By Mary Welch

Staff Writer

OSI Pharmaceuticals Inc. sold the assets of its diagnostics business, including its wholly owned diagnostics subsidiary, Oncogene Science Diagnostics (OSDI), to Bayer Corp. for $11 million.

"If you look at our business focus, which is pharmaceutical discovery, the diagnostic unit was not a strategic fit," said Colin Goddard, OSI's president and CEO. "The unit was a little below critical mass and we couldn't see investing $1 million to $1.5 million, which is its burn at the moment, to build it up so that it could operate as a stand-alone. We chose to sell rather than spend the money over the next four to five year years and get the sales up to $8 million to $10 million."

Pittsburgh-based Bayer agreed to pay $10 million up front with another $1 million payment to be made in 2001. Bayer will retain all the employees of OSDI and will maintain the unit's headquarters in Cambridge, Mass.

"It's a win-win," Goddard said. "We get a pot of cash that helps put us in a position to develop drug candidates and move them forward. Bayer gets a business that fits perfectly with it. Bayer also can afford to make the investment that will bring out the unit's value."

OSDI has developed a series of cancer diagnostic tests based on oncogenes and other gene targets whose proteins are directly involved in tumor growth or metastasis. These tests, such as the HER-2neu test for breast cancer, are design to aid oncologists in the confirmation, monitoring, staging, screening or prognosis of cancer. The HER-2neu test, developed in a 1997 collaboration with Bayer, is awaiting marketing approval in the U.S.

OSI Pharmaceuticals is based in Uniondale, N.Y. Bayer Diagnostics is headquartered in Tarrytown, N.Y.

OSI Pharmaceuticals' stock (NASDAQ:OSIP) closed Thursday at $5.875, down 12.5 cents.