OSI Pharmaceuticals buys back $40 million convertibles on "over-reaction"

New York, Aug. 29 - OSI Pharmaceuticals, Inc. bought back $40 million of its recently issued 4% convertible senior subordinated notes due 2009 at a cost of $26 million, saying the market had over-reacted to adverse news about a competitor's drug.

The Melville, N.Y. biotechnology company only priced the convertibles on Jan. 28 when it sold $200 million of the securities.

"We have chosen to take advantage of this opportunity following what we consider to be an over-reaction in the marketplace last week to disappointing news on a competitor's rival drug candidate to Tarceva," said Colin Goddard, chairman and chief executive officer of OSI, in a news release, referring to OSI's own product.

Both OSI's stock and notes declined significantly following the Aug. 19 announcement that a competitor's anti-EGFR drug candidate had failed to show a survival benefit in Phase III front-line combination chemotherapy trials, OSI noted. Although not identified by OSI, the drug in question was AstraZeneca's Iressa.

In trading on Aug. 19, OSI's 4% convertibles plunged 32.75 points to 57.5 bid while the common stock plummeted $18.736 to $14.05. The convertibles were issued at par of 100 in January.

OSI said its buybacks were at a price of about 65.

In trading Thursday the convertible rose 2.125 to 66.125 bid, 67.125 asked. The stock closed up 43c to $16.42.

As far as the buybacks were concerned, Goddard added: "This transaction is not only financially prudent but also sends a strong message that this organization remains confident in our own EGFR program and the overall prospects for EGFR inhibitors becoming an important class of drugs in the management of cancer."

The company said it may buy back further convertibles if "conditions warrant."

OSI added that it has a "strong" balance sheet with $482 million in cash on hand following the repurchase.

A net gain of $12.6 million which will be recognized in the fourth quarter of this fiscal year, OSI said.

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