OSI Pharmaceuticals Announces Second Quarter 2006 Financial Results

OSI Pharmaceuticals, Inc. (Nasdaq: OSIP) announced todayits financial results for the second quarter of 2006. The Companyreported total revenues of $102.0 million for the three months endedJune 30, 2006, an increase of $67.3 million (or 194%) compared torevenues of $34.6 million for the same period last year. Revenuesincreased $164.7 million (or 307%) to $218.4 million for the sixmonths ended June 30, 2006 compared to revenue of $53.7 million forthe same period last year. The increase was primarily due to thegrowth in revenues arising from worldwide Tarceva(R) (erlotinib)sales, and the addition of Macugen(R) (pegaptanib sodiuminjection)-related revenue streams. Total worldwide net sales ofTarceva reported by the Company's collaborators for Tarceva,Genentech, Inc. and Roche, were $157 million and $289 million for thethree and six months ended June 30, 2006, respectively. Total U.S.Macugen sales were $36.7 million and $87.2 million for the three andsix months ended June 30, 2006, respectively.

The Company reported a net loss of $319.9 million (or $5.62 pershare) for three months ended June 30, 2006, compared with a net lossof $24.5 million (or $0.48 per share) for the comparable prior yearperiod. The current quarter included a one-time estimated impairmentcharge of $319 million related to the goodwill acquired in connectionwith the November, 2005 acquisition of Eyetech Pharmaceuticals, Inc.The quarter also included a one-time $22 million extraordinary gainresulting from the reversal of contingent value rights associated withthe Company's acquisition of Cell Pathways, Inc. On an adjusted basis,the Company reported a net loss of $10.1 million (or $0.18 per share)for three months ended June 30, 2006, compared to a net loss of $19.6million (or $0.38 per share) a year ago.

Impairment Charge Related to the Eyetech Acquisition

The Company has determined that its eye disease business operatesas a separate business segment for purposes of evaluating goodwill andthat as a result of recent developments relating to Macugen and theage-related macular degeneration (AMD) marketplace it was required toassess the value of the $319 million of goodwill recorded inconnection with the acquisition of Eyetech. Goodwill in theacquisition was largely associated with expectations of futurerevenues from new products arising from Eyetech's researchcapabilities. In response to declining Macugen revenues anddevelopments in the AMD marketplace - including the widespreadoff-label use of a competitive anti-VEGF therapy and the recent launchof a second competitor product - the Company has chosen to suspend orcurtail research activities in the eye disease area. Because there canbe no guarantee that these research activities will resume, theCompany has taken a one-time estimated impairment charge of $319million reflecting the full value of the goodwill. This estimate willbe finalized in the third quarter. Also during the quarter, theCompany reaffirmed that the value attributed to the Macugen rightsrecorded at the time of the acquisition is not impaired, based on theCompany's view of the long-term sales expectations for Macugen.

Total revenues are comprised of the following key items:

-- Net revenues from the unconsolidated joint business for Tarceva of $39.2 million and $74.9 million for the three and six months ended June 30, 2006, respectively, compared to $21.7 million and $33.4 million for the comparable prior year periods. These revenues resulted from the Company's co-promotion arrangement with Genentech. The net revenues were based on total U.S. Tarceva net sales of $103 million and $196 million for the three and six months ended June 30, 2006, respectively, compared to $70 million and $118 million for the comparable prior year periods;

-- Macugen sales in the U.S. and its territories of $36.7 million and $87.2 million for the three and six months ended June 30, 2006, respectively. The Company began recording Macugen sales in the fourth quarter of 2005 following the acquisition of Eyetech Pharmaceuticals, Inc.;

-- Royalty revenues from Roche, the Company's international partner for Tarceva, of $10.9 million and $18.9 million for the three and six months ended June 30, 2006, respectively, compared to less than $1.0 million for the comparable prior year periods. The royalty revenues were based on total rest of world net sales of $54 million and $94 million for the three and six months ended June 30, 2006, respectively, compared to less than $3 million for the comparable prior year periods;

-- Other revenue totaling $14.8 million compared to $12.3 million for the three months ended June 30, 2006 and 2005, respectively, including sales commissions from oncology sales of Novantrone(R), license fees, milestones, and collaborative program revenues; and

-- In May 2006, the Company received a $35 million milestone payment from Pfizer Inc. upon the first sale of Macugen in Europe, which is being amortized for revenue recognition purposes.

On a GAAP basis, including the $319 million impairment chargerelated to goodwill, total operating expenses for the three monthsended June 30, 2006 were $443.1 million, an increase of $382.3 millioncompared to $60.8 million for same period last year. Cost of goodssold increased $13.9 million to $15.7 million from $1.7 million, withthe increase associated with the supply of both Macugen and Tarceva.Pfizer's gross profit share from U.S. sales of Macugen was $15.7million and was shown in operating expenses for 2006 as a new expensefollowing the completion of the Eyetech acquisition. Research anddevelopment expense increased by $15.9 million to $46.3 million forthe three months ended June 30, 2006 and includes both transitionaland on-going Eyetech research and development expense and increasedexpenditures on the Tarceva development program conducted incollaboration with Genentech and Roche and equity based compensation.Partially offsetting these increases were declines in expenses fordiabetes and non-Tarceva related oncology indications. Selling,general and administration expenses increased $19.7 million to $41.0million primarily driven by the expenses associated with the Company'seye disease commercial organization and equity based compensation.

On an adjusted basis, operating expenses were $111.2 million forthe three months ended June 30, 2006, compared to $55.9 million forthe comparable prior year period, and exclude purchase accountingadjustments, merger-related costs, the impairment charge related togoodwill and certain other significant items. For the three monthsended June 30, 2006, both GAAP and adjusted basis expenses include$6.6 million of equity based compensation expense.

One-time Extraordinary Gain from Reversal of Contingent ValueRight

In connection with the 2003 acquisition of Cell Pathways, OSIrecognized a contingent consideration ($22.0 million) in the form offive-year contingent value rights through which each share of CellPathways' common stock would be eligible for an additional 0.04 shareof OSI common stock in the event of a filing of a new drug applicationby June 12, 2008 for either OSI-461 or Aptosyn(R), the two clinicalcandidates acquired from Cell Pathways. OSI previously announced thatit had ceased its development efforts of these two clinical candidatesand has been seeking and continues to seek a development partner forthese candidates through out-licensing efforts. OSI has concludedthat, in its judgment, the milestone will not be met based upon thecurrent status and the technical hurdles for filing a new drugapplication by June 2008. Accordingly, the Company reversed theliability and recorded an extraordinary gain of $22.0 million for thethree months ended June 30, 2006.

The accompanying table details the charges excluded in thecalculation of the Company's adjusted amounts and includes adjustmentsfor the one-time extraordinary gain together with purchase accountingadjustments, merger related costs and other significant items.Management believes that these charges are not reflective of theCompany's normal on-going operations. The adjusted financial resultscan assist in making meaningful period-over-period comparisons and inidentifying operating trends that could otherwise be masked ordistorted by the items subject to the adjustments. Management uses theadjusted results internally to evaluate the performance of thebusiness, including the allocation of resources as well as theplanning and forecasting of future periods and believes these resultsare useful to others in analyzing operating performance and trends ofthe Company. A reconciliation to reported U.S. GAAP amounts isprovided in the table accompanying this report. The adjusted amountsare not, and should not be viewed as, substitutes for U.S. GAAPamounts.

Conference Call

OSI will host a conference call reviewing the Company's financialresults, product portfolio and business developments on August 8, 2006at 8:00AM (Eastern Time). To access the live call or the fourteen-dayarchive via the Internet, log on to www.osip.com. Please connect tothe Company's website at least 15 minutes prior to the conference callto ensure adequate time for any software download that may be neededto access the webcast. Alternatively, please call 1-888-202-2422(U.S.) or 1-913-981-5592 (international) to listen to the call.Telephone replay is available approximately two hours after the callthrough August 22, 2006. To access the replay, please call1-888-203-1112 (U.S.) or 1-719-457-0820 (international). Theconference ID number is 2334317.

About OSI Pharmaceuticals

OSI Pharmaceuticals is committed to "shaping medicine and changinglives" by discovering, developing and commercializing high-quality andnovel pharmaceutical products designed to extend life and/or improvethe quality of life for patients with cancer, eye diseases anddiabetes. (OSI) Oncology is focused on developing molecular targetedtherapies designed to change the paradigm of cancer care. (OSI)Eyetech specializes in the development and commercialization of noveltherapeutics to treat diseases of the eye. (OSI) Prosidion iscommitted to the generation of novel, targeted therapies for thetreatment of type 2 diabetes and obesity. OSI's flagship product,Tarceva(R) (erlotinib), is the first drug discovered and developed byOSI to obtain FDA approval and the only EGFR inhibitor to havedemonstrated the ability to improve survival in both non-small celllung cancer and pancreatic cancer patients in certain settings. OSImarkets Tarceva through partnerships with Genentech, Inc. in theUnited States and with Roche throughout the rest of the world.Macugen(R) (pegaptanib sodium injection) is approved in the UnitedStates and Europe for the treatment of neovascular age-related maculardegeneration. OSI commercializes Macugen in partnership with PfizerInc. For additional information about OSI, please visithttp://www.osip.com.

This news release contains forward-looking statements. Thesestatements are subject to known and unknown risks and uncertaintiesthat may cause actual future experience and results to differmaterially from the statements made. Factors that might cause such adifference include, among others, the completion of clinical trials,the FDA review process and other governmental regulation, OSI's andits collaborators' abilities to successfully develop and commercializedrug candidates, competition from other pharmaceutical companies, theability to effectively market products, and other factors described inOSI Pharmaceuticals' filings with the Securities and ExchangeCommission.
OSI Pharmaceuticals, Inc. and Subsidiaries
Selected Financial Information

Consolidated Statements of
Operations
(In thousands, except per -------------------------------------------
share data) Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
2006 2005 2006 2005
---------- ----------- ---------- ---------
Unaudited Unaudited Unaudited Unaudited
---------- ----------- ---------- ---------
Revenues:
Net revenue from
unconsolidated joint
business $ 39,211 $ 21,707 $ 74,866 $ 33,428
Product sales 37,000 228 87,894 576
Royalties on product
sales 10,991 416 19,024 499
Sales commissions 2,281 7,339 9,419 13,968
License, milestone and
other revenues 5,364 4,939 14,141 5,225
Collaborative agreement
revenues 7,128 - 13,073 -
--------- ---------- --------- --------
Total revenues 101,975 34,629 218,417 53,696
--------- ---------- --------- --------

Expenses:
Cost of goods sold 15,667 1,749 39,223 2,172
Collaborative profit
share 15,729 - 36,183 -
Research and development 46,304 30,360 89,985 57,309
Acquired in-process
research and development - 3,542 - 3,542
Selling, general and
administrative 41,022 21,371 81,335 44,402
Goodwill impairment 319,391 - 319,391 -
Amortization of
intangibles 4,977 3,802 9,951 7,605
--------- ---------- --------- --------
Total expenses 443,090 60,824 576,068 115,030
--------- ---------- --------- --------

Loss from operations (341,115) (26,195) (357,651) (61,334)

Other income (expense):
Investment income - net 1,915 4,133 3,399 8,170
Interest expense (1,915) (1,219) (3,766) (2,438)
Other expense - net (860) (1,257) (1,812) (1,440)

---------- ----------- ---------- ---------
Net loss before
extraordinary gain (341,975) (24,538) (359,830) (57,042)
Extraordinary gain net of
tax 22,046 - 22,046 -
--------- ---------- --------- --------
Net loss $(319,929) $ (24,538) $(337,784) $(57,042)
========= ========== ========= ========

Basic and diluted net loss per common
share:
Loss before extraordinary
gain $ (6.00) $ (0.48) $ (6.33) $ (1.11)
Extraordinary gain net of
tax 0.39 - 0.39 -
--------- ---------- --------- --------
Net loss $ (5.62) $ (0.48) $ (5.94) $ (1.11)
========= ========== ========= ========

Weighted average shares of
common stock outstanding 56,962 51,313 56,889 51,205
-------------------------------------------



Condensed Consolidated Balance Sheet June 30, December 31,
(In thousands) 2006 2005 *
------------ ------------
Unaudited
------------
Cash and investment securities (including
restricted investments) $ 203,815 $ 179,606
=========== ===========

Total assets $ 721,337 $ 1,058,582
=========== ===========

Total stockholders' equity $ 256,440 $ 578,466
=========== ===========

* Condensed from audited financial statements.



OSI Pharmaceuticals, Inc. and Subsidiaries

Reconciliation From Reported Net Loss and Reported Loss Per Share
to Adjusted Loss Per Share Unaudited

(In thousands, except per share data)

-------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------

Reported net loss $(319,929) $ (24,538) $(337,784) $ (57,042)
Purchase accounting
adjustments 10,616 3,542 26,303 3,542
Merger related costs 1,598 1,380 4,248 1,380
Other significant items 297,585 - 299,950 1,780
--------- --------- --------- ---------
Adjusted net loss $ (10,130) $ (19,616) $ (7,283) $ (50,340)
========= ========= ========= =========

Reported basic and diluted
loss per common share $ (5.62) $ (0.48) $ (5.94) $ (1.11)
Purchase accounting
adjustments 0.19 0.07 0.46 0.07
Merger related costs 0.03 0.03 0.07 0.03
Other significant items 5.22 - 5.27 0.03
--------- --------- --------- ---------
Adjusted basic and diluted
loss per common share $ (0.18) $ (0.38) $ (0.13) $ (0.98)
========= ========= ========= =========

-------------------------------------------
Adjusted net loss and
adjusted diluted per
share shown above include Three Months Ended Six Months Ended
the following: June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Purchase accounting
adjustments:
Sale of acquired
inventory written up to
fair value (a) $ 6,090 $ - $ 17,251 $ -
Intangible
amortization (b) 4,526 - 9,052 -
Acquired IPR&D Prosidion
buyout (c) - 3,542 - 3,542
--------- --------- --------- ---------
Total purchase
accounting adjustments 10,616 3,542 26,303 3,542
--------- --------- --------- ---------
Merger related costs:
Restructuring costs (d) 1,598 - 4,248 -
Buyout of Prosidion
options (e) - 1,380 - 1,380
--------- --------- --------- ---------
Total merger related
costs 1,598 1,380 4,248 1,380
--------- --------- --------- ---------
Other significant items:
Goodwill Impairment (f) 319,391 - 319,391 -
Facility related
restructuring
charges (g) 240 - 2,605 1,780
Extraordinary gain (h) (22,046) - (22,046) -
--------- --------- --------- ---------
Total other significant
items 297,585 - 299,950 1,780
--------- --------- --------- ---------

---------- ---------- ---------- ----------
Total adjustments $ 309,799 $ 4,922 $ 330,501 $ 6,702
========= ========= ========= =========
-------------------------------------------


(a) Represents the excess of the fair value over historical cost
related to the sale of Macugen inventory written up to fair value
in the acquisition of Eyetech Pharmaceuticals, Inc. in November
2005.

(b) Represents the amortization of the Macugen intangible assets
recognized with the acquisition of Eyetech Pharmaceuticals.

(c) Represents an in process R&D charge for the acquisition of the
minority interest of Prosidion Limited in April of 2005.

(d) Represents a charge for severance related to planned Eyetech
workforce reductions of $1,213 included in R&D and $385 included
in SG&A for the three months ended June 30, 2006. Represents a
charge for severance related to planned Eyetech workforce
reductions of $3,148 included in R&D and $1,100 included in SG&A
for the six months ended June 30, 2006.

(e) Represents a charge for the buyout of Prosidion options ($577
included in R&D and $803 included in SG&A).

(f) Represents goodwill impairment charge in connection with the
assessment of Eyetech related goodwill.

(g) Represents facility restructuring charges included in SG&A.

(h) Represents an extraordinary gain recognized as a result of the
reversal of the contingent consideration recorded in the Cell
Pathways, Inc. acquisition which will not be paid.

Reconciliation of adjusted operating expenses included in the text of
this press release.

Adjusted operating expenses of $111.2 million for the three months
ended June 30, 2006 excluded from the reported expenses of $443.1
million the $309.8 million of the adjustments shown above less the
extraordinary gain of $22.0 million. Adjusted operating expenses
of $55.9 million for the three months ended June 30, 2005 excluded
from the reported expenses of $60.8 million the $4.9 million
adjustment shown above.