##### 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 September 30, 2007
 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)
  (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report.)
 þ o
  Large accelerated filer þ
    Accelerated filer o
    Non-accelerated filer o
 o þ




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##### 



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Page No.PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1CONSOLIDATED BALANCE SHEETS
- September 30, 2007 (Unaudited) and December 31, 2006
    
    
    1CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- Three Months Ended September 30, 2007 and September 30, 2006
    
    
    2CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- Nine Months Ended September 30, 2007 and September 30, 2006
    
    
    3CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- Nine Months Ended September 30, 2007 and September 30, 2006
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    34Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATION
    
    
    36Item 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    
    38Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38SIGNATURES
    
    
    40INDEX TO EXHIBITS
    
    
    41EX-10.1: AMENDED AND RESTATED STOCK INCENTIVE PLANEX-10.2: CHANGE OF CONTROL AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  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)
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    99,254
    
    
    $
    42,028Investment securities
    
    
    181,944
    
    
    
    164,786Restricted investment securities
    
    
    9,925
    
    
    
    9,554Accounts receivables  net
    
    
    80,726
    
    
    
    80,075Inventory  net
    
    
    22,017
    
    
    
    36,860Interest receivable
    
    
    1,442
    
    
    
    3,674Prepaid expenses and other current assets
    
    
    5,687
    
    
    
    9,102Assets related to discontinued operations
    
    
    30,862
    
    
    
    Total current assets
    
    
    431,857
    
    
    
    346,079Property, equipment and leasehold improvements  net
    
    
    47,328
    
    
    
    56,223Debt issuance costs  net
    
    
    3,513
    
    
    
    4,910Goodwill
    
    
    39,502
    
    
    
    39,373Other intangible assets  net
    
    
    5,536
    
    
    
    6,742Other assets
    
    
    5,330
    
    
    
    4,405$
    533,066
    
    
    $
    457,732LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    50,044
    
    
    $
    54,741Collaboration profit share payable
    
    
    
    
    
    
    12,039Unearned revenue  current
    
    
    9,636
    
    
    
    12,803Liabilities related to discontinued operations
    
    
    46,494
    
    
    
    Convertible senior subordinated notes
    
    
    150,000
    
    
    
    Total current liabilities
    
    
    256,174
    
    
    
    79,583Other liabilities:Rent obligations and deferred rent expenses
    
    
    10,636
    
    
    
    10,044Unearned revenue  long-term
    
    
    37,182
    
    
    
    66,089Convertible senior subordinated notes
    
    
    115,000
    
    
    
    265,000Accrued postretirement benefit cost and other
    
    
    3,424
    
    
    
    8,422Total liabilities
    
    
    422,416
    
    
    
    429,138Stockholders equity:Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued at
September 30, 2007 and December 31, 2006
    
    
    
    
    
    
    Common stock, $.01 par value; 200,000 shares authorized, 59,638 and 59,179
shares issued at September 30, 2007 and December 31, 2006, respectively
    
    
    598
    
    
    
    592Additional paid-in capital
    
    
    1,639,824
    
    
    
    1,616,874Accumulated deficit
    
    
    (1,498,114
    )
    
    
    (1,554,005
    )Accumulated other comprehensive income
    
    
    5,563
    
    
    
    2,354147,871
    
    
    
    65,815Less: treasury stock, at cost; 1,943 shares at September 30, 2007 and
December 31, 2006
    
    
    (37,221
    )
    
    
    (37,221
    )Total stockholders equity
    
    
    110,650
    
    
    
    28,594Commitments and contingencies$
    533,066
    
    
    $
    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 EndedSeptember 30,2007
    
    
    2006Revenues:Net revenue from unconsolidated joint business
    
    $
    41,747
    
    
    $
    39,833Royalties on product licenses
    
    
    25,413
    
    
    
    14,231License, milestone and other revenues
    
    
    33,210
    
    
    
    2,741100,370
    
    
    
    56,805Expenses:Cost of goods sold
    
    
    2,142
    
    
    
    1,246Research and development
    
    
    29,489
    
    
    
    29,750Acquired in-process research and development
    
    
    7,500
    
    
    
    Selling, general and administrative
    
    
    24,816
    
    
    
    25,350Amortization of intangibles
    
    
    461
    
    
    
    45464,408
    
    
    
    56,800Operating income from continuing operations
    
    
    35,962
    
    
    
    5Other income (expense):Investment income  net
    
    
    3,157
    
    
    
    2,472Interest expense
    
    
    (1,811
    )
    
    
    (1,843
    )Other income (expense)  net
    
    
    (1,404
    )
    
    
    (475
    )Income (loss) from continuing operations
    
    
    35,904
    
    
    
    159Loss from discontinued operations  net of tax
    
    
    (6,276
    )
    
    
    (21,416
    )Net income (loss)
    
    $
    29,628
    
    
    $
    (21,257
    )Basic and
diluted net earnings (loss) per common share:Basic earnings (loss):Income from continuing operations
    
    $
    0.62
    
    
    $
    0.00Loss from discontinued operations  net of tax
    
    $
    (0.11
    )
    
    $
    (0.38
    )Net income (loss)
    
    $
    0.51
    
    
    $
    (0.37
    )Diluted earnings (loss):Income from continuing operations
    
    $
    0.59
    
    
    $
    0.00Loss from discontinued operations  net of tax
    
    $
    (0.10
    )
    
    $
    (0.37
    )Net income (loss)
    
    $
    0.49
    
    
    $
    (0.37
    )Shares used in the calculation of income (loss) per common share:Basic
    
    
    57,756
    
    
    
    56,974Diluted
    
    
    65,201
    
    
    
    57,729
  2




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
 Nine Months EndedSeptember 30,2007
    
    
    2006Revenues:Net revenue from unconsolidated joint business
    
    $
    123,868
    
    
    $
    114,699Royalties on product licenses
    
    
    67,252
    
    
    
    33,157License, milestone and other revenues
    
    
    65,602
    
    
    
    23,856256,722
    
    
    
    171,712Expenses:Cost of goods sold
    
    
    6,093
    
    
    
    5,467Research and development
    
    
    87,384
    
    
    
    86,249Acquired in-process research and development
    
    
    7,500
    
    
    
    Selling, general and administrative
    
    
    73,983
    
    
    
    78,860Amortization of intangibles
    
    
    1,378
    
    
    
    1,353176,338
    
    
    
    171,929Operating income (loss) from continuing operations
    
    
    80,384
    
    
    
    (217
    )Other income (expense):Investment income  net
    
    
    9,247
    
    
    
    5,712Interest expense
    
    
    (5,423
    )
    
    
    (5,498
    )Other income (expense)    net
    
    
    667
    
    
    
    (1,902
    )Income from continuing operations
    
    
    84,875
    
    
    
    (1,905
    )Loss from discontinued operations    net of tax
    
    
    (28,984
    )
    
    
    (379,182
    )Net income (loss) before extraordinary item
    
    
    55,891
    
    
    
    (381,087
    )Extraordinary gain    net of tax
    
    
    
    
    
    
    22,046Net income (loss)
    
    $
    55,891
    
    
    $
    (359,041
    )Basic and
diluted net earnings (loss) per common share:Basic earnings (loss):Income (loss) from continuing operations
    
    $
    1.48
    
    
    $
    (0.03
    )Loss from discontinued operations    net of tax
    
    $
    (0.50
    )
    
    $
    (6.66
    )Net income (loss) before extraordinary item
    
    $
    0.97
    
    
    $
    (6.70
    )Extraordinary gain    net of tax
    
    $
    
    
    
    $
    0.39Net income (loss)
    
    $
    0.97
    
    
    $
    (6.31
    )Diluted earnings (loss):Income (loss) from continuing operations
    
    $
    1.41
    
    
    $
    (0.03
    )Loss from discontinued operations    net of tax
    
    $
    (0.46
    )
    
    $
    (6.66
    )Net income (loss) before extraordinary item
    
    $
    0.95
    
    
    $
    (6.70
    )Extraordinary gain    net of tax
    
    $
    
    
    
    $
    0.39Net income (loss)
    
    $
    0.95
    
    
    $
    (6.31
    )Shares used in the calculation of income (loss) per common share:Basic
    
    
    57,536
    
    
    
    56,918Diluted
    
    
    63,041
    
    
    
    56,918
  3




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    55,891
    
    
    $
    (359,041
    )Adjustments to reconcile net income (loss) to net cash
used in operating activities:Extraordinary gain from reversal of contingent consideration
    
    
    
    
    
    
    (22,046
    )Loss on sale and disposals of equipment
    
    
    1,412
    
    
    
    5Gain on sale of intellectual property
    
    
    (6,012
    )
    
    
    Depreciation and amortization
    
    
    7,535
    
    
    
    26,359Non-cash compensation charges
    
    
    13,003
    
    
    
    13,876Impact of inventory step-up related to inventory sold
    
    
    2,298
    
    
    
    18,621Goodwill impairment
    
    
    
    
    
    
    320,261Asset impairment
    
    
    5,685
    
    
    
    Changes in assets and liabilities:Receivables
    
    
    (15,034
    )
    
    
    62,813Inventory
    
    
    (2,322
    )
    
    
    (8,204
    )Prepaid expenses and other current assets
    
    
    3,091
    
    
    
    2,175Other assets
    
    
    (93
    )
    
    
    (4,029
    )Accounts payable and accrued expenses
    
    
    (123
    )
    
    
    (47,996
    )Unearned revenue
    
    
    (1,686
    )
    
    
    30,985Accrued postretirement benefit cost
    
    
    (4,084
    )
    
    
    1,051Net cash provided by operating activities
    
    
    59,561
    
    
    
    34,830Cash flows from investing activities:Purchases of investments (restricted and unrestricted)
    
    
    (177,617
    )
    
    
    (169,791
    )Maturities and sales of investments (restricted and unrestricted)
    
    
    162,758
    
    
    
    35,545Net additions to property, equipment and leasehold improvements
    
    
    (2,469
    )
    
    
    (8,713
    )Proceeds from sale of intellectual property
    
    
    4,000
    
    
    
    Proceeds from sale of fixed assets
    
    
    331
    
    
    
    786Additions to compound library assets
    
    
    (3
    )
    
    
    (16
    )Net cash used in investing activities
    
    
    (13,000
    )
    
    
    (142,189
    )Cash flows from financing activities:Proceeds from the exercise of stock options, employee purchase plan and other
    
    
    9,932
    
    
    
    3,705Other
    
    
    
    
    
    
    (705
    )Net cash provided by financing activities
    
    
    9,932
    
    
    
    3,000Net increase (decrease) in cash and cash equivalents
    
    
    56,493
    
    
    
    (104,359
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    733
    
    
    
    506Cash and cash equivalents at beginning of period
    
    
    42,028
    
    
    
    164,084Cash and cash equivalents at end of period
    
    $
    99,254
    
    
    $
    60,231Cash paid for interest
    
    $
    2,437
    
    
    $
    6,025Non-cash activities:Purchase accounting adjustments
    
    $
    
    
    
    $
    3,505Preferred stock received from sale of intellectual property
    
    $
    2,012
    
    
    $
    
  4




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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
  5




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Co-promotion profit and reimbursement
of sales force and marketing related costs
    
    $
    39,101
    
    
    $
    36,708
    
    
    $
    116,511
    
    
    $
    106,060Reimbursement of manufacturing costs
    
    
    2,646
    
    
    
    3,125
    
    
    
    7,357
    
    
    
    8,639Net revenue from unconsolidated joint
business
    
    $
    41,747
    
    
    $
    39,833
    
    
    $
    123,868
    
    
    $
    114,699
 Royalties on Product Licenses
  Licenses, Milestones and Other Revenues
  6




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
     Earnings Per Share
  7




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
   Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net income (loss) from continuing operations 
basic
    
    $
    35,904
    
    
    $
    159
    
    
    $
    84,875
    
    
    $
    (1,905
    )Add: Interest and issuance cost related to
convertible debt
    
    
    2,260
    
    
    
    
    
    
    
    3,811
    
    
    
    Net income (loss) from continuing operations 
diluted
    
    $
    38,164
    
    
    $
    159
    
    
    $
    88,686
    
    
    $
    (1,905
    )Weighted-average common shares outstanding  basic
    
    
    57,756
    
    
    
    56,974
    
    
    
    57,536
    
    
    
    56,918Dilutive effect of options and restricted stock
    
    
    538
    
    
    
    755
    
    
    
    597
    
    
    
    Dilutive effect of convertible debt 2025 notes
    
    
    3,908
    
    
    
    
    
    
    
    3,908
    
    
    
    Dilutive effect of convertible debt 2023 notes
    
    
    2,999
    
    
    
    
    
    
    
    1,000
    
    
    
    Weighted-average common shares and dilutive
potential common shares  diluted
    
    
    65,201
    
    
    
    57,729
    
    
    
    63,041
    
    
    
    56,918Net income
(loss) per share from continuing operations:Basic
    
    $
    0.62
    
    
    $
    0.00
    
    
    $
    1.48
    
    
    $
    (0.03
    )Diluted
    
    $
    0.59
    
    
    $
    0.00
    
    
    $
    1.41
    
    
    $
    (0.03
    )
  8




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
 Discontinued Operations
     Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net revenue
    
    $
    7,665
    
    
    $
    17,189
    
    
    $
    28,083
    
    
    $
    120,698Gain on sale of PDGF aptamer
research program
    
    
    6,012
    
    
    
    
    
    
    
    6,012
    
    
    
    Pretax loss
    
    
    (6,466
    )
    
    
    (21,416
    )
    
    
    (29,650
    )
    
    
    (379,182
    )Net loss from discontinued operations
    
    $
    (6,276
    )
    
    $
    (21,416
    )
    
    $
    (28,984
    )
    
    $
    (379,182
    )
 9




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
     10




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
  Assets:Accounts receivable
    
    $
    16,933Prepaid expenses and other assets
    
    
    1,226Inventories (assets held for sale)
    
    
    10,386Property, plant and equipment (assets held for sale)
    
    
    2,317Assets related to discontinued operations
    
    $
    30,862Liabilities:Accounts payable and accrued expenses
    
    $
    12,803Collaboration profit share
    
    
    2,862Unearned revenue
    
    
    30,389Other
    
    
    440Liabilities
related to discontinued operations
    
    $
    46,494
 (OSI) Eyetech Divestiture  Severance Costs
   Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2007
    
    2007Opening liability
    
    $
    2,553
    
    
    $
    2,584Accrual for severance, relocation
and retention bonuses
    
    
    1,166
    
    
    
    5,017Cash paid for severance
    
    
    (2,750
    )
    
    
    (6,632
    )Ending liability
    
    $
    969
    
    
    $
    969
 11




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
 (OSI) Eyetech Integration  Facility Restructuring
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Opening liability
    
    $
    4,752
    
    
    $
    4,067
    
    
    $
    2,053
    
    
    $
    5,391Accrual for lease costs
    
    
    225
    
    
    
    (1,531
    )
    
    
    3,709
    
    
    
    (1,800
    )Accretion expense
    
    
    66
    
    
    
    27
    
    
    
    186
    
    
    
    294Cash paid for rent
    
    
    (1,297
    )
    
    
    (542
    )
    
    
    (2,202
    )
    
    
    (1,864
    )Ending liability
    
    $
    3,746
    
    
    $
    2,021
    
    
    $
    3,746
    
    
    $
    2,021
 Accounting for StockBased Compensation
   12




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
  Stock Options
    Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    45.07
    %
    
    
    53.39
    %
    
    
    45.69
    %
    
    
    56.81
    %Risk-free interest rate
    
    
    5.11
    %
    
    
    4.77
    %
    
    
    5.06
    %
    
    
    4.50
    %Expected term (years)
    
    
    4.57
    
    
    
    4.57
    
    
    
    4.57
    
    
    
    4.33
 Restricted Assets
  13




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
 Inventory
    September 30,
    
    December 31,2007
    
    2006Raw materials
    
    $
    1,278
    
    
    $
    3,032Work in progress
    
    
    8,217
    
    
    
    22,282Finished goods on hand  net
    
    
    7,364
    
    
    
    6,088Inventory subject to return
    
    
    5,158
    
    
    
    5,458Total inventory
    
    $
    22,017
    
    
    $
    36,860
  Comprehensive Income (Loss)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Net income (loss)
    
    $
    29,628
    
    
    $
    (21,257
    )
    
    $
    55,891
    
    
    $
    (359,041
    )Other comprehensive income (loss):Foreign currency translation
adjustments
    
    
    580
    
    
    
    290
    
    
    
    1,108
    
    
    
    1,289Post retirement curtailment
    
    
    
    
    
    
    
    
    
    
    1,316
    
    
    
    Unrealized holding gains (losses)
arising during period
    
    
    764
    
    
    
    112
    
    
    
    785
    
    
    
    (58
    )1,344
    
    
    
    402
    
    
    
    3,209
    
    
    
    1,231Total comprehensive income (loss)
    
    $
    30,972
    
    
    $
    (20,855
    )
    
    $
    59,100
    
    
    $
    (357,810
    )
 14




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
  September 30,
    
    December 31,2007
    
    2006Cumulative foreign currency translation adjustment
    
    $
    5,084
    
    
    $
    3,976SFAS 158 adjustment
    
    
    
    
    
    
    (1,316
    )Unrealized gain (loss) on available-for-sale securities
    
    
    479
    
    
    
    (306
    )Accumulated other comprehensive income
    
    $
    5,563
    
    
    $
    2,354
 Intangible Assets
  September 30, 2007
    
    December 31, 2006Carrying
    
    Accumulated
    
    Net Book
    
    Carrying
    
    Accumulated
    
    Net BookAmount
    
    Amortization
    
    Value
    
    Amount
    
    Amortization
    
    ValueNovantrone
    
    $
    46,009
    
    
    $
    (44,195
    )
    
    $
    1,814
    
    
    $
    46,009
    
    
    $
    (43,108
    )
    
    $
    2,901Acquired patent estate
    
    
    794
    
    
    
    (188
    )
    
    
    606
    
    
    
    760
    
    
    
    (135
    )
    
    
    625Acquired licenses issued
to other companies
    
    
    4,109
    
    
    
    (993
    )
    
    
    3,116
    
    
    
    3,932
    
    
    
    (716
    )
    
    
    3,216Total
    
    $
    50,912
    
    
    $
    (45,376
    )
    
    $
    5,536
    
    
    $
    50,701
    
    
    $
    (43,959
    )
    
    $
    6,742
  Consolidation of Facilities
 Restructuring Plan
  15




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
   Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30, 2007
    
    September 30, 2007Opening liability
    
    $
    1,740
    
    
    $
    1,897Accrual for severance payments
    
    
    74
    
    
    
    1,292Accrual for lease payments
    
    
    317
    
    
    
    703Cash paid for severance
    
    
    
    
    
    
    (1,517
    )Cash paid for rent
    
    
    (271
    )
    
    
    (515
    )Ending liability
    
    $
    1,860
    
    
    $
    1,860
 Corporate Headquarters
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Opening liability
    
    $
    521
    
    
    $
    2,179
    
    
    $
    1,924
    
    
    $
    Accrual for lease termination costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,974Accretion expense
    
    
    11
    
    
    
    45
    
    
    
    42
    
    
    
    103Cash paid for rent
    
    
    
    
    
    
    (173
    )
    
    
    (1,434
    )
    
    
    (1,026
    )Ending liability
    
    $
    532
    
    
    $
    2,051
    
    
    $
    532
    
    
    $
    2,051
 Oxford, England
  16




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Opening liability
    
    $
    3,854
    
    
    $
    4,090
    
    
    $
    4,062
    
    
    $
    4,210Cash paid for rent
    
    
    (944
    )
    
    
    (147
    )
    
    
    (1,251
    )
    
    
    (550
    )Other
    
    
    63
    
    
    
    53
    
    
    
    162
    
    
    
    336Ending liability
    
    $
    2,973
    
    
    $
    3,996
    
    
    $
    2,973
    
    
    $
    3,996
 Employee Post-Retirement Plan
    Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Service costs for benefits earned
during
the period
    
    $
    
    
    
    $
    264
    
    
    $
    383
    
    
    $
    791Interest costs on accumulated post-
retirement benefits obligation
    
    
    23
    
    
    
    102
    
    
    
    176
    
    
    
    307Amortization of initial benefits
attributed to past services
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    4Amortization of loss
    
    
    
    
    
    
    17
    
    
    
    7
    
    
    
    50Net post-retirement benefit cost
    
    $
    23
    
    
    $
    384
    
    
    $
    568
    
    
    $
    1,152
 17




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
  Sabbatical Leave Accrual
  Income Taxes
   18




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
 Convertible Senior Subordinated Debt
   Litigation
  19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 Overview
    20




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Quarterly Update
   21




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##### Table of Contents



Subsequent Events
  Critical Accounting Policies
  Discontinued Operations
  22




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##### Table of Contents



Revenue Recognition
 Net revenue from unconsolidated joint business
  License fees and milestones
    23




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##### Table of Contents



Macugen Product Sales
    Macugen Collaborative Revenue
   24




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##### Table of Contents



Macugen Milestone Revenue
   Accruals for Clinical Research Organization and Clinical Site Costs
  Goodwill and Other Long-Lived Assets
   25




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##### Table of Contents



Stock-Based Compensation
    Revenues
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(in thousands)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeNet revenue from unconsolidated
joint business
    
    $
    41,747
    
    
    
    $39,833
    
    
    $
    1,914
    
    
    $
    123,868
    
    
    
    $114,699
    
    
    $
    9,169Royalties on product licenses
    
    
    25,413
    
    
    
    14,231
    
    
    
    11,182
    
    
    
    67,252
    
    
    
    33,157
    
    
    
    34,095License, milestone and other
revenues
    
    
    33,210
    
    
    
    2,741
    
    
    
    30,469
    
    
    
    65,602
    
    
    
    23,856
    
    
    
    41,746Total revenues
    
    $
    100,370
    
    
    $
    56,805
    
    
    $
    43,565
    
    
    $
    256,722
    
    
    $
    171,712
    
    
    $
    85,010
 26




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##### Table of Contents



Net Revenue from Unconsolidated Joint Business
  Royalties on Product Licenses
  License, Milestone and Other Revenues
  27




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##### Table of Contents



®
    28




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##### Table of Contents



Expenses
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(in thousands)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeCost of goods sold
    
    $
    2,142
    
    
    $
    1,246
    
    
    $
    896
    
    
    $
    6,093
    
    
    $
    5,467
    
    
    $
    626Research and
development
    
    
    29,489
    
    
    
    29,750
    
    
    
    (261
    )
    
    
    87,384
    
    
    
    86,249
    
    
    
    1,135Acquired in-process
research and
development
    
    
    7,500
    
    
    
    
    
    
    
    7,500
    
    
    
    7,500
    
    
    
    
    
    
    
    7,500Selling, general
and administrative
    
    
    24,816
    
    
    
    25,350
    
    
    
    (534
    )
    
    
    73,983
    
    
    
    78,860
    
    
    
    (4,877
    )Amortization of
intangibles
    
    
    461
    
    
    
    454
    
    
    
    7
    
    
    
    1,378
    
    
    
    1,353
    
    
    
    25$
    64,408
    
    
    $
    56,800
    
    
    $
    7,608
    
    
    $
    176,338
    
    
    $
    171,929
    
    
    $
    4,409
 Cost of Goods Sold
   Research and Development
  29




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Acquired In-process Research and Development
  30




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##### Table of Contents



Selling, General and Administrative
  Other Income and Expense
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(in thousands)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeInvestment income-net
    
    $
    3,157
    
    
    $
    2,472
    
    
    $
    685
    
    
    $
    9,247
    
    
    $
    5,712
    
    
    $
    3,535Interest expense
    
    
    (1,811
    )
    
    
    (1,843
    )
    
    
    32
    
    
    
    (5,423
    )
    
    
    (5,498
    )
    
    
    75Other income (expense)  net
    
    
    (1,404
    )
    
    
    (475
    )
    
    
    (929
    )
    
    
    667
    
    
    
    (1,902
    )
    
    
    2,569Total other income (expense)
    
    $
    (58
    )
    
    $
    154
    
    
    $
    (212
    )
    
    $
    4,491
    
    
    $
    (1,688
    )
    
    $
    6,179
   31




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##### Table of Contents



Discontinued Operations
  Extraordinary Gain
  Liquidity and Capital Resources
   32




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##### Table of Contents



Commitments and Contingencies
  Accounting Pronouncements
    Forward Looking Statements
  33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risks
     
 Item 4. Controls and Procedures
  Evaluation of Our Disclosure Controls and Procedures
 34




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##### Table of Contents



CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting.
 35




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our U.S. patents may be adversely affected by changes to patent-related U.S. statutes and the
rules of the U.S. patent and trademark office.
  36




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##### Table of Contents



If government agencies do not grant us or our collaborative partners required approvals for
any of our potential products in a timely manner or at all, we or our collaborative partners will
not be able to distribute or sell our products currently under development.
    37




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##### Table of Contents



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
  
 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
    
    Second Amended and Restated Bylaws filed by OSI Pharmaceuticals, Inc. as an
exhibit to the current report on Form 8-K filed on June 16, 2006 (file no. 000-15190),
and incorporated herein by reference.
 38




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##### Table of Contents



10.1*
    
    Amended and Restated Stock Incentive Plan, as amended by the Board of
Directors of OSI Pharmaceuticals, Inc. on September 10, 2007. (Filed herewith)10.2*
    
    Change of Control Arrangement, dated October 4, 2001, by and between OSI
Pharmaceuticals, Inc. and Linda E. Amper, Ph.D. (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 a director or executive officers participate. 39




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##### Table of Contents



SIGNATURES
  OSI PHARMACEUTICALS, INC.(Registrant)Date: November 7, 2007
    
    /s/ Colin Goddard, Ph.D.Colin Goddard, Ph.D.
Chief Executive OfficerDate: November 7, 2007
    
    /s/ Michael G. AtiehMichael G. Atieh
Executive Vice President,
Chief Financial Officer and Treasurer
(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
    
    Second Amended and Restated Bylaws filed by OSI Pharmaceuticals, Inc. as an
exhibit to the current report on Form 8-K filed on June 16, 2006 (file no. 000-15190),
and incorporated herein by reference.10.1*
    
    Amended and Restated Stock Incentive Plan, as amended by the Board of
Directors of OSI Pharmaceuticals, Inc. on September 10, 2007. (Filed herewith)10.2*
    
    Change of Control Arrangement, dated October 4, 2001, by and between OSI
Pharmaceuticals, Inc. and Linda E. Amper, Ph.D. (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 a director or executive officers participate. 41