By Brady Huggett

If you give something to someone, and they turn around and hand it right back, you might get the idea something is wrong. That's not the case with OSI-774, OSI Pharmaceuticals Inc.'s anticancer product, said Colin Goddard, chairman, president and CEO of OSI.

OSI-774, an oral inhibitor of epidermal growth factor receptor, is currently in Phase II studies and had previously been licensed to Pfizer Inc. for full development and marketing rights, but when Pfizer moved to acquire Warner-Lambert, a company that had a similar anticancer agent in the works, the Federal Trade Commission said the merged company could not keep both products. So Pfizer returned rights to OSI.

"This has been a saga that has played out in the course of this past year," Goddard said. "We have worked with Pfizer since 1986 on joint technologies and joint patents. But the FTC said this was an anti-trust situation."

When Pfizer complied and returned OSI-774, it was a stroke of good fortune for OSI, said Goddard. "Many times when a product is given back from a large pharmaceutical company to a small pharmaceutical company, there are warts on the product. This is truly the exception to the rule. There are no warts on this product."

Early results from OSI-774's Phase II trials were presented this week at the 9th World Conference on Lung Cancer in Tokyo. Four of the first 12 evaluable patients in the study had objective partial responses, while another four patients showed evidence of disease stabilization. The 48-patient, non-small-cell lung cancer study targets those who have failed platinum-based chemotherapy and have tumors histopathologically confirmed to be epidermal growth factor receptor positive (EGFR).

Regaining rights to the EGFR inhibitor, along with other factors, has sparked new interest in the company. Robertson Stephens analyst Michael King, in a 25-page company report on OSI, noted, "The company acquired its small-molecule receptor inhibitor from Pfizer. The rating was raised to a strong buy from buy as a result of the announcement."

And investors seem to be heeding that advice, leading to a boom in OSI's stock price. Its 52-week low was $4.06 back in December, but closed Thursday at $55.44 - a 12-fold gain in nine months.

"What you are seeing is the investment community waking up to OSI," Goddard said. "OSI-774 is an outstanding vanguard product, but behind it is a legitimate pipeline. It really is a discovery franchise that has built Act II before Act I. OSI-774 is Act I for us."

Behind the curtains, OSI has lined up financing to advance the product slate. "We have $83 million on hand at the moment," Goddard said. "It would be fair to say, like all organizations, we will need more capital at some point, but we don't feel we are in a defensive position financially."

Compared to the first three quarters of 1999, the company increased revenue 35 percent, from $16.5 million to $22.2 million, and decreased net loss by 29 percent, from $6.4 to $4.5 million, in 2000.

Goddard said OSI plans to use its cash resources for in-house research aimed at making discoveries that can be partnered out for revenue.

"There is this collaboration pipeline that we have created," said Goddard. "We can look to the future, where we see as many as half a dozen products going into clinical development over the next year."

There are competitors out there in the EGFR inhibitor field: Abgenix, AstraZeneca, and, of course, Pfizer through its acquisition of Warner-Lambert. Of the three, Goddard said AstraZeneca is the strongest. Enrollment for Phase III trials of AstraZeneca's epidermal growth factor tyrosine kinase inhibitor, Iressa (ZD1839) is under way.

"We can't tell how the two agents stack up to each other," Goddard said. "We think ours is a little more potent. But this needs to be played out over time."

Goddard said the next round of trials for OSI-774 should be commencing by the end of 2001, and the company is proceeding with further development plans.

"We are a discovery company with a genuine pipeline behind us," Goddard said. "That is something that sets us apart in this industry."