As potential eye drug competitor Lucentis nears market, Eyetech Pharmaceuticals Inc. agreed to merge with OSI Pharmaceuticals Inc., bringing along its approved product Macugen, in a deal worth $935 million - or $20 a share, a 43 percent premium over Eyetech's closing stock price on Friday.

Shares (NASDAQ:EYET) climbed Monday more than 29 percent, or $4.14, to end the day at $18.13.

"It's a great deal, obviously, for Eyetech shareholders. They're getting a premium on [Monday's] price, which has since run up from its bottom," said Andrew McDonald, a research analyst with ThinkEquity Partners LLC in San Francisco. "Eyetech management is essentially throwing in the towel. They recognize that there's trouble down the road as a stand-alone company. This provides them with an exit. I think they're very lucky to get it."

The merger calls for 75 percent of the purchase price, or $15 a share, to be paid in cash, with the remaining 25 percent to be paid in OSI common stock. About 5.7 million OSI shares will be issued, using an exchange ratio of 0.12275 OSI shares for each Eyetech share. Eyetech will bring a significant amount of cash to the merger - as of June 30, the company had $263.6 million in cash, cash equivalents and marketable securities.

Once lauded as Wall Street's darling, New York-based Eyetech conducted the first initial public offering of 2004, pricing 6.5 million shares in February at $21 each to raise $136.5 million. The stock climbed from there to $32.40 on its first day trading, and then to almost $50 on excitement for Macugen, the company's sole marketed product, which gained FDA approval in December to treat wet age-related macular degeneration (AMD). (See BioWorld Today, Dec. 21, 2004.)

Macugen is expected to have sales of more than $170 million this year, its first year on the market.

But the company's stock lost traction when South San Francisco-based Genentech Inc. released positive Phase III data for Lucentis. Eyetech's shares fell more than 45 percent that day. (See BioWorld Today, May 25, 2005.)

Lucentis could gain FDA approval within 18 months, knocking Macugen off its sales ladder. According to a research note by analyst Eric Ende and colleagues at New York-based Merrill Lynch & Co., Lucentis competition could cause "Macugen sales to decline until mid-2009 when sales could reaccelerate for diabetic macular edema." Ende expects sales of $365 million in 2006, then a decline to $238 million in 2008.

Considering Eyetech has no other products in clinical development, analysts were expecting the company to sell, possibly to its Macugen partner Pfizer Inc., of New York.

"Personally, I did not think Pfizer was going to be interested because Macugen is inferior to Lucentis and you don't see Pfizer buying inferior products," McDonald told BioWorld Today. "As far as OSIP, yeah, that was a big surprise. It came out of left field. It's a big negative for OSIP in my opinion. Essentially, they're paying $1 billion for a lead product that is going to face [serious competition] from Genentech's Lucentis."

Investors seemed to agree, as the Melville, N.Y.-based company's stock (NASDAQ:OSIP) slid south Monday by more than 21 percent, or $8.85, to close at $31.92.

OSI's CEO Colin Goddard said the acquisition of Eyetech will allow his company to accelerate profitability, and provide double-digit revenue growth over the next five years. Together, the companies are expected to have more than $600 million in revenues in 2006.

Upon closing, a third business unit focused on eye disease would be added to OSI's two other divisions that work in the areas of oncology and diabetes. Eyetech CEO David Guyer will join OSI as executive vice president and CEO of the Eyetech subsidiary, which will remain in New York. Eyetech employs about 320 people, while OSI has about 500 workers.

McDonald speculated that OSI might want to combine its marketed cancer drug Tarceva, a small-molecule EGFR inhibitor, with Macugen, a VEGF inhibitor, to build a larger share of the wet AMD market.

"It's been proposed that the combination of a VEGF inhibitor plus an EGFR inhibitor would show synergy in the treatment of wet AMD," he said.

A combination therapy could resurrect the potential for Macugen, as could a mishap with Lucentis. There is the possibility that Genentech's drug will not get FDA approval, as expected, due to unforeseen side effects or other reasons, McDonald said. If that happens, OSI's stock might begin to climb.

Lucentis' expected superiority over Macugen (pegaptanib sodium injection) is shown by comparing the companies' Phase III trials. Genentech's study showed 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. For Eyetech, the figures were 70 percent for Macugen and 55 percent for placebo.

Also, 34 percent of Lucentis-treated patients gained three lines on the eye chart, compared with 6 percent of those receiving Macugen.

"Macugen only targets VEGF 165, whereas Lucentis targets all six VEGF isoforms," McDonald said. "That's the biological rationale for the difference."

Comparing the trials is difficult, though, since the patients treated in the Lucentis trial were not as advanced in their disease. Yet when taking a subgroup in the Macugen trial, looking only at early stage patients, only 20 percent of them gained three lines or more, still well below the 34 percent mark of Lucentis, McDonald said.

Sales of another product - the photodynamic therapy Visudyne (verteporfin) by QLT Inc., of Vancouver, British Columbia - also could be affected if Lucentis reaches the market, but the impact is minimized since Visudyne, unlike Macugen, works by a different mechanism of action. QLT expects sales of between $500 million and $530 million for Visudyne this year. (See BioWorld Today, June 7, 2005.)

While OSI maps out a future for Macugen, it will continue to develop the drug for two additional indications: diabetic macular edema and retinal vein occlusion, and it may combine it with a photodynamic therapy, Guyer said. A Phase III trial in DME is scheduled to begin this year. OSI also will continue to focus on Phase III trials of Tarceva in front-line and adjuvant non-small-cell lung cancer and ovarian and colorectal cancers. The product is approved in the U.S. for NSCLC and is the subject of a supplemental new drug application to treat pancreatic cancer.

In the pipeline, the combined company will have five products in development: PSN9301, a dipeptidyl peptidase IV inhibitor, in Phase II trials; PSN357, a glycogen phosphorylase inhibitor, in a Phase I trial; OSI-930, a c-kit/KDR inhibitor, in Phase I trials; and Eyetech's PDGF inhibitor, E10030 for neovascular AMD, as well as OSI's PSN010, a glucokinase activator, both scheduled to enter clinical trials in the next six months.

The merger is subject to Eyetech stockholder approval, as well as regulatory approvals. It is expected to close by the end of the year.

Bear, Stearns & Co. Inc. and Merrill Lynch & Co. are acting as exclusive financial advisers to OSI and Eyetech, respectively. L.E.K. Consulting also is providing advice to OSI, and the firms of Mintz Levin Cohn Ferris Glovsky and Popeo PC and Wilmer Cutler Pickering Hale and Dorr LLP are serving as counsel to OSI and Eyetech, respectively.