Assistant Managing Editor

After a verbal offer to buy out OSI Pharmaceuticals Inc. for $52 per share - about $3.5 billion - failed to entice the company's board last month, Astellas Pharma Inc. is taking its bid straight to shareholders but may have to up its price to get the deal done.

Shares of OSI (NASDAQ:OSIP) soared 52 percent in trading Monday, topping Astellas' offer to close at $56.25, up $19.23. That's unsurprising to Deutsche Bank analyst Mark Schoenebaum, who wrote that "the market may posit that Astellas has the cash to pay more," though "it remains to be seen" whether other bidders willing to shell out more than $52 per share might emerge.

An obvious potential buyer, OSI partner Roche AG, has made no prior attempt to acquire the Melville, N.Y.-based firm, a deal that would consolidate rights to blockbuster cancer drug Tarceva (erlotinib). Worldwide sales of Tarceva exceeded $1.2 billion in 2009, with OSI receiving $208.8 million from its U.S. co-promotion deal and $146.3 million in royalties for sales outside the U.S.

But Astellas' unsolicited offer could draw the Basel, Switzerland-based pharma firm's attention. Though combining Tarceva's royalty stream probably has not been at the top of Roche's priority list, analyst Bret Holley, of Oppenheimer & Co., noted in a research report, that, "with Astellas' offer on the table, we believe the company may be forced to act."

OSI shareholders also could hold out to April 18, when the FDA is set to make a decision on a supplemental new drug application for Tarceva as a first-line maintenance therapy in non-small-cell lung cancer.

Despite a negative panel vote in December, the drug met its co-primary endpoints of progression-free survival for all patients and for those with epidermal growth factor receptor-positive tumors in the Phase III SATURN program conducted under a special protocol assessment agreed to by the FDA. And Alimta (pemetrexed, Eli Lilly and Co.) previously gained approval as a maintenance treatment for NSCLC based on a study using a similar PFS endpoint. (See BioWorld Today, Dec. 17, 2009.)

Yet, even supposing a clean approval next month, Tarceva's market potential in that indication is a debatable one, given that it relies on physicians embracing the relatively new concept of maintenance therapy in NSCLC.

Analysts are expecting a bigger boost to Tarceva sales to come from data read-outs this year. Data from a study testing the drug in combination with paclitaxel and carboplatin in first-line NSCLC patients who never smoked or were former light smokers is anticipated to be released at this year's American Society of Clinical Oncology meeting in June, while early results from a Phase III study of Tarceva vs. chemotherapy in patients with advanced disease who have EGFR mutations is expected later in 2010.

"Both studies have a high likelihood of positive outcome, in our view, which should drive Tarceva use in front-line NSCLC," Canaccord Adams analyst George Farmer wrote in a research note, even in "the absence of formal regulatory approval" in that setting.

Tarceva, which is approved in second-line lung cancer and as a first-line therapy for pancreatic cancer, has been OSI's primary value driver, though the firm boasts one late-stage development program, OSI-906, an oral, insulin-like growth factor-1 inhibitor, which entered Phase III testing in September in the rare adrenocortical carcinoma indication and is in earlier studies for ovarian cancer. (See BioWorld Today, Sept. 8, 2009.)

The company also has OSI-027, an mTOR inhibitor, and OSI-027, a dual inhibitor of c-Kit and vascular endothelial growth factor receptor-2. Both of those are in Phase I.

Outside of oncology, OSI is working on drugs for diabetes and obesity and has advanced into the clinic with PSN821, which targets G-protein coupled receptor agonists, and PSN010, a glucokinase activator.

Given the relatively early stage of OSI's pipeline beyond Tarceva, it's difficult to place much value there, said Oppenheimer's Holley, calling the pipeline a "wild card" in buyout negotiations.

Astellas has called its $52-per-share offer, which represents a 40 percent premium over OSI's Friday closing price, a fair one, and said it intends also to nominate directors at OSI's upcoming annual meeting to help secure the deal.

As for the pharma firm, it hasn't had much luck in the past year in hostile negotiations. Its $16-per-share bid for CV Therapeutics Inc., of Palo Alto, Calif., failed to go through, with CV's board eventually accepting a $20-per-share offer from Foster City, Calif.-based Gilead Sciences Inc. (See BioWorld Today, Feb. 24, 2009, and March 13, 2009.)

Published  March 2, 2010