OSIP Osi Pharmaceuticals Inc. (MM)

OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) announced today its financial results for the Company�s second quarter ended June 30, 2009. The Company reported total revenues from continuing operations of $99 million for the second quarter of 2009 compared to revenues of $96 million for the second quarter of 2008. Total worldwide net sales of Tarceva for the three and six months ended June 30, 2009, as reported to the Company by its collaborator Roche, were approximately $290 million and $569 million, respectively.

The Company reported net income from continuing operations of $16.5 million (or $0.28 per share) for the three months ended June 30, 2009, compared to $34.2 million (or $0.59 per share) for the three months ended June 30, 2008. 2009 is the first year of financial reporting in which OSI has shown a full tax provision on its earnings. Adjusting for non-cash tax expense (to reflect OSI�s actual cash tax rate of approximately 3%), expense related to equity-based compensation, non-cash interest expense related to the adoption of FSP APB 14-1 and certain other items detailed in the attached reconciliation of GAAP to non-GAAP financial measures, the Company reported non-GAAP earnings per share from continuing operations of $0.58 and $0.69 for the three months ended June 30, 2009 and 2008, respectively.

Total revenues from continuing operations for the second quarter of 2009 are comprised of the following key items:

• Tarceva Related Revenues of $85 million for the second quarter of 2009 compared to $88 million in the second quarter of 2008, based primarily on the following:
  • Net revenues from the unconsolidated joint business for Tarceva of $49 million for the second quarter of 2009, compared to $52 million in the second quarter of 2008, arising from the Company's co-promotion arrangement with Genentech, a wholly-owned member of the Roche Group. The net revenues are based on total U.S. Tarceva sales of $113 million for the second quarter of 2009, compared to $119 million in the second quarter of 2008. Sales for the three months ended June 30, 2009 were negatively impacted by an allowance taken for rebates related to the U.S. Department of Defense�s TRICARE Retail Pharmacy Program. These rebates result from the implementation of a final rule concerning mandatory rebate obligations for the TRICARE Retail Pharmacy Program. The final rule is being challenged by a coalition of companies, including pharmaceutical companies, in a pending litigation. Genentech recorded an allowance of $7.4 million for such rebates in the three months ended June 30, 2009, of which $6.3 million represents a retroactive rebate assessment for sales made during 2008 and the three months ended March 31, 2009 and the remainder represents rebates recorded during the second quarter.
  • Royalties on product licenses of $36 million for the second quarter of 2009 compared to $35 million in the second quarter of 2008 from Roche for sales of Tarceva. The royalty revenues are based on total rest of world sales of $177 million for the second quarter of 2009 which increased 3%, compared to the $173 million reported in the second quarter of 2008.
• Other Revenues of $14 million for the second quarter of 2009 compared to $8 million in the second quarter of 2008, primarily based upon royalties related to worldwide non-exclusive licensing agreements under the Company's DP-IV patent portfolio covering the use of DP-IV inhibitors for treatment of type 2 diabetes.

Operating Expenses

Operating expenses from continuing operations for the second quarter of 2009 were $65 million compared to $56 million for the same period last year, with the increase primarily driven by an increase in research and development expenses related to the advancement of our clinical pipeline. Research and development expenses for the second quarter of 2009 were $37 million compared to $30 million for the same period last year. Selling, general and administrative expenses for the second quarter of 2009 were $25 million compared to $23 million for the same period last year.

Taxes and Interest Expense

Beginning in 2009, the Company is required to report its tax provision at its full effective tax rate, which is estimated at approximately 39%. However, the Company expects to continue paying taxes at the lower alternative minimum tax rates as it continues to utilize its net operating loss carryforwards (NOL�s). The results also reflect the retrospective adoption of FSP APB 14-1, �Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),� resulting in higher interest expense reported in both 2009 and 2008.

Net Income Including Discontinued Operations

The Company's net income including results from discontinued operations was $16.5 million (or $0.28 per share) for the second quarter of 2009 compared with a net income of $22.2 million (or $0.39 per share) for the same period last year.

Use of Non-GAAP Financial Measures

The accompanying tables contain both GAAP and non-GAAP financial measures for the periods presented. The non-GAAP measures include adjusted net income from continuing operations and adjusted earnings per share from continuing operations, each of which has directly comparable GAAP equivalents. OSI has provided these non-GAAP financial measures to adjust for the impact of (i) expense related to equity-based compensation, (ii) imputed interest expense related to the application of FASB Staff Position APB 14-1 �Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),� (iii) amortization of acquired intangible assets and (iv) non-cash tax expense to adjust OSI�s effective tax rate of approximately 39% to reflect its actual cash tax rate of approximately 3%. These items have been adjusted because they are either non-cash, non-recurring or not otherwise considered to be core to OSI�s business. Management uses these non-GAAP financial measures internally to evaluate the performance of the business, including the allocation of resources as well as the planning and forecasting of future periods and believes that these results are useful to others in analyzing the core operating performance and trends of OSI for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP and therefore are not necessarily comparable to the financial results of other companies. These non-GAAP measures should be considered as a supplement to, not a substitute for, or superior to, the corresponding financial measures calculated in accordance with GAAP.

Conference Call

OSI will host a conference call reviewing the Company's financial results, product portfolio and business developments on July 22, 2009 at 5:00PM (Eastern Time). To access the live webcast or the archive via the Internet, log on to www.osip.com. Please connect to the Company's website at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be needed to access the webcast. Alternatively, please call 1-888-337-8199 (U.S.) or 1-719-325-2297 (international) to listen to the call. The conference ID number for the live call is 2944263. Telephone replay is available approximately two hours after the call. To access the replay, please call 1-888-203-1112 (U.S.) or 1-719-457-0820 (international). The conference ID number is 2944263.

About OSI Pharmaceuticals

OSI Pharmaceuticals is committed to "shaping medicine and changing lives" by discovering, developing and commercializing high-quality, novel and differentiated targeted medicines designed to extend life and improve the quality of life for patients with cancer and diabetes/obesity. For additional information about OSI, please visit http://www.osip.com.

This news release contains forward-looking statements. These statements are subject to known and unknown risks and uncertainties that may cause actual future experience and results to differ materially from the statements made. Factors that might cause such a difference include, among others, OSI's and its collaborators' abilities to effectively market and sell Tarceva and to expand the approved indications for Tarceva, OSI�s ability to protect its intellectual property rights, safety concerns regarding Tarceva, competition to Tarceva and OSI�s drug candidates from other biotechnology and pharmaceutical companies, the completion of clinical trials, the effects of FDA and other governmental regulation, including pricing controls, OSI's ability to successfully develop and commercialize drug candidates, and other factors described in OSI Pharmaceuticals' filings with the Securities and Exchange Commission.

� � � � OSI Pharmaceuticals, Inc. and Subsidiaries Selected Financial Information Consolidated Statements of Operations Three Months Ended June 30, Six Months Ended June 30, (In thousands, except per share data) 2009 2008* 2009 2008* Unaudited Unaudited Unaudited Unaudited Revenues: Tarceva-related revenues $ 85,323 $ 87,940 $ 169,179 $ 170,298 Other revenues � 13,743 � � 7,714 � � 23,564 � � 16,091 � Total revenues � 99,066 � � 95,654 � � 192,743 � � 186,389 � Operating expenses: Cost of goods sold 2,659 2,061 4,853 4,231 Research and development 37,147 30,406 72,583 60,955 Selling, general and administrative 25,187 23,192 49,388 47,723 Amortization of intangibles � 236 � � 636 � � 464 � � 1,238 � Total operating expenses � 65,229 � � 56,295 � � 127,288 � � 114,147 � � Income from continuing operations 33,837 39,359 65,455 72,242 � Other income (expense): Investment income - net 1,957 2,960 4,171 6,694 Interest expense (6,392 ) (6,189 ) (12,785 ) (12,494 ) Other income (expense) - net � (2,338 ) � (1,006 ) � (2,722 ) � (1,906 ) � Income from continuing operations before income taxes 27,064 35,124 54,119 64,536 Income tax provision � 10,556 � � 958 � � 21,107 � � 1,774 � Net income from continuing operations 16,508 34,166 33,012 62,762 Income (loss) from discontinued operations � 23 � � (11,919 ) � (81 ) � (14,345 ) Net income $ 16,531 � $ 22,247 � $ 32,931 � $ 48,417 � � Basic and diluted income (loss) per common share: Basic income (loss) Continuing operations $ 0.29 $ 0.60 $ 0.57 $ 1.10 Discontinued operations 0.00 (0.21 ) (0.00 ) (0.25 ) Net income $ 0.29 $ 0.39 $ 0.57 $ 0.85 Diluted income (loss) Continuing operations $ 0.28 $ 0.59 $ 0.56 $ 1.08 Discontinued operations 0.00 (0.20 ) (0.00 ) (0.24 ) Net income $ 0.28 $ 0.39 $ 0.56 $ 0.85 � Weighted average shares of common stock outstanding: Basic shares 57,906 57,083 57,862 57,107 Diluted shares 60,333 59,932 60,481 60,340 � Computation of diluted income per share from continuing operations: � Net income from continuing operations $ 16,508 $ 34,166 $ 33,012 $ 62,762 Add: Interest and issuance costs related to dilutive convertible debt � 495 � � 1,186 � � 991 � � 2,647 � Net income from continuing operations - diluted $ 17,003 � $ 35,352 � $ 34,003 � $ 65,409 � � Basic shares 57,906 57,083 57,862 57,107 Dilutive effect of options and restricted stock 429 554 621 618 Dilutive effect of the 2023 Notes 1,998 2,295 1,998 2,615

Dilutive effect of the 2025 Notes

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Dilutive effect of the 2038 Notes � - � � - � � - � � - � Diluted shares � 60,333 � � 59,932 � � 60,481 � � 60,340 � � � � June 30, December 31, 2009 2008 Unaudited Cash and investments securities (including restricted investments) $ 556,091 � $ 515,511 � * The three and six months ended June 30, 2008 have been restated to reflect the adoption of FSP APB 14-1. � � � OSI Pharmaceuticals, Inc. and Subsidiaries Reconciliation From Reported Net Income from Continuing Operations to Non-GAAP Net Income from Continuing Operations and Reported Dilutive Income Per Share to Non-GAAP Diluted Income Per Share Unaudited (In thousands, except per share data) � � � Three Months Ended June 30, Six Months Ended June 30, 2009 � 2008 2009 2008 � Reported diluted income per common share from continuing operations $ 0.28 $ 0.59 $ 0.56 $ 1.08 Adjustments per common share � 0.30 � � 0.10 � � 0.60 � � 0.21 � Non-GAAP diluted income per common share from continuing operations $ 0.58 � $ 0.69 � $ 1.17 � $ 1.30 � � Net income from continuing operations $ 16,508 $ 34,166 $ 33,012 $ 62,762 Non-GAAP Adjustments: Equity-based compensation 6,296 4,373 12,479 9,845 Imputed interest related to the application of FSP APB 14-1 3,448 3,051 6,896 6,118 Amortization of acquired intangibles 236 636 464 1,238 Non cash tax expense 9,852 - 19,700 - Income tax effect on adjustments � (259 ) � (223 ) � (516 ) � (476 ) Non-GAAP net income from continuing operations $ 36,081 � $ 42,003 � $ 72,035 � $ 79,487 � � Computation of Non-GAAP diluted income per common share from continuing operations: Non-GAAP net income from continuing operations $ 36,081 $ 42,003 $ 72,035 $ 79,487 Add: Interest and issuance costs related to dilutive convertible debt � 1,490 � � 3,618 � � 2,979 � � 7,319 � Non-GAAP net income from continuing operations - diluted $ 37,571 � $ 45,621 � $ 75,014 � $ 86,806 � � Computation of Non-GAAP diluted shares: Basic shares 57,906 57,083 57,862 57,107 Adjustment to dilutive shares: Dilutive effect of options and restricted stock 429 554 621 618 Dilutive effect of the 2023 Notes 1,998 2,295 1,998 2,615 Dilutive effect of the 2025 Notes 3,908 3,908 3,908 3,908 Dilutive effect of the 2038 Notes � - � � 2,709 � � - � � 2,601 � Non-GAAP dilutive shares � 64,241 � � 66,549 � � 64,389 � � 66,849 �