##### 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 September 30, 2009
 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(Do not check if a smaller reporting company)Smaller reporting company o
 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 September 30, 2009 and December 31, 2008 (Unaudited)
    
    
    1Consolidated Statements of Operations Three Months Ended September 30, 2009 and 2008 (Unaudited)
    
    
    2Consolidated Statements of Operations Nine Months Ended September 30, 2009 and 2008 (Unaudited)
    
    
    2Consolidated Statements of Cash Flows Nine Months Ended September 30, 2009 and 2008 (Unaudited)
    
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    31Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4.
    
    Controls and Procedures
    
    
    45PART II. OTHER INFORMATION
    
    
    46Item 1.
    
    Legal Proceedings
    
    
    46Item 1A.
    
    Risk Factors
    
    
    46Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    47Item 3.
    
    Defaults Upon Senior Securities
    
    
    47Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    47Item 5.
    
    Other Information
    
    
    47Item 6.
    
    Exhibits
    
    
    47SIGNATURES
    
    
    49INDEX TO EXHIBITS
    
    
    50EX-10.1EX-10.2EX-10.3EX-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
(UNAUDITED)
(In thousands except per share data)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    143,424
    
    
    $
    272,936Investment securities
    
    
    396,340
    
    
    
    240,328Restricted investment securities
    
    
    2,304
    
    
    
    2,247Accounts receivable
    
    
    111,756
    
    
    
    100,242Inventory
    
    
    19,522
    
    
    
    20,139Interest receivable
    
    
    1,713
    
    
    
    1,428Prepaid expenses and other current assets
    
    
    16,087
    
    
    
    6,719Assets related to discontinued operations
    
    
    
    
    
    
    917Deferred tax assets  net
    
    
    43,051
    
    
    
    45,425Total current assets
    
    
    734,197
    
    
    
    690,381Property, equipment and leasehold improvements  net
    
    
    92,460
    
    
    
    43,443Debt issuance costs  net
    
    
    4,367
    
    
    
    5,632Goodwill
    
    
    38,850
    
    
    
    38,648Other intangible assets  net
    
    
    7,781
    
    
    
    7,711Other assets
    
    
    51,758
    
    
    
    14,591Deferred tax assets  net
    
    
    237,382
    
    
    
    273,797$
    1,166,795
    
    
    $
    1,074,203LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    53,902
    
    
    $
    49,052Unearned revenue  current
    
    
    10,436
    
    
    
    10,547Liabilities related to discontinued operations
    
    
    2,753
    
    
    
    1,522Total current liabilities
    
    
    67,091
    
    
    
    61,121Other liabilities:Rent obligations and deferred rent expenses
    
    
    4,843
    
    
    
    8,154Unearned revenue  long-term
    
    
    30,626
    
    
    
    33,398Convertible senior subordinated notes  net
    
    
    379,586
    
    
    
    369,095Accrued post-retirement benefit cost and other
    
    
    4,697
    
    
    
    3,890Total liabilities
    
    
    486,843
    
    
    
    475,658Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued at
September 30, 2009 and December 31, 2008
    
    
    
    
    
    
    Common stock, $.01 par value; 200,000 shares authorized, 61,401 and 61,124
shares issued at September 30, 2009 and December 31, 2008, respectively
    
    
    614
    
    
    
    611Additional paid-in capital
    
    
    1,785,107
    
    
    
    1,761,179Accumulated deficit
    
    
    (1,006,621
    )
    
    
    (1,057,118
    )Accumulated other comprehensive income (loss)
    
    
    3,071
    
    
    
    (3,908
    )782,171
    
    
    
    700,764Less: Treasury stock, at cost; 3,396 shares at September 30, 2009 and December 31, 2008
    
    
    (102,219
    )
    
    
    (102,219
    )Total stockholders equity
    
    
    679,952
    
    
    
    598,545$
    1,166,795
    
    
    $
    1,074,203
  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 Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Tarceva-related revenues
    
    $
    88,735
    
    
    $
    80,708
    
    
    $
    257,914
    
    
    $
    251,006Other revenues
    
    
    22,712
    
    
    
    13,864
    
    
    
    46,276
    
    
    
    29,955Total revenues
    
    
    111,447
    
    
    
    94,572
    
    
    
    304,190
    
    
    
    280,961Operating expenses:Cost of goods sold
    
    
    1,607
    
    
    
    2,517
    
    
    
    6,460
    
    
    
    6,748Research and development
    
    
    38,546
    
    
    
    33,054
    
    
    
    111,129
    
    
    
    94,009Acquired in-process research and development
    
    
    5,000
    
    
    
    
    
    
    
    5,000
    
    
    
    Selling, general and administrative
    
    
    24,677
    
    
    
    22,262
    
    
    
    74,065
    
    
    
    69,985Restructuring costs related to site consolidation (see Note 12)
    
    
    1,148
    
    
    
    
    
    
    
    1,148
    
    
    
    Amortization of intangibles
    
    
    229
    
    
    
    646
    
    
    
    693
    
    
    
    1,884Total operating expenses
    
    
    71,207
    
    
    
    58,479
    
    
    
    198,495
    
    
    
    172,626Operating income from continuing operations
    
    
    40,240
    
    
    
    36,093
    
    
    
    105,695
    
    
    
    108,335Other income (expense):Investment income  net
    
    
    1,624
    
    
    
    2,976
    
    
    
    5,795
    
    
    
    9,670Interest expense
    
    
    (6,534
    )
    
    
    (6,202
    )
    
    
    (19,319
    )
    
    
    (18,696
    )Other (expense) income  net
    
    
    (184
    )
    
    
    (518
    )
    
    
    (2,906
    )
    
    
    (2,424
    )Income from continuing operations before income taxes
    
    
    35,146
    
    
    
    32,349
    
    
    
    89,265
    
    
    
    96,885Income tax provision
    
    
    17,282
    
    
    
    987
    
    
    
    38,389
    
    
    
    2,761Net income from continuing operations
    
    
    17,864
    
    
    
    31,362
    
    
    
    50,876
    
    
    
    94,124Income (loss) from discontinued operations  net of tax
    
    
    (298
    )
    
    
    20,281
    
    
    
    (379
    )
    
    
    5,936Net income
    
    $
    17,566
    
    
    $
    51,643
    
    
    $
    50,497
    
    
    $
    100,060Basic and diluted income (loss) per common share:Basic income (loss):Continuing operations
    
    $
    0.31
    
    
    $
    0.55
    
    
    $
    0.88
    
    
    $
    1.65Discontinued operations
    
    
    (0.01
    )
    
    
    0.35
    
    
    
    (0.01
    )
    
    
    0.10Net income
    
    $
    0.30
    
    
    $
    0.90
    
    
    $
    0.87
    
    
    $
    1.75Diluted income (loss):Continuing operations
    
    $
    0.30
    
    
    $
    0.53
    
    
    $
    0.87
    
    
    $
    1.62Discontinued operations
    
    
    0.00
    
    
    
    0.33
    
    
    
    (0.01
    )
    
    
    0.10Net income
    
    $
    0.30
    
    
    $
    0.87
    
    
    $
    0.86
    
    
    $
    1.71Weighted average shares of common stock outstanding:Basic shares
    
    
    57,973
    
    
    
    57,437
    
    
    
    57,900
    
    
    
    57,218Diluted shares
    
    
    60,510
    
    
    
    60,663
    
    
    
    60,492
    
    
    
    60,447
  2




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Nine Months EndedSeptember 30,2009
    
    2008Cash flow from operating activities:Net income
    
    $
    50,497
    
    
    $
    100,060Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    7,185
    
    
    
    7,584Loss on sale
of eye disease business and non-cash impairment charges
    
    
    
    
    
    
    14,107Impairment of assets
    
    
    559
    
    
    
    Impact of inventory step-up related to inventory sold
    
    
    
    
    
    
    51Amortization of debt discount and debt issuance costs
    
    
    11,755
    
    
    
    11,452Amortization of premiums and discounts on investments
    
    
    (71
    )
    
    
    (517
    )Acquired in-process research and development charge
    
    
    5,000
    
    
    
    Non-cash compensation charge
    
    
    18,500
    
    
    
    14,892Deferred tax provision
    
    
    36,404
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (9,914
    )
    
    
    3,481Inventory
    
    
    616
    
    
    
    220Prepaid expenses and other current assets
    
    
    (9,253
    )
    
    
    3,446Other assets
    
    
    (4,295
    )
    
    
    (1,163
    )Accounts payable and accrued expenses
    
    
    6,063
    
    
    
    (15,179
    )Unearned revenue
    
    
    (2,583
    )
    
    
    (33,826
    )Accrued post-retirement benefit cost and other
    
    
    (33
    )
    
    
    10Net cash provided by operating activities
    
    
    110,430
    
    
    
    104,618Cash flows from investing activities:Purchases of
short and long-term available-for-sale securities
    
    
    (452,908
    )
    
    
    (273,933
    )Maturities and sales of short and long-term available-for-sale securities
    
    
    285,478
    
    
    
    162,190Additions to property, equipment and leasehold improvements
    
    
    (57,877
    )
    
    
    (3,304
    )Purchase of intangible assets
    
    
    
    
    
    
    (8,000
    )Purchase of intellectual property (acquired in-process research and
development)
    
    
    (5,000
    )
    
    
    Purchase of equity investments
    
    
    (15,000
    )
    
    
    Other
    
    
    (13
    )
    
    
    (1,415
    )Net cash (used in) investing activities
    
    
    (245,320
    )
    
    
    (124,462
    )Cash flows from financing activities:Proceeds from the exercise of stock options,
employee stock purchase plan, and other
    
    
    5,523
    
    
    
    15,468Employee taxes paid related to equity awards
    
    
    (90
    )
    
    
    (785
    )Proceeds from the issuance of convertible senior subordinated notes
    
    
    
    
    
    
    200,000Debt issuance costs
    
    
    
    
    
    
    (6,730
    )Purchase of treasury stock
    
    
    
    
    
    
    (64,998
    )Repurchase of a portion of the 2023 Notes
    
    
    
    
    
    
    (50,050
    )Net cash provided by financing activities
    
    
    5,433
    
    
    
    92,905Net (decrease) increase in cash and cash equivalents
    
    
    (129,457
    )
    
    
    73,061Effect of exchange rate changes on cash and cash equivalents
    
    
    (55
    )
    
    
    (1,043
    )Cash and cash equivalents at beginning of period
    
    
    272,936
    
    
    
    162,737Cash and cash equivalents at end of period
    
    $
    143,424
    
    
    $
    234,755Cash paid for income taxes
    
    $
    1,775
    
    
    $
    1,738Cash paid for interest
    
    $
    10,398
    
    
    $
    8,520
  3




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
 ® ®
 Basis of Presentation
     4




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Revenue Recognition
  Tarceva-Related Revenues: Net Revenue from Unconsolidated Joint Business
    5




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Royalties
   License and Milestones
   6




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
    Product Development and Commercialization Agreements
   7




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Genentech and Roche
     8




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
      9




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




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Income Per Share
    11




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Net income from continuing operations  basic
    
    $
    17,864
    
    
    $
    31,362
    
    
    $
    50,876
    
    
    $
    94,124Add: Interest and issuance costs related to convertible notes 
net of tax
    
    
    495
    
    
    
    910
    
    
    
    1,486
    
    
    
    3,557Net income from continuing operations  diluted
    
    $
    18,359
    
    
    $
    32,272
    
    
    $
    52,362
    
    
    $
    97,681Weighted average common shares outstanding  basic
    
    
    57,973
    
    
    
    57,437
    
    
    
    57,900
    
    
    
    57,218Dilutive effect of options and restricted stock
    
    
    539
    
    
    
    1,227
    
    
    
    594
    
    
    
    821Dilutive effect of 2023 Notes
    
    
    1,998
    
    
    
    1,999
    
    
    
    1,998
    
    
    
    2,408Dilutive effect of 2025 Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive effect of 2038 Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares and dilutive potential
common shares  diluted
    
    
    60,510
    
    
    
    60,663
    
    
    
    60,492
    
    
    
    60,447Net income per share from continuing operations:Basic
    
    $
    0.31
    
    
    $
    0.55
    
    
    $
    0.88
    
    
    $
    1.65Diluted
    
    $
    0.30
    
    
    $
    0.53
    
    
    $
    0.87
    
    
    $
    1.62
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Common share equivalents  convertible notes
    
    
    6,618
    
    
    
    6,618
    
    
    
    6,618
    
    
    
    6,536Common share equivalents  equity plans
    
    
    3,152
    
    
    
    1,451
    
    
    
    2,805
    
    
    
    2,702Convertible note interest and issuance expense not
added back under the if-converted method
    
    $
    3,715
    
    
    $
    5,737
    
    
    $
    10,968
    
    
    $
    16,749
 12




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Comprehensive Income
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Net income
    
    $
    17,566
    
    
    $
    51,643
    
    
    $
    50,497
    
    
    $
    100,060Other comprehensive income:Foreign currency translation adjustments
    
    
    (2,024
    )
    
    
    (3,010
    )
    
    
    2,367
    
    
    
    (2,900
    )Post-retirement plan
    
    
    (8
    )
    
    
    
    
    
    
    (24
    )
    
    
    Unrealized holding gains (losses) arising during period
    
    
    3,448
    
    
    
    (1,385
    )
    
    
    4,653
    
    
    
    (1,582
    )Unrealized losses on derivative instruments
    
    
    (8
    )
    
    
    
    
    
    
    (17
    )
    
    
    Total comprehensive income
    
    $
    18,974
    
    
    $
    47,248
    
    
    $
    57,476
    
    
    $
    95,578
  September 30,
    
    
    December 31,2009
    
    
    2008Cumulative foreign currency translation adjustment
    
    $
    (1,372
    )
    
    $
    (3,739
    )Post-retirement plan
    
    
    354
    
    
    
    378Unrealized gain (loss) on available-for-sale securities, net of
tax
    
    
    4,106
    
    
    
    (547
    )Unrealized losses on derivative instruments, net of tax
    
    
    (17
    )
    
    
    Accumulated other comprehensive income (loss) )
    
    $
    3,071
    
    
    $
    (3,908
    )
  Fair Value Measurements
   Level 1
 Level 2
 13




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
 Level 3
   QuotedPrices inActive
    
    SignificantMarket for
    
    Other
    
    SignificantAs Reflected
    
    Identical
    
    Observable
    
    Unobservableon the
    
    Assets
    
    Inputs
    
    InputsBalance Sheet
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalAssets:Cash equivalents
    
    $
    119,392
    
    
    $
    119,392
    
    
    $
    
    
    
    $
    
    
    
    $
    119,392Investment securities
    
    
    396,340
    
    
    
    
    
    
    
    396,340
    
    
    
    
    
    
    
    396,340Restricted investments
    
    
    2,304
    
    
    
    
    
    
    
    2,304
    
    
    
    
    
    
    
    2,304Other assets
    
    
    19,956
    
    
    
    18,521
    
    
    
    1,435
    
    
    
    
    
    
    
    19,956Liabilities:Derivatives (see Note 8)
    
    
    28
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    282038 Notes (Face value $200,000)
    
    
    174,426
    
    
    
    
    
    
    
    182,420
    
    
    
    
    
    
    
    182,4202025 Notes (Face value $115,000)
    
    
    105,210
    
    
    
    
    
    
    
    146,545
    
    
    
    
    
    
    
    146,5452023 Notes (Face value $99,950)
    
    
    99,950
    
    
    
    
    
    
    
    93,933
    
    
    
    
    
    
    
    93,933
  14




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  QuotedPrices inActive
    
    SignificantMarket for
    
    Other
    
    SignificantAs Reflected
    
    Identical
    
    Observable
    
    Unobservableon the
    
    Assets
    
    Inputs
    
    InputsBalance Sheet
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalAssets:Cash equivalents
    
    $
    250,380
    
    
    $
    248,181
    
    
    $
    2,201
    
    
    $
    
    
    
    $
    250,382Investment securities
    
    
    240,328
    
    
    
    
    
    
    
    240,328
    
    
    
    
    
    
    
    240,328Restricted investments
    
    
    2,247
    
    
    
    
    
    
    
    2,247
    
    
    
    
    
    
    
    2,247Other assets
    
    
    1,104
    
    
    
    
    
    
    
    1,104
    
    
    
    
    
    
    
    1,104Liabilities:2038 Notes (Face value $200,000)
    
    
    169,326
    
    
    
    
    
    
    
    161,220
    
    
    
    
    
    
    
    161,2202025 Notes (Face value $115,000)
    
    
    99,819
    
    
    
    
    
    
    
    157,010
    
    
    
    
    
    
    
    157,0102023 Notes (Face value $99,950)
    
    
    99,950
    
    
    
    
    
    
    
    85,407
    
    
    
    
    
    
    
    85,407
      Investments
  15




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Unrealized
    
    UnrealizedSeptember 30, 2009
    
    Costs
    
    Gains
    
    Losses
    
    Fair ValueU.S. government and U.S. government agency
securities
    
    $
    43,404
    
    
    $
    232
    
    
    $
    
    
    
    $
    43,636Corporate and financial institutions debt
    
    
    351,496
    
    
    
    1,418
    
    
    
    (210
    )
    
    
    352,704Total investment securities
    
    
    394,900
    
    
    
    1,650
    
    
    
    (210
    )
    
    
    396,340Restricted investments
    
    
    2,302
    
    
    
    2
    
    
    
    
    
    
    
    2,304Other assets (available-for-sale equity investments)
    
    
    13,474
    
    
    
    5,101
    
    
    
    
    
    
    
    18,575Total
    
    $
    410,676
    
    
    $
    6,753
    
    
    $
    (210
    )
    
    $
    417,219
 Unrealized
    
    UnrealizedDecember 31, 2008
    
    Costs
    
    Gains
    
    Losses
    
    Fair ValueU.S. government and U.S. government agency
securities
    
    $
    66,007
    
    
    $
    607
    
    
    $
    
    
    
    $
    66,614Corporate and financial institutions debt
    
    
    170,634
    
    
    
    74
    
    
    
    (1,247
    )
    
    
    169,461Municipal securities
    
    
    4,237
    
    
    
    16
    
    
    
    
    
    
    
    4,253Total investment securities
    
    
    240,878
    
    
    
    697
    
    
    
    (1,247
    )
    
    
    240,328Restricted investments
    
    
    2,244
    
    
    
    3
    
    
    
    
    
    
    
    2,247Total
    
    $
    243,122
    
    
    $
    700
    
    
    $
    (1,247
    )
    
    $
    242,575
    16




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Cost
    
    Fair Value2009
    
    $
    34,028
    
    
    $
    34,0372010
    
    
    258,060
    
    
    
    258,9512011
    
    
    85,812
    
    
    
    86,3332012
    
    
    17,000
    
    
    
    17,019$
    394,900
    
    
    $
    396,340
  Derivatives
     17




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
   Asset Derivatives
    
    Liability DerivativesBalance Sheet
    
    
    
    Balance SheetLocation
    
    Fair Value
    
    Location
    
    Fair ValueForeign currency contracts
    
    Prepaid expenses and other current assets
    
    $                 
    
    Accounts payable and accrued expenses
    
    $                 28
  Amount of Loss
    
    
    Location of Gain or (Loss)Recognized in AOCI on Derivatives
    
    
    Reclassified from  AOCI into
    
    
    Amount of Loss Reclassified from AOCI(Effective Portion)
    
    
    Earnings (Effective Portion)
    
    
    into Earnings (Effective Portion)(a)Three Months
    
    
    Nine Months
    
    
    
    
    
    Three Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    
    
    
    September 30,
    
    
    September 30,2009
    
    
    2009
    
    
    
    
    
    2009
    
    
    2009$
    (8
    )
    
    $
    (17
    )
    
    Royalty revenue
    
    $
    (34
    )
    
    $
    (34
    )
 
 (a)
    
    There were $18,000 and $26,000 of losses recognized in earnings related to the ineffective
portion of our foreign currency hedges for the three and nine months ended September 30, 2009,
respectively. There were no amounts excluded from the assessment of hedge effectiveness for
both the three and nine months ended September 30, 2009.  18




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
 Accounting for EquityBased Compensation
     Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    50.58
    %
    
    
    49.62
    %
    
    
    50.25
    %
    
    
    48.68
    %Risk-free interest rate
    
    
    1.70
    %
    
    
    3.73
    %
    
    
    1.90
    %
    
    
    3.67
    %Expected term (years)
    
    
    4.97
    
    
    
    4.67
    
    
    
    5.35
    
    
    
    4.67
 Inventory
  19




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  September 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    533
    
    
    $
    676Work-in-process
    
    
    8,855
    
    
    
    8,532Finished goods on hand
    
    
    3,931
    
    
    
    4,897Inventory subject to return
    
    
    6,203
    
    
    
    6,034Total inventory
    
    $
    19,522
    
    
    $
    20,139
  Other Intangible Assets  Net
  September 30, 2009
    
    December 31, 2008Carrying
    
    Accumulated
    
    Net Book
    
    Carrying
    
    Accumulated
    
    Net BookAmount
    
    Amortization
    
    Value
    
    Amount
    
    Amortization
    
    ValueAcquired intangibles
    
    $
    10,279
    
    
    $
    (2,498
    )
    
    $
    7,781
    
    
    $
    9,386
    
    
    $
    (1,675
    )
    
    $
    7,711
    20




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
 Consolidation of Facilities
 Ardsley, New York
     Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2009
    
    
    2009Opening balance, prepaid
    
    $
    
    
    
    $
    Cash payments and accrual for retention bonuses
    
    
    11,520
    
    
    
    11,520Amortization of paid retention bonuses
    
    
    (434
    )
    
    
    (434
    )Ending balance, prepaid
    
    $
    11,086
    
    
    $
    11,086
 Oxford, England
  21




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Opening liability
    
    $
    
    
    
    $
    2,366
    
    
    $
    1,899
    
    
    $
    2,882Cash paid for rent
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    (780
    )Refurbishment adjustment
    
    
    
    
    
    
    
    
    
    
    (1,674
    )
    
    
    Other
    
    
    
    
    
    
    (234
    )
    
    
    (225
    )
    
    
    (124
    )Ending liability
    
    $
    
    
    
    $
    1,978
    
    
    $
    
    
    
    $
    1,978
 Eyetech Acquired Facilities
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Opening liability
    
    $
    2,233
    
    
    $
    2,569
    
    
    $
    2,295
    
    
    $
    3,282Accretion expense
    
    
    36
    
    
    
    40
    
    
    
    113
    
    
    
    120Cash paid for rent
    
    
    (1,294
    )
    
    
    (1,193
    )
    
    
    (3,887
    )
    
    
    (4,498
    )Sublease income
    
    
    1,089
    
    
    
    1,140
    
    
    
    3,543
    
    
    
    3,652Ending liability
    
    $
    2,064
    
    
    $
    2,556
    
    
    $
    2,064
    
    
    $
    2,556
 Employee Post-retirement Plan and Other
 Employee Post-retirement Plan
  22




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest costs on accumulated post-retirement
benefits obligation
    
    $
    33
    
    
    $
    44
    
    
    $
    101
    
    
    $
    132Amortization of gain
    
    
    (8
    )
    
    
    
    
    
    
    (24
    )
    
    
    Net post-retirement benefit cost
    
    $
    25
    
    
    $
    44
    
    
    $
    77
    
    
    $
    132
 Sabbatical Leave Accrual
  Nonqualified Deferred Compensation Plan
  Income Taxes
  23




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
   Convertible Debt
    24




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  September 30, 2009
    
    December 31, 2008Net Carrying
    
    
    
    
    
    
    
    
    
    Net CarryingLong-term
    
    Principal
    
    Discount
    
    Value
    
    Principal
    
    Discount
    
    Value2023 Notes  3.25%
    
    $
    99,950
    
    
    $
    
    
    
    $
    99,950
    
    
    $
    99,950
    
    
    $
    
    
    
    $
    99,9502025 Notes  2.00%
    
    
    115,000
    
    
    
    9,790
    
    
    
    105,210
    
    
    
    115,000
    
    
    
    15,181
    
    
    
    99,8192038 Notes  3.00%
    
    
    200,000
    
    
    
    25,574
    
    
    
    174,426
    
    
    
    200,000
    
    
    
    30,674
    
    
    
    169,326$
    414,950
    
    
    $
    35,364
    
    
    $
    379,586
    
    
    $
    414,950
    
    
    $
    45,855
    
    
    $
    369,095
  Change in Accounting Principle
   25




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Three MonthsEndedSeptember 30,
    
    As Adjusted2008 as
    
    andOriginally
    
    Currently
    
    Effect ofReported
    
    Reported
    
    ChangeRevenues
    
    $
    94,572
    
    
    $
    94,572
    
    
    $
    Operating expenses
    
    
    58,479
    
    
    
    58,479
    
    
    
    Operating income from continuing operations
    
    
    36,093
    
    
    
    36,093
    
    
    
    Interest expense
    
    
    (2,894
    )
    
    
    (6,202
    )
    
    
    (3,308
    )Investment income & other expense
    
    
    2,333
    
    
    
    2,458
    
    
    
    125Income from continuing operations before
income taxes
    
    
    35,532
    
    
    
    32,349
    
    
    
    (3,183
    )Income tax provision
    
    
    987
    
    
    
    987
    
    
    
    Net income from continuing operations
    
    
    34,545
    
    
    
    31,362
    
    
    
    (3,183
    )Loss from discontinued operations
    
    
    20,281
    
    
    
    20,281
    
    
    
    Net income
    
    $
    54,826
    
    
    $
    51,643
    
    
    $
    (3,183
    )
  Three MonthsEndedSeptember 30,
    
    As Adjusted2008 as
    
    andOriginally
    
    Currently
    
    Effect ofReported
    
    Reported
    
    ChangeNet income from continuing operations  basic
    
    $
    34,545
    
    
    $
    31,362
    
    
    $
    (3,183
    )Add: Interest and issuance costs related to
convertible debt  net of tax
    
    
    1,667
    
    
    
    910
    
    
    
    (757
    )Net income from continuing operations  diluted
    
    $
    36,212
    
    
    $
    32,272
    
    
    $
    (3,940
    )Weighted average common shares outstanding  basic
    
    
    57,437
    
    
    
    57,437
    
    
    
    Dilutive effect of options and restricted stock
    
    
    1,227
    
    
    
    1,227
    
    
    
    Dilutive effect of 2023 Notes
    
    
    1,999
    
    
    
    1,999
    
    
    
    Dilutive effect of 2025 Notes
    
    
    3,908
    
    
    
    
    
    
    
    (3,908
    )Dilutive effect of 2038 Notes
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares and dilutive potential
common shares  diluted
    
    
    64,571
    
    
    
    60,663
    
    
    
    (3,908
    )Net income per share from continuing operations:Basic
    
    $
    0.60
    
    
    $
    0.55
    
    
    $
    (0.05
    )Diluted
    
    $
    0.56
    
    
    $
    0.53
    
    
    $
    (0.03
    )
 26




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Nine MonthsEndedSeptember 30,
    
    As Adjusted2008 as
    
    andOriginally
    
    Currently
    
    Effect ofReported
    
    Reported
    
    ChangeRevenues
    
    $
    280,961
    
    
    $
    280,961
    
    
    $
    Operating expenses
    
    
    172,626
    
    
    
    172,626
    
    
    
    Operating income from continuing operations
    
    
    108,335
    
    
    
    108,335
    
    
    
    Interest expense
    
    
    (9,040
    )
    
    
    (18,696
    )
    
    
    (9,656
    )Investment income & other expense
    
    
    6,891
    
    
    
    7,246
    
    
    
    355Income from continuing operations before
income taxes
    
    
    106,186
    
    
    
    96,885
    
    
    
    (9,301
    )Income tax provision
    
    
    2,761
    
    
    
    2,761
    
    
    
    Net income from continuing operations
    
    
    103,425
    
    
    
    94,124
    
    
    
    (9,301
    )Loss from discontinued operations
    
    
    5,936
    
    
    
    5,936
    
    
    
    Net income
    
    $
    109,361
    
    
    $
    100,060
    
    
    $
    (9,301
    )
  Nine MonthsEndedSeptember 30,
    
    As Adjusted2008 as
    
    andOriginally
    
    Currently
    
    Effect ofReported
    
    Reported
    
    ChangeNet income from continuing operations  basic
    
    $
    103,425
    
    
    $
    94,124
    
    
    $
    (9,301
    )Add: Interest and issuance costs related to
convertible debt  net of tax
    
    
    5,829
    
    
    
    3,557
    
    
    
    (2,272
    )Net income from continuing operations  diluted
    
    $
    109,254
    
    
    $
    97,681
    
    
    $
    (11,573
    )Weighted average common shares outstanding  basic
    
    
    57,218
    
    
    
    57,218
    
    
    
    Dilutive effect of options and restricted stock
    
    
    821
    
    
    
    821
    
    
    
    Dilutive effect of 2023 Notes
    
    
    2,408
    
    
    
    2,408
    
    
    
    Dilutive effect of 2025 Notes
    
    
    3,908
    
    
    
    
    
    
    
    (3,908
    )Dilutive effect of 2038 Notes
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares and dilutive
potential common shares  diluted
    
    
    64,355
    
    
    
    60,447
    
    
    
    (3,908
    )Net income per share from continuing operations:Basic
    
    $
    1.81
    
    
    $
    1.65
    
    
    $
    (0.16
    )Diluted
    
    $
    1.70
    
    
    $
    1.62
    
    
    $
    (0.08
    )
 27




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  As AdjustedDecember 31,
    
    and2008 as
    
    Currently
    
    Effect ofReported
    
    Reported
    
    ChangeCurrent assets
    
    $
    690,381
    
    
    $
    690,381
    
    
    $
    Deferred tax assets  net
    
    
    291,205
    
    
    
    273,797
    
    
    
    (17,408
    )Debt issuance costs  net
    
    
    7,080
    
    
    
    5,632
    
    
    
    (1,448
    )Other Assets  non current
    
    
    104,393
    
    
    
    104,393
    
    
    
    Total assets
    
    $
    1,093,059
    
    
    $
    1,074,203
    
    
    $
    (18,856
    )Current liabilities
    
    $
    61,121
    
    
    $
    61,121
    
    
    $
    Non-current liabilities
    
    
    45,442
    
    
    
    45,442
    
    
    
    Convertible senior subordinated notes  non-current
    
    
    414,950
    
    
    
    369,095
    
    
    
    (45,855
    )Total liabilities
    
    
    521,513
    
    
    
    475,658
    
    
    
    (45,855
    )Common and preferred stock, net of treasury
stock
    
    
    (101,608
    )
    
    
    (101,608
    )
    
    
    Additional paid-in-capital
    
    
    1,693,263
    
    
    
    1,761,179
    
    
    
    67,916Accumulated deficit
    
    
    (1,016,201
    )
    
    
    (1,057,118
    )
    
    
    (40,917
    )Accumulated other comprehensive loss
    
    
    (3,908
    )
    
    
    (3,908
    )
    
    
    Total stockholders equity
    
    
    571,546
    
    
    
    598,545
    
    
    
    26,999Total liabilities and stockholders equity
    
    $
    1,093,059
    
    
    $
    1,074,203
    
    
    $
    (18,856
    )
 Eyetech Discontinued Operations
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Net revenue
    
    $
    300
    
    
    $
    30,594
    
    
    $
    970
    
    
    $
    43,212Pretax income (loss)
    
    $
    (491
    )
    
    $
    19,469
    
    
    $
    (624
    )
    
    $
    4,749Income (loss) from discontinued operations, net of tax
    
    $
    (298
    )
    
    $
    20,281
    
    
    $
    (379
    )
    
    $
    5,936
  28




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  September 30,
    
    
    December 31,2009
    
    
    2008Assets:Accounts receivable
    
    $
    
    
    
    $
    917Assets related to discontinued operations
    
    $
    
    
    
    $
    917Liabilities:Accounts payable and accrued expenses
    
    $
    2,753
    
    
    $
    1,522Liabilities related to discontinued operations
    
    $
    2,753
    
    
    $
    1,522
 ®
  OSI) Eyetech Divestiture  Severance Costs
  29




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Opening liability
    
    $
    253
    
    
    $
    1,981
    
    
    $
    387
    
    
    $
    800Accrual for severance and retention bonuses
    
    
    54
    
    
    
    313
    
    
    
    81
    
    
    
    1,678Cash paid for severance and retention bonuses
    
    
    (3
    )
    
    
    (1,775
    )
    
    
    (164
    )
    
    
    (1,959
    )Ending liability
    
    $
    304
    
    
    $
    519
    
    
    $
    304
    
    
    $
    519
 New Accounting Standards
 Recently Adopted Standards
  Recently Issued Standards (Not Yet Adopted)
   30




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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, 2009 AND 2008
 Overview
    31




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32




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##### Table of Contents



1A
 Quarterly Update
    33




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##### Table of Contents



®
  Subsequent Events
  Critical Accounting Policies
  34




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##### Table of Contents



Revenues
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(In thousands)
    
    2009
    
    2008
    
    $ Change
    
    2009
    
    2008
    
    $ ChangeTarceva-related revenues
    
    $
    88,735
    
    
    $
    80,708
    
    
    $
    8,027
    
    
    $
    257,914
    
    
    $
    251,006
    
    
    $
    6,908Other revenues
    
    
    22,712
    
    
    
    13,864
    
    
    
    8,848
    
    
    
    46,276
    
    
    
    29,955
    
    
    
    16,321Total revenues
    
    $
    111,447
    
    
    $
    94,572
    
    
    $
    16,875
    
    
    $
    304,190
    
    
    $
    280,961
    
    
    $
    23,229
 Tarceva-Related Revenues
  Net Revenue from Unconsolidated Joint Business
   35




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##### Table of Contents



Tarceva-Related Royalties
  Tarceva-Related Milestones
  Other Revenues
   36




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##### Table of Contents



® ® ® ®
  Expenses
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(In thousands)
    
    2009
    
    2008
    
    $ Change
    
    2009
    
    2008
    
    $ ChangeCost of goods sold
    
    $
    1,607
    
    
    $
    2,517
    
    
    $
    (910
    )
    
    $
    6,460
    
    
    $
    6,748
    
    
    $
    (288
    )Research and development
    
    
    38,546
    
    
    
    33,054
    
    
    
    5,492
    
    
    
    111,129
    
    
    
    94,009
    
    
    
    17,120Acquired in-process research and
development
    
    
    5,000
    
    
    
    
    
    
    
    5,000
    
    
    
    5,000
    
    
    
    
    
    
    
    5,000Selling, general and administrative
    
    
    24,677
    
    
    
    22,262
    
    
    
    2,415
    
    
    
    74,065
    
    
    
    69,985
    
    
    
    4,080Restructuring costs
    
    
    1,148
    
    
    
    
    
    
    
    1,148
    
    
    
    1,148
    
    
    
    
    
    
    
    1,148Amortization of intangibles
    
    
    229
    
    
    
    646
    
    
    
    (417
    )
    
    
    693
    
    
    
    1,884
    
    
    
    (1,191
    )$
    71,207
    
    
    $
    58,479
    
    
    $
    12,728
    
    
    $
    198,495
    
    
    $
    172,626
    
    
    $
    25,869
 Cost of Goods Sold
  Research and Development
   37




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##### Table of Contents



Acquired In-process Research and Development
  Selling, General and Administrative
  38




---



##### Table of Contents



Restructuring Costs
  Other Income and Expense
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(In thousands)
    
    2009
    
    2008
    
    $ Change
    
    2009
    
    2008
    
    $ ChangeInvestment income-net
    
    $
    1,624
    
    
    $
    2,976
    
    
    $
    (1,352
    )
    
    $
    5,795
    
    
    $
    9,670
    
    
    $
    (3,875
    )Interest expense
    
    
    (6,534
    )
    
    
    (6,202
    )
    
    
    (332
    )
    
    
    (19,319
    )
    
    
    (18,696
    )
    
    
    (623
    )Other income (expense)-net
    
    
    (184
    )
    
    
    (518
    )
    
    
    334
    
    
    
    (2,906
    )
    
    
    (2,424
    )
    
    
    (482
    )Total other income (expense)
    
    $
    (5,094
    )
    
    $
    (3,744
    )
    
    $
    (1,350
    )
    
    $
    (16,430
    )
    
    $
    (11,450
    )
    
    $
    (4,980
    )
    39




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##### Table of Contents



Income taxes
  Discontinued Operations
  Liquidity and Capital Resources
   Commitments and Contingencies
  40




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##### Table of Contents



Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 yearsLong-term debt obligations (a)
    
    $
    669,377
    
    
    $
    11,548
    
    
    $
    23,097
    
    
    $
    23,097
    
    
    $
    611,635Operating lease obligations
    
    
    94,564
    
    
    
    2,294
    
    
    
    18,390
    
    
    
    17,118
    
    
    
    56,762Purchase obligations (b)
    
    
    94,600
    
    
    
    37,600
    
    
    
    37,100
    
    
    
    13,537
    
    
    
    6,363Capital commitments
    
    
    460
    
    
    
    460
    
    
    
    
    
    
    
    
    
    
    
    Obligations related to exit activities
    
    
    3,664
    
    
    
    3,664
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    862,665
    
    
    $
    55,566
    
    
    $
    78,587
    
    
    $
    53,752
    
    
    $
    674,760
 
 (a)
    
    All senior convertible notes assume the payment of interest through their respective maturity
dates and the payment of their outstanding principal balance at their respective maturity
dates. This includes interest payments at a rate of (i) 3.25% per annum relating to the
$99.95 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 $200.0
million principal amount of our 2038 Notes. The holders of our 2023 Notes have the right to
require us to purchase, for cash, all of our 2023 Notes, or a portion thereof, in September
2013. In the event that the holders of our 2023 Notes exercise this right, we will have the
option of delivering to the holders a specified number of shares of our common stock in lieu
of cash as set forth in the indenture for our 2023 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.(b)
    
    Includes inventory commitments, commercial and research commitments and other significant
purchase commitments other than commitments to purchase capital
equipment. Also includes our share of the remaining future commitment related to
the Tarceva global development costs of approximately $87 million.  
    
    As part of our purchase of the 43-acre site in Westchester, New York, which consists
of approximately 400,000 square feet of existing office and laboratory space, we expect
to incur approximately $60 million to $70 million of capital-related renovation costs
over the next fifteen months. In addition, we expect to incur approximately $25
million to $30 million in restructuring-related costs over the next two years, which
primarily relates to labor-related and relocation-related costs. We
also expect to recognize additional charges related to existing
leased facilities 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.
 41




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##### Table of Contents




    
    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; therefore, we cannot reasonably estimate the potential timing
of these payments.
    
    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 accrued liability for post-retirement benefit costs of $2.6 million
at September 30, 2009.
    
    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.
 New Accounting Standards
 Recently Adopted Standards
  Recently Issued Standards (Not Yet Adopted)
  42




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##### Table of Contents



Forward Looking Statements
  43




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
       44




---



##### Table of Contents



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.
 45




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  46




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Maximum Number(or ApproximateTotal Number of
    
    Dollar Value) ofShares Purchased
    
    Shares that Mayas Part of Pub-
    
    Yet be PurchasedTotal number of
    
    Average Price Paid
    
    licly Announced
    
    Under the Plans orPeriod
    
    Shares Purchased
    
    per Share
    
    Plans or Programs
    
    ProgramsJuly 1, 2009- July
31, 2009
    
    
    1,536
    
    
    $
    30.38
    
    
    
    N/A
    
    
    
    N/AAug. 1, 2009-Aug.
31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sept. 1, 2009-Sept.
30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 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
    
    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.10.1*
    
    Consulting and Confidential Disclosure Agreement, dated October 1,
2009, between OSI Pharmaceuticals, Inc. and Dr. H. M. (Bob) Pinedo.
(Filed herewith)10.2
    
    Manufacturing and Supply Agreement, dated December 27, 2004, by and
among OSI Pharmaceuticals, Inc., Charkit Chemical Corporation and
Sumitomo Chemical Co., Ltd. (Filed herewith)
 47




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##### Table of Contents



10.3
    
    Manufacturing and Supply Agreement, dated November 7, 2005, by and
among OSI Pharmaceuticals, Inc., Davos Chemical Corporation and
Dipharma SpA. (Filed herewith)10.4
    
    Purchase and Sale Agreement, dated July 6, 2009, between OSI
Pharmaceuticals, Inc. and Millsaw Realty L.P., filed by the Company
as an exhibit to the Form 10-Q for the quarter ended June 30, 2009
(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)
 
 *
    
    Indicates a management contract or compensatory plan, contract or arrangement in which
directors or executive officers participate.
    
    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 and Exchange Act of 1934, as amended. 48




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##### Table of Contents



SIGNATURES
  OSI PHARMACEUTICALS, INC.
(Registrant)Date:  November 6, 2009
    /s/ Colin Goddard, Ph.D.Colin Goddard, Ph.D.Chief Executive OfficerDate:  November 6, 2009
    /s/ Pierre LegaultPierre LegaultExecutive Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer) 49




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##### Table of Contents



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.10.1*
    
    Consulting and Confidential Disclosure Agreement, dated October 1,
2009, between OSI Pharmaceuticals, Inc. and Dr. H. M. (Bob) Pinedo.
(Filed herewith)10.2
    
    Manufacturing and Supply Agreement, dated December 27, 2004, by and
among OSI Pharmaceuticals, Inc., Charkit Chemical Corporation and
Sumitomo Chemical Co., Ltd. (Filed herewith)10.3
    
    Manufacturing and Supply Agreement, dated November 7, 2005, by and
among OSI Pharmaceuticals, Inc., Davos Chemical Corporation and
Dipharma SpA. (Filed herewith)10.4
    
    Purchase and Sale Agreement, dated July 6, 2009, between OSI
Pharmaceuticals, Inc. and Millsaw Realty L.P., filed by the Company
as an exhibit to the Form 10-Q for the quarter ended June 30, 2009
(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)32.3
    
    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 participate.
    
    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 and Exchange Act of 1934, as amended. 50