- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K/A
---------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002 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)
<Table>
DELAWARE 13-3159796
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
</Table>
<Table>
58 SOUTH SERVICE ROAD, MELVILLE, N.Y. 11747
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(631) 962-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE NONE
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE, AND
SERIES SRPA JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 28, 2002, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $1,057,560,516. For purposes of this
calculation, shares of common stock held by directors, officers and stockholders
whose ownership exceeds five percent of the common stock outstanding at March
28, 2002 were excluded. Exclusion of shares held by any person should not be
construed to indicate that the person possesses the power, direct or indirect,
to direct or cause the direction of the management or policies of the
Registrant, or that the person is controlled by or under common control with the
Registrant.
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). [X] Yes [ ] No
As of November 29, 2002, there were 36,418,319 shares of the Registrant's
common stock, par value $.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its 2003 annual
meeting of stockholders are incorporated by reference into Part III of this Form
10-K.
This Form 10-K/A is being filed to make certain typographical and
formatting changes to the information presented in the Tarceva(TM) Phase II Data
Table under the caption "OSI's Approach to Cancer Therapy" in Part I, Item 1, of
the report on Form 10-K of OSI Pharmaceuticals, Inc. for the fiscal year ended
September 30, 2002, which was filed with the Securities and Exchange Commission
on December 12, 2002 (the "Form 10-K"). This Form 10-K/A is also being filed to
make certain typographical and grammatical changes in other parts of Part I,
Item 1 of the Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
We are a leading biotechnology company focused on the discovery,
development and commercialization of high-quality oncology products that both
extend life and improve the quality-of-life for cancer patients worldwide. We
have established a balanced pipeline of oncology drug candidates that includes
both next-generation cytotoxic chemotherapy agents and novel mechanism-based,
gene-targeted therapies.
Our most advanced drug candidate, Tarceva(TM) (erlotinib HC1), is a small
molecule inhibitor of the epidermal growth factor receptor, or HER1/EGFR. The
protein product of the HER1/EGFR gene is a receptor tyrosine kinase that is
over-expressed or mutated in many major solid tumors. We believe HER1/ EGFR
inhibitors represent an exciting new class of relatively safe and well tolerated
anti-cancer agents that may have utility in treating a wide range of cancer
patients. Tarceva(TM) is an oral once-a-day small molecule drug designed to
specifically block the activity of the HER1/EGFR protein. Currently, Tarceva(TM)
is being developed in an alliance with Genentech, Inc. and Roche. If the drug
receives regulatory approval, Genentech will lead the marketing effort in the
United States and Roche will market it in the rest of the world. We will receive
milestone payments from both Genentech and Roche, an equal profit share from
U.S. sales, and royalties on sales outside of the United States. Tarceva(TM) has
demonstrated encouraging indications of anti-cancer activity in single-agent,
open label Phase II trials in non-small cell lung cancer, head and neck cancer
and ovarian cancer. Tarceva(TM) is currently in Phase III clinical trials for
non-small cell lung cancer and pancreatic cancer.
Behind Tarceva(TM) we have five additional drug candidates in earlier
stages of clinical development. Three of these (OSI-211, OSI-7904L and OSI-7836)
are next generation cytotoxic chemotherapy agents and the other two (CP-547,632
and CP-724,714) are gene-targeted therapies currently being developed by Pfizer
Inc. We own commercial rights to the first three and will receive royalty
payments on the latter two if they are successfully commercialized.
Our next generation cytotoxic chemotherapy candidates are designed to
improve upon currently marketed products in the same drug class. OSI-211 is a
liposomal formulation of lurtotecan, a topoisomerase-1 inhibitor, that is being
developed to compete with topotecan (Hycamptin(R)). OSI-7904L is a liposomal
formulation of a thymidylate synthase inhibitor, GW1843, that is being developed
as a potential competitor to 5-Fluorouracil (5-FU) and capecitabine (Xeloda(R)),
and OSI-7836 is a nucleoside analog being developed to compete with gemcitabine
(Gemzar(R)). OSI-211 is in Phase II clinical trials, and OSI-7904L and OSI-7836
are in Phase I clinical trials. Like Tarceva(TM), the two gene-targeted
therapies are receptor tyrosine kinase inhibitors. CP-547,632 is a small
molecule targeting the vascular endothelial growth factor receptor, or VEGFR,
and CP-724,714 is a small molecule targeting HER2/erbB2. Both agents are
currently in Phase I clinical trials.
In order to support our clinical pipeline, we have established (through
acquisition and internal investment) a high quality oncology clinical
development and regulatory affairs capability and a pilot scale chemical
manufacturing and process chemistry group. Behind our clinical pipeline we have
an extensive, fully integrated small molecule drug discovery organization
designed to generate a pipeline of high quality oncology drug candidates to move
into clinical development. This research operation has been built upon our
historical strengths in high throughput screening, chemical libraries, medicinal
and combinational chemistry, and automated drug profiling technology platforms.
OUR STRATEGY
We believe that Tarceva(TM) has established a corporate presence for us in
the oncology field. Our strategy over the last several years has been designed
to capitalize upon this presence and to re-orient our business
1
towards becoming a world class oncology organization. To this end, we have
raised capital, formed alliances and engaged in merger and acquisition activity
with the strategic intent to:
- maximize our prospects for successful development and commercialization
of Tarceva(TM);
- enhance our skill sets and improve the quality of our organization,
allowing us to establish a comprehensive array of research, development
and business skills necessary for our cancer mission;
- divest or exit from our current non-oncology research activities and
alliances;
- engage in active in-licensing and partnering efforts to add to our cancer
pipeline and complement our internal cancer research programs; and
- continue to invest in opportunities that will lead to successful growth
while aggressively managing the risks inherent in our industry in order
to sustain a strong balance sheet through to profitability.
As we move forward, we intend to follow through on the following core
elements of our strategy:
Execution on Tarceva(TM). Together with our partners, Genentech and
Roche, we have formulated a comprehensive, global development program for
Tarceva(TM). Since the beginning of the alliance, we, with our partners,
have collectively initiated numerous clinical trials, four of which are
Phase III registration-oriented trials in lung and pancreatic cancers. This
registration strategy focuses on the execution of adequate, controlled and
well-designed studies to support a worldwide registration program. All four
Phase III trials are designed as large-scale, placebo controlled,
double-blinded trials with a primary endpoint of survival and several
secondary endpoints which include, among others, symptom relief and quality
of life. Should these studies prove successful, we have established a goal
of achieving profitability within 18 to 24 months of market launch of
Tarceva(TM).
Focus on Oncology. We intend to focus our business entirely on
oncology and continue to build upon our extensive pipeline of oncology
product candidates, our strong core of discovery research, and our top-tier
oncology clinical development and regulatory affairs group. As our pipeline
reaches the commercialization stage, we also intend to establish a full
commercial operation, initially in the U.S. market. Although we intend to
commercialize selected products independently, we will also continue to
engage in marketing partnerships where we believe this will add value to
our ability to effectively and competitively commercialize our products.
We also intend to complete the divestiture of all remaining
non-oncology research programs. In July 2002, we agreed to accelerate the
conclusion of the phase-down period of our funded research alliance with
Anaderm Research Corporation, a wholly-owned subsidiary of Pfizer, focused
on the development of novel treatments for skin and hair conditions. We
expect the transfer of all research related to the collaboration to be
completed by the beginning of 2003. We are in the process of divesting our
diabetes program and certain of our adenosine receptor assets into an
entity with the intent that this entity subsequently will be funded by
third party investors and will be one in which we will maintain a minority
interest. This planned divestiture coupled with steps we took in October
2002 to re-size and re-focus the skill sets of our organization will carry
us into 2003 with approximately 425 research, development and business
personnel focused entirely on oncology.
These steps will allow us to maintain the level of resource commitment
we believe is required to achieve our primary goal of building a
first-class oncology franchise with a pipeline of clinical and research
opportunities anchored around Tarceva(TM).
Licensing and Acquiring Oncology Products and Clinical Candidates. In
order to effectively manage the risks inherent in pharmaceutical research
and development and to complement our internal research efforts, we believe
it is essential that we continue to explore licensing and acquisition
initiatives designed to add oncology products and clinical candidates to
our pipeline in order to further strengthen our growing position in
oncology. In December 2001, we acquired Gilead Sciences, Inc.'s entire
pipeline of clinical candidates in oncology and certain related
intellectual property, as well as Gilead's Boulder, Colorado operations,
including clinical research, regulatory affairs and drug development
personnel,
2
infrastructure, and facilities. This transaction accelerated our
development and commercialization capabilities with the addition of an
outstanding and complementary drug development and oncology group, and
augmented our pipeline of gene-targeted small molecule therapeutics with
several promising next-generation cytotoxic chemotherapy agents currently
in clinical development. Under the terms of the transaction, we received
exclusive worldwide development and commercialization rights to Gilead's
three clinical development candidates in oncology. With a full array of
cancer drug discovery and development capabilities and a strong balance
sheet, we expect to be well positioned to compete for premier in-licensing
and acquisition opportunities.
OUR RESEARCH AND DEVELOPMENT PROGRAMS
RESEARCH AND DEVELOPMENT PIPELINE
The following table summarizes the status of our more advanced oncology
product candidates as of November 30, 2002 and identifies any related
collaborator.
<Table>
<Caption>
PRODUCT/INDICATION STATUS* DRUG TYPE COLLABORATOR(S)
- ------------------ --------- ------------------------- -------------------
Tarceva(TM)/Non Small Cell Lung Cancer Phase III Epidermal Growth Genentech and Roche
Tarceva(TM)/Pancreatic Cancer Phase III Factor Receptor Inhibitor
Tarceva(TM)/Ovarian, Head and Neck, Phase II (HER1/EGFR)
Metastatic Breast and Glioblastoma
Multiforme
Tarceva(TM)/various-exploratory Phase I
OSI-211/Ovarian Cancer Phase II Liposomal Topoisomerase-1 OSI-Owned
OSI-211/Small Cell Lung Cancer Phase II Inhibitor
OSI-7904L/various-exploratory Phase I Liposomal Thymidylate OSI-Owned
Synthase Inhibitor
OSI-7836/various-exploratory Phase I Nucleoside Analog OSI-Owned
CP-547,632/various-exploratory Phase I Vascular Endothelial Pfizer
Growth Factor Receptor
(VEGFR) Inhibitor
CP-724,714/various-exploratory Phase I HER2/erbB2 Receptor Pfizer
Inhibitor
</Table>
- ---------------
(*) Denotes clinical safety and efficacy tests as follows:
Phase I - Evaluation of safety in humans.
Phase II - Evaluation of safety, dosing, and initial efficacy in humans.
Phase III - Evaluation of safety and efficacy in humans.
OSI'S APPROACH TO CANCER THERAPY
Cancer remains a major unmet healthcare concern with approximately 1.3
million Americans diagnosed with various solid tumors, lymphomas and leukemias
every year. In total, it is estimated that the overall direct medical costs for
cancer in the United States for 2001 were in excess of $56 billion. The
worldwide market for anti-cancer drugs is estimated to be $14 billion in 2002
and is expected to grow as breakthrough products, which offer safer and more
effective treatment options based upon an improved understanding of the genetic
basis of human cancer, begin to enter the market. Traditionally, development of
anti-cancer drugs has resulted in products which generally kill rapidly dividing
cells. Although these products, called cytotoxic drugs, are effective in killing
rapidly dividing cancer cells, they usually interfere directly and
non-selectively with normal processes in the cell associated with DNA
replication and cell division. Since these cell division processes occur
routinely in healthy tissues, the cytotoxic drugs are severely limited in their
utility by their serious side effects, such as disruption of the blood, immune
and gastrointestinal systems. These side effects limit the anti-tumor value of
these cytotoxic drugs because they can be used only in sub-optimal dosing
regimens.
3
We have taken two general approaches in an attempt to improve the available
drug treatment options for cancer patients. The first approach involves the
development of next-generation cytotoxic agents which present improvements in
activity over existing drugs or technological innovations, such as liposomal
formulations that are designed to improve targeting of the cytotoxic agent to
the tumor, thus reducing the incidence of the harmful side effects usually
associated with cytotoxic drugs. The second approach involves the exploitation
of our rapidly growing understanding of the genetic basis for cancer in order to
develop drugs that directly target the genetic abnormalities present in human
cancers or treat their consequences. As these new targeted therapies emerge in
clinical testing, they may be used independently, in combination with other
targeted drugs or in combination with cytotoxic chemotherapy drugs, in an
attempt to maximize the anti-cancer benefit by using so-called drug cocktails.
It is our belief that to be a successful oncology franchise, we should be
developing both next-generation or improved cytotoxic drugs and targeted
therapies in order to provide an array of effective treatment options for the
cancer patient. Thus, while our drug discovery research efforts are focused on
next-generation gene-targeted therapies, our acquisition of oncology assets from
Gilead has complemented our research efforts with a portfolio of novel cytotoxic
agents. These assets include OSI-211 and OSI-7904L, which are liposomal
formulations of novel agents belonging to two classes of drug (topoisomerase 1
inhibitors and thymidylate synthase inhibitors, respectively), for which
products are currently marketed. Our belief is that these liposomal formulations
might allow us to achieve improved activity profiles over the existing marketed
products. The third of our cytotoxic agents is OSI-7836, which, in pre-clinical
testing, has clearly demonstrated anti-tumor activity in a variety of refractory
solid tumor xenograft models and is being developed as an alternative to
gemcitabine (Gemzar(R)), which is sold in the United States for the treatment of
pancreatic cancer and non-small cell lung cancer.
Our drug discovery efforts in targeted therapies were for many years
conducted in partnership with Pfizer. Tarceva(TM) was jointly discovered as part
of this alliance. Pfizer is continuing to develop three other targeted therapies
from this alliance (two of which are in clinical development), the funded
discovery phase of which concluded in April 2001. These drugs represent the
vanguard of a substantial research effort directed toward the discovery and
development of these next generation targeted drugs. If Pfizer is successful in
commercializing any of these drug candidates, we will receive a royalty from
Pfizer on the sales of such drugs.
The novel, anti-cancer drugs resulting from our alliance with Pfizer,
including Tarceva(TM), specifically target cancer-causing genes, or oncogenes,
and processes required for tumor growth such as angiogenesis. Oncogenes are
typically growth regulating genes that are either over-expressed or mutated in
cancer cells in such a manner that they confer either a significant growth
advantage on cancer cells in the body or interrupt the normal process of
programmed cell death, or apoptosis, that contributes to the uncontrolled growth
associated with cancer. One of the most important of these oncogenes is HER1 or
EGFR. HER1/EGFR is part of a family of growth factor receptors (the HER family)
that binds to natural protein signals like the epidermal growth factor, or EGF,
and transforming growth factor-(LOGO), or TGF-(LOGO), sending growth signals,
via the receptor's tyrosine kinase enzyme activity, to the nucleus of the cell
controlling growth. In many solid tumors, HER1/EGFR is either over-expressed or
mutated, leading to abnormal signaling which is linked to the development of a
cancerous mass.
HER1/EGFR kinase is over-expressed in a wide range of solid tumors and a
significant number of patients diagnosed with cancer each year in the United
States have solid tumors that over-express HER1/EGFR. In addition, a frequently
occurring mutation of the HER1/EGFR gene called EGFRvIII is found in many
tumors. Thus, there is both an urgent medical need and a substantial potential
market for effective anti-HER1/EGFR agents. Progress in the field has
established HER1/EGFR as a validated target for cancer intervention and small
molecule tyrosine kinase inhibitors as promising drug candidates in this area.
Antibody products are also under development which target the EGF binding region
of the receptor and have demonstrated indications of improved anti-cancer
activity when used in conjunction with existing treatment and chemotherapy
regimens. We believe these agents are unlikely to effectively inhibit mutated
forms of HER1/EGFR. They also require delivery via intravenous infusion and are
sometimes difficult and expensive to produce. In contrast to these agents, small
molecule inhibitors of the tyrosine kinase activity, such as Tarceva(TM), should
be effective against either mutant or over-expressed forms of HER1/EGFR, are
convenient
4
once-a-day oral therapies, and are relatively easy and inexpensive to
manufacture. In addition, Tarceva(TM) has demonstrated anti-tumor activity when
used clinically as a single agent in Phase II clinical trials.
TARCEVA(TM)
From 1986-2001, the focus of our cancer collaboration with Pfizer was the
discovery and development of novel classes of orally active, gene-targeted,
small molecule anti-cancer drugs based on oncogenes and tumor suppressor genes
and the fundamental mechanisms underlying tumor growth. Today these approaches
remain at the core of our in-house discovery efforts. The most prominent and
advanced of these programs targets HER1/EGFR. Tarceva(TM), a small molecule
anti-cancer agent, is a potent, selective and orally active inhibitor of the
receptor tyrosine kinase activity of HER1/EGFR. Tarceva(TM) has demonstrated
anti-cancer activity in open-label Phase II trials and is now in Phase III
trials for non-small cell lung cancer and pancreatic cancer. We gained full
development and marketing rights to Tarceva(TM) in June 2000 when the U.S.
Federal Trade Commission ordered Pfizer to divest it to us as a result of an
anti-trust finding upon the FTC's review of Pfizer's merger with Warner-Lambert
Company. In January 2001, we entered into an alliance with Genentech and Roche
for the global co-development and commercialization of Tarceva(TM).
Clinical Data. Phase I and Phase II trials on Tarceva(TM) have
demonstrated the drug to possess activity as a single agent and to be relatively
safe and well-tolerated with manageable side effects, principally, reversible
rash and a generally mild diarrhea. The dose limiting side effect in the Phase I
trials was diarrhea, which was moderate to severe in three of nine patients in
these particular studies involving very sick cancer patients at 200 mg per day.
150 mg per day was established as the maximum tolerated dose in this study. On a
150 mg oral daily dosing regimen, diarrhea is generally mild and is treated
effectively (when necessary) with loperamide (over the counter Imodium(R)).
Clinical investigators have generally considered the rash, which is common to
all anti-HER1/EGFR drugs in development, to be the most common adverse event in
the context of this anti-cancer therapy. Some success in treating rash has been
observed with antibiotic creams as well as with a variety of other agents.
However, we believe that the rash itself may serve to be a useful biomarker of
the effective delivery and potential activity of Tarceva(TM). Indeed, in our
Phase II trials the survival of patients who developed rash during Tarceva(TM)
treatment was significantly higher than those who did not. A subset of patients
in Phase I, Phase II and Phase III trials have now received daily doses of
Tarceva(TM) for extended periods (one year or more) with generally well-managed
side effect profiles.
We have now completed Phase II trials for Tarceva(TM) in non-small cell
lung cancer, head and neck cancer and ovarian cancer. Patients in these trials
had advanced or metastatic cancer and had generally failed standard treatment
regimens. We believe these trials are encouraging because they demonstrate
objective clinical responses and noteworthy survival data for patients treated
with Tarceva(TM) as a single agent. The primary endpoint in these trials was
response rate, with stable disease, survival, time to progression and
quality-of-life being monitored as secondary endpoints. Updated analysis of data
from these Phase II trials showed that rash and rash related disorders were seen
in 162 patients, or 79%, of the patients. Mild to moderate rash was seen in 146
of these patients and 16 patients showed severe rash. Diarrhea was experienced
by 93, or 45%, of the patients. For 86 patients, the diarrhea was mild to
moderate, and seven patients had severe diarrhea.
Non-Small Cell Lung Cancer. This trial consisted of 57 non-small cell lung
cancer, or NSCLC, patients having tumors that were confirmed to be HER1/EGFR
positive and who had failed standard platinum-based chemotherapy. Patients
received a daily dose of 150 mg of Tarceva(TM). The results from this trial
showed that 51% of the patients had either a response or disease stabilization,
22 of whom demonstrated stable disease, five of whom had a partial response, and
two of whom had a complete response. The median survival in this trial was 37
weeks. At 12 months, 40% of the patients were alive, 21% of the patients were
alive at 18 months, and 16% of the patients are still alive, as of the last
follow-up, over 18-24 months. In this trial, a strong correlation between rash
and survival was observed. All seven responders experienced rash, 21 out of 22
patients (95%) with stable disease experienced rash while only 15 out of 28
patients (54%) with progressive disease experienced rash. The median survivals
of patients who experienced no rash, grade 1 rash or grade 2/3 rash were 1.5,
8.5 and 19.6 months, respectively.
5
Head and Neck Cancer. This trial had 115 patients with advanced head and
neck cancer receiving 150 mg of Tarceva(TM) per day. The results showed that 43%
of the patients in the study had either a partial response or stable disease.
Five patients had objective partial response while 44 patients demonstrated
stable disease. The median survival in this study was 26 weeks with 21% of the
patients surviving one year or longer.
Ovarian Cancer. The third Phase II trial was in advanced ovarian cancer
and reported a response plus stable disease rate of 53% based on 34 evaluable
patients. Two patients had a partial response, and 16 patients demonstrated
stable disease. The median survival of these patients was 35 weeks with 35% of
the patients surviving one year or longer.
Other Cancers. Genentech has completed an exploratory Phase II study in
advanced metastatic breast cancer. Many of the patients in this study were
resistant to Herceptin(R) which is another inhibitor of the HER family signaling
pathway. Initial results from this study do not indicate broad-based activity
for Tarceva(TM) in this patient population. We anticipate that results from this
study will be presented in the near future.
The data from the NSCLC, head and neck cancer and ovarian cancer Phase II
trials are summarized in the following table:
TARCEVA(TM) PHASE II DATA
(SINGLE-AGENT SALVAGE STUDIES IN PATIENTS WITH REFRACTORY OR ADVANCED CANCER)
<Table>
<Caption>
NON-SMALL CELL HEAD & NECK OVARIAN
LUNG CANCER CANCER CANCER
-------------- ----------- --------
Evaluable Patients.............................. 57 115 34
Complete Response (100% tumor reduction)........ 2 -- --
Partial Response (greater than 50% but less than
100% tumor reduction)......................... 5 5 2
Stable Disease (up to 50% tumor reduction or
less than 25% tumor increase)................. 22 44 16
Overall Responders (complete response and
partial response)............................. 12.3% 4.3% 5.9%
Overall Responders and Stable Disease........... 51% 43% 53%
Median Survival................................. 37 weeks 26 weeks 35 weeks
One Year Survival............................... 40% 21% 35%
</Table>
- ---------------
Data as of November 18, 2002
SIDE EFFECTS
(ALL THREE STUDIES)
<Table>
Rash & Related Disorders.................................... 79%
Diarrhea.................................................... 45%
</Table>
- ---------------
Data as of November 18, 2002
Development. Since the inception of our alliance with Genentech and Roche
in January 2001, we have implemented a global development strategy for
Tarceva(TM) with our partners. This plan was designed to be a broad-based
approach in implementing several Phase III trials to result in a registration
with the U.S. Food and Drug Administration. These trials include a single agent
trial for refractory NSCLC patients as well as combination trials with existing
chemotherapy regimens for front-line use in pancreatic cancer and NSCLC. These
trials are large, placebo-controlled, double-blind studies designed to
demonstrate a survival and symptom improvement/quality-of-life benefit for
Tarceva(TM) in either combination or single agent settings. We are also
conducting several safety trials to review the effect of Tarceva(TM) in
combination with other chemotherapy drugs, and additional Phase II studies are
being conducted both independently and in collaboration with the U.S. National
Cancer Institute's Cancer Therapy Evaluation Program, or CTEP, in a
6
wide array of tumor types including head and neck, ovarian and glioblastoma
multiforme. Under the alliance, the following Phase III trials are being
conducted, with the indicated enrollment goals:
- An approximately 700 patient Phase III trial in refractory NSCLC. In this
trial, Tarceva(TM) is being used as a single agent to treat second/third
line NSCLC versus best supportive care of patients as a control group. We
have been given fast track status by the FDA for the indication covered
by this trial, and patient enrollment is expected to be completed by
early 2003.
- An approximately 1,000 patient Phase III front-line NSCLC trial comparing
Tarceva(TM) used in combination with carboplatin (Paraplatin(R)) and
paclitaxel (Taxol(R)), the standard of care in the United States, versus
chemotherapy alone. This indication was given fast track status by the
FDA and patient enrollment was completed in July 2002.
- An approximately 1,200 patient Phase III front-line NSCLC trial comparing
Tarceva(TM) used in combination with gemcitabine (Gemzar(R)) and
cisplatin (Platinol(R)), a commonly used treatment regimen in Europe,
versus chemotherapy alone. Enrollment in this trial was completed in
September 2002.
- A Phase III front-line pancreatic trial comparing Tarceva(TM) used in
combination with gemcitabine (Gemzar(R)) versus chemotherapy alone.
Patient enrollment is expected to be completed by spring 2003.
These Phase III trials are large scale, placebo controlled registration
orientated trials. Improvement in patient survival is the primary endpoint in
all of these studies with symptom improvement and quality-of-life as key
secondary endpoints.
AstraZeneca PLC, a pharmaceutical company developing a direct competitor
drug to Tarceva(TM), announced in August 2002 that its drug candidate, Iressa,
showed no improvement in its front-line NSCLC trials when used in combination
with chemotherapy against chemotherapy alone. These trials are similar to the
Tarceva(TM) trials we are conducting in front-line NSCLC which assess
Tarceva(TM) in combination with chemotherapy versus chemotherapy alone.
AstraZeneca's announcement had a significant impact on our stock price. However,
although both Tarceva(TM) and AstraZeneca's drug candidate belong to the same
class of HER1/EGFR targeted therapies and a positive outcome for our Tarceva(TM)
Phase III combination studies must therefore be considered higher risk, there
are important differences between the two agents and the respective clinical
programs including structure, formulation, pharmacokinetics, Phase III design,
and dosing. The Phase III program for Tarceva(TM) is designed on the basis of
our Phase II data which demonstrated encouraging indications of clinical
activity in three separate single agent Phase II trials in refractory or
advanced cancer patients with NSCLC, ovarian cancer or squamous cell carcinoma
of the head and neck. Our two Phase III front-line studies in NSCLC are designed
to assess the potential of survival benefit of Tarceva(TM) with standard
chemotherapy. These trials contain noteworthy differences in study design as
compared to those of AstraZeneca's trial design. The dose employed in our Phase
III NSCLC program of 150 mg per day is the apparent maximum tolerated dose, or
MTD, whereas the AstraZeneca trials were conducted at relatively lower doses for
this agent versus the MTD determined for Iressa in earlier Phase I studies. The
choice of the MTD as the dose for our Phase III studies is based on our belief
that this dosing strategy may be clinically important in the use of this agent.
In addition, and unlike AstraZeneca, we are conducting a Phase III study in
refractory NSCLC investigating the potential survival benefit of single agent
Tarceva(TM) at 150 mg per day. This is the most advanced single agent controlled
Phase III study of an HER1/EGFR targeted agent designed to detect a survival
advantage in refractory NSCLC. We believe this second/third line NSCLC trial is
our highest priority and a key registration study for Tarceva(TM). We have,
therefore, increased the patient size of this trial from 330 to approximately
700. We have also shifted emphasis from our pancreatic trial to our refractory
NSCLC trial. In doing so, we intend to reduce the target patient enrollment in
the pancreatic trial after consultation with the National Cancer Institute of
Canada Clinical Trials Group with whom we are collaborating on this study. This
reduction will not affect the endpoints but will extend the timeline for filing
a new drug application, or NDA, for this indication. Initial results indicated
that the combination of 100 mg per day of Tarceva(TM) with gemcitabine appeared
to be the appropriate dose for this patient population.
7
During fiscal 2001, we agreed to collaborate with the U.S. National Cancer
Institute in its CTEP program to conduct over 20 clinical trials with
Tarceva(TM) in multiple tumor types, including epithelial malignancies of the
gastrointestinal and genitourinary tracts, gynecological malignancies and brain
tumors. The trials are being funded and managed by NCI, and we are providing
Tarceva(TM) for these trials. These investigations generate useful clinical data
in addition to maintaining awareness of Tarceva(TM) in the oncology community.
OTHER PROPRIETARY CANCER PROGRAMS
OSI-211. OSI-211 is a proprietary liposomal formulation of the active
topoisomerase-1 inhibitor lurtotecan, a drug candidate that was originally
licensed by Gilead from GlaxoSmithKline and subsequently acquired by us from
Gilead. It is a member of the camptothecin class of cytotoxics that act as
topoisomerase-1 inhibitors. This class of drugs has established activity in
cancers. Two members of this class of drugs that are currently marketed are
irinotecan (Camptosar(R) by Pharmacia Corporation in the United States and by
Aventis in Europe) which is indicated primarily for colorectal cancer, and
topotecan (Hycamtin(R) by GlaxoSmithKline) which is used to treat relapsed
ovarian cancer and relapsed small cell lung cancer. Lurtotecan had been active
in Phase II clinical trials. The liposome formulation was designed to enhance
efficacy and improve the drug's therapeutic index. OSI-211 has been demonstrated
to be active in a d,1,2,3 schedule (intravenous doses of OSI-211 on three
consecutive days) for the treatment of relapsed ovarian cancer. However, in
order to develop this agent, we believe it is essential that we clearly
differentiate it from topotecan in terms of activity, safety and convenience. We
have, therefore, initiated a head-to-head Phase II trial versus topotecan in
relapsed ovarian cancer and a Phase II trial in advanced small cell lung cancer
using the d,1,2,3 schedule.
As part of the acquisition of the Gilead oncology assets, we have agreed to
make a milestone payment to Gilead of $20 million, payable in cash or shares of
our common stock or a combination of cash and shares of our common stock, at our
option, upon our commencement of Phase III clinical trials for OSI-211. We have
also agreed to pay to Gilead $10 million in cash upon our filing of an NDA with
respect to OSI-211. Additional milestone payments are due to GlaxoSmithKline
upon successful development of this product.
OSI-7904L. OSI-7904L is a member of the thymidylate synthase inhibitor, or
TSI, class of cytotoxic chemotherapies. This drug candidate was also originally
licensed by Gilead from GlaxoSmithKline and subsequently acquired by us from
Gilead. Milestone and royalty payments are due to GlaxoSmithKline upon
successful development of this product. It is formulated in liposomes with a
goal of extending its pharmacokinetic (or drug exposure) profile and thereby
improving its therapeutic ratio. It is in Phase I clinical trials, having
demonstrated promising activity in pre-clinical testing for the potential
treatment of various solid tumors. The leading TSI used today is 5-Fluorouracil,
or 5-FU, a generically available TSI which is extensively used in many tumor
types, notably colorectal cancer. A recently marketed entrant from this class is
capecitabine (Xeloda(R) by Roche), which is indicated in second line treatment
of metastatic breast cancer and colon cancer. We believe that there is a need
for better therapies than 5-FU or Xeloda(R) in relapsed colorectal cancer and
metastatic breast cancer. Initial data from the Phase I study has indicated that
the liposomal formulation has extended the drug exposure profile in patients'
blood.
OSI-7836. OSI-7836 was originally licensed by Gilead from the Southern
Research Institute and subsequently acquired by us from Gilead. Milestone and
royalty payments are due to Southern Research Institute upon successful
development of this product. OSI-7836 is a member of the nucleoside class of
cytotoxic drugs of which gemcitabine (Gemzar(R) marketed by Eli Lilly and
Company) is the market leader. Gemzar(R) is approved in the United States for
pancreatic cancer and non-small cell lung cancer. OSI-7836 is being developed as
an alternative gemcitabine and has clearly demonstrated anti-tumor activity in a
variety of refractory solid tumor xenograft models.
PFIZER COLLABORATIVE CANCER PROGRAMS
In April 1986, we entered into a collaborative research agreement and a
license agreement with Pfizer which was focused on the discovery and development
of cancer therapeutic products. On April 1, 2001, the
8
funded phase of the collaborative research agreement expired and was not
renewed. We have three drug discovery programs in targeted therapies for cancer
with Pfizer, two of which are in clinical trials and one is in advanced
pre-clinical development. These programs are focused on developing drugs which
are orally available, potent inhibitors of key protein tyrosine kinase receptors
involved in signal transduction and angiogenesis. Angiogenesis is the process of
blood vessel growth and is induced by solid tumors which require nutrients that
enable growth. We believe that the ability to safely and effectively inhibit
this process represents one of the most intriguing opportunities in cancer drug
development. Under our alliance with Pfizer, we discovered two compounds in this
area. CP-547,632 targets VEGFR and is in Phase I trials. A second drug candidate
in this area, CP-673,451, targets the platelet derived growth factor receptor,
or PDGFR, and is in advanced pre-clinical development.
In September 2002, an additional candidate from the Pfizer program,
CP-724,714, a potent, selective small molecule inhibitor of the HER2/erbB2
receptor tyrosine kinase, advanced to Phase I clinical trials. Overexpression of
HER2/erbB2 oncogenes has been demonstrated to correlate with aggressive cancer
growth, particularly in metastatic breast cancer. Approximately 25-30% of all
women with metastatic breast cancer over express HER2/erbB2.
OSI-754. On November 21, 2001, Pfizer chose to discontinue development of
OSI-754, a farnesyl transferase inhibitor that was undergoing Phase I trials,
and returned to us full commercial rights pursuant to the terms of the original
license agreement between the parties. In November 2002, we suspended Phase I
clinical development of OSI-754, allowing prioritization of clinical development
resources to the Tarceva(TM) program. We will continue to conduct further
internal, pre-clinical experiments with OSI-754 in order to gain a better
understanding of the possible interactions and synergies of this class with our
other research compounds.
CONTINUOUS ENRICHMENT OF OUR PRODUCT PIPELINE
We intend, through a combination of in-house research and aggressive
technology acquisition, candidate in-licensing and partnering efforts, to add to
our oncology pipeline of drug candidates. Since drug development is by its
nature a high-risk venture, a philosophy of combining internal research and
business development activities is important to our ability to sustain a high
quality pipeline of clinical candidates. With the acquisition of the Gilead
oncology assets in December 2001, as well as assets acquired from British
Biotech plc in September 2001, we now have the skill sets necessary to conduct
the entire process of drug discovery and development from the inception of the
drug discovery process through to registration. These skill sets also enable us
to absorb external opportunities at any stage of the drug discovery or
development process.
LICENSING AND ACQUISITIONS
We have set ourselves a goal of continuing to enrich our pipeline beyond
Tarceva(TM) by employing a strategy to identify and acquire products, clinical
and pre-clinical development candidates and technology pertinent to our cancer
mission. The acquisition of the oncology assets of Gilead is a successful
example of this effort. This acquisition not only provided us with world class
oncology development capabilities, but also three clinical stage drug
candidates. The sourcing for these opportunities will range from academia to
large pharmaceutical companies.
INTERNAL DRUG DISCOVERY
The core of our company has historically been built around a base of high
quality scientific research focused on gene targeted, small molecule drug
discovery. We have focused our internal discovery organization on oncology while
continuing to collaborate extensively with high quality academic and technical
groups. We believe this scientific base coupled with a platform of discovery
technologies and capabilities will provide a stream of high quality product
opportunities for our future growth. The mission of our drug discovery research
teams is to generate a flow of product candidates to create a valuable pipeline
which will contribute significant revenues in the five-to ten-year time frame.
9
OUR DRUG DISCOVERY AND DEVELOPMENT CAPABILITIES
BACKGROUND
Our approach is focused on the discovery and development of small molecule
pharmaceutical products which, typically, would be taken either orally by a
patient as a pill, capsule or suspension or intravenously as is common for many
cancer products. Our drug discovery platform constitutes an integrated set of
technologies and capabilities covering every major aspect of pre-clinical and
clinical development. The process begins with a lead seeking phase. In this
phase, which generally takes one to two years, a combination of modern molecular
biology, robotics and computational science is used to build assay or test
systems in which large libraries of diverse small molecules are tested to
determine if any of these molecules possess activity against a drug target. In
order to enhance our capabilities in this area, we have recently entered into a
research collaboration with Cold Spring Harbor Laboratories to rapidly identify
and validate new targets for cancer drug discovery. This collaboration will
focus on identifying specific targets that we consider to be important in the
progression of a variety of cancer types, thus allowing us the opportunity to
take advantage of the wealth of genetic information that is rapidly being
generated within the field of oncology. Our goal is to identify and validate a
number of targets that will be proprietary to us and which can enter our
automated screening tests. After this initial testing, active compounds are
tested in a variety of secondary assays designed to determine their potency and
selectivity, and to obtain early information on their potential metabolism,
toxicity and mechanism of action. Active compounds surviving this selection
process are considered leads and progress into lead optimization.
During lead optimization, medicinal chemists synthesize new molecules and
combinatorial libraries which are structurally related to the lead compound.
These are tested extensively in order to produce a drug candidate which has
greatly improved drug-like qualities, is active and well-tolerated in animal
models and can be patented as a novel pharmaceutical. Having identified a
suitable drug candidate, the molecule is advanced toward clinical trials and
enters the IND-track phase, in which toxicological, scale-up synthesis and
clinical trial design issues are addressed. This phase usually takes nine to 12
months.
Upon entering clinical trials (with an investigational new drug, or IND,
approval from the FDA or its foreign equivalent), a drug is first assessed for
its safety. After these Phase I trials, drugs are tested in efficacy, or Phase
II, trials to demonstrate initial activity in humans prior to extensive Phase
III trials designed to collect the data necessary to support an NDA filing with
the FDA. The entire drug discovery and development process typically takes over
a decade and is subject to significant risk and attrition. A significant number
of drug candidates which enter clinical trials fail to result in a successful
product. We have, therefore, adopted a research strategy that manages a
portfolio of product opportunities, adding, through in-licensing, lead compounds
at various stages of the process in order to help mitigate the risks inherent in
these efforts. We have integrated a platform of technologies designed to rapidly
and cost-effectively enhance the overall process.
OUR TECHNOLOGY PLATFORM
We have built a fully-integrated drug discovery platform in order to
accelerate the process of identifying and optimizing high-quality, small
molecule drug candidates. Our core discovery technologies and capabilities
include (i) gene transcription, signal transduction, protein kinases and other
assay systems, (ii) automated high throughput screening, (iii) a library of over
350,000 proprietary small molecule compounds, (iv) medicinal and automated
combinatorial chemistry, (v) in vivo pharmacology, pharmacokinetics and
pharmaceutical development capabilities, and (vi) core clinical project
management and regulatory affairs units.
BIOLOGY AND LEAD SEEKING
We are able to conduct high throughput screening on a wide variety of assay
platforms, including enzyme, immuno and receptor assays. We have developed
proprietary hardware and software systems to automate the entire drug screening
process, from the addition of the test substances to assay systems to the
analysis of the data generated from the tests.
10
Part of our assay technology includes the use of genetically engineered
human cells to identify compounds that affect transcription of target genes.
These assay systems, which employ reporter gene technology, represent a broadly
enabling technology that is the subject of an extensive patent estate which we
have successfully licensed to third parties.
Access to large libraries of diverse, small molecule compounds is a key
asset in our drug discovery efforts. Leads discovered from these libraries
become the starting materials from which drugs are optimized. Our proprietary
libraries include focused libraries of small molecule compounds derived from our
high-speed combinatorial analoging, and libraries of diverse, high quality small
molecule compounds that we have acquired.
CHEMISTRY AND LEAD OPTIMIZATION
The pharmaceutical properties of a lead compound generally must be
optimized before clinical development of that compound begins. We have assembled
a high quality medicinal chemistry team of combinatorial, computational and
pharmaceutical development chemists, which are critical elements of the lead
optimization process. A pilot manufacturing plant provides us the ability to
rapidly scale up the production of small molecules for pre-clinical toxicology
testing and early clinical trials and will further enable us to move
competitively into clinical development. We also have a high quality group of
professionals engaged in the in vivo testing of our lead compounds, including
the use of so-called xenograft models. These models allow us to test potential
anti-cancer drugs against human tumors grown in genetically modified mice.
PRE-CLINICAL DEVELOPMENT
We have expertise in pharmacokinetics, toxicology, drug metabolism and
pharmaceutical chemistry to support the development of pre-clinical drug
candidates. In addition, we have expertise in the management and generation of
good laboratory practices and accredited data, which are required for regulatory
dossier submissions to agencies such as the FDA. We are, therefore, able to
independently support the development of a drug candidate for clinical testing.
We have invested significant resources in expanding this capability and in
technological enhancements in this area.
CLINICAL DEVELOPMENT
We have established an oncology development team with considerable
expertise in clinical development, data management and analysis and regulatory
approval. We also engage third-party clinical research organizations, or CROs,
under the management and supervision of our clinical development team, to
conduct large scale clinical studies. We have entered into agreements with CROs
with expertise in oncology to monitor our ongoing clinical trials for
Tarceva(TM). Our Tarceva(TM) development team works to integrate externally
contracted clinical development support activities with contract research,
manufacturing and inventory control organizations. Under our tripartite
development agreement with Genentech and Roche, while the costs are shared
equally, each party is responsible for managing certain trials. Genentech and
Roche are each managing one of the Phase III trials in NSCLC testing Tarceva(TM)
in combination with cytotoxic chemotherapy. We are managing the Tarceva(TM)
Phase III trials in second/third line NSCLC and the combination chemotherapy
trial in pancreatic cancer.
MANUFACTURING AND SUPPLY
We currently rely on third-party manufacturers to manufacture our late
stage product candidates. Under our collaboration agreement with Genentech, we
are responsible for the manufacture and supply of Tarceva(TM) for pre-clinical
and clinical trials and to supply commercial quantities for sales within the
United States. Under our collaboration agreement with Roche, Roche has elected
to manufacture and supply Tarceva(TM) tablets for sale outside of the United
States.
Erlotinib HCl (Tarceva(TM)), a small molecule, is manufactured in a
three-step process with high yield. We currently engage multiple third-party
manufacturers to supply starting materials and active pharmaceutical ingredient,
or API, used for the preparation of Tarceva(TM) tablets. We expect to enter into
long-term
11
manufacturing and supply agreements with several of these manufacturers. In
April 2001, we entered into a contract with a third party manufacturer to
formulate erlotinib HC1 into tablets. Additionally, we are in the process of
identifying an additional source for the tablet manufacture. All manufacturers
are required to comply with current Good Manufacturing Practices, or cGMP. We
have sufficient quantities of Tarceva(TM) tablets to conduct our ongoing
clinical trials. We currently use third parties to label, inventory and
distribute the drug product. In addition, we are using third-party manufacturers
in connection with the development of alternative formulations of drug product
consisting of an IV formulation and an oral solution.
In connection with our acquisition of certain of the pre-clinical research
operations of British Biotech in September 2001, we acquired a fully-integrated
cGMP chemical pilot plant in Oxford, England. This plant is capable of producing
clinical grade non-cytotoxic compounds on a scale sufficient to support our
proprietary development activities generally through the completion of Phase II
clinical trials. We plan to use this facility to manufacture products to support
our current and future pre-clinical and clinical development programs.
In connection with our purchase of certain oncology assets from Gilead in
December 2001, we entered into a manufacturing agreement covering products
acquired from Gilead. During a one-year transition period, Gilead has continued
to manufacture and supply to us the API for preparation of OSI-7836 and
OSI-7904L drug products. We are currently in the process of transitioning the
manufacture of the API to new manufacturers as soon as practicable. Starting
materials for OSI-7904L are manufactured by other third-party manufacturers.
Starting materials for OSI-7836 are manufactured in our chemical pilot plant in
our Oxford, England facility. The entire synthesis of OSI-211 API (including
starting materials) is manufactured by a third party. Gilead will produce for us
liposomal formulations of OSI-211 and OSI-7904L at its manufacturing facility in
San Dimas, California to support our ongoing clinical trial activities and, upon
FDA approval, commercial manufacturing needs for these two liposomal products.
OSI-7836 drug product, which is a conventional IV formulation, will be prepared
by a third party manufacturer that is yet to be determined.
ROCHE AND GENENTECH COLLABORATION
On January 8, 2001, we entered into an alliance with Genentech and Roche
for the global co-development and commercialization of Tarceva(TM). We received
upfront fees of $25 million related to this alliance, and Genentech and Roche
each purchased $35 million of our common stock at $75.66 per share. We are also
entitled to up to $92 million upon the achievement of certain milestones under
the terms of the alliance.
Under the Tripartite Agreement, we agreed with Genentech and Roche to
optimize 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; to
facilitate attainment of necessary regulatory approval 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). We, as well as Genentech and Roche, may 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.
Under the OSI/Genentech agreement, we 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. Consistent with the development plan and with the approval of
a joint steering committee, we will agree with Genentech as to who will own and
be responsible for the filing of drug approval applications with the FDA other
than the first NDA which we will own and be responsible for filing and the first
supplemental NDA which we will have the option to own and be responsible for
filing. Genentech has primary 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. We have certain co-promotion rights that may be enacted by
mutual agreement at any time provided that we have established a commercial
operation independent of Tarceva(TM). Genentech will pay us certain milestone
payments and we will share equally in the operating profits or losses on
products
12
resulting from the collaboration. Under the OSI/Genentech agreement, we granted
to Genentech a royalty-free non-transferable (except under certain
circumstances), non-sublicensable (except under certain circumstances),
co-exclusive license under our patents and know-how related to Tarceva(TM) to
use, sell, offer for sale and import products resulting from the collaboration
in the United States, its territories and Puerto Rico. In addition, Genentech
granted to us a royalty-free non-transferable (except under certain
circumstances), non-sublicensable (except under certain circumstances),
co-exclusive license to certain patents and know-how held by Genentech to use,
make, have made, sell, offer for sale and import products resulting from the
collaboration in the United States, its territories and Puerto Rico. We have
primary responsibility for patent filings for the base patents protecting
Tarceva(TM) and, in addition, we have the right, but not the obligation, to
institute, prosecute and control patent infringement claims relating to the base
patents. The term of the OSI/ Genentech agreement continues until the date on
which neither we nor Genentech are 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 in the event of certain
defaults. The agreement is also subject to early termination under certain
circumstances.
Under the OSI/Roche agreement, we granted to Roche a license under our
intellectual property rights with respect to Tarceva(TM). Roche is collaborating
with us and Genentech in the product development of Tarceva(TM) and is
responsible for future marketing and commercialization of Tarceva(TM) outside of
the United States in certain territories as defined in the agreement. The grant
is a royalty-bearing, non-transferable (except under certain circumstances),
non-sublicensable (except under certain circumstances), 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, which it has
exercised, to manufacture commercial supplies of Tarceva(TM) for its territory,
subject to certain exceptions. Roche will pay us certain milestone payments and
royalty payments on sales of products resulting from the collaboration. We have
primary responsibility for patent filings for the base patents protecting
Tarceva(TM) and, in addition, we have the right, but not the obligation, to
institute, prosecute and control patent infringement claims relating to the base
patents. The term of the OSI/Roche agreement continues until the date on which
we are 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. In addition, after two and one
half years from the effective date, Roche may terminate the agreement on a
country-by-country basis. We 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.
OTHER COLLABORATIONS
ANADERM RESEARCH CORPORATION
On April 23, 1996, we formed Anaderm with Pfizer and New York University
for the discovery and development of novel compounds to treat conditions such as
baldness, wrinkles and pigmentation disorders. In April 1999, we amended a prior
research agreement with Pfizer and Anaderm to expand our collaborative program.
On September 23, 1999 we sold our interest in Anaderm to Pfizer. The amended
research agreement expired in April 2002, followed by a three-year phase-down
period. Anaderm or Pfizer will pay royalties to us on the sales of products
resulting from the collaboration. In July 2002, we announced our agreement with
Anaderm to accelerate the conclusion of the phase-down period of this
collaboration. We will receive an $8 million wind-down fee in consideration for
transferring all research being performed by us to Anaderm. The transfer is
expected to be completed by the beginning of 2003.
DIABETES COLLABORATIONS
We have collaborations with Tanabe Seiyaku Co., Ltd and the Vanderbilt
University Diabetes Center in the area of diabetes. As a result of our strategy
to focus on oncology, we intend to divest our diabetes program into an
externally funded entity in which we will maintain a minority equity interest by
the end of the second quarter of fiscal 2003. We believe that our high quality
discovery research programs in this area can be more effectively capitalized
through an externally-funded entity. We expect that the Tanabe and Vanderbilt
collaborations will be transferred along with the diabetes program. In addition
to our alliances with Tanabe
13
and Vanderbilt, our discovery research program in diabetes includes six
proprietary gene-targeted discovery programs in the lead seeking and lead
optimization phases, primarily focused in the glucose regulation and obesity
fields. We intend to also transfer to this new entity these programs and the
existing diabetes teams comprising approximately 24 employees from our existing
work force. If external funding for this entity does not materialize, we will
consider other alternatives to discontinue the diabetes program, including the
outlicensing of the diabetes assets and employee headcount reductions.
Our collaboration with Tanabe is focused on discovering and developing
novel pharmaceutical products to treat diabetes. We are responsible for
identification of targets, assay development, screening of compounds,
identification of seed compounds, optimization of these seed compounds and
identification of lead compounds meeting certain criteria specified in the
agreement. Tanabe maintains responsibility for further development and marketing
of a lead compound in exchange for milestone and royalty payments to us. The
OSI/Vanderbilt research program, which commenced on April 28, 1998 and will end
upon termination of the contract period under the Tanabe agreement unless
mutually extended, is comprised of both research directed toward the targets
identified, as well as those not identified, in the Tanabe agreement. Vanderbilt
is assisting us in fulfilling our obligations under the OSI/Tanabe collaboration
by providing access to Vanderbilt's drug discovery resources, including
laboratories and assays. We provide funding to Vanderbilt to conduct the OSI/
Vanderbilt research program. A portion of this funding comes from Tanabe's
funding of the OSI/Tanabe research program. We will also pay to Vanderbilt a
percentage of the revenues we receive from Tanabe and any other third party
which commercializes products resulting from the OSI/Tanabe research program,
based on the extent to which Vanderbilt technology and patents contributed to
the product generating the revenue.
OTHER COLLABORATIVE RESEARCH PROGRAMS
We have several other product candidates outside of cancer from our past
collaborations which are being developed by our former partners. Should these
candidates become commercialized drugs, we will receive royalties, and in one
instance milestones, from sales of such products. These candidates are in
various stages of early clinical and advanced pre-clinical development and
include disease areas such as respiratory/asthma, heart disease and
cosmeceuticals. The table below summarizes these agents.
<Table>
<Caption>
PRODUCT/INDICATION STATUS * COLLABORATOR OSI INTEREST
- ------------------ --------- ------------------------ ----------------------
AVE0309/Asthma Phase I Aventis Pharmaceuticals, Royalty
Inc.
OSIC-0961370/Congestive IND-Track Solvay Pharmaceuticals, Milestones and Royalty
Heart Failure Inc.
ADO1728/Cosmeceuticals IND-Track Pfizer/Anaderm Royalty
AVE9488/Heart Disease IND-Track Aventis Pharmaceuticals, Royalty
Inc.
</Table>
- ---------------
(*) Denotes clinical safety and efficacy tests as follows:
IND Track-Final stage of pre-clinical development which focuses on meeting
formal FDA requirements for an IND. This phase typically takes nine months
to one year to complete.
Phase I-Evaluation of safety in humans.
OUR INTELLECTUAL PROPERTY
Patents and other proprietary rights are vital to our business. Our policy
is to protect our intellectual property rights in technology developed by our
scientific staff through a variety of means, including applying for patents in
the United States and other major industrialized countries. We also rely upon
trade secrets and improvements, unpatented proprietary know-how and continuing
technological innovations to develop and maintain our competitive position. In
this regard, we seek restrictions in our agreements with third parties,
including research institutions, with respect to the use and disclosure of our
proprietary technology. We also enter into confidentiality agreements with our
employees, consultants and scientific advisors.
14
Patents issued in the United States, the European Patent Office, Japan, and
20 other countries, cover composition of matter for the Tarceva(TM) compound
itself, processes for its preparation, and pharmaceutical compositions
containing Tarceva(TM). Patent applications are being pursued, seeking
protection in and outside the United States, for polymorphic, anhydrous,
hydrate, and certain salt forms of Tarceva(TM), as well as for processes and
important intermediate chemicals in the manufacture of Tarceva(TM). Further,
patent protection for methods of use of Tarceva(TM) are being sought.
As of September 30, 2002, we own 26 U.S. patents, 93 foreign patents, 32
pending applications for U.S. patents, two of which have been allowed, and 165
applications for foreign patents, two of which have been allowed. Moreover, we
jointly own with Pfizer rights to numerous issued U.S. and foreign patents and
pending U.S. and foreign patent applications and we jointly own, with North
Carolina State University, two issued U.S. patent and certain U.S. and foreign
pending patent applications. Further, other institutions have granted us
exclusive rights under their U.S. and foreign patents and patent applications.
More specifically, we co-own with Pfizer about 600 U.S. and foreign patents
and patent applications in about 50 patent families. The majority are patent
applications that cover novel compounds discovered during our cancer
collaboration with Pfizer. These include two families of patents covering
composition of matter for Tarceva(TM). They also include several families
covering farnesyl transferase inhibitors (e.g., OSI-754), an OSI program, and
other development compounds being pursued by Pfizer (i.e., VEGFR, PDGFR and
erbB2 inhibitors). Several of the compounds in which we have an interest in
certain of our research programs are also generically covered by some of these
patents.
We have assembled a strong gene transcription patent portfolio. We
currently have 10 issued U.S. patents, one allowed European Patent Office
patent, and two additional issued foreign patents in this patent estate. These
include U.S. Patent Nos. 5,863,733, 5,665,543, 5,976,793 and 6,376,175, which
cover the use of reporter genes in many cell-based transcription assays used for
drug discovery; U.S. Patents Nos. 5,776,502 and 6,136,779, which cover methods
of modulating gene transcription in vivo using low molecular weight compounds;
U.S. Patent Nos. 5,580,722 and 5,846,720, which cover modulation of genes
associated with cardiovascular disease, and U.S. Patent No. 6,165,712, which
covers modulation of viral genes. We have additional patent applications
pending, one of which has been allowed in the United States, that should further
enhance our patent position in the area of gene transcription.
We have a non-exclusive out-licensing program for our gene transcription
patent estate. Currently, we have licensed this technology to Aurora Biosciences
Corporation, Pharmacia, the R.W. Johnson Pharmaceutical Research Institute,
Wyeth Corporation, BASF and Merck & Co., Inc. Helicon Therapeutics, Inc. also
has an exclusive license for a narrow use. Under these agreements, we receive
reciprocal license rights to other technology or annual fees together with
milestone and royalty payments with respect to small-molecule gene transcription
modulators developed and marketed as pharmaceutical products. We are seeking to
expand our transcriptional licensing program to include additional users of the
screening aspects of this technology. Financial return from this patent estate
could accrue from licensing revenues in the event a compound, whose use is
covered by our claims to methods of modulating gene transcription in vivo,
becomes an approved drug.
We have an exclusive license to patent applications filed by Southern
Research Institute in the United States, European Patent Office, Japan, Canada,
New Zealand and Australia to methods of use of OSI-7836 for the treatment of
cancer, method of manufacture, and methods of inhibiting DNA synthesis. Patents
directed to the OSI-211 and OSI-7904 compounds have issued in the United States,
Japan, the European Patent Office, and, in the case of OSI-211, certain other
countries. Patent protection is being sought for liposomal formulations of
OSI-211 and OSI-7904.
We also have non-exclusive licenses from Cadus Pharmaceutical Corporation
(to seven U.S. patents, and additional U.S. and foreign applications) and Wyeth
(to four U.S. patents, and additional foreign applications) to a portfolio of
patents and applications covering yeast cells engineered to express heterologous
gene-protein coupled receptors, or GPCR, and G-protein polypeptides, methods of
use thereof in screening assays, and DNAs encoding biologically active
yeast-mammalian hybrid GPCRs.
15
OUR COMPETITION
The pharmaceutical and biotechnology industries are intensely competitive.
We face, and will continue to face, intense competition from organizations such
as large pharmaceutical companies, biotechnology companies and academic and
research institutions. We face significant competition from industry
participants which are pursuing the same or similar technologies as those that
comprise our technology platform and are pursuing pharmaceutical products or
therapies that are competitive with our potential products. Most of the major
pharmaceutical organizations competing with us have greater capital resources,
larger overall research and development staffs and facilities and greater
experience in drug development, obtaining regulatory approval and pharmaceutical
product manufacturing and marketing. Our major competitors include
fully-integrated pharmaceutical companies that conduct extensive drug discovery
efforts and are developing novel small molecule pharmaceuticals, as well as
numerous smaller companies.
With respect to our small molecule drug discovery programs, other companies
have potential drugs in clinical trials to treat disease areas for which we are
seeking to discover and develop drug candidates. These competing drug candidates
may be further advanced in clinical development than our potential products in
our small molecule programs and may result in effective, commercially successful
products. In the cancer field, our lead drug candidate, Tarceva(TM), is
currently in Phase III trials. At least three competitors, AstraZeneca PLC,
ImClone Systems Incorporated/Bristol Myers Squibb, and Abgenix, Inc./Amgen,
Inc., also have substantial clinical development programs for this target.
AstraZeneca has recently received approval for Iressa, its anti-EGFR drug, in
Japan and has an NDA before the FDA.
We also face competition with respect to our next-generation cytotoxic drug
candidates. The most advanced of these products, OSI-211, a topoisomerase-1
inhibitor, is currently in Phase II trials for refractory ovarian and small cell
lung cancer. Hycamtin(R) is already marketed for this target by GlaxoSmithKline.
The two other products, OSI-7836 and OSI-7904L, are both in Phase I trials.
OSI-7836 is a nucleoside analog; Eli Lilly currently markets Gemzar(R) for this
target. OSI-7904L is a thymidylate synthase inhibitor; this target faces generic
competition, as well as competition from Xeloda(R) which is marketed by Roche.
Companies with related research and development activities also present
significant competition for us. For example, research efforts with respect to
gene sequencing and mapping are identifying new and possibly superior target
genes than our target genes. In addition, alternative drug discovery strategies,
such as monoclonal antibodies, may prove more effective than those pursued by
us. Furthermore, competitors may have access to more diverse compounds than we
do for testing by virtue of larger compound libraries or through combinatorial
chemistry skills or other means.
We believe that our ability to compete successfully will be based upon,
among other things, our ability to create and maintain scientifically advanced
technology, attract and retain scientific and clinical personnel possessing a
broad range of expertise, obtain patent protection or otherwise develop and
protect proprietary products or processes, compete for premium in-licensing
products, conduct clinical trials, obtain required government approvals on a
timely basis and commercialize our products.
GOVERNMENT REGULATION
We and our collaborative partners are subject to, and any potential
products discovered and developed by us must comply with, comprehensive
regulation by the FDA in the United States and by comparable authorities in
other countries. These national agencies and other federal, state, and local
entities regulate, among other things, the pre-clinical and clinical testing,
safety, effectiveness, approval, manufacture, labeling, marketing, export,
storage, record keeping, advertising and promotion of pharmaceutical and
diagnostic products.
16
THE FDA PROCESS
The process required by the FDA before pharmaceutical products may be
approved for marketing in the United States generally involves:
- pre-clinical laboratory and animal tests;
- submission to the FDA of an IND application, which must be in effect
before clinical trials may begin;
- adequate and well controlled human clinical trials to establish the
safety and efficacy of the drug for its intended indication;
- submission to the FDA of an NDA; and
- FDA review of the NDA or product license application in order to
determine, among other things, whether the drug is safe and effective for
its intended uses.
Pre-clinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies, to assess the potential safety and
efficacy of the product. Certain pre-clinical tests must comply with FDA
regulations regarding current good laboratory practices. The results of the
pre-clinical tests are submitted to the FDA as part of an investigational new
drug application to support human clinical trials and are reviewed by the FDA,
with patient safety as the primary objective, prior to the commencement of human
clinical trials.
Clinical trials are conducted according to protocols that detail matters
such as a description of the condition to be treated, the objectives of the
study, a description of the patient population eligible for the study and the
parameters to be used to monitor safety and efficacy. Each protocol must be
submitted to the FDA as part of the investigational new drug application.
Protocols must be conducted in accordance with FDA regulations concerning good
clinical practices to ensure the quality and integrity of clinical trial results
and data. Failure to adhere to good clinical practices and the protocols may
result in FDA rejection of clinical trial results and data, and may delay or
prevent the FDA from approving the drug for commercial use.
Clinical trials are typically conducted in three sequential phases, which
may overlap. During Phase I, when the drug is initially given to human subjects,
the product is tested for safety, dosage tolerance, absorption, distribution,
metabolism, and excretion. Phase I studies are often conducted with healthy
volunteers depending on the drug being tested. Phase II involves studies in a
limited patient population (typically patients with the conditions needing
treatment) to:
- evaluate preliminarily the efficacy of the product for specific, targeted
indications;
- determine dosage tolerance and optimal dosage; and
- identify possible adverse effects and safety risks.
Pivotal or Phase III adequate and well-controlled trials are undertaken in
order to evaluate efficacy and safety in a comprehensive fashion within an
expanded patient population for the purpose of registering the new drug. The FDA
may suspend or terminate clinical trials at any point in this process if it
concludes that patients are being exposed to an unacceptable health risk.
Results of pre-clinical and clinical trials must be summarized in comprehensive
reports for the FDA. In addition, the results of Phase III studies are often
subject to vigorous statistical analysis. This data may be presented in
accordance with the guidelines for the International Committee of Harmonization
that can facilitate registration in Europe and Japan.
FDA approval of our own and our collaborators' products is required before
the products may be commercialized in the United States. FDA approval of the NDA
will be based, among other factors, on our comprehensive reporting of clinical
data, risk/benefit analysis, animal studies, and manufacturing processes and
facilities. The process of obtaining NDA approvals from the FDA can be costly
and time consuming and may be affected by unanticipated delays.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's procedures conform to good manufacturing practices,
or cGMP, which must be followed at all times. In
17
complying with this requirement, manufacturers, including a drug sponsor's
third-party contract manufacturers, must continue to expend time, money and
effort in the area of production quality assurance, and quality control to
ensure compliance. Domestic manufacturing establishments are subject to periodic
inspections by the FDA in order to assess, among other things, compliance with
cGMP. To supply products for use in the United States, foreign manufacturing
establishments also must comply with cGMP and are subject to periodic inspection
by the FDA or by regulatory authorities in certain countries under reciprocal
agreements with the FDA.
Both before and after market approval is obtained, a product, its
manufacturer and the holder of the NDA for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including after approval, may result in various adverse consequences,
including the FDA's delay in approving or refusal to approve a product,
withdrawal of an approved product from the market and the imposition of criminal
penalties against the manufacturer and NDA holder. In addition, later discovery
of previously unknown problems may result in restrictions on the product,
manufacturer or NDA holder, including withdrawal of the product from the market.
Furthermore, new government requirements may be established that could delay or
prevent regulatory approval of our products under development.
OTHER REGULATORY PROCESSES
For marketing of a drug outside the United States, we and our
collaborators, and the drugs developed by us, if any, will be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country. Before
a new drug may be exported from the United States, it must either be approved
for marketing in the United States or meet the requirements of exportation of an
unapproved drug under Section 802 of the Export Reform and Enhancement Act or
comply with FDA regulations pertaining to INDs.
In addition to regulations enforced by the FDA, we must also comply with
regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other federal, state and local regulations. Our research and
development activities involve the controlled use of hazardous materials,
chemicals and various radioactive compounds. Although we believe that our safety
procedures for handling and disposing of hazardous materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
OUR EMPLOYEES
In October 2002, reflecting the refocusing of our business on oncology and
away from the screening services that we had historically provided to our former
collaborative partners, we reduced our headcount by 42 employees, most of whom
had been involved in early research activities. Following this reduction, as of
October 31, 2002, we employed 429 persons worldwide (277 in the United States),
of whom 173 were primarily involved in research activities and 140 in
development activities, with the remainder engaged in executive and
administrative capacities. Although we believe that we are now more
appropriately sized to focus on our mission in oncology, we intend to add
personnel with specialized oncology expertise, as needed.
We believe that we have been successful to date in attracting skilled and
experienced scientific and business professionals. We consider our employee
relations to be good. However, competition for personnel is intense and we
cannot assure that we will continue to be able to attract and retain personnel
of high caliber. Further, we believe that our success is largely dependent upon
our ability to attract and retain such qualified personnel.
18
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(Cautionary Statement under the Private Securities Litigation Reform Act of
1995, as amended)
This report contains forward-looking statements that do not convey
historical information, but relate to predicted or potential future events, such
as statements of our plans, strategies and intentions, or our future performance
or goals for our product development programs. These statements can often be
identified by the use of forward-looking terminology such as "believe,"
"expect," "intend," "may," "will," "should," or "anticipate" or similar
terminology. The statements involve risks and uncertainties and are based on
various assumptions. Stockholders and prospective stockholders are cautioned
that these statements are only projections. In addition, any forward-looking
statement that we make is intended to speak only as of the date on which we made
the statement. We will not update any forward-looking statement to reflect
events or circumstances that occur after the date on which the statement is
made. The following risks and uncertainties, among others, may cause our actual
results to differ materially from those described in forward-looking statements
made in this report or presented elsewhere by management from time to time.
ALTHOUGH WE HAVE POTENTIAL ONCOLOGY PRODUCTS THAT APPEAR TO BE PROMISING AT
EARLY STAGES OF DEVELOPMENT AND IN CLINICAL TRIALS, NONE OF OUR POTENTIAL
ONCOLOGY PRODUCTS MAY REACH THE MARKET FOR A NUMBER OF REASONS.
Successful research and development of pharmaceutical products is high
risk. Most projects and development candidates fail to reach the market. Our
success depends on the discovery of new drugs that we can commercialize. It is
possible that none of our potential oncology products, including Tarceva(TM),
may ever reach the market for a number of reasons. They may be found ineffective
or cause harmful side effects during pre-clinical testing or clinical trials or
fail to receive necessary regulatory approvals. We may find that certain
products cannot be manufactured on a commercial scale basis and, therefore, they
may not be economical to produce. Our products could also fail to achieve market
acceptance or be precluded from commercialization by proprietary rights of third
parties.
We have a number of oncology product candidates in early stages of
development and we do not expect them to be commercially available for several
years, if at all. All but six of our product candidates are in the pre-clinical
development phase. The six candidates that are in clinical trials will still
require significant research and development and regulatory approvals before we
or our collaborative partners will be able to market them.
IF WE HAVE A SETBACK IN OUR TARCEVA(TM) PROGRAM, OUR STOCK PRICE WOULD ALMOST
CERTAINLY DECLINE.
We are currently conducting four Phase III clinical trials for Tarceva(TM).
If we do not receive any positive results from these trials, we would need to
conduct additional clinical trials or abandon our Tarceva(TM) program. Since
Tarceva(TM) is our most advanced product candidate, a setback of this nature
would almost certainly cause a decline in our stock price. Recently, AstraZeneca
announced unfavorable results from its clinical trials which were testing its
drug candidate, Iressa, which is in the same class of targeted therapies as
Tarceva(TM), in combination with traditional chemotherapy agents for the front
line treatment of non small cell lung cancer. While there are important
differences between Iressa and Tarceva(TM) and AstraZeneca's clinical program
and our clinical program, including structure, formulation, pharmacokinetics and
Phase III trial design and dosing, two of our four Phase III trials are designed
to test Tarceva(TM) in combination with chemotherapy agents for NSCLC in studies
similar to those of AstraZeneca. A positive outcome from these two trials must
now be considered higher risk.
SET-BACKS ON THE PART OF OUR COMPETITORS WHO ARE DEVELOPING DRUGS IN THE
HER1/EGFR FIELD WHICH ARE SIMILAR TO TARCEVA(TM) COULD RESULT IN DECREASES IN
OUR STOCK PRICE.
Our major competitors who are developing drugs in the HER1/EGFR field which
are similar to our most advanced clinical candidate, Tarceva(TM), have suffered
setbacks with respect to their drug candidates during the last 12 months which
have impacted our stock price by raising concerns regarding the HER1/EGFR class
of targeted therapies. Both AstraZeneca and ImClone, who are each developing
drug candidates in the same
19
class of HER1/EGFR targeted therapies as Tarceva(TM), suffered setbacks in their
programs during the last year. These setbacks have resulted in casting doubt
amongst some investors on all drug candidates targeting the HER1/EGFR gene,
including Tarceva(TM), which has led to declining stock prices for us and others
developing drugs in this class. Additional set-backs on the part of our
competitors could result in a further decrease in our stock price.
IF WE ARE UNABLE TO DEMONSTRATE ACCEPTABLE SAFETY AND EFFICACY OF TARCEVA(TM)
DURING CLINICAL TRIALS, WE WILL NOT BE ABLE TO OBTAIN REGULATORY APPROVAL AND
THUS WILL NOT BE ABLE TO COMMERCIALIZE AND GENERATE REVENUES FROM TARCEVA(TM).
We must continue to demonstrate, through pre-clinical testing and clinical
trials, that Tarceva(TM) is safe and effective. The results from pre-clinical
testing and early clinical trials may not be predictive of results obtained in
subsequent clinical trials, and we cannot be sure that our clinical trials will
demonstrate the safety and efficacy necessary to obtain regulatory approval for
Tarceva(TM). A number of companies in the biotechnology and pharmaceutical
industries have suffered significant setbacks in advanced clinical trials, even
after obtaining promising results in earlier trials. In addition, certain
clinical trials are conducted with patients having the most advanced stages of
disease. During the course of treatment, these patients often die or suffer
other adverse medical effects for reasons that may not be related to the
pharmaceutical agent being tested. These events can complicate our statistical
analysis of clinical trial results and may lead to misinterpretation of clinical
trial results.
Any significant delays in, or termination of, clinical trials for
Tarceva(TM) may hinder our ability to obtain regulatory approval of Tarceva(TM).
Any delays in obtaining or failure to obtain regulatory approval will hinder or
prevent us from commercializing and generating revenues from Tarceva(TM).
IF WE DO NOT MAINTAIN OUR CO-DEVELOPMENT AND MARKETING ALLIANCE WITH GENENTECH
AND ROCHE FOR TARCEVA(TM), OUR ABILITY TO PROCEED WITH THE TIMELY AND PROFITABLE
MANUFACTURE AND SALE OF TARCEVA(TM) MAY BE COMPROMISED OR DELAYED.
If we do not maintain a successful collaborative partnership with Genentech
and Roche for the co-development and commercialization of Tarceva(TM), we may be
forced to focus our efforts internally to commercialize Tarceva(TM) which would
require a greater expenditure of financial resources and may cause a delay in
launch and market penetration while we build our own commercial operation or
seek alternative partners. Although we manage the manufacturing of Tarceva(TM)
for the U.S. market through third party providers, there may be a delay in our
ability to scale up if we were requested to replace Roche's manufacturing role
in markets outside of the United States.
IF OUR COMPETITORS WHO ARE DEVELOPING DRUGS IN THE HER1/EGFR FIELD RECEIVE FDA
APPROVAL FOR THEIR DRUG CANDIDATES AND COMMENCE MARKETING SUCH PRODUCTS
SIGNIFICANTLY IN ADVANCE OF OUR LAUNCH OF TARCEVA(TM), THEN OUR ABILITY TO
COMPETE FOR SALES IN THIS MARKET MAY BE A GREATER CHALLENGE.
If our competitors, some of whom have greater resources than we do, receive
FDA approval for their drugs and begin marketing those products significantly in
advance of our launch of Tarceva(TM), it may be more difficult for us to
penetrate the market and our sales may be less than projected. This could
negatively impact our potential future profitability and the scope of our
operations including research and development of our other oncology drug
candidates.
IF OUR COMPETITORS SUCCEED IN DEVELOPING PRODUCTS AND TECHNOLOGIES THAT ARE MORE
EFFECTIVE THAN OUR OWN, OUR PRODUCTS AND TECHNOLOGIES MAY BE RENDERED LESS
COMPETITIVE.
We face significant competition from industry participants that are
pursuing similar products and technologies as we are and are developing
pharmaceutical products that are competitive with our potential products. Where
we are developing products independently, some of the organizations competing
with us have greater capital resources, larger overall research and development
staffs and facilities, and more extensive experience in drug discovery and
development, obtaining regulatory approval and pharmaceutical product
20
manufacturing and marketing. With these additional resources, our competitors
may be able to respond to the rapid and significant technological changes in the
biotechnology and pharmaceutical industries faster than we can. Our future
success will depend in large part on our ability to maintain a competitive
position with respect to these technologies. Rapid technological development may
result in our compounds, products or processes becoming obsolete before we
recover any of the expenses incurred to develop them.
In particular, we face significant competition from other biotechnology and
pharmaceutical companies which are currently developing drugs similar to
Tarceva(TM) that could dilute our potential for sales from Tarceva(TM). We are
aware of at least three companies, some of which have resources substantially
greater than we do, which currently have drugs similar to Tarceva(TM) in
substantial clinical development programs. In addition to AstraZeneca's Iressa,
ImClone/Bristol Myers Squibb and Abgenix/Amgen are developing a different kind
of product, humanized antibodies, against the HER1/EGFR target. The ImClone
product is currently in Phase III trials, and the Abgenix product is in Phase II
trials. If our competitors succeed in developing drugs similar to Tarceva(TM)
that are more effective than our own, our product may not gain widespread market
acceptance.
IF WE ARE UNABLE TO ESTABLISH A COMMERCIAL INFRASTRUCTURE FOR THE MARKETING OF
OUR POTENTIAL ONCOLOGY PRODUCTS OTHER THAN TARCEVA(TM), WE WILL NEED TO ENTER
INTO AND MAINTAIN ARRANGEMENTS WITH THIRD PARTIES FOR COMMERCIALIZATION OF SUCH
PRODUCTS WHICH COULD SUBSTANTIALLY DIMINISH OUR SHARE OF THE REVENUES FROM THE
SALES OF SUCH PRODUCTS.
In order to successfully commercialize our other product candidates, we
must be able to:
- manufacture our products in commercial quantities at reasonable costs;
- obtain reimbursement coverage for our products;
- compete favorably against other products; and
- market our products successfully.
We may not be successful in establishing a commercial infrastructure to
enable us to accomplish the above with respect to our products other than
Tarceva(TM). If we are unsuccessful or delayed in establishing this
infrastructure, we would need to enter into and successfully maintain additional
co-development and commercialization agreements. This would result in our
receipt of a decreased share of the revenues generated from the sale of such
products.
IF OUR COLLABORATIVE PARTNERS OR OTHER THIRD PARTY CONTRACTORS GIVE OTHER
PRODUCTS GREATER PRIORITY THAN OUR PRODUCTS, OUR PRODUCTS MAY BE SUBJECT TO
DELAYS IN RESEARCH AND DEVELOPMENT, MANUFACTURE AND COMMERCIALIZATION THAT MAY
IMPEDE OUR ABILITY TO TAKE THEM TO MARKET BEFORE OUR COMPETITORS. THIS MAY
RENDER OUR PRODUCTS OBSOLETE OR MAY RESULT IN LOWER THAN ANTICIPATED REVENUES
FOR US.
We rely on some of our collaborative partners and certain third party
contractors to assist with research and development as well as the manufacture
of our potential products in their FDA-approved manufacturing facilities. Some
of our collaborative agreements allow these parties significant discretion in
electing whether or not to pursue the activities that they have agreed to pursue
for us. We cannot control the amount and timing of resources these parties
devote to our programs or potential products. Our potential products may be in
competition with other products for priority of access to these parties'
research and development and manufacturing facilities. If these parties do not
give significant priority to the research and development or manufacture of our
potential products in an effective or timely manner, the clinical development of
our product candidates or their submission for regulatory approval could be
delayed, and our ability to deliver products to the market on a timely basis
could be impaired. Furthermore, we may not be able to enter into any necessary
third-party research and development or manufacturing arrangements on acceptable
terms, if at all.
21
IF GOVERNMENT AGENCIES DO NOT GRANT US OR OUR COLLABORATIVE PARTNERS REQUIRED
APPROVALS FOR ANY OF OUR POTENTIAL PRODUCTS, WE OR OUR COLLABORATIVE PARTNERS
WILL NOT BE ABLE TO MANUFACTURE AND SELL OUR PRODUCTS.
All of our newly discovered potential products must undergo an extensive
regulatory approval process in the United States and other countries. This
regulatory process, which includes pre-clinical testing and clinical trials of
each compound to establish its safety and efficacy, can take many years and
requires the expenditure of substantial resources. Moreover, data obtained from
pre-clinical and clinical activities are susceptible to varying interpretations
that could delay, limit or prevent regulatory approval. The FDA and other
regulatory agencies may delay or deny the approval of our proposed products.
None of our products has yet received governmental approval, and none may ever
do so. If we do not receive the required regulatory approvals, we or our
collaborative partners will not be able to manufacture and sell our products.
Even if we obtain regulatory approval, a marketed product and its
manufacturer are subject to continuing review, including post-marketing
surveillance. We may be required to withdraw our product from the market if
previously unknown problems are discovered. Violations of regulatory
requirements at any stage may result in various unfavorable consequences to us,
including the FDA's imposition of criminal penalties against the manufacturer
and the holder of the NDA.
OUR RELIANCE ON THIRD PARTIES SUCH AS CLINICAL DISTRIBUTORS, MANUFACTURERS AND
CLINICAL RESEARCH ORGANIZATIONS, OR CROS, MAY RESULT IN DELAYS IN COMPLETING, OR
A FAILURE TO COMPLETE, CLINICAL TRIALS IF THEY FAIL TO PERFORM UNDER OUR
AGREEMENTS WITH THEM.
From time to time in the course of product development, we may engage
clinical distributors, manufacturers and/or CROs to manufacture and distribute
the product candidate and to conduct and manage clinical studies and to assist
us in guiding products through the FDA review and approval process. Because we
have engaged and intend to engage clinical distributors, manufacturers and CROs
to help us obtain market approval for our drug candidates, many important
aspects of this process have been and will be out of our direct control. If the
clinical distributors, manufacturers and CROs fail to perform their obligations
under our agreements with them or fail to manufacture and distribute the product
candidate and to perform clinical trials in a satisfactory manner, we may face
delays in completing our clinical trials, as well as commercialization of any
drug candidate. Furthermore, any loss or delay in obtaining contracts with such
entities may also delay the completion of our clinical trials and the market
approval of drug candidates.
WE HAVE INCURRED LOSSES SINCE OUR INCEPTION, AND WE EXPECT TO INCUR LOSSES OVER
THE NEXT SEVERAL YEARS, WHICH MAY CAUSE THE VALUE OF OUR COMMON STOCK TO
DECREASE.
We have had net operating losses since our inception in 1983. At September
30, 2002, our accumulated deficit was approximately $324.2 million. Our losses
have resulted principally from costs incurred in research and development,
acquired in-process research and development and from general and administrative
costs associated with our operations. These costs have exceeded our revenues,
and we expect them to continue to do so until we generate significant sales from
marketed products.
We expect to continue to incur operating losses over the next few years as
a result of our expenses for the development of Tarceva(TM) and our other
clinical products and our research programs. These expenses include enhancements
in our drug discovery technologies and increases in the resources we will devote
to our internally funded proprietary projects. We do not expect to generate
revenues from the sale of our potential products for a number of years, and we
expect to continue to incur operating losses during this period.
IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR ABILITY TO DEVELOP
AND COMMERCIALIZE OUR PRODUCTS WILL BE SEVERELY LIMITED.
As of September 30, 2002, we held 26 U.S. patents, 93 foreign patents, 32
pending applications for U.S. patents, two of which have been allowed, and 165
applications for foreign patents, two of which have been allowed. Moreover, we
jointly hold with Pfizer rights to numerous issued U.S. and foreign patents and
pending U.S. and foreign patent applications. We also jointly hold, with North
Carolina State University, two issued
22
U.S. patents and certain U.S. and foreign pending patent applications. We intend
to continue to aggressively seek patent protection for all of the product
candidates that we have discovered, developed or acquired.
Our success depends, in part, on our ability and our collaborative
partners' ability to obtain patent protection for new product candidates,
maintain trade secret protection and operate without infringing the proprietary
rights of third parties. As with most biotechnology and pharmaceutical
companies, our patent position is highly uncertain and involves complex legal
and factual questions. Without patent and other similar protection, other
companies could offer substantially identical products for sale without
incurring the sizable discovery and development costs that we have incurred. Our
ability to recover these expenditures and realize profits upon the sale of
products could be diminished.
The process of obtaining patents can be time consuming and expensive with
no certainty of success. Even if we spend the necessary time and money, a patent
may not issue or it may insufficiently protect the technology it was intended to
protect. We can never be certain that we were the first to develop the
technology or that we were the first to file a patent application for the
particular technology because most U.S. patent applications are confidential
until a patent issues, and publications in the scientific or patent literature
lag behind actual discoveries.
The degree of future protection for our proprietary rights will remain
uncertain if our pending patent applications are not approved for any reason or
if we are unable to develop additional proprietary technologies that are
patentable. Furthermore, third parties may independently develop similar or
alternative technologies, duplicate some or all of our technologies, design
around our patented technologies or challenge our issued patents.
IF OTHER COMPANIES CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS,
WE MAY BE SUBJECT TO COSTLY AND TIME-CONSUMING LITIGATION AND DELAYS IN PRODUCT
INTRODUCTION.
Our processes and potential products may conflict with patents which have
been or may be granted to competitors, academic institutions or others. As the
biotechnology and pharmaceutical industries expand and more patents are filed
and issued, the risk increases that our product candidates may give rise to a
declaration of interference by the Patent and Trademark Office, or to claims of
patent infringement by other companies, institutions or individuals. These
entities or persons could bring legal proceedings against us seeking substantial
damages or seeking to enjoin us from testing, manufacturing or marketing our
products. If any of these actions were successful, we may also be required to
cease the infringing activity or obtain the requisite licenses or rights to use
the technology which may not be available to us on acceptable terms, if at all.
Any litigation, regardless of the outcome, could be extremely costly to us.
IF OTHER BIOTECHNOLOGY AND PHARMACEUTICAL COMPANIES ARE NOT WILLING TO PAY
APPROPRIATE ROYALTIES FOR THE USE OF OUR PATENTED "GENE TRANSCRIPTION ESTATE,"
WE MAY NEED TO EXPEND SUBSTANTIAL AMOUNTS OF FUNDS AND RESOURCES IF WE CHOOSE TO
ENFORCE THE PATENTS.
We license to other companies rights to use our patented "gene
transcription estate" which consists of drug discovery assays that provide a way
to identify novel product candidates that can control the activity of genes. We
believe technology and practices covered by these patents are in widespread use
in the pharmaceutical and biotechnology industries. To date, we have granted
seven licenses to use our gene transcription patents. If other pharmaceutical
and biotechnology companies which we believe are using our patented technology
are not willing to negotiate license arrangements with us on reasonable terms,
we may have to choose between abandoning our licensing strategy or initiating
legal proceedings against those companies. Legal action, particularly patent
infringement litigation, is extremely costly.
IF WE OR OUR COLLABORATIVE PARTNERS ARE REQUIRED TO OBTAIN LICENSES FROM THIRD
PARTIES, OUR REVENUES AND ROYALTIES ON ANY COMMERCIALIZED PRODUCTS COULD BE
REDUCED.
The development of some of our products may require the use of technology
developed by third parties. The extent to which efforts by other researchers
have resulted or will result in patents and the extent to which we or our
collaborative partners are forced to obtain licenses from others, if available,
is currently unknown. If
23
we or our collaborative partners must obtain licenses from third parties, fees
must be paid for such licenses. These fees would reduce the revenues and
royalties we may receive on commercialized products.
THE USE OF ANY OF OUR POTENTIAL PRODUCTS IN CLINICAL TRIALS AND THE SALE OF ANY
APPROVED PRODUCTS MAY EXPOSE US TO LIABILITY CLAIMS RESULTING FROM THE USE OF
PRODUCTS OR PRODUCT CANDIDATES.
The nature of our business exposes us to potential liability risks inherent
in the testing, manufacturing and marketing of drug discovery candidates and
products. Using our drug candidates in clinical trials may expose us to product
liability claims. These risks will expand with respect to drugs, if any, that
receive regulatory approval for commercial sale. While we currently maintain
product liability insurance that we believe is adequate, such insurance may not
be available at reasonable rates, if at all, in the future. If we do not or
cannot maintain adequate insurance coverage, we may incur significant liability
if a product liability claim arises.
IF WE CANNOT OBTAIN ADEQUATE FUNDING FOR OUR RESEARCH AND DEVELOPMENT EFFORTS OR
OUR PROJECTED FUTURE SALES ARE DELAYED OR DIMINISHED, WE MAY HAVE TO LIMIT THE
SCOPE OF OUR PROPRIETARY PRODUCT DEVELOPMENT IN FUTURE YEARS OR ENTER INTO MORE
RESTRICTIVE ARRANGEMENTS WITH COLLABORATIVE PARTNERS.
Our future capital requirements will depend on many factors, including the
size and complexity of our research and development programs, the progress of
pre-clinical testing and early stage clinical trials, the time and costs
involved in obtaining regulatory approvals for our product candidates, the costs
of manufacturing arrangements and the costs of commercialization activities.
Although we believe our current cash reserves are sufficient for our
near-term operating needs, we may choose to raise additional funds through
public or private sales of our securities, including equity securities, as well
as from collaborative partners in order to further our growth. We may not be
able to obtain adequate funding from equity financings on reasonable or
acceptable terms, if at all. Furthermore, any additional equity financings may
dilute the value of the common stock held by our stockholders. If adequate funds
are not available, we may be required to significantly curtail one or more of
our research and development programs or obtain funds through arrangements with
collaborative partners or others that may require us to relinquish certain of
our rights to a number of our technologies or product candidates.
IF THE MARKET PRICE OF OUR COMMON STOCK, SIMILAR TO OTHER BIOTECHNOLOGY
COMPANIES, REMAINS HIGHLY VOLATILE, THEN OUR STOCKHOLDERS MAY NOT BE ABLE TO
SELL THEIR STOCK WHEN DESIRED OR AT DESIRABLE PRICES.
When the stock prices of companies in the Nasdaq Biotechnology Index fall,
our stock price will most likely fall as well. The market price of the common
stock of biotechnology and pharmaceutical companies and our common stock has
been volatile and may remain volatile for the foreseeable future. If our stock
price falls, our stockholders may not be able to sell their stock when desired
or at desirable prices.
The following factors, among others, some of which are beyond our control,
may also cause our stock price to decline:
- fluctuations in operating results;
- announcements of technological innovations or new therapeutic products by
others;
- negative or neutral clinical trial results;
- developments concerning strategic alliance agreements;
- negative clinical or safety results from our competitors' products;
- changes in government regulation including pricing controls;
- delays with the FDA in the approval process for Tarceva(TM) and other
clinical candidates;
- developments in patent or other proprietary rights;
- public concern as to the safety of our products;
24
- future sales of substantial amounts of our common stock by existing
stockholders; and
- comments by securities analysts and general market conditions.
OUR OUTSTANDING INDEBTEDNESS HAS INCREASED SUBSTANTIALLY WITH THE ISSUANCE OF
CONVERTIBLE SENIOR SUBORDINATED NOTES IN FEBRUARY 2002, AND WE MAY NOT BE ABLE
TO PAY THESE NOTES AND OUR OTHER OBLIGATIONS.
As a result of the sale of the Convertible Senior Subordinated Notes in
February 2002 and the subsequent repurchase of a portion of these notes in
August and September 2002, our long-term debt relating to these notes was $160
million as of September 30, 2002. This may:
- make it more difficult for us to obtain any necessary financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes;
- significantly increase our interest expense and related debt service
costs; and
- make us more vulnerable in the event of a downturn in our business.
Currently, we do not have any product sales and we are not generating
sufficient cash flow to satisfy the annual debt service payments that will be
required as a result of the consummation of the sale of the notes. This may
require us to use a portion of the proceeds from the sale of the notes to pay
interest or borrow additional funds or sell additional equity to meet our debt
service obligations after the first three years when the payment of interest on
the notes is no longer secured. If we are unable to satisfy our debt service
requirements, or do not have the funds to repay the notes upon maturity in 2009,
we will default on the notes and liquidity problems could result.
OUR CORPORATE GOVERNANCE DOCUMENTS AND STATE LAW PROVIDE CERTAIN ANTI-TAKEOVER
MEASURES WHICH WILL DISCOURAGE CERTAIN TYPES OF TRANSACTIONS INVOLVING AN ACTUAL
OR POTENTIAL CHANGE IN CONTROL OF OUR COMPANY.
Under our certificate of incorporation, our Board of Directors has the
authority, without further action by the stockholders, to fix the rights and
preferences, and issue shares of, preferred stock. Since January 1999, we have
had a shareholders rights plan, which was subsequently replaced with a new plan,
commonly referred to as a "poison pill." Further, we are subject to Section 203
of the Delaware General Corporation Law which, subject to certain exceptions,
restricts certain transactions and business combinations between a corporation
and a stockholder owning 15% or more of the corporation's outstanding voting
stock for a period of three years from the date the stockholder becomes an
interested stockholder.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ROBERT L. VAN NOSTRAND
------------------------------------
Robert L. Van Nostrand
Vice President and Chief Financial
Officer
Date: January 23, 2003
82
CERTIFICATION
I, Colin Goddard, certify that:
1. I have reviewed this annual report on Form 10-K of OSI Pharmaceuticals,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 23, 2003
/s/ COLIN GODDARD
--------------------------------------
Colin Goddard
Chief Executive Officer
83
CERTIFICATION
I, Robert L. Van Nostrand, certify that:
1. I have reviewed this annual report on Form 10-K of OSI Pharmaceuticals,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 23, 2003
/s/ ROBERT L. VAN NOSTRAND
--------------------------------------
Robert L. Van Nostrand
Vice President and Chief Financial
Officer
84
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
- -------
2.1+ Asset Purchase Agreement, dated July 30, 1999, by and
between Cadus Pharmaceutical Corporation and OSI
Pharmaceuticals, Inc., filed by the Company as an exhibit to
the Form 10-Q for the fiscal quarter ended June 30, 1999
(file no. 000-15190), and incorporated herein by reference.
2.2 OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan
for Former Employees of Cadus Pharmaceutical Corporation,
filed by the Company as an exhibit to the Form 10-Q for the
fiscal quarter ended June 30, 1999 (file no. 000-15190), and
incorporated herein by reference.
2.3+ Asset Purchase Agreement, dated November 17, 1999, by and
among OSI Pharmaceuticals, Inc., Oncogene Science
Diagnostics, Inc., and Bayer Corporation, filed by the
Company as an exhibit to the Form 8-K filed on December 15,
1999 (file no. 000-15190), and incorporated herein by
reference.
2.4 Amendment No. 1 to Asset Purchase Agreement, dated November
30, 1999, by and among OSI Pharmaceuticals, Inc., Oncogene
Science Diagnostics, Inc., and Bayer Corporation, filed by
the Company as an exhibit to the Form 8-K filed on December
15, 1999 (file no. 000-15190), and incorporated herein by
reference.
2.5 Asset Purchase Agreement, dated November 26, 2001, by and
between OSI Pharmaceuticals, Inc. and Gilead Sciences, Inc.
filed by the Company as an exhibit to the Form 8-K filed on
December 11, 2001 (file no. 000-15190), and incorporated
herein by reference.
2.6 OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan
for Former Employees of Gilead Sciences, Inc. filed by the
Company as an exhibit to the Form 8-K filed on January 7,
2002 (file no. 000-15190), and incorporated herein by
reference.
3.1 Certificate of Incorporation, as amended, filed by the
Company as an exhibit to the Form 10-K for the fiscal year
ended September 30, 2001 (file no. 000-15190), and
incorporated herein by reference.
3.2 Amended and Restated Bylaws filed by the Company as an
exhibit to the Form 10-K for the fiscal year ended September
30, 2001 (file no. 000-15190), and incorporated herein by
reference.
4.1 Stock Purchase Agreements, dated February 24, 2000, by and
between OSI Pharmaceuticals, Inc. and each of Biotechnology
Value Fund L.P., American Variable Insurance Series Global
Small Capitalization Fund, Asset Management Holding Co.,
Biotechnology Value Fund, II L.P., Chelsey Capital,
Forstmann International Fund, LTD, Forstmann Partners, L.P.,
Galleon Healthcare Overseas, Ltd., Galleon Healthcare
Partners, LP, International Biotechnology Trust PLC,
Investment 10, L.L.C., Janus Investment Fund, Lone Balsam,
L.P., Lone Cypress, LTD, Lone Sequoia, L.P., Lone Spruce,
L.P., Merlin BioMed LP, Merlin BioMed Intl LTD, Moore Global
Investments, Ltd., Remington Investment Strategies, L.P.,
Sands Point Partners, SMALLCAP World Fund, Inc., United
Capital Management, Inc., and Ziff Asset Management, L.P.,
filed by the Company as exhibits to the Form 8-K filed on
March 1, 2000 (file no. 000-15190), and incorporated herein
by reference.
4.2 Rights Agreement, dated September 27, 2000, between OSI
Pharmaceuticals, Inc. and The Bank of New York as Rights
Agent, including Terms of Series SRP Junior Participating
Preferred Stock, Summary of Rights to Purchase Preferred
Stock and Form of Right Certificate, filed by the Company as
an exhibit to the Form 8-A filed on September 27, 2000 (file
no. 000-15190), and incorporated herein by reference.
4.3 Stock Purchase Agreement, dated January 8, 2001, by and
between OSI Pharmaceuticals, Inc. and Genentech, Inc., filed
by the Company as an exhibit to the Form 8-K filed on
February 14, 2001 (file no. 000-15190), and incorporated
herein by reference.
4.4 Stock Purchase Agreement, dated January 8, 2001, by and
between OSI Pharmaceuticals, Inc. and Roche Holdings, Inc.,
filed by the Company as an exhibit to the Form 8-K filed on
February 14, 2001 (file no. 000-15190), and incorporated
herein by reference.
</Table>
<Table>
<Caption>
EXHIBIT
- -------
4.5 Investor Rights Agreement, dated December 21, 2001, by and
between OSI Pharmaceuticals, Inc. and Gilead Sciences, Inc.,
filed by the Company as an exhibit to the Form 8-K filed on
January 7, 2002 (file no. 000-15190) and incorporated herein
by reference.
4.6 Indenture, dated February 1, 2002, by and between OSI
Pharmaceuticals, Inc. and The Bank of New York, filed as an
exhibit to OSI Pharmaceuticals, Inc.'s registration
statement on Form S-3 filed April 19, 2002 (file no.
333-86624), and incorporated herein by reference.
4.7 Form of 4% Convertible Senior Subordinated Note Due 2009
(included in Exhibit 4.6).
4.8 Registration Rights Agreements, dated February 1, 2002, by
and among OSI Pharmaceuticals, Inc., Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith, Incorporated,
Robertson Stephens, Inc., Adams, Harkness & Hill, Inc. and
Lazard Freres & Co. LLC, filed as an exhibit to OSI
Pharmaceuticals, Inc.'s registration statement on Form S-3
filed April 19, 2002 (file no. 333-86624), and incorporated
herein by reference.
10.1 1985 Stock Option Plan, filed as an exhibit to OSI
Pharmaceuticals, Inc.'s registration statement on Form S-8
(file no. 33-8980), and incorporated herein by reference.
10.2 1989 Incentive and Non-Qualified Stock Option Plan, filed as
an exhibit to OSI Pharmaceuticals, Inc.'s registration
statement on Form S-8 (file no. 33-38443), and incorporated
herein by reference.
10.3 1993 Employee Stock Purchase Plan, as amended, filed as an
exhibit to OSI Pharmaceuticals, Inc.'s registration
statement on Form S-8 (file no. 33-60182), and incorporated
herein by reference.
10.4 1993 Incentive and Non-Qualified Stock Option Plan, as
amended, filed as an exhibit to OSI Pharmaceuticals, Inc.'s
registration statement on Form S-8 (file no. 33-64713) and
incorporated herein by reference.
10.5 Stock Purchase Plan for Non-Employee Directors, filed as an
exhibit to OSI Pharmaceuticals, Inc.'s registration
statement on Form S-8 (file no. 333-06861), and incorporated
herein by reference.
10.6 1995 Employee Stock Purchase Plan, filed as an exhibit to
OSI Pharmaceuticals, Inc.'s registration statement on Form
S-8 (file no. 333-06861), and incorporated herein by
reference.
10.7 1997 Incentive and Non-Qualified Stock Option Plan, filed as
an exhibit to OSI Pharmaceuticals, Inc.'s registration
statement on Form S-8 (file no. 333-39509), and incorporated
herein by reference.
10.8 1999 Incentive and Non-Qualified Stock Option Plan, filed as
an exhibit to OSI Pharmaceuticals, Inc.'s registration
statement on Form S-8 (file no. 333-42274), and incorporated
herein by reference.
10.9 2001 Incentive and Non-Qualified Stock Option Plan, filed as
an exhibit to OSI Pharmaceuticals, Inc.'s registration
statement on Form S-8 (file no. 333-91118), and incorporated
herein by reference.
10.10+ Collaborative Research Agreement, dated April 1, 1996,
between OSI Pharmaceuticals, Inc. and Pfizer Inc., filed by
the Company as an exhibit to the Form 10-Q for the fiscal
quarter ended March 31, 1996, as amended (file no.
000-15190), and incorporated herein by reference.
10.11+ License Agreement, dated April 1, 1996, between OSI
Pharmaceuticals, Inc. and Pfizer Inc., filed by the Company
as an exhibit to the Form 10-Q for the fiscal quarter ended
March 31, 1996, as amended (file no. 000-15190), and
incorporated herein by reference.
10.12 Employment Agreement, dated April 30, 1998, between OSI
Pharmaceuticals, Inc. and Colin Goddard, Ph.D., filed by the
Company as an exhibit to the Form 10-Q for the fiscal
quarter ended June 30, 1998 (file no. 000-15190), and
incorporated herein by reference.
10.13 Consulting Agreement, dated October 1, 1998, between OSI
Pharmaceuticals, Inc. and Gary E. Frashier, filed by the
Company as an exhibit to the Form 10-Q for the fiscal
quarter ended December 31, 1998 (file no. 000-15190), and
incorporated herein by reference.
10.14+ Amended and Restated Collaborative Research Agreement, dated
April 23, 1999, by and among Pfizer, Inc., OSI
Pharmaceuticals, Inc. and Anaderm Research Corp., filed by
the Company as an exhibit to the Form 10-Q for the fiscal
quarter ended June 30, 1999 (file no. 000-15190), and
incorporated herein by reference.
</Table>
<Table>
<Caption>
EXHIBIT
- -------
10.15+ Collaborative Research, License and Alliance Agreement,
dated August 31, 1999, by and between OSI Pharmaceuticals,
Inc. and Vanderbilt University, filed by the Company as an
exhibit to the Form 10-K for the fiscal year ended September
30, 1999 (file no. 000-15190), and incorporated herein by
reference.
10.16+ Collaborative Research and License Agreement, dated October
1, 1999, by and between OSI Pharmaceuticals, Inc. and Tanabe
Seiyaku Co. Ltd., filed by the Company as an exhibit to the
Form 10-K for the fiscal year ended September 30, 1999 (file
no. 000-15190), and incorporated herein by reference.
10.17 Yeast Technology Agreement, dated February 15, 2000, by and
between OSI Pharmaceuticals, Inc. and Cadus Pharmaceutical
Corporation, filed by the Company as an exhibit to the Form
10-Q for the fiscal quarter ended March 31, 2000 (file no.
000-15190), and incorporated herein by reference.
10.18 Agreement, dated May 23, 2000, by and between OSI
Pharmaceuticals, Inc. and Pfizer Inc., filed by the Company
as an exhibit to the Form 8-K filed on June 20, 2000 (file
no. 000-15190), and incorporated herein by reference.
10.19 Employment Agreement, dated September 28, 2000, between OSI
Pharmaceuticals, Inc. and Nicholas G. Bacopoulous, Ph.D.,
filed by the Company as an exhibit to the Form 10-K for the
fiscal year ended September 30, 2000 (file no. 000-15190),
and incorporated herein by reference.
10.20+ Development and Marketing Collaboration Agreement, dated
January 8, 2001, between OSI Pharmaceuticals, Inc. and
Genentech, Inc., filed by the Company as an exhibit to the
Form 8-K filed on February 14, 2001 (file no. 000-15190),
and incorporated herein by reference.
10.21+ Development Collaboration and Licensing Agreement, dated
January 8, 2001, between OSI Pharmaceuticals, Inc. and F.
Hoffman -- La Roche Ltd., filed by the Company as an exhibit
to the Form 8-K filed on February 14, 2001 (file no.
000-15190), and incorporated herein by reference.
10.22+ Tripartite Agreement, dated January 8, 2001, by and among
OSI Pharmaceuticals, Inc., Genentech, Inc., and F.
Hoffman -- La Roche Ltd., filed by the Company as an exhibit
to the Form 8-K filed on February 14, 2001 (file no.
000-15190), and incorporated herein by reference.
10.23+ Manufacturing Agreement, dated December 21, 2001, by and
between OSI Pharmaceuticals, Inc. and Gilead Sciences, Inc.
filed by the Company as an exhibit to the Form 8-K filed on
January 7, 2002 (file no. 000-15190), and incorporated
herein by reference.
21 Subsidiary of OSI Pharmaceuticals, Inc. (filed by the
Company as an exhibit to the Form 10-K filed on December 12,
2002 (file no. 000-15190), and incorporated herein by
reference).
23 Consent of KPMG LLP, independent public accountants (filed
by the Company as an exhibit to the Form 10-K filed on
December 12, 2002 (file no. 000-15190), and incorporated
herein by reference).
99.1* Certification of Chief Executive Officer pursuant to 18
U.S.C. sec. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2* Certification of Chief Financial Officer pursuant to 18
U.S.C. sec. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
</Table>
- ---------------
* Filed herewith.
+ Portions of this exhibit have been redacted and are subject to a confidential
treatment request filed with the Secretary of the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended.