##### Table of Contents



FORM 10-Q
 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, 2007
  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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)41 Pinelawn Road, Melville, New York
    
    11747(Address of principal executive offices)
    
    (Zip Code)
  
  
  þ o
  þ o o
 o þ




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 Page No.PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets March 31, 2007 (Unaudited) and December 31, 2006
    
    
    1Consolidated Statements of Operations  Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    2Consolidated Statements of Cash Flows  Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    35Item 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATION
    
    
    37Item 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38SIGNATURES
    
    
    40INDEX TO EXHIBITS
    
    
    41EX-10.3: AMENDED AND RESTATED LICENSE AGREEMENT, DATED APRIL 20, 2007EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
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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,
    
    December 31,2007
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    101,925
    
    
    $
    42,028Investment securities
    
    
    129,393
    
    
    
    164,786Restricted investment securities
    
    
    9,790
    
    
    
    9,554Accounts receivables  net
    
    
    70,849
    
    
    
    80,075Inventory  net
    
    
    20,716
    
    
    
    36,860Interest receivable
    
    
    3,937
    
    
    
    3,674Prepaid expenses and other current assets
    
    
    8,781
    
    
    
    9,102Assets related to discontinued operations
    
    
    37,501
    
    
    
    Total current assets
    
    
    382,892
    
    
    
    346,079Property, equipment and leasehold improvements  net
    
    
    50,040
    
    
    
    56,223Debt issuance costs  net
    
    
    4,444
    
    
    
    4,910Goodwill
    
    
    39,386
    
    
    
    39,373Other intangible assets  net
    
    
    6,303
    
    
    
    6,742Other assets
    
    
    2,195
    
    
    
    4,405$
    485,260
    
    
    $
    457,732LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    
    42,698
    
    
    
    54,741Collaboration profit share payable
    
    
    
    
    
    
    12,039Unearned revenue  current
    
    
    25,925
    
    
    
    12,803Liabilities related to discontinued operations
    
    
    49,387
    
    
    
    Total current liabilities
    
    
    118,010
    
    
    
    79,583Other liabilities:Rent obligations and deferred rent expenses
    
    
    11,157
    
    
    
    10,044Unearned revenue  long-term
    
    
    39,071
    
    
    
    66,089Convertible senior subordinated notes
    
    
    265,000
    
    
    
    265,000Accrued postretirement benefit cost and other
    
    
    8,829
    
    
    
    8,422Total liabilities
    
    
    442,067
    
    
    
    429,138Stockholders equity:Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued at
March 31, 2007 and December 31, 2006
    
    
    
    
    
    
    Common stock, $.01 par value; 200,000 shares authorized, 59,335 and 59,179 shares issued
at March 31, 2007 and December 31, 2006, respectively
    
    
    593
    
    
    
    592Additional paid-in capital
    
    
    1,624,451
    
    
    
    1,616,874Accumulated deficit
    
    
    (1,547,365
    )
    
    
    (1,554,005
    )Accumulated other comprehensive income
    
    
    2,735
    
    
    
    2,35480,414
    
    
    
    65,815Less: treasury stock, at cost; 1,943 shares at March 31, 2007 and December 31, 2006
    
    
    (37,221
    )
    
    
    (37,221
    )Total stockholders equity
    
    
    43,193
    
    
    
    28,594Commitments
and contingencies
    
    $
    485,260
    
    
    $
    457,732
  1




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 (In thousands except per share data)
 Three Months EndedMarch 31,2007
    
    2006Revenues:Net revenue from unconsolidated joint business
    
    $
    39,122
    
    
    $
    35,655Royalties on product licenses
    
    
    19,293
    
    
    
    8,014License, milestone and other revenues
    
    
    19,054
    
    
    
    15,58677,469
    
    
    
    59,255Expenses:Cost of goods sold
    
    
    1,904
    
    
    
    2,222Research and development
    
    
    30,626
    
    
    
    27,078Selling, general and administrative
    
    
    25,129
    
    
    
    27,808Amortization of intangibles
    
    
    458
    
    
    
    44858,117
    
    
    
    57,556Operating income from continuing operations
    
    
    19,352
    
    
    
    1,699Other income (expense):Investment income  net
    
    
    3,095
    
    
    
    1,367Interest expense
    
    
    (1,803
    )
    
    
    (1,798
    )Other (expense) income  net
    
    
    (949
    )
    
    
    (892
    )Income from continuing operations
    
    
    19,695
    
    
    
    376Loss from discontinued operations
    
    
    (13,054
    )
    
    
    (18,231
    )Net income (loss)
    
    $
    6,641
    
    
    $
    (17,855
    )Basic and diluted income (loss) per common share:Basic earnings (loss):Income from continuing operations
    
    $
    0.34
    
    
    $
    0.01Loss from discontinued operations
    
    $
    (0.23
    )
    
    $
    (0.32
    )Net income (loss)
    
    $
    0.12
    
    
    $
    (0.31
    )Diluted earnings (loss):Income from continuing operations
    
    $
    0.33
    
    
    $
    0.01Loss from discontinued operations
    
    $
    (0.21
    )
    
    $
    (0.32
    )Net income (loss)
    
    $
    0.12
    
    
    $
    (0.31
    )Shares used in calculation of income (loss) per common share:Basic
    
    
    57,302
    
    
    
    56,815Diluted
    
    
    61,733
    
    
    
    57,262
  2




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (In thousands)
 Three Months EndedMarch 31,2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    6,641
    
    
    $
    (17,855
    )Adjustments to reconcile net income (loss) to net cash provide by (used in) operating activities:
Loss on sale of investment
    
    
    2
    
    
    
    Gain on sale and disposals of equipment
    
    
    (31
    )
    
    
    Depreciation and amortization
    
    
    2,835
    
    
    
    9,128Non-cash compensation charges
    
    
    4,641
    
    
    
    3,854Other non-cash charges-net
    
    
    107
    
    
    
    131Impact of inventory step-up related to inventory sold
    
    
    965
    
    
    
    11,161Changes in assets and liabilities:Receivables
    
    
    (2,475
    )
    
    
    (526
    )Inventory
    
    
    (4,125
    )
    
    
    37Prepaid expenses and other current assets
    
    
    (1,142
    )
    
    
    (3,107
    )Other assets
    
    
    1,366
    
    
    
    421Accounts payable and accrued expenses
    
    
    (5,764
    )
    
    
    (13,760
    )Unearned revenue
    
    
    18,120
    
    
    
    (1,031
    )Accrued postretirement benefit cost
    
    
    406
    
    
    
    393Net cash provided by (used in) operating activities
    
    
    21,546
    
    
    
    (11,154
    )Cash flows from investing activities:Purchases of investments (restricted and unrestricted)
    
    
    (47,468
    )
    
    
    (50,032
    )Maturities and sales of investments (restricted and unrestricted)
    
    
    83,561
    
    
    
    2,437Net additions to property, equipment and leasehold improvements
    
    
    (729
    )
    
    
    (5,722
    )Proceeds from sale of equipment
    
    
    31
    
    
    
    786Additions to compound library assets
    
    
    (3
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    35,392
    
    
    
    (52,531
    )Cash flows from financing activities:Proceeds from the exercise of stock options and employee purchase plan
    
    
    2,946
    
    
    
    809Other
    
    
    
    
    
    
    (450
    )Net cash provided by financing activities
    
    
    2,946
    
    
    
    359Net increase (decrease) in cash and cash equivalents
    
    
    59,884
    
    
    
    (63,326
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    13
    
    
    
    (108
    )Cash and cash equivalents at beginning of period
    
    
    42,028
    
    
    
    164,084Cash and cash equivalents at end of period
    
    $
    101,925
    
    
    $
    100,650Non-cash activities:Issuance of common stock to directors
    
    $
    
    
    
    $
    128Purchase accounting adjustments
    
    $
    
    
    
    $
    614Cash paid for interest
    
    $
    2,438
    
    
    $
    2,438
  3




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 (Unaudited)
  Basis of Presentation
  Revenue Recognition
 Net revenue from unconsolidated joint business
  4




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
   Three Months EndedMarch 31,2007
    
    2006Co-promotion profit and reimbursement of sales
force and marketing related costs
    
    $
    36,660
    
    
    $
    32,874Reimbursement of manufacturing costs
    
    
    2,462
    
    
    
    2,781Net revenue from unconsolidated joint business
    
    $
    39,122
    
    
    $
    35,655
 Royalties on Product Licenses
  Licenses, Milestones and Other Revenues
  5




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
      Earnings Per Share
  6




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
   Three Months EndedMarch 31,2007
    
    2006-Income from continuing operations  basic
    
    $
    19,695
    
    
    $
    376Add: Interest related to 2025 Notes
    
    
    776
    
    
    
    -Income from continuing operations  diluted
    
    $
    20,471
    
    
    $
    376Weighted average common shares outstanding  basic
    
    
    57,302
    
    
    
    56,815Dilutive effect of options and restricted stock
    
    
    523
    
    
    
    447Dilutive effect of 2025 Notes
    
    
    3,908
    
    
    
    -Weighted-average common shares and dilutive potential
common shares  diluted
    
    
    61,733
    
    
    
    57,262Income per share from continuing operations:Basic
    
    $
    0.34
    
    
    $
    0.01Diluted
    
    $
    0.33
    
    
    $
    0.01
  Discontinued Operations
  7




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
     Three Months EndedMarch 31,2007
    
    2006Net revenue
    
    $
    10,430
    
    
    $
    57,187Pretax loss
    
    
    (13,369
    )
    
    
    (18,231
    )Loss from discontinued operations
    
    $
    (13,054
    )
    
    $
    (18,231
    )
  8




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
  Assets:Accounts receivable
    
    $
    11,464Prepaid expenses and other assets
    
    
    2,130Inventories (assets held for sale)
    
    
    19,302Property, plant and equipment (assets held for sale)
    
    
    4,605Assets related to discontinued operations
    
    $
    37,501Liabilities:Accounts payable and accrued expenses
    
    $
    14,842Collaboration profit share
    
    
    2,529Unearned revenue
    
    
    32,016Total liabilities
    
    $
    49,387
 Eyetech Integration  Severance Costs
   Three Months EndedMarch 31,2007
    
    2006Opening liability January 1
    
    $
    699
    
    
    $
    4,870Accrual for severance, relocation
and retention bonuses
    
    
    
    
    
    
    2,650Cash paid for severance, relocation and retention
bonuses
    
    
    (699
    )
    
    
    (3,982
    )Ending liability
    
    $
    
    
    
    $
    3,538
 Eyetech Divestiture  Severance Costs
  9




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
   Opening liability at January 1, 2007
    
    $
    2,584Accrual for severance and retention bonuses
    
    
    2,290Cash paid for severance and retention bonuses
    
    
    (3,397
    )Ending liability at March 31, 2007
    
    $
    1,477
 Eyetech Integration  Facility Restructuring
   Three Months EndedMarch 31,2007
    
    2006Opening liability at January 1
    
    $
    2,053
    
    
    $
    5,391Accrual for lease termination costs
    
    
    2,710
    
    
    
    (268
    )Accretion expense
    
    
    35
    
    
    
    151Cash paid for rent
    
    
    (338
    )
    
    
    (151
    )Ending liability
    
    $
    4,460
    
    
    $
    5,123
 10




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
 Accounting for StockBased Compensation
      Stock Options
  11




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
   Three Months EndedMarch 31,2007
    
    2006Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    50.48
    %
    
    
    61.28
    %Risk-free interest rate
    
    
    4.71
    %
    
    
    4.49
    %Expected term (years)
    
    
    4.57
    
    
    
    4.32
  Aggregate Intrinsic
    
    Weighted AverageWeighted-Average
    
    Value (1)
    
    Contractual LifeShares
    
    Exercise Price
    
    (in millions)
    
    Remaining in YearsOutstanding at December 31,
2006
    
    
    6,737
    
    
    $
    36.00Granted at fair value
    
    
    15
    
    
    $
    33.94Exercised at fair value
    
    
    (183
    )
    
    $
    18.42Expired
    
    
    Forfeited
    
    
    (250
    )
    
    $
    31.57Outstanding at March 31, 2007
    
    
    6,319
    
    
    $
    36.68
    
    
    $
    25.1
    
    
    
    5.57Exercisable at March 31, 2007
    
    
    4,576
    
    
    $
    39.24
    
    
    $
    16.4
    
    
    
    5.38Unvested at March 31, 2007
    
    
    1,743
    
    
    $
    29.94
    
    
    $
    8.7
    
    
    
    6.09
 
 (1)
    
    The intrinsic value of a stock option is the amount by which the current market value of
the underlying stock exceeds the exercise price of the option.   12




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
   Restricted Stock
   WeightedAverage GrantNo. Shares
    
    Date Fair(in thousands)
    
    ValueOutstanding at December 31, 2006
    
    
    191
    
    
    $
    31.15Granted at fair value
    
    
    
    
    
    
    Vested at fair value
    
    
    
    
    
    
    Forfeited
    
    
    (16
    )
    
    $
    31.37Outstanding at March 31, 2007
    
    
    175
    
    
    $
    31.13
 Restricted Stock Units
  13




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
  WeightedAverage GrantNo. Shares
    
    Date Fair(in thousands)
    
    ValueOutstanding at December 31, 2006
    
    
    432
    
    
    $
    37.70Granted at fair value
    
    
    
    
    
    
    Vested at fair value
    
    
    
    
    
    
    Forfeited
    
    
    (19
    )
    
    $
    37.74Outstanding at March 31, 2007
    
    
    413
    
    
    $
    37.69
 Restricted Assets
  Inventory
    March 31,
    
    December 31,2007
    
    2006Raw materials
    
    $
    2,969
    
    
    $
    3,032Work in progress
    
    
    7,672
    
    
    
    22,282Finished goods on hand, net
    
    
    5,219
    
    
    
    6,088Inventory subject to return
    
    
    4,856
    
    
    
    5,458Total inventory
    
    $
    20,716
    
    
    $
    36,860
 14




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
  Comprehensive Income (Loss)
  Three Months EndedMarch 31,2007
    
    2006Net income (loss)
    
    $
    6,641
    
    
    $
    (17,855
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    79
    
    
    
    66Unrealized holding gains (losses) arising
during period
    
    
    302
    
    
    
    (94
    )381
    
    
    
    (28
    )Total comprehensive income (loss)
    
    $
    7,022
    
    
    $
    (17,883
    )
  March 31,
    
    December 31,2007
    
    2006Cumulative foreign currency translation
adjustment
    
    $
    4,055
    
    
    $
    3,976Adjustment to initially apply SFAS 158 (1)
    
    
    (1,316
    )
    
    
    (1,316
    )Unrealized loss on available-for-sale securities
    
    
    (4
    )
    
    
    (306
    )Accumulated other comprehensive income
    
    $
    2,735
    
    
    $
    2,354
 
 (1)
    
    SFAS No. 158 Employers Accounting for Defined Benefit Pension and Post Retirement Plans. Intangible Assets
  March 31, 2007
    
    December 31, 2006Carrying
    
    Accumulated
    
    Net Book
    
    Carrying
    
    Accumulated
    
    Net BookAmount
    
    Amortization
    
    Value
    
    Amount
    
    Amortization
    
    ValueNovantrone
    
    $
    46,009
    
    
    $
    (43,470
    )
    
    $
    2,539
    
    
    $
    46,009
    
    
    $
    (43,108
    )
    
    $
    2,901Acquired patent estate
    
    
    763
    
    
    
    (150
    )
    
    
    613
    
    
    
    760
    
    
    
    (135
    )
    
    
    625Acquired licenses
issued to other
companies
    
    
    3,949
    
    
    
    (798
    )
    
    
    3,151
    
    
    
    3,932
    
    
    
    (716
    )
    
    
    3,216Total
    
    $
    50,721
    
    
    $
    (44,418
    )
    
    $
    6,303
    
    
    $
    50,701
    
    
    $
    (43,959
    )
    
    $
    6,742
 15




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
  Consolidation of Facilities
 Restructuring Plan
   Three MonthsEndedMarch 31, 2007Opening liability January 1, 2007
    
    $
    1,897Accrual for severance payments
    
    
    837Accrual for lease payments
    
    
    386Cash paid for severance
    
    
    (1,071
    )Cash paid for rent
    
    
    (122
    )Ending liability
    
    $
    1,927
 Corporate headquarters
  16




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
  Three Months EndedMarch 31,2007
    
    2006Opening liability January 1
    
    $
    1,924
    
    
    $
    Accrual for lease termination costs
    
    
    
    
    
    
    2,700Accretion expense
    
    
    21
    
    
    
    Cash paid for rent
    
    
    (1,434
    )
    
    
    Ending liability
    
    $
    511
    
    
    $
    2,700
 Oxford, England
   Three Months EndedMarch 31,2007
    
    2006Opening liability January 1
    
    $
    4,062
    
    
    $
    4,211Cash paid for rent
    
    
    (153
    )
    
    
    (403
    )Other
    
    
    18
    
    
    
    37Ending liability
    
    $
    3,927
    
    
    $
    3,845
 Horsham, Pennsylvania
  17




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
  Three Months EndedMarch 31,2007
    
    2006Opening liability January 1
    
    $
    695
    
    
    $
    1,160Cash paid for rent net of sublease income received
    
    
    (164
    )
    
    
    (75
    )Ending liability
    
    $
    531
    
    
    $
    1,085
 Employee Post-Retirement Plan
    Three Months EndedMarch 31,2007
    
    2006Service costs for benefits earned during the
period
    
    $
    287
    
    
    $
    264Interest costs on accumulated post-retirement
benefits obligation
    
    
    115
    
    
    
    102Amortization of initial benefits attributed
to past
services
    
    
    2
    
    
    
    1Amortization of loss
    
    
    5
    
    
    
    17Net post-retirement benefit cost
    
    $
    409
    
    
    $
    384
  Sabbatical Leave Accrual
  18




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
  Income Taxes
    Litigation
  19




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements  (continued)
(Unaudited)
  Subsequent Events
   
 20




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 Overview
     21




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22




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Quarterly Update
    Subsequent Events
    Critical Accounting Policies
  23




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Discontinued Operations
   Net revenues from unconsolidated joint business
  License fees and milestones
  24




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Macugen Product Sales
    Macugen Collaborative Revenue
  25




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Macugen Milestone Revenue
  Accruals for Clinical Research Organization and Clinical Site Costs
  Goodwill and Other Long-Lived Assets
  26




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Stock-Based Compensation
    Income Taxes
  27




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Revenues
 Three Months EndedMarch 31,(in thousands)2007
    
    2006
    
    $ ChangeNet revenue from unconsolidated joint
business
    
    $
    39,122
    
    
    $
    35,655
    
    
    $
    3,467Royalties on product licenses
    
    
    19,293
    
    
    
    8,014
    
    
    
    11,279License, milestone and other revenues
    
    
    19,054
    
    
    
    15,586
    
    
    
    3,468Total revenues
    
    $
    77,469
    
    
    $
    59,255
    
    
    $
    18,214
 Net Revenue from Unconsolidated Joint Business
  Royalties on Product Licenses
  28




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License, Milestone and Other Revenues
       29




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Expenses
 Three Months EndedMarch 31,(in thousands)2007
    
    2006
    
    $ ChangeCost of goods sold
    
    $
    1,904
    
    
    $
    2,222
    
    
    $
    (318
    )Research and development
    
    
    30,626
    
    
    
    27,078
    
    
    
    3,548Selling, general and administrative
    
    
    25,129
    
    
    
    27,808
    
    
    
    (2,679
    )Amortization of intangibles
    
    
    458
    
    
    
    448
    
    
    
    10$
    58,117
    
    
    $
    57,556
    
    
    $
    561
 Cost of Goods Sold
   Research and Development
  30




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Selling, General and Administrative
  Other Income and Expense
 Three Months EndedMarch 31,(in thousands)2007
    
    2006
    
    $ ChangeInvestment income-net
    
    $
    3,095
    
    
    $
    1,367
    
    
    $
    1,728Interest expense
    
    
    (1,803
    )
    
    
    (1,798
    )
    
    
    (5
    )Other income (expenses)-net
    
    
    (949
    )
    
    
    (892
    )
    
    
    (57
    )Total other income (expenses)
    
    $
    343
    
    
    $
    (1,323
    )
    
    $
    1,666
 31




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Discontinued Operations
  Liquidity and Capital Resources
    32




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Commitments and Contingencies
  Remainder
    
    
    
    
    
    
    
    
    
    2012 andof 2007
    
    2008-2010
    
    2011-2012
    
    beyondSenior convertible debt(a)
    
    $
    4,738
    
    
    $
    21,525
    
    
    $
    14,350
    
    
    $
    348,525Operating leases
    
    
    9,926
    
    
    
    35,631
    
    
    
    22,980
    
    
    
    82,891Purchase obligations(b)
    
    
    31,045
    
    
    
    62,498
    
    
    
    7,700
    
    
    
    6,000Obligations related to exit
activities(c)
    
    
    3,178
    
    
    
    3,159
    
    
    
    
    
    
    
    816Total contractual obligations
    
    $
    48,887
    
    
    $
    122,813
    
    
    $
    45,030
    
    
    $
    438,232
 
 (a)
    
    Includes interest payments at a rate of 3.25% per annum relating to the $150.0
million principal amount of the 2023 Notes and at a rate of 2% per annum relating to
the $115.0 million principal amount of the 2025 Notes. The holders of the 2023 Notes
have the right to require us to purchase all of the 2023 Notes, or a portion thereof,
in September 2008. We may choose to pay the purchase price in cash or shares of our
common stock. Holders of the 2025 Notes have the right to require us to purchase, for
cash, all of the 2025 Notes, or a portion thereof, in December 2010.(b)
    
    Purchase obligations include inventory commitments, commercial and research
commitments and other significant purchase commitments. Included in these purchase
obligations is our share of the remaining future commitment related to the Tarceva
global development cost of approximately $95 million.(c)
    
    Includes payments for termination benefits and facility refurbishments.
  
    
    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 CROs we will continue to incur expenses relating to
clinical trials of Tarceva, Macugen 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.
 33




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##### Table of Contents




    
    We have outstanding letters of credit of $9.0 million, which primarily serve as
security for performance under various lease obligations.
    
    We have a retirement plan, which provides post-retirement medical and life insurance
benefits to eligible employees, board members and qualified dependents. Eligibility is
determined based on age and years of service. We had accrued post-retirement benefit
costs of $8.5 million at March 31, 2007. On April 18, 2007, we curtailed this plan and
grandfathered those employees, board members and qualified dependants who were eligible
to participate in the plan on that date. Only those grandfathered participants will
continue to be entitled to receive benefits under plan.
    
    Under certain license and collaboration agreements with pharmaceutical companies and
educational institutions, we are required to pay royalties and/or milestone 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 research and development 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.
    
    In connection with the acquisition of Eyetech Pharmaceuticals, Inc. in November
2005, we assumed various contracts related to the in-licensing, development,
manufacture and marketing of Macugen. As a result of the acquisition, these license
agreements now represent rights and obligations of our subsidiary, (OSI) Eyetech, Inc.
Under the terms of the license agreements, we will be required to make additional
milestone payments, and we are also required to pay royalties on net sales.
    
    We have a minor investment in a privately owned company, and are obligated to make
an additional $1.7 million of capital contribution upon request.
 Accounting Pronouncements
  34




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Forward Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risks
     35




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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
 Changes in Internal Control Over Financial Reporting.
 36




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  37




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
 3.1
    
    Certificate of Incorporation, as amended, filed by OSI Pharmaceuticals, Inc. 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 OSI Pharmaceuticals, Inc. as an exhibit
to the Form 8-K filed on June 16, 2006 (file no. 000-15190), and incorporated herein
by reference.10.1*
    
    Letter Agreement, dated January 25, 2007, by and between Dr. Daryl Granner and
OSI Pharmaceuticals, Inc., filed by OSI Pharmaceuticals, Inc. as an exhibit to the Form
8-K filed on January 29, 2007 (file no. 000-15190), and incorporated herein by
reference.10.2
    
    Exclusive License Agreement, effective as of January 4, 2007, between Eli Lilly
and OSI Pharmaceuticals, Inc. and Prosidion Limited, filed by OSI Pharmaceuticals, Inc.
with the Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein
by reference.10.3
    
    Amended and Restated License Agreement, dated April 20, 2007, by and between
OSI Pharmaceuticals, Inc. and Pfizer Inc. (Filed herewith)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)
 38




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##### Table of Contents



32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350. (Filed
herewith)
 
 *
    
    Indicates a management contract or compensatory plan, contract or arrangement
in which directors or executive officers participates
    
    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. 39




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##### Table of Contents



SIGNATURES
  OSI PHARMACEUTICALS, INC.(Registrant)Date: May 8, 2007
    
    /s/ Colin Goddard, Ph.D.

Colin Goddard, Ph.D.Chief Executive OfficerDate: May 8, 2007
    
    /s/ Michael G. Atieh

Michael G. AtiehExecutive Vice President and
Chief Financial Officer
(Principal Financial Officer)
 40




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit3.1
    
    Certificate of Incorporation, as amended, filed by OSI Pharmaceuticals, Inc. 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 OSI Pharmaceuticals, Inc. as an exhibit
to the Form 8-K filed on June 16, 2006 (file no. 000-15190), and incorporated herein
by reference.10.1*
    
    Letter Agreement, dated January 25, 2007, by and between Dr. Daryl Granner and
OSI Pharmaceuticals, Inc., filed by OSI Pharmaceuticals, Inc. as an exhibit to the Form
8-K filed on January 29, 2007 (file no. 000-15190), and incorporated herein by
reference.10.2
    
    Exclusive License Agreement, effective as of January 4, 2007, between Eli Lilly
and OSI Pharmaceuticals, Inc. and Prosidion Limited, filed by OSI Pharmaceuticals, Inc.
with the Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein
by reference.10.3
    
    Amended and Restated License Agreement, dated April 20, 2007, by and between
OSI Pharmaceuticals, Inc. and Pfizer Inc. (Filed herewith)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)
 
 *
    
    Indicates a management contract or compensatory plan, contract or arrangement
in which directors or executive officers participates
    
    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. 41