OSI to Acquire Eyetech Pharma

MERGERS & ACQUISITIONS

OSI Pharmaceuticals has signed a definitive agreement to acquire Eyetech Pharmaceuticals for about $935 million in cash and stock. OSI says the deal will create "a dynamic new entity with real strength," but stock analysts are criticizing it as overpriced and without strategic benefit.

OSI had revenues of $53.7 million in the first half of 2005, triple the same period last year, thanks largely to the November launch of Tarceva, a cancer treatment comarketed with Genentech.

Eyetech's first-half revenues were $91.7 million, almost four times the year-ago figure, due to the December launch of Macugen, a treatment for wet age-related macular degeneration that it copromotes with Pfizer. Although the drug has sold well, the company's stock plunged in May when Genentech announced favorable Phase III clinical trial results for Lucentis, its own wet AMD drug.

OSI CEO Colin Goddard sees only the upside to the acquisition and predicts more than $600 million in combined revenues by 2006. He told financial analysts on a conference call that the purchase will speed achievement of profitability and set the stage for creation of a "top 10" biotechnology franchise.

Some analysts, though, contend that the $20-per-share price tag--a 43% premium over Eyetech's recent stock price--is too high. "We question the wisdom behind this deal based on several concerns," writes George Farmer, a stock analyst at Wachovia Securities, in a note to clients.

Farmer expects Macugen to lose market share to Lucentis by 2008. He points out that Pfizer passed on the opportunity to buy Eyetech after the May stock price drop. And he notes OSI's potential conflict with Genentech, which will comarket Tarceva but compete against Macugen.

Eric J. Ende, a Merrill Lynch analyst, told clients that he sees no good strategic reason for the deal, but that he expects it will work on strictly financial grounds.