1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
Commission file number: 0-15190
-----------------------------------------------
OSI Pharmaceuticals, Inc.
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3159796
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
58 S. Service Road, Suite 110, Melville, New York, 11747
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(Address of principal executive offices) (Zip Code)
631-962-2000
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(Registrant's telephone number, including area code)
106 Charles Lindbergh Boulevard, Uniondale, New York, 11553
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
At July 31, 2001 the registrant had outstanding 34,888,297 shares of common
stock, par value $.01 per share.
2
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONTENTS
Page No.
PART I - FINANCIAL INFORMATION......................................... 1
Item 1. Financial Statements
Consolidated Balanced Sheets
- June 30, 2001 (unaudited) and September 30, 2000........... 1
Consolidated Statements of Operations
- Three months ended June 30, 2001 and 2000 (unaudited)...... 2
Consolidated Statements of Operations
- Nine months ended June 30, 2001 and 2000 (unaudited)....... 3
Consolidated Statements of Cash Flows
- Nine months ended June 30, 2001 and 2000 (unaudited)....... 4
Notes to Consolidated Financial Statements (unaudited)....... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 20
PART II - OTHER INFORMATION........................................... 21
Item 1. Legal Proceedings........................................... 21
Item 2. Changes in Securities and Use of Proceeds................... 21
Item 3. Defaults Upon Senior Securities............................. 21
Item 4. Submission of Matters to a Vote of Security Holders......... 21
Item 5. Other Information........................................... 21
Item 6. Exhibits and Reports on Form 8-K............................ 22
SIGNATURES............................................................ 23
EXHIBIT INDEX......................................................... 24
i
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2001 2000
-------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................... $291,269,243 $ 48,392,635
Investment securities....................................................... 280,291,048 36,672,036
Receivables, including amounts due from related parties
of $1,250,000 and $72,585 and trade receivables of
$38,592 and $98,956 at June 30, 2001 and September 30,
2000, respectively....................................................... 1,519,384 287,035
Interest receivable......................................................... 3,527,509 346,430
Grants receivable........................................................... 33,789 415,456
Prepaid expenses and other.................................................. 2,442,251 1,165,674
------------ ------------
Total current assets..................................................... 579,083,224 87,279,266
------------ ------------
Property, equipment and leasehold improvements - net........................ 11,288,275 9,265,005
Compound library assets - net............................................... 1,114,838 2,330,896
Other assets................................................................ 1,318,811 118,630
Intangible assets - net..................................................... 225,792 782,211
------------ ------------
$593,030,940 $ 99,776,008
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................ $ 4,848,983 $ 6,317,492
Unearned revenue - current; including amounts received
in advance from related parties of $8,404,762 and
$369,779 as of June 30, 2001 and September 30, 2000,
respectively............................................................. 9,581,186 690,895
Loans payable - current..................................................... 152,800 166,656
------------ ------------
Total current liabilities................................................ 14,582,969 7,175,043
------------ ------------
Other liabilities:
Unearned revenue - long-term; including amounts received
in advance from related parties of $12,779,762 and
$333,333 as of June 30, 2001 and September 30, 2000,
respectively............................................................. 13,873,512 333,333
Loans payable - long-term................................................... 53,411 144,217
Deferred acquisition costs.................................................. 370,129 355,518
Accrued postretirement benefit cost......................................... 2,111,268 1,886,268
------------ ------------
Total liabilities........................................................ 30,991,289 9,894,379
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued at June 30, 2001 and September 30, 2000................ -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
35,799,489 and 28,281,850 shares issued at June 30, 2001 and
September 30, 2000, respectively......................................... 357,995 282,819
Additional paid-in capital.................................................. 666,098,306 187,731,177
Deferred compensation....................................................... (6,371,158) (8,767,030)
Accumulated deficit......................................................... (91,043,901) (81,988,187)
Accumulated other comprehensive loss........................................ (569,046) (944,448)
------------ ------------
568,472,196 96,314,331
Less: treasury stock, at cost; 939,618 and 939,641 shares at
June 30, 2001 and September 30, 2000, respectively.......................... (6,432,545) (6,432,702)
------------ ------------
Total stockholders' equity............................................... 562,039,651 89,881,629
------------ ------------
Commitments and contingencies
$593,030,940 $ 99,776,008
============= ============
See accompanying notes to unaudited consolidated financial statements.
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4
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
------------------
2001 2000
---- ----
Revenues:
Collaborative program revenues,
principally from related parties........................... $ 3,852,288 $ 6,005,743
License and related revenues.................................... 2,427,083 50,000
Other revenues.................................................. 59,742 212,748
------------ ------------
6,339,113 6,268,491
------------ ------------
Expenses:
Research and development........................................ 12,842,562 7,784,791
Production and service costs.................................... 35,503 172,457
Selling, general and administrative............................. 5,085,236 2,426,153
Amortization of intangibles..................................... 185,473 185,474
------------ ------------
18,148,774 10,568,875
------------ ------------
Loss from operations....................................... (11,809,661) (4,300,384)
Other income (expense):
Net investment income........................................... 7,079,482 1,131,055
Other expense - net............................................. (29,905) (21,298)
------------ ------------
Net loss........................................................... $ (4,760,084) (3,190,627)
============ ============
Weighted average number of shares of common stock outstanding...... 34,801,905 26,425,571
============ ============
Basic and diluted net loss per weighted average
share of common stock outstanding............................. $ (.14) $ (.12)
============ ============
Pro forma information:
Net loss, assuming new revenue recognition policy is applied
retroactively................................................. $ (2,971,877)
=============
Basic and diluted loss per share................................... $ (.11)
=============
See accompanying notes to unaudited consolidated financial statements.
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5
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
June 30,
-------
2001 2000
---- ----
Revenues:
Collaborative program revenues,
principally from related parties............................................ $ 14,174,100 $ 17,841,481
License and related revenues.................................................. 5,022,917 3,675,000
Other revenues................................................................ 368,478 716,448
------------ ------------
19,565,495 22,232,929
------------ ------------
Expenses:
Research and development...................................................... 34,191,211 24,383,735
Production and service costs.................................................. 239,620 643,876
Selling, general and administrative........................................... 10,809,904 7,015,657
Amortization of intangibles................................................... 556,419 684,288
----------- ------------
45,797,154 32,727,556
----------- ------------
Loss from operations............................................... (26,231,659) (10,494,627)
Other income (expense):
Net investment income......................................................... 19,941,432 2,332,915
Other expense - net........................................................... (140,487) (75,867)
Gain on sale of diagnostics business.......................................... -- 3,745,844
----------- ------------
Net loss before cumulative effect of accounting change.......................... (6,430,714) (4,491,735)
Cumulative effect of the change in accounting for the recognition
of upfront fees............................................................. (2,625,000) --
------------ ------------
Net loss........................................................................ $(9,055,714) $ (4,491,735)
============ ============
Weighted average number of shares of common stock outstanding................... 33,493,603 23,801,264
============ ============
Basic and diluted net loss per weighted average share of common stock
outstanding.................................................................
Before cumulative effect of accounting change................................. $ (.19) $ (.19)
Cumulative effect of accounting change........................................ (.08) --
----------- ------------
After cumulative effect of accounting change.................................. $ (.27) $ (.19)
=========== ============
Pro forma information:
Net loss, assuming new revenue recognition
policy is applied retroactively............................................. $ (7,335,485)
============
Basic and diluted loss per share................................................ $ (.31)
============
See accompanying notes to unaudited consolidated financial statements.
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6
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
-----------------
2001 2000
---- ----
Cash flow from operating activities:
Net loss............................................................. $ (9,055,714) $ (4,491,735)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Gain on sale of diagnostics business......................... -- (3,745,844)
Gain on sale of investments.................................. (304,890) (487,594)
Loss on sale of equipment.................................... 64,865 60,547
Depreciation and amortization................................ 2,316,421 2,108,158
Amortization of library assets............................... 1,216,058 1,399,642
Amortization of intangibles assets........................... 556,419 684,287
Accretion of deferred acquisition costs...................... 14,611 14,611
Non-cash compensation charges-net............................ 3,921,762 --
Cumulative effect of the change in accounting for the
recognition of upfront fees.............................. 2,625,000 --
Changes in assets and liabilities, net of the effects of a
sale of a business:
Receivables.................................................. (1,234,089) 4,443,221
Interest receivable.......................................... (3,181,079) 113,233
Grants receivable............................................ 381,667 223,231
Prepaid expenses and other current assets.................... (1,301,423) (206,553)
Other assets................................................. (1,200,181) (39,814)
Accounts payable and accrued expenses........................ (1,427,019) (1,722,212)
Unearned revenue............................................. 19,805,683 (4,141,805)
Accrued postretirement benefit cost.......................... 225,000 224,999
-------------- --------------
Net cash provided by (used in) operating activities................... 13,423,091 (5,563,628)
-------------- --------------
Cash flows from investing activities:
Net proceeds from sale of diagnostics business............... -- 8,636,104
Proceeds from sale of equipment and leasehold improvements... 35,000 375,000
Purchases of investments..................................... (418,202,001) (10,638,904)
Maturities and sales of short-term investments............... 175,557,110 4,987,599
Additions to property, equipment and leasehold improvements.. (4,590,735) (1,564,241)
-------------- --------------
Net cash (used in) provided by investing activities................... (247,200,626) 1,795,558
-------------- --------------
Cash flows from financing activities:
Net proceeds from issuance of common stock................... 474,199,232 52,792,611
Proceeds from exercise of stock options, stock warrants,
employee purchase plan and other......................... 2,717,340 9,070,167
Payments on loan payable..................................... (102,733) (86,808)
Purchase of treasury stock................................... -- (375,000)
-------------- --------------
Net cash provided by financing activities............................. 476,813,839 61,400,970
-------------- --------------
Net increase in cash and cash equivalents............................. 243,036,304 57,632,900
Effect of exchange rate changes on cash and cash equivalents.......... (159,696) (84,016)
Cash and cash equivalents at beginning of period...................... 48,392,635 8,863,887
-------------- --------------
Cash and cash equivalents at end of period............................ $ 291,269,243 $ 66,412,771
============== ==============
Non-cash activities:
Issuance of common stock in satisfaction of deferred
acquisition costs........................................ $ -- $ 375,000
============== ==============
See accompanying notes to unaudited consolidated financial statements.
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7
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of OSI
Pharmaceuticals, Inc. and its subsidiaries, collectively referred to as the
Company, as of June 30, 2001 and September 30, 2000, their results of operations
for the three and nine months ended June 30, 2001 and 2000 and their cash flows
for the nine months ended June 30, 2001 and 2000. Certain reclassifications
have been made to the prior period consolidated financial statements to conform
them to the current presentation.
It is recommended that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto in the
Company's annual report on Form 10-K for the fiscal year ended September 30,
2000. Results for interim periods are not necessarily indicative of results for
the entire year.
(2) Revenue Recognition
Collaborative program revenues represent funding arrangements for the conduct
of research and development in the field of biotechnology and are recognized
when earned in accordance with the terms of the contracts and the related
development activities undertaken. Other research revenues are recognized
pursuant to the terms of grants which provide reimbursement of certain expenses
related to the Company's other research and development activities.
Collaborative and other research revenues are accrued for expenses incurred in
advance of the reimbursement and deferred for cash payments received in advance
of expenditures. Such deferred revenues are recorded as revenue when earned.
Included in license and related revenues are patent license fees, maintenance
fees, and technology access and other upfront fees. Technology access and other
upfront fees are recognized as revenue over the expected term of the related
research collaboration.
The Company previously recognized all nonrefundable license fees, including
upfront and technology access fees, as revenue when received and when all
contractual obligations of the Company relating to such fees had been
fulfilled. Effective October 1, 2000, the Company changed its method of
accounting for nonrefundable license fees to recognize such fees over the term
of the related research collaboration period. The Company believes that this
change in accounting principle is appropriate based on guidance provided in the
Securities and Exchange Commission's Staff Accounting Bulletin No. 101 -
"Revenue Recognition in Financial Statements," as amended ("SAB No. 101").
For the year ended September 30, 2000, the Company recognized the full $3.5
million technology access fee received from Tanabe Seiyaku Co., Ltd. ("Tanabe")
related to a four-year term collaboration. The Company's adoption of SAB No.
101 has resulted in a $2.6 million cumulative effect of a change in accounting
principle related to the Tanabe fee and has
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8
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
been reported as a charge in the quarter ended December 31, 2000. The cumulative
effect was initially recorded as unearned revenue and will be recognized as
revenue over the remaining contractual term of the collaboration agreement.
During the nine months ended June 30, 2001, the impact of the change in
accounting principle increased the net loss by $2.0 million, or $.06 per share,
comprised of the $2.6 million cumulative effect of the change as described
above ($.08 per share), net of the $0.7 million of related deferred revenue
that was recognized as revenue during the nine months ended June 30, 2001 ($.02
per share). Had the change in accounting principle been applied retroactively,
the net loss for the nine months ended June 30, 2000 would have increased by
$2.8 million, or $.12 per basic and diluted weighted average number of shares of
common stock outstanding.
(3) Comprehensive Loss
Comprehensive loss for the three months ended June 30, 2001 and 2000 was as
follows:
For the three months ended
June 30,
-------
2001 2000
---- ----
Net loss..................................... $ (4,760,084) $ (3,190,627)
Other comprehensive loss:
Foreign currency translation adjustments.. (118,829) (216,801)
Unrealized holding gains arising
during period.......................... (166,834) 9,890
Less: Reclassification adjustment for
gains realized in net income........... (96,816) --
------------- ------------
(382,479) (206,911)
------------- ------------
Total comprehensive loss...................... $ (5,142,563) $ (3,397,538)
============ ============
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9
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Comprehensive loss for the nine months ended June 30, 2001 and 2000 was as
follows:
<Table>
<Caption>
For the nine months ended
June 30,
--------
2001 2000
---- ----
Net loss...................................... $(9,055,714) $(4,491,735)
Other comprehensive loss:
Foreign currency translation adjustments.... (293,828) (328,739)
Unrealized holding gains (losses) arising
during period............................. 974,120 (67,710)
Less: Reclassification adjustment for
gains realized in net loss................ (304,890) --
------------ -----------
375,402 (396,449)
------------ -----------
Total comprehensive loss...................... $(8,680,312) $(4,888,184)
============ ===========
</Table>
The components of accumulated other comprehensive losses were as follows:
<Table>
<Caption>
June 30, September 30,
2001 2000
---- ----
Cumulative foreign currency translation
adjustment................................. $(990,996) $(697,168)
Unrealized gains (losses) on available-
for-sale securities........................ 421,950 (247,280)
---------- ----------
Accumulated other comprehensive losses...... $(569,046) $(944,448)
========== ==========
</Table>
(4) Stock Options issued to Consultants
In December 2000, the Company granted options to certain non-employees to
purchase 127,000 shares of common stock as part of an arrangement with Nadler
Pharma Associates, L.L.C. to provide clinical development expertise to support
the Company's drug development program for Tarceva(TM) (formerly known as
OSI-774). Such options vest over a three-year period, based upon future service
requirements. The Company recorded net deferred compensation of $6.1 million
based on the fair value of such options as of December 31, 2000 as determined
using a Black-Scholes option pricing model. The remeasurement of the fair value
of such options as of June 30, 2001, based on the Company's stock price on June
30, 2001, resulted in an adjusted net deferred compensation of $2.0 million.
Such compensation cost is amortized as expense over the respective vesting
periods using the method prescribed in FASB Interpretation No. 28. In
accordance with EITF Issue 96-18 -- "Accounting For Equity Instruments that Are
Issued to Other Than Employees for Acquiring, or In Conjunction with Selling,
Goods or Services," the amount of compensation expense to be recorded in future
-7-
10
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
periods related to the non-employee grants is subject to change each reporting
period based upon the then fair value of the options, using a Black-Scholes
option pricing model, until expiration of the options' vesting periods. The
Company recorded compensation expense of approximately $814,000 and $1.3
million related to these grants for the three and nine months ended June 30,
2001, respectively.
(5) Sale of Diagnostics Business
On November 30, 1999, the Company sold assets of its diagnostics business to
The Bayer Corporation ("Bayer") including the assets of the Company's
wholly-owned diagnostics subsidiary, OSDI, Inc. ("OSDI") based in Cambridge,
Massachusetts. The assets sold included certain contracts, equipment and
machinery, files and records, intangible assets, intellectual property,
inventory, prepaid expenses and other assets primarily related to the
operations of the diagnostics business. In connection with the sale, the
Company and OSDI entered into certain agreements with Bayer including an
Assignment and Assumption of Lease with respect to OSDI's facility located in
Cambridge and certain patent assignment and license agreements. Certain
employees of the Company and OSDI entered into employment agreements with
Bayer. Under the terms of the sale, the Company received $9.2 million upfront
from Bayer. As of June 30, 2001, additional contingent payments of $1.0 million
may be received by the Company by December 2001. Bayer intended to retain all
employees of OSDI and maintain the unit's headquarters in Cambridge.
The Company recorded a gain on the sale of approximately $3.7 million
during fiscal 2000. The net gain was calculated as follows (in thousands):
Cash received from Bayer ............................... $ 9,151
Accrued expenses assumed by Bayer ...................... 599
Net book value of fixed assets sold .................... (611)
Net book value of patent costs (intangibles) ........... (4,748)
Professional and legal fees incurred ................... (172)
Commission costs paid .................................. (315)
Other related costs .................................... (158)
--------
Gain on sale of assets of diagnostics business ......... $ 3,746
========
(6) Public Offering
On November 6, 2000, the Company concluded a public offering of 5.35 million
shares of common stock at a price of $70.00 per share. Gross proceeds totaled
$374.5 million with net proceeds of approximately $351.5 million after all
underwriting and other related fees were deducted. In addition, on November 21,
2000, the underwriters associated with this offering exercised their
over-allotment option to purchase an additional 802,500 shares of common
-8-
11
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
stock at a price of $70.00 per share. Gross proceeds from the exercise of the
over-allotment option totaled $56.2 million with net proceeds of approximately
$52.8 million.
(7) Accounting for Derivative and Hedging Activities
Effective October 1, 2000, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 133 -- "Accounting for Derivative
Instruments and Hedging Activities," as amended ("SFAS No. 133"), which
establishes new accounting and reporting guidelines for derivative instruments
and hedging activities. SFAS No. 133 requires the recognition of all derivative
financial instruments as either assets or liabilities in the consolidated
balance sheet and measurement of those instruments at fair value. Changes in
fair values of those derivatives will be reported in earnings or other
comprehensive income depending on the designation of the derivative and
whether it qualifies for hedge accounting. The accounting for gains and losses
associated with changes in the fair value of a derivative and the effect on
the consolidated financial statements will depend on its hedge designation
and whether the hedge is highly effective in achieving offsetting changes in
the fair value or cash flows of the asset or liability hedged. Under the
provisions of SFAS No. 133 the method that will be used for assessing the
effectiveness of a hedging derivative, as well as the measurement approach for
determining the ineffective aspects of the hedge, must be established at the
inception of the hedging relationship. For derivatives designated as cash flow
hedges, the change in fair value of the derivative instrument is adjusted to
fair value and is reported in other comprehensive income.
The Company believes it is prudent to minimize the risk caused by foreign
currency fluctuations. The Company, at times, minimizes this risk by hedging
the foreign currency exposure of the Company's net investment in foreign
operations through the purchase of forward foreign exchange contracts. For the
quarter ended June 30, 2001, the Company did not have any forward foreign
currency exchange contracts or other derivative instruments. The Company does
not enter into derivative instruments for any other purposes other than cash
flow hedging; the Company does not speculate using derivatives. The impact
of adopting SFAS No. 133 did not have any effect on the Company's consolidated
financial statements.
(8) Collaborations with and Sale of Stock to Roche and Genentech
On January 8, 2001, the Company entered into certain agreements (the
"Collaboration Agreements") with Genentech, Inc. ("Genentech") and
F.Hoffman-La Roche Ltd ("Roche") for the global co-development and
commercialization of the Company's lead anti-cancer drug, Tarceva(TM). The
Collaboration Agreements consist of a Development and Marketing Collaboration
Agreement between the Company and Genentech (the "OSI/Genentech Agreement"); a
Development Collaboration and Licensing Agreement between the Company and
Roche (the "OSI/Roche Agreement"); and a Tripartite Agreement by and among the
Company, Genentech and Roche (the "Tripartite Agreement"). The Company
received upfront fees of $25
-9-
12
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
million related to these agreements, which will be recognized evenly over the
expected three-year term of the Company's required research and development
efforts under these agreements. For the three and nine months ended June 30,
2001, the Company recognized approximately $2.1 million and $4.2 million of
the upfront fees, respectively.
Under the OSI/Genentech Agreement, the Company and Genentech agreed to
collaborate in the product development of Tarceva(TM) with the goal of
obtaining regulatory approval for commercial marketing and sale in the United
States of products resulting from the collaboration. Under the OSI/Genentech
Agreement, the parties established a joint steering committee composed of
representatives from each of the Company and Genentech. The responsibility of
the joint steering committee is, among other things, to approve overall
strategy of the collaboration; review and approve development, clinical trial
strategies and budgets; review and approve manufacturing activities; review
and approve marketing and sales budgets; and perform other similar functions.
The parties have also established a joint project team responsible for
formulating overall development plans and budgets.
The parties will conduct clinical trials of indications for licensed products
as defined in the OSI/Genentech Agreement in accordance with such agreement.
Consistent with the parties' development plan under the OSI/Genentech
Agreement, and with the approval of the joint steering committee, the parties
will agree as to who will own and be responsible for the filing of drug
approval applications with the Food and Drug Administration other than the
first new drug application which the Company will own and be responsible for
filing and the first supplemental new drug application which the Company will
have the option to own and be responsible for filing. Genentech will have
responsibility for the design and implementation of all product launch
activities and the promotion, marketing and sales of all products resulting
from the collaboration in the United States, its territories and Puerto Rico,
while the Company will have certain co-promotion rights. Genentech will pay the
Company certain milestone payments and the Company will share equally in the
operating profits or losses on products resulting from the collaboration.
Under the OSI/Genentech Agreement, the Company granted to Genentech a
non-transferable (except under certain circumstances), non-sublicensable
(except under certain circumstances), co-exclusive license under the Company's
patents related to Tarceva(TM) to use, sell, offer for sale and import
products resulting from the collaboration. In addition, Genentech granted to
the Company a non-transferable (except under certain circumstances),
non-sublicensable (except under certain circumstances), co-exclusive license
to certain patents held by Genentech to use, make, have made, sell, offer for
sale and import products resulting from the collaboration. Each party is
generally responsible for its own patent filings. In addition, each party,
generally, has the right, but not the obligation, to institute, prosecute and
control against patent infringement claims. The term of the OSI/Genentech
Agreement continues until the date on which the parties are no longer entitled
to receive a share of the operating profits or losses on any products
resulting from the collaboration. The OSI/Genentech Agreement is subject to
early termination
-10-
13
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
in the event of certain defaults by either party and early termination by
Genentech under certain circumstances.
Under the OSI/Roche Agreement, the Company granted to Roche a license under the
Company's intellectual property rights with respect to Tarceva(TM). Roche will
collaborate with the Company and Genentech in the product development of
Tarceva(TM) and will be responsible for future marketing and commercialization
of Tarceva(TM) outside of the United States in certain territories as defined in
the OSI/Roche Agreement. The grant is a royalty-bearing, non-transferable
(except under certain circumstances), non-sublicensable (except with consent),
sole and exclusive license to use, sell, offer for sale and import products
resulting from the development of Tarceva(TM) in the world, other than the
territories covered by the OSI/Genentech Agreement. In addition, Roche has the
right, but not the obligation, to manufacture Tarceva(TM) for its territory,
subject to certain exceptions. Roche will pay milestone and royalty payments to
the Company. The Company has primary responsibility for patent filings for the
basic patents protecting Tarceva(TM), and, in addition, has the right, but not
the obligation, to institute, prosecute and control against patent infringement
claims. The term of the OSI/Roche Agreement continues until the date on which
the Company is no longer entitled to receive a royalty on products resulting
from the development of Tarceva(TM). The OSI/Roche Agreement is subject to early
termination in the event of certain defaults by either party. In addition, after
two and one half years from the effective date, Roche may terminate the
agreement on a country-by-country basis. OSI may also have the right to
terminate the agreement on a country-by-country basis if Roche has not launched
or marketed a product in such country under certain circumstances.
Under the Tripartite Agreement, the Company, Genentech and Roche have agreed to
establish a structure which is intended generally to result in the optimization
of the use of each party's resources to develop Tarceva(TM) in certain countries
around the world, and share certain global development costs on an equal basis;
to share information generated under a global development plan, as defined in
the Tripartite Agreement; to facilitate attainment of necessary regulatory
approvals of Tarceva(TM) products for commercial marketing and sale in the
world; and to work together on such matters as the parties agree from time to
time during the development of Tarceva(TM). The Tripartite Agreement requires
each party to spend equally up to a specified amount for the further development
of Tarceva(TM). Under the Tripartite Agreement, the parties have established a
global development committee composed of representatives from each party. The
global development committee is generally responsible for, among other things,
approving material changes to the global development plan, including the annual
budget; overseeing execution of the global development plan; resolving disputes
concerning overall strategy or funding; and performing other similar functions.
The parties have also established a liaison team to work with the teams
organized under the OSI/Roche and OSI/Genentech Agreements. The responsibilities
of the liaison team include coordination of pre-clinical activities, clinical
team activity, regulatory activity, manufacturing activity, and communication
and publication strategy. In addition, the liaison team must prepare budgets and
updates to present to the global development committee and prioritize and
allocate the supply of Tarceva(TM). Each party may at
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
its own expense conduct clinical and pre-clinical activities for additional
indications for Tarceva(TM) not called for under the global development plan,
subject to certain conditions. The Tripartite Agreement will terminate when
either the OSI/Genentech Agreement or the OSI/Roche Agreement terminates. Any
reimbursement from or additional payments to Genentech or Roche for research
and development costs under the cost sharing arrangement of the Tripartite
Agreement are recorded as an increase or decrease to research and development
expenses on the accompanying consolidated statements of operations.
Concurrently with the execution of the Collaboration Agreements, the Company
entered into separate Stock Purchase Agreements (the "Stock Purchase
Agreements") on January 8, 2001 with each of Genentech and Roche Holdings, Inc.
for the sale to each of 462,570 newly-issued shares of the Company's common
stock. The purchase price was $75.664 per share, or an aggregate purchase price
of $35 million each. No underwriters or placement agents were involved in the
purchase and sale of the securities. The sale of the securities was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, as
sales to accredited investors in a private placement. The Company agreed to
register the resale of the shares of common stock issued in the private
placement and filed a registration statement on Form S-3 with the Securities and
Exchange Commission on March 28, 2001, which was declared effective on April 3,
2001. The transactions contemplated under the Collaboration Agreements and Stock
Purchase Agreements closed on January 30, 2001.
(9) Authorized Shares of Common Stock
At a special meeting of stockholders on June 20, 2001, the Company's
stockholders approved an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock, par value $.01 per
share (the "Common Stock"), from 50,000,000 shares to 200,000,000 shares. A
Certificate of Amendment to the Company's Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on August 8, 2001. As of
the date of the filing of this report, the authorized shares of Common Stock of
the Company is 200,000,000 shares.
(10) Subsequent Event -- Agreement to Acquire Pre-Clinical Research
Operations of British Biotech plc and Facility Reorganization.
On August 7, 2001, the Company announced that it had signed an agreement to
acquire certain of the pre-clinical research operations of British Biotech plc
for (pound sterling) 8.7 million (approximately $12.4 million) in cash. The
Company will assume the leases for British Biotech's state-of-the-art research
facilities in Oxford, U.K., acquire extensive laboratory equipment, gain access
to British Biotech's chemical libraries and retain approximately 60 research and
administrative professionals. Upon the closing of the transaction expected in
September 2001, the Company will move to close its Birmingham facility and
relocate its Birmingham personnel to the Oxford facilities which comprises of
approximately 118,000 square feet. The Company expects
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
this process to conclude by the end of 2001. The Oxford facilities will become
the center for the Company's European research and development operations, and
the Company expects to employ approximately 200 researchers and support staff
over time. The Company plans to close its Tarrytown facility and relocate the
Tarrytown personnel to its new research facility in Farmingdale by the summer
of 2002. The Company plans to consolidate its global research operations into
two sites by the end of 2002 with approximately 50% based at the Oxford
facilities and the other 50% in Long Island, New York.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 2001 AND 2000
OVERVIEW
We are engaged in the discovery and development of gene targeted, small
molecule drugs, primarily in the area of cancer, diabetes, respiratory diseases
and cosmeceuticals. To date, none of our proprietary or collaborative programs
have resulted in a commercial product; and therefore, we have not received any
revenues or royalties from the sale of products by us or by our collaborators.
We have funded our operations primarily through public and private placements
of equity securities and payments under collaborative research agreements with
major pharmaceutical companies.
Historically, we have conducted most of our drug discovery programs through
funded collaborations with major pharmaceutical companies. These arrangements
have typically included milestone and royalty payments on the successful
development and marketing of products discovered in the collaborations. Using
this business model, we were able to leverage the research, development and
financial resources of our corporate partners to help build and sustain a
fully-integrated drug discovery capability and a large pipeline of product
opportunities supplemented by those within our own proprietary programs. More
recently, as we have generated the financial resources to invest more fully in
our own programs, we are transitioning away from a partner-funded alliance
model in favor of independent research and development directed toward a
generation of OSI-owned and sponsored drug candidates.
Our proprietary drug discovery programs focus on three research groups
consisting of: cancer, diabetes and a new opportunities group. We intend in the
future to build the infrastructure and capabilities required for the full
commercialization of products arising from our cancer research and development
efforts. However, in our diabetes program, we intend to develop our own drug
candidates through the early stages of clinical development prior to entering
into co-development and commercialization agreements with leading
pharmaceutical companies in return for a significant share of the revenues
derived from product sales. The new opportunities group seeks to capitalize on
our core technologies to opportunistically develop candidates in disease areas
other than cancer and diabetes with a goal of forming partnerships and
alliances for shared development and commercialization. We expect these drug
candidates to emerge from in-licensing and acquisition opportunities as well as
from our own research efforts.
The most advanced of our product candidates is Tarceva(TM) (formerly known as
OSI-774), which has demonstrated encouraging indications of activity and has,
to date, exhibited a well-tolerated side-effect profile as a monotherapy in
three ongoing open-label, Phase II clinical trials for the treatment of
non-small cell lung, ovarian and head and neck cancers. A Phase III clinical
trial evaluating the use of Tarceva(TM) in combination with carboplatin
(Paraplatin(R)) and
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paclitaxel (Taxol(R)) for non-small cell lung cancer has also been initiated in
July 2001. On January 8, 2001, we entered into concurrent agreements with
Genentech, Inc. and F.Hoffmann-La Roche Ltd for the global co-development and
commercialization of Tarceva(TM). To date, we have received upfront fees and
equity investments totaling $95 million under these agreements. In addition, we
may receive scheduled milestone payments of up to $92 million based on the
successful filing and registration of the drug in major markets. In the United
States, we will employ an essentially equal cost and profit sharing arrangement
for the commercialization of Tarceva(TM) with Genentech. Outside of the United
States, we will receive royalties from Roche on net sales of products. The
overall costs of the development program will be split equally among the three
parties.
In addition to our Tarceva(TM) program, eleven drug candidates are undergoing
clinical or late stage pre-clinical development that have arisen from current
or former funded research alliances including those with Pfizer Inc., Aventis
Pharmaceuticals Inc., and Solvay Pharmaceuticals, B.V. Pfizer, our long-term
collaborator in cancer with whom we concluded a successful fifteen year funded
research collaboration in April 2001 is conducting Phase I clinical trials for
two additional candidates and has two additional products in late stage
pre-clinical development. We will receive royalties on the sales of any drugs
emerging from this program.
For the three months ended June 30, 2001, we had a net loss of $4.8 million
compared to a net loss of $3.2 million for the three months ended June 30, 2000.
For the nine months ended June 30, 2001, we had a net loss of $9.1 million
compared to a net loss of $4.5 million for the nine months ended June 30,
2000. Our increases in net losses are primarily related to the launch of the
development program associated with Tarceva(TM), and an increased focus on our
proprietary research. Our net losses have been partially offset by the
recognition of $2.1 million and $4.2 million of the upfront fees from
Genentech and Roche for the three and nine months ended June 30, 2001,
respectively (see notes 2 and 8 to the accompanying consolidated financial
statements), and higher interest income resulting from increased funds
available for investment as more fully discussed in "Other Income and
Expense" and "Liquidity and Capital Resources" below. Included in the loss
for the nine months ended June 30, 2001 was a non-cash charge of $2.6 million
related to the cumulative effect of a change in accounting principle for the
recognition of upfront fees upon the adoption of SEC Staff Accounting Bulletin
No. 101 (see note 2 to the accompanying consolidated financial statements).
Excluding the net effect of this change in accounting principle, the net loss
for the nine months ended June 30, 2001 would have been $7.1 million, or $.21
per share.
REVENUES
Revenues increased approximately $71,000 or 1%, and decreased approximately
$2.7 million or 12% for the three and nine months ended June 30, 2001,
respectively, compared to the three and nine months ended June 30, 2000. Total
collaborative program revenues decreased approximately $2.2 million or 36% and
$3.7 million or 21%, respectively, for the three and
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nine months ended June 30, 2001, compared to the three and nine months ended
June 30, 2000. The decreases were primarily due to the conclusion of our funded
collaborations with Aventis in September 2000, Solvay in December 2000, and
Pfizer in March 2001. These decreases were partially offset by increased
revenues from the Tanabe Seiyaku Co., Ltd. collaboration, which is focused on
discovering and developing pharmaceutical products to treat diabetes.
License and related revenues for the three and nine months ended June 30, 2001
increased approximately $2.4 million and $1.3 million, respectively, and
included the prorated recognition of upfront fees received from Genentech and
Roche of $2.1 million and $4.2 million, respectively (see notes 2 and 8 to the
accompanying consolidated financial statements). In accordance with the
provisions of Staff Accounting Bulletin No. 101, $25 million received from
Genentech and Roche is being recognized evenly over the expected three-year
development phase of our contractual agreement. Included in the nine months
ended June 30, 2000 was a one-time technology access fee of $3.5 million from
Tanabe recognized in October 1999. In connection with a change in accounting
principle effective October 1, 2000 (see note 2 to the accompanying
consolidated financial statements) to comply with the provisions of Staff
Accounting Bulletin No. 101, this previously recognized technology access fee
will be recognized over the four-year term of the agreement, resulting in
approximately $219,000 and $656,000 in revenue recognition for the three and
nine months ended June 30, 2001, respectively. Assuming the technology access
fee received from Tanabe had been recognized over the term of the agreement in
fiscal 2000, revenues would have been $6.5 million and $19.4 million for the
three and nine months ended June 30, 2000, respectively.
EXPENSES
Operating expenses increased approximately $7.6 million or 72% and $13.1 million
or 40%, respectively, for the three and nine months ended June 30, 2001,
compared to the three and nine months ended June 30, 2000. Research and
development expenses increased approximately $5.1 million or 65% and $9.8
million or 40%, respectively, for the three and nine months ended June 30, 2001,
compared to the three and nine months ended June 30, 2000. These increases
were primarily related to the initiation of clinical development of
Tarceva(TM) upon the return of all rights to us from Pfizer in June 2000. These
increases also resulted from our increased investment in our proprietary drug
discovery programs, including cancer and diabetes. Our ability to shift our
resources from collaborative research efforts to proprietary efforts has been
enhanced as a result of the conclusion of our Aventis and Solvay collaborations
on September 30, 2000 and December 31, 2000, respectively, as well as the
conclusion of the funded phase of our collaboration in cancer with Pfizer on
March 31, 2001. Research and development expenses were also impacted by
certain non-cash, stock option-based compensation charges as discussed below.
In accordance with EITF Issue 96-18 "Accounting for Equity Instruments that
Are Issued to Other Than Employees for Acquiring, or In Conjunction with
Selling, Goods or Services,"
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the amount of compensation expense to be recorded in future periods related to
the non-employee grants is subject to change each reporting period based upon
the then fair value of these options, using a Black-Scholes option pricing
model, until expiration of the grant vesting period. The remeasurement of the
value of these options at June 30, 2001 resulted in compensation expense of
approximately $1.5 million and $2.4 million in compensation expense for the
three and nine months ended June 30, 2001, respectively, related to stock
options issued to consultants involved in research and development activities.
Deferred compensation for stock options issued to non-employee consultants was
approximately $2.7 million as of June 30, 2001, which will be recognized as
compensation expense over the vesting period of the options.
At September 30, 2000, we had recorded approximately $4.4 million of deferred
compensation expense related to stock options granted to our new President and
Head of Research and Development. This amount is being recognized as
compensation expense on a straight line basis over the vesting period of the
options. For the three and nine months ended June 30, 2001, this grant resulted
in compensation expense of approximately $364,000 and $1.1 million,
respectively.
Selling, general and administrative expenses increased approximately $2.7
million or 110% and $3.8 million or 54%, respectively, for the three and nine
months ended June 30, 2001, compared to the three and nine months ended June
30, 2000. The increases were primarily attributable to the increased expenses
for additional management and administrative personnel and consultants, as well
as an increase in facilities expenses and other professional fees associated
with expansion and corporate development activities. Consulting expenses
include stock options granted to non-research and development consultants in
connection with their consulting arrangements which resulted in $355,000 and
$466,000 in compensation expense for the three and nine months ended June 30,
2001, respectively. We expect that general and administrative expenses will
continue to increase as we continue to support and expand our clinical trial
programs and research and development efforts.
Amortization of intangibles decreased approximately $128,000 or 19% for the
nine months ended June 30, 2001. The decreases were related to the inclusion of
our diagnostic patent estate in the sale of our diagnostics assets to Bayer,
which eliminated the related amortization expense effective November 30, 1999.
OTHER INCOME AND EXPENSE
Net investment income increased approximately $5.9 million or 526% and $17.6
million or 755%, respectively, for the three and nine months ended June 30,
2001, compared to the three and nine months ended June 30, 2000. The increases
were primarily due to investment of funds generated from: (i) a private sale of
our common stock to Genentech and Roche in January 2001; (ii) the underwritten
public offering of our common stock in November 2000; (iii) a private placement
of our common stock in February 2000; and (iv) the exercise of options and
warrants since April 2000. The public offering in November 2000 and the sale of
common stock in January 2001, are more fully discussed in "Liquidity and
Capital Resources"
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below. Other income during the nine months ended June 30, 2000 includes the
gain of approximately $3.7 million on the sale of the assets of our diagnostics
business to Bayer.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, working capital, representing primarily cash, cash
equivalents and short-term investments, aggregated approximately $564.5 million
compared to $80.1 million at September 30, 2000. This increase resulted
primarily from the closing of a public offering of 6,152,500 shares of our
common stock in November 2000 for net proceeds of approximately $404.3 million,
and $95 million received from Genentech and Roche upon the commencement of our
collaborations in January 2001.
On November 6, 2000, we concluded a public offering of 5.35 million shares of
common stock at a price of $70.00 per share. Gross proceeds totaled $374.5
million with net proceeds of approximately $351.5 million after all
underwriting and other related fees were deducted. In addition, on November 21,
2000, the underwriters associated with this offering exercised their
over-allotment option to purchase an additional 802,500 shares of our common
stock at a price of $70.00 per share. Gross proceeds from the exercise of the
over-allotment option totaled $56.2 million with net proceeds of approximately
$52.8 million.
In January 2001, we secured co-development and marketing partnerships with
Genentech and Roche to maximize the healthcare benefit and commercialization of
Tarceva(TM), and received $95 million in upfront fees and equity investments.
The Tarceva(TM) research and development costs are divided equally among the
parties. As a result of this alliance, we anticipate only a modest increase in
our fiscal 2001 operating cash burn over fiscal 2000, since the increased
Tarceva(TM) expenses will be offset somewhat by the recognition of the upfront
fees and higher interest earnings. We anticipate a more significant increase in
our fiscal 2002 operating cash burn over fiscal 2001 due to an increase in
Tarceva(TM) expenses, a decrease in our collaborative revenue base, and the
absence of upfront fees. Our goal for Tarceva(TM) is to seek rapid regulatory
approval, assess its utility in combination with existing chemotherapy agents,
demonstrate a survival benefit for earlier stage cancer patients enabling its
front-line use in major cancers, and broaden its application to additional
cancers.
We expect to incur additional losses over the next several years as we increase
our investment in Tarceva(TM) and other internal proprietary programs.
Additionally, as we shift our focus toward internal drug development, we expect
collaborative revenues to decrease. To achieve profitability, we, alone or with
others, must successfully develop and commercialize our technologies and
products, conduct pre-clinical studies and clinical trials, secure required
regulatory approvals and obtain adequate assistance to successfully
manufacture, introduce and market such technologies and products. The ability
and time required to reach profitability is uncertain. We believe that amounts
received from Genentech and Roche, proceeds from our public offering, existing
cash resources, and projected funding from collaborative research and
development programs provide a strong financial base from which to fund our
operations and capital requirements for at least the next several years.
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During fiscal 2000, we received a commitment from the State of New York to
expand and refurbish a state-of-the-art discovery research facility located in
the Broad Hollow BioScience Park on the SUNY campus in Farmingdale, New York,
which we will lease from the State. We expect to move certain research
operations to this new facility by the end of 2001. In February 2001, we
deposited $750,000 with the State University of New York Construction Fund.
These funds will be used toward the construction of our new research facility
if the costs of the project exceed the amount appropriated by the State. The
funds will be returned to us if they are not utilized. In July 2001, we moved
our corporate headquarters to a newly constructed office facility in Melville,
New York. The new headquarters is in close proximity to our Broad Hollow
BioScience Park facility. The facility in Uniondale at which we previously had
our headquarters is continuing to support research and development.
On August 7, 2001, we announced that we had signed an agreement to acquire
certain of the pre-clinical research operations of British Biotech plc for
pound sterling 8.7 million (approximately $12.4 million) in cash. We will
assume the leases for British Biotech's state-of-the-art research facilities
in Oxford, U.K., acquire extensive laboratory equipment, gain access to
British Biotech's chemical libraries and retain approximately 60 research and
administrative professionals. Upon the closing of the transaction expected in
September 2001, we will move to close our Birmingham facility and relocate our
Birmingham personnel to the Oxford facilities. We expect this process to
conclude by the end of 2001. The Oxford facilities will become the center for
our European research and development operations, and we expect to employ
approximately 200 researchers and support staff over time. We plan to close
our Tarrytown facility and relocate the Tarrytown personnel to our new
research facility in Farmingdale by the summer of 2002. We plan to consolidate
our global research operations into two sites by the end of 2002 with
approximately 50% based at the Oxford facilities and the other 50% in Long
Island, New York. The Company expects to incur restructuring charges
associated with the Birmingham close and relocation of employees in the fourth
quarter of fiscal 2001. Such charges cannot be reasonably estimated at this
time.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill And Other Intangible
Assets." SFAS No. 141 addresses the accounting for acquisitions of businesses
and is effective for acquisitions occurring on or after July 1, 2001. SFAS No.
142 addresses the method of identifying and measuring goodwill and other
intangible assets acquired in a business combination, eliminates further
amortization of goodwill, and requires periodic evaluations of impairment of
goodwill balances. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. The Company is currently assessing the impact of the
adoption of SFAS No. 141 and SFAS No. 142, if any.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash flow and earnings are subject to fluctuations due to changes in
interest rates in our investment portfolio of debt securities, to the fair
value of equity instruments held, and, to an immaterial extent, to foreign
currency exchange rates. We maintain an investment portfolio of various
issuers, types and maturities. These securities are generally classified as
available-for-sale and, consequently, are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a component of accumulated
other comprehensive income (loss) included in stockholders' equity. Our
limited investments in certain biotechnology companies are carried on the
equity method of accounting. Other-than-temporary losses are recorded against
earnings in the same period the loss was deemed to have occurred. It is
uncertain whether other-than-temporary losses will be material to our results
of operations in the future. Other than foreign currency exchange rates, we do
not currently hedge these exposures. We hedge some of our foreign currency
exchange rates exposure through forward contracts as more fully described in
note 11(d) to the consolidated financial statements contained in our annual
report on Form 10-K for the fiscal year ended September 30, 2000.
At June 30, 2001, we maintained a portion of our cash and cash equivalents in
financial instruments with original maturities of three months or less. We also
maintained a short-term investment portfolio containing financial instruments
in which the majority have original maturities of less than twelve months.
These financial instruments, principally comprised of government and government
agency obligations and to a lesser extent of corporate obligations, are subject
to interest rate risk and will decline in value if interest rates increase. A
hypothetical ten percent change in interest rates during the quarter ended
June 30, 2001 would have resulted in approximately a $0.7 million change in
pretax income. We have not used derivative financial instruments in our
investment portfolio.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to a unanimous consent, dated as of May 7, 2001, the
Company's Board of Directors adopted, subject stockholder approval,
an amendment to the Company's Certificate of Incorporation to increase
the number of authorized shares of common stock, par value $.01 per
share, from 50,000,000 shares to 200,000,000 shares. On June 20, 2001,
at a special meeting of stockholders, the amendment was approved (see
Article IV of the Certificate of Incorporation, as amended). The full
text of the Certificate of Incorporation, as amended, which is
effective as of August 8, 2001 is filed herewith and incorporated
herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 20, 2001, the Company held a special meeting of stockholders.
At this meeting, the stockholders of the Company approved an amendment
to the Certificate of Incorporation increasing the number of
authorized shares of common stock, par value $0.1 per share, from
50,000,000 shares to 200,000,000 shares (21,154,352 shares were voted
in favor, 7,231,831 shares voted against, 6,625 shares abstained, and
there were no broker non-votes).
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
*3.1 Certificate of Incorporation, as amended
**3.2 Amended and Restated By-Laws
--------------------------------
* Filed herewith.
** Included as an exhibit to the Company's current report on
Form 8-K, filed on January 8, 1999, and incorporated herein by
reference.
(b) REPORTS ON FORM 8-K
The Company did not file any current reports on Form 8-K during the
quarter ended June 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
OSI PHARMACEUTICALS, INC.
-------------------------------
(Registrant)
Date: August 14, 2001 /s/ Colin Goddard, Ph.D.
-------------------------------
Colin Goddard, Ph.D.
Chairman of the Board and
Chief Executive Officer
Date: August 14, 2001 /s/ Robert L. Van Nostrand
-------------------------------
Robert L. Van Nostrand
Vice President and Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
*3.1 Certificate of Incorporation, as amended
**3.2 Amended and Restated By-Laws
- ----------------------------------
* Filed herewith.
** Included as an exhibit to the Company's current report on Form 8-K,
filed on January 8, 1999, and incorporated herein by reference.
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