Although it had to work on the weekend to calm any fears, OSI Pharmaceuticals Inc. closed its merger with Eyetech Pharmaceuticals Inc. Monday - much to the chagrin of some OSI analysts and investors.

At issue is the $935 million price that Melville, N.Y.-based OSI is paying in cash and stock for New York-based Eyetech - a company with one marketed product, Macugen, which could face serious competition in the wet age-related macular degeneration market from the up-and-coming Lucentis, developed by South San Francisco-based Genentech Inc.

Considering competition from Lucentis, George Farmer, senior analyst at New York-based Wachovia Capital Markets Inc., said in a research note that the rationale for the merger with Eyetech "has been most befuddling." After 2007, he expects Macugen sales to gradually drop all the way down to $74.7 million in 2013, and "with an increased expense burden, we estimate this merger will be dilutive to future OSIP earnings."

A week ago, OSI seemed hesitant. Genentech released data showing that Lucentis demonstrated improved visual acuity over Vancouver, British Columbia-based QLT Inc.'s product, Visudyne photodynamic therapy, in a head-to-head study in patients with the predominantly classic form of wet AMD. (See BioWorld Today, Nov. 9, 2005.)

"Although we expected the ANCHOR study to meet its endpoints, the data were impressive," said Colin Goddard, OSI's CEO, in a brief, 10-minute conference call on Monday.

As a result, OSI issued a press release saying that while Eyetech's stockholders approved the merger on Thursday, OSI wanted to "take the two extra days available to us," Goddard said, to evaluate the impact of the Lucentis data on Macugen's future share of the market.

"We believe our board had a fiduciary obligation to our shareholders," Goddard said, adding that the board met "at length" on Saturday and "reaffirmed that the Eyetech transaction was in the best interest" of shareholders.

Farmer called the move "a desperate eleventh-hour ploy to throw the responsibility of this debacle into the lap of the OSIP board."

He said the Lucentis data were expected "well before announcement of the deal" and that they did not "legitimize a declaration for a do-over."

OSI first announced its decision to acquire Eyetech in August. (See BioWorld Today, Aug. 23, 2005.)

At that time, OSI knew that Lucentis could gain approval within 18 months, based on Phase III data reported in May showing that 95 percent of Lucentis treated patients and 62 percent of those on placebo maintained or improved their visual acuity, with a loss of less than 15 letters on the eye chart, at week 54. In contrast, Eyetech's figures were 70 percent for Macugen and 55 percent for placebo.

What changed with the Lucentis data announced last week is that OSI believes "the probability has gone up that Lucentis will enter the market in 2006," said Goddard, who declined to give any guidance on the conference call as to what that might mean for Macugen's sales next year.

Farmer's model currently has Macugen sales at $350 million in 2006 and $390 million at its peak in 2007. But that could change if Lucentis enters the market in 2006.

Genentech expects to file a biologics license application seeking priority review in December.

Even if Lucentis is approved, and Macugen maintains only 10 percent of market share, OSI management has said that they believe the Eyetech merger would be accretive to future earnings. Goddard previously has said the acquisition would help his company to accelerate profitability and provide double-digit revenue growth over the next five years, with more than $600 million in revenues in 2006.

"We continue to believe that there is a meaningful place in the market for Macugen," he said on Monday.

OSI and Eyetech on Saturday jointly issued a statement saying the merger would close Monday. Having absorbed a 21 percent stock drop when the merger was first announced in August, OSI's stock (NASDAQ:OSIP) fell 89 cents Monday to close at $25.38. The company has a market cap of $1.3 billion.

Eyetech's stock (NASDAQ:EYET) rose 9.4 percent Monday, or $1.56, to close at $18.18. Its market cap is $796 million.

Despite the closing, Farmer reiterated his dislike of the deal: "We continue to believe management is on the wrong track in its efforts to create long-term shareholder value."

He revised his estimates downward for OSI's net losses per share to 43 cents in the fourth quarter of 2005, $1.80 in 2005 and $2.02 in 2006. He also lowered OSI's valuation range from $23 to $25 down to $20 to $23.

Aside from the Eyetech merger, OSI's lead product Tarceva received good news earlier this month when the FDA approved its use in combination with gemcitabine as a first-line treatment in patients with pancreatic cancer who have not received prior chemotherapy. The drug has pulled in more than $200 million since it was launched in November 2004 to treat non-small-cell lung cancer. (See BioWorld Today, Nov. 4, 2005.)