Ebb & Flow

In August 2005, when OSI (OSIP) announced plans to buy Eyetech for $935 million in cash and stock, the Street instantly concluded that OSIP had abandoned prospects for at least 20% revenue growth in order to buy a distressed asset - Macugen pegaptanib for age-related macular degeneration. OSIP's valuation fell 22% the day the deal was announced, to $1.6 billion from $2.1 billion.

Last week, OSIP said it would exit the eye business and out-license, partner or sell Macugen. The company originally had argued the eye business would generate positive cash flow in 2006-08. But Genentech (DNA) snatched that opportunity away with its Lucentis ranibizumab and Avastin bevacizumab.

Lucentis posted sales of $153 million in the third quarter - the drug's first full quarter on the market for AMD.

In its conference call, DNA noted that the VEGF inhibitor's gains had come "at the expense of other agents, most notably Macugen," while "off-label use of Avastin will remain a factor in the marketplace" for AMD drugs. Avastin's approved indications are for colorectal and non-small cell lung cancer (NSCLC).

"Sometimes, Wall Street knows what it's talking about," said Evan McCulloch of Franklin Templeton. "In its first quarter post-launch Lucentis' sales were more than Macugen at its peak."

The upshot is that third quarter Macugen sales were down 85% to $9 million versus the same period last year.

Now, OSIP is left to ponder what it would be worth were it not for the Eyetech deal. Prior to announcing the deal on Aug. 22, 2005, OSIP was trading at $40.77. The stock closed last Friday at $36.43.

If OSIP merely mirrored the 9% rise in the BioCentury 100 Index in the same period, it would be trading at about $44. Analysts had been even more optimistic. Many price targets on OSIP had been north of $50, and at least one analyst had

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