset may not be recoverable, we
determine whether an impairment has occurred through the use of
an undiscounted cash flows analysis at the lowest level for
which identifiable cash flows exist. If impairment has occurred,
we recognize a loss for the difference between the carrying
amount and the fair value of the asset. Fair value is the amount
at which the asset could be bought or sold in a current
transaction between a willing buyer and seller other than in a
forced or liquidation sale and can be measured at the
assets quoted market price in an active market or, where
an active market for the asset does not exist, our best estimate
of fair value based on discounted cash flow analysis. Assets to
be disposed of by sale are measured at the lower of carrying
amount or fair value less estimated costs to sell.
Inventory is stated at the lower of cost or market, with cost
being determined using the weighted average method. Included in
inventory are raw materials and
work-in-process
that may be used in the production of pre-clinical and clinical
product, which will be expensed to R&D cost when consumed
for these uses. 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 is packaged product ready for
commercial sale.
|
|
(l)
|
Depreciation
and Amortization
|
Depreciation of fixed assets is recognized over the estimated
useful lives of the respective assets on a straight-line basis.
Leasehold improvements are amortized on a straight-line basis
over the lesser of the estimated useful lives or the remainder
of the lease term.
Amortization of compounds acquired by us (which are included in
other assets on the accompanying consolidated balance sheets) is
on a straight-line basis over five years.
|
|
(m)
|
Computer
Software Costs
|
We record the costs of computer software in accordance with FASB
ASC Subtopic
350-40,
Internal Use Software, which requires that certain
internal-use computer software costs be capitalized and
amortized over the useful life of the asset.
72
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(n)
|
Accrual
for Clinical Research Organization and Clinical Site
Costs
|
We record accruals for estimated clinical study costs. Clinical
study costs represent costs incurred by clinical research
organizations, or CROs, and clinical sites. These costs are
recorded as a component of R&D expenses. We analyze the
progress of the clinical trials, including levels of patient
enrollment
and/or
patient visits, invoices received and contracted costs when
evaluating the adequacy of the accrued liabilities. Significant
judgments and estimates must be made and used in determining the
accrued balance in any accounting period. Actual costs incurred
may or may not match the estimated costs for a given accounting
period.
|
|
(o)
|
Foreign
Currency Translation
|
The assets and liabilities of our
non-U.S. subsidiaries,
which operate in their local currency, are translated to
U.S. dollars at exchange rates in effect at the balance
sheet date with resulting translation adjustments directly
recorded as a separate component of accumulated other
comprehensive income (loss). Income and expense accounts are
translated at the average exchange rates during the year.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
We capitalize interest on capital invested in projects in
accordance with guidance under FASB ASC Topic No. 835,
Capitalization of Interest Cost. The interest
capitalization period begins when the expenditures have been
incurred and activities necessary to prepare the asset for its
intended use have begun, and ends when the project is
substantially completed or placed into service. The interest
rate used in determining the amount of interest capitalized is
the weighted average rate applicable to the companys
borrowings. Upon the assets being placed into service, the
capitalized interest, as a component of the total cost of the
asset, is amortized over the estimated useful life of the asset.
|
|
(r)
|
Change
in Accounting Principle
|
The accompanying consolidated statements of operations for the
years ended December 31, 2008 and 2007, the consolidated
balance sheet as of December 31, 2008, and the consolidated
statements of stockholders equity for the years ended
December 31, 2008 and 2007 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) Note 15 to the consolidated financial
statements provides the detailed disclosures related to the
retrospective application to prior years financial
statements. The table below provides a summary of the
retroactive
73
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
application of this accounting literature the adjustments to our
historically reported information (in thousands except per share
amounts):
|
|
|
|
|
|
|
|
|
Statement of Operations Impact:
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase in interest expense
|
|
$
|
12,963
|
|
|
$
|
6,027
|
|
Decrease in debt issuance costs amortization
|
|
|
(479
|
)
|
|
|
(233
|
)
|
Decrease in net income
|
|
|
(29,892
|
)
|
|
|
(5,794
|
)
|
Decrease in diluted EPS
|
|
$
|
(0.26
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet and Stockholders Equity Impact:
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Increase in additional
paid-in-capital
|
|
$
|
67,916
|
|
|
$
|
32,156
|
|
|
$
|
32,156
|
|
Decrease in retained earnings
|
|
|
(40,917
|
)
|
|
|
(11,025
|
)
|
|
|
(5,230
|
)
|
Costs incurred in issuing our 3% Convertible Senior
Subordinated Notes due 2038, or 2038 Notes, our
2% Convertible Senior Subordinated Notes due 2025, or 2025
Notes, and our 3.25% Convertible Senior Subordinated Notes
due 2023, or 2023 Notes, are amortized over a five-year term
which represents the earliest date that notes can be redeemed by
the holders. The amortization of debt issuance costs is included
in interest expense in the accompanying consolidated statements
of operations.
|
|
(t)
|
Stock-Based
Compensation
|
We recognize the total fair value of employee stock awards as
compensation expense over the vesting period of the grant. We
have used, and expect to continue to use, the Black-Scholes
option-pricing model to compute the estimated fair value of
stock-based awards on the date of grant. The Black-Scholes
option-pricing model includes assumptions regarding dividend
yields, expected volatility, expected option term and risk-free
interest rates. We estimate expected volatility based upon a
combination of historical, implied and adjusted historical
volatility. The risk-free interest rate is based on the
U.S. treasury yield curve in effect at the time of grant.
The expected option term determined using a Monte Carlo
simulation model that incorporates historical employee exercise
behavior and post-vesting employee termination rates.
The assumptions used in computing the fair value of stock-based
awards reflect our best estimates but involve uncertainties
relating to market and other conditions, many of which are
outside of our control. As a result, if other assumptions or
estimates had been used, the stock-based compensation expense
that was recorded for the years ended December 31, 2009,
2008 and 2007 could have been materially different.
Operating segments are determined based on a companys
management approach. The management approach is based on the way
that the chief operating decision-maker organizes the segments
within an enterprise for making decisions about resources to be
allocated and assessing their performance. While our results of
operations are primarily reviewed on a consolidated basis, the
chief operating decision-maker manages the enterprise in two
operating segments: (i) oncology; and (ii) diabetes
and obesity. Given the similar economic characteristics of the
two operating segments, we determined that we have one
reportable segment.
74
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have made a number of estimates and assumptions related to
the reported amounts in our financial statements and
accompanying notes to prepare these consolidated financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates and
assumptions.
We evaluated all events or transactions that occurred after
December 31, 2009 up through the filing of this
Form 10-K
on February 24, 2010. During this period we did not have
any material recognized or unrecognized subsequent events.
|
|
(2)
|
Product
Development, Commercialization Agreements and Licensing
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 R&D objectives and receive or pay
milestones or 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, as defined, 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 year ended December 31, 2009,
however, it resulted in enhanced disclosure of our collaboration
activities.
For the years ended December 31, 2009, 2008 and 2007, we
recorded $20.5 million, $13.3 million and
$19.9 million, respectively, of reimbursed costs from our
collaborators as a reduction in R&D expenses.
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
75
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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, and a letter agreement dated April 14, 2008. 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 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.
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.
76
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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
Pharmaceuticals, Inc.
|
In September 2007, we entered into a small molecule drug
discovery and translational research collaboration with AVEO
Pharmaceuticals, Inc. 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 the original collaboration agreement (i.e.,
the September 2007 agreement), we paid AVEO a $10.0 million
upfront cash payment, consisting of $7.5 million for access
to certain AVEO technology and $2.5 million to fund the
first year of research under the collaboration, and purchased
$5.5 million of AVEOs 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. We
expensed the $7.5 million upfront payment as acquired
in-process R&D in the third quarter of 2007. 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 AVEOs
preferred stock. We expensed the $5.0 million upfront payment as
acquired in-process R&D in the third quarter of 2009
because it was deemed to be related to in-process technology,
which was deemed to have no alternative future use. We also
agreed to provide AVEO with research funding through June 2011
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. 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.
77
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In January 2007, we licensed our GKA program, including our
clinical candidate PSN010, to Eli Lilly. Under the terms of the
agreement, Eli Lilly is responsible for all aspects of clinical
development, manufacturing and commercialization of PSN101 or
any
back-up
compound included within the licensed GKA program. In return for
such rights, we received an upfront payment of
$25.0 million and will potentially receive milestones and
other payments of up to $360.0 million and a royalty
percentage on net sales of products arising from the licensed
GKA program. The license agreement will remain in effect so long
as Eli Lilly is required to pay royalties to us under the
agreement. Eli Lilly is required to pay royalties on a
country-by-country
basis until, among other things, the expiration of the last to
expire patent covering PSN010 or any
back-up
compound included in the licensed program in such country. The
license agreement with Eli Lilly is subject to early termination
in the event of certain customary defaults, such as material
breach of the agreement and bankruptcy. In the event of a
termination of the agreement, licenses granted to Eli Lilly
shall revert back to us. We recognized the upfront fee as
license revenue in 2007 since we have no future performance
obligation under the agreement beyond the end of 2007.
|
|
(d)
|
PhaseBio
Pharmaceuticals, Inc.
|
In December 2009, we entered into an option agreement and stock
purchase agreement with PhaseBio Pharmaceuticals, Inc. Under the
option agreement, we paid $1.5 million for an exclusive
option to acquire, for additional consideration, a compound
linked to elastin-like peptides. Under the stock purchase
agreement, we purchased preferred shares for $800,000, and are
obligated to purchase additional shares of preferred stock for
$1.2 million if certain events occur. We expensed the
$1.5 million option payment as acquired in
process research and development because the option is for
assets which were deemed to relate to in-process technology,
which was deemed to have no alternative future use.
|
|
(e)
|
Simcere
Pharmaceutical Co., Ltd.
|
In October 2009, we licensed the rights to develop, manufacture,
and market in China our multi-targeted tyrosine kinase
inhibitor, OSI-930, to Simcere Pharmaceutical Co., Ltd., for a
$2.5 million upfront fee, potential development and sales
milestones, plus potential future sales royalties. We deferred
the initial recognition of the $2.5 million upfront fee
based upon our obligation to provide technical and other support
for a period of approximately 12 months from the date of
execution of the license agreement. For the year ended
December 31, 2009, we recognized approximately $625,000 of
the upfront payment as revenue. As of December 31, 2009,
$1.9 million of the unrecognized upfront payment was
included in the current portion of unearned revenue in the
accompanying balance sheet.
In February 2008, we licensed our transforming growth factor, or
TGF ß3, compound for certain indications for an upfront fee
of $2.0 million. We recognized the $2.0 million
payment as license revenue in 2008 since we had no future
performance obligations. Pursuant to the terms of a cross
license with Novartis AG, approximately $350,000 of the amount
we received was paid to Novartis.
During 2007, we recognized $2.4 million of revenue from the
consideration received as a result of outlicensing OSI-7904L, an
oncology clinical candidate for which we had ceased development,
to OncoVista Innovative Therapies, Inc. The consideration
included cash of $500,000 and OncoVista common stock and
warrants with a fair value at the time of purchase of
$1.9 million. The common stock is publicly traded and
recorded as an
available-for-sale
security. The warrants are recorded at their estimated fair
value in other assets. Upon assessment that the decline in the
fair value of the common stock and warrants was
other-than-temporary,
we recorded
78
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
impairment charges of $663,000 and $1.2 million for the
years ended December 31, 2009 and 2008, respectively, which
is included in other income (expense) on the accompanying
consolidated statements of operations.
|
|
(h)
|
Patent
Estate Licenses
|
We have entered into various license agreements with third
parties to grant the use of our proprietary assets. These
licenses include the use of our patented gene transcription
estate as well as the use of our DPIV patent estate acquired
from Probiodrug AG in fiscal 2004. Licensees may be obligated to
pay us license fees, annual fees, and milestones and royalties
on net sales of product based on the development and sale of
products derived from the licensed patents. Generally, the
duration of each license is to be coextensive with the life of
the last to expire of the underlying patents. For the years
ended December 31, 2009, 2008 and 2007, we recognized as
revenue $67.0 million, $41.1 million and
$34.7 million, respectively, of license, milestone and
royalty payments from our DPIV patent estate.
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 after-tax interest expense 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
December 31, 2009, our outstanding convertible senior debt
consisted of our 2023 Notes, our 2025 Notes and our 2038 Notes.
As discussed in Notes 14 and 15 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 years ended December 31,
2008 and 2007 and causing us to resequence our senior
subordinated convertible notes for dilutive calculation purposes
under the if-converted method for the years ended
December 31, 2008 and 2007.
79
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The computations for basic and diluted income per share from
continuing operations were as follows (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income from continuing operations basic
|
|
$
|
75,995
|
|
|
$
|
436,709
|
|
|
$
|
96,813
|
|
Add: Interest and debt issuance cost related to convertible
notes net of tax
|
|
|
1,842
|
|
|
|
26,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations diluted
|
|
$
|
77,837
|
|
|
$
|
463,539
|
|
|
$
|
96,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding basic
|
|
|
57,939
|
|
|
|
57,316
|
|
|
|
57,665
|
|
Dilutive effect of options and restricted stock
|
|
|
554
|
|
|
|
729
|
|
|
|
668
|
|
Dilutive effect of 2023 Notes
|
|
|
1,959
|
|
|
|
2,308
|
|
|
|
|
|
Dilutive effect of 2025 Notes
|
|
|
|
|
|
|
3,908
|
|
|
|
|
|
Dilutive effect of 2038 Notes
|
|
|
|
|
|
|
2,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares and dilutive potential common
shares diluted
|
|
|
60,452
|
|
|
|
66,911
|
|
|
|
58,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.31
|
|
|
$
|
7.62
|
|
|
$
|
1.68
|
|
Diluted
|
|
$
|
1.29
|
|
|
$
|
6.93
|
|
|
$
|
1.66
|
|
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 income per share for the year ended December 31,
2009 because their effect would be anti-dilutive. For the year
ended December 31, 2008, diluted income per share included
all of the share equivalents related to our convertible notes,
as the 2023 Notes, the 2025 Notes and the 2038 Notes were all
dilutive. For the year ended December 31, 2007, both the
2023 Notes and the 2025 Notes were not included in diluted
income per share 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Common share equivalents convertible notes
|
|
|
6,592
|
|
|
|
|
|
|
|
6,907
|
|
Common share equivalents equity plans
|
|
|
3,018
|
|
|
|
2,865
|
|
|
|
3,285
|
|
Convertible note interest and debt issuance expense not added
back under the if-converted method
|
|
$
|
14,137
|
|
|
$
|
|
|
|
$
|
14,652
|
|
80
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive income 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, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
75,931
|
|
|
$
|
441,593
|
|
|
$
|
60,525
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
6,099
|
|
|
|
(8,081
|
)
|
|
|
366
|
|
Post-retirement plan
|
|
|
(141
|
)
|
|
|
378
|
|
|
|
1,316
|
|
Unrealized holding gains (losses) arising during period
|
|
|
4,957
|
|
|
|
(727
|
)
|
|
|
486
|
|
Unrealized gains on derivative instruments
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,060
|
|
|
|
(8,430
|
)
|
|
|
2,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
86,991
|
|
|
$
|
433,163
|
|
|
$
|
62,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income (loss)
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
2,360
|
|
|
$
|
(3,739
|
)
|
Post-retirement plan
|
|
|
237
|
|
|
|
378
|
|
Unrealized gains (losses) on
available-for-sale
securities
|
|
|
4,410
|
|
|
|
(547
|
)
|
Unrealized gains on derivative instruments
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (losses)
|
|
$
|
7,152
|
|
|
$
|
(3,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
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
inputs other than
quoted prices included within Level that are observable for the
asset or liability, either directly or indirectly, or quoted
prices for similar assets or liabilities in active markets.
(iii)
Level 3
unobservable inputs
for which little or no market data exists, requiring management
to develop its own assumptions.
A majority of 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
81
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 December 31, 2009 and 2008
consisted primarily of U.S. government agency securities
and debt securities of financial institutions and corporations.
The following tables summarizes the fair value at
December 31, 2009 and 2008 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
|
|
|
|
|
|
|
|
|
As
|
|
Prices in
|
|
|
|
|
|
|
|
|
Reflected
|
|
Active
|
|
|
|
|
|
|
|
|
on the
|
|
Market
|
|
Significant
|
|
|
|
|
|
|
Balance
|
|
for
|
|
Other
|
|
Significant
|
|
|
|
|
Sheet
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Line
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
December 31, 2009
|
|
Items
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
82,173
|
|
|
$
|
82,173
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
82,173
|
|
Investment securities
|
|
|
371,410
|
|
|
|
|
|
|
|
371,410
|
|
|
|
|
|
|
|
371,410
|
|
Restricted investments
|
|
|
2,306
|
|
|
|
|
|
|
|
2,306
|
|
|
|
|
|
|
|
2,306
|
|
Other Assets-Strategic investments
|
|
|
46,323
|
|
|
|
46,323
|
|
|
|
|
|
|
|
|
|
|
|
46,323
|
|
Other assets
|
|
|
1,655
|
|
|
|
|
|
|
|
1,653
|
|
|
|
|
|
|
|
1,653
|
|
Derivatives (see Note 7)
|
|
|
323
|
|
|
|
|
|
|
|
323
|
|
|
|
|
|
|
|
323
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (see Note 7)
|
|
|
88
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
88
|
|
2038 Notes (Face value $160,000)
|
|
|
140,795
|
|
|
|
|
|
|
|
146,900
|
|
|
|
|
|
|
|
146,900
|
|
2025 Notes (Face value $115,000)
|
|
|
107,062
|
|
|
|
|
|
|
|
133,472
|
|
|
|
|
|
|
|
133,472
|
|
2023 Notes (Face value $60,467)
|
|
|
60,467
|
|
|
|
|
|
|
|
55,441
|
|
|
|
|
|
|
|
55,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
As
|
|
Market
|
|
Significant
|
|
|
|
|
|
|
Reflected
|
|
for
|
|
Other
|
|
Significant
|
|
|
|
|
on the
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Balance
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
|
Sheet
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
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 $98.2 million of cash and cash equivalents reported in
the accompanying consolidated balance sheet as of
December 31, 2009 includes $82.2 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
82
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
marked-to-market.
The $272.9 million of cash and cash equivalents reported in
the accompanying consolidated balance sheet as of
December 31, 2008 includes $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.
Included in other assets in the accompanying consolidated
balance sheet, but not included above, as of December 31,
2009 and 2008 are $23.3 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
December 31, 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.
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 December 31, 2009 and December 31, 2008 is
provided as enhanced disclosure only.
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):
As of December 31, 2009, approximately 53% of our cash
equivalents and investment securities consisted of AAA rated
long-term and short-term A1 rated securities, including our
money market funds, which are AAA rated. The principal
weighted-average credit rating of our portfolio of cash
equivalents and investment securities was AA/Aa2 as of
December 31, 2009. We have established guidelines relative
to the diversification of our investments and their maturities
with the principle objective of capital preservation and
liquidity. These guidelines are periodically reviewed and
modified to take advantage of trends in yields and interest
rates.
The following is a summary of
available-for-sale
securities as of December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
December 31, 2009
|
|
Costs
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
U.S. government and U.S. government agency securities
|
|
$
|
44,679
|
|
|
$
|
137
|
|
|
$
|
(5
|
)
|
|
$
|
44,811
|
|
Corporate and financial institutions debt
|
|
|
325,700
|
|
|
|
1,107
|
|
|
|
(208
|
)
|
|
|
326,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
370,379
|
|
|
|
1,244
|
|
|
|
(213
|
)
|
|
|
371,410
|
|
Restricted investments
|
|
|
2,306
|
|
|
|
|
|
|
|
|
|
|
|
2,306
|
|
Strategic investments
(available-for-sale
equity investments)
|
|
|
40,254
|
|
|
|
6,069
|
|
|
|
|
|
|
|
46,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
412,939
|
|
|
$
|
7,313
|
|
|
$
|
(213
|
)
|
|
$
|
420,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the strategic investment of
$46.3 million is included in other assets in the
accompanying balance sheet.
Net realized gains (losses) on sales of investment securities
during the years ended December 31, 2009, 2008 and 2007
were $988,000 gain, $12,000 gain and ($4,000) loss, respectively.
The gross unrealized losses on our investments were $213,000 as
of December 31, 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 a security.
As of December 31, 2008, the gross unrealized losses on our
investments were $1.2 million, all of which occurred during
2008. Because we have the ability and intent to hold these
investments until a recovery of fair value, which may be
maturity, we did not consider these investments to be
other-than-temporarily
impaired as of December 31, 2008.
Maturities of investment securities classified as
available-for-sale,
excluding restricted investments and strategic investments, were
as follows at December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Costs
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
2010
|
|
$
|
170,136
|
|
|
$
|
422
|
|
|
$
|
(22
|
)
|
|
$
|
170,536
|
|
2011
|
|
|
177,788
|
|
|
|
773
|
|
|
|
(170
|
)
|
|
|
178,391
|
|
2012
|
|
|
22,455
|
|
|
|
49
|
|
|
|
(21
|
)
|
|
|
22,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
370,379
|
|
|
$
|
1,244
|
|
|
$
|
(213
|
)
|
|
$
|
371,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) 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.
84
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We recognize our derivative instruments as either assets or
liabilities at fair value in the accompanying consolidated
balance sheets. As discussed further in Note 5 to the
consolidated financial statements, fair value is determined in
accordance with FASB ASC Subtopic
No. 820-10.
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
Section No. 815-20-35,
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 each reporting period 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
December 31, 2009, we had $49.7 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 is 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
statement of operations. As of December 31, 2009, the
amount of gains expected to be reclassified into earnings over
the next 12 months was approximately $145,000.
The fair values of our derivative financial instruments
designated as hedging instruments and included in the
accompanying consolidated balance sheets as of December 31,
2009 are presented as follows (in thousands):
|
|
|
|
|
|
|
Foreign
|
|
|
|
Currency
|
|
|
|
Contracts
|
|
Fair Value of Derivative Instruments
|
|
December 31, 2009
|
|
|
Prepaid expenses and other current assets
|
|
$
|
323
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
88
|
|
|
|
|
|
|
Accumulated other comprehensive income (net of tax)
|
|
$
|
145
|
|
|
|
|
|
|
The amounts of the gains and losses recorded in and reclassified
from AOCI related to our derivative financial instruments
designated as hedging instruments are presented as follows (in
thousands):
|
|
|
|
|
|
|
|
|
Income Statement
|
|
For the Year
|
|
Accumulated Other Comprehensive
|
|
Classification for
|
|
Ended
|
|
Income (Loss) (Net of Taxes)
|
|
Reclassifications
|
|
December 31, 2009
|
|
|
Opening balance as of January 1, 2009
|
|
|
|
$
|
|
|
Net gains recognized during the year in AOCI (effective portion)
|
|
|
|
|
116
|
|
Losses reclassified from AOCI (effective portion)
|
|
Royalty revenue
|
|
|
29
|
|
Gains/(losses) reclassified from AOCI because of ineffectiveness
|
|
Other income/ (expense)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
85
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the year ended December 31, 2009, we recognized $38,000
as a reduction in royalty revenue from the effective portion of
our foreign currency hedges upon settlement. For the year ended
December 31, 2009, we recognized $39,000 of losses in other
income and expenses related to the ineffective portion of our
foreign currency hedges. There were no amounts excluded from the
assessment of hedge effectiveness for the year ended
December 31, 2009.
As a matter of policy, we assess the creditworthiness 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.
Tarceva 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 API and finished goods, which are packaged
product ready for commercial sale.
Inventory at December 31, 2009 and 2008 consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
628
|
|
|
$
|
676
|
|
Work-in-process
|
|
|
7,054
|
|
|
|
8,532
|
|
Finished goods on hand
|
|
|
5,688
|
|
|
|
4,897
|
|
Inventory subject to return
|
|
|
5,768
|
|
|
|
6,034
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
19,138
|
|
|
$
|
20,139
|
|
|
|
|
|
|
|
|
|
|
Inventory subject to return represents the amount of Tarceva
shipped to Genentech which has not been recognized as revenue.
86
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(9)
|
Property,
Equipment and Leasehold Improvements
|
Property, equipment and leasehold improvements are recorded at
cost, including capitalized interest and consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Life
|
|
December 31,
|
|
|
|
(years)
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
|
|
$
|
18,068
|
|
|
$
|
3,600
|
|
Building and improvements
|
|
10-35
|
|
|
44,548
|
|
|
|
23,249
|
|
Laboratory equipment
|
|
5-15
|
|
|
28,513
|
|
|
|
26,917
|
|
Office furniture and equipment and computer equipment
|
|
3-7
|
|
|
13,905
|
|
|
|
13,503
|
|
Capitalized software
|
|
1-3
|
|
|
8,103
|
|
|
|
7,114
|
|
Manufacturing equipment
|
|
3-7
|
|
|
224
|
|
|
|
135
|
|
Leasehold improvements
|
|
Shorter of lease term or
estimated useful life
|
|
|
30,852
|
|
|
|
30,634
|
|
Construction in progress
|
|
|
|
|
27,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
171,601
|
|
|
|
105,152
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
(70,057
|
)
|
|
|
(61,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net
|
|
|
|
$
|
101,544
|
|
|
$
|
43,443
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress represents the acquisition cost
assigned to the buildings, and any subsequent renovation costs
incurred during 2009, related to our facility in Ardsley, New
York. Additionally, in connection with the construction of the
Ardsley site, we capitalized interest costs of $799,000 in 2009.
Depreciation expense relating to continuing operations for the
years ended December 31, 2009, 2008 and 2007 was
$9.7 million, $7.4 million and $7.3 million,
respectively. As a result of our intent to eventually 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 and have
recorded an additional $2.4 million depreciation charge in
2009. We anticipate that these charges will continue through the
end of 2010.
There was no depreciation expense related to discontinued
operations for the year ended December 31, 2009.
Depreciation expense related to discontinued operations for the
years ended December 31, 2008 and 2007 was $751,000 and
$929,000, respectively.
|
|
(10)
|
Goodwill
and Other Intangible Assets Net
|
The carrying amount of goodwill was $38.9 million and
$38.6 million as of December 31, 2009 and 2008,
respectively. The balance of goodwill as of December 31,
2009 and 2008 was reduced by $226,000 and $764,000,
respectively, as a result of foreign currency exchange rate
fluctuations during fiscal 2009 and 2008.
We account for goodwill and other intangible assets in
accordance with FASB ASC Topic No. 805, Business
Combinations, and FASB ASC Topic No. 350,
Intangibles Goodwill and Other. The
accounting guidance in ASC Topic No. 805 requires that the
purchase method of accounting be used for all business
combinations. It specifies the criteria which intangible assets
acquired in a business combination must meet in order to be
recognized and reported apart from goodwill. ASC Topic
No. 350 requires that goodwill and intangible assets
determined to have indefinite lives no longer be amortized but
instead be tested for impairment at least annually and whenever
events or circumstances occur that indicate impairment might
have occurred. ASC Topic No. 350 also requires that
intangible assets with estimable useful lives be amortized over
their respective estimated useful lives and reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable.
87
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2009, all of our $38.9 million of
goodwill was associated with our oncology business. Our annual
impairment assessment (step 1 analysis) indicated the current
value of our oncology business was substantially in excess of
the carrying value of its assets, including the goodwill. As a
result, we concluded that there was no impairment of our
goodwill as of December 31, 2009.
The components of other intangible
assets-net
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Book
|
|
|
|
|
|
Accumulated
|
|
|
Book
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Carrying Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Acquired intangibles
|
|
$
|
10,386
|
|
|
$
|
(2,748
|
)
|
|
$
|
7,638
|
|
|
$
|
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 our subsidiary, Prosidion Limited, and denominated in British
pounds sterling. As a result, the balances reported fluctuate
based upon the changes in exchange rates.
Amortization expense related to continuing operations for our
intangible assets for the years ended December 31, 2009,
2008 and 2007 was $920,000, $2.5 million and
$1.8 million, respectively. Amortization expense is
estimated to be $900,000 for each of the years 2010 through 2014.
|
|
(11)
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses at December 31, 2009
and 2008 are comprised of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable
|
|
$
|
4,423
|
|
|
$
|
6,659
|
|
Accrued payroll, incentive compensation and employee benefits
|
|
|
12,105
|
|
|
|
11,766
|
|
Accrued exit costs
|
|
|
1,428
|
|
|
|
492
|
|
Accrued interest
|
|
|
2,912
|
|
|
|
3,856
|
|
Accrued CRO and site costs
|
|
|
6,341
|
|
|
|
4,094
|
|
Accrued and development costs
|
|
|
6,569
|
|
|
|
7,272
|
|
Other accrued expenses
|
|
|
28,515
|
|
|
|
14,913
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,293
|
|
|
$
|
49,052
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, $1.2 million and
$1.5 million, respectively, of accounts payable and accrued
expenses related to (OSI) Eyetech have been classified as
liabilities related to discontinued operations.
|
|
(12)
|
Consolidation
of Facilities
|
Ardsley,
New York
In July 2009, we announced our plan to consolidate our
U.S. operations and completed the purchase 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
88
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Farmingdale, New York, Boulder, Colorado and Cedar Knolls, New
Jersey, into our Ardsley campus. We expect to incur
approximately $100 million of capital-related renovation
costs in 2010. In addition to the $4.5 million of costs
recognized in 2009, we expect to incur approximately
$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 our leased facilities in the United States,
when these facilities cease to be used.
During 2009, we made payments of approximately
$12.9 million in retention bonuses and reimbursed employee
relocation expense. These retention bonuses will be recognized
as an expense over the requisite service period which is
expected to end on September 2011 (the date through which
employees must continue employment in order to retain the full
amount of the bonus payments). The reimbursed employee
relocation expenses will be recognized as an expense over the
requisite service period which is expected to be
18-24 months
from the date of payment. For the year ended December 31,
2009, $2.6 million of retention bonuses and reimbursed
employee relocation expenses have been amortized and are
included in the restructuring costs line item on the
accompanying consolidated statements of operations. The
remaining $10.3 million of unamortized retention bonus and
reimbursed employee relocation expenses are included in prepaid
expenses and other assets on the accompanying consolidated
balance sheets as of December 31, 2009. In addition, we
accrued $1.1 million in severance charges associated with
those employees who have chosen not to relocate and we expect to
incur an additional $2.2 million of charges in 2010.
As a result of our intent to eventually cease to use our current
leased sites in Farmingdale, New York, Boulder, Colorado and
Cedar Knolls, New Jersey, we have revised the estimated useful
life of the leasehold improvements and have recorded an
additional $2.4 million depreciation charge in 2009. We
anticipate that these charges will continue through the end of
2010. We expect to continue to utilize our purchased facility in
Melville, New York as we assess our options for this facility.
The payments and accruals related to the consolidation of our
U.S. operations for the year ended December 31, 2009 was as
follows (in thousands):
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
Opening balance, prepaid retention bonus
|
|
$
|
|
|
Cash payments and accrual for retention bonuses and relocation
costs
|
|
|
12,884
|
|
Amortization of paid retention bonuses and relocation costs
|
|
|
(2,552
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
10,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
Opening balance
|
|
$
|
|
|
Accrual for severance payments
|
|
|
1,077
|
|
|
|
|
|
|
Ending balance, accrued severance
|
|
$
|
1,077
|
|
|
|
|
|
|
89
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The income tax (benefit) provision from continuing operations
for the years ended December 31, 2009, 2008 and 2007
included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3,323
|
|
|
$
|
2,008
|
|
|
$
|
2,190
|
|
State and Local
|
|
|
761
|
|
|
|
1,033
|
|
|
|
196
|
|
Foreign
|
|
|
428
|
|
|
|
132
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,512
|
|
|
$
|
3,173
|
|
|
$
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
53,730
|
|
|
$
|
(286,052
|
)
|
|
$
|
|
|
State and Local
|
|
|
17,557
|
|
|
|
(33,170
|
)
|
|
|
|
|
Foreign
|
|
|
(18,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,772
|
|
|
$
|
(319,222
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,284
|
|
|
$
|
(316,049
|
)
|
|
$
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on our ability to fully offset current taxable income with
our net operating losses, or NOLs, our current provision for
income taxes for the 2009, 2008 and 2007 years was
principally related to the U.S. alternative minimum tax.
For the year ended December 31, 2009, we recorded a current
provision for income taxes of $4.5 million related to
income from continuing operations and a tax benefit of $43,000
from discontinued operations. For the year ended
December 31, 2008, we recorded a current provision for
income taxes of $3.2 million related to income from
continuing operations and a tax benefit of $1.3 million
related to discontinued operations. The deferred tax provision
for 2008 includes the recognition of $319.2 million of net
tax benefits as a result of reducing certain valuation
allowances previously established in the United States as
further discussed below. For the year ended December 31,
2007, we recorded a current provision for income taxes of
$2.7 million related to income from continuing operations
and a tax benefit of $640,000 related to our loss from
discontinued operations.
As part of our evaluation of deferred tax assets, we recognized
a tax benefit of approximately $319.2 million at the end of
the 2008 fourth quarter relating to the reduction of certain
valuation allowances previously established in the United
States. As our U.K. operations have not achieved profitability,
we were unable to conclude that the utilization of our U.K. NOLs
would be more likely than not and therefore, did not reduce any
U.K.-based valuation allowances at December 31, 2008. Our
evaluation encompassed (i) a review of our recent history
of profitability in the United States for the past three years;
(ii) a review of internal financial forecasts demonstrating
our expected utilization of NOLs prior to expiration; and
(iii) a reassessment of tax benefits recognition under
FASBASC Topic 740.
In 2009, we recorded a deferred tax provision of
$52.8 million, which included the recognition of
$18.5 million of deferred tax benefits as a result of
reducing certain valuation allowances previously established in
the United Kingdom. The reduction of this valuation allowance is
based on the fact that we determined that it was more likely
than not that we will generate sufficient taxable income in the
United Kingdom to realize the benefits of these deferred tax
assets, which principally consist of NOLs. The reduction in the
U.K. valuation allowance did not result in a benefit to the
consolidated income tax provision because, concurrently, we
recognized an offsetting deferred tax liability of
$18.5 million in the United States. The recognition of the
U.S. deferred tax liability is a result of previously
recognized deferred tax assets recorded in the U.S. from
the treatment of Prosidion losses as a branch for
90
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S. income tax purposes. We also recorded a tax charge of
$3.3 million related to state NOLs that no longer met the
threshold for recognition as a result of our decision to
consolidate our U.S. operations in Ardsley, New York.
The components of earnings before income taxes from continuing
operations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
108,125
|
|
|
$
|
120,696
|
|
|
$
|
87,677
|
|
Foreign
|
|
|
25,154
|
|
|
|
(36
|
)
|
|
|
11,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
$
|
133,279
|
|
|
$
|
120,660
|
|
|
$
|
99,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties earned from Roches international sales of
Tarceva are included in our domestic tax returns and are
therefore included in U.S. earnings before taxes in the
table above.
Our effective tax rate differs from the statutory
U.S. Federal income tax rate as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory U.S. federal tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local taxes, net of federal benefit
|
|
|
6.4
|
|
|
|
0.6
|
|
|
|
0.2
|
|
Foreign taxes
|
|
|
|
|
|
|
0.1
|
|
|
|
0.3
|
|
Current utilization of NOLs and other deferred tax assets
|
|
|
|
|
|
|
(33.4
|
)
|
|
|
(35.1
|
)
|
U.S. R&D tax credit carry forwards
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
Equity compensation
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Reversal of valuation allowance
|
|
|
2.5
|
|
|
|
(264.6
|
)
|
|
|
|
|
Other, net
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
43.0
|
%
|
|
|
(261.9
|
)%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effect of NOLs, R&D tax credit carry forwards and
temporary differences as of December 31, 2009 and 2008 was
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL carry forwards
|
|
$
|
270,220
|
|
|
$
|
333,443
|
|
R&D tax credit carry forwards
|
|
|
14,874
|
|
|
|
12,115
|
|
Intangible assets
|
|
|
9,644
|
|
|
|
11,021
|
|
Unearned revenue
|
|
|
15,995
|
|
|
|
17,108
|
|
Purchased R&D
|
|
|
35,827
|
|
|
|
39,498
|
|
Capitalized R&D
|
|
|
3,436
|
|
|
|
5,278
|
|
Other
|
|
|
44,586
|
|
|
|
27,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394,582
|
|
|
|
446,022
|
|
Valuation allowance
|
|
|
(77,146
|
)
|
|
|
(96,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
317,436
|
|
|
|
349,222
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(7,523
|
)
|
|
|
(7,385
|
)
|
Contingent note interest
|
|
|
(4,540
|
)
|
|
|
(3,479
|
)
|
FSP-APB
14-1
note amortization
|
|
|
(12,321
|
)
|
|
|
(17,395
|
)
|
U.S. deferred tax liability related to recognition of U.K.
deferred tax asset
|
|
|
(18,515
|
)
|
|
|
|
|
Other
|
|
|
(7,450
|
)
|
|
|
(1,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,349
|
)
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
267,087
|
|
|
$
|
319,222
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, we had available U.S., and U.K.
NOLs of approximately $656 million and $77 million,
respectively. The U.S. and New York State NOLs expire in
various years from 2021 to 2026 and may be subject to certain
annual limitations. The U.K. NOLs do not have an expiration
date. Included in the $270.2 million deferred tax asset
NOLs, noted in the table above, as of December 31, 2009 was
approximately $65.4 million of deductions for equity-based
compensation for which the tax benefit will be credited to
additional paid-in capital, if and when realized. As of
December 31, 2009, we also had $14.9 million of
R&D tax credit carry forwards, which expire in various
years from 2010 through 2029. Approximately $3.5 million of
our R&D tax credit carry forwards relate to equity-based
compensation and will be recorded as an increase to additional
paid-in capital, if and when realized. We recorded a valuation
allowance of approximately $69 million with respect to
equity-based compensation included in our NOLs and R&D tax
credits to be credited to paid-in capital, as these tax benefits
can only be recognized when realized.
Certain of our NOLs and R&D tax credit carry forwards may
be subject to significant limitations under Section 382 of
the Internal Revenue Code.
As part of our evaluation of our deferred tax assets, we
recognized a tax benefit of approximately $19 million at
the end of the fourth quarter of 2009 related to the reduction
of certain valuation allowances associated with our U.K. NOLs.
Our evaluation encompassed: (i) a review of our history of
profitability in the U.K. for the past three years; (ii) a
review of internal financial forecasts demonstrating our
expected utilization of our U.K. NOLs prior to expiration; and
(iii) a reassessment of tax benefits recognized under FASB
ASC Topic 740, Income Taxes, which incorporates the
accounting literature formerly known as FIN 48. As
indicated above, an offsetting $19 million deferred tax
liability was recorded in the United States concurrently with
this term.
92
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FASB ASC Topic 740 clarifies when a company is able to recognize
a tax benefit in its financial statements related to a position
taken on its tax return. Under FASB ASC Topic 740, a company can
record a tax benefit on its financial statement when it is
more-likely-than-not that it will be able to utilize such tax
benefit in the future. This FASB ASC also requires the
recognition of liabilities created by differences between tax
positions taken on a tax return and amounts recognized in the
financial statements.
At December 31, 2009, we had tax effected uncertain tax
benefits of $48.6 million which includes $23.1 million
of deferred tax assets related to temporary differences and
$25.5 million in permanent differences which, if
recognized, would impact the effective tax rate. A
reconciliation of the beginning and ending amount of uncertain
tax benefits is as follows (in thousands):
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
52,048
|
|
Gross decreases tax positions in prior period
|
|
|
(4,156
|
)
|
Gross increases current period
|
|
|
690
|
|
Lapse of statute of limitations
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
48,582
|
|
The amount of unrecognized tax benefits may increase or decrease
in the future for various reasons including adding or reducing
amounts for current year tax positions, expiration of statute of
limitations on open income tax returns, changes in
managements judgment about the level of uncertainty,
status of tax examinations and legislative activity. We do not
expect the unrecognized tax benefits to significantly change
during the 2010 year.
A list of open tax years by major jurisdiction follows:
|
|
|
|
|
United States
|
|
|
1992-2009
|
|
United Kingdom
|
|
|
2007-2009
|
|
New York
|
|
|
2000-2009
|
|
Colorado
|
|
|
2001-2009
|
|
As of December 31, 2009, approximately $65 million of
our deferred tax assets related to our U.S. NOLs consists
of deductions for equity-based compensation for which the tax
benefit will be credited to additional paid-in capital if and
when realized. These deferred tax assets relate to equity-based
compensation deductions that were recognized on our
U.S. income tax returns prior to the adoption of FASB ASC
Topic 718 on January 1, 2006. In addition, through
December 31, 2009, we have an additional $11.0 million
of post-adoption benefits related to equity-based compensation
deductions that have been, or will be, recorded on our
U.S. income tax returns for calendar years 2006 through
2009, for which no deferred tax asset has been recorded. The tax
benefit for these post-adoption deductions will also be recorded
to additional paid-in capital, if and when realized.
The valuation allowance for our deferred tax assets for the year
ended December 31, 2009 decreased by approximately
$21 million compared to the year ended December 31,
2008. This decrease was principally attributable to our
recognition of the approximately $19 million tax benefit
related to the partial reversal of the valuation allowance
related to our U.K. NOLs discussed above. The remainder of the
decrease was due to the reversal of other temporary differences
and the impact of foreign currency translation adjustments and
equity-based compensation.
The valuation allowance as of December 31, 2009 and 2008
relates principally to the NOLs and R&D tax credit carry
forwards related to equity-bond compensation incurred prior to
our adoption of FASB ASC Topic 718 and certain U.K. NOLs.
93
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(14)
|
Convertible
Senior Subordinated Notes
|
The principal amount of our convertible senior subordinated
notes totaled approximately $335 million and
$415 million at December 31, 2009 and
December 31, 2008, respectively, and was comprised of our
2023 Notes, our 2025 Notes and our 2038 Notes. Interest
capitalized during 2009 amounted to $799,000. There was no
interest capitalized during 2008 and 2007.
In 2009, we adopted FASB ASC Subtopic
No. 470-20,
which incorporates the accounting literature formerly known as
FSP APB
14-1.
ASC
Subtopic
No. 470-20
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. It 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 following is a summary of the outstanding indebtedness under
our convertible senior subordinated notes as of
December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
Net Carrying
|
|
|
|
|
|
|
|
|
Net Carrying
|
|
|
|
Principal
|
|
|
Discount
|
|
|
Value
|
|
|
Principal
|
|
|
Discount
|
|
|
Value
|
|
|
2023 Notes 3.25%
|
|
$
|
60,467
|
|
|
$
|
|
|
|
$
|
60,467
|
|
|
$
|
99,950
|
|
|
$
|
|
|
|
$
|
99,950
|
|
2025 Notes 2.00%
|
|
|
115,000
|
|
|
|
7,938
|
|
|
|
107,062
|
|
|
|
115,000
|
|
|
|
15,181
|
|
|
|
99,819
|
|
2038 Notes 3.00%
|
|
|
160,000
|
|
|
|
19,205
|
|
|
|
140,795
|
|
|
|
200,000
|
|
|
|
30,674
|
|
|
|
169,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
335,467
|
|
|
$
|
27,143
|
|
|
$
|
308,324
|
|
|
$
|
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 through December 2010 and January
2013, respectively.
94
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes the interest expense recorded for the
three years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2023 Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest
|
|
$
|
3,096
|
|
|
$
|
3,757
|
|
|
$
|
4,875
|
|
Imputed interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
707
|
|
|
|
1,061
|
|
2025 Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest
|
|
|
2,227
|
|
|
|
2,300
|
|
|
|
2,300
|
|
Imputed interest
|
|
|
7,014
|
|
|
|
6,607
|
|
|
|
6,028
|
|
Amortization of debt issuance costs
|
|
|
569
|
|
|
|
569
|
|
|
|
569
|
|
2038 Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest
|
|
|
5,760
|
|
|
|
5,850
|
|
|
|
|
|
Imputed interest
|
|
|
6,401
|
|
|
|
6,356
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
1,798
|
|
|
|
1,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
26,865
|
|
|
$
|
27,217
|
|
|
$
|
14,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
3.0% Convertible
Senior Subordinated Notes
|
On January 9, 2008, we issued $200.0 million aggregate
principal amount of 2038 Notes in a private placement resulting
in net proceeds to us of approximately $193 million. We
used a portion of the proceeds to repurchase approximately
1.5 million shares of our common stock concurrently with
the offering for an aggregate price of $65.0 million. In
December 2009, we repurchased $40.0 million principal
amount of our 2038 Notes in open market transactions, which
reduced the outstanding aggregate principal amount of the 2038
Notes to $160.0 million. The 2038 Notes bear interest
semi-annually in arrears through maturity at an annual rate of
3% and mature on January 15, 2038. We may redeem for cash,
all or part of the 2038 Notes at any time on or after
January 15, 2013, at a price equal to 100% of the principal
amount of the 2038 Notes, plus accrued and unpaid interest.
Holders of the 2038 Notes have the right to require us to
purchase, for cash, all or any portion of their 2038 Notes on
January 15, 2013, 2018, 2023, 2028 and 2033 at a price
equal to 100% of the principal amount of the 2038 Notes to be
purchased, plus accrued and unpaid interest.
The 2038 Notes will be convertible only under certain
circumstances, as described below. If, at the time of
conversion, the daily volume-weighted average price per share
for a 20 trading day period, or VWAP, of our common stock is
less than or equal to approximately $73.82 per share, which is
referred to as the base conversion price, the 2038 Notes will be
convertible into 13.5463 shares of our common stock per
$1,000 principal amount of 2038 Notes, which is referred to as
the base conversion rate, subject to adjustment upon the
occurrence of certain events, as set forth in the indenture. If,
at the time of conversion, the VWAP of the common stock exceeds
the base conversion price of $73.82 per share, the conversion
rate will be determined pursuant to a formula resulting in the
holders receipt of up to a maximum of 20.9968 shares
of our common stock per $1,000 principal amount of 2038 Notes,
subject to adjustment upon the occurrence of certain events.
From and after January 15, 2013, the conversion rate for
the 2038 Notes will be fixed.
The 2038 Notes are convertible until the close of business on
the business day immediately preceding the maturity date, in
multiples of $1,000 in principal amount, at the option of the
holder only under the following circumstances: (1) during
any fiscal quarter beginning after March 31, 2008, and only
during such fiscal quarter, if the closing sale price of our
common stock for at least 20 trading days in the 30 consecutive
trading days ending on the last trading day of the immediately
preceding fiscal quarter is more than 130% of the base
conversion price per
95
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
share; (2) during the five business day period after any
period of five consecutive trading days in which the trading
price per $1,000 principal amount of 2038 Notes for each trading
day of that period was less than 97% of the product of the
closing sale price of our common stock on such day and the
applicable daily conversion rate for such day; (3) if we
call the 2038 Notes for redemption, at any time prior to the
close of business on the business day prior to the redemption
date; (4) if specified distributions to holders of our
common stock are made; (5) if a fundamental change occurs;
or (6) beginning on December 15, 2037 and ending at
the close of business on the business day immediately preceding
the maturity date. Upon conversion, we will have the right to
deliver, in lieu of shares of common stock, cash or a
combination of cash and shares of common stock.
A holder will receive in respect of each $1,000 principal amount
of the 2038 Notes converted, a number of shares of our common
stock equal to the sum of the daily share amounts
for each of the 20 consecutive trading days in the applicable
conversion reference period. With respect to trading days prior
to January 15, 2013, the daily share amount for a given
trading day in the applicable conversion reference period is an
amount equal to the fraction of (i) the VWAP for such
trading day multiplied by the applicable daily conversion
rate, divided by (ii) the VWAP on such trading day
multiplied by 20. If the VWAP is less than or equal to the base
conversion price, then the applicable daily conversion rate will
be equal to the base conversion rate. If the VWAP is greater
than the base conversion price, then the applicable daily
conversion rate will be equal to the sum of the base conversion
rate plus the product of: (i) 55% of the base conversion
rate, multiplied by (ii) a fraction equal to the VWAP less
the base conversion price, divided by the VWAP for the pertinent
trading day. We will have the right to deliver cash in lieu of
all or a portion of such shares, subject to certain limitations.
If a fundamental change transaction occurs before
January 15, 2013, and a holder elects to convert 2038 Notes
in connection with the transaction, we may be required to pay a
make whole premium by delivering additional shares
of stock (or cash in lieu of such shares) based on an increase
in the applicable base conversion rate for the 2038 Notes
determined by the effective date of the fundamental change and
the stock price paid per share in such transaction.
Notwithstanding the foregoing, in no event will the conversion
rate under the 2038 Notes exceed 22.3513 shares of our
common stock per $1,000 principal amount of the 2038 Notes,
subject to certain proportional adjustments applicable to the
base conversion rate.
The 2038 Notes are unsecured obligations and are subordinate to
all of our existing and future senior indebtedness. The 2038
Notes rank equally with all of our existing and future senior
subordinated indebtedness, and are effectively subordinated to
all of our existing and future secured indebtedness to the
extent of the security therefore.
As of January 1, 2010, the 2038 Notes were not eligible for
conversion because the 2038 Notes did not meet any of the
conversion criteria.
|
|
(b)
|
2.0% Convertible
Senior Subordinated Notes
|
In December 2005, we issued $115.0 million aggregate
principal amount of 2025 Notes in a private placement for net
proceeds to us of approximately $111 million. The 2025
Notes bear interest at 2.0% per annum, payable semi-annually,
and mature on December 15, 2025. The 2025 Notes are
convertible into cash, shares of our common stock or a
combination of cash and shares of our common stock based on an
initial conversion rate, subject to adjustment, of
33.9847 shares per $1,000 principal amount of notes (which
represents an initial conversion price of $29.43 per share),
only in the following circumstances and to the following extent:
(i) prior to December 15, 2020, during any fiscal
quarter after the fiscal quarter ending March 31, 2006, if
the closing sale price of our common stock for 20 or more
trading days in a period of 30 consecutive trading days ending
on the last trading day of the immediately preceding fiscal
quarter exceeds 120% of the conversion price in effect on the
last trading day of the immediately preceding fiscal quarter;
(ii) prior to December 15, 2020, during the five
business day period after any five consecutive trading day
period, or the note measurement period, in which the average
trading price per $1,000 principal amount of notes was equal to
or less than 97% of the average conversion value of the notes
during the note measurement period; (iii) upon the
occurrence of specified corporate transactions, as described in
the indenture for
96
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the 2025 Notes; (iv) if we call the 2025 Notes for
redemption; or (v) any time on or after December 15,
2020. Upon conversion, we will have the right to deliver, in
lieu of shares of common stock, cash or a combination of cash
and shares of common stock.
At any time before the maturity date, we may irrevocably elect,
in our sole discretion, to satisfy our conversion obligation in
cash for up to 100% of the principal amount of the notes
converted, with any remaining amount to be satisfied in shares
of our common stock. If certain fundamental changes occur before
December 15, 2010, the conversion rate may increase or,
under certain circumstances, we may elect to change our
conversion obligations to provide for conversion of the notes
into the acquiring companys common stock. We may redeem
the 2025 Notes, in whole or in part, for cash, at any time on or
after December 15, 2010 for a price equal to 100% of the
principal amount of the 2025 Notes to be redeemed, plus any
accrued and unpaid interest. The holders of the 2025 Notes have
the right to require us to purchase, for cash, all of the 2025
Notes, or a portion thereof, on December 15, 2010,
December 15, 2015, on December 15, 2020 and under
certain other circumstances as set out in the indenture, for a
price equal to 100% of the principal amount of the 2025 Notes
plus any accrued and unpaid interest.
Concurrent with the sale of the 2025 Notes, we used
$11.8 million of the net proceeds for the purchase of
500,000 shares of our common stock and we also purchased a
call spread overlay transaction from UBS, AG at a cost of
$12.2 million. The call spread is a European-type option
with a lower strike price of $29.425 and an upper strike price
of $40.00 and involves an aggregate of 3.4 million shares
of our common stock and expires on December 15, 2010. The
call spread overlay agreement has the effect of increasing the
effective conversion price of the 2025 Notes from our
perspective to $40.00 per share on the intended sale of
$100.0 million (excluding the sale of $15.0 million of
2025 Notes related to the exercise of the overallotment). The
agreement calls for settlement using net shares. Under the
agreement, bankers associated with the debt offering will
deliver to us the aggregate number of shares we are required to
deliver to a holder of 2025 Notes that presents such notes for
conversion. If the market price per share of our common stock is
above $40.00 per share, we will be required to deliver shares of
our common stock representing the value in excess of the strike
price. We recorded the purchase of the call spread overlay
option agreement as a reduction in additional paid
in capital, and will not recognize subsequent changes in fair
value of the agreement.
As of January 1, 2010, the 2025 Notes were not eligible for
conversion because the 2025 Notes did not meet any of the
conversion criteria.
The 2025 Notes have been classified as a current liability in
the accompanying December 31, 2009 consolidated balance
sheets, as the holders have the right to require us to purchase
all of the 2025 Notes, or a portion thereof, on
December 15, 2010. If holders of the notes make this
election, we are required to settle the notes for cash.
As of December 31, 2009 the if-converted value of the 2023
Notes exceeded the principal amount by $6.4 million.
|
|
(c)
|
3.25% Convertible
Senior Subordinated Notes
|
In September 2003, we issued $150.0 million aggregate
principal amount of 2023 Notes in a private placement for net
proceeds to us of approximately $145 million. During 2008
and 2009, we repurchased $50.1 million and
$39.5 million, respectively, of principal amount of our
2023 Notes in open market transactions, reducing the outstanding
aggregate principal of the 2023 Notes to $60.5 million as
of December 31, 2009.
The 2023 Notes bear interest at 3.25% per annum, payable
semi-annually, and mature on September 8, 2023. The 2023
Notes are convertible into shares of our common stock at a
conversion price of $50.02 per share, subject to normal and
customary adjustments such as stock dividends or other dilutive
transactions. The holders of the Notes had the right to require
us to purchase all of the 2023 Notes, or a portion thereof, on
September 8, 2008. As discussed below, a significant
portion of the holders did not exercise their right.
97
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We may redeem the 2023 Notes, in whole or in part, for cash, at
any time after September 8, 2008 for a price equal to 100%
of the principal amount of the 2023 Notes to be redeemed, plus
any accrued and unpaid interest. The holders of the 2023 Notes
have the right to require us to purchase all of the 2023 Notes,
or a portion thereof, on September 8, 2013 and
September 8, 2018 for a price equal to 100% of the
principal amount of the 2023 Notes plus any accrued and unpaid
interest. If the holders of the 2023 Notes make this election,
we can pay the purchase price in cash or by issuing our common
stock. Upon a change in control, as defined in the indenture
governing the 2023 Notes, the holders of the 2023 Notes will
have the right to require us to purchase all of the 2023 Notes,
or a portion thereof, not previously called for redemption at a
purchase price equal to 100% of the principal amount of the 2023
Notes purchased, plus accrued and unpaid interest.
Upon the exercise by the holders of the right to require us to
purchase the 2023 Notes or upon a change of control, we may
elect to pay the purchase price in common stock instead of cash.
The number of shares of common stock a holder will receive will
equal the purchase price divided by 95% of the average of the
closing prices of our common stock for the five-trading day
period ending on the third business day prior to the purchase
date.
In connection with the issuance of the 2023 Notes, we used
$19.0 million of the net proceeds for the purchase of
503,800 shares of our common stock.
The holders had the right to require us to purchase all of the
2023 Notes, or a portion thereof, in September 2008. This
purchase right expired on September 8, 2008. Prior to this
expiration date, holders of an aggregate of $50,000 principal
amount of our 2023 Notes exercised their right to require us to
repurchase their notes. The remaining holders of the 2023 Notes
do not have the right to require us to purchase the 2023 Notes
again until September 2013, except under certain other
circumstances set forth in the indenture for the 2023 Notes.
Therefore, the 2023 Notes are classified as a long-term
liability on the accompanying consolidated balance sheets.
|
|
(15)
|
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
using the five year retrospective application beginning in 2005
and restated the accompanying consolidated statement of
operations, statements of stockholders equity and the
statement of cash flows for the years ended December 31,
2008 and 2007 and also restated the accompanying
December 31, 2008 consolidated balance sheets 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
related to our senior subordinated convertible notes, decreasing
our net income for the years ended December 31, 2008 and
2007. It also required us to resequence our notes for dilutive
calculation purposes under the if-converted method.
98
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The impact of retrospective adoption on our statement of
operations for the years ended December 31, 2008 and 2007
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
As Originally
|
|
|
Currently
|
|
|
Effect of
|
|
|
As Originally
|
|
|
Currently
|
|
|
Effect of
|
|
|
|
Reported
|
|
|
Reported
|
|
|
Change
|
|
|
Reported
|
|
|
Reported
|
|
|
Change
|
|
|
|
Year Ended December 31, 2008
|
|
|
Year Ended December 31, 2007
|
|
|
Revenues
|
|
$
|
379,388
|
|
|
$
|
379,388
|
|
|
$
|
|
|
|
$
|
341,030
|
|
|
$
|
341,030
|
|
|
$
|
|
|
Operating expenses
|
|
|
246,078
|
|
|
|
246,078
|
|
|
|
|
|
|
|
243,593
|
|
|
|
243,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
133,310
|
|
|
|
133,310
|
|
|
|
|
|
|
|
97,437
|
|
|
|
97,437
|
|
|
|
|
|
Investment income
|
|
|
12,961
|
|
|
|
12,961
|
|
|
|
|
|
|
|
12,830
|
|
|
|
12,830
|
|
|
|
|
|
Interest expense
|
|
|
(14,759
|
)
|
|
|
(27,243
|
)
|
|
|
(12,484
|
)
|
|
|
(9,098
|
)
|
|
|
(14,892
|
)
|
|
|
(5,794
|
)
|
Other income (expense) net
|
|
|
1,632
|
|
|
|
1,632
|
|
|
|
|
|
|
|
4,170
|
|
|
|
4,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
133,144
|
|
|
|
120,660
|
|
|
|
(12,484
|
)
|
|
|
105,339
|
|
|
|
99,545
|
|
|
|
(5,794
|
)
|
Income tax (benefit) provision
|
|
|
(333,457
|
)
|
|
|
(316,049
|
)
|
|
|
17,408
|
|
|
|
2,732
|
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
466,601
|
|
|
|
436,709
|
|
|
|
(29,892
|
)
|
|
|
102,607
|
|
|
|
96,813
|
|
|
|
(5,794
|
)
|
Loss from discontinued operations
|
|
|
4,884
|
|
|
|
4,884
|
|
|
|
|
|
|
|
(36,288
|
)
|
|
|
(36,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
471,485
|
|
|
$
|
441,593
|
|
|
$
|
(29,892
|
)
|
|
$
|
66,319
|
|
|
$
|
60,525
|
|
|
$
|
(5,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the impact of retrospective
adoption on our diluted income per share as originally reported
for the years ended December 31, 2008 and 2007 (in
thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
As Originally
|
|
|
Currently
|
|
|
Effect of
|
|
|
As Originally
|
|
|
Currently
|
|
|
Effect of
|
|
|
|
Reported
|
|
|
Reported
|
|
|
Change
|
|
|
Reported
|
|
|
Reported
|
|
|
Change
|
|
|
|
Year Ended December 31, 2008
|
|
|
Year Ended December 31, 2007
|
|
|
Net income from continuing operations basic
|
|
|
$466,601
|
|
|
|
$436,709
|
|
|
|
$(29,892
|
)
|
|
|
$102,607
|
|
|
|
$96,813
|
|
|
|
$(5,794
|
)
|
Add: Interest and issuance costs related to convertible
debt net of tax
|
|
|
14,351
|
|
|
|
26,830
|
|
|
|
12,484
|
|
|
|
3,040
|
|
|
|
|
|
|
|
(3,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations diluted
|
|
|
$480,952
|
|
|
|
$463,539
|
|
|
|
$(17,408
|
)
|
|
|
$105,647
|
|
|
|
$96,813
|
|
|
|
$(8,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
57,316
|
|
|
|
57,316
|
|
|
|
|
|
|
|
57,665
|
|
|
|
57,665
|
|
|
|
|
|
Dilutive effect of options and restricted stock
|
|
|
729
|
|
|
|
729
|
|
|
|
|
|
|
|
668
|
|
|
|
668
|
|
|
|
|
|
Dilutive effect of 2023 Notes
|
|
|
2,308
|
|
|
|
2,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of 2025 Notes
|
|
|
3,908
|
|
|
|
3,908
|
|
|
|
|
|
|
|
3,908
|
|
|
|
|
|
|
|
(3,908
|
)
|
Dilutive effect of 2038 Notes
|
|
|
2,650
|
|
|
|
2,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and dilutive potential common
shares diluted
|
|
|
66,911
|
|
|
|
66,911
|
|
|
|
|
|
|
|
62,241
|
|
|
|
58,333
|
|
|
|
(3,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$8.14
|
|
|
|
$7.62
|
|
|
|
$(0.52
|
)
|
|
|
$1.78
|
|
|
|
$1.68
|
|
|
|
$(0.10
|
)
|
Diluted
|
|
|
$7.19
|
|
|
|
$6.93
|
|
|
|
$(0.26
|
)
|
|
|
$1.70
|
|
|
|
$1.66
|
|
|
|
$(0.04
|
)
|
99
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The impact of retrospectively adopting FASB ASC Subtopic
No. 470-20
on our consolidated balance sheet as of December 31, 2008
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
December 31,
|
|
|
and
|
|
|
|
|
|
|
2008
|
|
|
Currently
|
|
|
Effect of
|
|
|
|
As Reported
|
|
|
Reported
|
|
|
Change
|
|
|
Current assets
|
|
$
|
690,451
|
|
|
$
|
690,451
|
|
|
$
|
|
|
Deferred tax assets
|
|
|
303,727
|
|
|
|
303,727
|
|
|
|
|
|
Debt issuance costs
|
|
|
7,080
|
|
|
|
5,632
|
|
|
|
(1,448
|
)
|
Other Assets non current
|
|
|
104,393
|
|
|
|
104,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,105,651
|
|
|
$
|
1,104,203
|
|
|
$
|
(1,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
Deferred tax liabilities
|
|
|
12,592
|
|
|
|
30,000
|
|
|
|
17,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
534,105
|
|
|
|
505,658
|
|
|
|
(28,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 income
|
|
|
(3,908
|
)
|
|
|
(3,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
571,546
|
|
|
|
598,545
|
|
|
|
26,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,105,651
|
|
|
$
|
1,104,203
|
|
|
$
|
(1,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact of retrospectively adopting FASB ASC Subtopic
No. 470-20
on our consolidated statements of stockholders equity for
the years ended December 31, 2008 and 2007 was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
December 31,
|
|
|
and
|
|
|
|
|
|
December 31,
|
|
|
and
|
|
|
|
|
|
|
2008
|
|
|
Currently
|
|
|
Effect of
|
|
|
2007
|
|
|
Currently
|
|
|
Effect of
|
|
|
|
As Reported
|
|
|
Reported
|
|
|
Change
|
|
|
As Reported
|
|
|
Reported
|
|
|
Change
|
|
|
Common Stock
|
|
$
|
611
|
|
|
$
|
611
|
|
|
$
|
|
|
|
$
|
604
|
|
|
$
|
604
|
|
|
$
|
|
|
Additional paid-in capital
|
|
|
1,693,263
|
|
|
|
1,761,179
|
|
|
|
67,916
|
|
|
|
1,658,737
|
|
|
|
1,690,893
|
|
|
|
32,156
|
|
Accumulated deficit
|
|
|
(1,016,201
|
)
|
|
|
(1,057,118
|
)
|
|
|
(40,917
|
)
|
|
|
(1,487,686
|
)
|
|
|
(1,498,711
|
)
|
|
|
(11,025
|
)
|
Accumulated other comprehensive income
|
|
|
(3,908
|
)
|
|
|
(3,908
|
)
|
|
|
|
|
|
|
4,522
|
|
|
|
4,522
|
|
|
|
|
|
Treasury stock
|
|
|
(102,219
|
)
|
|
|
(102,219
|
)
|
|
|
|
|
|
|
(37,221
|
)
|
|
|
(37,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
571,546
|
|
|
$
|
598,545
|
|
|
$
|
26,999
|
|
|
$
|
138,956
|
|
|
$
|
160,087
|
|
|
$
|
21,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, and as reported as the opening
balance in the accompanying Consolidated Statement of
Stockholders Equity for the three years ended
December 31, 2009, 2008 and 2007, paid in capital increased
$32.2 million and retained earnings decreased
$5.2 million.
|
|
(16)
|
Employee
Savings and Investment Plans
|
We sponsor an Employee Savings and Investment Plan under
Section 401(k) of the Internal Revenue Code. The plan
allows our U.S. employees to defer from 2% to 70% of their
income on a pre-tax basis through contributions into designated
investment funds provided the total contribution does not exceed
the Internal Revenue
100
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Codes mandatory limits. We match each employees
contribution to the plan on a
dollar-for-dollar
basis up to 4% of such employees salary, and then match
50% of such employees contribution above 4% up to 6% of
his or her salary. During the years ended December 31,
2009, 2008 and 2007, our expenses related to the plan were
$2.1 million, $2.0 million and $2.0 million,
respectively.
We also sponsor four pension plans covering the employees of OSI
U.K. and Prosidion. The Group Personal Pension Plan allows
employees to contribute a portion of their income on a post-tax
basis into designated investment funds. The tax paid on the
contribution is then recovered from the Inland Revenue. We
generally contribute from 4% to 9% depending on the
employees contributions. The British Biotechnology Limited
Pension Scheme covers employees retained from the acquisition of
certain assets from British Biotechnology Limited, as well as
certain former employees of British Biotechnology hired by us
subsequent to the acquisition. The plan allows the employees to
defer up to 15% of their income on a pre-tax basis through
contributions into designated pension funds. For each period the
employee invests, we will contribute up to 9% into the funds.
For the years ended December 31, 2009, 2008 and 2007, our
expenses related to the plans were $721,000, $754,000 and
$704,000, respectively.
|
|
(17)
|
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 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
dependants who were eligible to participate in the plan on that
date. As a result of the curtailment, we reduced our liability
for this plan by $5.5 million and recognized a gain of
$4.3 million and recorded an adjustment to accumulated
other comprehensive income of $1.3 million. The curtailment
had the effect of decreasing the accumulated benefit obligation
at April 18, 2007 to $3.0 million. 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.
Net post-retirement benefit cost (excluding the
$4.3 million curtailment gain recognized in 2007) for
the years ended December 31, 2009, 2008 and 2007 included
the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost for benefits earned during the period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
337
|
|
Interest cost on accumulated post-retirement benefit obligation
|
|
|
135
|
|
|
|
176
|
|
|
|
252
|
|
Amortization of initial benefits attributed to past service
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Amortization of (gain)/loss
|
|
|
(32
|
)
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net post-retirement benefit cost
|
|
$
|
103
|
|
|
$
|
176
|
|
|
$
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accrued post-retirement benefit cost at December 31,
2009 and 2008 totaled $2.7 million and $2.7 million,
respectively.
101
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The changes in the accumulated post-retirement benefit
obligation during years ended December 31, 2009 and 2008
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
2,651
|
|
|
$
|
3,163
|
|
Benefit payments
|
|
|
(146
|
)
|
|
|
(182
|
)
|
Loss experience
|
|
|
109
|
|
|
|
(506
|
)
|
Interest cost
|
|
|
135
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,749
|
|
|
$
|
2,651
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, the health care cost
trend assumption remained at an initial level of 8%, decreasing
to an ultimate estimated rate of 5% by 2014 and thereafter.
Increasing the assumed health care cost trend rates by one
percentage point in each year and holding all other assumptions
constant would increase the accumulated post-retirement benefit
obligation as of December 31, 2009 by $275,000 and the
2009 net post-retirement service and interest cost by
$14,000. Decreasing the assumed health care cost trend rate by
one percentage point in each year and holding all other
assumptions constant would decrease the accumulated
post-retirement benefit obligation as of December 31, 2009
by $235,000 and the 2009 net post-retirement service and
interest cost by $12,000. Benefits paid in the years ended
December 31, 2009, 2008 and 2007 were $146,000, $182,000
and $118,000, respectively.
The weighted average assumptions used in determining benefit
obligations and net periodic benefits costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
5.00
|
%
|
|
|
5.25
|
%
|
|
|
5.72
|
%
|
Expected long-term rate of return on plan assets
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The discount rate was computed using Moodys Aa Corporate Bond
Index and Merrill Lynch 10+ Bond Index as of December 31,
2009.
For the years ended 2010 through 2014, we anticipate paying
benefits of $162,000, $177,000, $181,000, $194,000, and
$181,000, respectively. We anticipate paying aggregate benefits
of $895,000 for the years of 2015 through 2019.
|
|
(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 December 31, 2009 and 2008
was $571,000 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 December 31, 2009 and 2008, we had accrued
$1.7 million and $682,000 related to this plan,
respectively. The employees select among various investment
alternatives, with the investments held in a separate trust.
102
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(18)
|
Stockholders
Equity
|
We have six equity plans pursuant to which there are outstanding
grants issued to our employees, officers, directors and
consultants. The Amended and Restated Stock Incentive Plan is
the only plan which still has shares available for future grant.
The plans are administered by the Compensation Committee of the
Board of Directors, which may grant stock options and, in the
case of the Amended and Restated Stock Incentive Plan,
restricted stock, restricted stock units and deferred stock
units. The Compensation Committee determines the terms of all
equity grants under the plans. Our equity grants vest over
various periods and expire no later than 10 years from date
of grant. The total authorized shares under these plans are
17,759,500, of which 2,704,855 shares were available for
future grant as of December 31, 2009.
On March 17, 2004, at our 2004 annual meeting of
stockholders, our stockholders approved an amendment and
restatement of the 2001 Stock Option Plan in the form of the
Amended and Restated Stock Incentive Plan, or the Plan, which
was adopted by the Board of Directors on January 23, 2004.
On March 16, 2005, at our 2005 annual meeting of
stockholders, our stockholders approved an amendment to the Plan
to increase the number of equity awards issuable under the Plan
from 4 million shares to 6.8 million shares. On
June 13, 2007, our stockholders approved an amendment to
the Plan to increase the number of equity awards issuable under
the Plan from 6.8 million to 13.8 million.
Participation in the Plan is limited to our directors, officers,
employees and consultants of our parent or subsidiaries.
We have an employee stock purchase plan under which eligible
employees may contribute up to 10% of their base earnings toward
the quarterly purchase of our common stock. The employees
purchase price is derived from a formula based on the fair
market value of the common stock. During the years ended
December 31, 2009, 2008 and 2007, approximately 25,000,
20,000 and 24,000 shares, respectively, were issued with
approximately 146, 140 and 150 employees participating in
the plan, respectively. At December 31, 2009, we had
250,501 shares of our authorized common stock available for
future grant in connection with these plans.
We sponsor a stock purchase plan for our U.K.-based employees.
Under the terms of the plan, eligible employees may contribute
between £5 and £250 of their base earnings, in
36 monthly installments, towards the purchase of our common
stock. The employee purchase price is determined at the
beginning of the
36-month
period and compensation expense is recorded over the
36-month
period. There were 57 employees, 30 employees, and
13 employees that participated in our U.K. stock purchase
plan in 2009, 2008 and 2007, respectively. At December 31,
2009, we had 96,249 shares of our common stock available
for future grant in connection with the plan.
In January 2006, we adopted the provisions of FASB ASC Topic
No. 718, which incorporates the accounting literature
formerly known as SFAS No. 123(R), which establishes
the accounting for employee stock-based awards. Under the
provisions of FASB ASC Topic No. 718, stock-based
compensation is measured at the grant date, based on the
estimated fair value of the award, and is recognized as an
expense over the requisite employee service period (generally
the vesting period of the grant). We adopted FASB ASC Topic
No. 718 using the modified prospective method.
103
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Compensation expense related to continuing operations for the
years ended December 31, 2009, 2008 and 2007 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of sales
|
|
$
|
809
|
|
|
$
|
620
|
|
|
$
|
338
|
|
Research and development expenses
|
|
|
9,020
|
|
|
|
7,373
|
|
|
|
4,683
|
|
Selling, general and administrative expenses
|
|
|
15,440
|
|
|
|
12,789
|
|
|
|
10,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
25,269
|
|
|
$
|
20,782
|
|
|
$
|
15,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We did not record stock-based compensation expense related to
discontinued operations for the year ended December 31,
2009. Stock-based compensation expense related to discontinued
operations for the year ended December 31, 2008 was
$(193,000), primarily related to forfeiture activity in 2008.
Stock-based compensation expense related to discontinued
operations for the year ended December 31, 2007 was
$2.2 million. At December 31, 2009, the total
remaining unrecognized compensation cost related to unvested
stock-based payment awards was $78.7 million. This cost is
expected to be recognized over a weighted average period of
approximately 3.15 years.
We estimate the fair value of stock options 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 estimating the fair
value of our stock options granted. 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 new shares. We estimate expected volatility based upon a
combination of historical, implied and adjusted historical
volatility. The risk-free interest rate is based on the
U.S. treasury yield curve in effect at the time of grant.
We assumed an expected dividend yield of zero since we have not
historically paid dividends and do not expect to pay dividends
in the foreseeable future. The expected option term is
determined using a Monte Carlo simulation model that
incorporates historical employee exercise behavior and
post-vesting employee termination rates. The fair values of the
options were estimated at the date of grant using a
Black-Scholes option-pricing model with the following
assumptions, which are based upon the weighted average for the
periods reflected below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
47.62
|
%
|
|
|
50.20
|
%
|
|
|
46.40
|
%
|
Risk-free interest rate
|
|
|
2.47
|
%
|
|
|
2.32
|
%
|
|
|
3.83
|
%
|
Expected term (years)
|
|
|
5.81
|
|
|
|
5.36
|
|
|
|
4.65
|
|
Per share weighted average fair value of stock options grants
|
|
$
|
16.67
|
|
|
$
|
15.81
|
|
|
$
|
19.26
|
|
104
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of our stock option programs at December 31,
2009, 2008, and 2007 and changes during the years is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Intrinsic
|
|
|
Weighted Average
|
|
|
|
No. Shares
|
|
|
Average Exercise
|
|
|
Value(1)
|
|
|
Contractual Life
|
|
|
|
(In thousands)
|
|
|
Price
|
|
|
(In millions)
|
|
|
Remaining in Years
|
|
|
Outstanding at December 31, 2006
|
|
|
6,727
|
|
|
$
|
36.01
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
665
|
|
|
$
|
44.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,042
|
)
|
|
$
|
24.65
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(765
|
)
|
|
$
|
39.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
5,585
|
|
|
$
|
38.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
956
|
|
|
$
|
34.90
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(569
|
)
|
|
$
|
27.69
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(259
|
)
|
|
$
|
41.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
5,713
|
|
|
$
|
39.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,063
|
|
|
$
|
35.18
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
( 256
|
)
|
|
$
|
22.23
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
( 281
|
)
|
|
$
|
42.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
6,239
|
|
|
$
|
38.97
|
|
|
$
|
6.9
|
|
|
|
4.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
3,990
|
|
|
$
|
40.56
|
|
|
$
|
6.6
|
|
|
|
4.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2009
|
|
|
2,249
|
|
|
$
|
36.14
|
|
|
$
|
0.03
|
|
|
|
5.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The intrinsic value of a stock option is the amount by which the
current market value of the underlying stock exceeds the
exercise price of the option for in the money stock options.
|
The total intrinsic value of stock options exercised during the
years ended December 31, 2009, 2008 and 2007 was
$4.0 million, $10.7 million, $15.9 million,
respectively.
All of our options have exercise prices equal to the fair value
of the stock on the date of the grant. Generally, our grants
have contractual terms of between 7 and 10 years and have
vesting periods between 4 and 5 years.
|
|
(c)
|
Restricted
Stock, Restricted Stock Units, and Deferred Stock
Units
|
Our outstanding shares of restricted stock, restricted stock
units, and deferred stock units generally vest annually over a
four-year period depending on the award, are valued at the stock
price on date of grant and are subject to certain additional
terms and conditions, including but not limited to the continued
service of the employee or director. An aggregate of 1,270,748
restricted shares and units were outstanding as of
December 31, 2009, including 25,625 of deferred stock
units, representing $45.1 million of unrecognized
compensation expense which is expected to be recognized over a
weighted average period of 3.02 years.
105
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the status of our restricted
stock, restricted stock units and deferred stock units for the
years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
No. Shares
|
|
|
Average Grant
|
|
|
|
(In thousands)
|
|
|
Date Fair Value
|
|
|
Outstanding at December 31, 2006
|
|
|
623
|
|
|
$
|
35.69
|
|
Granted
|
|
|
498
|
|
|
$
|
46.77
|
|
Vested
|
|
|
(127
|
)
|
|
$
|
36.22
|
|
Forfeited
|
|
|
(97
|
)
|
|
$
|
35.59
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
897
|
|
|
$
|
41.90
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
538
|
|
|
$
|
33.96
|
|
Vested
|
|
|
(276
|
)
|
|
$
|
40.26
|
|
Forfeited
|
|
|
(52
|
)
|
|
$
|
43.12
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
1,107
|
|
|
$
|
38.46
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
580
|
|
|
$
|
35.23
|
|
Vested
|
|
|
(338
|
)
|
|
$
|
38.59
|
|
Forfeited
|
|
|
(78
|
)
|
|
$
|
39.03
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
1,271
|
|
|
$
|
36.84
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
Shareholder
Rights Plan
|
We have a shareholder rights plan, commonly referred to as a
poison pill. The purpose of the shareholder rights
plan is to protect stockholders against unsolicited attempts to
acquire control of us that do not offer a fair price to our
stockholders as determined by our Board of Directors. On
September 27, 2000, our Board of Directors adopted a
shareholder rights plan, declared a dividend distribution of one
Series SRPA Junior Participating Preferred Stock Purchase
Right on each outstanding share of its common stock, and
authorized the redemption of the rights issued pursuant to our
then current shareholder rights plan. We distributed rights to
all shareholders of record at the close of business on
September 27, 2000, the record date. These rights entitle
the holder to buy one one-thousandth of a share of
Series SRPA Junior Participating Preferred Stock upon a
triggering event as discussed below.
Upon the actual acquisition of 17.5% or more of our outstanding
common stock by a person or group, the rights held by all
holders other than the acquiring person or group will be
modified automatically to be rights to purchase shares of common
stock (instead of rights to purchase preferred stock) at 50% of
the then-market value of such common stock. Furthermore, such
rightholders will have the further right to purchase shares of
common stock at the same discount if we merge with, or sell 50%
or more of our assets or earning power to, the acquiring person
or group or any person acting for or with the acquiring person
or group. If the transaction takes the form of a merger of us
into another corporation, these rightholders will have the right
to acquire at the same percentage discount shares of common
stock of the acquiring person or other ultimate parent of such
merger party.
We can redeem the rights at any time before (but not after) a
person has acquired 17.5% or more of our common stock, with
certain exceptions. The rights will expire on August 31,
2010 if not redeemed prior to such date.
106
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(e)
|
Authorized
Common and Preferred Stock
|
We have 200 million shares of authorized common stock, with
a par value of $.01 per share, and five million shares of
preferred stock with a par value of $.01 per share, with such
designations, preferences, privileges, and restrictions as may
be determined from time to time by our Board of Directors.
|
|
(19)
|
Commitments
and Contingencies
|
We lease office, operating and laboratory space under various
lease agreements. Rent expense for continuing and discontinued
operations was approximately $4 million, $6 million
and $6 million for the years ended December 31, 2009,
2008 and 2007, respectively. Rent expense for 2008 includes the
Oxford, England facility leases, Boulder, Colorado facility
leases, Cedar Knolls, New Jersey facility lease and Farmingdale,
New York facility lease. We completed the purchase of the
previously leased research facilities in Oxford, England during
the first and second quarters of 2009 for $3.8 million and
$23.0 million, respectively.
The following is a schedule of future minimum rental payments
for the next five years and thereafter required as of
December 31, 2009. In addition to the facilities noted
above, the schedule includes subleased facilities in New York
City and Lexington, Massachusetts, exclusive of
sub-rental
income from these subleased facilities. Also included in the
amounts below are commitments for equipment under various
operating leases (in thousands).
|
|
|
|
|
2010
|
|
$
|
8,896
|
|
2011
|
|
|
8,947
|
|
2012
|
|
|
8,571
|
|
2013
|
|
|
8,513
|
|
2014
|
|
|
8,038
|
|
2015 and thereafter
|
|
|
47,526
|
|
|
|
|
|
|
|
|
$
|
90,491
|
|
|
|
|
|
|
Rental obligations and deferred rent in the accompanying
consolidated balance sheets reflects the rent expense recognized
on a straight-line basis in excess of the required lease
payments in connection with our facility leases and the present
value of net operating lease payments for exited facilities.
Included in rent and deferred rent as of December 31, 2009
is $2.6 million related to deferred rental payments and
$622,000 of accruals related to exited facilities and
refurbishment costs.
Under certain license and collaboration agreements with
pharmaceutical companies and educational institutions, we are
required to pay royalties, milestones
and/or
other
fees upon the successful development and commercialization of
products.
From time to time, we have received letters from companies and
universities advising us that various products under R&D by
us may be infringing existing patents of such entities. These
matters are reviewed by management, including in-house legal
counsel, and if necessary, by our outside counsel. Where valid
patents of other parties are found by us to be in place,
management will consider entering into licensing arrangements
with the universities
and/or
companies or modify the conduct of its research. Our future
royalties, if any, may be reduced if our licensees or
collaborative partners are required to obtain licenses from
third parties whose patent rights are infringed by our products,
technology or operations. In addition, should any infringement
claims result in a patent infringement lawsuit, we could incur
substantial costs in defense of such a suit, which could have a
material adverse effect on our business, financial condition and
results of operations, regardless of whether we were successful
in the defense.
107
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the fourth quarter of 2008, Prosidion acquired intellectual
property and other assets from 7TM Pharma A/S for
$4.0 million. The $4.0 million was recorded as an
in-process R&D charge, since it was associated with the
intellectual property which was deemed early stage with no
alternative use.
|
|
(b)
|
Acquisition
of AdipoGenix Assets
|
In the fourth quarter of 2007, Prosidion acquired intellectual
property and other laboratory equipment assets from AdipoGenix
Inc. for $2.3 million. Of the $2.3 million purchase
price, $2.2 million was recorded as an in-process R&D
charge, since it was associated with the intellectual property
which was deemed early stage and to have no alternative use. The
remainder of the cost was allocated to the laboratory equipment
acquired, based upon its fair value, and capitalized.
|
|
(21)
|
Eyetech
Discontinued Operations
|
|
|
(a)
|
Divestiture
of Eye Disease Business
|
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.
We finalized our exit plan during the first quarter of 2007 and
began to actively market our eye disease business. In order to
facilitate the divestiture of our eye disease business, on
April 20, 2007, we terminated our existing collaboration
agreement with Pfizer, Inc. Prior to the April 2007 amendment,
we shared sales and marketing responsibility for sales of
Macugen in the United States and reported product revenue on a
gross basis for these sales. After April 20, 2007, we no
longer shared the gross profits of U.S. sales with Pfizer
and no longer received royalties from Pfizer from rest of the
world sales.
In July 2007, we entered into an agreement with Ophthotech
Corporation to divest our anti-platelet derived growth factor,
or PDGF, aptamer program for an upfront cash payment, shares of
Ophthotech preferred stock and potential future milestones and
royalties. Included in the loss from discontinued operations for
the year ended December 31, 2007 was a gain of
approximately $6 million, recognized as a result of the
agreement.
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 consisted primarily of
members of the Macugen sales team. Under the terms of the
transaction, the principal assets we transferred to Eyetech Inc.
consisted of Macugen-related intellectual property and
inventory, as well as $5.8 million in working capital
primarily in the form of Macugen trade receivables, in exchange
for potential sales-related milestones of up to
$185 million, a royalty percentage on net sales depending
upon the level of Macugen sales and the potential for an
additional payment in the event of a change of control
transaction with respect to Eyetech Inc. Our consideration for
the transaction also included payments in the event of any
subsequent
change-of-control
affecting Eyetech Inc., as well as Eyetech Inc.s agreement
to assume certain obligations of (OSI) Eyetech. We also agreed
to provide certain transition services to Eyetech Inc. for the
period commencing with the closing through December 31,
2009. Michael G. Atieh, our former Executive Vice President,
Chief Financial Officer and Treasurer, agreed to join Eyetech
Inc. in a part-time executive chairman role upon his retirement
from OSI in December 2008. Mr. Atieh also holds stock in
Eyetech Inc. that became voting and participating with respect
to dividends and distribution following his retirement from our
company.
108
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(b)
|
(OSI)
Eyetech Milestone Revenue and Expense
|
In the second quarter of 2006, we received a $35.0 million
milestone payment from Pfizer upon the launch of Macugen in
select European countries. The milestone payment was recorded as
unearned revenue and was being recognized as revenue on a
straight-line basis over the expected term of our collaboration
and license agreements with Pfizer, which approximates the
expected level of performance under these agreements with
Pfizer. In April 2007, we terminated our collaboration and
license agreements with Pfizer and entered into an amended and
restated license agreement. Under the terms of the amended and
restated license agreement, Pfizer returned to us all rights to
develop and commercialize Macugen in the United States, and we
granted to Pfizer an exclusive right to develop and
commercialize Macugen in the rest of the world. We also agreed
with Pfizer to provide each other with certain transitional
services related to Macugen. These ongoing obligations to Pfizer
required us to amortize the $35.0 million milestone payment
over the term of the original agreement and include this
unearned revenue in loss from discontinued operations. In
connection with the sale of the remaining assets of our eye
disease business to Eyetech Inc. on August 1, 2008, we
assigned certain of our obligations under our amended and
restated license agreement with Pfizer to Eyetech Inc.
Accordingly, we believe that the earnings process with respect
to the milestone payment is now complete. As a result, we have
recognized $27.9 million, the remaining unamortized balance
of the $35.0 million milestone payment from Pfizer, in net
revenue from discontinued operations in 2008. We also recognized
a $2.0 million expense in the third quarter of 2008 related
to a third-party milestone obligation for Macugen.
|
|
(c)
|
(OSI)
Eyetech Operating Results
|
As a result of our decision to divest the eye disease business,
in accordance with the provision of FASB ASC Topic No. 360,
the results of operations of (OSI) Eyetech for the current and
prior periods were reported as discontinued operations. In
addition, assets and liabilities of (OSI) Eyetech were
classified as assets and liabilities related to discontinued
operations, including those held for sale. In the third and
fourth quarters of 2007, we assessed the net realizable carrying
amount or fair value of the assets held for sale and recognized
impairment charges of $5.6 million and $5.1 million,
respectively. Second quarter of 2008 results reflected an
additional $9.4 million impairment charge related to the
adjustment of the assets held for sale down to their net
realizable value. In the third quarter of 2008, as a result of
our completion of the sale of the remaining assets of our eye
disease business, we adjusted the remaining assets classified as
held for sale to their final net realizable value, resulting in
an additional charge of $1.4 million. We also incurred
expenses of $3.3 million associated with the divestiture.
Operating results of (OSI) Eyetech for the years ended
December 31, 2009, 2008 and 2007 are summarized as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenue
|
|
$
|
1,263
|
|
|
$
|
44,314
|
|
|
$
|
37,435
|
|
Gain on sale of PDGF aptamer research program
|
|
|
|
|
|
|
|
|
|
|
6,012
|
|
Loss on sale of eye disease business
|
|
|
|
|
|
|
(14,135
|
)
|
|
|
|
|
Operating income (loss)
|
|
|
(107
|
)
|
|
|
18,267
|
|
|
|
(35,797
|
)
|
Pretax income (loss)
|
|
|
(107
|
)
|
|
|
3,582
|
|
|
|
(36,930
|
)
|
Net income (loss) from discontinued operations
|
|
$
|
(64
|
)
|
|
$
|
4,884
|
|
|
$
|
(36,288
|
)
|
At December 31, 2009 and 2008, certain assets and
liabilities related to the eye disease business were classified
as assets or liabilities related to discontinued operations
except for certain lease obligations that we continue to retain.
109
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The summary of the assets and liabilities related to
discontinued operations as of December 31, 2009 and 2008 is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
427
|
|
|
$
|
917
|
|
|
|
|
|
|
|
|
|
|
Assets related to discontinued operations
|
|
$
|
427
|
|
|
$
|
917
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,238
|
|
|
$
|
1,522
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to discontinued operations
|
|
$
|
1,238
|
|
|
$
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
Variable
Interest Entities
|
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
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
Mr. Atieh, our former Executive Vice President, Chief
Financial Officer and Treasurer, a stockholder in Eyetech Inc.,
participated in the design of the entity and agreed to serve as
its part-time executive chairman following his retirement from
OSI in December 2008.
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 the future losses.
|
|
(e)
|
(OSI)
Eyetech Divestiture Severance Costs
|
As a result of our decision to exit our 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. The
remaining liability is expected to be paid during 2010.
The activity for the years ended December 31, 2009 and 2008
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Opening liability
|
|
$
|
387
|
|
|
$
|
800
|
|
Accrual for severance, relocation and retention bonuses
|
|
|
108
|
|
|
|
1,376
|
|
Cash paid for severance
|
|
|
(180
|
)
|
|
|
(1,789
|
)
|
|
|
|
|
|
|
|
|
|
Ending liability
|
|
$
|
315
|
|
|
$
|
387
|
|
|
|
|
|
|
|
|
|
|
110
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(22)
|
Accounting
Pronouncements
|
In August 2009, the FASB issued 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
year ended December 31, 2009.
In April 2009, the FASB issued FASB ASC Subtopic
No. 320-10-65,
formerly FASB Staff Position
FAS 115-2
and
FAS 124-2
Recognition and Presentation of
Other-Than-Temporary
Impairments. This accounting standard changed the amount
of an
other-than-temporary
impairment that is recognized in earnings when there are credit
losses on debt security that management does not intend to sell
and it is more-likely-than-not that the entry will not have to
sell prior to recovery of the noncredit impairment. It is
effective for interim and annual reporting periods ending after
June 15, 2009. The adoption of FASB ASC Subtopic
No. 320-10
did not have a material impact on our financial position,
results of operations or cash flows for the year ended
December 31, 2009.
In April 2009 the FASB issued FSP
FAS 157-4
(included in ASC Topic 820), Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability have
Significantly Decreased and Indentifying Transactions that are
not Orderly. This accounting literature provides
guidelines for making fair value measurements more consistent
with principles presented in SFAS 157. It also provides
additional authoritative guidance in determining whether a
market is active or inactive, and whether a transaction is
distressed, is applicable to all assets and liabilities or will
require enhanced disclosures. The adoption of this guidance did
not have a material impact on our financial position, results of
operations or cash flows for the year ended December 31,
2009.
In May 2008, the FASB issued FASB Staff Position, or FSP,
No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), now referred to as FASB ASC Topic 470. This
accounting literature clarifies that convertible debt
instruments that may be settled in cash upon conversion
(including partial cash settlement) are not addressed by
paragraph 12 of APB Opinion No. 14, Accounting
for Convertible Debt and Debt Issued with Stock Purchase
Warrants. Additionally, this accounting literature
specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that
will reflect the entitys nonconvertible debt borrowing
rate when interest cost is recognized in subsequent periods.
This guidance was effective beginning with our financial
statements issued for the first quarter of 2009. The adoption of
this guidance had a material impact on the carrying value and
the interest expense associated with our 2025 Notes and 2038
Notes.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, now referred to as FASB ASC
Topic No. 805. FASB ASC Topic No. 805 establishes
principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. The statement also
provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what
information to disclose to enable users of the financial
statements to evaluate the financial effects of the business
combination. The guidance is effective for us in our fiscal year
beginning January 1, 2009, to be applied prospectively to
business combinations entered into on or after January 1,
2009.
|
|
(b)
|
Recently
Issued Standards (Not Yet Adopted)
|
In October 2009, the FASB issued 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 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 these arrangements
should be separated, and
111
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 October 2009, the FASB issued ASU
No. 2009-17,
Consolidations: Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities. It
requires reporting entities to evaluate former qualifying
special purpose entities for consolidation, changes the approach
to determining a VIEs primary beneficiary from a
quantitative assessment to a qualitative assessment designed to
identify a controlling financial interest, and increases the
frequency of required reassessments to determine whether a
company is the primary beneficiary of a VIE. It also clarifies,
but does not significantly change, the characteristics that
identify a VIE. This ASU also requires additional year-end and
interim disclosures and is effective for fiscal years commencing
after November 15, 2009. We are assessing the potential
impact of adoption of this standard.
In September 2009, the FASB issued ASU
No. 2009-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements. ASU
2009-06
amends certain disclosure requirements of Subtopic
820-10.
This
ASU provides additional disclosures for transfers in and out of
Levels I and II and for activity in Level III.
This ASU also clarifies certain other existing disclosure
requirements including level of desegregation and disclosures
around inputs and valuation techniques. The final amendments to
the Accounting Standards Codification will be effective for
annual or interim reporting periods beginning after
December 15, 2009, except for the requirement to provide
the Level III activity disclosures for purchases, sales,
issuances, and settlements on a gross basis. That requirement
will be effective for fiscal years beginning after
December 15, 2010, and for interim periods within those
fiscal years. We are assessing the potential impact of adoption
of this standard.
(23) Quarterly
Financial Data (unaudited)
The tables below summarize our unaudited quarterly operating
results for the years ended December 31, 2009 and 2008. The
retrospective adoption of FASB ASC Topic 470, which impacted the
carrying value and related interest expense associated with our
2025 and 2038 Notes, resulted in adjusting the historically
reported information for each of the quarters presented for the
year ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
(in thousands, except per share data)
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Revenues from continuing operations
|
|
$
|
93,677
|
|
|
$
|
99,066
|
|
|
$
|
111,447
|
|
|
$
|
123,958
|
|
Net income from continuing operations
|
|
$
|
16,504
|
|
|
$
|
16,508
|
|
|
$
|
17,864
|
|
|
$
|
25,119
|
|
Net income
|
|
$
|
16,400
|
|
|
$
|
16,531
|
|
|
$
|
17,566
|
|
|
$
|
25,434
|
|
Basic income per share from continuing operations
|
|
$
|
0.29
|
|
|
$
|
0.29
|
|
|
$
|
0.31
|
|
|
$
|
0.43
|
|
Diluted income per share from continuing operations
|
|
$
|
0.28
|
|
|
$
|
0.28
|
|
|
$
|
0.30
|
|
|
$
|
0.42
|
|
Basic net income per share
|
|
$
|
0.28
|
|
|
$
|
0.29
|
|
|
$
|
0.30
|
|
|
$
|
0.44
|
|
Diluted net income per share
|
|
$
|
0.28
|
|
|
$
|
0.28
|
|
|
$
|
0.30
|
|
|
$
|
0.42
|
|
112
OSI
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
(in thousands, except per share data)
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Revenues from continuing operations
|
|
$
|
90,735
|
|
|
$
|
95,654
|
|
|
$
|
94,572
|
|
|
$
|
98,427
|
|
Net income from continuing operations
|
|
$
|
28,596
|
|
|
$
|
34,166
|
|
|
$
|
31,362
|
|
|
$
|
342,585
|
|
Net income
|
|
$
|
26,170
|
|
|
$
|
22,247
|
|
|
$
|
51,643
|
|
|
$
|
341,533
|
|
Basic income per share from continuing operations
|
|
$
|
0.50
|
|
|
$
|
0.60
|
|
|
$
|
0.55
|
|
|
$
|
5.95
|
|
Diluted income per share from continuing operations
|
|
$
|
0.49
|
|
|
$
|
0.59
|
|
|
$
|
0.53
|
|
|
$
|
5.24
|
|
Basic net income per share
|
|
$
|
0.46
|
|
|
$
|
0.39
|
|
|
$
|
0.90
|
|
|
$
|
5.93
|
|
Diluted net income per share
|
|
$
|
0.45
|
|
|
$
|
0.39
|
|
|
$
|
0.87
|
|
|
$
|
5.22
|
|
The basic and diluted net income per common share calculation
for each of the quarters are based on the weighted average
number of shares outstanding and the effect of common stock
equivalents in each period. Therefore, the sum of the quarters
in a fiscal year does not necessarily equal the basic and
diluted net income per common share for the full year.
113
Not Applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
CEO/CFO
CERTIFICATIONS
Attached to this Annual Report on
Form 10-K
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 9A 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 DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Our Disclosure Controls and
Procedures.
Our disclosure controls and
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 Annual Report on
Form 10-K,
the CEO and the CFO evaluate the effectiveness of the design and
operation of our disclosure controls and procedures (as defined
in
Rule 13a-15(e))
under the Securities Exchange Act of 1934, or the Exchange Act,
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 Annual Report on
Form 10-K.
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 Annual Report on
Form 10-K
was being prepared.
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rules 13a-15(f)
of the Exchange Act).
Under the supervision of and with the participation of our CEO
and our CFO, our management conducted an assessment of the
effectiveness of our internal control over financial reporting
based on the framework and criteria established in
Internal
Control Integrated Framework,
issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, our management has
concluded that, as of December 31, 2009, our internal
control over financial reporting was effective. The
effectiveness of our internal control over financial reporting
as of December 31, 2009 has been audited by KPMG LLP, our
independent registered public accounting firm, as stated in its
report which is included in this Annual Report on
Form 10-K.
CHANGES
IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no changes in our internal control over financial
reporting (as defined in
Rule 13a-15(f)
of the Exchange Act), identified in connection with the
evaluation of such internal control over financial reporting
that occurred during the fourth quarter of fiscal 2009 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
114
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
OSI Pharmaceuticals, Inc.:
We have audited OSI Pharmaceuticals, Inc.s internal
control over financial reporting as of December 31, 2009,
based on criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). OSI
Pharmaceuticals, Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control. Our responsibility
is to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, OSI Pharmaceuticals, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in
Internal Control Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of OSI Pharmaceuticals, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations,
stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 2009, and our
report dated February 24, 2010 expressed an unqualified
opinion on those consolidated financial statements.
/s/ KPMG LLP
Melville, NY
February 24, 2010
115
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
In September, 2009, we entered into a Design-Build Agreement,
with Eagle Interiors Inc., or Eagle, for the design and
renovation of our Ardsley campus. Under the terms of the
Design-Build Agreement, Eagle shall provide certain
pre-construction services and design-build services on a cost of
work plus a design-builders fee. In addition, Eagle shall
receive a bonus if the design-build services meet approved
budget and completion dates. The preceding summary of the
Design-Build Agreement is not intended to be complete, and is
qualified in its entirety by reference to the full text of the
Design-Build Agreement, which is filed as Exhibit 10.41 to
this Annual Report on
Form 10-K.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this item is incorporated by
reference to the similarly named section of our Proxy Statement
for our 2010 Annual Meeting to be filed with the Securities and
Exchange Commission not later than 120 days after
December 31, 2009.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is incorporated by
reference to the similarly named section of our Proxy Statement
for our 2010 Annual Meeting to be filed with the Securities and
Exchange Commission not later than 120 days after
December 31, 2009.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is incorporated by
reference to the similarly named section of our Proxy Statement
for our 2010 Annual Meeting to be filed with the Securities and
Exchange Commission not later than 120 days after
December 31, 2009.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this item is incorporated by
reference to the similarly named section of our Proxy Statement
for our 2010 Annual Meeting to be filed with the Securities and
Exchange Commission not later than 120 days after
December 31, 2009.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by this item is incorporated by
reference to the similarly named section of our Proxy Statement
for our 2010 Annual Meeting to be filed with the Securities and
Exchange Commission not later than 120 days after
December 31, 2009.
116
PART IV
|
|
ITEM 15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a) (1) The following consolidated financial
statements are included in Part II, Item 8 of this
report:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) All schedules are omitted as the required information
is inapplicable or the information is presented in the financial
statements or related notes.
(3) The exhibits listed in the Index to Exhibits are
attached and incorporated herein by reference and filed as a
part of this report.
117
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
OSI PHARMACEUTICALS, INC.
|
|
|
|
By:
|
/s/ COLIN
GODDARD, Ph.D.
|
Colin Goddard, Ph.D.
Chief Executive Officer
Date: February 24, 2010
Pursuant to the requirements of the Securities and Exchange Act
of 1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the days indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/
ROBERT
A. INGRAM
Robert
A. Ingram
|
|
Chairman of the Board
|
|
February 24, 2010
|
|
|
|
|
|
/s/ COLIN
GODDARD, Ph.D.
Colin
Goddard, Ph.D.
|
|
Director and Chief Executive Officer
(principal executive officer)
|
|
February 24, 2010
|
|
|
|
|
|
/s/
PIERRE
LEGAULT
Pierre
Legault
|
|
Executive Vice President, Chief Financial Officer and Treasurer
(principal financial
and accounting officer)
|
|
February 24, 2010
|
|
|
|
|
|
/s/
SANTO
J. COSTA
Santo
J. Costa
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/
JOSEPH
KLEIN, III
Joseph
Klein, III
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ KENNETH
B. LEE, Jr.
Kenneth
B. Lee, Jr.
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/
VIREN
MEHTA
Viren
Mehta
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/
DAVID
W. NIEMIEC
David
W. Niemiec
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/ HERBERT
PINEDO, M.D., Ph.D.
Herbert
Pinedo, M.D., Ph.D.
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/
KATHARINE
B. STEVENSON
Katharine
B. Stevenson
|
|
Director
|
|
February 24, 2010
|
|
|
|
|
|
/s/
JOHN
P. WHITE, ESQUIRE
John
P. White, Esquire
|
|
Director
|
|
February 24, 2010
|
118
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
|
|
2
|
.1+
|
|
Asset Purchase Agreement, dated as of June 17, 2004, by and
between Probiodrug AG, Halle and Prosidion Limited, filed by the
Company as an exhibit to the
Form 8-K
filed on July 6, 2004 (file
no. 000-15190),
and incorporated herein by reference.
|
|
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.
|
|
4
|
.1
|
|
Rights Agreement, dated September 27, 2000, between OSI
Pharmaceuticals, Inc. and The Bank of New York as Rights Agent,
including Terms of Series SRP Junior Participating
Preferred Stock, Summary of Rights to Purchase Preferred Stock
and Form of Right Certificate, filed by the Company as an
exhibit to the
Form 8-A
filed on September 27, 2000 (file
no. 000-15190),
and incorporated herein by reference.
|
|
4
|
.2
|
|
Form of Contingent Value Rights Agreement by and between OSI
Pharmaceuticals, Inc. and the Bank of New York, filed by the
Company as an exhibit to the registration statement on
Form S-4
(file
no. 333-103644),
and incorporated herein by reference.
|
|
4
|
.3
|
|
Indenture, dated September 8, 2003, by and between OSI
Pharmaceuticals, Inc. and The Bank of New York, filed by the
Company as an exhibit to the
Form 10-K
for the fiscal year ended September 30, 2003 (file
no. 000-15190)
and incorporated herein by reference.
|
|
4
|
.4
|
|
Form of 3.25% Convertible Senior Subordinated Note Due 2023
(included in Exhibit 4.3), filed by the Company as an
exhibit to the
Form 10-K
for the fiscal year ended September 30, 2003 (file
no. 000-15190)
and incorporated herein by reference.
|
|
4
|
.5
|
|
Registration Rights Agreements, dated September 8, 2003, by
and among OSI Pharmaceuticals, Inc., Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith,
Incorporated, and Morgan Stanley & Co., Incorporated,
filed by the Company as an exhibit to the
Form 10-K
for the fiscal year ended September 30, 2003 (file
no. 000-15190)
and incorporated herein by reference.
|
|
4
|
.6
|
|
Indenture, dated December 21, 2005, by and between OSI
Pharmaceuticals, Inc. and The Bank of New York, filed by the
Company as an exhibit to the
Form 8-K
filed on December 28, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
4
|
.7
|
|
Form of 2% Convertible Senior Subordinated Note Due 2025
(included in Exhibit 4.6), filed by the Company as an
exhibit to the
Form 8-K
filed on December 28, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
4
|
.8
|
|
Registration Rights Agreement, dated December 21, 2005, by
and between OSI Pharmaceuticals, Inc. and UBS Securities LLC,
filed by the Company as an exhibit to the
Form 8-K
filed on December 28, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
4
|
.9
|
|
Indenture, dated January 9, 2008, by and between OSI
Pharmaceuticals, Inc. and The Bank of New York, filed by the
Company as an exhibit to the
Form 8-K
filed on January 15, 2008 (file
no. 000-15190),
and incorporated herein by reference.
|
|
4
|
.10
|
|
Form of 3% Convertible Senior Subordinated Note Due 2038
(included in Exhibit 4.9), filed by the Company as an
exhibit to the
Form 8-K
filed on January 15, 2008 (file
no. 000-15190),
and incorporated herein by reference.
|
|
4
|
.11
|
|
Registration Rights Agreement, dated January 9, 2008, by
and between OSI Pharmaceuticals, Inc. and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and J.P. Morgan Securities Inc., filed
by the Company as an exhibit to the
Form 8-K
filed on January 15, 2008 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.1*
|
|
1989 Incentive and Non-Qualified Stock Option Plan, filed by the
Company as an exhibit to the registration statement on
Form S-8
(file
no. 33-38443),
and incorporated herein by reference.
|
|
10
|
.2*
|
|
1995 Employee Stock Purchase Plan, filed by the Company as an
exhibit to the registration statement on
Form S-8,
filed on December 4, 1995 (file
no. 333-06861),
and incorporated herein by reference.
|
119
|
|
|
|
|
Exhibit
|
|
|
|
|
10
|
.3*
|
|
1997 Incentive and Non-Qualified Stock Option Plan, filed by the
Company as an exhibit to the registration statement on
Form S-8,
filed on November 4, 1997 (file
no. 333-39509),
and incorporated herein by reference.
|
|
10
|
.4*
|
|
1999 Incentive and Non-Qualified Stock Option Plan, as amended,
filed by the Company as an exhibit to the
Form 10-Q
for the quarter ended September 30, 2006 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.5*
|
|
Amended and Restated Stock Incentive Plan, as amended, filed by
the Company as an exhibit to the
Form 10-Q
for the quarter ended September 30, 2007 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.6
|
|
OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan for
Former Employees of Cadus Pharmaceutical Corporation, filed by
the Company as an exhibit to the
Form 10-Q
for the quarter ended June 30, 1999 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.7
|
|
OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan for
Former Employees of Gilead Sciences, Inc., filed by the Company
as an exhibit to the
Form 8-K
filed on January 7, 2002 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.8
|
|
OSI Pharmaceuticals, Inc. Stock Incentive Plan for Pre-Merger
Employees of Eyetech Pharmaceuticals, Inc., filed by the Company
as an exhibit to the
Form 8-K
filed on November 16, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.9
|
|
OSI Pharmaceuticals, Inc. Stock Plan for Assumed Options of
Pre-Merger Employees of Eyetech Pharmaceuticals, Inc., filed by
the Company as an exhibit to the
Form 8-K
filed on November 16, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.10*
|
|
Form of Non-Qualified Stock Option Agreement, issued under the
Amended and Restated Stock Incentive Plan, as amended, for
option grants made in December, 2008 to
U.S.-Based
Executive Officers 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
|
.11*
|
|
Form of Non-Qualified Stock Option Agreement, issued under the
Amended and Restated Stock Incentive Plan, as amended, for
option grants made in December, 2008 to U.K.-Based Executive
Officers 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
|
.12*
|
|
Form of Non-Qualified Stock Option Agreement, issued under the
Amended and Restated Stock Incentive Plan, as amended, to
U.S.-Based
Executive Officers of OSI Pharmaceuticals, Inc. (Filed herewith).
|
|
10
|
.13*
|
|
Form of Non-Qualified Stock Option Agreement, issued under the
Amended and Restated Stock Incentive Plan, as amended, to the
Chief Executive Officer of OSI Pharmaceuticals, Inc. (Filed
herewith).
|
|
10
|
.14*
|
|
Form of Non-Qualified Stock Option Agreement, issued under the
Amended and Restated Stock Incentive Plan, as amended, to
Dr. Anker Lundemose. (Filed herewith).
|
|
10
|
.15*
|
|
Form of Non-Qualified Stock Option Agreement, issued under the
Amended and Restated Stock Incentive Plan, as amended, to
Dr. Jonathan Rachman. (Filed herewith).
|
|
10
|
.16*
|
|
Form of Restricted Stock Unit Agreement, issued under the
Amended and Restated Stock Incentive Plan, for grants made to
the Chief Executive Officer and Chief Financial Officer in
December, 2009 to
U.S.-Based
Executive Officers of OSI Pharmaceuticals, Inc. (Filed herewith).
|
|
10
|
.17*
|
|
Form of Restricted Stock Unit Agreement, issued under the
Amended and Restated Stock Incentive Plan, for grants made to
U.S.-Based
Executive Officers of OSI Pharmaceuticals, Inc. (Filed herewith).
|
|
10
|
.18*
|
|
Form of Restricted Stock Unit Agreement, issued under the
Amended and Restated Stock Incentive Plan, for grants made to
Dr. Anker Lundemose. (Filed herewith).
|
|
10
|
.19*
|
|
Form of Restricted Stock Unit Agreement, issued under the
Amended and Restated Stock Incentive Plan, for grants made to
Dr. Jonathan Rachman. (Filed herewith).
|
|
10
|
.20*
|
|
Form of Non-Qualified Stock Option Agreement for Non-Management
Directors of OSI Pharmaceuticals, Inc., filed by the Company as
an exhibit to the
Form 8-K
filed on June 22, 2006 (file
no. 000-15190),
and incorporated herein by reference.
|
120
|
|
|
|
|
Exhibit
|
|
|
|
|
10
|
.21*
|
|
Form of Restricted Stock Unit Agreement for Non-Management
Directors of OSI Pharmaceuticals, Inc., filed by the Company as
an exhibit to the
Form 8-K
filed on July 12, 2006 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.22*
|
|
Form of Restricted Stock Agreement for Non-Management Directors
of OSI Pharmaceuticals, Inc., filed by the Company as an exhibit
to the
Form 8-K
filed on July 12, 2006 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.23*
|
|
OSI Pharmaceuticals, Inc. Nonqualified Deferred Compensation
Plan, effective July 1, 2007, filed by the Company as an
exhibit to the
Form 10-Q
for the quarter ended June 30, 2007 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.24*
|
|
Form of Deferred Stock Unit Agreement for the Non-Employee
Directors of OSI Pharmaceuticals, Inc., filed by the Company as
an exhibit to the
Form 10-Q
for the quarter ended June 30, 2007 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.25
|
|
Collaborative Research Agreement, dated April 1, 1996,
between OSI Pharmaceuticals, Inc. and Pfizer Inc., filed by the
Company as an exhibit to the
Form 10-Q
for the quarter ended March 31, 1996, as amended (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.26
|
|
License Agreement, dated April 1, 1996, between OSI
Pharmaceuticals, Inc. and Pfizer Inc., filed by the Company as
an exhibit to the
Form 10-Q
for the quarter ended March 31, 1996, as amended (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.27
|
|
Amended and Restated License Agreement, dated April 20,
2007, by and between OSI Pharmaceuticals, Inc. and Pfizer, Inc.,
filed by the Company as an exhibit to the
Form 10-Q
for the quarter ended March 31, 2007 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.28
|
|
Agreement, dated May 23, 2000, by and between OSI
Pharmaceuticals, Inc. and Pfizer, Inc., filed by the Company as
an exhibit to the
Form 8-K
filed on June 20, 2000 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.29
|
|
Development and Marketing Collaboration Agreement, dated
January 8, 2001, between OSI Pharmaceuticals, Inc. and
Genentech, Inc., filed by the Company as an exhibit to the
Form 8-K
filed on February 14, 2001 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.30
|
|
Amendment No. 1 to Development and Marketing Collaboration
Agreement, dated as of June 4, 2004, between OSI
Pharmaceuticals, Inc. and Genentech, Inc., filed by the Company
as an exhibit to the
Form 8-K
filed on June 28, 2004 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.31
|
|
Manufacturing and Supply Agreement, dated as of June 4,
2004, by and between OSI Pharmaceuticals, Inc. and Genentech,
Inc., filed by the Company as an exhibit to the
Form 8-K
filed on June 28, 2004 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.32
|
|
Development Collaboration and Licensing Agreement, dated
January 8, 2001, between OSI Pharmaceuticals, Inc. and F.
Hoffman La Roche Ltd., filed by the Company as
an exhibit to the
Form 8-K
filed on February 14, 2001 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.33
|
|
Tripartite Agreement, dated January 8, 2001, by and among
OSI Pharmaceuticals, Inc., Genentech, Inc., and F. Hoffman
La Roche Ltd., filed by the Company as an exhibit to the
Form 8-K
filed on February 14, 2001 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.34
|
|
Supply Agreement, dated February 2, 2005, by and between
Schwarz Pharma Manufacturing, Inc. and OSI Pharmaceuticals, Inc.
filed by the Company as an exhibit to the
Form 10-Q
for the quarter ended March 31, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.35
|
|
Manufacturing and Supply Agreement, dated December 27,
2004, by and among OSI Pharmaceuticals, Inc., Charkit Chemical
Corporation and Sumitomo Chemical Co., Ltd., filed by the
Company as an exhibit to the
Form 10-Q
for the quarter ended September 30, 2009 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.36
|
|
Manufacturing and Supply Agreement, dated November 10,
2005, by and among OSI Pharmaceuticals, Inc., Davos Chemical
Corporation and Dipharma SpA., filed by the Company as an
exhibit to the
Form 10-Q
for the quarter ended September 30, 2009 (file
no. 000-15190),
and incorporated herein by reference.
|
121
|
|
|
|
|
Exhibit
|
|
|
|
|
10
|
.37
|
|
Agreement of Sale and Purchase, dated March 15, 2005, by
and between Swissair, Swiss Air Transport Co., Ltd. and OSI
Pharmaceuticals, Inc. filed by the Company as an exhibit to the
Form 10-Q
for the quarter ended March 31, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.38
|
|
Purchase and Sale Agreement, dated July 6, 2009, by and
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.
|
|
10
|
.39
|
|
Agreement relating to Windrush Court, Oxford, dated May 29,
2009, by and between Matrix Portfolio No. 1 Limited and
Oxford Real Estate Owner No. 2 Limited, 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.
|
|
10
|
.40
|
|
Exclusive License Agreement, effective as of January 4,
2007, by and between Eli Lilly and Company and Prosidion
Limited, filed by the Company as an exhibit to the
Form 10-K
for the fiscal year ended December 31, 2006 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.41
|
|
Design-Build Agreement, dated September 22, 2009, by and
between OSI Ardsley LLC, and Eagle Interiors Inc. (Filed
herewith).
|
|
10
|
.42*
|
|
Employment Agreement, dated June 14, 2006, by and between
OSI Pharmaceuticals, Inc. and Colin Goddard, Ph.D., as
amended on June 21, 2006, filed by the Company as an
exhibit to the
Form 8-K
filed on June 22, 2006, and incorporated herein by
reference.
|
|
10
|
.43*
|
|
Amendment to Employment Agreement, dated December 18, 2008,
by and between OSI Pharmaceuticals, Inc. and Colin
Goddard, Ph.D., 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
|
.44*
|
|
Employment Agreement, dated December 16, 2008, by and
between OSI Pharmaceuticals, Inc. and Pierre Legault, filed by
the Company as an exhibit to the
Form 8-K
filed on December 16, 2008 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.45*
|
|
Letter Agreement, dated November 15, 2001, by and between
OSI Pharmaceuticals, Inc. and Mr. Robert L. Simon filed by
the Company as an exhibit to the
Form 10-Q
for the quarter ended March 31, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.46*
|
|
Amended Letter Agreement, dated September 20, 2005, by and
between OSI Pharmaceuticals, Inc. and Robert L. Simon, filed by
the Company as an exhibit to the
Form 8-K
filed on September 26, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.47*
|
|
Amendment to Letter Agreement, dated December 18, 2008, by
and between OSI Pharmaceuticals, Inc. and Robert L. Simon, 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
|
.48*
|
|
Change of Control Arrangement, dated October 4, 2001, by
and between OSI Pharmaceuticals, Inc. and Barbara A.
Wood, Esq., filed by the Company as an exhibit to the
Form 10-Q
for the quarter ended March 31, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.49*
|
|
Amended Change of Control Arrangement, dated September 20,
2005, by and between OSI Pharmaceuticals, Inc. and Barbara A.
Wood, Esq. filed by the Company as an exhibit to the
Form 8-K
filed on September 26, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.50*
|
|
Amendment to Change of Control Arrangement, dated
December 18, 2008, by and between OSI Pharmaceuticals, Inc.
and Barbara A. Wood, Esq., 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
|
.51*
|
|
Employment Agreement, dated May 16, 2003, by and between
OSI Pharmaceuticals, Inc. and Gabriel Leung, filed by the
Company as an exhibit to the
Form 10-K
for the fiscal year ended September 30, 2003 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.52*
|
|
Addendum to Employment Agreement, dated January 5, 2004, by
and between OSI Pharmaceuticals, Inc. and Gabriel Leung, filed
by the Company as an exhibit to the
Form 10-QT
for the transition period ended December 31, 2004 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.53*
|
|
Amendment to Employment Agreement, dated December 18, 2008,
by and between OSI Pharmaceuticals, Inc. and Gabriel Leung,
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.
|
122
|
|
|
|
|
Exhibit
|
|
|
|
|
10
|
.54*
|
|
Service Contract, dated September 20, 2005, by and between
OSI Pharmaceuticals, Inc. and Dr. Anker Lundemose, filed by
the Company as an exhibit to the
Form 8-K
filed on September 26, 2005 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.55*
|
|
Change in Control Arrangement, dated December 4, 2007, by
and between OSI Pharmaceuticals, Inc. and Linda E. Amper, filed
by the Company as an exhibit to the
Form 10-K
for the fiscal year ended December 31, 2007 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.56*
|
|
Amendment to Change in Control Arrangement, dated
December 18, 2008, by and between OSI Pharmaceuticals, Inc.
and Linda E. Amper, 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
|
.57*
|
|
Consulting and Confidential Disclosure Agreement, dated
October 1, 2009, between OSI Pharmaceuticals, Inc. and
Herbert M. Pinedo, M.D., Ph.D., filed by the Company
as an Exhibit to the
Form 10-Q
for the quarter ended September 30, 2009 (file
no. 000-15190),
and incorporated herein by reference.
|
|
10
|
.58*
|
|
Employment Agreement, dated March 2, 2005, between
Prosidion Limited and Dr. Jonathan Rachman. (Filed
herewith).
|
|
10
|
.59*
|
|
Compensatory Arrangements for Non-Employee Directors. (Filed
herewith).
|
|
10
|
.60*
|
|
Compensatory Arrangements for Executive Officers. (Filed
herewith).
|
|
10
|
.61*
|
|
Consulting and Confidential Disclosure Agreement, dated
June 30, 2009, by and between OSI Pharmaceuticals, Inc. and
Dr. Daryl Granner, 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.
|
|
10
|
.62*
|
|
Consulting Agreement, dated November 20, 2008, by and
between OSI Pharmaceuticals, Inc. and Mehta Partners, LLC, filed
by the Company as an Exhibit to the Form 8-K filed on
November 21, 2008 (file no. 000-15190) and
incorporated herein by reference.
|
|
21
|
|
|
Significant Subsidiaries of OSI Pharmaceuticals, Inc. (Filed
herewith).
|
|
23
|
|
|
Consent of KPMG LLP, independent registered public accounting
firm. (Filed herewith).
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
or 15(d)-14(a). (Filed herewith).
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
or 15(d)-14(a). (Filed herewith).
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. § 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith).
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. § 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith).
|
|
|
|
*
|
|
Indicates a management contract or compensatory plan, contract
or arrangement in which directors or executive officers
participates.
|
|
|
|
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 Exchange Act of 1934, as amended.
|
|
+
|
|
The schedules to this exhibit have been omitted pursuant to Item
601(b)(2) of
Regulation S-K
promulgated by the Securities and Exchange Commission. The
omitted schedules from this filing will be provided upon request.
|
123
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