##### Table of Contents



FORM 10-Q
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 OR
 o
    
    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.
  Delaware
    
    13-3159796(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 41 Pinelawn Road, Melville, New York
    
    11747(Address of principal executive offices)
    
    (Zip Code)
 
 
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
  
 Page No.PART I. FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements
    
    
    1Consolidated Balance Sheets
-March 31, 2010 (Unaudited) and December 31, 2009
    
    
    1Consolidated Statements of Operations
-Three Months Ended March 31, 2010 and 2009 (Unaudited)
    
    
    2Consolidated Statements of Cash Flows
-Three Months Ended March 31, 2010 and 2009 (Unaudited)
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4.
    
    Controls and Procedures
    
    
    39PART II. OTHER INFORMATION
    
    
    41Item 1.
    
    Legal Proceedings
    
    
    41Item 1A.
    
    Risk Factors
    
    
    42Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3.
    
    Defaults Upon Senior Securities
    
    
    44Item 4.
    
    [Removed and Reserved]
    
    
    44Item 5.
    
    Other Information
    
    
    44Item 6.
    
    Exhibits
    
    
    45SIGNATURES
    
    
    46INDEX TO EXHIBITS
    
    
    47EX-31.1EX-31.2EX-32.1EX-32.2
  i




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands except per share data)
 March 31,2010
    
    
    December 31,(Unaudited)
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    199,087
    
    
    $
    98,179Available-for-sale securities
    
    
    331,426
    
    
    
    371,410Restricted investment securities
    
    
    2,308
    
    
    
    2,306Accounts receivables, net
    
    
    114,400
    
    
    
    127,171Inventory
    
    
    18,100
    
    
    
    19,138Accrued investment income receivable
    
    
    1,036
    
    
    
    1,888Prepaid expenses and other current assets
    
    
    17,282
    
    
    
    16,137Assets related to discontinued operations
    
    
    
    
    
    
    427Deferred tax assets
    
    
    27,947
    
    
    
    55,739Total current assets
    
    
    711,586
    
    
    
    692,395Property, equipment and leasehold improvements  net
    
    
    135,403
    
    
    
    101,544Debt issuance costs  net
    
    
    2,497
    
    
    
    2,720Goodwill
    
    
    38,735
    
    
    
    38,873Other intangible assets  net
    
    
    6,975
    
    
    
    7,638Other assets
    
    
    79,143
    
    
    
    80,505Deferred tax assets
    
    
    285,364
    
    
    
    261,697$
    1,259,703
    
    
    $
    1,185,372LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    76,022
    
    
    $
    62,293Unearned revenue  current
    
    
    10,709
    
    
    
    11,841Liabilities related to discontinued operations
    
    
    
    
    
    
    1,238Convertible senior subordinated notes  net
    
    
    169,438
    
    
    
    107,062Deferred tax liabilities
    
    
    1,068
    
    
    
    1,095Total current liabilities
    
    
    257,237
    
    
    
    183,529Other liabilities:Rent obligations and deferred rent expense
    
    
    5,025
    
    
    
    4,829Unearned revenue  long-term
    
    
    29,598
    
    
    
    29,705Convertible senior subordinated notes  net
    
    
    142,214
    
    
    
    201,262Accrued post-retirement benefit cost and other
    
    
    5,448
    
    
    
    5,045Deferred tax liabilities
    
    
    49,806
    
    
    
    49,254Total liabilities
    
    
    489,328
    
    
    
    473,624Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued at
March 31, 2010 and December 31, 2009
    
    
    
    
    
    
    Common stock, $.01 par value; 200,000 shares authorized, 63,212 and 61,636
shares issued at March 31, 2010 and December 31, 2009, respectively
    
    
    632
    
    
    
    616Additional paid-in capital
    
    
    1,846,840
    
    
    
    1,787,386Accumulated deficit
    
    
    (976,336
    )
    
    
    (981,187
    )Accumulated other comprehensive income
    
    
    1,458
    
    
    
    7,152872,594
    
    
    
    813,967Less: treasury stock, at cost; 3,396 shares at March 31, 2010 and
December 31, 2009
    
    
    (102,219
    )
    
    
    (102,219
    )Total stockholders equity
    
    
    770,375
    
    
    
    711,748$
    1,259,703
    
    
    $
    1,185,372
  1




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
 Three Months EndedMarch 31,2010
    
    2009Revenues:Tarceva-related revenues
    
    $
    92,357
    
    
    $
    83,856Other revenues
    
    
    14,221
    
    
    
    9,821Total revenues
    
    
    106,578
    
    
    
    93,677Operating expenses:Cost of goods sold
    
    
    2,624
    
    
    
    2,194Research and development
    
    
    41,952
    
    
    
    35,436Selling, general and administrative
    
    
    29,090
    
    
    
    24,201Restructuring charges
    
    
    3,108
    
    
    
    Tender offer related costs
    
    
    10,646
    
    
    
    Amortization of intangibles
    
    
    218
    
    
    
    228Total operating expenses
    
    
    87,638
    
    
    
    62,059Operating income from continuing operations
    
    
    18,940
    
    
    
    31,618Other income (expense):Investment income  net
    
    
    1,380
    
    
    
    2,214Interest expense
    
    
    (5,292
    )
    
    
    (6,815
    )Other (expense) income  net
    
    
    (7,118
    )
    
    
    38Income from continuing operations before income taxes
    
    
    7,910
    
    
    
    27,055Income tax provision
    
    
    3,166
    
    
    
    10,551Net income from continuing operations
    
    
    4,744
    
    
    
    16,504Income (loss) from discontinued operations  net of tax
    
    
    107
    
    
    
    (104
    )Net income
    
    $
    4,851
    
    
    $
    16,400Basic and diluted income (loss) per common share:Basic income (loss):Continuing operations
    
    $
    0.08
    
    
    $
    0.29Discontinued operations
    
    $
    0.00
    
    
    $
    (0.00
    )Net income
    
    $
    0.08
    
    
    $
    0.28Diluted income (loss):Continuing operations
    
    $
    0.08
    
    
    $
    0.28Discontinued operations
    
    $
    0.00
    
    
    $
    (0.00
    )Net income
    
    $
    0.08
    
    
    $
    0.28Weighted average shares of common stock outstanding:Basic shares
    
    
    58,719
    
    
    
    57,818Diluted shares
    
    
    59,535
    
    
    
    60,630
  2




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Three Months EndedMarch 31,2010
    
    2009Cash flow from operating activities:Net income
    
    $
    4,851
    
    
    $
    16,400Adjustments to reconcile net income to net cash provided by
operating activities:Non-cash compensation charge
    
    
    6,506
    
    
    
    6,186Deferred tax provision
    
    
    3,002
    
    
    
    10,393Amortization of debt discount and debt issuance costs
    
    
    3,295
    
    
    
    3,870Amortization of premiums and discounts on investments
    
    
    626
    
    
    
    (371
    )Depreciation and amortization
    
    
    3,148
    
    
    
    1,908Impairment of assets
    
    
    7,937
    
    
    
    298Changes in assets and liabilities:Accounts receivable
    
    
    13,304
    
    
    
    4,195Inventory
    
    
    1,038
    
    
    
    1,654Prepaid expenses and other current assets
    
    
    (1,382
    )
    
    
    (1,389
    )Other assets
    
    
    113
    
    
    
    (306
    )Accounts payable and accrued expenses
    
    
    13,857
    
    
    
    (15,435
    )Unearned revenue
    
    
    (1,239
    )
    
    
    (1,159
    )Accrued post-retirement benefit cost and other
    
    
    (7
    )
    
    
    (3
    )Net cash provided by operating activities
    
    
    55,049
    
    
    
    26,241Cash flows from investing activities:Purchases of short and long-term available-for-sale securities
    
    
    (109,822
    )
    
    
    (171,149
    )Sales of short and long-term available-for-sale securities
    
    
    96,400
    
    
    
    9,129Maturities of short and long-term available-for-sale securities
    
    
    52,521
    
    
    
    69,605Additions to property, equipment and leasehold improvements
    
    
    (38,198
    )
    
    
    (4,418
    )Purchase of equity investments
    
    
    (6,027
    )
    
    
    Proceeds from sale of fixed assets
    
    
    136
    
    
    
    Other
    
    
    
    
    
    
    (180
    )Net cash (used in) investing activities
    
    
    (4,990
    )
    
    
    (97,013
    )Cash flows from financing activities:Proceeds from the exercise of stock options,
employee purchase plan, and other
    
    
    52,979
    
    
    
    3,386Employee taxes paid related to equity awards
    
    
    (45
    )
    
    
    Net cash provided by financing activities
    
    
    52,934
    
    
    
    3,386Net increase (decrease) in cash and cash equivalents
    
    
    102,993
    
    
    
    (67,386
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (2,085
    )
    
    
    (120
    )Cash and cash equivalents at beginning of period
    
    
    98,179
    
    
    
    272,936Cash and cash equivalents at end of period
    
    $
    199,087
    
    
    $
    205,430Supplemental cash flow informationCash paid during the year for:Income Taxes
    
    $
    1,477
    
    
    $
    220Interest
    
    $
    3,383
    
    
    $
    4,624
  3




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® ®
 Basis of Presentation
    Revenue Recognition
  Net Revenue from Unconsolidated Joint Business
  4




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Royalties
   License and Milestones
  5




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6




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Income Per Share
   7




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Three Months EndedMarch 31,2010
    
    2009Net income from continuing operations  basic
    
    $
    4,744
    
    
    $
    16,504Add: Interest and issuance costs related to convertible notes 
net of tax
    
    
    
    
    
    
    495Net income from continuing operations  diluted
    
    $
    4,744
    
    
    $
    16,999Weighted average common shares outstanding  basic
    
    
    58,719
    
    
    
    57,818Dilutive effect of options and restricted stock
    
    
    816
    
    
    
    814Dilutive effect of 2023 Notes
    
    
    
    
    
    
    1,998Dilutive effect of 2025 Notes
    
    
    
    
    
    
    Dilutive effect of 2038 Notes
    
    
    
    
    
    
    Weighted average common shares and dilutive potential common
shares  diluted
    
    
    59,535
    
    
    
    60,630Net income per share from continuing operations:Basic
    
    $
    0.08
    
    
    $
    0.29Diluted
    
    $
    0.08
    
    
    $
    0.28
  Three Months EndedMarch 31,2010
    
    2009Common share equivalents  convertible notes
    
    
    7,284
    
    
    
    6,617Common share equivalents  equity plans
    
    
    2,099
    
    
    
    2,231Convertible note interest and debt issuance
expense, net of tax, not added back under
the if-converted method
    
    $
    3,170
    
    
    $
    3,626
 8




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Comprehensive Income
  Three Months EndedMarch 31,2010
    
    2009Net income
    
    $
    4,851
    
    
    $
    16,400Other comprehensive income:Foreign currency translation adjustments
    
    
    (5,934
    )
    
    
    (528
    )Post-retirement plan
    
    
    
    
    
    
    (8
    )Unrealized gains on available-for-sale securities
    
    
    21
    
    
    
    486Unrealized gains on derivative instruments
    
    
    219
    
    
    
    (5,694
    )
    
    
    (50
    )Total comprehensive (loss) income
    
    $
    (843
    )
    
    $
    16,350
  March 31,
    
    December 31,2010
    
    2009Cumulative foreign currency translation adjustment
    
    $
    (3,574
    )
    
    $
    2,360Post-retirement plan
    
    
    237
    
    
    
    237Unrealized gains on available-for-sale securities
    
    
    4,431
    
    
    
    4,410Unrealized gains on derivative instruments
    
    
    364
    
    
    
    145Accumulated other comprehensive income
    
    $
    1,458
    
    
    $
    7,152
 Tender Offer
  9




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Fair Value Measurements
   Level 1
 Level 2
 Level 3
   10




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QuotedPrices inActiveAs
    
    Market
    
    SignificantReflected
    
    for
    
    Other
    
    Significanton the
    
    Identical
    
    Observable
    
    UnobservableBalance
    
    Assets
    
    Inputs
    
    InputsMarch 31, 2010
    
    Sheet
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalAssets:Cash equivalents
    
    $
    153,042
    
    
    $
    153,042
    
    
    $
    
    
    
    $
    
    
    
    $
    153,042Available-for sale securities
    
    
    331,426
    
    
    
    
    
    
    
    331,426
    
    
    
    
    
    
    
    331,426Restricted investments
    
    
    2,308
    
    
    
    
    
    
    
    2,308
    
    
    
    
    
    
    
    2,308Other assets  strategic investments
    
    
    65,603
    
    
    
    65,603
    
    
    
    
    
    
    
    
    
    
    
    65,603Other assets
    
    
    2,051
    
    
    
    
    
    
    
    2,051
    
    
    
    
    
    
    
    2,051Derivatives (see Note 8)
    
    
    1,289
    
    
    
    
    
    
    
    1,289
    
    
    
    
    
    
    
    1,289Liabilities:Derivatives (see Note 8)
    
    
    773
    
    
    
    
    
    
    
    773
    
    
    
    
    
    
    
    7732038 Notes (Face value $160,000)
    
    
    142,214
    
    
    
    
    
    
    
    183,900
    
    
    
    
    
    
    
    183,9002025 Notes (Face value $115,000)
    
    
    109,001
    
    
    
    
    
    
    
    232,731
    
    
    
    
    
    
    
    232,7312023 Notes (Face value $60,437)
    
    
    60,437
    
    
    
    
    
    
    
    72,033
    
    
    
    
    
    
    
    72,033
 QuotedPrices inAs
    
    Active
    
    SignificantReflected
    
    Market for
    
    Other
    
    Significanton the
    
    Identical
    
    Observable
    
    UnobservableBalance
    
    Assets
    
    Inputs
    
    InputsDecember 31, 2009
    
    Sheet
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalAssets:Cash equivalents
    
    $
    82,173
    
    
    $
    82,173
    
    
    $
    
    
    
    $
    
    
    
    $
    82,173Available-for-sale securities
    
    
    371,410
    
    
    
    
    
    
    
    371,410
    
    
    
    
    
    
    
    371,410Restricted investments
    
    
    2,306
    
    
    
    
    
    
    
    2,306
    
    
    
    
    
    
    
    2,306Other Assets  strategic investments
    
    
    46,323
    
    
    
    46,323
    
    
    
    
    
    
    
    
    
    
    
    46,323Other assets
    
    
    1,655
    
    
    
    
    
    
    
    1,653
    
    
    
    
    
    
    
    1,653Derivatives (see Note 8)
    
    
    323
    
    
    
    
    
    
    
    323
    
    
    
    
    
    
    
    323Liabilities:Derivatives (see Note 8)
    
    
    88
    
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    882038 Notes (Face value $160,000)
    
    
    140,795
    
    
    
    
    
    
    
    146,900
    
    
    
    
    
    
    
    146,9002025 Notes (Face value $115,000)
    
    
    107,062
    
    
    
    
    
    
    
    133,472
    
    
    
    
    
    
    
    133,4722023 Notes (Face value $60,467)
    
    
    60,467
    
    
    
    
    
    
    
    55,441
    
    
    
    
    
    
    
    55,441
  11




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Investments
  12




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Unrealized
    
    
    UnrealizedMarch 31, 2010
    
    Cost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government and U.S. government
agency securities
    
    $
    51,014
    
    
    $
    86
    
    
    $
    (10
    )
    
    $
    51,090Corporate and financial institutions debt
    
    
    279,638
    
    
    
    798
    
    
    
    (100
    )
    
    
    280,336Total available-for-sale securities
    
    
    330,652
    
    
    
    884
    
    
    
    (110
    )
    
    
    331,426Restricted investments
    
    
    2,308
    
    
    
    
    
    
    
    
    
    
    
    2,308Strategic investments (available-for-sale
equity investments)
    
    
    58,205
    
    
    
    7,398
    
    
    
    
    
    
    
    65,603Total
    
    $
    391,165
    
    
    $
    8,282
    
    
    $
    (110
    )
    
    $
    399,337
 Unrealized
    
    
    UnrealizedDecember 31, 2009
    
    Cost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government and U.S. government agency
securities
    
    $
    44,679
    
    
    $
    137
    
    
    $
    (5
    )
    
    $
    44,811Corporate and financial institutions debt
    
    
    325,700
    
    
    
    1,107
    
    
    
    (208
    )
    
    
    326,599Total available-for-sale securities
    
    
    370,379
    
    
    
    1,244
    
    
    
    (213
    )
    
    
    371,410Restricted investments
    
    
    2,306
    
    
    
    
    
    
    
    
    
    
    
    2,306Strategic investments (available-for-sale equity
investments)
    
    
    40,254
    
    
    
    6,069
    
    
    
    
    
    
    
    46,323Total
    
    $
    412,939
    
    
    $
    7,313
    
    
    $
    (213
    )
    
    $
    420,039
     13




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Unrealized
    
    UnrealizedCost Basis
    
    Gains
    
    Losses
    
    Fair Value2010
    
    $
    87,344
    
    
    $
    164
    
    
    $
    (16
    )
    
    $
    87,4922011
    
    
    214,904
    
    
    
    678
    
    
    
    (78
    )
    
    
    215,5042012
    
    
    26,672
    
    
    
    42
    
    
    
    (15
    )
    
    
    26,6992013
    
    
    1,732
    
    
    
    
    
    
    
    (1
    )
    
    
    1,731Total
    
    $
    330,652
    
    
    $
    884
    
    
    $
    (110
    )
    
    $
    331,426
 Derivatives
     14




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Foreign
    
    ForeignCurrency
    
    CurrencyContracts
    
    ContractsMarch 31,
    
    December 31,Fair Value of Derivative Instruments
    
    2010
    
    2009Prepaid expenses and other current assets
    
    $
    1,289
    
    
    $
    323Accounts payable and accrued expenses
    
    $
    773
    
    
    $
    88Accumulated other comprehensive income
(net of tax)
    
    $
    364
    
    
    $
    145
  ThreeIncome
    
    
    MonthsStatement
    
    
    EndedAccumulated Other Comprehensive
    
    Classification for
    
    
    March 31,Income (Loss) (Net of Taxes)
    
    Reclassifications
    
    
    2010Opening balance as of January 1, 2010
    
    
    
    
    
    $
    145Net gains recorded during the year in AOCI (effective portion)
    
    
    
    
    
    
    278Losses reclassified from AOCI (upon settlement)
    
    Royalty revenue
    
    
    (82
    )Gains reclassified from AOCI upon settlement
    
    Royalty revenue
    
    
    23Balance at March 31, 2010
    
    
    
    
    
    $
    364
  15




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Accounting for EquityBased Compensation
     Three Months EndedMarch 31,2010
    
    2009Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    45.85
    %
    
    
    49.98
    %Risk-free interest rate
    
    
    3.15
    %
    
    
    2.06
    %Expected term (years)
    
    
    7.04
    
    
    
    5.66
 16




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Inventory
   March 31,
    
    December 31,2010
    
    2009Raw materials
    
    $
    628
    
    
    $
    628Work-in-process
    
    
    6,879
    
    
    
    7,054Finished goods on hand
    
    
    5,448
    
    
    
    5,688Inventory subject to return
    
    
    5,145
    
    
    
    5,768Total inventory
    
    $
    18,100
    
    
    $
    19,138
  Other Intangible Assets  Net
  March 31, 2010
    
    
    December 31, 2009Net
    
    
    
    
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueAcquired intangibles
    
    $
    9,771
    
    
    $
    (2,796
    )
    
    $
    6,975
    
    
    $
    10,386
    
    
    $
    (2,748
    )
    
    $
    7,638
   17




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Consolidation of Facilities
 Ardsley, New York
    18




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##### Table of Contents



Three MonthsEndedMarch 31,2010Opening balance, prepaid commitment bonuses and relocation costs
    
    $
    10,332Cash payments for relocation costs
    
    
    575Repayment of commitment bonuses
    
    
    (239
    )Amortization of prepaid commitment bonuses, relocation costs and other
    
    
    (2,183
    )Ending balance, prepaid commitment bonuses and relocation costs
    
    $
    8,485
 Three MonthsEndedMarch 31,2010Opening balance, accrued severance
    
    $
    1,077Accrual for severance payments
    
    
    963Cash payment for severance
    
    
    (184
    )Ending balance, accrued severance
    
    $
    1,856
 Employee Post-retirement Plan and Other
 Employee Post-retirement Plan
  19




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##### Table of Contents



Three Months EndedMarch 31,2010
    
    2009Interest cost on accumulated post-retirement
benefit obligation
    
    $
    33
    
    
    $
    34Amortization of loss
    
    
    
    
    
    
    (8
    )Net post-retirement benefit cost
    
    $
    33
    
    
    $
    26
 Sabbatical Leave Accrual
  Nonqualified Deferred Compensation Plan
  Income Taxes
   20




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Convertible Debt
   March 31, 2010
    
    December 31, 2009Net Carrying
    
    
    
    
    
    
    
    
    
    Net CarryingPrincipal
    
    Discount
    
    Value
    
    Principal
    
    Discount
    
    Value2023 Notes - 3.25%
    
    $
    60,437
    
    
    $
    
    
    
    $
    60,437
    
    
    $
    60,467
    
    
    $
    
    
    
    $
    60,4672025 Notes - 2.00%
    
    
    115,000
    
    
    
    5,999
    
    
    
    109,001
    
    
    
    115,000
    
    
    
    7,938
    
    
    
    107,0622038 Notes - 3.00%
    
    
    160,000
    
    
    
    17,786
    
    
    
    142,214
    
    
    
    160,000
    
    
    
    19,205
    
    
    
    140,795$
    335,437
    
    
    $
    23,785
    
    
    $
    311,652
    
    
    $
    335,467
    
    
    $
    27,143
    
    
    $
    308,324
 (a) 3.25% Convertible Senior Subordinated Notes
   (b) 2.0% Convertible Senior Subordinated Notes
  21




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Eyetech Discontinued Operations
   Three Months EndedMarch 31,2010
    
    2009Net revenue
    
    $
    147
    
    
    $
    308Pretax income (loss)
    
    $
    107
    
    
    $
    (169
    )Income (loss) from discontinued operations
    
    $
    107
    
    
    $
    (104
    )
  March 31,
    
    December 31,2010
    
    2009Assets:Accounts receivable
    
    $
    
    
    
    $
    427Assets related to discontinued operations
    
    $
    
    
    
    $
    427Liabilities:Accounts payable and accrued expenses
    
    $
    
    
    
    $
    1,238Liabilities related to discontinued operations
    
    $
    
    
    
    $
    1,238
 Legal Update
 Astellas US Holding, Inc. v. OSI Pharmaceuticals, Inc., et al.
 Chazen v. OSI Pharmaceuticals, Inc Louisiana Municipal Police Employees Retirement System v. Ingram et al Southeastern Pennsylvania Transportation Authority v. Ingram et
al Naiditch v. Ingram et al Louisiana Municipal Police Employees Retirement System v. Ingram et al., Chazen Chazen
 Subsequent Event
  22




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23




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
 THREE MONTHS ENDED MARCH 31, 2010 AND 2009
 Overview
     24




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25




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Quarterly Update
    26




---



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Subsequent Events
    27




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Critical Accounting Policies
  Three Months Ended March 31, 2010 and 2009
 Results of Operations
  28




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Revenues
 Three Months EndedMarch 31,(in thousands)2010
    
    2009
    
    $ ChangeTarceva-related revenues
    
    $
    92,357
    
    
    $
    83,856
    
    
    $
    8,501Other revenues
    
    
    14,221
    
    
    
    9,821
    
    
    
    4,400Total revenues
    
    $
    106,578
    
    
    $
    93,677
    
    
    $
    12,901
 Tarceva-Related Revenues
  Net Revenue from Unconsolidated Joint Business
   Tarceva-Related Royalties
  29




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Tarceva-Related Milestones
  Other Revenues
  ® TM ® ® ®
 30




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Expenses
 Three Months EndedMarch 31,(in thousands)2010
    
    2009
    
    $ ChangeCost of goods sold
    
    $
    2,624
    
    
    $
    2,194
    
    
    $
    430Research and development
    
    
    41,952
    
    
    
    35,436
    
    
    
    6,516Selling, general and administrative
    
    
    29,090
    
    
    
    24,201
    
    
    
    4,889Restructuring costs
    
    
    3,108
    
    
    
    
    
    
    
    3,108Tender offer related costs
    
    
    10,646
    
    
    
    
    
    
    
    10,646Amortization of intangibles
    
    
    218
    
    
    
    228
    
    
    
    (10
    )$
    87,638
    
    
    $
    62,059
    
    
    $
    25,579
 Cost of Goods Sold
  Research and Development
    31




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Selling, General and Administrative
  32




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Restructuring Costs
  Tender Offer Related Costs
  Other Income and Expense
 Three Months EndedMarch 31,(in thousands)2010
    
    2009
    
    $ ChangeInvestment income-net
    
    $
    1,380
    
    
    $
    2,214
    
    
    $
    (834
    )Interest expense
    
    
    (5,292
    )
    
    
    (6,815
    )
    
    
    1,523Other income (expense)-net
    
    
    (7,118
    )
    
    
    38
    
    
    
    (7,156
    )Total other income (expense)
    
    $
    (11,030
    )
    
    $
    (4,563
    )
    
    $
    (6,467
    )
    33




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Income taxes
  Liquidity and Capital Resources
     34




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Commitments and Contingencies
  Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsContractual Obligations:Senior convertible debt (a)
    
    $
    509,150
    
    
    $
    67,650
    
    
    $
    14,200
    
    
    $
    14,200
    
    
    $
    413,100Operating leases
    
    
    88,964
    
    
    
    8,447
    
    
    
    18,001
    
    
    
    16,222
    
    
    
    46,294Purchase obligations (b)
    
    
    101,160
    
    
    
    47,110
    
    
    
    40,033
    
    
    
    9,017
    
    
    
    5,000Capital commitments
    
    
    868
    
    
    
    868
    
    
    
    
    
    
    
    
    
    
    
    Obligations related to exit
activities (c)
    
    
    3,995
    
    
    
    3,465
    
    
    
    
    
    
    
    
    
    
    
    530Total contractual obligations
    
    $
    704,137
    
    
    $
    127,540
    
    
    $
    72,234
    
    
    $
    39,439
    
    
    $
    464,924
 
 (a)
    
    Our senior convertible debt obligations assume the payment of interest on our senior
convertible notes through their respective maturity dates and the payment of their outstanding
principal balance at their respective maturity dates. The interest payments on our senior
convertible notes are at a rate of: (i) 3.25% per annum relating to the $60.4 million
principal amount of our 2023 Notes; (ii) 2% per annum relating to the $115.0 million principal
amount of our 2025 Notes; and (iii) 3% per annum relating to the $160.0 million principal
amount of our 3.00% Convertible Senior Subordinated Notes due 2038, or our 2038 Notes. Holders
of our 2025 Notes have the right to require us to purchase, for cash, all of our 2025 Notes,
or a portion thereof, in December 2010. Holders of our 2038 Notes have the right to require us
to purchase, for cash, all of our 2038 Notes, or a portion thereof, in January 2013. On March
22, 2010, we announced that we would fully redeem for cash, on April 21, 2010, all of our remaining
outstanding 2023 Notes pursuant to the terms of the indenture agreement under which the notes
were issued in September 2003. As a result, and in accordance with the terms of the indenture,
during the period commencing March 22, 2010 and continuing through and including April 21,
2010, holders of our 2023 Notes had the right to convert their notes into shares of common
stock at a conversion rate of 19.9925 shares per $1,000 principal amount of each note or an
effective conversion price of $50.02 per share. Any notes not converted would be automatically
redeemed for cash on April 21, 2010. Accordingly, our 2023 Notes have been classified as
payments due less than one year in the table above. As of April 21,2010, all of
the holders of our 2023 Notes, with the exception of $25,000 of outstanding principal amount,
elected to convert the notes into an aggregate of approximately 1.2 million shares of our common stock.(b)
    
    Includes commercial and research commitments and other significant purchase commitments
including estimated minimum payments due under non cancelable financial 35




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advisory agreements. Also includes our share of the remaining future estimated commitment
related to the Tarceva global development costs of approximately $73 million.(c)
    
    Includes payments for termination benefits and estimated facility refurbishments. As
discussed below, we anticipate additional payments relating to plans to consolidate
operations.  
    
    As part of our U.S. facilities consolidation in Ardsley, New York, we expect to
incur potentially in excess of $60 million of capital-related renovation costs over the
next nine months. We also expect to use approximately $15 million of cash over the next
two years, primarily for labor-related and relocation-related costs. We also expect to
recognize additional charges over the next six to twelve months related to exiting our
leased facilities in the U.S. when these facilities cease to be used.
    
    We are committed to share certain commercialization costs relating to Tarceva with
Genentech. Under the terms of our agreement, there are no contractually determined
amounts for future commercial costs.
    
    Under agreements with external clinical research organizations, or CROs, we will
continue to incur expenses relating to clinical trials of Tarceva and other clinical
candidates. The timing and amount of these disbursements can be based upon the
achievement of certain milestones, patient enrollment, services rendered or as expenses
are incurred by the CROs and therefore, we cannot reasonably estimate the potential
timing of these payments. These agreements are cancellable on short notice.
    
    Under certain license and collaboration agreements with pharmaceutical companies and
educational institutions, we are required to pay royalties, milestone and/or other
payments upon the successful development and commercialization of products. However,
successful research and development of pharmaceutical products is high risk, and most
products fail to reach the market. Therefore, at this time the amount and timing of the
payments, if any, are not known.
    
    Under certain license and other agreements, we are required to pay license fees for
the use of technologies and products in our R&D activities or milestone payments upon
the achievement of certain predetermined conditions. These license fees are not deemed
material to our consolidated financial statements and the amount and timing of the
milestone payments, if any, are not known due to the uncertainty surrounding the
successful research, development and commercialization of the products.
 36




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##### Table of Contents




    
    We have a retirement plan which provides post-retirement medical and life insurance
benefits to eligible employees, board members and qualified dependents. We curtailed
this plan in 2007; however, certain employees, board members and qualified dependents
remain eligible for these benefits. Eligibility is determined based on age and years
of service. We had an accrued liability for post-retirement benefit costs of $2.7
million at March 31, 2010.
 New Accounting Standards
 Recently Adopted Standards
   Recently Issued Standards (Not Yet Adopted)
  37




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Forward Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    38




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Item 4. Controls and Procedures
  Evaluation
 of Our Disclosure Controls and Procedures
 CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures
 39




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Changes in Internal Control Over Financial Reporting.
 40




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Astellas US Holding, Inc. v. OSI Pharmaceuticals, Inc., et al.
 Chazen v. OSI Pharmaceuticals, Inc. Louisiana
Municipal Police Employees Retirement System v. Ingram et al. Southeastern
Pennsylvania Transportation Authority v. Ingram et al. Naiditch v.
Ingram et al. Louisiana Municipal Police Employees
Retirement System v. Ingram et al. Chazen Chazen
  41




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##### Table of Contents



Item 1A. Risk Factors.
  We are subject to an unsolicited tender offer and potential proxy solicitation that is
disruptive to our business and may distract our management and employees and create uncertainty
that may adversely impact our business.
  42




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##### Table of Contents



Litigation relating to the Astellas Offer may adversely impact our business.
  43




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity Securities
 Total Number of
    
    Maximum Number (orShares (or Units)
    
    Approximate DollarPurchased as Part of
    
    Value) of Shares (orTotal Number of
    
    Average Price
    
    Publicly
    
    Units) that May Yet BeShares (or Units)
    
    Paid per Share
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Purchased
    
    (or Unit)
    
    Programs
    
    Plans or ProgramsJanuary 1, 2010
 January 31, 2010
    
    
    1,451
    (1)
    
    $
    31.06
    
    
    
    N/A
    
    
    
    N/AFebruary 1, 2010
 February 28, 2010
    
    
    
    
    
    
    
    
    
    
    N/A
    
    
    
    N/AMarch 1, 2010 
March 31, 2010
    
    
    598
    (2)
    
    $
    50.02
    
    
    
    N/A
    
    
    
    N/A
 
 (1)
    
    Consists of shares of common stock withheld from employees to satisfy their tax
withholding obligations arising upon the vesting of restricted equity awards granted under our
Amended and Restated Stock Incentive Plan.(2)
    
    In March 2010, certain holders of our 2023 Notes exercised their right to convert $30,000
principal amount of our 2023 Notes for shares of our common stock. The table reflects the number of
shares of common stock into which the notes converted at the conversion price of $50.02, prior to
the maturity of our 2023 Notes, in accordance with the terms of the indenture for our 2023 Notes. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. [Removed and Reserved]
 
 Item 5. Other Information
  WE URGE OUR STOCKHOLDERS TO READ THE SCHEDULE 14D-9 AND OTHER DOCUMENTS FILED WITH
THE SEC CAREFULLY
IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION.
 44




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##### Table of Contents



Item 6. Exhibits
 3.1
    
    Restated Certificate of Incorporation of OSI Pharmaceuticals, Inc., 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
    
    Second Amended and Restated Bylaws of OSI Pharmaceuticals, Inc., filed by the
Company as an exhibit to the Form 10-K for the fiscal year ended December 31, 2008
(file no. 000-15190), and incorporated herein by reference.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a). (Filed herewith)31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14(a). (Filed herewith)32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350. (Filed
herewith)32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350. (Filed
herewith)
 45




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##### Table of Contents



SIGNATURES
  OSI PHARMACEUTICALS, INC.
                    (Registrant)Date:  May 6, 2010
    /s/ Colin Goddard, Ph.D.Colin Goddard, Ph.D.Chief Executive OfficerDate:  May 6, 2010
    /s/ Pierre LegaultPierre LegaultExecutive Vice President, Chief Financial Officer and
Treasurer
(Principal Financial Officer) 46




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INDEX TO EXHIBITS
 Exhibit
 3.1
    
    Restated Certificate of Incorporation of OSI Pharmaceuticals, Inc., 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
    
    Second Amended and Restated Bylaws of OSI Pharmaceuticals, Inc., filed by the
Company as an exhibit to the Form 10-K for the fiscal year ended December 31, 2008
(file no. 000-15190), and incorporated herein by reference.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a). (Filed herewith)31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14(a). (Filed herewith)32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350. (Filed
herewith)32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350. (Filed
herewith)
 47