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12:00 AM
 | 
Mar 08, 2010
 |  BioCentury  |  Strategy

OSI's Last Stand

OSI Pharmaceuticals Inc. has made two strategic decisions in the last five years that investors didn't like. As a result, it would not be surprising if they refuse to back the company's independence following last week's hostile bid by Astellas Pharma Inc. to buy the company for $52 a share, or $3.5 billion.

The problem for OSI is that it has failed in its efforts to buy near-term revenues and it has no near-term drivers from its internal pipeline. Indeed, according to SEC documents released last week by Astellas, during talks between the two companies in 2009, OSI CEO Colin Goddard said "he believed OSI would realize its intrinsic value within two years."

Given the right price, investors are unlikely to see any reason to wait.

Thus the two remaining questions are how much Astellas will have to increase the offer to get the deal done, and whether OSI partner Roche will play the white knight.

Macugen debacle

OSI has tried to buy pipeline at least three times in the past decade.

In 2001, the company boughtGilead Science Inc.'s cancer portfolio for $130 million in cash and $43 million in stock. OSI received three compounds in development for solid tumors: OSI-211 was a liposomal lurtotecan topoisomerase I inhibitor in Phase II trials; OSI-7836 was a nucleoside analog in Phase I testing; and OSI-7904L was a liposomal thymidylate synthase inhibitor in preclinical development.

In 2004, OSI stopped development of OSI-7836 because of toxicity issues and OSI-211 because it was unable to differentiate the compound from topotecan. The company stopped development of OSI-7904L in 2005.

The next move was a small deal in 2003: $31 million in stock for Cell Pathways Inc. The company had two compounds in mid- and late stage development: Aptosyn exisulind was in Phase III trials to treat non-small cell lung cancer (NSCLC) and CP461 was in Phase II trials to treat several cancer and non-cancer indications (see BioCentury, Feb. 17, 2003).

Aptosyn failed to show improved survival in 2004. OSI dropped development that year and dropped CP461 in 2005.

Most important for investors' views of the company was the decision in August 2005 to buy Eyetech Pharmaceuticals Inc. for $685 million in cash plus $144.7 million in stock. The deal was driven by Eyetech's Macugen pegaptanib, a pegylated oligonucleotide aptamer that binds to vascular endothelial growth factor (VEGF) 165 to treat age-related macular degeneration (AMD).

Buysiders were infuriated, as they believed that OSI was buying a product whose days were numbered. Macugen was approved in December 2004, but its sales were already being eroded by off-label use of Genentech Inc.'s Avastin bevacizumab and investors believed the AMD market would be dominated by the latter's Lucentis ranibizumab once that was approved, which occurred in July 2006.

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