OSI Pharmaceuticals, Inc. Announces Year End 2008 Financial Results

OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) announced today its financial results for the year ended December 31, 2008. The Company reported net income from continuing operations of $467 million (or $7.19 per share) in 2008, which includes a $337 million (or $5.05 per share) non-cash gain recorded in the fourth quarter based primarily on the expected utilization of the Company’s net operating loss carryforwards (NOL’s). Excluding this gain, net income from continuing operations was $130 million (or $2.14 per share) for the year ended December 31, 2008, compared with $103 million (or $1.70 per share) for the same period last year. For the quarter ended December 31, 2008, net income from continuing operations was $363 million (or $5.50 per share). Excluding the non-cash gain recorded in the fourth quarter, net income from continuing operations was $27 million (or $0.44 per share) for the three months ended December 31, 2008, compared with $18 million (or $0.29 per share) for the same period last year.

Total worldwide net sales of Tarceva® (erlotinib) for 2008, as reported by the Company's collaborators for Tarceva, Genentech, Inc. and Roche, were approximately $1.12 billion, representing a 27% growth in global sales compared to the same period last year. For the three months ended December 31, 2008, worldwide Tarceva net sales were approximately $285 million, representing a 14% increase over the same period last year.

The Company reported total revenues from continuing operations of $379 million for 2008 compared with $341 million for 2007, an increase of 11%. Total revenues from continuing operations for the three months ended December 31, 2008 were $98 million, compared with $84 million for the same period last year. Overall, total revenues were comprised of the following key items:

• Tarceva-related revenues of $335 million in 2008 compared with $268 million in 2007, based primarily on the following:
  • Net revenues from the unconsolidated joint business for Tarceva of $196 million in 2008, compared with $169 million in 2007, arising from the Company's co-promotion arrangement with Genentech. The net revenues were based on total U.S. Tarceva net sales of $457 million, compared to $417 million in 2007. Net revenues from the unconsolidated joint business for Tarceva for the three months ended December 31, 2008 were $49 million, compared to $45 million for the same period last year, based upon total U.S. Tarceva net sales of $118 million for the three months ended December 31, 2008 compared with $112 million for the same period last year;
  • Royalties of $135 million in 2008 compared with $95 million in 2007 from Roche, the Company's international collaborator for Tarceva. The royalty revenues for 2008 were based on total rest-of-world Tarceva sales of approximately $665 million which increased 42%, compared to $470 million in 2007. Royalties for the three months ended December 31, 2008 were $34 million compared with $28 million for the same period last year. Royalty revenues for the three months ended December 31, 2008 were based upon rest-of -world Tarceva sales of approximately $167 million, compared with $138 million for the same period last year;

• Other Revenues of $45 million in 2008 compared with $73 million in 2007, based primarily on the following:
  • Royalties of $41 million in 2008 compared with $17 million in 2007 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. Royalties for the three months ended December 31, 2008 were $14 million compared with $7 million for the same period last year;
  • License, milestone and other revenues in 2008 of $4 million compared with $56 million in 2007. In 2007, the Company recognized an upfront license fee of $25 million related to a license granted to Eli Lilly and Company for our glucokinase activator program, license and milestone revenue of $18 million 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, and license revenue of $7.5 million from Renovo in connection with its licensing agreement with Shire, plc for its TGF-beta 3 drug candidate Juvista®. License, milestone and other revenues for the three months ended December 31, 2008 were $396,000 compared with $3.0 million in the same period last year.

Operating Expenses

Operating expenses from continuing operations for the fourth quarter and year ended December 31, 2008 were $73 million and $246 million, respectively, compared to $67 million and $244 million, respectively, for the same periods last year. Research and development expenses for the fourth quarter and year ended December 31, 2008 were $41 million and $135 million, respectively, compared to $36 million and $124 million, respectively, for the same periods last year. The Company also recognized a $4 million in-process research and development charge in the fourth quarter of 2008 related to acquiring certain diabetes and obesity-related assets. Selling, general and administrative expenses for the fourth quarter and year ended December 31, 2008 were $25 million and $95 million, respectively, compared to $25 million and $99 million, respectively, for the same periods last year.

Income Taxes

In the fourth quarter of 2008, the Company recorded a $337 million non-cash gain, based primarily on its sustained profitability and its expected utilization of a significant portion of its deferred tax assets which are primarily related to its NOL’s. Starting in 2009, the Company will be required to report its tax provision at its full effective tax rate of 40%. The Company expects to continue paying taxes at the lower alternative minimum tax rates as it continues to utilize its NOL’s. The following table provides a reconciliation between the Company’s income tax provision and effective cash tax expense.

Tax Provision Reconciliation for

continuing operations

        
        
           
        
        
          Fourth Quarter
        
        
           
        
        
          Year-to-Date
        
      
      
        
          (in millions)
        
        
        
        
          2008
        
        
           
        
        
          2007
        
        
        
        
          2008
        
        
           
        
        
          2007
        
      
      
        
          Income tax (benefit) provision
        
        
        
        
          $
        
        
          (336.2
        
        
          )
        
        
           
        
        
          $
        
        
          0.8
        
        
        
        
          $
        
        
          (333.5
        
        
          )
        
        
           
        
        
          $
        
        
          2.7
        
      
      
        
          Impact of valuation allowance reversal
        
        
        
        
           
        
        
          (336.6
        
        
          )
        
        
           
        
        
           
        
        
          -
        
        
        
        
           
        
        
          (336.6
        
        
          )
        
        
           
        
        
           
        
        
          -
        
      
      
        
          Effective cash tax expense
        
        
        
        
          $
        
        
          0.4
        
        
           
        
        
           
        
        
          $
        
        
          0.8
        
        
        
        
          $
        
        
          3.1
        
        
           
        
        
           
        
        
          $
        
        
          2.7
        
      
    
    

Discontinued Operations

As a result of the Company's decision to divest its eye disease business held by (OSI) Eyetech, the operating results for (OSI) Eyetech, for all periods presented, are shown as discontinued operations in the accompanying consolidated statement of operations. The Company completed the divestiture in August 2008.

The Company's net income, including results from discontinued operations, was $362 million (or $5.48 per share) and $471 million (or $7.26 per share) for the three months and year ended December 31, 2008, respectively, compared with a net income of $10 million (or $0.18 per share) and $66 million (or $1.11 per share), respectively, for the same periods last year.

Conference Call

OSI will host a conference call reviewing the Company's financial results, product portfolio and business developments on February 19, 2009 at 5:00PM (Eastern Time). To access the live webcast 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 1-877-852-6578 (U.S.) or 1-719-325-4826 (international) to listen to the call. The conference ID number for the live call is 2105141. Telephone replay is available approximately two hours after the call through March 5, 2009. To access the replay, please call 1-888-203-1112 (U.S.) or 1-719-457-0820 (international). The conference ID number is 2105141. The presentation, including the financial and statistical information contained therein, will be available via the investor relations section of the Company’s website for a 12-month period follow the webcast.

About OSI Pharmaceuticals

OSI Pharmaceuticals is committed to "shaping medicine and changing lives" by discovering, developing and commercializing high-quality and novel pharmaceutical products designed to extend life and/or improve the quality of life for patients with cancer and diabetes/obesity. The Company’s oncology programs are focused on developing molecular targeted therapies designed to change the paradigm of cancer care. OSI’s diabetes/obesity efforts are committed to the generation of novel, targeted therapies for the treatment of type 2 diabetes and obesity. OSI's flagship product, Tarceva® (erlotinib), is the first drug discovered and developed by OSI to obtain FDA approval and the only EGFR inhibitor to have demonstrated the ability to improve survival in both non-small cell lung cancer and pancreatic cancer patients in certain settings. OSI markets Tarceva through partnerships with Genentech, Inc. in the United States and with Roche throughout the rest of the world. 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 December 31,

Twelve Months Ended December 31,

        
      
      
        
          (In thousands, except per share data)
        
        
        
        
          

2008

2007

2008

2007

Unaudited

Unaudited

Unaudited

        
        
        
        
        
      
      
        
          Revenues:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Tarceva-related revenues
        
        
        
        
          $
        
        
          83,647
        
        
        
        
        
        
          $
        
        
          73,846
        
        
        
        
        
        
          $
        
        
          334,653
        
        
        
        
        
        
          $
        
        
          267,799
        
        
        
      
      
        
          Other revenues
        
        
        
        
           
        
        
          14,780
        
        
           
        
        
        
        
           
        
        
          10,462
        
        
           
        
        
        
        
           
        
        
          44,735
        
        
           
        
        
        
        
           
        
        
          73,231
        
        
           
        
      
      
        
          Total revenues
        
        
        
        
           
        
        
          98,427
        
        
           
        
        
        
        
           
        
        
          84,308
        
        
           
        
        
        
        
           
        
        
          379,388
        
        
           
        
        
        
        
           
        
        
          341,030
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Expenses:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Cost of goods sold
        
        
        
        
        
        
          2,567
        
        
        
        
        
        
        
        
          3,306
        
        
        
        
        
        
        
        
          9,315
        
        
        
        
        
        
        
        
          9,399
        
        
        
      
      
        
          Research and development
        
        
        
        
        
        
          41,335
        
        
        
        
        
        
        
        
          36,147
        
        
        
        
        
        
        
        
          135,344
        
        
        
        
        
        
        
        
          123,531
        
        
        
      
      
        
          Acquired in-process research and development
        
        
        
        
        
        
          4,000
        
        
        
        
        
        
        
        
          2,164
        
        
        
        
        
        
        
        
          4,000
        
        
        
        
        
        
        
        
          9,664
        
        
        
      
      
        
          Selling, general and administrative
        
        
        
        
        
        
          24,945
        
        
        
        
        
        
        
        
          25,176
        
        
        
        
        
        
        
        
          94,930
        
        
        
        
        
        
        
        
          99,159
        
        
        
      
      
        
          Amortization of intangibles
        
        
        
        
           
        
        
          605
        
        
           
        
        
        
        
           
        
        
          462
        
        
           
        
        
        
        
           
        
        
          2,489
        
        
           
        
        
        
        
           
        
        
          1,840
        
        
           
        
      
      
        
          Total expenses
        
        
        
        
           
        
        
          73,452
        
        
           
        
        
        
        
           
        
        
          67,255
        
        
           
        
        
        
        
           
        
        
          246,078
        
        
           
        
        
        
        
           
        
        
          243,593
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income from continuing operations
        
        
        
        
        
        
          24,975
        
        
        
        
        
        
        
        
          17,053
        
        
        
        
        
        
        
        
          133,310
        
        
        
        
        
        
        
        
          97,437
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Other income (expense):
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Investment income - net
        
        
        
        
        
        
          3,291
        
        
        
        
        
        
        
        
          3,583
        
        
        
        
        
        
        
        
          12,961
        
        
        
        
        
        
        
        
          12,830
        
        
        
      
      
        
          Interest expense
        
        
        
        
        
        
          (2,892
        
        
          )
        
        
        
        
        
        
          (1,812
        
        
          )
        
        
        
        
        
        
          (11,932
        
        
          )
        
        
        
        
        
        
          (7,235
        
        
          )
        
      
      
        
          Other income (expense) - net
        
        
        
        
           
        
        
          1,584
        
        
           
        
        
        
        
           
        
        
          (275
        
        
          )
        
        
        
        
           
        
        
          (1,195
        
        
          )
        
        
        
        
           
        
        
          2,307
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income from continuing operations before income taxes
        
        
        
        
        
        
          26,958
        
        
        
        
        
        
        
        
          18,549
        
        
        
        
        
        
        
        
          133,144
        
        
        
        
        
        
        
        
          105,339
        
        
        
      
      
        
          Income tax (benefit) provision
        
        
        
        
           
        
        
          (336,218
        
        
          )
        
        
        
        
           
        
        
          817
        
        
           
        
        
        
        
           
        
        
          (333,457
        
        
          )
        
        
        
        
           
        
        
          2,732
        
        
           
        
      
      
        
          Net income from continuing operations
        
        
        
        
        
        
          363,176
        
        
        
        
        
        
        
        
          17,732
        
        
        
        
        
        
        
        
          466,601
        
        
        
        
        
        
        
        
          102,607
        
        
        
      
      
        
          Income (loss) from discontinued operations
        
        
        
        
           
        
        
          (1,052
        
        
          )
        
        
        
        
           
        
        
          (7,304
        
        
          )
        
        
        
        
           
        
        
          4,884
        
        
           
        
        
        
        
           
        
        
          (36,288
        
        
          )
        
      
      
        
          Net income
        
        
        
        
          $
        
        
          362,124
        
        
           
        
        
        
        
          $
        
        
          10,428
        
        
           
        
        
        
        
          $
        
        
          471,485
        
        
           
        
        
        
        
          $
        
        
          66,319
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Basic and diluted income (loss) per common share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic income (loss)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Continuing operations
        
        
        
        
          $
        
        
          6.30
        
        
        
        
        
        
          $
        
        
          0.31
        
        
        
        
        
        
          $
        
        
          8.14
        
        
        
        
        
        
          $
        
        
          1.78
        
        
        
      
      
        
          Discontinued operations
        
        
        
        
          $
        
        
          (0.02
        
        
          )
        
        
        
        
          $
        
        
          (0.13
        
        
          )
        
        
        
        
          $
        
        
          0.09
        
        
        
        
        
        
          $
        
        
          (0.63
        
        
          )
        
      
      
        
          Net income
        
        
        
        
          $
        
        
          6.29
        
        
        
        
        
        
          $
        
        
          0.18
        
        
        
        
        
        
          $
        
        
          8.23
        
        
        
        
        
        
          $
        
        
          1.15
        
        
        
      
      
        
          Diluted income (loss)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Continuing operations *
        
        
        
        
          $
        
        
          5.50
        
        
        
        
        
        
          $
        
        
          0.29
        
        
        
        
        
        
          $
        
        
          7.19
        
        
        
        
        
        
          $
        
        
          1.70
        
        
        
      
      
        
          Discontinued operations
        
        
        
        
          $
        
        
          (0.02
        
        
          )
        
        
        
        
          $
        
        
          (0.12
        
        
          )
        
        
        
        
          $
        
        
          0.07
        
        
        
        
        
        
          $
        
        
          (0.58
        
        
          )
        
      
      
        
          Net income
        
        
        
        
          $
        
        
          5.48
        
        
        
        
        
        
          $
        
        
          0.18
        
        
        
        
        
        
          $
        
        
          7.26
        
        
        
        
        
        
          $
        
        
          1.11
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares of common stock outstanding:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic shares
        
        
        
        
        
        
          57,610
        
        
        
        
        
        
        
        
          58,047
        
        
        
        
        
        
        
        
          57,316
        
        
        
        
        
        
        
        
          57,665
        
        
        
      
      
        
          Diluted shares
        
        
        
        
        
        
          66,678
        
        
        
        
        
        
        
        
          62,839
        
        
        
        
        
        
        
        
          66,911
        
        
        
        
        
        
        
        
          62,241
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          * Computation of diluted income per share from continuing operations:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income from continuing operations
        
        
        
        
          $
        
        
          363,176
        
        
        
        
        
        
          $
        
        
          17,732
        
        
        
        
        
        
          $
        
        
          466,601
        
        
        
        
        
        
          $
        
        
          102,607
        
        
        
      
      
        
          Add: Interest and issuance costs related to dilutive convertible debt
        
        
        
        
           
        
        
          3,344
        
        
           
        
        
        
        
           
        
        
          760
        
        
           
        
        
        
        
           
        
        
          14,351
        
        
           
        
        
        
        
           
        
        
          3,040
        
        
           
        
      
      
        
          Net income from continuing operations - diluted
        
        
        
        
          $
        
        
          366,520
        
        
           
        
        
        
        
          $
        
        
          18,492
        
        
           
        
        
        
        
          $
        
        
          480,952
        
        
           
        
        
        
        
          $
        
        
          105,647
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Basic shares
        
        
        
        
        
        
          57,610
        
        
        
        
        
        
        
        
          58,047
        
        
        
        
        
        
        
        
          57,316
        
        
        
        
        
        
        
        
          57,665
        
        
        
      
      
        
          Dilutive effect of options and restricted stock
        
        
        
        
        
        
          453
        
        
        
        
        
        
        
        
          884
        
        
        
        
        
        
        
        
          729
        
        
        
        
        
        
        
        
          668
        
        
        
      
      
        
          Dilutive effect of the 2025 Notes
        
        
        
        
        
        
          3,908
        
        
        
        
        
        
        
        
          3,908
        
        
        
        
        
        
        
        
          3,908
        
        
        
        
        
        
        
        
          3,908
        
        
        
      
      
        
          Dilutive effect of the 2023 Notes**
        
        
        
        
        
        
          1,998
        
        
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          2,308
        
        
        
        
        
        
        
        
          -
        
        
        
      
      
        
          Dilutive effect of the 2038 Notes (issued in January 2008)
        
        
        
        
           
        
        
          2,709
        
        
           
        
        
        
        
           
        
        
          -
        
        
           
        
        
        
        
           
        
        
          2,650
        
        
           
        
        
        
        
           
        
        
          -
        
        
           
        
      
      
        
          Diluted shares
        
        
        
        
           
        
        
          66,678
        
        
           
        
        
        
        
           
        
        
          62,839
        
        
           
        
        
        
        
           
        
        
          66,911
        
        
           
        
        
        
        
           
        
        
          62,241
        
        
           
        
      
      
        
           
        
      
      
        
          ** Under the “if-converted” method, common share equivalents related 
          to our 2023 Notes were not included in diluted earnings per share 
          for the three and twelve months ended December 31, 2007 because 
          their effect would be anti-dilutive.
        
      
      
        
           
        
      
      
        
           
        
      
      
        
          

Reconciliation from reported net income and earnings per share from continuing operations to adjusted net income and earnings per share from continuing operations

        
        
        
        
          Three Months Ended December 31,
        
        
        
        
          Twelve Months Ended December 31,
        
      
      
        
        
        
        
        
          

2008

2007

2008

2007

        
      
      
        
          Net income from continuing operations
        
        
        
        
          $
        
        
          363,176
        
        
        
        
        
        
          $
        
        
          17,732
        
        
        
        
        
        
          $
        
        
          466,601
        
        
        
        
        
        
          $
        
        
          102,607
        
        
        
      
      
        
          Income tax benefit from recognition of deferred tax assets
        
        
        
        
           
        
        
          336,629
        
        
           
        
        
        
        
           
        
        
          -
        
        
           
        
        
        
        
           
        
        
          336,629
        
        
           
        
        
        
        
           
        
        
          -
        
        
           
        
      
      
        
          Adjusted net income from continuing operations
        
        
        
        
          $
        
        
          26,547
        
        
           
        
        
        
        
          $
        
        
          17,732
        
        
           
        
        
        
        
          $
        
        
          129,972
        
        
           
        
        
        
        
          $
        
        
          102,607
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Dilutive earning per share from continuing operations
        
        
        
        
          $
        
        
          5.50
        
        
        
        
        
        
          $
        
        
          0.29
        
        
        
        
        
        
          $
        
        
          7.19
        
        
        
        
        
        
          $
        
        
          1.70
        
        
        
      
      
        
          Benefit from recognition of deferred tax assets per share
        
        
        
        
           
        
        
          5.06
        
        
           
        
        
        
        
           
        
        
          -
        
        
           
        
        
        
        
           
        
        
          5.05
        
        
           
        
        
        
        
           
        
        
          -
        
        
           
        
      
      
        
          Adjusted dilutive earning per share from continuing operations
        
        
        
        
          $
        
        
          0.44
        
        
           
        
        
        
        
          $
        
        
          0.29
        
        
           
        
        
        
        
          $
        
        
          2.14
        
        
           
        
        
        
        
          $
        
        
          1.70
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          

December 31,

December 31,

2008

2007

Unaudited

        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and investments securities (including restricted investments)
        
        
        
        
          $
        
        
          515,511
        
        
           
        
        
        
        
          $
        
        
          305,098
        
        
           
        
        
        
        
        
        
        
        
        
      
      
        
           
        
      
      
        
          Use of Non-Gaap information
        
      
      
        
          

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 have directly comparable GAAP equivalents. OSI has provided these non-GAAP financial measures to adjust for the impact of the $337 million non-cash gain in the fourth quarter of 2008, based primarily on OSI’s expected utilization of its net operating loss carryforwards, or NOLs. Management believes that the included non-GAAP financial measures can assist in making meaningful period-over-period comparisons and in identifying operating trends that could otherwise be masked or distorted by the significant $337 million non-cash gain related to its NOLs, which will not be repeated in 2009 in this magnitude, if at all. 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 operating performance and trends of OSI.