OSI Pharmaceuticals, Inc. Announces First Quarter 2010 Financial Results

OSI Pharmaceuticals, Inc. Announces First Quarter 2010 Financial Results
- Total Revenues Increased 14% Year over Year to $107 Million -

MELVILLE, N.Y., Apr 22, 2010 (BUSINESS WIRE) -- OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) announced today its financial results for the first quarter ended March 31, 2010. The Company reported total revenues from continuing operations of $107 million for the first quarter of 2010, a 14% increase over revenues of $94 million for the first quarter of 2009. Total worldwide net sales of Tarceva(R) (erlotinib) for the first quarter of 2010, as reported to the Company by its collaborator Roche, were approximately $308 million, representing a 10% increase in sales over the first quarter of 2009.

The Company reported net income from continuing operations of $4.7 million (or $0.08 per share) for the three months ended March 31, 2010, compared to $16.5 million (or $0.28 per share) for the three months ended March 31, 2009. The decline was due primarily to $11 million in costs recorded in connection with the unsolicited tender offer commenced by Astellas Pharma, Inc. in March 2010, and an $8 million non-operating impairment on the Company's investment holding in AVEO Pharmaceuticals, Inc. following that company's IPO.

The Company reported that non-GAAP net income from continuing operations increased to $39.6 million (or $0.63 per share) for the first quarter of 2010, compared to $36.0 million (or $0.58 per share) in the first quarter of 2009. The Company adjusted for non-cash tax expense (to reflect OSI's actual cash tax rate of approximately 3%), tender offer related costs, restructuring and other charges related to our consolidation of U.S. operations in Ardsley, New York, expense related to equity-based compensation, non-cash interest expense on our convertible notes, and certain other items detailed in the attached reconciliation of GAAP to non-GAAP financial measures.

Total revenues for the first quarter were comprised of the following key items:

    * Tarceva-related revenues of $92 million in the first quarter of 2010 compared with $84 million for the same period in 2009, based on the following:

       -   Net revenues from the unconsolidated joint business for Tarceva of $52 million for the first quarter of 2010, compared to $49 million in the first quarter of 2009, 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 $114 million for the first quarter of 2010, compared to $111 million in the first quarter of 2009. First quarter sales in both 2009 and 2010 were impacted by reimbursement challenges relating to the reset of the "donut hole" for Medicare Part D patients receiving Tarceva;
       -   Royalties on product licenses of $40 million for the first quarter of 2010 compared to $34 million in the first quarter of 2009 from Roche for sales of Tarceva. The royalty revenues are based on total rest of world sales of $194 million for the first quarter of 2010, an increase of 16% compared to the $168 million reported in the first quarter of 2009;

    * Other revenues of $14 million in the first quarter of 2010 compared with $10 million for the same period in 2009, based primarily on the following:

       -   Royalties of $13 million in 2010 compared with $9 million in 2009 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, representing an increase of 42% over the prior year.

Operating Expenses

Operating expenses from continuing operations for the first quarter of 2010 were $88 million compared to $62 million for same period last year, with the increase primarily driven by tender offer related costs, an increase in research and development expenses related to the advancement of our clinical pipeline and an increase in Ardsley-related restructuring and consolidation project expenses. Research and development expenses for the first quarter of 2010 were $42 million compared to $35 million for the same period last year. Selling, general and administrative expenses for the first quarter of 2010 were $29 million compared to $24 million for the same period last year. OSI also recognized restructuring costs of $3 million for the Ardsley project. In 2009, the Company previously announced plans to consolidate its U.S. operations onto a single campus in Ardsley, New York. The consolidation project is on schedule to be completed in 2010. OSI also recorded $11 million of expenses during the first quarter of 2010 in relation to legal, consulting and bankers fees associated with the ongoing tender offer by Astellas Pharma Inc.

Other income (expense) - net

Included in other income (expense) - net for the first quarter of 2010 is a $7.9 million impairment charge recorded to reduce the carrying value of our investment in AVEO Pharmaceuticals, Inc. to fair market value following its public offering in March 2010.

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 diluted 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) restructuring and other costs related to consolidation of the Company's operations on to a single campus in Ardsley, New York, (ii) equity-based compensation expense, (iii) imputed interest expense related to the application of Accounting Standards Codification Subtopic 470-20, which was effective January 1, 2009, and which provides guidance for bifurcation of the conversion feature from the debt component of convertible debt instruments that may be settled in cash upon conversion, (iv) amortization of acquired intangible assets, (v) non-cash tax expense to adjust OSI's effective tax rate of approximately 40% to reflect its actual cash tax rate of approximately 3%, (vi) non-cash impairment charges and (vii) costs related to the tender offer by Astellas Pharma, Inc. for the Company's shares. 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 April 22, 2010 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 1-888-378-4350 (U.S.) or 1-719-457-2710 (international) to listen to the call. The conference ID number for the live call is 5184529. 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 for the replay is 5184529.

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 March 31,
 (In thousands, except per share data)   2010   2009
   Unaudited   Unaudited
 Revenues:     
 Tarceva-related revenues   $  92,357    $  83,856  
 Other revenues    14,221     9,821  
 Total revenues    106,578     93,677  
 Operating expenses:     
 Cost of goods sold    2,624     2,194  
 Research and development    41,952     35,436  
 Selling, general and administrative    29,090     24,201  
 Restructuring costs    3,108     -  
 Tender offer related costs    10,646     -  
 Amortization of intangibles    218     228  
 Total operating expenses    87,638     62,059  
     
 Operating income from continuing operations    18,940     31,618  
     
 Other income (expense):     
 Investment income - net    1,380     2,214  
 Interest expense    (5,292  )    (6,815  )
 Other income (expense) - net    (7,118  )    38  
     
 Income from continuing operations before income taxes    7,910     27,055  
 Income tax provision    3,166     10,551  
 Net income from continuing operations    4,744     16,504  
 Income (loss) from discontinued operations-net of tax    107     (104  )
 Net income   $  4,851    $  16,400  
     
 Basic and diluted income (loss) per common share:     
 Basic income (loss)     
 Continuing operations   $  0.08    $  0.29  
 Discontinued operations    0.00     (0.00  )
 Net income   $  0.08    $  0.28  
 Diluted income (loss)     
 Continuing operations   $  0.08    $  0.28  
 Discontinued operations    0.00     (0.00  )
 Net income   $  0.08    $  0.28  
     
 Weighted average shares of common stock outstanding:     
 Basic shares    58,719     57,818  
 Diluted shares    59,535     60,630  
     
 Computation of diluted income per share from continuing operations:     
     
 Net income from continuing operations   $  4,744    $  16,504  
 Add: Interest and issuance costs related to dilutive convertible debt-net of tax    -     495  
 Net income from continuing operations - diluted   $  4,744    $  16,999  
     
 Basic shares    58,719     57,818  
 Dilutive effect of stock options and restricted stock    816     814  
 Dilutive effect of the 2023 Notes    -     1,998  
 Diluted shares    59,535     60,630  
     
     
     
   March 31,   December 31,
   2010   2009
   Unaudited   
 Cash and investments securities (including restricted investments)   $  532,821    $  471,895  
         
 OSI Pharmaceuticals, Inc. and Subsidiaries
 

Reconciliation From Reported Net Income from Continuing Operations to Non-GAAP Net Income from Continuing Operations and
Reported Diluted Income Per Share to Non-GAAP Diluted Income Per Share
 Unaudited
 (In thousands, except per share data)
  Three Months Ended March 31,
  2010   2009
    
 Reported diluted income per common share from continuing operations  $  0.08    $  0.28  
 Adjustments per common share   0.55     0.30  
 Non-GAAP diluted income per common share from continuing operations  $  0.63    $  0.58  
    
 Net income from continuing operations  $  4,744    $  16,504  
 Non-GAAP Adjustments:    
 Site consolidation-related costs:    
 Restructuring costs   3,108     -  
 Accelerated depreciation on leasehold improvements*   1,204     -  
 Total site consolidation-related costs   4,312     -  
 Equity-based compensation expense   6,506     6,183  
 Imputed interest related to the application of ASC 470   2,935     3,448  
 Amortization of acquired intangibles   218     228  
 Non-cash tax expense   2,996     9,848  
 Tender offer related costs   10,646     -  
 Non-operating impairments   7,937     -  
 Income tax effect on adjustments   (700  )    (256  )
 Non-GAAP net income from continuing operations  $  39,594    $  35,955  
    
 Computation of Non-GAAP diluted income per common share from continuing operations:    
 Non-GAAP net income from continuing operations  $  39,594    $  35,955  
 Add: Interest and issuance costs related to dilutive convertible debt-net of tax   2,298     1,490  
 Non-GAAP net income from continuing operations - diluted  $  41,892    $  37,445  
    
 Computation of Non-GAAP diluted shares:    
 Basic shares   58,719     57,818  
 Adjustment to dilutive shares:    
 Dilutive effect of options and restricted stock   816     814  
 Dilutive effect of the 2023 Notes   1,209     1,998  
 Dilutive effect of the 2025 Notes   3,908     3,908  
 Dilutive effect of the 2038 Notes   2,167     -  
 Non-GAAP dilutive shares   66,819     64,538  
    
    
    
 * Represents the impact of shortening the estimated useful lives of leasehold improvements as a result of our intention to exit certain facilities.   

SOURCE: OSI Pharmaceuticals, Inc.

OSI Pharmaceuticals, Inc.
Kathy Galante (investors/media)
Senior Director
631-962-2043
or
Kim Wittig (media)
Director
631-962-2135
or
Media:
Joele Frank, Wilkinson Brimmer Katcher
Joele Frank/Andy Brimmer/Eric Brielmann
212-355-4449
or
Investors:
Burns McClellan
Lisa Burns
212-213-0006

Copyright Business Wire 2010

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