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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 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.
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
    
    13-3159796(State or other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)41 Pinelawn Road, Melville, N.Y.
    
    11747(Address of Principal Executive Offices)
    
    (Zip Code)
 (631) 962-2000
 Securities Registered Pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $.01 per share
Series SRPA Junior Participating Preferred Stock Purchase Rights
    
    The NASDAQ Stock Market LLC
 Securities Registered Pursuant to Section 12(g) of the Act:     None  (Title of Class)
 þ o
 o þ
 þ o
 o
  Large accelerated filer    þ
    
    Accelerated filer    o
    
    Non-accelerated filer   o
    
    Smaller reporting company    o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES  TABLE OF CONTENTS
 PagePART IITEM 1.
    
    BUSINESS
    
    
    1ITEM 1A.
    
    RISK FACTORS
    
    
    19ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
    
    
    33ITEM 2.
    
    PROPERTIES
    
    
    33ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    33ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    34PART IIITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    34ITEM 6.
    
    SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    36ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    38ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    56ITEM 8.
    
    CONSOLIDATED FINANCIAL STATEMENTS
    
    
    58ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    103ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    103ITEM 9B.
    
    OTHER INFORMATION
    
    
    105PART IIIITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    105ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    105ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    105ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
    
    
    105ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    105PART IVITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
    
    
    106EX-10.39: LETTER AGREEMENTEX-10.55: CHANGE IN CONTROL AGREEMENTEX-10.56: CONSULTING AGREEMENTEX-10.57: CONSULTING AGREEMENTEX-10.61: COMPENSATORY ARRANGEMENTS FOR NON-EMPLOYEE DIRECTORSEX-10.62: COMPENSATORY ARRANGEMENTS OF EXECUTIVE OFFICERSEX-21: SUBSIDIARIESEX-23: CONSENT OF KPMG LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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® ® ®




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PART I
 
 ITEM 1. BUSINESS
    1A
 Strategy
  1




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Our Primary Marketed Product  Tarceva
 Overview
   2




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Lifecycle Plan
 SATURN and Beta-Lung Studies. ®
 ®
  3




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RADIANT Study (Adjuvant Tarceva after Surgery and Chemotherapy in Patients with Stage IB-IIIA
NSCLC). in situ
 Smoker Maximum Tolerated Dose Study.
 TITAN Study. ® ®
 Atlas Study
 Phase II Study in Never-smokers.
 4




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Phase II Study in Enriched Population.
 TASK
Study.
 RACHEL Study
 MARK Study.
 Treatment Beyond Progression.
 Studies in Other Tumor Types. ®
 5




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Investigator Sponsored Studies.
 Sales and Marketing
  OSI/Genentech/Roche Alliance
   Manufacturing and Supply
  6




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Our Clinical Development Programs
 Core Programs
  OSI-906 P
 PSN821
 OSI-027
 PSN602 1A
 7




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Other Development Programs
 OSI-930
 OSI-632
 CP-868,596.
 PSN9301
 Outlicensing Activities
  Our Oncology and Diabetes/Obesity Discovery Efforts
 Oncology Research
  8




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in vivo
 Diabetes/Obesity Discovery
  9




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1A
 Our Eye Disease Business
  Our Intellectual Property
  Tarceva-Related Intellectual Property
   10




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11




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Other Intellectual Property
 ® ®
   1A
  Our Competition
   12




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® ®
 ® ®
 ®
 1A ® ®
 ®
 Government Regulation
  13




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FDA Approval Process
   
    
    pre-clinical laboratory and animal tests;
    
    submission to the FDA of an IND, which must be in effect before clinical trials may
begin;
    
    adequate and well-controlled human clinical trials to establish the safety and
efficacy of the drug for its intended indication(s);
    
    FDA compliance inspection and/or clearance of all manufacturers;
    
    submission to the FDA of an NDA; and
    
    FDA review of the NDA or product license application in order to determine, among
other things, whether the drug is safe, effective and of appropriate quality for its
intended uses.
    
    
    evaluate preliminarily the efficacy of the product for specific, targeted
indications;
    
    determine dosage tolerance and optimal dosage; and
    
    identify possible adverse effects and safety risks.
   14




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15




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The Hatch-Waxman Act
    16




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Pricing and Reimbursement
    Other Regulation
   17




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Our Employees
  Available Information
 15(d) http://www.sec.gov
 http://www.osip.com
 18




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ITEM 1A. RISK FACTORS
 This report contains forward-looking statements that do not convey historical information, but
relate to predicted or potential future events, such as statements of our plans, strategies and
intentions, or our future performance or goals for our product development programs. These
statements can often be identified by the use of forward-looking terminology such as believe,
expect, intend, may, will, should, or anticipate or similar terminology. The statements
involve risks and uncertainties and are based on various assumptions. Stockholders and prospective
stockholders are cautioned that these statements are only projections. In addition, any
forward-looking statement that we make is intended to speak only as of the date on which we made
the statement. Except for our ongoing obligations to disclose material information under the
federal securities laws, we will not update any forward-looking statement to reflect events or
circumstances that occur after the date on which the statement is made. The following risks and
uncertainties, among others, may cause our actual results to differ materially from those described
in forward-looking statements made in this report or presented elsewhere by management from time to
time.
 Risks Related to Our Business
 We
depend heavily on our principal marketed product, Tarceva, to generate revenues in order to fund our operations.
  
    
    Our ability to maintain and expand the market share, both in the United States and
in the rest of the world, and revenues for Tarceva in the treatment of second-line and
third-line NSCLC and for first-line pancreatic cancer in the midst of numerous
competing products which are currently in late stage clinical development;
    
    Whether data from the SATURN and Beta-Lung studies and other clinical trials for
additional indications are positive and whether such data, if
positive, will be sufficient to achieve
approval from the FDA and its foreign counterparts to market and sell Tarceva in such
additional indications;
    
    The reluctance of physicians to switch from existing treatment methods, including
traditional chemotherapy agents (where certain reimbursement practices in the United
States favor the use of intravenously administered drugs), to Tarceva; and
    
    Adequate coverage or reimbursement for Tarceva by third-party payors, including
private health coverage insurers and health maintenance organizations.
 If Tarceva were to become the subject of problems related to its efficacy, safety, or otherwise, or
if new, more effective treatments were introduced into the market, our revenues from Tarceva could
decrease.
  
    
    efficacy or safety concerns with the product, even if not justified;
    
    unexpected side-effects;
    
    regulatory proceedings subjecting the product to potential recall;
    
    publicity affecting doctor prescription or patient use of the product;
    
    pressure from competitive products;
 19




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
    
    introduction of more effective treatments; or
    
    manufacturing or quality problems that would reduce or disrupt product availability;
  We cannot be certain of the outcomes of the SATURN and Beta-Lung studies and, even if positive, the
data may not support the necessary regulatory approvals needed for new indications for Tarceva.
  We depend heavily on our co-development and marketing alliance with Genentech and Roche for
Tarceva. If Genentech or Roche terminate these alliances, or are unable to meet their contractual
obligations, it could negatively impact our revenues and harm our business until appropriate
corrective measures have been taken.
    20




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We are responsible for the manufacture and supply of Tarceva in the United States. Because we have
no commercial manufacturing facilities, we are dependent on two suppliers for the API for Tarceva
and a single supplier for the tableting of Tarceva in the United States. If any of these third
parties fails to meet its obligations, our revenues from Tarceva could be negatively affected.
   We
may not be able to successfully obtain the grant of the Tarceva
patent reissue application which could limit our ability to assert
the 498 patent to prevent or stop competitors from marketing or
selling products similar to Tarceva.
  If our competitors succeed in developing products and technologies that are more effective than our
own, or if scientific developments change our understanding of the potential scope and utility of
our products, then our products and technologies may be rendered less competitive.
    21




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1A
  Our revenues from our DPIV patent portfolio licenses are contingent upon the ability of our
licensees to successfully develop and commercialize their products which are the subject of these
licenses and our ability to protect our intellectual property rights in our DPIV patent estate.
  22




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Although we have clinical and pre-clinical candidates in the pipeline for oncology and diabetes and
obesity that appear to be promising at early stages of development, none of these potential
products may reach the commercial market for a number of reasons.
     Our business strategy with respect to development candidates or programs which we do not consider
to be part of our core business is to enter into collaborations with third parties to research,
develop and commercialize such non-core assets or to outlicense them. We may not be successful in
establishing such collaborations or entering into such license agreements, which may adversely
affect the prospects for these candidates or programs to become commercialized.
  23




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Our reliance on third parties, such as CROs, may result in delays in completing, or a failure to
complete, clinical trials if they fail to perform under our agreements with them.
  We may not be able to make our required payments of interest and principal under our outstanding
indebtedness when due, and may not be able to repurchase for cash our 2% convertible senior
subordinated notes due 2025, or our 2025 Notes, or our 3% convertible senior subordinated notes due
2038, or our 2038 Notes, if required to do so in 2010 and 2013, respectively. If we elect to
repurchase our 31/4% convertible senior subordinated notes due 2023, or our 2023 Notes, with our
common shares, our shareholders will experience dilution and our stock price may decline.
  24




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Risks Relating to Regulatory Matters
 Starting in November 2008, generic competitors can challenge our patents by filing an ANDA or a
505(b)(2) NDA for a generic or a modified version of Tarceva and adversely affect our competitive
position.
 i.e.,
 i.e.,
 The manufacture and packaging of pharmaceutical products, such as Tarceva, are subject to the
requirements of the FDA and similar foreign regulatory bodies. If we or our third party
manufacturers fail to satisfy these requirements, our or their product development and
commercialization efforts may be materially harmed.
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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.
    26




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Some of our activities may subject us to risks under federal and state laws prohibiting kickbacks
and false or fraudulent claims, which could subject us to potential civil and criminal penalties
and exclusion from federal healthcare programs.
   If we do not receive adequate third-party reimbursement for the sales of our marketed products, we
may not be able to sell such products on a profitable basis.
  27




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Government
involvement and/or control over pricing of pharmaceutical products
outside of the United States can have an effect on the revenues that we
receive from Tarceva.
  Future legislative or regulatory reform of the healthcare system may affect our ability to sell
certain of our products profitably.
  If
Tarceva is imported into the United States, the EU or Japan from countries where the
cost of the drug is lower, it will affect our sales and profitability and harm our business.
    28




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Risks Related to Intellectual Property and Legal Matters
 If we cannot successfully protect, exploit or enforce our intellectual property rights, our ability
to develop and commercialize our products, and receive revenues from licenses under our
intellectual property, will be adversely affected.
     29




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If we or our collaborative partners are required to obtain licenses from third parties, our
revenues and royalties on any commercialized products could be reduced.
  If we are unable to protect the confidentiality of our proprietary information and know-how, the
value of our technology and products could be negatively impacted.
  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.
  30




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The failure to prevail in litigation or the costs of litigation, including patent infringement
claims, could harm our financial performance and business operations and could cause delays in
product introductions.
   The use of any of our potential products in clinical trials and the sale of any approved products
exposes us to liability claims.
  Risks Related to Our Common Stock
 Our stock price remains highly volatile which could make it difficult for our stockholders to
resell our common stock.
  31




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
    
    a decline in sales of Tarceva;
    
    a decline in our business operating results or prospects;
    
    a general economic slowdown in the United States or the key international markets
where Tarceva is sold;
    
    adverse events with respect to our intellectual property;
    
    announcement or launching of technological innovations or new therapeutic products
by third parties;
    
    positive or negative clinical efficacy or safety results from our competitors
products;
    
    public concern as to the safety, or withdrawal, of our products and potential
products;
    
    comments by securities analysts regarding us or our competitors and general market
conditions;
    
    future sales of substantial amounts of our common stock by us or existing
stockholders;
    
    negative developments concerning strategic alliance agreements;
    
    changes in government regulation, including pricing controls, that impact our
products;
    
    negative or neutral clinical trial results, including clinical trial results for
additional indications for Tarceva;
    
    delays with the FDA in the approval process for products and clinical
candidates; and
    
    developments in laws or regulations that impact our patent or other proprietary
rights.
 Our governance documents and state law provide certain anti-takeover measures which will discourage
a third party from seeking to acquire us and may impede the ability of stockholders to remove and
replace our board of directors and, therefore, our management.
   
    
    no stockholder action may be taken without a meeting, without prior notice and
without a vote; solicitations by consent are thus prohibited;
    
    special meetings of stockholders may be called only by our board of directors, or by
our stockholders holding 20% of our outstanding shares upon 90 days prior written
notice;
 32




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
    
    nominations by stockholders of candidates for election to the board of directors at
our annual meeting of stockholders must be made at least 45 days prior to the
anniversary of the date on which we first mailed our proxy materials for the prior
years annual meeting of stockholders; and
    
    our board of directors has the authority, without further action by the
stockholders, to fix the rights and preferences, and issue shares, of preferred stock.
An issuance of preferred stock with dividend and liquidation rights senior to the
common stock and convertible into a large number of shares of common stock could
prevent a potential acquiror from gaining effective economic or voting control.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Melville, New York.
 Farmingdale, New York.
 Cedar Knolls, New Jersey.
 Boulder, Colorado.
 Oxford, England.
 
 ITEM 3. LEGAL PROCEEDINGS
  33




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Information
  2007 FISCAL YEAR
    
    HIGH
    
    LOWFirst Quarter
    
    $
    36.89
    
    
    $
    30.94Second Quarter
    
    
    38.37
    
    
    
    33.09Third Quarter
    
    
    36.60
    
    
    
    28.68Fourth Quarter
    
    
    52.00
    
    
    
    33.27
 2006 FISCAL YEAR
    
    HIGH
    
    LOWFirst Quarter
    
    $
    33.42
    
    
    $
    26.50Second Quarter
    
    
    33.98
    
    
    
    25.02Third Quarter
    
    
    38.17
    
    
    
    30.17Fourth Quarter
    
    
    43.17
    
    
    
    34.29
 Holders and Dividends
  34




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Securities Authorized for Issuance Under Equity Compensation Plans
 Equity Compensation Plan Information as of December 31, 2007
 Number ofNumber of
    
    
    
    
    
    
    securitiessecurities to be
    
    
    
    
    
    
    remainingissued upon
    
    
    Weighted-average
    
    
    available forexercise of
    
    
    exercise price of
    
    
    future issuanceoutstanding
    
    
    outstanding
    
    
    under equityoptions, warrants
    
    
    options, warrants
    
    
    compensationPlan category
    
    and rights (a)
    
    
    and rights (b)
    
    
    plansEquity compensation plans approved by security holders
    
    
    6,078,524
    (c)
    
    $
    32.76
    
    
    
    6,789,825
    (e)Equity compensation plans not approved by security holders
    
    
    413,735
    (d)
    
    $
    41.60
    
    
    
    Total
    
    
    6,492,259
    
    
    $
    33.32
    
    
    
    6,789,825
 
 a)
    
    Includes stock options, restricted stock, restricted stock units and deferred stock
units.b)
    
    The weighted-average exercise price of outstanding options, warrants and rights does not
include restricted stock, restricted stock units and deferred stock units, as they are
issued for no cash consideration.c)
    
    Consists of four plans: the 1989 Incentive and Non-Qualified Stock Option Plan, the 1997
Incentive and Non-Qualified Stock Option Plan, the 1999 Incentive and Non-Qualified Stock
Option Plan and the Amended and Restated Stock Incentive Plan.d)
    
    In connection with the acquisition of certain oncology assets from Gilead Sciences, Inc.
on December 21, 2001, we adopted a Non-Qualified Stock Option Plan for Former Employees of
Gilead Sciences, Inc. We granted ten-year options to purchase an aggregate of 693,582 shares
of our common stock at a purchase price of $45.01 per share, which represented the fair
value of our stock at the date granted. With respect to each option grant, one-third of the
options vested on the first anniversary of the date of grant and the remainder vested
ratably monthly thereafter for 24 months.In connection with the acquisition of Cadus in July 1999, we adopted a Non-Qualified Stock
Option Plan for Former Employees of Cadus Pharmaceutical Corporation. We granted ten-year
options to purchase an aggregate of 415,000 shares of our common stock at a purchase price of
$5.00 per share, which represented the fair value of our stock at the date granted. These
options became exercisable on July 30, 2000, one year from the date of the grant.In connection with the acquisition of Eyetech Pharmaceuticals, Inc., or Eyetech, in November
2005, we adopted a Stock Incentive Plan for Pre-Merger Employees of Eyetech Pharmaceuticals,
Inc. We granted seven-year options to purchase an aggregate of 625,810 shares of our common
stock at a purchase price of $23.83, which represents the fair value of our stock at the date
granted. With respect to each option grant, one-fourth of the options vested on the first
anniversary and the remainder vest ratably thereafter on a monthly basis for 36 months.Also in connection with the acquisition of Eyetech, we assumed Eyetechs 2001 Stock Plan and
to facilitate such assumption, we adopted the Stock Plan for Assumed Options of Pre-Merger
Employees of Eyetech Pharmaceuticals, Inc. The number of shares subject to each assumed
option was determined by dividing the assumed Eyetech per share option exercise price by the
conversion ratio of 0.491 and rounding that result down to the nearest whole number for a
total of 153,290 shares. The exercise price was determined by dividing the assumed Eyetech
per share option exercise price by the conversion ratio of 0.491 and rounding up to the
nearest whole cent.Includes options established for certain outside consultants related to clinical trial
operations.e)
    
    Consists of 378,823 shares reserved for issuance under the 1995 Employee Stock Purchase
Plan and the stock purchase plan for our UK-based employees, and 6,411,002 shares reserved
for issuance under the 1999 Incentive and Non-Qualified Stock Option Plan and the Amended
and Restated Stock Incentive Plan.  35




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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 st
 ThreeMonths(In thousands, except
    
    Year Ended
    
    Year Ended
    
    Year Ended
    
    Ended
    
    Year Ended
    
    Year Endedper share data)
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    September 30,
    
    September 30,2007(a)
    
    2006(b)
    
    2005(c)
    
    2004(d)
    
    2004(e)
    
    2003(f)Consolidated Statement of Operations Data:Revenues
    
    $
    341,030
    
    
    $
    241,037
    
    
    $
    138,423
    
    
    $
    12,347
    
    
    $
    42,800
    
    
    $
    32,369Expenses:Cost of goods sold
    
    
    9,399
    
    
    
    8,671
    
    
    
    5,035
    
    
    
    (1,247
    )
    
    
    8,985
    
    
    
    157Net expense  unconsolidated joint business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,661
    
    
    
    
    
    
    
    Research and development
    
    
    123,531
    
    
    
    117,527
    
    
    
    116,655
    
    
    
    31,913
    
    
    
    110,398
    
    
    
    102,642Acquired in-process research and development
    
    
    9,664
    
    
    
    
    
    
    
    3,542
    
    
    
    
    
    
    
    32,785
    
    
    
    31,451Selling, general and administrative
    
    
    99,159
    
    
    
    107,458
    
    
    
    89,205
    
    
    
    20,313
    
    
    
    98,909
    
    
    
    70,532Impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,599
    
    
    
    Amortization of intangibles
    
    
    1,840
    
    
    
    1,809
    
    
    
    15,281
    
    
    
    3,804
    
    
    
    18,606
    
    
    
    9,300Income (loss) from operations
    
    
    97,437
    
    
    
    5,572
    
    
    
    (91,295
    )
    
    
    (50,097
    )
    
    
    (251,482
    )
    
    
    (181,713
    )Other income (expense)  net
    
    
    7,902
    
    
    
    1,128
    
    
    
    6,201
    
    
    
    1,702
    
    
    
    (8,889
    )
    
    
    356Income (loss) from continuing operations
before income taxes
    
    
    105,339
    
    
    
    6,700
    
    
    
    (85,094
    )
    
    
    (48,395
    )
    
    
    (260,371
    )
    
    
    (181,357
    )Income tax provision
    
    
    (2,732
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) from continuing operations
    
    
    102,607
    
    
    
    6,700
    
    
    
    (85,094
    )
    
    
    (48,395
    )
    
    
    (260,371
    )
    
    
    (181,357
    )Loss from discontinued operations  net of
tax
    
    
    (36,288
    )
    
    
    (610,930
    )
    
    
    (72,029
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss) before extraordinary gain
    
    
    66,319
    
    
    
    (604,230
    )
    
    
    (157,123
    )
    
    
    (48,395
    )
    
    
    (260,371
    )
    
    
    (181,357
    )Extraordinary gain  net of tax
    
    
    
    
    
    
    22,046
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    66,319
    
    
    $
    (582,184
    )
    
    $
    (157,123
    )
    
    $
    (48,395
    )
    
    $
    (260,371
    )
    
    $
    (181,357
    )Basic and diluted net earnings (loss) per common
share:Basic earnings (loss):Income (loss) from continuing operations
    
    $
    1.78
    
    
    $
    0.12
    
    
    $
    (1.63
    )
    
    $
    (1.02
    )
    
    $
    (6.50
    )
    
    $
    (4.87
    )Loss from discontinued operations  net of tax
    
    
    (0.63
    )
    
    
    (10.73
    )
    
    
    (1.38
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss) before extraordinary gain
    
    
    1.15
    
    
    
    (10.61
    )
    
    
    (3.02
    )
    
    
    (1.02
    )
    
    
    (6.50
    )
    
    
    (4.87
    )Extraordinary gain  net of tax
    
    
    
    
    
    
    0.39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1.15
    
    
    $
    (10.22
    )
    
    $
    (3.02
    )
    
    $
    (1.02
    )
    
    $
    (6.50
    )
    
    $
    (4.87
    )Diluted earnings (loss):Income (loss) from continuing operations
    
    $
    1.70
    
    
    $
    0.12
    
    
    $
    (1.63
    )
    
    $
    (1.02
    )
    
    $
    (6.50
    )
    
    $
    (4.87
    )Loss from discontinued operations  net of tax
    
    
    (0.58
    )
    
    
    (10.60
    )
    
    
    (1.38
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss) before extraordinary gain
    
    
    1.11
    
    
    
    (10.48
    )
    
    
    (3.02
    )
    
    
    (1.02
    )
    
    
    (6.50
    )
    
    
    (4.87
    )Extraordinary gain  net of tax
    
    
    
    
    
    
    0.38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1.11
    
    
    $
    (10.10
    )
    
    $
    (3.02
    )
    
    $
    (1.02
    )
    
    $
    (6.50
    )
    
    $
    (4.87
    )Shares used in the calculation of income (loss)
per common share:Basic
    
    
    57,665
    
    
    
    56,939
    
    
    
    52,078
    
    
    
    47,375
    
    
    
    40,083
    
    
    
    37,249Diluted
    
    
    62,241
    
    
    
    57,645
    
    
    
    52,078
    
    
    
    47,375
    
    
    
    40,083
    
    
    
    37,249
 36




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As of
    
    As of
    
    As of
    
    As of
    
    As of
    
    As ofDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    September 30,
    
    September 30,(In thousands)
    
    2007(a)
    
    2006(b)
    
    2005(c)
    
    2004(d)
    
    2004(e)
    
    2003(f)Consolidated Balance Sheet Data:Cash, cash equivalents and
investment securities
(unrestricted and
restricted)
    
    $
    305,098
    
    
    $
    216,368
    
    
    $
    179,606
    
    
    $
    656,239
    
    
    $
    257,229
    
    
    $
    404,147Receivables
    
    
    87,523
    
    
    
    80,075
    
    
    
    152,482
    
    
    
    14,077
    
    
    
    12,112
    
    
    
    11,654Working capital
    
    
    197,631
    
    
    
    266,496
    
    
    
    276,171
    
    
    
    630,246
    
    
    
    228,223
    
    
    
    379,598Total assets
    
    
    558,380
    
    
    
    457,732
    
    
    
    1,058,582
    
    
    
    780,116
    
    
    
    388,029
    
    
    
    591,502Long-term liabilities
    
    
    166,930
    
    
    
    349,555
    
    
    
    337,788
    
    
    
    195,814
    
    
    
    186,574
    
    
    
    338,592Stockholders equity
    
    
    138,956
    
    
    
    28,594
    
    
    
    578,466
    
    
    
    539,390
    
    
    
    154,233
    
    
    
    218,057
 
 (a)
    
    The calendar 2007 consolidated financial statements include a $9.7 million in-process
research and development charges related to the payment made under our research collaboration
with AVEO and the purchase of AdipoGenix intellectual property, and a $4.1 million gain,
included in Other income (expense)  net, related to out decision to curtail our
post-retirement medical and life insurance plan. The 2023 Notes have been classified as
current in the December 31, 2007 consolidated balance sheet.(b)
    
    The calendar 2006 loss from discontinued operations includes $506.0 million of impairment
charges related to (OSI) Eyetech goodwill and (OSI) Eyetech amortizable intangibles
($320.3 million and $185.7 million, respectively) and a $26.4 million charge for obsolete and
expiring inventory. A $22.0 million extraordinary gain was recognized in the 2006 fiscal year
as a result of reversing the accrued contingent consideration recorded in connection with the
acquisition of Cell Pathways in the 2003 fiscal year.(c)
    
    The calendar 2005 consolidated financial statements reflect: (a) the acquisition of Eyetech
in November 2005 for aggregate consideration of $909.3 million ($637.4 million net of cash and
investments acquired), including cash consideration of $702.1 million, the value of
5.6 million shares of our common stock issued to Eyetech shareholders, the value of converted
stock options issued to Eyetech shareholders and transaction-related costs incurred; (b) an
in-process R&D charge of $60.9 million related to the acquisition of Eyetech recorded as a
loss from discontinued operations; (c) in-process R&D charges of $3.5 million related to the
acquisition of the minority interest in Prosidion; and (d) the issuance of $115.0 million
principle amount of our 2025 Notes in a private placement for net proceeds of $111.0 million,
of which approximately $24.0 million was used to purchase, concurrently with the offering,
500,000 shares of our common stock and a call spread option with respect to our common stock.(d)
    
    The three months ended December 31, 2004 includes: (a) the sale of 6.9 million shares of our
common stock for net proceeds of $419.9 million; (b) net expense from unconsolidated joint
business of $7.7 million related to our co-promotion and manufacturing agreements with
Genentech for Tarceva; and (c) a net credit adjustment of $1.4 million to reduce a previously
recorded provision for excess Gelclair® Bioadherent Oral Gel, or Gelclair, inventory.(e)
    
    The fiscal 2004 consolidated financial statements include: (a) the acquisition of certain
assets from Probiodrug for approximately $36.4 million in cash; (b) an impairment charge
related to the Gelclair intangible asset of $24.6 million; (c) the conversion of
$160.0 million aggregate principle amount of 4% convertible senior subordinated notes due 2009
into 3.2 million shares of our common stock; (d) the charge of $8.6 million relating to excess
Gelclair inventory; and (e) the recognition of $3.0 million of Tarceva-related milestone
revenues.(f)
    
    The fiscal 2003 consolidated financial statements include: (a) the acquisition of the
marketing and promotion rights to Novantrone for approved oncology indications in the United
States for approximately $45.0 million in cash; (b) the acquisition of Cell Pathways for
approximately $55.0 million in common stock, contingent value rights and cash; (c) the
issuance of $150.0 million of our 2023 Notes for net proceeds of approximately $145.1 million;
and (d) the repurchase of 503,800 shares of our common stock for $19.0 million. 
 37




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  -
 -
   38




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Critical Accounting Policies
  Revenue Recognition
 Net Revenues from Unconsolidated Joint Business
  License Fees and Milestones
  39




---



##### Table of Contents



Discontinued Operations
   (a) Macugen Product Sales
    40




---



##### Table of Contents



(b) Macugen Collaborative Revenue
   (c) Macugen Milestone Revenue
   Inventory
   41




---



##### Table of Contents



Stock-Based Compensation
    Accruals for Clinical Research Organization and Clinical Site Costs
  Income Taxes
   42




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##### Table of Contents



Investments
and Other-than-Temporary Impairments of Available-for-Sale Marketable Securities
   Goodwill and Other Long-Lived Assets
  43




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##### Table of Contents



Years Ended December 31, 2007 and 2006
 Results of Operations
  Revenues
 Year ended December 31,(in thousands)2007
    
    2006
    
    $ ChangeNet revenue from unconsolidated joint business
    
    $
    168,756
    
    
    $
    154,886
    
    
    $
    13,870Royalties on product sales
    
    
    95,243
    
    
    
    50,174
    
    
    
    45,069License, milestone and other revenues
    
    
    77,031
    
    
    
    35,977
    
    
    
    41,054Total revenues
    
    $
    341,030
    
    
    $
    241,037
    
    
    $
    99,993
 Net Revenue from Unconsolidated Joint Business
  44




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##### Table of Contents



Royalties on Product Sales
   License, Milestone and Other Revenues
    ®
 45




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##### Table of Contents



Expenses
 Year ended December 31,(in thousands)2007
    
    2006
    
    $ ChangeCost of goods sold
    
    $
    9,399
    
    
    $
    8,671
    
    
    $
    728Research and development
    
    
    123,531
    
    
    
    117,527
    
    
    
    6,004Acquired in-process research and development
    
    
    9,664
    
    
    
    
    
    
    
    9,664Selling, general and administrative
    
    
    99,159
    
    
    
    107,458
    
    
    
    (8,299
    )Amortization of intangibles
    
    
    1,840
    
    
    
    1,809
    
    
    
    31$
    243,593
    
    
    $
    235,465
    
    
    $
    8,128
 Cost of Goods Sold
   Research and Development
  46




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Acquired In-Process Research and Development
    Selling, General and Administrative
  47




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##### Table of Contents



Other Income and Expense
 Year ended December 31,(in thousands)2007
    
    2006
    
    $ ChangeInvestment income-net
    
    $
    12,830
    
    
    $
    11,098
    
    
    $
    1,732Interest expense
    
    
    (7,235
    )
    
    
    (7,339
    )
    
    
    104Other income (expense)-net
    
    
    2,307
    
    
    
    (2,631
    )
    
    
    4,938Total other expenses/income
    
    $
    7,902
    
    
    $
    1,128
    
    
    $
    6,774
   Income Taxes
    Loss from Discontinued Operations
  48




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Extraordinary Gain
  Years Ended December 31, 2006 and 2005
 Results of Operations
  49




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##### Table of Contents



Revenues
 Year ended December 31,(in thousands)2006
    
    2005
    
    $ ChangeNet revenue from unconsolidated joint business
    
    $
    154,886
    
    
    $
    84,727
    
    
    $
    70,159Royalties on product sales
    
    
    50,174
    
    
    
    6,986
    
    
    
    43,188License, milestone and other revenues
    
    
    35,977
    
    
    
    46,710
    
    
    
    (10,733
    )Total revenues
    
    $
    241,037
    
    
    $
    138,423
    
    
    $
    102,614
 Net Revenue from Unconsolidated Joint Business
  Royalties on Product Sales
  License, Milestone and Other Revenues
   50




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##### Table of Contents



Expenses
 Year ended December 31,(in thousands)2006
    
    2005
    
    $ ChangeCost of goods sold
    
    $
    8,671
    
    
    $
    5,035
    
    
    $
    3,636Research and development
    
    
    117,527
    
    
    
    116,655
    
    
    
    872Acquired in-process research and development
    
    
    
    
    
    
    3,542
    
    
    
    (3,542
    )Selling, general and administrative
    
    
    107,458
    
    
    
    89,205
    
    
    
    18,253Amortization of intangibles
    
    
    1,809
    
    
    
    15,281
    
    
    
    (13,472
    )$
    235,465
    
    
    $
    229,718
    
    
    $
    5,747
 Cost of Goods Sold
   Research and Development
    51




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##### Table of Contents



Acquired In-Process Research and Development
  Selling, General and Administrative
  Amortization of Intangibles
  Other Income and Expense
 Year ended December 31,(in thousands)2006
    
    2005
    
    $ ChangeInvestment income-net
    
    $
    11,098
    
    
    $
    13,206
    
    
    $
    (2,108
    )Interest expense
    
    
    (7,339
    )
    
    
    (4,986
    )
    
    
    (2,353
    )Other income (expenses)-net
    
    
    (2,631
    )
    
    
    (2,019
    )
    
    
    (612
    )Total other expenses/income
    
    $
    1,128
    
    
    $
    6,201
    
    
    $
    (5,073
    )
   Loss from Discontinued Operations
  52




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##### Table of Contents



Extraordinary Gain
  Liquidity and Capital Resources
  Year Ended December 31,2007
    
    2006Cash provided by (used in):Operating activities
    
    $
    75,809
    
    
    $
    37,515Investing activities
    
    
    19,879
    
    
    
    (168,444
    )Financing activities
    
    
    24,755
    
    
    
    8,396Net increase (decrease) in cash and cash
equivalents
    
    $
    120,443
    
    
    $
    (122,533
    )
    53




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##### Table of Contents



Commitments and Contingencies
  2013 &2008
    
    2009-2010
    
    2011-2012
    
    ThereafterContractual Obligations:Senior convertible debt (a)
    
    $
    7,175
    
    
    $
    14,350
    
    
    $
    14,350
    
    
    $
    348,525Operating leases
    
    
    13,040
    
    
    
    22,648
    
    
    
    21,871
    
    
    
    82,364Purchase obligations (b)
    
    
    35,260
    
    
    
    34,700
    
    
    
    7,800
    
    
    
    6,200Obligations related to exit
activities (c)
    
    
    1,934
    
    
    
    2,634
    
    
    
    
    
    
    
    1,486Total contractual obligations
    
    $
    57,409
    
    
    $
    74,332
    
    
    $
    44,021
    
    
    $
    438,575
 
 (a)
    
    Includes interest payments at a rate of 3.25% per annum relating to the $150.0 million
principal amount of the 2023 Notes and at a rate of 2% per annum relating to the $115.0
million principal amount of the 2025 Notes. The holders of the 2023 Notes have the right to
require us to purchase all of the 2023 Notes, or a portion thereof, in September 2008. We may
choose to pay the purchase price in cash or shares of our common stock. Holders of the 2025
Notes have the right to require us to purchase, for cash, all of the 2025 Notes, or a portion
thereof, in December 2010.(b)
    
    Includes inventory commitments, commercial and research commitments and other significant
purchase commitments. Also includes our share of the remaining future commitment related to
the Tarceva global development costs of approximately $76 million.(c)
    
    Includes payments for termination benefits and facility refurbishments. Other significant commitments and contingencies include the following:
 
    
    We are committed to share certain commercialization costs relating to Tarceva with
Genentech. Under the terms of our agreement, there are no contractually determined
amounts for future commercial costs.
    
    Under agreements with external clinical research organizations, or CROs, we will
continue to incur expenses relating to clinical trials of Tarceva, Macugen and other
clinical candidates. The timing and amount of these disbursements can be based upon the
achievement of certain
 54




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##### Table of Contents



milestones, patient enrollment, services rendered or as expenses are incurred by the
CROs and therefore we cannot reasonably estimate the potential timing of these
payments.
    
    We have outstanding letters of credit of $7.7 million, which primarily serve as
security for performance under various lease obligations.
    
    We have a retirement plan which provides post-retirement medical and life insurance
benefits to eligible employees, board members and qualified dependents. We curtailed
this plan in 2007, however, certain employees, board members and qualified dependents
remain eligible for these benefits. Eligibility is determined based on age and years
of service. We had an accrued liability for post-retirement benefit costs of $3.2 million
at December 31, 2007.
    
    Under certain license and collaboration agreements with pharmaceutical companies and
educational institutions, we are required to pay royalties and/or milestone payments
upon the successful development and commercialization of products. However, successful
research and development of pharmaceutical products is high risk, and most products
fail to reach the market. Therefore, at this time the amount and timing of the
payments, if any, are not known.
    
    Under certain license and other agreements, we are required to pay license fees for
the use of technologies and products in our research and development activities or
milestone payments upon the achievement of certain predetermined conditions. These
license fees are not deemed material to our consolidated financial statements and the
amount and timing of the milestone payments, if any, are not known due to the
uncertainty surrounding the successful research, development and commercialization of
the products.
    
    In connection with the acquisition of Eyetech in November 2005, we assumed various
contracts related to the in-licensing, development, manufacture and marketing of
Macugen. These license agreements represent rights and obligations of our subsidiary,
(OSI) Eyetech. Under the terms of the license agreements, we will be required to make
additional milestone payments, and we are also required to pay royalties on net sales.
 Accounting Pronouncements
    55




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Forward Looking Statements
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   56




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57




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##### Table of Contents



ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
  PageNumberReport of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
    
    59Consolidated Balance Sheets at December 31, 2007 and 2006
    
    60Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005
    
    61Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2007, 2006
and 2005
    
    62Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
    
    64Notes to Consolidated Financial Statements
    
    65
 58




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS
 
    Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
 Shared-Based
Payment.
 Internal Control  Integrated Framework
 /s/ KPMG LLP
 
 59




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006
(In thousands except per share data)
 December 31,2007
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    162,737
    
    
    $
    42,028Investment securities
    
    
    137,439
    
    
    
    164,786Restricted investment securities  short-term
    
    
    4,922
    
    
    
    9,554Accounts receivables  net
    
    
    87,523
    
    
    
    80,075Inventory  net
    
    
    21,064
    
    
    
    36,860Interest receivable
    
    
    1,116
    
    
    
    3,674Prepaid expenses and other current assets
    
    
    9,882
    
    
    
    9,102Assets related to discontinued operations
    
    
    25,442
    
    
    
    Total current assets
    
    
    450,125
    
    
    
    346,079Property, equipment and leasehold improvements  net
    
    
    46,694
    
    
    
    56,223Debt issuance costs  net
    
    
    3,047
    
    
    
    4,910Goodwill
    
    
    39,411
    
    
    
    39,373Other intangible assets  net
    
    
    4,966
    
    
    
    6,742Other assets
    
    
    14,137
    
    
    
    4,405$
    558,380
    
    
    $
    457,732LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    45,843
    
    
    $
    54,741Collaboration profit share payable
    
    
    
    
    
    
    12,039Unearned revenue  current
    
    
    10,912
    
    
    
    12,803Liabilities associated with discontinued operations
    
    
    45,739
    
    
    
    Convertible senior subordinated notes
    
    
    150,000
    
    
    
    Total current liabilities
    
    
    252,494
    
    
    
    79,583Other liabilities:Rent obligations and deferred rent expense
    
    
    10,812
    
    
    
    10,044Unearned revenue  long-term
    
    
    37,075
    
    
    
    66,089Convertible senior subordinated notes
    
    
    115,000
    
    
    
    265,000Accrued post-retirement benefit cost and other
    
    
    4,043
    
    
    
    8,422Total liabilities
    
    
    419,424
    
    
    
    429,138Stockholders equity:Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued at
December 31, 2007 and 2006, respectively
    
    
    
    
    
    
    Common stock, $.01 par value; 200,000 shares authorized, 60,352 and 59,179
shares issued at December 31, 2007 and 2006, respectively
    
    
    604
    
    
    
    592Additional paid-in capital
    
    
    1,658,737
    
    
    
    1,616,874Accumulated deficit
    
    
    (1,487,686
    )
    
    
    (1,554,005
    )Accumulated other comprehensive income
    
    
    4,522
    
    
    
    2,354176,177
    
    
    
    65,815Less: treasury stock, at cost; 1,943 shares at December 31, 2007 and 2006
    
    
    (37,221
    )
    
    
    (37,221
    )Total stockholders equity
    
    
    138,956
    
    
    
    28,594Commitments and contingencies (See Note 17)$
    558,380
    
    
    $
    457,732
  60




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(In thousands except per share data)
 Year Ended December 31,2007
    
    2006
    
    2005Revenues:Net revenue from unconsolidated joint business
    
    $
    168,756
    
    
    $
    154,886
    
    
    $
    84,727Royalties on product sales
    
    
    95,243
    
    
    
    50,174
    
    
    
    6,986License, milestone and other revenues
    
    
    77,031
    
    
    
    35,977
    
    
    
    46,710Total revenues
    
    
    341,030
    
    
    
    241,037
    
    
    
    138,423Expenses:Cost of goods sold
    
    
    9,399
    
    
    
    8,671
    
    
    
    5,035Research and development
    
    
    123,531
    
    
    
    117,527
    
    
    
    116,655Acquired in-process research and development
    
    
    9,664
    
    
    
    
    
    
    
    3,542Selling, general and administrative
    
    
    99,159
    
    
    
    107,458
    
    
    
    89,205Amortization of intangibles
    
    
    1,840
    
    
    
    1,809
    
    
    
    15,281Total expenses
    
    
    243,593
    
    
    
    235,465
    
    
    
    229,718Income from continuing operations
    
    
    97,437
    
    
    
    5,572
    
    
    
    (91,295
    )Other income (expense):Investment income  net
    
    
    12,830
    
    
    
    11,098
    
    
    
    13,206Interest expense
    
    
    (7,235
    )
    
    
    (7,339
    )
    
    
    (4,986
    )Other income (expense)  net
    
    
    2,307
    
    
    
    (2,631
    )
    
    
    (2,019
    )Income (loss) from continuing operations before income taxes
    
    
    105,339
    
    
    
    6,700
    
    
    
    (85,094
    )Income tax provision
    
    
    2,732
    
    
    
    
    
    
    
    Net income (loss) from continuing operations
    
    
    102,607
    
    
    
    6,700
    
    
    
    (85,094
    )Loss from discontinued operations
    
    
    (36,288
    )
    
    
    (610,930
    )
    
    
    (72,029
    )Net income (loss) before extraordinary gain
    
    
    66,319
    
    
    
    (604,230
    )
    
    
    (157,123
    )Extraordinary gain
    
    
    
    
    
    
    22,046
    
    
    
    Net income (loss)
    
    $
    66,319
    
    
    $
    (582,184
    )
    
    $
    (157,123
    )Basic and diluted income (loss) per common share:Basic earnings (loss)Continuing operations
    
    $
    1.78
    
    
    $
    0.12
    
    
    $
    (1.63
    )Discontinued operations
    
    
    (0.63
    )
    
    
    (10.73
    )
    
    
    (1.38
    )Net income (loss) before extraordinary gain
    
    
    1.15
    
    
    
    (10.61
    )
    
    
    (3.02
    )Extraordinary gain
    
    
    
    
    
    
    0.39
    
    
    
    Net income (loss)
    
    $
    1.15
    
    
    $
    (10.22
    )
    
    $
    (3.02
    )Diluted earnings (loss)Continuing operations
    
    $
    1.70
    
    
    $
    0.12
    
    
    $
    (1.63
    )Discontinued operations
    
    
    (0.58
    )
    
    
    (10.60
    )
    
    
    (1.38
    )Net income (loss) before extraordinary gain
    
    
    1.11
    
    
    
    (10.48
    )
    
    
    (3.02
    )Extraordinary gain
    
    
    
    
    
    
    0.38
    
    
    
    Net income (loss)
    
    $
    1.11
    
    
    $
    (10.10
    )
    
    $
    (3.02
    )Weighted average shares of common stock outstanding:Basic shares
    
    
    57,665
    
    
    
    56,939
    
    
    
    52,078Diluted shares
    
    
    62,241
    
    
    
    57,645
    
    
    
    52,078
  61




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2007, 2006 AND 2005
(In thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    TotalCommon Stock
    
    Paid-in
    
    Deferred
    
    Accumulated
    
    Comprehensive
    
    Treasury
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Compensation
    
    Deficit
    
    Income (Loss)
    
    Stock
    
    EquityBalance at December 31, 2004
    
    
    52,398
    
    
    $
    524
    
    
    $
    1,375,486
    
    
    $
    (81
    )
    
    $
    (814,346
    )
    
    $
    3,258
    
    
    $
    (25,451
    )
    
    $
    539,390Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157,123
    )
    
    
    
    
    
    
    
    
    
    
    (157,123
    )Unrealized holding gain on
investment securities, net
of reclassification
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    928
    
    
    
    
    
    
    
    928Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,431
    )
    
    
    
    
    
    
    (2,431
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (158,626
    )Options exercised
    
    
    469
    
    
    
    5
    
    
    
    10,221
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,226Issuance of common stock
for employee purchase plan
and other
    
    
    94
    
    
    
    
    
    
    
    2,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,068Issuance of common stock
in connection with buyout
of Prosidion minority
interest
    
    
    85
    
    
    
    1
    
    
    
    4,157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,158Issuance of common stock
for directors annual retainer
    
    
    12
    
    
    
    
    
    
    
    527
    
    
    
    (527
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,739Issuance of restricted stock to
employees
    
    
    16
    
    
    
    
    
    
    
    613
    
    
    
    (613
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acceleration of stock options
    
    
    
    
    
    
    
    
    
    
    816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    816Call spread purchased in
connection with private
offering
    
    
    
    
    
    
    
    
    
    
    (12,179
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,179
    )Issuance of common stock in
connection with acquisition
of Eyetech
    
    
    5,654
    
    
    
    57
    
    
    
    205,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,393Issuance of stock options
and restricted rights in
connection with Eyetech acquisition
    
    
    
    
    
    
    
    
    
    
    5,110
    
    
    
    (7,859
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,749
    )Purchase of treasury stock,
500,000 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,770
    )
    
    
    (11,770
    )Balance at December 31, 2005
    
    
    58,728
    
    
    
    587
    
    
    
    1,592,155
    
    
    
    (7,341
    )
    
    
    (971,469
    )
    
    
    1,755
    
    
    
    (37,221
    )
    
    
    578,466Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (582,184
    )
    
    
    
    
    
    
    
    
    
    
    (582,184
    )Unrealized holding gain on
investment securities, net
of reclassification
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (233
    )
    
    
    
    
    
    
    (233
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,148
    
    
    
    
    
    
    
    2,148Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (580,269
    )Adjustment to initially apply
SFAS 158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,316
    )
    
    
    
    
    
    
    (1,316
    )Options exercised
    
    
    391
    
    
    
    4
    
    
    
    7,888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,892Issuance of common stock
for employee purchase plan
and other
    
    
    45
    
    
    
    1
    
    
    
    1,129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,130Issuance of common stock
in connection with buyout
of Prosidion minority
interest
    
    
    3
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145Issuance of common stock
for directors annual retainer
    
    
    4
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216Issuance of restricted stock to
employees
    
    
    8
    
    
    
    
    
    
    
    1,323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,323Reclassification of deferred
compensation due to the adoption of
SFAS 123(R)
    
    
    
    
    
    
    
    
    
    
    (5,045
    )
    
    
    7,341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,296Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    19,063
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,063Adjustment
for EITF 06-02 (sabbatical leave)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (352
    )
    
    
    
    
    
    
    
    
    
    
    (352
    )Balance at December 31, 2006
    
    
    59,179
    
    
    
    592
    
    
    
    1,616,874
    
    
    
    
    
    
    
    (1,554,005
    )
    
    
    2,354
    
    
    
    (37,221
    )
    
    
    28,594
 62




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2007, 2006 AND 2005  (Continued)
(In thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    TotalCommon Stock
    
    Paid-in
    
    Deferred
    
    Accumulated
    
    Comprehensive
    
    Treasury
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Compensation
    
    Deficit
    
    Income (Loss)
    
    Stock
    
    EquityComprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,319
    
    
    
    
    
    
    
    
    
    
    
    66,319Unrealized holding gain on
investment securities, net
of reclassification
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    486
    
    
    
    
    
    
    
    486Curtailment of post-retirement plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,316
    
    
    
    
    
    
    
    1,316Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    366
    
    
    
    
    
    
    
    366Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,487Options exercised
    
    
    1,052
    
    
    
    11
    
    
    
    25,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,633Issuance of common stock under
employee purchase plan
    
    
    26
    
    
    
    
    
    
    
    776
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    776Issuance of restricted stock to employees
    
    
    95
    
    
    
    1
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Equity based compensation expense
    
    
    
    
    
    
    
    
    
    
    15,447
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,447Balance at December 31, 2007
    
    
    60,352
    
    
    $
    604
    
    
    $
    1,658,737
    
    
    $
    
    
    
    $
    (1,487,686
    )
    
    $
    4,522
    
    
    $
    (37,221
    )
    
    $
    138,956
  63




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(In thousands)
 Year Ended December 31,2007
    
    2006
    
    2005Cash flow from operating activities:Net income (loss)
    
    $
    66,319
    
    
    $
    (582,184
    )
    
    $
    (157,123
    )Adjustments to reconcile net income (loss) to net cash (provided by)
used in operating activities:Extraordinary gain from reversal of contingent consideration
    
    
    
    
    
    
    (22,046
    )
    
    
    Loss on sale of investments
    
    
    
    
    
    
    
    
    
    
    2,188Loss (gain) on sale and disposals of equipment
    
    
    1,471
    
    
    
    (5
    )
    
    
    809Gain on sale of intellectual property
    
    
    (7,892
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    9,893
    
    
    
    36,093
    
    
    
    28,712Impairment of intangible asset and goodwill
    
    
    
    
    
    
    505,985
    
    
    
    Impairment of assets held for sale
    
    
    10,765
    
    
    
    
    
    
    
    Provision for excess inventory  net
    
    
    
    
    
    
    26,408
    
    
    
    Impact of inventory step-up related to inventory sold
    
    
    2,365
    
    
    
    19,924
    
    
    
    6,827In-process research and development charge
    
    
    9,664
    
    
    
    
    
    
    
    64,442Non-cash compensation charge
    
    
    17,099
    
    
    
    19,703
    
    
    
    2,027Changes in assets and liabilities, net of the effects
of acquisitions:Receivables
    
    
    (23,262
    )
    
    
    69,569
    
    
    
    (45,062
    )Inventory
    
    
    12
    
    
    
    (9,551
    )
    
    
    (15,759
    )Prepaid expenses and other current assets
    
    
    (1,054
    )
    
    
    1,715
    
    
    
    386Other assets
    
    
    (1,077
    )
    
    
    (3,755
    )
    
    
    147Accounts payable and accrued expenses
    
    
    6,038
    
    
    
    (17,017
    )
    
    
    (34,271
    )Collaboration profit share payable
    
    
    (9,257
    )
    
    
    (37,829
    )
    
    
    949Unearned revenue
    
    
    (1,331
    )
    
    
    29,104
    
    
    
    29,760Accrued post-retirement benefit cost
    
    
    (3,944
    )
    
    
    1,401
    
    
    
    1,149Net cash provided by (used in) operating activities
    
    
    75,809
    
    
    
    37,515
    
    
    
    (114,819
    )Cash flows from investing activities:Payments for acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (430,986
    )Purchases of investments (restricted and unrestricted)
    
    
    (258,085
    )
    
    
    (239,268
    )
    
    
    (447,443
    )Maturities and sales of investments (restricted and unrestricted)
    
    
    287,628
    
    
    
    80,788
    
    
    
    757,325Net additions to property, equipment and leasehold improvements
    
    
    (4,332
    )
    
    
    (10,728
    )
    
    
    (26,718
    )Purchase of intellectual property
    
    
    (9,664
    )
    
    
    
    
    
    
    Proceeds from sale of intellectual property
    
    
    4,000
    
    
    
    
    
    
    
    Proceeds from sale of fixed assets
    
    
    335
    
    
    
    795
    
    
    
    Purchase of compound library assets
    
    
    (3
    )
    
    
    (31
    )
    
    
    (920
    )Net cash provided by (used in) investing activities
    
    
    19,879
    
    
    
    (168,444
    )
    
    
    (148,742
    )Cash flows from financing activities:Proceeds from the exercise of stock options, stock warrants,
employee purchase plan, and other
    
    
    26,409
    
    
    
    9,138
    
    
    
    12,471Employees taxes paid related to equity awards
    
    
    (1,654
    )
    
    
    
    
    
    
    Proceeds from the issuance of convertible senior subordinated notes
    
    
    
    
    
    
    
    
    
    
    115,000Call spread premium
    
    
    
    
    
    
    
    
    
    
    (12,179
    )Debt issuance costs
    
    
    
    
    
    
    (102
    )
    
    
    (3,902
    )Payments on loans and capital leases payable
    
    
    
    
    
    
    (640
    )
    
    
    (180
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (11,770
    )Net cash provided by financing activities
    
    
    24,755
    
    
    
    8,396
    
    
    
    99,440Net increase (decrease) in cash and cash equivalents
    
    
    120,443
    
    
    
    (122,533
    )
    
    
    (164,121
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    266
    
    
    
    477
    
    
    
    (1,351
    )Cash and cash equivalents at beginning of year
    
    
    42,028
    
    
    
    164,084
    
    
    
    329,556Cash and cash equivalents at end of year
    
    $
    162,737
    
    
    $
    42,028
    
    
    $
    164,084Non-cash activities:Stock and warrants received from sale of intellectual property
    
    $
    3,892
    
    
    $
    
    
    
    $
    Post-retirement benefit obligation upon adoption of SFAS No. 158
    
    $
    
    
    
    $
    1,316
    
    
    $
    Issuance of common stock to acquire minority interest in Prosidion
    
    $
    
    
    
    $
    
    
    
    $
    4,157Issuance of equity securities in connection with Eyetech
acquisition costs
    
    $
    
    
    
    $
    
    
    
    $
    210,446Liabilities assumed in connection with acquisitions
    
    $
    
    
    
    $
    
    
    
    $
    124,000Cash paid for interest
    
    $
    7,175
    
    
    $
    7,175
    
    
    $
    4,869
  64




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (1) Summary of Significant Accounting Policies
 (a) Principles of Consolidation
  (b) Revenue Recognition
 Net revenue from unconsolidated joint business
   Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Co-promotion profit and reimbursement of
sales and marketing related costs
    
    $
    159,033
    
    
    $
    143,692
    
    
    $
    73,715Reimbursement of manufacturing costs
    
    
    9,723
    
    
    
    11,194
    
    
    
    11,012Net revenue from unconsolidated joint business
    
    $
    168,756
    
    
    $
    154,886
    
    
    $
    84,727
 65




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (c) Royalties on Product Sales
   (d) Licenses, Milestones and Other Revenues
     66




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      (e) Research and Development Costs
  (f) Acquired In-Process Research and Development
  67




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (g) Cash and Cash Equivalents
  (h) Investments
    (i) Other-Than-Temporary Impairments of Available-For-Sale Marketable Securities
  (j) Goodwill and Intangible Assets
  68




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   (k) Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of
   (l) Inventory
  (m) Depreciation and Amortization
   (n) Computer Software Costs
  69




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (o) Accrual for Clinical Research Organization and Clinical Site Costs
  (p) Foreign Currency Translation
  (q) Income Taxes
   (r) Debt Issuance Costs
 1 4
 (s) Stock-Based Compensation
  70




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   (t) Segment Information
  (u) Use of Estimates
  (v) Eyetech Purchase Accounting
    71




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Macugen Product Sales
    Macugen Collaborative Revenue
   Macugen Milestone Revenue
   72




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (2) Product Development/Commercialization Agreements/License Agreements
 (a) Genentech and Roche
       73




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    (b) AVEO
   (c) Eli Lilly
  74




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (d) OncoVista
  (e) Merck Serono
  (f) DPIV Patent Estate
  (g) Other
  (3) Net Earnings (Loss) Per Share
  75




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Year Ended December 31,2007
    
    2006
    
    2005Net income (loss) from continuing operations  basic
    
    $
    102,607
    
    
    $
    6,700
    
    
    $
    (85,094
    )Add: Interest and issuance cost related to convertible debt
    
    
    3,040
    
    
    
    Net income (loss) from continuing operations  diluted
    
    $
    105,647
    
    
    $
    6,700
    
    
    $
    (85,094
    )Weighted-average common shares outstanding  basic
    
    
    57,665
    
    
    
    56,939
    
    
    
    52,078Dilutive effect of options and restricted stock
    
    
    668
    
    
    
    706
    
    
    
    Dilutive effect of 2025 Notes
    
    
    3,908
    
    
    
    
    
    
    
    Weighted-average common shares and dilutive potential
common shares  diluted
    
    
    62,241
    
    
    
    57,645
    
    
    
    52,078Net income (loss) per share from continuing operations:Basic
    
    $
    1.78
    
    
    $
    0.12
    
    
    $
    (1.63
    )Diluted
    
    $
    1.70
    
    
    $
    0.12
    
    
    $
    (1.63
    )
  Year Ended December 31,(In thousands)
    
    2007
    
    2006
    
    2005Common share equivalents
    
    
    2,999
    
    
    
    6,907
    
    
    
    4,948Contingent shares
    
    
    
    
    
    
    1,585
    
    
    
    1,585Convertible note interest and issuance expense not added back under
the if converted method
    
    $
    5,936
    
    
    $
    9,038
    
    
    $
    6,065
   76




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (4) Comprehensive Income (Loss)
  Year Ended December 31,2007
    
    2006
    
    2005Net income (loss)
    
    $
    66,319
    
    
    $
    (582,184
    )
    
    $
    (157,123
    )Other comprehensive loss:Foreign currency translation adjustments
    
    
    366
    
    
    
    2,148
    
    
    
    (2,431
    )Curtailment of post-retirement plan
    
    
    1,316
    
    
    
    
    
    
    
    Unrealized holding gains (losses)
arising during period
    
    
    486
    
    
    
    (233
    )
    
    
    (1,245
    )Less: Reclassification adjustment for
losses realized in net loss
    
    
    
    
    
    
    -
    
    
    
    2,1732,168
    
    
    
    1,915
    
    
    
    (1,503
    )Total comprehensive income (loss)
    
    $
    68,487
    
    
    $
    (580,269
    )
    
    $
    (158,626
    )
  As of December 31,2007
    
    2006Cumulative foreign currency translation adjustment
    
    $
    4,342
    
    
    $
    3,976Adjustment to initially apply SFAS No. 158
    
    
    
    
    
    
    (1,316
    )Unrealized gains (losses) on available-for-sale securities
    
    
    180
    
    
    
    (306
    )Accumulated other comprehensive income
    
    $
    4,522
    
    
    $
    2,354
 (5) Investments
 (a) Investment Securities
  77




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  GrossUnrealized2007
    
    Costs
    
    Gains
    
    Fair ValueU.S. government and U.S. government
agency securities
    
    $
    128,416
    
    
    $
    156
    
    
    $
    128,572Corporate and financial institutions debt
    
    
    8,847
    
    
    
    20
    
    
    
    8,867Total investment securities
    
    
    137,263
    
    
    
    176
    
    
    
    137,439Restricted investments
    
    
    4,918
    
    
    
    4
    
    
    
    4,922Total
    
    $
    142,181
    
    
    $
    180
    
    
    $
    142,361
 GrossUnrealized2006
    
    Costs
    
    Losses
    
    Fair ValueU.S. government and U.S. government
agency securities
    
    $
    137,089
    
    
    $
    (274
    )
    
    $
    136,815Corporate and financial institutions debt
    
    
    27,975
    
    
    
    (4
    )
    
    
    27,971Investment securities
    
    
    165,064
    
    
    
    (278
    )
    
    
    164,786Restricted investments
    
    
    9,582
    
    
    
    (28
    )
    
    
    9,554Total
    
    $
    174,646
    
    
    $
    (306
    )
    
    $
    174,340
   Cost
    
    Fair Value2008
    
    $
    51,732
    
    
    $
    51,8742009
    
    
    46,098
    
    
    
    46,1122010
    
    
    42,601
    
    
    
    42,6262011
    
    
    1,750
    
    
    
    1,749$
    142,181
    
    
    $
    142,361
 (6) Inventory
   78




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  December 31,
    
    December 31,2007
    
    2006Raw materials
    
    $
    1,704
    
    
    $
    3,032Work-in-process
    
    
    8,595
    
    
    
    22,282Finished goods on hand, net
    
    
    4,614
    
    
    
    6,088Inventory subject to return
    
    
    6,151
    
    
    
    5,458Total inventory
    
    $
    21,064
    
    
    $
    36,860
  (7) Property, Equipment and Leasehold Improvements
  Estimated Life(years)
    
    December2007
    
    2006Land
    
    
    
    
    
    $
    3,600
    
    
    $
    3,600Building and improvements
    
    
    10-35
    
    
    
    23,395
    
    
    
    23,502Laboratory equipment
    
    
    5-15
    
    
    
    26,478
    
    
    
    25,663Office furniture and equipment and computer
equipment
    
    
    3-7
    
    
    
    16,025
    
    
    
    15,319Capitalized software
    
    
    1-3
    
    
    
    6,942
    
    
    
    6,817Manufacturing equipment
    
    
    3-7
    
    
    
    136
    
    
    
    5,150Leasehold improvements
    
    Life of lease

    
    
    34,525
    
    
    
    34,260Total
    
    
    
    
    
    
    111,101
    
    
    
    114,311Less: accumulated depreciation and amortization
    
    
    
    
    
    
    (64,407
    )
    
    
    (58,088
    )Property, equipment and leasehold
improvements, net
    
    
    
    
    
    $
    46,694
    
    
    $
    56,223
  (8) Goodwill and Other Intangible Assets
  79




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  December 31, 2007
    
    December 31, 2006Net
    
    
    
    
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Book
    
    Carrying
    
    Accumulated
    
    BookAmount
    
    Amortization
    
    Value
    
    Amount
    
    Amortization
    
    ValueNovantrone technology
    
    $
    46,009
    
    
    $
    (44,558
    )
    
    $
    1,451
    
    
    $
    46,009
    
    
    $
    (43,108
    )
    
    $
    2,901Acquired patent estate
    
    
    770
    
    
    
    (198
    )
    
    
    572
    
    
    
    760
    
    
    
    (135
    )
    
    
    625Acquired licenses
issued to other
companies
    
    
    3,984
    
    
    
    (1,041
    )
    
    
    2,943
    
    
    
    3,932
    
    
    
    (716
    )
    
    
    3,216Total
    
    $
    50,763
    
    
    $
    (45,797
    )
    
    $
    4,966
    
    
    $
    50,701
    
    
    $
    (43,959
    )
    
    $
    6,742
    (9) Accounts Payable and Accrued Expenses
  December 31,2007
    
    2006Accounts payable
    
    $
    5,249
    
    
    $
    3,543Accrued payroll and employee benefits
    
    
    3,398
    
    
    
    3,612Accrued exit costs (see note 10)
    
    
    2,589
    
    
    
    8,128Accrued interest
    
    
    1,619
    
    
    
    1,619Accrued CRO and site costs
    
    
    4,969
    
    
    
    5,059Accrued commercial and development costs
    
    
    6,566
    
    
    
    5,723Accrued royalties
    
    
    
    
    
    
    1,088Other accrued expenses
    
    
    21,453
    
    
    
    25,969$
    45,843
    
    
    $
    54,741
  80




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (10) Consolidation of Facilities
 (a) Restructuring Plan
  Year EndedDecember 31,2007
    
    2006Opening liability
    
    $
    1,897
    
    
    $
    Accrual for severance payments
    
    
    1,292
    
    
    
    653Accrual for lease payments
    
    
    702
    
    
    
    1,254Cash paid for severance
    
    
    (1,525
    )
    
    
    (10
    )Cash paid for rent
    
    
    (810
    )
    
    
    Ending liability
    
    $
    1,556
    
    
    $
    1,897
 (b) Corporate Headquarters
  Year EndedDecember 31,2007
    
    2006Opening liability
    
    $
    1,924
    
    
    $
    Accrual for lease termination costs
    
    
    
    
    
    
    2,974Accretion expense
    
    
    54
    
    
    
    147Cash paid for rent
    
    
    (1,434
    )
    
    
    (1,197
    )Ending liability
    
    $
    544
    
    
    $
    1,924
 (c) Oxford, England
  81




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Year EndedDecember 31,2007
    
    2006Opening liability
    
    $
    4,062
    
    
    $
    4,211Cash paid for rent
    
    
    (1,251
    )
    
    
    (701
    )Other
    
    
    71
    
    
    
    552Ending liability
    
    $
    2,882
    
    
    $
    4,062
 (11) Collaborative Profit Share Payable
  (12) Convertible Senior Subordinated Notes
 (a) 2.0% Convertible Senior Subordinated Notes
  82




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   (b) 3.25% Convertible Senior Subordinated Notes
   (13) Income Taxes
  83




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Year EndedDecember 31,2007Current:Federal
    
    $
    2,190State and Local
    
    
    196Foreign
    
    
    346Total
    
    $
    2,732
  Year EndedDecember 31,2007Statutory U.S. Federal tax rate
    
    
    35.0
    %State and local taxes, net of federal
benefit
    
    
    0.2Foreign taxes
    
    
    0.3Utilization of net operating loss
carry forwards
    
    
    (35.1
    )Other, net
    
    
    2.2Total
    
    
    2.6
    %
  84




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 December 31,2007
    
    2006Deferred tax assets:Net operating loss carry forwards
    
    $
    412,877
    
    
    $
    451,248Research and development tax credit carry forwards
    
    
    35,243
    
    
    
    29,422Intangible assets
    
    
    11,951
    
    
    
    10,379Unearned revenue
    
    
    31,174
    
    
    
    33,135Purchased research and experimental expenditures
    
    
    45,968
    
    
    
    48,880Capitalized research and experimental expenditures
    
    
    7,235
    
    
    
    9,467Other
    
    
    18,304
    
    
    
    26,943562,752
    
    
    
    609,474Valuation allowance
    
    
    (562,246
    )
    
    
    (607,961
    )506
    
    
    
    1,513Deferred tax liability:Other
    
    
    (409
    )
    
    
    (419
    )Inventory fair value adjustment
    
    
    (97
    )
    
    
    (1,094
    )(506
    )
    
    
    (1,513
    )$
    
    
    
    $
    
   (14) Employee Savings and Investment Plans
  85




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    (15) Employee Post-retirement Plan and Other
 (a) Employee Post-retirement Plan
    86




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Year Ended December 31,2007
    
    2006
    
    2005Service cost for benefits earned during
the period
    
    $
    337
    
    
    $
    1,054
    
    
    $
    839Interest cost on accumulated post-retirement
benefit obligation
    
    
    252
    
    
    
    409
    
    
    
    352Amortization of initial benefits attributed
to past service
    
    
    2
    
    
    
    6
    
    
    
    6Amortization of loss
    
    
    6
    
    
    
    66
    
    
    
    64Net post-retirement benefit cost
    
    $
    597
    
    
    $
    1,535
    
    
    $
    1,261
   2007
    
    2006Balance at beginning of year
    
    $
    8,070
    
    
    $
    7,509Benefit payments
    
    
    (118
    )
    
    
    (134
    )Loss experience
    
    
    128
    
    
    
    (768
    )Service cost
    
    
    337
    
    
    
    1,054Curtailment gain
    
    
    (5,506
    )
    
    
    Interest cost
    
    
    252
    
    
    
    409Balance at end of year
    
    $
    3,163
    
    
    $
    8,070
   2007
    
    2006
    
    2005Discount rate
    
    
    5.72
    %
    
    
    5.75
    %
    
    
    5.5
    %Expected long-term rate of return on plan assets
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
   (b) Sabbatical Leave Accrual
  87




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (16) Stockholders Equity
 (a) Equity Plans
      88




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Year Ended December 31,2007
    
    2006Cost of sales
    
    $
    338
    
    
    $
    251Research and development expenses
    
    
    4,683
    
    
    
    2,973Selling, general and administrative expenses
    
    
    10,406
    
    
    
    9,957Stock-based compensation expense
    
    $
    15,427
    
    
    $
    13,181
    Year EndedDecember 31,2005Net loss
    
    $
    (157,123
    )Add: stock-based compensation included in net loss
    
    
    3,406Compensation cost determined under fair value method
    
    
    (61,714
    )Pro forma net loss
    
    $
    (215,431
    )Basic and diluted net loss per common share:Net loss  as reported
    
    $
    (3.02
    )Net loss  pro forma
    
    $
    (4.14
    )
  89




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (b) Stock Options
   Year Ended December 31,2007
    
    2006
    
    2005Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    46.40
    %
    
    
    54.53
    %
    
    
    60.95
    %Risk-free interest rate
    
    
    3.83
    %
    
    
    4.53
    %
    
    
    4.23
    %Expected term (years)
    
    
    4.65
    
    
    
    4.51
    
    
    
    4.49Per share
weighted average fair value of  stock options grants
    
    
    19.26
    
    
    
    16.21
    
    
    
    17.26
 90




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Weighted
    
    Aggregate
    
    Weighted AverageNo. Shares
    
    Average Exercise
    
    Intrinsic Value
    
    Contractual Life(in thousands)
    
    Price
    
    (1) (in millions)
    
    Remaining in YearsOutstanding at December 31, 2004
    
    
    4,246
    
    
    $
    37.46Granted at fair value
    
    
    3,573
    
    
    $
    32.22Exercised at fair value
    
    
    (463
    )
    
    $
    21.76Forfeitures
    
    
    (392
    )
    
    $
    46.60Outstanding at December 31, 2005
    
    
    6,964
    
    
    $
    35.29Granted at fair value
    
    
    777
    
    
    $
    32.87Exercised at fair value
    
    
    (391
    )
    
    $
    20.22Forfeitures
    
    
    (621
    )
    
    $
    31.15Expired
    
    
    (2
    )
    
    $
    15.90Outstanding at December 31, 2006
    
    
    6,727
    
    
    $
    36.01Granted at fair value
    
    
    665
    
    
    $
    44.25Exercised at fair value
    
    
    (1,042
    )
    
    $
    24.65Forfeitures
    
    
    (765
    )
    
    $
    39.42Outstanding at December 31, 2007
    
    
    5,585
    
    
    $
    38.69
    
    
    $
    68.5
    
    
    
    5.24Exercisable at December 31, 2007
    
    
    3,896
    
    
    $
    40.20
    
    
    $
    46.0
    
    
    
    4.97Unvested at December 31, 2007
    
    
    1,689
    
    
    $
    35.22
    
    
    $
    22.5
    
    
    
    5.88
 
 (1)
    
    The intrinsic value of a stock option is the amount by which the current market value of the
underlying stock exceeds the exercise price of the option.    (c) Restricted Stock, Restricted Stock Units, and Deferred Stock Units
  91




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   WeightedNo. Shares
    
    
    Average Grant(in thousands)
    
    
    Date Fair ValueOutstanding at December 31, 2005
    
    
    16
    
    
    $
    37.88Granted
    
    
    623
    
    
    $
    35.58Vested
    
    
    (4
    )
    
    $
    40.22Forfeited
    
    
    (12
    )
    
    $
    31.29Outstanding at December 31, 2006
    
    
    623
    
    
    $
    35.69Granted
    
    
    498
    
    
    $
    46.77Vested
    
    
    (127
    )
    
    $
    36.22Forfeited
    
    
    (97
    )
    
    $
    35.59Outstanding at December 31, 2007
    
    
    897
    
    
    $
    41.90
  (d) Shareholder Rights Plan
    (e) Authorized Common and Preferred Stock
  92




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (f) Employee Stock Purchase Plan
   (g) Issuance of Common Stock for Acquisitions
   (17) Commitments and Contingencies
 (a) Lease Commitments
   2008
    
    $
    13,0402009
    
    
    11,5692010
    
    
    11,0792011
    
    
    11,0732012
    
    
    10,7982013 and thereafter
    
    
    82,364$
    139,923
  93




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   (b)
   (c) Litigation
  (18) Related Party Transactions
  94




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##### Table of Contents



OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (19) Acquisitions
 (a) Acquisition of AdipoGenix Assets
  (b) Minority Interest in Prosidion
   License agreements
    
    $
    615Patent estate
    
    
    203Acquired in-process research and development
    
    
    3,694Minority interest
    
    
    322Goodwill
    
    
    149Common stock and cash paid
    
    $
    4,983
   95




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (20) Eyetech Acquisition and Discontinued Operations
 (a) Discontinued Operations
     Year EndedDecember 31,2007
    
    2006
    
    2005Net revenue
    
    $
    37,435
    
    
    $
    134,659
    
    
    $
    35,771Gain on sale of PDGF aptamer research program
    
    
    6,012
    
    
    
    Pretax loss
    
    
    (36,930
    )
    
    
    (610,929
    )
    
    
    (72,029
    )Net loss from discontinued operations
    
    $
    (36,288
    )
    
    $
    (610,929
    )
    
    $
    (72,029
    )
   96




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Assets:Accounts receivable
    
    $
    18,411Prepaid expenses and other assets
    
    
    470Inventories (assets held for sale)
    
    
    5,098Property, plant and equipment (assets held for sale)
    
    
    1,463Assets related to discontinued operations
    
    $
    25,442Liabilities:Accounts payable and accrued expenses
    
    $
    13,382Collaboration profit share
    
    
    2,783Unearned revenue
    
    
    29,574Liabilities related to discontinued operations
    
    $
    45,739
 (b) (OSI) Eyetech Divestiture  Severance Costs
    97




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Year EndedDecember 31,2007
    
    2006Opening liability
    
    $
    3,284
    
    
    $
    4,871Accrual for severance, relocation and retention bonuses
    
    
    5,206
    
    
    
    6,203Cash paid for severance
    
    
    (7,690
    )
    
    
    (7,790
    )Ending liability
    
    $
    800
    
    
    $
    3,284
 (c) (OSI) Eyetech Integration  Facility Restructuring
   Year EndedDecember 31,2007
    
    2006Opening liability
    
    $
    2,054
    
    
    $
    5,391Accrual for lease costs
    
    
    3,709
    
    
    
    (1,157
    )Accretion expense
    
    
    248
    
    
    
    329Cash paid for rent
    
    
    (2,729
    )
    
    
    (2,509
    )Ending liability
    
    $
    3,282
    
    
    $
    2,054
 (d) Eyetech Acquisition
    98




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Cash and investments
    
    $
    271,934Accounts receivable
    
    
    92,165Inventory
    
    
    62,587Fixed assets
    
    
    12,518Prepaid expenses and other assets
    
    
    7,955Amortizable intangibles
    
    
    201,400Goodwill
    
    
    320,261In-process R&D
    
    
    60,900Total assets and in-process R&D acquired
    
    
    1,029,720Less liabilities assumed
    
    
    120,327Purchase price
    
    $
    909,393
    Year EndedDecember 31,2005Net loss
    
    $
    (161,267
    )Basic and diluted net loss per share
    
    $
    (2.83
    )
  99




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  (e) Eyetech Goodwill Impairment
 ®
 (f) Macugen Intangibles Impairment
  (21) Accounting Pronouncements
    100




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     (22) Subsequent Event
  101




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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (23) Quarterly Financial Data (unaudited)
  Three Months Ended(in thousands, except per share data)March 31,
    
    June 30,
    
    September 30,
    
    December 31,2007
    
    2007
    
    2007
    
    2007Revenues from continuing operations
    
    $
    77,469
    
    
    $
    78,883
    
    
    $
    100,370
    
    
    $
    84,308Net income from continuing operations
    
    $
    19,695
    
    
    $
    29,276
    
    
    $
    35,904
    
    
    $
    17,732Net income
    
    $
    6,641
    
    
    $
    19,622
    
    
    $
    29,628
    
    
    $
    10,428Basic earnings per share from
continuing operations
    
    $
    0.34
    
    
    $
    0.51
    
    
    $
    0.62
    
    
    $
    0.31Diluted earnings per share from
continuing operations
    
    $
    0.33
    
    
    $
    0.48
    
    
    $
    0.59
    
    
    $
    0.29Basic net income per share
    
    $
    0.12
    
    
    $
    0.34
    
    
    $
    0.51
    
    
    $
    0.18Diluted net income per share
    
    $
    0.12
    
    
    $
    0.33
    
    
    $
    0.49
    
    
    $
    0.18
 Three Months Ended(in thousands, except per share data)March 31,
    
    June 30,
    
    September 30,
    
    December 31,2006
    
    2006
    
    2006
    
    2006Revenues from continuing operations
    
    $
    59,255
    
    
    $
    55,652
    
    
    $
    56,805
    
    
    $
    69,325Net income
(loss) from continuing operations
    
    $
    376
    
    
    $
    (2,440
    )
    
    $
    159
    
    
    $
    8,605Net loss
    
    $
    (17,855
    )
    
    $
    (319,929
    )
    
    $
    (21,257
    )
    
    $
    (223,143
    )Basic
earnings (loss) per share from
continuing operations
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    0.00
    
    
    $
    0.15Diluted
earnings (loss) per share from
continuing operations
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    0.00
    
    
    $
    0.15Basic net loss per share
    
    $
    (0.31
    )
    
    $
    (5.62
    )
    
    $
    (0.37
    )
    
    $
    (3.91
    )Diluted net loss per share
    
    $
    (0.31
    )
    
    $
    (5.62
    )
    
    $
    (0.37
    )
    
    $
    (3.85
    )
  102




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 CEO/CFO CERTIFICATIONS
  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
 Evaluation of Our Disclosure Controls and Procedures.
 CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures.
 MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Internal Control  Integrated Framework,
 CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
  103




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 Internal Control -
Integrated Framework .
    Internal Control  Integrated Framework .
 .
 /s/ KPMG LLP 
 104




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.

    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED  STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  105




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PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
  
   106




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SIGNATURES
  OSI PHARMACEUTICALS, INC.By:
    /s/ COLIN GODDARD, Ph.DColin Goddard, Ph.D.Chief Executive Officer   Signature
    
    Title
    
    Date/s/ ROBERT A. INGRAM
    
    Chairman of the Board
    
    February 28, 2008Robert A. Ingram/s/ COLIN GODDARD, Ph.D.
    
    Director and
    
    February 28, 2008Colin Goddard, Ph.D.
    
    Chief Executive Officer
(principal executive officer)/s/ MICHAEL G. ATIEH
    
    Executive Vice President,
    
    February 28, 2008Michael G. Atieh
    
    Chief Financial Officer and Treasurer
(principal financial and accounting officer)/s/ SANTO J. COSTA
    
    Director
    
    February 28, 2008Santo J. Costa/s/ DARYL K. GRANNER, M.D.
    
    Director
    
    February 28, 2008Daryl K. Granner, M.D./s/ JOSEPH KLEIN, III
    
    Director
    
    February 28, 2008Joseph Klein, III/s/ KENNETH B. LEE, Jr.
    
    Director
    
    February 28, 2008Kenneth B. Lee, Jr./s/ VIREN MEHTA
    
    Director
    
    February 28, 2008Viren Mehta/s/ DAVID W. NIEMIEC
    
    Director
    
    February 28, 2008David W. Niemiec/s/ HERBERT PINEDO, M.D., Ph.D.
    
    Director
    
    February 28, 2008Herbert Pinedo, M.D., Ph.D.
 107




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Signature
    
    Title
    
    Date/s/ KATHARINE B. STEVENSON
    
    Director
    
    February 28, 2008Katharine B. Stevenson/s/ JOHN P. WHITE, ESQUIRE
    
    Director
    
    February 28, 2008John P. White, Esquire
 108




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EXHIBIT INDEX
 Exhibit2.1+
    
    Asset Purchase Agreement, dated as of June 17, 2004, by and between Probiodrug AG, Halle and Prosidion Limited, filed by the Company as an exhibit to the Form 8-K filed on July 6, 2004 (file no. 000-15190), and incorporated herein by reference.2.2+
    
    Agreement and Plan of Merger, dated August 21, 2005, among OSI Pharmaceuticals, Inc., Merger EP Corporation and Eyetech Pharmaceuticals, Inc., filed by the Company as an exhibit to the Form 8-K filed on August 22, 2005 (file no. 000-15190), and incorporated herein by reference.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 8-K, filed on December 17, 2007 (file no. 000-15190), and incorporated herein by reference.4.1
    
    Rights Agreement, dated September 27, 2000, between OSI Pharmaceuticals, Inc. and The Bank of New York as Rights Agent, including Terms of Series SRP Junior Participating Preferred Stock, Summary of Rights to Purchase Preferred Stock and Form of Right Certificate, filed by the Company as an exhibit to the Form 8-A filed on September 27, 2000 (file no. 000-15190), and incorporated herein by reference.4.2
    
    Form of Contingent Value Rights Agreement by and between OSI Pharmaceuticals, Inc. and the Bank of New York, filed by the Company as an exhibit to the registration statement on Form S-4 (file no. 333-103644), and incorporated herein by reference.4.3
    
    Indenture, dated September 8, 2003, by and between OSI Pharmaceuticals, Inc. and The Bank of New York, filed by the Company as an exhibit to the Form 10-K filed on December 2, 2003 (file no. 000-15190) and incorporated herein by reference.4.4
    
    Form of 3 1/4% Convertible Senior Subordinated Note Due 2023 (included in Exhibit 4.6), filed by the Company as an exhibit to the Form 10-K filed on December 2, 2003 (file no. 000-15190) and incorporated herein by reference.4.5
    
    Registration Rights Agreements, dated September 8, 2003, by and among OSI Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, and Morgan Stanley & Co., Incorporated, filed by the Company as an exhibit to the Form 10-K filed on December 2, 2003 (file no. 000-15190) and incorporated herein by reference.4.6
    
    Indenture, dated December 21, 2005, by and between OSI Pharmaceuticals, Inc. and The Bank of New York, filed by the Company as an exhibit to the Form 8-K filed on December 28, 2005 (file no. 000-15190), and incorporated herein by reference.4.7
    
    Form of 2% Convertible Senior Subordinated Note Due 2025 (included in Exhibit 4.6), filed by the Company as an exhibit to the Form 8-K filed on December 28, 2005 (file no. 000-15190), and incorporated herein by reference.4.8
    
    Registration Rights Agreement, dated December 21, 2005, by and between OSI Pharmaceuticals, Inc. and UBS Securities LLC, filed by the Company as an exhibit to the Form 8-K filed on December 28, 2005 (file no. 000-15190), and incorporated herein by reference.4.9
    
    Indenture, dated January 9, 2008, by and between OSI Pharmaceuticals, Inc. and The Bank of New York, filed by the Company as an exhibit to the Form 8-K filed on January 15, 2008 (file no. 000-15190), and incorporated herein by reference.
 109




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Exhibit4.10
    
    Form of 3% Convertible Senior Subordinated Note Due 2038 (included in Exhibit 4.9), filed by
the Company as an exhibit to the Form 8-K filed on January 15, 2008 (file no. 000-15190), and
incorporated herein by reference.4.11
    
    Registration Rights Agreement, dated January 9, 2008, by and between OSI Pharmaceuticals,
Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P.
Morgan Securities Inc., filed by the Company as an exhibit to the Form 8-K filed on January
15, 2008 (file no. 000-15190), and incorporated herein by reference.10.1*
    
    1989 Incentive and Non-Qualified Stock Option Plan, filed by the Company as an exhibit to
the registration statement on Form S-8 (file no. 33-38443), and incorporated herein by
reference.10.2*
    
    1995 Employee Stock Purchase Plan filed by the Company as an exhibit to the registration
statement on Form S-8 (file no. 333-06861), and incorporated herein by reference.10.3*
    
    1997 Incentive and Non-Qualified Stock Option Plan, filed by the Company as an exhibit to
the registration statement on Form S-8 (file no. 333-39509), and incorporated herein by
reference.10.4*
    
    1999 Incentive and Non-Qualified Stock Option Plan, as amended, filed by the Company as an
exhibit to the registration statement on Form 10-Q for the quarter ended September 30, 2006
(file no. 000-15190), and incorporated herein by reference.10.5*
    
    Amended and Restated Stock Incentive Plan, as amended, filed by the Company as an exhibit to
the Form 10-Q for the quarter ended September 30, 2007 (file no. 000-15190), and incorporated
herein by reference.10.6*
    
    Form of Non-Qualified Stock Option Agreement issued under the Amended and Restated Stock
Incentive Plan for employees of OSI Pharmaceuticals, Inc., filed by the Company as an exhibit
to the Form 10-Q for the quarter ended June 30, 2005 (file no. 000-15190), and incorporated
herein by reference.10.7*
    
    Form of Non-Qualified Stock Option Agreement issued under the Amended and Restated Stock
Incentive Plan for employees of Prosidion Limited and OSI Pharmaceuticals (UK) Limited filed
by the Company as an exhibit to the Form 10-Q for the quarter ended March 31, 2005 (file no.
000-15190), and incorporated herein by reference.10.8
    
    OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan for Former Employees of Cadus
Pharmaceutical Corporation, filed by the Company as an exhibit to the Form 10-Q for the
quarter ended June 30, 1999 (file no. 000-15190), and incorporated herein by reference.10.9
    
    OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan for Former Employees of Gilead
Sciences, Inc. filed by the Company as an exhibit to the Form 8-K filed on January 7, 2002
(file no. 000-15190), and incorporated herein by reference.10.10
    
    OSI Pharmaceuticals, Inc. Stock Incentive Plan for Pre-Merger Employees of Eyetech
Pharmaceuticals, Inc., filed by the Company as an exhibit to the Form 8-K filed on November
16, 2005 (file no. 000-15190), and incorporated herein by reference.10.11
    
    OSI Pharmaceuticals, Inc. Stock Plan for Assumed Options of Pre-Merger Employees of Eyetech
Pharmaceuticals, Inc. filed by the Company as an exhibit to the Form 8-K filed on November 16,
2005 (file no. 000-15190), and incorporated herein by reference.10.12*
    
    OSI Pharmaceuticals, Inc. Stock Incentive Plan for New Hires, filed by the Company as an
exhibit to the Form 8-K filed on July 6, 2006 and incorporated herein by reference.10.13*
    
    Form of Non-Qualified Option Agreement for U.S.-Based Executive Officers of OSI
Pharmaceuticals, Inc., filed by the Company as an exhibit to the Form 8-K filed on June 22,
2006, and incorporated herein by reference.
 110




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Exhibit10.14
    
    Form of Non-Qualified Option Agreement for U.K.-Based Employees of OSI Pharmaceuticals,
Inc., filed by the Company as an exhibit to the Form 8-K filed on June 22, 2006, and
incorporated herein by reference.10.15*
    
    Form of Non-Qualified Option Agreement for Non-Management Directors of OSI Pharmaceuticals,
Inc., filed by the Company as an exhibit to the Form 8-K filed on June 22, 2006, and
incorporated herein by reference.10.16*
    
    Form of Restricted Stock Agreement for Executive Officers of OSI Pharmaceuticals, Inc.,
filed by the Company as an exhibit to the Form 8-K filed on July 12, 2006, and incorporated
herein by reference.10.17*
    
    Form of Restricted Stock Agreement for Non-Management Directors of OSI Pharmaceuticals,
Inc., filed by the Company as an exhibit to the Form 8-K filed on July 12, 2006, and
incorporated herein by reference.10.18*
    
    Form of Restricted Stock Unit Agreement for Executive Officers of OSI Pharmaceuticals, Inc.,
filed by the Company as an exhibit to the Form 8-K filed on July 12, 2006, and incorporated
herein by reference.10.19*
    
    Form of Restricted Stock Unit Agreement for Non-Management Directors of OSI Pharmaceuticals,
Inc., filed by the Company as an exhibit to the Form 8-K filed on July 12, 2006, and
incorporated herein by reference.10.20
    
    Collaborative Research Agreement, dated April 1, 1996, between OSI Pharmaceuticals, Inc. and
Pfizer Inc., filed by the Company as an exhibit to the Form 10-Q for the quarter ended March
31, 1996, as amended (file no. 000-15190), and incorporated herein by reference.10.21
    
    License Agreement, dated April 1, 1996, between OSI Pharmaceuticals, Inc. and Pfizer Inc.,
filed by the Company as an exhibit to the Form 10-Q for the quarter ended March 31, 1996, as
amended (file no. 000-15190), and incorporated herein by reference.10.22
    
    Amended and Restated License Agreement, dated April 20, 2007, by and between OSI
Pharmaceuticals, Inc. and Pfizer, Inc., filed by the Company as an exhibit to the Form 10-Q
for the quarter ended June 30, 2007 (file no. 000-15190) and incorporated herein by reference.10.23
    
    Agreement, dated May 23, 2000, by and between OSI Pharmaceuticals, Inc. and Pfizer Inc.,
filed by the Company as an exhibit to the Form 8-K filed on June 20, 2000 (file no.
000-15190), and incorporated herein by reference.10.24
    
    Development and Marketing Collaboration Agreement, dated January 8, 2001, between OSI
Pharmaceuticals, Inc. and Genentech, Inc., filed by the Company as an exhibit to the Form 8-K
filed on February 14, 2001 (file no. 000-15190), and incorporated herein by reference.10.25
    
    Amendment No. 1 to Development and Marketing Collaboration Agreement, dated as of June 4,
2004, between OSI Pharmaceuticals, Inc. and Genentech, Inc., filed by the Company as an
exhibit to the Form 8-K filed on June 28, 2004 (file no. 000-15190), and incorporated herein
by reference.10.26
    
    Manufacturing and Supply Agreement, dated as of June 4, 2004, by and between OSI
Pharmaceuticals, Inc. and Genentech, Inc., filed by the Company as an exhibit to the Form 8-K
filed on June 28, 2004 (file no. 000-15190), and incorporated herein by reference.10.27
    
    Development Collaboration and Licensing Agreement, dated January 8, 2001, between OSI
Pharmaceuticals, Inc. and F. Hoffman  La Roche Ltd., filed by the Company as an exhibit to
the Form 8-K filed on February 14, 2001 (file no. 000-15190), and incorporated herein by
reference.10.28
    
    Tripartite Agreement, dated January 8, 2001, by and among OSI Pharmaceuticals, Inc.,
Genentech, Inc., and F. Hoffman La Roche Ltd., filed by the Company as an exhibit to the Form
8-K filed on February 14, 2001 (file no. 000-15190), and incorporated herein by reference.
 111




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##### Table of Contents



Exhibit10.29
    
    Manufacturing Agreement, dated December 21, 2001, by and between OSI Pharmaceuticals, Inc.
and Gilead Sciences, Inc. filed by the Company as an exhibit to the Form 8-K filed on January
7, 2002 (file no. 000-15190), and incorporated herein by reference.10.30*
    
    Employment Agreement, dated May 16, 2003, between OSI Pharmaceuticals, Inc. and Mr. Gabriel
Leung, filed by the Company as an exhibit to the Form 10-K for the fiscal year ended September
30, 2003 (file no. 000-15190), and incorporated herein by reference.10.31*
    
    Addendum to Employment Agreement between OSI Pharmaceuticals, Inc. and Mr. Gabriel Leung,
filed by the Company as an exhibit to the Form 10-QT for the transition period ended December
31, 2004 (file no. 000-15190), and incorporated herein by reference.10.32
    
    Supply Agreement, dated February 2, 2005, by and between Schwarz Pharma Manufacturing, Inc.
and OSI Pharmaceuticals, Inc. filed by the Company as an exhibit to the Form 10-Q for the
quarter ended March 31, 2005 (file no. 000-15190), and incorporated herein by reference.10.33
    
    Agreement of Sale and Purchase, dated March 15, 2005, by and between Swissair, Swiss Air
Transport Co., Ltd. and OSI Pharmaceuticals, Inc. filed by the Company as an exhibit to the
Form 10-Q for the quarter ended March 31, 2005 (file no. 000-15190), and incorporated herein
by reference.10.34*
    
    Letter of Employment by and between OSI Pharmaceuticals, Inc. and Mr. Robert L. Simon filed
by the Company as an exhibit to the Form 10-Q for the quarter ended March 31, 2005 (file no.
000-15190), and incorporated herein by reference.10.35*
    
    Amended Letter Agreement, dated September 20, 2005, by and between OSI Pharmaceuticals, Inc.
and Robert L. Simon, filed by the Company as an exhibit to the Form 8-K filed on September 26,
2005 (file no. 000-15190), and incorporated herein by reference.10.36*
    
    Change of Control Arrangement by and between OSI Pharmaceuticals, Inc. and Barbara A. Wood,
Esq. filed by the Company as an exhibit to the Form 10-Q for the quarter ended March 31, 2005
(file no. 000-15190), and incorporated herein by reference.10.37*
    
    Employment Agreement, dated April 21, 2005, by and between OSI Pharmaceuticals, Inc. and
Michael G. Atieh, filed by the Company as an exhibit to the Form 8-K filed on April 22, 2005
(file no. 000-15190), and incorporated herein by reference.10.38*
    
    Letter Agreement, dated January 25, 2007, by and between Dr. Daryl Granner and OSI
Pharmaceuticals, Inc., filed by the Company as an exhibit to the Form 8-K, filed on January
29, 2007 (file no. 000-15190), and incorporated herein by reference.10.39*
    
    Letter Agreement, dated January 1, 2008, by and between Dr. Daryl Granner and OSI
Pharmaceuticals, Inc. (Filed herewith).10.40*
    
    Share Purchase Deed relating to Shares of Prosidion Limited, dated April 14, 2005, between
OSI Pharmaceuticals, Inc. and Dr. Daryl Granner, filed by the Company as an exhibit to the
Form 8-K, filed on April 20, 2005 (file no. 000-15190), and incorporated herein by reference.10.41*
    
    Service Contract by and between Prosidion Limited and Anker Lundemose, dated May 1, 2004,
filed by the Company as an exhibit to the Form 10-QT, for the transition period ended December
31, 2004 (file no. 000-15190), and incorporated herein by reference.10.42*
    
    Amended and Restated Stock Incentive Plan Stock Award Agreement, dated April 14, 2005,
between OSI Pharmaceuticals, Inc. and Dr. Daryl Granner, filed by the Company as an exhibit to
the Form 8-K, filed on April 20, 2005 (file no. 000-15190), and incorporated herein by
reference.10.43*
    
    Restricted Stock Agreement, dated May 31, 2005, by and between OSI Pharmaceuticals, Inc. and
Michael G. Atieh, filed by the Company as an exhibit to the Form 10-Q for the quarter ended
June 30, 2005 (file no. 000-15190), and incorporated herein by reference.
 112




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Exhibit10.44*
    
    Amended and Restated Employment Agreement, dated May 31, 2005, by and between OSI
Pharmaceuticals, Inc. and Michael G. Atieh, filed by the Company as an exhibit to the Form
10-Q for the quarter ended June 30, 2005 (file no. 000-15190), and incorporated herein by
reference.10.45*
    
    Service Contract, dated September 20, 2005, by and between OSI Pharmaceuticals, Inc. and Dr.
Anker Lundemose, filed by the Company as an exhibit to the Form 8-K filed on September 26,
2005 (file no. 000-15190), and incorporated herein by reference.10.46*
    
    Amended Change in Control Agreement, dated September 20, 2005, by and between OSI
Pharmaceuticals, Inc. and Barbara A. Wood, Esq. filed by the Company as an exhibit to the Form
8-K filed on September 26, 2005 (file no. 000-15190), and incorporated herein by reference.10.47
    
    Commitment Letter, dated December 12, 2005, by and among JP Morgan Chase Bank, N.A., J.P.
Morgan Securities Inc. and OSI Pharmaceuticals, Inc., as amended and extended, filed by the
Company as an exhibit to the Form 10-K for the fiscal year ended December 31, 2005 (file no.
000-15190), and incorporated herein by reference.10.48*
    
    Employment Agreement, dated May 3, 2006, between OSI Pharmaceuticals, Inc. and Paul G.
Chaney, filed by the Company as an exhibit to the Form 8-K filed on May 3, 2006, and
incorporated herein by reference.10.49*
    
    Employment Agreement between OSI Pharmaceuticals, Inc. and Colin Goddard, Ph.D., as amended
on June 21, 2006, filed by the Company as an exhibit to the Form 8-K filed on June 22, 2006,
and incorporated herein by reference.10.50
    
    License Agreement, dated December 17, 2002, between Pfizer Inc. and Eyetech Pharmaceuticals,
Inc. filed by the Company as an exhibit to the Form 10-K for the fiscal year ended December
31, 2005 (file no. 000-15190), and incorporated herein by reference.10.51
    
    Collaboration Agreement, dated as of December 17, 2002, between Pfizer Inc. and Eyetech
Pharmaceuticals, Inc. filed by the Company as an exhibit to the Form 10-K for the fiscal year
ended December 31, 2005 (file no. 000-15190), and incorporated herein by reference.10.52
    
    License Agreement, effective as of March 30, 2000, as amended on May 9, 2000, December 4,
2001 and April 12, 2002, between Gilead Sciences,. Inc. and Eyetech Pharmaceuticals, Inc.
filed by the Company as an exhibit to the Form 10-K for the fiscal year ended December 31,
2005 (file no. 000-15190), and incorporated herein by reference.10.53
    
    License, Manufacturing and Supply Agreement, dated February 5, 2002, between Shearwater
Corporation and Eyetech Pharmaceuticals, Inc. filed by the Company as an exhibit to the Form
10-K for the fiscal year ended December 31, 2005 (file no. 000-15190), and incorporated herein
by reference.10.54
    
    Exclusive License Agreement, effective as of January 4, 2007, between Eli Lilly and Company
and Prosidion Limited, filed by the Company with the Form10-K for the fiscal year ended
December 31, 2006 and incorporated herein by reference.10.55*
    
    Change in Control Agreement, dated December 4, 2007, by and between OSI Pharmaceuticals,
Inc. and Linda E. Amper. (Filed herewith).10.56*
    
    Consulting Agreement, dated August 23, 2007, by and between OSI Pharmaceuticals, Inc. and
Walter M. Lovenberg, Ph.D. (Filed herewith).10.57*
    
    Consulting Agreement, dated January 28, 2008, by and between OSI Pharmaceuticals, Inc. and
Herbert M. Pinedo, M.D., Ph.D. (Filed herewith).10.58*
    
    OSI Pharmaceuticals, Inc. Nonqualified Deferred Compensation Plan, effective July 1, 2007,
filed by the Company as an exhibit to the Form 10-Q for the quarter ended June 30, 2007 (file
no. 000-15190), and incorporate herein by reference.
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##### Table of Contents



Exhibit10.59*
    
    Form of Deferred Stock Unit Agreement for the Non-Employee Directors of OSI Pharmaceuticals,
Inc., filed by the Company as an exhibit to the Form 10-Q for the quarter ended June 30, 2007
(file no. 000-15190) and incorporated herein by reference.10.60
    
    Consulting Agreement by and between OSI Pharmaceuticals, Inc. and David Guyer, M.D.,
effective May 2, 2006, filed by the Company as an exhibit to the Form 10-Q for the quarter
ended June 30, 2007 (file no. 000-15190) and incorporated herein by reference.10.61*
    
    Compensatory Arrangements for Non-Employee Directors filed. (Filed herewith).10.62*
    
    Compensatory Arrangements of Executive Officers. (Filed herewith).21
    
    Subsidiaries of OSI Pharmaceuticals, Inc. (Filed herewith).23
    
    Consent of KPMG LLP, independent registered public accounting firm. (Filed herewith).31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15(d)-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, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith).32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith).
 
 *
    
    Indicates a management contract or compensatory plan, contract or arrangement in which
directors or executive officers participates.
    
    Portions of this exhibit have been redacted and are subject to a confidential treatment
request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.+
    
    The schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K
promulgated by the Securities and Exchange Commission. The omitted schedules from this filing
will be provided upon request. 114