10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     .

Commission file number 0-15190

OSI Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-3159796
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
41 Pinelawn Road, Melville, New York	11747
(Address of principal executive offices)	(Zip Code)

631-962-2000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

At November 2, 2007, the registrant had outstanding 58,068,447 shares of common stock, $.01 par value.

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONTENTS

	Page No.
PART I. FINANCIAL INFORMATION		1
Item 1. Financial Statements		1
CONSOLIDATED BALANCE SHEETS - - September 30, 2007 (Unaudited) and December 31, 2006		1
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - - Three Months Ended September 30, 2007 and September 30, 2006		2
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - - Nine Months Ended September 30, 2007 and September 30, 2006		3
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - - Nine Months Ended September 30, 2007 and September 30, 2006		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risks		34
Item 4. Controls and Procedures		34
PART II. OTHER INFORMATION		36
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3. Defaults Upon Senior Securities		38
Item 4. Submission of Matters to a Vote of Security Holders		38
Item 5. Other Information		38
Item 6. Exhibits		38
SIGNATURES		40
INDEX TO EXHIBITS		41
EX-10.1: AMENDED AND RESTATED STOCK INCENTIVE PLAN
EX-10.2: CHANGE OF CONTROL AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)

	September 30,			December 31,
	2007			2006
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	99,254		$	42,028
Investment securities		181,944			164,786
Restricted investment securities		9,925			9,554
Accounts receivables – net		80,726			80,075
Inventory – net		22,017			36,860
Interest receivable		1,442			3,674
Prepaid expenses and other current assets		5,687			9,102
Assets related to discontinued operations		30,862			—
Total current assets		431,857			346,079
Property, equipment and leasehold improvements – net		47,328			56,223
Debt issuance costs – net		3,513			4,910
Goodwill		39,502			39,373
Other intangible assets – net		5,536			6,742
Other assets		5,330			4,405
	$	533,066		$	457,732
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	50,044		$	54,741
Collaboration profit share payable		—			12,039
Unearned revenue – current		9,636			12,803
Liabilities related to discontinued operations		46,494			—
Convertible senior subordinated notes		150,000			—
Total current liabilities		256,174			79,583
Other liabilities:
Rent obligations and deferred rent expenses		10,636			10,044
Unearned revenue – long-term		37,182			66,089
Convertible senior subordinated notes		115,000			265,000
Accrued postretirement benefit cost and other		3,424			8,422
Total liabilities		422,416			429,138
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued at September 30, 2007 and December 31, 2006		—			—
Common stock, $.01 par value; 200,000 shares authorized, 59,638 and 59,179 shares issued at September 30, 2007 and December 31, 2006, respectively		598			592
Additional paid-in capital		1,639,824			1,616,874
Accumulated deficit		(1,498,114	)		(1,554,005	)
Accumulated other comprehensive income		5,563			2,354
		147,871			65,815
Less: treasury stock, at cost; 1,943 shares at September 30, 2007 and December 31, 2006		(37,221	)		(37,221	)
Total stockholders’ equity		110,650			28,594
Commitments and contingencies
	$	533,066		$	457,732

See accompanying notes to consolidated financial statements.

1

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)

	Three Months Ended
	September 30,
	2007			2006
Revenues:
Net revenue from unconsolidated joint business	$	41,747		$	39,833
Royalties on product licenses		25,413			14,231
License, milestone and other revenues		33,210			2,741
		100,370			56,805
Expenses:
Cost of goods sold		2,142			1,246
Research and development		29,489			29,750
Acquired in-process research and development		7,500			—
Selling, general and administrative		24,816			25,350
Amortization of intangibles		461			454
		64,408			56,800
Operating income from continuing operations		35,962			5
Other income (expense):
Investment income — net		3,157			2,472
Interest expense		(1,811	)		(1,843	)
Other income (expense) — net		(1,404	)		(475	)
Income (loss) from continuing operations		35,904			159
Loss from discontinued operations — net of tax		(6,276	)		(21,416	)
Net income (loss)	$	29,628		$	(21,257	)
Basic and diluted net earnings (loss) per common share:
Basic earnings (loss):
Income from continuing operations	$	0.62		$	0.00
Loss from discontinued operations — net of tax	$	(0.11	)	$	(0.38	)
Net income (loss)	$	0.51		$	(0.37	)
Diluted earnings (loss):
Income from continuing operations	$	0.59		$	0.00
Loss from discontinued operations — net of tax	$	(0.10	)	$	(0.37	)
Net income (loss)	$	0.49		$	(0.37	)
Shares used in the calculation of income (loss) per common share:
Basic		57,756			56,974
Diluted		65,201			57,729

See accompanying notes to consolidated financial statements.

2

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)

	Nine Months Ended
	September 30,
	2007			2006
Revenues:
Net revenue from unconsolidated joint business	$	123,868		$	114,699
Royalties on product licenses		67,252			33,157
License, milestone and other revenues		65,602			23,856
		256,722			171,712
Expenses:
Cost of goods sold		6,093			5,467
Research and development		87,384			86,249
Acquired in-process research and development		7,500			—
Selling, general and administrative		73,983			78,860
Amortization of intangibles		1,378			1,353
		176,338			171,929
Operating income (loss) from continuing operations		80,384			(217	)
Other income (expense):
Investment income — net		9,247			5,712
Interest expense		(5,423	)		(5,498	)
Other income (expense) — net		667			(1,902	)
Income from continuing operations		84,875			(1,905	)
Loss from discontinued operations — net of tax		(28,984	)		(379,182	)
Net income (loss) before extraordinary item		55,891			(381,087	)
Extraordinary gain — net of tax		—			22,046
Net income (loss)	$	55,891		$	(359,041	)
Basic and diluted net earnings (loss) per common share:
Basic earnings (loss):
Income (loss) from continuing operations	$	1.48		$	(0.03	)
Loss from discontinued operations — net of tax	$	(0.50	)	$	(6.66	)
Net income (loss) before extraordinary item	$	0.97		$	(6.70	)
Extraordinary gain — net of tax	$	—		$	0.39
Net income (loss)	$	0.97		$	(6.31	)
Diluted earnings (loss):
Income (loss) from continuing operations	$	1.41		$	(0.03	)
Loss from discontinued operations — net of tax	$	(0.46	)	$	(6.66	)
Net income (loss) before extraordinary item	$	0.95		$	(6.70	)
Extraordinary gain — net of tax	$	—		$	0.39
Net income (loss)	$	0.95		$	(6.31	)
Shares used in the calculation of income (loss) per common share:
Basic		57,536			56,918
Diluted		63,041			56,918

See accompanying notes to consolidated financial statements.

3

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

	Nine Months Ended
	September 30,
	2007			2006
Cash flows from operating activities:
Net income (loss)	$	55,891		$	(359,041	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Extraordinary gain from reversal of contingent consideration		—			(22,046	)
Loss on sale and disposals of equipment		1,412			5
Gain on sale of intellectual property		(6,012	)		—
Depreciation and amortization		7,535			26,359
Non-cash compensation charges		13,003			13,876
Impact of inventory step-up related to inventory sold		2,298			18,621
Goodwill impairment		—			320,261
Asset impairment		5,685			—
Changes in assets and liabilities:
Receivables		(15,034	)		62,813
Inventory		(2,322	)		(8,204	)
Prepaid expenses and other current assets		3,091			2,175
Other assets		(93	)		(4,029	)
Accounts payable and accrued expenses		(123	)		(47,996	)
Unearned revenue		(1,686	)		30,985
Accrued postretirement benefit cost		(4,084	)		1,051
Net cash provided by operating activities		59,561			34,830
Cash flows from investing activities:
Purchases of investments (restricted and unrestricted)		(177,617	)		(169,791	)
Maturities and sales of investments (restricted and unrestricted)		162,758			35,545
Net additions to property, equipment and leasehold improvements		(2,469	)		(8,713	)
Proceeds from sale of intellectual property		4,000			—
Proceeds from sale of fixed assets		331			786
Additions to compound library assets		(3	)		(16	)
Net cash used in investing activities		(13,000	)		(142,189	)
Cash flows from financing activities:
Proceeds from the exercise of stock options, employee purchase plan and other		9,932			3,705
Other		—			(705	)
Net cash provided by financing activities		9,932			3,000
Net increase (decrease) in cash and cash equivalents		56,493			(104,359	)
Effect of exchange rate changes on cash and cash equivalents		733			506
Cash and cash equivalents at beginning of period		42,028			164,084
Cash and cash equivalents at end of period	$	99,254		$	60,231
Cash paid for interest	$	2,437		$	6,025
Non-cash activities:
Purchase accounting adjustments	$	—		$	3,505
Preferred stock received from sale of intellectual property	$	2,012		$	—

See accompanying notes to consolidated financial statements.

4

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

     In this Quarterly Report on Form 10-Q, “OSI,” “our company,” “we,” “us,” and “our” refer to OSI Pharmaceuticals, Inc. and its subsidiaries. We own or have rights to use various copyrights, trademarks and trade names used in our business, including the following: Tarceva® (erlotinib), Macugen® (pegaptanib sodium injection) and Novantrone® (mitoxantrone for injection concentrate). This Form 10-Q also includes trademarks, service marks and trade names of other companies. As a result of our decision to divest the eye disease business held by our wholly-owned subsidiary, (OSI) Eyetech, Inc., the operating results for (OSI) Eyetech are shown as discontinued operations for all periods presented in the accompanying consolidated statement of operations. The (OSI) Eyetech-related assets and liabilities which, as a result of the planned divestiture, will be either sold or no longer result in ongoing cash in-flows or outflows, have been classified as assets and liabilities related to discontinued operations in our September 30, 2007 consolidated balance sheet.

(1) Basis of Presentation

     In the opinion of management, the accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2007. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

(2) Revenue Recognition

Net revenue from unconsolidated joint business

     Net revenue from unconsolidated joint business is related to our co-promotion and manufacturing agreements with Genentech, Inc., our U.S. collaborator for Tarceva, our small molecule epidermal growth factor inhibitor which is currently approved for the treatment of second and third line advanced non-small cell lung cancer, and, in combination with gemcitabine, for first line advanced unresectable or metastatic pancreatic cancer. Net revenue from unconsolidated joint business consists of our share of the pretax co-promotion profit generated from our co-promotion arrangement with Genentech for Tarceva, the reimbursement from Genentech of our sales and marketing costs related to Tarceva, and the reimbursement from Genentech of our manufacturing costs related to Tarceva. Under the co-promotion arrangement, all U.S. sales of Tarceva and associated costs and expenses are recognized by Genentech. For the three months ended September 30, 2007 and 2006, Genentech recorded $101 million and $100 million, respectively, in net sales of Tarceva in the United States and its territories. For the nine months ended September 30, 2007 and 2006, Genentech recorded $304 million and $296 million, respectively, in net sales of Tarceva in the United States and its territories. Sales reported by Genentech for the three and nine months ended September 30, 2007 were negatively impacted by approximately $13 million and $22 million, respectively, of reserve adjustments due

5

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

to unusually high product returns related to expiring inventory returned to Genentech. We record our 50% share of the co-promotion pretax profit on a quarterly basis, as set forth in our agreement with Genentech. Pretax co-promotion profit under the co-promotion arrangement is derived by calculating U.S. net sales of Tarceva to third-party customers and deducting costs of sales, distribution, and selling and marketing expenses incurred by Genentech and us. The costs incurred during the respective periods represent estimated costs of both parties and are subject to further adjustment based on each party’s final review. Based on past experience, we do not believe that these cost adjustments, if any, will be significant to our consolidated financial statements. The reimbursement of our sales and marketing costs related to Tarceva is recognized as revenue as the related costs are incurred. We defer the recognition of the reimbursement of our manufacturing costs related to Tarceva until the time Genentech ships the product to third-party customers at which time our risk of inventory loss no longer exists. The unearned revenue related to shipments by our third party manufacturers of Tarceva to Genentech that have not been shipped to third-party customers was $5.6 million and $5.9 million as of September 30, 2007 and December 31, 2006, respectively, and is included in unearned revenue-current in the accompanying consolidated balance sheet.

     Net revenues from unconsolidated joint business consisted of the following (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Co-promotion profit and reimbursement of sales force and marketing related costs	$	39,101	$	36,708	$	116,511	$	106,060
Reimbursement of manufacturing costs		2,646		3,125		7,357		8,639
Net revenue from unconsolidated joint business	$	41,747	$	39,833	$	123,868	$	114,699

Royalties on Product Licenses

     We estimate royalty revenue and royalty receivables in the periods these royalties are earned, in advance of collection. Our estimate of royalty revenue and receivables is based upon communication with our collaborative partners. Differences between actual revenues and estimated royalty revenue, if any, are adjusted for in the period which they become known, typically the following quarter. Historically, such adjustments have not been material to our consolidated financial condition or results of operations.

Licenses, Milestones and Other Revenues

     Our revenue recognition policies for all nonrefundable upfront license fees and milestone arrangements are in accordance with the guidance provided in the Securities and Exchange Commission, or SEC, Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” as amended by SEC Staff Accounting Bulletin No. 104, “Revenue Recognition.” In addition, in fiscal 2004, we adopted the provisions of EITF Issue 00-21, “Revenue Arrangements

6

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

with Multiple Deliverables,” or EITF 00-21, for multiple element revenue arrangements entered into or materially amended after September 30, 2003 with respect to recognition of upfront and milestone payments received under collaborative research agreements. Milestones which have been received from Genentech are being recognized over the term of our Manufacturing and Supply Agreement with Genentech, under which the last items of performance to be delivered to Genentech are set forth, on a straight-line basis, which approximates the expected level of performance under the Manufacturing and Supply Agreement. The milestone payments received from Roche, including a $4.0 million payment received during the quarter ended March 31, 2007, are recognized over the expected term of the research and development collaboration. At September 30, 2007, we had unearned revenue of $41.0 million relating to Genentech and Roche payments, of which $3.8 million was classified as short-term.

     We recognized $15.1 million and $27.3 million of revenue in the three and nine months ended September 30, 2007, respectively, in connection with our receipt of upfront payments, milestones, and royalties under license agreements granted under our patent portfolio covering the use of dipeptidyl peptidase IV, or DPIV, inhibitors for the treatment of type 2 diabetes and related indications. We recognize revenue from license agreements where we have no future obligations under the license agreements and the collection of payments is reasonably assured.

     In January 2007, we licensed our glucokinase activator, or GKA, program, including our clinical candidate PSN010, to Eli Lilly and Company for an upfront fee of $25.0 million and up to $360.0 million in potential development and sales milestones and other payments plus royalties on any compounds successfully commercialized from this program. We deferred the initial recognition of the $25.0 million upfront fee based upon our obligation under the agreement to provide technical support during a transitional period of nine months from the date of execution. For the three and nine months ended September 30, 2007, we recognized $8.3 million and $25.0 million, respectively, of the $25.0 million upfront fee.

     Other revenues included miscellaneous revenue sources, including sales commissions representing commissions earned on the sales of the drug, Novantrone, in the United States for oncology indications pursuant to a co-promotion agreement dated March 11, 2003 with Ares Trading S.A., an affiliate of Serono, S.A. The patent for Novantrone expired in April 2006, resulting in a significant decrease in our commission revenues from this drug.

(3) Earnings Per Share

     Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period, increased to include all additional common shares that would have been outstanding assuming potentially dilutive common share equivalents had been issued. Dilutive common share equivalents include the dilutive effect of in-the-money shares related to stock options, and are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option, the average amount of compensation cost, if any, for future service that we have not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital, if

7

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

any, when the option is exercised, are assumed to be used to repurchase shares in the current period. Dilutive common share equivalents also reflect the dilutive effect of unvested restricted stock units, deferred stock units and restricted stock and the conversion of convertible debt which is calculated using the “if-converted” method. In addition, in computing the dilutive effect of convertible debt, the numerator is adjusted to add back the after-tax amount of interest and debt issuance cost recognized in the period.

     The computations for basic and diluted income per share from continuing operations were as follows (in thousands, except per share amounts):

	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,
	2007		2006		2007		2006
Net income (loss) from continuing operations – basic	$	35,904	$	159	$	84,875	$	(1,905	)
Add: Interest and issuance cost related to convertible debt		2,260		—		3,811		—
Net income (loss) from continuing operations – diluted	$	38,164	$	159	$	88,686	$	(1,905	)
Weighted-average common shares outstanding – basic		57,756		56,974		57,536		56,918
Dilutive effect of options and restricted stock		538		755		597		—
Dilutive effect of convertible debt 2025 notes		3,908		—		3,908		—
Dilutive effect of convertible debt 2023 notes		2,999		—		1,000		—
Weighted-average common shares and dilutive potential common shares – diluted		65,201		57,729		63,041		56,918
Net income (loss) per share from continuing operations:
Basic	$	0.62	$	0.00	$	1.48	$	(0.03	)
Diluted	$	0.59	$	0.00	$	1.41	$	(0.03	)

     Under the “if-converted” method, common share equivalents related to our 2.0% convertible senior subordinated notes due 2025, or our 2025 Notes, were included in diluted earnings per share for the three and nine months ended September 30, 2007. The full dilutive effect of our 3.25% convertible senior subordinated notes due 2023, or our 2023 Notes, was included in the three months ended September 30, 2007, but only a pro rata portion of the common share equivalents related to our 2023 Notes was included in the nine months ended September 30, 2007. For the nine months ended September 30, 2006, options, restricted stock, and common share equivalents related to our 2023 Notes and our 2025 Notes were not included in diluted earnings per share because their effect would be anti-dilutive. For the three months ended September 30, 2006 common share equivalents related to our 2023 notes and 2025 notes were not included in dilutive earnings per share because their effect would be anti-dilutive. Such common share equivalents for the three and nine months ended September 30, 2006 amounted to 6.9 million and 7.5 million, respectively.

8

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

(4) Discontinued Operations

     On November 6, 2006, we announced our intention to divest our eye disease business, a process which we expect to complete by the end of 2007. Our eye disease business consists principally of Macugen, our marketed product for the treatment of neovascular age-related macular degeneration, or wet AMD, as well as research assets in the eye disease area. We made the decision to exit the eye disease business because we believe that a key strategic goal of the acquisition of the business in November 2005 — the generation of significant cash flow from the business in the 2006 through 2008 fiscal years — has not been and will not be realized.

     We finalized our exit plan during the first quarter of 2007 and began to actively market our eye disease business. We explored several potential transactions to divest our entire eye disease business, but were unable to identify a transaction that would provide us with satisfactory terms for a complete sale of this business. Therefore, we switched to a strategy of separately divesting the assets, and in July 2007, we entered into an agreement with Ophthotech Corporation to divest our anti-platelet derived growth factor, or PDGF, aptamer program for an upfront cash payment, shares of Ophthotech preferred stock and potential future milestones and royalties. Included in the loss from discontinued operations for the three and nine months ended September 30, 2007 was a gain of approximately $6.0 million recognized as a result of the agreement. We continue to pursue the divestiture of the remaining eye disease assets, including Macugen, and expect to complete this process by the end of 2007.

     As a result of our decision to divest the eye disease business, in accordance with the provision of Statement of Financial Accounting Standards, or SFAS, No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets,” the results of operations of (OSI) Eyetech for the current and prior period have been reported as discontinued operations. In addition, assets and liabilities of (OSI) Eyetech have been classified as assets and liabilities related to discontinued operations, including those held for sale. Net assets held for sale have been reflected at the lower of carrying amount or fair value, less cost to sell. In the third quarter of 2007, we assessed the net realizable carrying amount or fair value of the assets held for sale and recognized an impairment of $5.6 million in order to reduce the carrying value of the assets.

     Operating results of (OSI) Eyetech for the three and nine months ended September 30, 2007 and 2006 are summarized as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Net revenue	$	7,665		$	17,189		$	28,083		$	120,698
Gain on sale of PDGF aptamer research program		6,012			—			6,012			—
Pretax loss		(6,466	)		(21,416	)		(29,650	)		(379,182	)
Net loss from discontinued operations	$	(6,276	)	$	(21,416	)	$	(28,984	)	$	(379,182	)

9

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

     In order to facilitate the divestiture of our eye disease business, on April 20, 2007, we terminated our existing collaboration agreement with Pfizer with respect to the co-promotion of Macugen in the United States and amended and restated the license agreement pursuant to which we had originally granted to Pfizer a number of exclusive licenses or sublicenses to patents and other intellectual property related to Macugen on a world-wide basis. Under the terms of the amended and restated license agreement, Pfizer returned to us all rights to develop and commercialize Macugen in the United States, and we granted to Pfizer an exclusive right to develop and commercialize Macugen in the rest of the world. We have also agreed with Pfizer to provide each other with certain transitional services related to Macugen.

     Prior to the April 2007 amendment, we shared sales and marketing responsibility for sales of Macugen in the United States and reported product revenue on a gross basis for these sales. We determined that we qualified as a principal under the criteria set forth in EITF 99-19 based on our responsibilities under our original contracts with Pfizer, which included manufacture of product for sale in the United States, distribution, ownership of product inventory and credit risk from customers. Since April 20, 2007, we no longer share the gross profits of U.S. sales with Pfizer and no longer receive royalties from Pfizer from rest of the world sales.

     In the second quarter of 2006, we received a $35.0 million milestone payment from Pfizer upon the launch of Macugen in select European countries. The milestone payment was recorded as unearned revenue and was being recognized as revenue on a straight-line basis over the expected term of our collaboration and license agreements with Pfizer, which approximates the expected level of performance under these agreements with Pfizer. The amortization of the unearned revenue and the related unrecognized revenue is included in discontinued operations. Under the amended and restated license agreement, we continue to provide services, share certain expenses and collaborate in specified studies with Pfizer, and therefore, we are continuing to amortize the milestone payment over the term of the original agreement which corresponds to the term of the amended and restated license agreement. Any remaining balance of deferred revenue related to this milestone payment will be reversed upon the sale of the eye disease business and the termination of our obligations under the agreement.

     At September 30, 2007, certain assets and liabilities related to the eye disease business have been classified as assets or liabilities related to discontinued operations. The category includes not only assets which are held for sale, but also assets and liabilities which will no longer result in ongoing cash inflows or outflows after the divestiture.

10

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

     The summary of the assets and liabilities related to discontinued operations as of September 30, 2007 is as follows:

Assets:
Accounts receivable	$	16,933
Prepaid expenses and other assets		1,226
Inventories (assets held for sale)		10,386
Property, plant and equipment (assets held for sale)		2,317
Assets related to discontinued operations	$	30,862
Liabilities:
Accounts payable and accrued expenses	$	12,803
Collaboration profit share		2,862
Unearned revenue		30,389
Other		440
Liabilities related to discontinued operations	$	46,494

(OSI) Eyetech Divestiture – Severance Costs

     As a result of our decision to exit our eye disease business in November 2006, we committed to a plan to re-scale the eye disease business. The plan included the consolidation of facilities as well as a reduction in the workforce. We recognized $3.6 million of this cost in the fourth quarter of 2006, consisting of $2.6 million for severance payments and $1.0 million related to the impairment of long-term assets offset by previously accrued rent expense of $280,000. In the third quarter of 2007, we implemented another reduction in workforce which resulted in recognizing $1.2 million of severance costs. During the three and nine months ended September 30, 2007, we recorded additional severance costs of $1.2 million and $5.0 million, respectively, which were included in the loss from discontinued operations.

     The activity for the three months and nine months ended September 30, 2007 was as follows (in thousands):

	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2007			2007
Opening liability	$	2,553		$	2,584
Accrual for severance, relocation and retention bonuses		1,166			5,017
Cash paid for severance		(2,750	)		(6,632	)
Ending liability	$	969		$	969

11

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

(OSI) Eyetech Integration — Facility Restructuring

     In connection with the acquisition of Eyetech Pharmaceuticals, Inc. on November 14, 2005, we implemented a plan to consolidate certain facilities. Included in the liabilities assumed in the acquisition, we recognized $5.4 million for the present value of future lease commitments. The facilities included in the accrual were Lexington, Massachusetts, a portion of the New York City office and one of our leased facilities in Boulder, Colorado. The present value of the lease payments was determined based upon the date that we plan to exit the facility and the remaining lease expiration, offset by estimated sublease income. Rental payments for the facilities prior to closure were included in operating expense. During 2006, the Boulder facility was sold and we subleased a portion of the New York City office. The Lexington facility and the remaining portion of the New York City office also were closed during 2006, and subsequently subleased during 2007. In the three months ended September 30, 2007 and the nine months ended September 30, 2007, we recorded $225,000 and $3.7 million, respectively, of additional costs as a result of reevaluating our rental assumptions based upon the current rental market. These accruals were not included in the liabilities related to discontinued operations as of September 30, 2007 since the obligations will remain with us after the divestiture of the eye disease business.

     The activity for the three and nine months ended September 30, 2007 and 2006 was as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Opening liability	$	4,752		$	4,067		$	2,053		$	5,391
Accrual for lease costs		225			(1,531	)		3,709			(1,800	)
Accretion expense		66			27			186			294
Cash paid for rent		(1,297	)		(542	)		(2,202	)		(1,864	)
Ending liability	$	3,746		$	2,021		$	3,746		$	2,021

(5) Accounting for Stock–Based Compensation

     Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R), “Share-Based Payments,” which establishes the accounting for employee stock-based awards. Under the provisions of SFAS No. 123(R), stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant).

     Total net stock-based compensation expense is attributable to the granting of, and the remaining requisite service periods of, stock options, restricted stock, restricted stock units and deferred stock units. Compensation expense related to continuing operations and attributable to net stock-based compensation for the three months ended September 30, 2007 and 2006 was $3.4 million and $2.9 million, respectively, or, in each case, $0.05 diluted earnings per share. Compensation expense related to continuing operations and attributable to net stock-based

12

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

compensation for the nine months ended September 30, 2007 and 2006 was $11.4 million and $8.7 million, respectively, or $0.18 and $0.15 diluted earnings per share, respectively. Compensation expense related to discontinued operations and attributable to net stock-based compensation for the three and nine months ended September 30, 2007 was $424,000 and $2.1 million, respectively, compared to $1.5 million and $7.4 million for the three and nine months ended September 30, 2006.

Stock Options

     We estimate the fair value of stock options using the Black-Scholes option-pricing model. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our granted stock options. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards. Historically, we have satisfied the exercise of options by issuing previously unissued shares.

     For the three and nine months ended September 30, 2007, we granted options to purchase 15,450 and 126,600 shares of common stock, respectively. For the three and nine months ended September 30, 2006 we granted options totaling 17,300 and 463,000, respectively.

     The per share weighted average fair value of stock options granted during the three months ended September 30, 2007 and 2006 was $15.59 and $16.42, respectively. The per share weighted average fair value of stock options granted during the nine months ended September 30, 2007 and 2006 was $15.72 and $14.80, respectively. In addition to the exercise and grant date prices of the awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants in the respective periods are listed in the table below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Expected dividend yield		0	%		0	%		0	%		0	%
Expected volatility		45.07	%		53.39	%		45.69	%		56.81	%
Risk-free interest rate		5.11	%		4.77	%		5.06	%		4.50	%
Expected term (years)		4.57			4.57			4.57			4.33

(6) Restricted Assets

     Certain of our facility leases have outstanding letters of credit issued by a commercial bank which serve as security for our performance under the leases. The collateral for these letters of credit is maintained in a restricted investment account. Included in restricted investment securities as of September 30, 2007 was $9.9 million of restricted cash and investments to secure these letters of credit.

13

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

(7) Inventory

     Inventory is stated at the lower of cost or market, with cost being determined using the weighted average method. Inventory is comprised of three components: raw materials, which are purchased directly by us, work in process, which is primarily active pharmaceutical ingredient, or API, where title has transferred from our contract manufacturer to us, and finished goods, which are packaged product ready for commercial sale.

     The December 31, 2006 inventory balances included both Tarceva and Macugen inventory values. As of September 30, 2007, Macugen inventories have been classified as assets related to discontinued operations. As of December 31, 2006, the total value of the Macugen inventories was $18.4 million.

     Inventory at September 30, 2007 and December 31, 2006 consisted of the following (in thousands):

	September 30,		December 31,
	2007		2006
Raw materials	$	1,278	$	3,032
Work in progress		8,217		22,282
Finished goods on hand — net		7,364		6,088
Inventory subject to return		5,158		5,458
Total inventory	$	22,017	$	36,860

     Inventory subject to return represents the amount of Tarceva shipped to Genentech which has not been recognized as revenue.

(8) Comprehensive Income (Loss)

     Comprehensive income (loss) for the three and nine months ended September 30, 2007 and 2006 was as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007		2006			2007		2006
Net income (loss)	$	29,628	$	(21,257	)	$	55,891	$	(359,041	)
Other comprehensive income (loss):
Foreign currency translation adjustments		580		290			1,108		1,289
Post retirement curtailment		—		—			1,316		—
Unrealized holding gains (losses) arising during period		764		112			785		(58	)
		1,344		402			3,209		1,231
Total comprehensive income (loss)	$	30,972	$	(20,855	)	$	59,100	$	(357,810	)

14

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

     The components of accumulated other comprehensive income were as follows (in thousands):

	September 30,		December 31,
	2007		2006
Cumulative foreign currency translation adjustment	$	5,084	$	3,976
SFAS 158 adjustment		—		(1,316	)
Unrealized gain (loss) on available-for-sale securities		479		(306	)
Accumulated other comprehensive income	$	5,563	$	2,354

(9) Intangible Assets

     The components of other intangible assets-net were as follows (in thousands):

	September 30, 2007							December 31, 2006
	Carrying		Accumulated			Net Book		Carrying		Accumulated			Net Book
	Amount		Amortization			Value		Amount		Amortization			Value
Novantrone	$	46,009	$	(44,195	)	$	1,814	$	46,009	$	(43,108	)	$	2,901
Acquired patent estate		794		(188	)		606		760		(135	)		625
Acquired licenses issued to other companies		4,109		(993	)		3,116		3,932		(716	)		3,216
Total	$	50,912	$	(45,376	)	$	5,536	$	50,701	$	(43,959	)	$	6,742

     Total amortization expense was $461,000 and $1.4 million, respectively, for the three and nine months ended September 30, 2007, and $5.0 million and $14.9 million, respectively, for the three and nine months ended September 30, 2006. Amortization expense is estimated to be $461,000 for the remaining three months of 2007, $1.8 million for 2008 and $397,000 for the years 2009 through 2012.

(10) Consolidation of Facilities

Restructuring Plan

     On November 6, 2006, we announced our intention to exit our eye disease business, and committed to a plan to re-scale our eye disease business and other operations consistent with the streamlining of our overall business. The plan as it relates to ongoing operations includes the consolidation of facilities, as well as a reduction in the workforce and is expected to cost between $2.6 million and $3.5 million. We recognized $2.5 million of this cost in the fourth quarter of 2006. Included in this charge is $653,000 for severance payments, $654,000 related to long term assets and their utilization, and $1.2 million for lease obligations. During the nine months ended September 30, 2007, we recognized $1.3 million of additional severance charges,

15

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

of which $717,000 was included in selling, general and administrative expenses, and $575,000 was included in research and development expenses.

     The activity for the three and nine months ended September 30, 2007 was as follows (in thousands):

	Three Months			Nine Months
	Ended			Ended
	September 30, 2007			September 30, 2007
Opening liability	$	1,740		$	1,897
Accrual for severance payments		74			1,292
Accrual for lease payments		317			703
Cash paid for severance		—			(1,517	)
Cash paid for rent		(271	)		(515	)
Ending liability	$	1,860		$	1,860

Corporate Headquarters

     During the first quarter of 2006, we relocated our corporate headquarters to our newly acquired facility in Melville, New York. As a result, in accordance with SFAS 146, we recognized a liability of $2.7 million and a net expense of $2.3 million for the exit cost associated with the termination of the lease for the prior facility. The recognized net expense of $2.3 million was comprised of the net lease obligations of $2.7 million, offset by previously accrued rent expense of $369,000.

     The activity for the three and nine months ended September 30, 2007 and 2006 was as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007		2006			2007			2006
Opening liability	$	521	$	2,179		$	1,924		$	—
Accrual for lease termination costs		—		—			—			2,974
Accretion expense		11		45			42			103
Cash paid for rent		—		(173	)		(1,434	)		(1,026	)
Ending liability	$	532	$	2,051		$	532		$	2,051

Oxford, England

     In August 2004, we announced the decision to consolidate all of our U.K.-based oncology research and development activities into our New York locations by approximately November 30, 2004. The termination benefits provided to employees was estimated at $3.7 million as of September 30, 2004. During the year ended December 31, 2005, we recorded a charge of $4.4 million, in selling, general and administrative expenses, for estimated facility

16

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

lease return costs and the remaining rental obligation net of estimated sublease rental income in accordance with SFAS No. 146.

     The activity for the three and nine months ended September 30, 2007 and 2006 was as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Opening liability	$	3,854		$	4,090		$	4,062		$	4,210
Cash paid for rent		(944	)		(147	)		(1,251	)		(550	)
Other		63			53			162			336
Ending liability	$	2,973		$	3,996		$	2,973		$	3,996

(11) Employee Post-Retirement Plan

     As of April 18, 2007, we curtailed our post-retirement medical and life insurance plan and grandfathered those employees, board members and qualified dependants who were eligible to participate in the plan on that date. As a result of the curtailment, we reduced our liability for this plan by $5.6 million, recognized a gain of $4.3 million and recorded an adjustment to accumulated other comprehensive income of $1.3 million. The curtailment had the effect of decreasing the accumulated benefit obligation to $3.0 million.

     Only those grandfathered participants will continue to be entitled to receive benefits under the plan. Eligibility was determined based on age and service requirements. These benefits are subject to deductibles, co-payments and other limitations.

     Net post-retirement benefit cost for the three and nine months ended September 30, 2007 and 2006, excluding the $4.3 million curtailment gain, included the following components (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Service costs for benefits earned during the period	$	—	$	264	$	383	$	791
Interest costs on accumulated post- retirement benefits obligation		23		102		176		307
Amortization of initial benefits attributed to past services		—		1		2		4
Amortization of loss		—		17		7		50
Net post-retirement benefit cost	$	23	$	384	$	568	$	1,152

17

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

     Of the $4.3 million curtailment gain, $4.2 million was reflected as other income (expense)-net and $159,000 was recognized in loss from discontinued operations-net of tax in the accompanying consolidated statement of operations for the nine months ended September 30, 2007.

(12) Sabbatical Leave Accrual

     Effective January 1, 2007, we adopted EITF 06-02, “Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to SFAS No. 43.” Sabbatical leave is generally defined as an employee’s entitlement to paid time off after working for an entity for a specified period of time. The employee continues to be a compensated employee and is not required to perform any duties for the entity during the sabbatical leave. We provide a sabbatical leave of four weeks for employees who have achieved 15 years of service. We applied the consensus as a change in accounting principle through retrospective application to all prior periods in accordance with SFAS No. 154. The cumulative effect of the change in accounting principle is an increase of $352,000 in accrued expenses and a decrease in retained earnings of $352,000. The results for the three and nine months ended September 30, 2006 have not been restated for the retrospective impact of adopting the EITF 06-02 because the effect was insignificant.

(13) Income Taxes

     In July 2006, the Financial Accounting Standards Board, or FASB, issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” or FIN 48, which clarifies the criteria that must be met prior to recognition of the financial statement benefit of a position taken in a tax return. FIN 48 provides a benefit recognition model with a two-step approach consisting of a “more-likely-than-not” recognition criteria, and a measurement attribute that measures a given tax position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements. FIN 48 is effective as of the beginning of the first annual period beginning after December 15, 2006, and became effective for us on January 1, 2007. The adoption of FIN 48 on January 1, 2007 had no impact on the financial condition, results of operations, or cash flows for the three months ended September 30, 2007.

     For the three and nine months ended September 30, 2007, we recorded a provision for income taxes of $906,000 and $1.9 million related to income from continuing operations, respectively, and a tax benefit of $190,000 and $666,000 related to our loss from discontinued operations, respectively. Based on our ability to fully offset current taxable income by our net operating loss carryforwards, our estimated tax expense is principally related to alternative minimum tax. The provision for income taxes related to continuing operations has been included in other income (expense) in the accompanying statement of operations for the three and nine months ended September 30, 2007.

18

OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)

(14) Convertible Senior Subordinated Debt

     The $150.0 million of convertible senior subordinated notes classified in current liabilities represent our 2023 notes. Holders have the right to require us to purchase all of the 2023 notes, or a portion thereof, in September 2008, and therefore, the debt was reclassified as current in the accompanying September 30, 2007 consolidated balance sheets. If holders of the 2023 notes make this election, we can pay the purchase price in cash or by issuing shares of our common stock.

     The $115.0 million of convertible senior subordinated notes classified as long-term represent our 2025 notes. Holders of the 2025 notes have the right to require us to purchase, for cash, all of the 2025 notes, or a portion thereof, in December 2010 and therefore, the debt continues to be classified as long-term in the accompanying consolidated balance sheets.

(15) Litigation

     On or about December 16, 2004, several purported shareholder class action lawsuits were filed in the United States District Court for the Eastern District of New York against our company, certain of our current and former executive officers, and the members of our Board of Directors. The lawsuits were brought on behalf of those who purchased or otherwise acquired our company’s common stock during certain periods in 2004, which periods differed in the various complaints. The Court appointed a lead plaintiff who, on February 17, 2006, filed a consolidated amended class action complaint seeking to represent a class of all persons who purchased or otherwise acquired our company’s common stock during the period from April 26, 2004 through November 22, 2004. The consolidated complaint alleges that the defendants made material misstatements and omissions concerning the survival benefit associated with our company’s product, Tarceva, and the size of the potential market of Tarceva upon FDA approval of the drug. It alleges violations of Sections 11 and 15 of the Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The consolidated complaint seeks unspecified compensatory damages and other relief. On April 7, 2006, we filed a motion to dismiss the consolidated amended complaint. Briefing on this motion was completed on June 21, 2006.  In an opinion dated March 31, 2007 (and entered on the docket on April 4, 2007), the Court granted in part and denied in part the motion to dismiss.  The Court dismissed claims against some of the individual defendants and dismissed the Section 11 and 15 claims, but granted the plaintiff 30 days leave to replead the Section 11 claim in accordance with the Court’s order and to renew the Section 15 claim. Plaintiff did not amend, and thus those claims were dismissed with prejudice.  The parties have now informed the Court that they have reached an agreement in principle to settle this action.  The parties are in the process of finalizing the settlement papers, which will then be subject to Court approval.

19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

Overview

     We are a mid-cap biotechnology company committed to building a scientifically strong and financially successful top tier biopharmaceutical organization that discovers, develops and commercializes innovative molecular targeted therapies addressing major unmet medical needs in oncology, diabetes and obesity.

     Our largest area of focus is oncology where our business is anchored by our flagship product, Tarceva, a small molecule inhibitor of the epidermal growth factor receptor. In November 2004, Tarceva was approved by the U.S. Food and Drug Administration, or FDA, for the treatment of advanced non-small cell lung cancer, or NSCLC, in patients who have failed at least one prior chemotherapy regimen and, subsequently, in November 2005, for the treatment of patients with locally advanced and metastatic pancreatic cancer in combination with the chemotherapy agent, gemcitabine. Tarceva was also approved for sale in the European Union, or EU, for the treatment of advanced NSCLC in September 2005 and, in January 2007, as a first-line therapy for metastatic pancreatic cancer in combination with gemcitabine. In October 2007, Tarceva was approved in Japan for the treatment of patients with nonresectable, recurrent and advanced NSCLC which is aggravated following chemotherapy, and we expect sales to commence in Japan by the end of 2007. Tarceva achieved global sales of approximately $650 million for 2006. For the nine months ended September 30, 2007, Tarceva global sales were approximately $635 million. We co-promote Tarceva in the United States with Genentech, Inc. and receive royalties on sales from our international collaborator, Roche. Behind Tarceva, we have an emerging oncology pipeline of molecular targeted therapies in clinical and late-stage pre-clinical development, including OSI-930 (a co-inhibitor of the vascular endothelial growth factor, or VEGF, and c-kit receptors with potential utility as an anti-angiogenic and anti-proliferative agent in certain tumors), OSI-906 (an insulin-like growth factor 1, or IGF-1, receptor inhibitor implicated in all major tumor types) and OSI-027 (a next generation mammalian target of rapamycin (mTOR) kinase inhibitor). Tarceva, OSI-930, OSI-906 and OSI-027 are all small molecules designed to be administered orally as a tablet rather then by the less convenient intravenous infusion characteristic of many anti-cancer drugs.

     We also have research and early development programs in diabetes and obesity which are conducted through Prosidion Limited, our U.K. subsidiary. Our most advanced clinical candidate in the diabetes and obesity area is PSN9301, our dipeptidyl peptidase IV, or DPIV, inhibitor, which will enter Phase IIb studies in early 2008. Two additional agents, PSN602 and PSN821, are in late stage pre-clinical development and are anticipated to enter into clinical trials in 2008. In January 2007, we licensed our glucokinase activator program, including our clinical candidate PSN010, to Eli Lilly and Company for an upfront fee of $25.0 million and up to $360.0 million in potential development and sales milestones and other payments plus royalties on any compounds successfully commercialized from this program. We also generate revenues from our patent estate relating to the use of DPIV inhibitors for the treatment of type II diabetes and related indications. Twelve pharmaceutical companies have taken non-exclusive licenses to

20

these patents, which provide us with upfront payments as well as potential milestones and royalties. In the fourth quarter of 2006, one of our licensees, Merck & Co., Inc., received approval by the FDA for its DPIV inhibitor, Januvia® (sitagliptin phosphate), and commenced marketing of the drug, which triggered the payment of a milestone and royalties to us. In March 2007, Merck received EU regulatory approval for Januvia and also FDA approval of Janumet®, a combination DPIV inhibitor product, which also triggered the payment of a milestone and royalties to us. In September 2007, Novartis AG, another licensee, was granted marketing approval in the European Union, which triggered the payment of a milestone to us.

     On November 6, 2006, we announced our intention to divest our eye disease business, which consists principally of Macugen, our marketed product for the treatment of neovascular age-related macular degeneration, or wet AMD, as well as research assets in the eye disease area, comprised primarily of our anti-platelet derived growth factor, or PDGF, aptamer program. In July 2007, we transferred all rights in our PDGF aptamer program to Ophthotech Corporation for cash, shares of Ophthotech preferred stock and potential future milestones and royalties. We expect to complete the divestiture of the remainder of our eye disease business by the end of 2007. As a result of the finalization of our plan to sell the business during the first quarter of 2007, the financial information associated with these operations is presented as discontinued operations in the accompanying financial statements.

     Through diligent management of our business, in particular, our expenses, we have attained profitability for the first nine months of 2007. We expect to achieve our goal of full year profitability for 2007 while sustaining a sufficient level of investment in research and development in order to allow for the continued expansion of Tarceva use and the progression of our pipeline of targeted oral small molecules for the treatment of cancer, diabetes and obesity.

Quarterly Update

     On September 28, 2007, we entered into a small molecule drug discovery and translational research collaboration with AVEO Pharmaceuticals, Inc. The purpose of this collaboration is the development of molecular therapies that target the underlying mechanisms of epithelial-to-mesenchymal transition, or EMT, in cancer. EMT is a process of emerging significance in tumor development and disease progression and the focal point of our proprietary oncology research efforts. We are collaborating with AVEO to develop proprietary target-driven tumor models for use in drug screening and biomarker validation, and intend to employ these models in support of our oncology drug discovery and clinical programs. Under the terms of our collaboration agreement, we delivered to AVEO a $10.0 million upfront cash payment (which includes $2.5 million research funding for the first year of the collaboration) and purchased $5.5 million of AVEO preferred stock. We also agreed to provide AVEO with certain research funding, as well as milestones and royalties upon successful development and commercialization of products from the collaboration.

     On September 18, 2007, we announced that we had received a Notice of Final Determination from the U.S. Patent and Trademark Office that our Tarceva patent which covers its composition of matter, processes for preparation, methods of treating cancer and pharmaceutical compositions, had been extended through November 8, 2018.

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     On September 6, 2007, we announced that Prosidion reported positive results from a metformin drug interaction study in healthy volunteers with its DPIV inhibitor, PSN9301. We hope to ultimately demonstrate that PSN9301, dosed prandially at breakfast and dinner — either as a monotherapy or in combination with metformin — delivers similar efficacy in terms of the lowering of glucose levels to that achieved by current DPIV inhibitor products. Any weight loss or side effect profile benefits of PSN9301 may allow for a differentiated positioning in the DPIV marketplace.

Subsequent Events

     On October 22, 2007, we announced together with Roche that Tarceva had been approved in Japan for the treatment of patients with nonresectable, recurrent and advanced NSCLC which is aggravated following chemotherapy. The approval was supported by two Phase II trials that confirmed the safety and efficacy of Tarceva in Japanese patients in support of our BR.21 pivotal trial study for Tarceva. We expect sales of Taceva to commence in Japan by the end of 2007.

Critical Accounting Policies

     We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ significantly from our estimates and the estimated amounts could differ significantly under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and which require our most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Note 1 to the accompanying consolidated financial statements includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.

Discontinued Operations

     On November 6, 2006, we announced our intention to divest our eye disease business, a process which we expect to complete by the end of 2007. During the first quarter of 2007, we finalized our exit plan and began to actively market our eye disease business assets. As a result of the finalization of our plan to sell the business during the first quarter of 2007, and as discussed in Note 4 to the accompanying consolidated financial statements, the financial information associated with these operations is presented as discontinued operations in the accompanying financial statements.

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Revenue Recognition

     Net revenue from unconsolidated joint business

     Net revenue from unconsolidated joint business are related to our co-promotion and manufacturing agreements with Genentech for Tarceva. It consists of our share of the pretax co-promotion profit generated from our co-promotion arrangement with Genentech for Tarceva, the reimbursement from Genentech of our sales and marketing costs related to Tarceva and the reimbursement from Genentech of our manufacturing costs related to Tarceva. Under the co-promotion arrangement, all U.S. sales of Tarceva and associated costs and expenses, except our sales related costs, are recognized by Genentech. We record our 50% share of the co-promotion pretax profit on a quarterly basis, as set forth in our agreement with Genentech. Pretax co-promotion profit under the co-promotion arrangement is derived by calculating U.S. net sales of Tarceva to third-party customers and deducting costs of sales, distribution and selling and marketing expenses incurred by Genentech and us. The costs incurred during the respective periods represent estimated costs of both parties and are subject to further adjustment based on each party’s final review. Based on past experience, we do not believe that these adjustments, if any, will be significant to our consolidated financial statements. The partial reimbursement of sales and marketing costs related to Tarceva is recognized as revenue as the related costs are incurred. We defer the recognition of the reimbursement of our manufacturing costs related to Tarceva until the time Genentech ships the product to third-party customers at which time our risk of inventory loss no longer exists.

     License fees and milestones

     Our revenue recognition policies for all nonrefundable upfront license fees and milestone arrangements are in accordance with the guidance provided in the Securities and Exchange Commission, or SEC, Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” as amended by SEC Staff Accounting Bulletin No. 104, “Revenue Recognition.” In addition, we follow the provisions of Emerging Issues Task Force, or EITF, 00-21, “Revenue Arrangements with Multiple Deliverables” for multiple element revenue arrangements entered into or materially amended after June 30, 2003.

     Milestones received from Genentech after June 2004 and the remaining unearned upfront fee are being recognized over the term of our Manufacturing and Supply Agreement with Genentech, under which the last items of performance to be delivered to Genentech are set forth, on a straight line basis, which approximates the expected level of performance under the Manufacturing and Supply Agreement. Milestone payments received from Roche are recorded as unearned revenue and recognized over the expected term of the research collaboration on a straight-line basis, which approximates the expected level of performance under the development plan.

     In January 2007, we licensed our glucokinase activator program, including our clinical candidate PSN010, to Eli Lilly for an upfront fee of $25.0 million and up to $360.0 million in potential development and sales milestones and other payments plus royalties on any compounds successfully commercialized from this program. We deferred the initial recognition of the $25.0 million upfront fee based upon our obligation under the agreement to provide technical support

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during a transitional period of nine months from the date of execution. For the three and nine months ended September 30, 2007, we recognized $8.3 million and $25.0 million, respectively, of the upfront fee.

     Macugen Product Sales

     Macugen product sales are included in loss from discontinued operations. Macugen is sold primarily to distributors, who, in turn, sell to physicians, a limited number of specialty pharmacy providers and federal government buying groups. We recognize revenue from product sales when there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed and determinable, the buyer is obligated to pay us, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from us, we have no obligation to bring about sale of the product, the amount of returns can be reasonably estimated and collectibility is reasonably assured.

     On April 20, 2007, we terminated our existing collaboration agreement with Pfizer with respect to the co-promotion of Macugen in the United States and amended and restated the license agreement pursuant to which we had originally granted to Pfizer a number of exclusive licenses or sublicenses to patents and other intellectual property related to Macugen on a world-wide basis. Under the terms of the amended and restated license agreement, Pfizer returned to us all rights to develop and commercialize Macugen in the United States, and we granted to Pfizer an exclusive right to develop and commercialize Macugen in the rest of the world. We have also agreed with Pfizer to provide each other with certain transitional services related to Macugen.

     Prior to the April 2007 amendment, we shared sales and marketing responsibility for sales of Macugen in the United States and reported product revenue on a gross basis for these sales. We determined that we qualified as a principal under the criteria set forth in EITF 99-19, “Reporting Revenue Gross as Principal versus Net as an Agent,” based on our responsibilities under our contracts with Pfizer, which included manufacture of product for sale in the United States, distribution, ownership of product inventory and credit risk from customers. Since April 20, 2007, we no longer share the gross profits of U.S. sales with Pfizer and no longer receive royalties from Pfizer from rest of the world sales.

     Macugen Collaborative Revenue

     Collaborative program revenues related to Macugen for the three and nine months ended September 30, 2007 and 2006 represented funding arrangements for Macugen research and development with Pfizer and were recognized when earned in accordance with the terms of the agreements and related research and development activities undertaken. These revenues are included in discontinued operations.

     Based on the terms of our collaboration agreement with Pfizer, revenues derived from reimbursements of costs associated with the development of Macugen were recorded in compliance with EITF 99-19 and EITF Issue 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out of Pocket’ Expenses Incurred.” According to the criteria established by these EITF Issues, we have met the criteria to record revenue for the gross amount of the reimbursements.

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     Macugen Milestone Revenue

     In the second quarter of 2006, we received a $35.0 million milestone payment from Pfizer upon the launch of Macugen in select European countries. In accordance with EITF 00-21, the milestone payment was recorded as unearned revenue and was being recognized as revenue on a straight-line basis over the expected term of our collaboration and license agreements with Pfizer, which approximated the expected level of performance under these agreements with Pfizer.

     In April 2007, we terminated our collaboration and license agreements with Pfizer and entered into an amended and restated license agreement. Under the terms of this agreement, we continue to provide services, share certain expenses and collaborate in specified studies with Pfizer and, therefore, we are continuing to amortize the milestone payment over the term of the original agreement which corresponds to the term of the amended and restated license agreement. The amortization of the unearned revenue is included in loss from discontinued operations. Any remaining balance of deferred revenue related to this milestone payment will be reversed upon the sale of the eye disease business and the termination of our obligations under the agreement.

Accruals for Clinical Research Organization and Clinical Site Costs

     We make estimates of costs incurred to date but not yet invoiced in relation to external clinical research organizations, or CROs, and clinical site costs. We analyze the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the accrued liabilities. Significant judgments and estimates must be made and used in determining the accrued balance in any accounting period.

Goodwill and Other Long-Lived Assets

     We account for goodwill and other intangible assets in accordance with Statements of Financial Accounting Standards, or SFAS, No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. It specifies the criteria which intangible assets acquired in a business combination must meet in order to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets determined to have indefinite lives no longer be amortized but instead be tested for impairment at least annually and whenever events or circumstances occur that indicate impairment might have occurred. We completed our annual impairment review of goodwill at December 31, 2006, and determined that no impairment charge was required.

     Our identifiable intangible assets are subject to amortization. SFAS No. 142 requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires, among other things, that long-lived assets be measured at the lower of carrying amount or fair value, less cost to sell, whether reported in continuing operations or in discontinued operations. We review our

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intangibles with determinable lives and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

     As discussed in note 4 to the accompanying consolidated financial statements, our (OSI) Eyetech operations have been classified as discontinued operations and certain assets have been classified as held for sale. In accordance with SFAS No. 144, these assets have been recorded at their lower of carrying amount or fair value, less cost to sell.

Stock-Based Compensation

     As discussed further in note 5 to the accompanying consolidated financial statements, “Accounting for Stock-Based Compensation,” we adopted SFAS No. 123(R) on January 1, 2006 using the modified prospective method.

     We have used and expect to continue to use the Black-Scholes option-pricing model to compute the estimated fair value of stock-based awards. The Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected option term and risk-free interest rates. We estimate expected volatility based upon a combination of historical, implied and adjusted historical stock prices. The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant. Commencing in the second quarter of fiscal 2005, the fair value of the options was estimated at the date of grant using a Black-Scholes option pricing model with the expected option term determined using a Monte Carlo simulation model that incorporates historical employee exercise behavior and post-vesting employee termination rates.

     The assumptions used in computing the fair value of stock-based awards reflect our best estimates but involve uncertainties relating to market and other conditions, many of which are outside of our control. As a result, if other assumptions or estimates had been used, the stock-based compensation expense that was recorded for the three and nine months ended September 30, 2007 and 2006 could have been materially different. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future.

Revenues

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2007		2006		$ Change		2007		2006		$ Change
Net revenue from unconsolidated joint business	$	41,747		$39,833	$	1,914	$	123,868		$114,699	$	9,169
Royalties on product licenses		25,413		14,231		11,182		67,252		33,157		34,095
License, milestone and other revenues		33,210		2,741		30,469		65,602		23,856		41,746
Total revenues	$	100,370	$	56,805	$	43,565	$	256,722	$	171,712	$	85,010

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Net Revenue from Unconsolidated Joint Business

     Net revenue from unconsolidated joint business is related to our co-promotion and manufacturing agreements with Genentech for Tarceva. For the three and nine months ended September 30, 2007, Genentech recorded net sales of Tarceva in the United States and its territories of $101 million and $304 million, respectively, compared to $100 million and $296 million for the three and nine months ended September 30, 2006, respectively. Sales for the three and nine months ended September 30, 2007 were negatively impacted by approximately $13 million and $22 million, respectively, of reserve adjustments taken by Genentech due to unusually high product returns related to expiring inventory returned to Genentech. Our share of these net sales is reduced by the costs incurred for cost of goods sold and for the sales and marketing of the product. For the three and nine months ended September 30, 2007, we reported net revenues from our unconsolidated joint business for Tarceva of $41.7 million and $123.9 million, respectively, compared to $39.8 million and $114.7 million in the three and nine months ended September 30, 2006, respectively. The increase in net revenue from unconsolidated joint business for the three months ended September 30, 2007 was primarily due to higher reimbursement of our marketing and sales costs. The increase in net revenue from unconsolidated joint business for the nine months ended September 30, 2007 was primarily due to higher sales related to price increases and higher reimbursement of marketing and sales costs. Unit sales volume has remained relatively stable for the three and nine months ended September 30, 2007,

Royalties on Product Licenses

     We receive royalties on the sales of Tarceva outside of the United States and its territories. In September 2005, our partner Roche received approval from the European Commission for the sale of Tarceva in the European Union for the treatment of patients with locally advanced or metastatic NSCLC, and in January 2007, as a first-line therapy for metastatic pancreatic cancer in combination with gemcitabine. Roche has also received approval for reimbursement in a number of EU countries and is pursuing approval in other markets in the European Union. For the three and nine months ended September 30, 2007, Roche reported U.S. dollar equivalent sales of $125 million and $331 million, respectively, in net sales of Tarceva outside of the United States and its territories compared to $71 million and $165 million for the three and nine months ended September 30, 2006, respectively. For the three and nine months ended September 30, 2007, we recorded $25.4 million and $67.3 million in royalty revenues from these sales, respectively, compared to $14.2 million and $33.2 million for the three and nine months ended September 30, 2006, respectively. The increase in royalty revenue is primarily a result of increased demand outside the United States and nominal changes in foreign exchange rates.

License, Milestone and Other Revenues

     We recognized $33.2 million and $65.6 million of license, milestone and other related revenues during the three and nine months ended September 30, 2007, respectively, compared to $2.7 million and $23.9 million for the three and nine months ended September 30, 2006, respectively. The three and nine months ended September 30, 2007 included $15.1 million and $27.3 million, respectively, of upfront payments, milestones and royalties, respectively, under

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the worldwide non-exclusive license agreements entered into by Prosidion under our DPIV patent portfolio covering the use of DPIV inhibitors for treatment of type II diabetes and related indications. For the nine months ended September 30, 2006, revenue related to our DPIV patent portfolio was $9.4 million, and there was no revenue from this patent portfolio for the three months ended September 30, 2006. The amount of license revenues generated from our DPIV patent estate can be expected to fluctuate significantly from quarter to quarter based on (i) the level of future product sales by our licensees, (ii) the ability of our licensees to achieve specified events under the license agreements which entitle us to milestone payments and (iii) our ability to enter into additional license agreements in the future.

     In addition, in the three and nine months ended September 30, 2007, we recognized $8.3 million and $25.0 million, respectively, of the $25.0 million upfront fee we received in January 2007 from licensing our glucokinase activator program, including our clinical candidate PSN010, to Eli Lilly.

     During the third quarter of 2007, we received $7.5 million of license revenue from Renovo Group plc in connection with its license agreement with Shire plc for its transforming growth factor, or TGF, beta 3 drug candidate Juvista^®. Under our agreement with Renovo, we are entitled to a fixed percentage of any upfront payment, development and sales milestones and royalties that Renovo receives from Shire under their license agreement. We are contractually obligated under a cross-license to pay Novartis 15% of any amounts we receive from Renovo.

     Also included in license and milestone revenues was the recognition of the ratable portion of upfront fees from Genentech and milestone payments received from Genentech and Roche to date in connection with various regulatory acceptances and approvals for Tarceva in the United States, Europe and Japan. These payments were initially deferred and are being recognized as revenue in accordance with EITF 00-21. The ratable portion of the upfront fee and milestone payments recognized as revenue for the three and nine months ended September 30, 2007 were $944,000 and $2.8 million, respectively, compared to $819,000 and $2.4 million for the three and nine months ended September 30, 2006, respectively. The unrecognized deferred revenue related to these upfront fees and milestone payments received was $41.0 million and $39.8 million as of September 30, 2007 and December 31, 2006, respectively.

     We also will be entitled to additional milestone payments from Genentech and Roche upon the occurrence of certain regulatory approvals and filings with respect to Tarceva. Additional milestone payments will be due from Genentech and Roche upon approval of adjuvant indications in the United States and Europe. An additional milestone payment is due to us in the fourth quarter of 2007 from Roche as a result of the approval of Tarceva in Japan in October 2007. The ultimate receipt of these additional milestone payments is contingent upon the applicable regulatory approvals and other future events.

     Included in license, milestone and other revenues were sales commissions earned on the sales of Novantrone in the United States for oncology indications. Sales commissions for the three and nine months ended September 30, 2007 were $880,000 and $2.1 million, respectively, compared to $1.6 million and $11.1 million for the three and nine months ended September 30, 2006, respectively. Sales commissions declined significantly subsequent to April 2006 due to

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the patent expiration of Novantrone in April 2006, which resulted in our loss of market exclusivity for this product and the launch of generic competitors.

Expenses

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
(in thousands)	2007		2006		$ Change			2007		2006		$ Change
Cost of goods sold	$	2,142	$	1,246	$	896		$	6,093	$	5,467	$	626
Research and development		29,489		29,750		(261	)		87,384		86,249		1,135
Acquired in-process research and development		7,500		—		7,500			7,500		—		7,500
Selling, general and administrative		24,816		25,350		(534	)		73,983		78,860		(4,877	)
Amortization of intangibles		461		454		7			1,378		1,353		25
	$	64,408	$	56,800	$	7,608		$	176,338	$	171,929	$	4,409

Cost of Goods Sold

     Total cost of goods sold for the three and nine months ended September 30, 2007 were $2.1 million and $6.1 million, respectively, compared to $1.2 million and $5.5 million for the three and nine months ended September 30, 2006, respectively. As discussed below, cost of goods sold for the three and nine months ended September 30, 2006 did not include $299,000 and $1.4 million, respectively, of inventory which was partially expensed prior to FDA approval of Tarceva.

     Prior to receipt of approval of Tarceva for commercial sale on November 18, 2004, we had expensed all costs associated with the production of Tarceva to research and development. Effective November 18, 2004, we began to capitalize the costs of manufacturing Tarceva as inventory, including the costs to label, package and ship previously manufactured bulk inventory whose costs had already been expensed as research and development. Although it is our policy to state inventory reflecting full absorption costs until we sell all of our existing inventory for which all or a portion of the costs were previously expensed, certain components of inventory continued to reflect costs incurred to process into finished goods previously expensed raw materials and work in process. During 2006, we had sold the entire inventory, a portion of which had been produced and expensed prior to November 18, 2004. Cost of goods sold for the three and nine months ended September 30, 2006 would have been $299,000 and $1.4 million higher, respectively, if the Tarceva inventory sold had reflected the full absorption manufacturing costs.

Research and Development

     We consider the active management and development of our clinical pipeline crucial to the long-term process of getting a clinical candidate approved by the regulatory authorities and brought to market. We manage our overall research, development and in-licensing efforts in a manner designed to generate a constant flow of clinical candidates into development to offset both the advancement of products to the market and the anticipated attrition rate of drug candidates that fail in clinical trials or are terminated for business reasons. The duration of each

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phase of clinical development and the probabilities of success for approval of drug candidates entering clinical development will be impacted by a variety of factors, including the quality of the molecule, the validity of the target and disease indication, early clinical data, investment in the program, competition and commercial viability. Because we manage our pipeline in a dynamic manner, it is difficult to give accurate guidance on the anticipated proportion of our research and development investments assigned to any one program prior to the Phase III stage of development, or to the future cash inflows from these programs. For the three and nine months ended September 30, 2007, we expended a total of $10.6 million and $34.4 million, respectively, in research and $18.9 million and $53.0 million, respectively, in pre-clinical and clinical development. For the three and nine months ended September 30, 2006, we expended a total of $10.2 million and $33.4 million, respectively, in research and $19.5 million and $52.8 million, respectively, in pre-clinical and clinical development. We consider this level of investment suitable for a company with our pipeline of clinical and pre-clinical candidates.

     Research and development expenses decreased $261,000 for the three months ended September 30, 2007 compared to the same period last year, and increased $1.1 million for the nine months ended September 30, 2007, compared to the same period last year. The decrease for the three months ended September 30, 2007 was primarily due to the timing of clinical expenditures related to Tarceva, partially offset by an increase in non-Tarceva related oncology spending and equity-based compensation cost. The increase for the nine months ended September 30, 2007 was primarily due to increased spending in non-Tarceva related oncology programs, equity based compensation cost and severance related cost, partially offset by a small decline in Tarceva related expenditures.

     We manage the ongoing development program for Tarceva with our collaborators, Genentech and Roche, through a global development committee under a Tripartite Agreement among the parties. Together with our partners, we have implemented a broad-based global development strategy for Tarceva that implements simultaneous clinical programs currently designed to expand the number of approved indications of Tarceva and evaluate the use of Tarceva in new and/or novel combinations. Our global development plan has included major Phase III clinical trials in lung and pancreatic cancer in the past, and currently includes additional major Phase III clinical trials in lung cancer in the maintenance and adjuvant settings. Since 2001, the alliance partners have committed an aggregate of approximately $759.0 million to the global development plan which is shared by the three parties. As of September 30, 2007, we had expended in excess of $202 million in the development of Tarceva, representing our share of the costs incurred to date in the tripartite global development plan and additional investments outside of the plan.

Acquired In-process Research and Development

     In September 2007, we entered into a small molecule drug discovery and translational research collaboration with AVEO. The purpose of this collaboration is the development of molecular targeted therapies that target the underlying mechanisms of EMT in cancer, a process of emerging significance in tumor development and disease progression and the focal point of our proprietary oncology research efforts. We are collaborating with AVEO to develop proprietary target-driven tumor models for use in drug screening and biomarker validation, and intend to deploy these systems in support of our oncology drug discovery and clinical programs.

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     Under the terms of our collaboration, we delivered to AVEO an upfront cash payment of $10.0 million, consisting of $7.5 million for access to certain AVEO technology and $2.5 million to fund the first year of research under the collaboration, and purchased $5.5 million of AVEO’s preferred stock. We also are obligated to provide AVEO with certain future research funding, as well as milestones and royalties upon successful development and commercialization of products from the collaboration. We will use the AVEO technology to support our early development activities, and as such, this technology is deemed to have no alternative future use in accordance with Financial Accounting Standard No. 2, “Accounting for Research and Development Costs.” Commercialization is not expected in the near term, as is the case with many early research efforts. Accordingly, we expensed the $7.5 million payment as acquired in – process research and development in the third quarter of 2007.

Selling, General and Administrative

     Selling, general and administrative expenses for the three and nine months ended September 30, 2007 were $24.8 million and $74.0 million, respectively, compared to $25.4 million and $78.9 million for the three and nine months ended September 30, 2006, respectively. The decrease in selling, general and administrative expenses for the three months ended September 30, 2007, compared to expenses in the same period last year was primarily attributable to a decline in consulting fees, partially offset by the $1.1 million license fee due to Novartis AG as a result of the $7.5 million license fee we received from Renovo, and an increase in severance and equity-based compensation expense. The decrease in selling, general and administrative expenses for the nine months ended September 30, 2007, compared to expenses in the same period last year, was primarily attributable to a $7.0 million decline in maintenance fees for Novantrone and $2.6 million of lease return costs related to the relocation of our corporate headquarters in 2006, partially offset by the $1.1 million license fee due to Novartis as a result of the $7.5 million license fee we received from Renovo, and an increase in severance and equity-based compensation expense.

Other Income and Expense

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(in thousands)	2007			2006			$ Change			2007			2006			$ Change
Investment income-net	$	3,157		$	2,472		$	685		$	9,247		$	5,712		$	3,535
Interest expense		(1,811	)		(1,843	)		32			(5,423	)		(5,498	)		75
Other income (expense) — net		(1,404	)		(475	)		(929	)		667			(1,902	)		2,569
Total other income (expense)	$	(58	)	$	154		$	(212	)	$	4,491		$	(1,688	)	$	6,179

     Investment income for the three and nine months ended September 30, 2007 increased by $685,000 and $3.5 million, respectively, compared to the same period last year. The increase was primarily due to an increase in the funds available for investment, which was offset partially by lower rates of return on these funds.

     Other income (expense)-net for the periods included the amortization of debt issuance costs related to the convertible senior subordinated notes, and other miscellaneous income and expense items. Other income (expense) for the three and nine months ended September 30, 2007

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included a provision for income taxes related to our alternative minimum tax obligations of $906,000 and $1.9 million, respectively, related to income from continuing operations. Based on our use of net operating loss carryforwards, our estimated effective tax rate for fiscal 2007 is approximately 2.2% based principally on the federal alternative minimum tax. Other income (expense)-net for the nine months ended September 30, 2007 included a $4.1 million curtailment gain related to our decision to curtail our post-retirement medical and life insurance plan.

Discontinued Operations

     U.S. net sales of Macugen declined significantly in 2007, from $96.1 million in the first nine months of 2006 to $13.3 million in the first nine months of 2007. Losses declined $350.2 million to $29.0 million for the nine months ended September 30, 2007, compared to $379.2 million in the same period last year. The decline in losses was primarily attributable to the $320.3 million goodwill impairment charge recorded in 2006 and lower operating expenses in 2007.

Extraordinary Gain

     In connection with our company’s 2003 acquisition of Cell Pathways, Inc., we recognized contingent consideration of $22.0 million in the form of five-year contingent value rights through which each share of Cell Pathways’ common stock would be eligible for an additional 0.04 share of our common stock in the event of a filing of a new drug application by June 12, 2008 for either of the two clinical candidates acquired from Cell Pathways, OSI-461 or Aptosyn. We have ceased our development efforts of these two clinical candidates and have been seeking parties interested in licensing the candidates. During the third quarter of fiscal 2006, we concluded that, in our judgment, the milestone will not be met based upon the current progress of our out-licensing efforts and the technical hurdles for filing a new drug application by June 2008 and therefore, we reversed the $22.0 million liability and recorded an extraordinary gain for the three months ended June 30, 2006.

Liquidity and Capital Resources

     At September 30, 2007, cash and investments, including restricted securities, were $291.1 million compared to $216.4 million at December 31, 2006. The increase of $74.7 million was primarily due to an increase in net cash from operating activities of $59.6 million and our receipt of $9.9 million in proceeds from stock option exercises, offset by cash used for capital expenditures of $2.5 million. Included in the cash from operations for the nine months ended September 30, 2007 was $42.8 million of licensing and milestone fees related to our diabetes and obesity business.

     Through diligent management of our business, in particular our expenses, we have attained profitability in the first nine months of 2007 and expect to achieve our goal of full year profitability for 2007. If we continue to execute on our internal plans, we expect that our research and development investments and capital requirements over the next 12 to 18 months can be funded from the generation of cash flow from our commercialized product and out-licensing activities. If we are successful, we anticipate funding the majority, if not all of our liquidity and capital needs, as well as the potential redemption of the 2023 notes or a portion

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thereof on or after September 2008, from our current cash position and from the generation of cash flow from operations, with the potential exception of strategic acquisitions of products and/or businesses.

Commitments and Contingencies

     Our major outstanding contractual obligations relate to our senior subordinated convertible notes and our facility leases. During the nine months ended September 30, 2007, we believe that there have been no significant changes in payments due under our outstanding contractual obligations, as disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2006.

Accounting Pronouncements

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” or SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain items at fair value that are not currently required to be measured at fair value. We will be subject to the requirements of SFAS No. 159 for our fiscal year ending December 31, 2008. We are currently evaluating the impact of the provisions of SFAS No. 159.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” or SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for our fiscal year ending December 31, 2008. We are currently evaluating the impact of the provisions of SFAS No. 157.

     On June 27, 2007, EITF 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities,” or EITF 07-3, was issued. EITF 07-3 provides that nonrefundable advance payments made for goods or services to be used in future research and development activities are deferred and capitalized until such time as the related goods or services are delivered or are performed, at which point the amounts will be recognized as an expense. EITF 07-3 is effective for new contracts entered into after January 1, 2008. We are currently evaluating the potential impact, if any, of this EITF but do not expect it to be material to our financial position or results of operations.

Forward Looking Statements

     A number of the matters and subject areas discussed in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report that are not historical or current facts deal with potential future circumstances and developments. The discussion of these matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and these discussions may materially differ from our actual future experience involving any one or more of these matters and subject areas. These forward-looking statements are also subject generally to the other risks and uncertainties that are described below. These forward looking statements are also subject

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generally to the other risks and uncertainties that are described in our annual report on Form 10-K for the fiscal year ended December 31, 2006.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

     Our cash flow and earnings are subject to fluctuations due to changes in interest rates in our investment portfolio of debt securities, the fair value of equity instruments held and foreign currency exchange rates. We maintain an investment portfolio of various issuers, types and maturities. These securities are generally classified as available-for-sale as defined by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a component of accumulated other comprehensive income (loss) included in stockholders’ equity.

     At September 30, 2007, we maintained a portion of our cash and cash equivalents in financial instruments with original maturities of three months or less. We also maintained an investment portfolio principally comprised of government and government agency obligations and corporate obligations that are subject to interest rate risk and will decline in value if interest rates increase. A hypothetical 10% change in interest rates during the periods would have resulted in a $316,000 and $925,000 change in our net income for the three and nine months ended September 30, 2007, respectively.

     Our limited investments in certain biotechnology companies are carried on the equity method or cost method of accounting using the guidance of applicable accounting literature. Other-than-temporary losses are recorded against earnings in the same period the loss was deemed to have occurred.

     Our short-term and long-term debt totaled $265.0 million at September 30, 2007 and was comprised of our 2023 notes which bear interest at a fixed rate of 3.25% and our 2025 notes which bear interest at a fixed rate of 2.00%. Underlying market risk exists related to an increase in our stock price or an increase in interest rates which may make the conversion of the 2023 notes or 2025 notes to common stock beneficial to the holders of such notes. Conversion of the 2023 notes or 2025 notes would have a dilutive effect on any future earnings and book value per common share.

Item 4. Controls and Procedures

     Attached to this Quarterly Report on Form 10-Q as Exhibit 31.1 and 31.2, there are two certifications, or the Section 302 Certifications, one by each of our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO. This Item 4 contains information concerning the evaluation of our disclosure controls and procedures and internal control over financial reporting that is referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

     Evaluation of Our Disclosure Controls and Procedures. The Securities and Exchange Commission requires that as of the end of the period covered by this Quarterly Report on Form 10-Q, the CEO and the CFO evaluate the effectiveness of the design and operation of our

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disclosure controls and procedures (as defined in Rule 13(a)-15(e)) under the Securities Exchange Act of 1934, as amended, and report on the effectiveness of the design and operation of our disclosure controls and procedures. Accordingly, under the supervision and with the participation of our management, including our CEO and CFO, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.

     CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures. Based upon their evaluation of the disclosure controls and procedures, our CEO and CFO have concluded that our disclosure controls and procedures are effective at the reasonable assurance level to ensure that material information relating to our company and our consolidated subsidiaries is made known to management, including the CEO and CFO, on a timely basis and during the period in which this Quarterly Report on Form 10-Q was being prepared.

     Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f)) under the Exchange Act identified in connection with the evaluation of such internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     On or about December 16, 2004, several purported shareholder class action lawsuits were filed in the United States District Court for the Eastern District of New York against our company, certain of our current and former executive officers, and the members of our Board of Directors. The lawsuits were brought on behalf of those who purchased or otherwise acquired our company’s common stock during certain periods in 2004, which periods differed in the various complaints. The Court appointed a lead plaintiff who, on February 17, 2006, filed a consolidated amended class action complaint seeking to represent a class of all persons who purchased or otherwise acquired our company’s common stock during the period from April 26, 2004 through November 22, 2004. The consolidated complaint alleges that the defendants made material misstatements and omissions concerning the survival benefit associated with our company’s product, Tarceva, and the size of the potential market of Tarceva upon FDA approval of the drug. It alleges violations of Sections 11 and 15 of the Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The consolidated complaint seeks unspecified compensatory damages and other relief. On April 7, 2006, we filed a motion to dismiss the consolidated amended complaint. Briefing on this motion was completed on June 21, 2006. In an opinion dated March 31, 2007 (and entered on the docket on April 4, 2007), the Court granted in part and denied in part the motion to dismiss. The Court dismissed claims against some of the individual defendants and dismissed the Section 11 and 15 claims, but granted the plaintiff 30 days leave to replead the Section 11 claim in accordance with the Court’s order and to renew the Section 15 claim. Plaintiff did not amend, and thus those claims were dismissed with prejudice. The parties have now informed the Court that they have reached an agreement in principle to settle this action. The parties are in the process of finalizing the settlement papers, which will then be subject to Court approval.

Item 1A. Risk Factors

     The following risk factors are additions and changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and should be read in conjunction with such risk factors.

     Our U.S. patents may be adversely affected by changes to patent-related U.S. statutes and the rules of the U.S. patent and trademark office.

     The portfolio management strategy of our U.S. patents and pending patent applications may be adversely affected by proposed changes to patent-related U.S. statutes and to U.S. Patent and Trademark Office, or USPTO, rules, especially changes to rules concerning the filing of continuation applications. The proposed USPTO rules were scheduled to go into effect on November 1, 2007, but were enjoined pursuant to an order issued on October 31, 2007 by the United States District Court for the Eastern District of Virginia. This injunction is expected to remain in effect until final judgment on the matter or as otherwise directed by the court. If implemented, the rules would limit to two the number of continuing applications that an applicant may file as a matter of right. The rules would also require that beyond such continuing applications, subsequent continuing application filings must be supported by a petition and a

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showing as to why the new amendments, claims, arguments or evidence presented could not have been previously submitted. An applicant may also file only one request for continued examination. Other proposed rules, if implemented, could limit the number of claims that we can include in a patent application to only five independent and 25 total claims per application, without submission of a document including a search and explanation of related patents and literature. The implementation of these rules will require significant changes in patent strategy and portfolio management in order to adequately protect our products in development and may result in less certainty with regard to the potential future value of our intellectual property assets.

     If government agencies do not grant us or our collaborative partners required approvals for any of our potential products in a timely manner or at all, we or our collaborative partners will not be able to distribute or sell our products currently under development.

     All of our potential products must undergo extensive regulatory approval processes in the United States and other countries. These regulatory processes, which include pre-clinical testing and clinical trials of each compound to establish safety and efficacy, can take many years and require the expenditure of substantial resources. The FDA and the other regulatory agencies in additional markets which are material to us and our collaborative partners, including the European Agency for the Evaluation of Medicinal Products and the Japanese Ministry of Health, may delay or deny the approval of our potential products. Although we have been successful in gaining regulatory approval for Tarceva and Macugen in the United States and our collaboration partners have gained approval for Tarceva and Macugen in Canada, the EU and a number of other territories, there can be no guarantee of subsequent approvals either for Tarceva and Macugen in other territories or for other indications in the United States or for other products in the United States and other territories.

     Delays or rejections may be encountered during any stage of the regulatory process based upon the failure of the clinical data to demonstrate compliance with, or upon the failure of the product to meet, a regulatory agency’s requirements for safety, efficacy and quality. Any such delay could have a negative effect on our business. A drug candidate cannot be marketed in the United States until it has been approved by the FDA. Once approved, drugs, as well as their manufacturers, are subject to continuing and ongoing review, and discovery of previously unknown problems with these products or the failure to adhere to manufacturing or quality control requirements may result in restrictions on their distribution, sale or use, or their withdrawal from the market. The FDA also has the authority, when approving a product, to impose significant limitations on the product in the nature of warnings, precautions and contra-indications, or restrictions on the indicated use, conditions for use, labeling, advertising, promotion, marketing, distribution, and/or production of the product that could negatively affect the profitability of a drug. Failure to comply with a Phase IV commitment can lead to FDA action either to withdraw approval of a drug or to limit the scope of approval.

     Furthermore, once a drug is approved, it remains subject to ongoing FDA regulation. For example, the recently enacted Food and Drug Administration Amendments Act of 2007 provides the FDA with expanded authority over drug products after approval. This legislation enhances the FDA’s authority with respect to post-marketing safety surveillance, including, among other things, the authority to require (i) additional post-approval studies or clinical trials, (ii) the

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submission of a proposed risk evaluation and mitigation strategy and (iii) label changes as a result of safety findings. These requirements may affect our ability to maintain marketing approval of our products or require us to make significant expenditures to obtain or maintain such approvals.

     Approved drugs can only be marketed for the indications and claims approved by the FDA. If we fail to comply with the FDA regulations prohibiting promotion of off-label uses and the promotion of products for which marketing clearance has not been obtained, the FDA, the Office of the Inspector General of the U.S. Department of Health and Human Services, the Department of Justice, or state Attorney Generals could bring an enforcement action against us that would inhibit our marketing capabilities as well as result in significant penalties. Additional post-approval regulation by FDA includes changes to the product label, new or revised regulatory requirements for manufacturing practices, written advisements to physicians or a product recall.

     The current regulatory framework could change or additional regulations could arise at any stage during our product development or marketing, which may affect our ability to obtain or maintain approval of our products or require us to make significant expenditures to obtain or maintain such approvals. The ability to market and sell a drug product outside of the United States is also subject to stringent and, in some cases, equally complex regulatory processes that vary depending on the jurisdiction.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Not applicable.

Item 3. Defaults Upon Senior Securities

     Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

     Not applicable

Item 5. Other Information

     Not applicable.

Item 6. Exhibits

3.1	Certificate of Incorporation, as amended, filed by OSI Pharmaceuticals, Inc. as an exhibit to the Form 10-K for the fiscal year ended September 30, 2001 (file no. 000-15190), and incorporated herein by reference.
3.2	Second Amended and Restated Bylaws filed by OSI Pharmaceuticals, Inc. as an exhibit to the current report on Form 8-K filed on June 16, 2006 (file no. 000-15190), and incorporated herein by reference.

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10.1*	Amended and Restated Stock Incentive Plan, as amended by the Board of Directors of OSI Pharmaceuticals, Inc. on September 10, 2007. (Filed herewith)
10.2*	Change of Control Arrangement, dated October 4, 2001, by and between OSI Pharmaceuticals, Inc. and Linda E. Amper, Ph.D. (Filed herewith)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a). (Filed herewith)
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a). (Filed herewith)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350. (Filed herewith)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350. (Filed herewith)

* Indicates a management contract or compensatory plan, contract or arrangement in which a director or executive officers participate.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OSI PHARMACEUTICALS, INC.
	(Registrant)
Date: November 7, 2007	/s/ Colin Goddard, Ph.D.
	Colin Goddard, Ph.D. Chief Executive Officer
Date: November 7, 2007	/s/ Michael G. Atieh
	Michael G. Atieh Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

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INDEX TO EXHIBITS

Exhibit
3.1	Certificate of Incorporation, as amended, filed by OSI Pharmaceuticals, Inc. as an exhibit to the Form 10-K for the fiscal year ended September 30, 2001 (file no. 000-15190), and incorporated herein by reference.
3.2	Second Amended and Restated Bylaws filed by OSI Pharmaceuticals, Inc. as an exhibit to the current report on Form 8-K filed on June 16, 2006 (file no. 000-15190), and incorporated herein by reference.
10.1*	Amended and Restated Stock Incentive Plan, as amended by the Board of Directors of OSI Pharmaceuticals, Inc. on September 10, 2007. (Filed herewith)
10.2*	Change of Control Arrangement, dated October 4, 2001, by and between OSI Pharmaceuticals, Inc. and Linda E. Amper, Ph.D. (Filed herewith)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a). (Filed herewith)
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a). (Filed herewith)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350. (Filed herewith)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350. (Filed herewith)

* Indicates a management contract or compensatory plan, contract or arrangement in which a director or executive officers participate.

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EX-10.1

Exhibit 10.1

OSI PHARMACEUTICALS, INC.
AMENDED AND RESTATED
STOCK INCENTIVE PLAN
(Including Amendments No. 1, 2, 3 and 4)

1. Purpose

     The purpose of this Amended and Restated Stock Incentive Plan (formerly, the 2001 Incentive and Non-Qualified Stock Option Plan) (the “Plan”) is to encourage and enable selected management, other employees, directors (whether or not employees), and consultants of OSI Pharmaceuticals, Inc. (the “Company”) or a parent or subsidiary of the Company to acquire a proprietary interest in the Company through the ownership, directly or indirectly, of common stock, par value $.01 per share (the “Common Stock”), of the Company. Such ownership will provide such employees, directors, and consultants with a more direct stake in the future welfare of the Company and encourage them to remain with the Company or a parent or subsidiary of the Company. It is also expected that the Plan will encourage qualified persons to seek and accept employment with, or become associated with, the Company or a parent or subsidiary of the Company. As used herein, the term “parent” or “subsidiary” shall mean any present or future corporation which is or would be a “parent corporation” or “subsidiary corporation” of the Company as the term is defined in Section 424 of the Code (determined as if the Company were the employer corporation).

     Pursuant to the Plan, the Company may grant: (i) Incentive Stock Options; (ii) Non-Qualified Stock Options; (iii) Stock Appreciation Rights; (iv) Restricted Stock; and (v) Stock Bonuses, as such terms are defined in Section 2.

2. Definitions

     Capitalized terms not otherwise defined in the Plan shall have the following meanings:

               (a) “Award Agreement” shall mean a written agreement, in such form as the Committee shall determine, that evidences the terms and conditions of a Stock Award granted under the Plan.

               (b) “Fair Market Value” on a specified date means the value of a share of Common Stock, determined as follows:

                      (i) if the Common Stock is listed on any established stock exchange or a national market system, including without limitation The Nasdaq Global Select Market, The Nasdaq Global Market, or The Nasdaq Capital Market of The Nasdaq Stock Market, Inc., its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable;

                      (ii) if the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the

high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

                      (iii) in the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee.

               (c) “Code” shall mean the Internal Revenue Code of 1986, as amended.

               (d) “Incentive Stock Option” shall mean an option that is an “incentive stock option” within the meaning of Section 422 of the Code and that is identified as an Incentive Stock Option in the Award Agreement by which it is evidenced.

               (e) “Non-Qualified Stock Option” shall mean an option that is not an Incentive Stock Option within the meaning of Section 422 of the Code.

               (f) “Restricted Stock” shall mean an award of shares of Common Stock that is subject to certain conditions on vesting and restrictions on transferability as provided in Section 8 of this Plan.

               (g) “Stock Appreciation Right” shall mean a right to receive payment of the appreciated value of shares of Common Stock as provided in Section 7 of this Plan.

               (h) “Stock Award” shall mean an Incentive Stock Option, a Non-Qualified Stock Option, a Restricted Stock award, a Stock Appreciation Right or a Stock Bonus award.

               (i) “Stock Bonus” shall mean a bonus award payable in shares of Common Stock as provided in Section 9 of this Plan.

3. Administration of the Plan

     The Plan shall be administered by a committee (the “Committee”) as appointed from time to time by the Board of Directors of the Company, which Committee shall consist solely of “independent” members of the Board of Directors of the Company, determined in accordance with the requirements of the stock exchange or national market system on which the Common Stock is listed or quoted. Except as otherwise specifically provided herein, no person, other than members of the Committee, shall have any discretion as to decisions regarding the Plan. The Company may engage a third party to administer routine matters under the Plan, such as establishing and maintaining accounts for Plan participants and facilitating transactions by participants pursuant to the Plan.

     In administering the Plan, the Committee may adopt rules and regulations for carrying out the Plan. The interpretations and decisions made by the Committee with regard to any question arising under the Plan shall be final and conclusive on all persons participating or eligible to participate in the Plan. Subject to the provisions of the Plan, the Committee shall determine the terms of all Stock Awards granted pursuant to the Plan, including, but not limited to, the persons to whom, and the time or times at which, grants shall be made, the number of shares to be covered by each Stock Award, and other terms and conditions of the Stock Award.

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4. Shares of Stock Subject to the Plan

     Except as provided in Section 11, the number of shares that may be issued or transferred pursuant to Stock Awards granted under the Plan shall not exceed 13,800,000 shares of Common Stock; provided, however, that any shares issued under an Award granted on or after June 13, 2007 other than an Option or Stock Appreciation Right shall count against the maximum number of shares reserved hereunder as two shares for every one share issued in connection with such Award. Shares reserved hereunder may be authorized and unissued shares or previously issued shares acquired or to be acquired by the Company and held in treasury. Any shares subject to a Stock Award which for any reason expires, is cancelled or is unexercised may again be subject to a Stock Award under the Plan. The aggregate Fair Market Value of the shares with respect to which Incentive Stock Options (determined at the time of grant of the option) are exercisable for the first time by an optionee during any calendar year (under the Plan and all plans of the Company and any parent or subsidiary of the Company) shall not exceed $100,000.

5. Eligibility

     Stock Awards may be granted to directors, officers, employees and consultants of the Company or a parent or subsidiary of the Company, except that Incentive Stock Options may not be granted to any such person who is not an employee of the Company or a parent or subsidiary of the Company.

6. Granting of Options

     The Committee may grant options to such persons eligible under the Plan as the Committee may select from time to time. Such options shall be granted at such times, in such amounts and upon such other terms and conditions as the Committee shall determine, which shall be evidenced under an Award Agreement and subject to the following terms and conditions and the terms of the Plan:

               (a) Type of Option. The Award Agreement shall indicate whether and to what extent the option is intended to be an Incentive Stock Option or a Non-Qualified Stock Option.

               (b) Option Price. The purchase price under each Incentive Stock Option and each Non-Qualified Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock at the time the option is granted and not less than the par value of the Common Stock. In the case of an Incentive Stock Option granted to an employee owning, actually or constructively under Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company (a “10% Stockholder”) the option price shall not be less than 110% of the Fair Market Value of the Common Stock at the time of the grant.

               (c) Medium and Time of Payment. Stock purchased pursuant to the exercise of an option shall at the time of purchase be paid for in full in cash, or, upon conditions established by the Committee, by delivery of shares of Common Stock owned by the recipient. If payment is made by the delivery of shares, the value of the shares delivered shall be the Fair Market Value of such shares on the date of exercise of the option. In addition, if the Committee consents in its sole discretion, an “in the money” Non-Qualified Stock Option may be exercised

3

on a “cashless” basis in exchange for the issuance to the optionee (or other person entitled to exercise the option) of the largest whole number of shares having an aggregate value equal to the value of such option on the date of exercise. For this purpose, the value of the shares delivered by the Company and the value of the option being exercised shall be determined based on the Fair Market Value of the Common Stock on the date of exercise of the option. Upon receipt of payment and such documentation as the Company may deem necessary to establish compliance with the Securities Act of 1933, as amended (the “Securities Act”), the Company shall, without stock transfer tax to the optionee or other person entitled to exercise the option, deliver to the person exercising the option a certificate or certificates for such shares.

               (d) Waiting Period. The waiting period and time for exercising an option shall be prescribed by the Committee in each particular case; provided, however, that no option may be exercised after 10 years from the date it is granted. In the case of an Incentive Stock Option granted to a 10% Stockholder, such option, by its terms, shall be exercisable only within five years from the date of grant.

               (e) Non-Assignability of Options. No Incentive Stock Option and, except as may otherwise be specifically provided by the Committee, no Non-Qualified Stock Option, shall be assignable or transferable by the recipient except by will or by the laws of descent and distribution. During the lifetime of a recipient, Incentive Stock Options and, except as may otherwise be specifically provided by the Committee, Non-Qualified Stock Options, shall be exercisable only by such recipient. If the Committee approves provisions in any particular case allowing for assignment or transfer of a Non-Qualified Stock Option, then such option will nonetheless be subject to a six-month holding period commencing on the date of grant during which period the recipient will not be permitted to assign or transfer such option, unless the Committee further specifically provides for the assignability or transferability of such option during this period.

               (f) Effect of Termination of Employment. If a recipient’s employment (or service as an officer, director or consultant) shall terminate for any reason, other than death or Retirement (as defined below), the right of the recipient to exercise any option otherwise exercisable on the date of such termination shall expire unless such right is exercised within a period of 90 days after the date of such termination. For Options issued prior to June 15, 2005, the term “Retirement” shall mean the voluntary termination of employment (or service as an officer, director or consultant) by a recipient who has attained the age of 55 and who has completed at least five years of service with the Company. For Options issued on or after June 15, 2005, unless otherwise determined by the Committee and defined in the applicable Award Agreement, the term “Retirement” shall mean the voluntary termination of employment (or service as an officer, director or consultant) by a recipient who has attained the age of 60 and who has completed at least twenty years of service with the Company. If a recipient’s employment (or service as an officer, director or consultant) shall terminate because of death or Retirement, the right of the recipient to exercise any option otherwise exercisable on the date of such termination shall be unaffected by such termination and shall continue until the normal expiration of such option. Notwithstanding the foregoing, the tax treatment available pursuant to Section 421 of the Code upon the exercise of an Incentive Stock Option will not be available in connection with the exercise of any Incentive Stock Option more than three months after the date

4

of termination of such option recipient’s employment due to Retirement. Option rights shall not be affected by any change of employment as long as the recipient continues to be employed by either the Company or a parent or subsidiary of the Company. In no event, however, shall an option be exercisable after the expiration of its original term as determined by the Committee. Nothing in the Plan or in any Award Agreement shall confer any right to continue in the employ of the Company or any parent or subsidiary of the Company or interfere in any way with the right of the Company or any parent or subsidiary of the Company to terminate the employment of a recipient at any time.

               (g) Leave of Absence. In the case of a recipient on an approved leave of absence, the Committee may, if it determines that to do so would be in the best interests of the Company, provide in a specific case for continuation of options during such leave of absence, such continuation to be on such terms and conditions as the Committee determines to be appropriate, except that in no event shall an option be exercisable after 10 years from the date it is granted.

               (h) Sale or Reorganization. In case the Company is merged or consolidated with another corporation, or in case the property or stock of the Company is acquired by another corporation, or in case of a reorganization, or liquidation of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company hereunder, shall either (i) make appropriate provisions for the protection of any outstanding options by the substitution on an equitable basis of appropriate stock of the Company, or appropriate options to purchase stock of the merged, consolidated, or otherwise reorganized corporation, provided only that such substitution of options shall, with respect to Incentive Stock Options, comply with the requirements of Section 424(a) of the Code, or (ii) give written notice to optionees that their options, which will become immediately exercisable notwithstanding any waiting period otherwise prescribed by the Committee, must be exercised within 30 days of the date of such notice or they will be terminated.

               (i) Restrictions on Sale of Shares. Without the written consent of the Company, no stock acquired by an optionee upon exercise of an Incentive Stock Option granted hereunder may be disposed of by the optionee within two years from the date such incentive stock option was granted, nor within one year after the transfer of such stock to the optionee; provided, however, that a transfer to a trustee, receiver, or other fiduciary in any insolvency proceeding, as described in Section 422(c)(3) of the Code, shall not be deemed to be such a disposition. The optionee shall make appropriate arrangements with the Company for any taxes which the Company is obligated to collect in connection with any such disposition, including any federal, state, or local withholding taxes. No stock acquired by an optionee upon exercise of a Non-Qualified Stock Option granted hereunder may be disposed of by the optionee (or other person eligible to exercise the option) within six months from the date such Non-Qualified Stock Option was granted, unless otherwise provided by the Committee.

7. Grant of Stock Appreciation Rights

     The Committee may grant Stock Appreciation Rights to such persons eligible under the Plan as the Committee may select from time to time. Stock Appreciation Rights shall be granted at such times, in such amounts and under such other terms and conditions as the Committee shall

5

determine, which terms and conditions shall be evidenced under an Award Agreement, subject to the terms of the Plan. Subject to the terms and conditions of the Award Agreement, a Stock Appreciation Right shall entitle the award recipient to exercise the Stock Appreciation Right, in whole or in part, in exchange for a payment of shares of Common Stock, cash or a combination thereof, as determined by the Committee and provided under the Award Agreement, equal in value to the excess of the Fair Market Value of the shares of Common Stock underlying the Stock Appreciation Right, determined on the date of exercise, over the base amount set forth in the Award Agreement for shares of Common Stock underlying the Stock Appreciation Right, which base amount shall not be less than the Fair Market Value of such Common Stock, determined as of the date the Stock Appreciation Right is granted.

8. Grant of Restricted Stock

     The Committee may grant Restricted Stock awards to such persons eligible under the Plan as the Committee may select from time to time. Restricted Stock awards shall be granted at such times, in such amounts and under such other terms and conditions as the Committee shall determine, which terms and conditions shall be evidenced under an Award Agreement, subject to the terms of the Plan. The Award Agreement shall set forth any conditions on vesting and restrictions on transferability that the Committee may determine is appropriate for the Restricted Stock award, including the performance of future services or satisfaction of performance goals established by the Committee subject to the Plan. The books and records of the Company shall reflect the issuance of shares of Common Stock under a Restricted Stock award and any applicable restrictions and limitations in such manner as the Committee determines is appropriate subject to the Plan. Unless otherwise provided in the Award Agreement, a recipient of a Restricted Stock award shall be the record owner of the shares of Common Stock to which the Restricted Stock relates and shall have all voting and dividend rights with respect to such shares of Common Stock.

9. Grant of Stock Bonus

     The Committee may grant Stock Bonus awards to such persons eligible under the Plan as the Committee may select from time to time. Stock Bonus awards shall be granted at such times, in such amounts and under such other terms and conditions as the Committee shall determine, which terms and conditions shall be evidenced under an Award Agreement, subject to the terms of the Plan. Upon satisfaction of any conditions, limitations and restrictions set forth in the Award Agreement, a Stock Bonus award shall entitle the recipient to receive payment of a bonus described under the Stock Bonus award in the form of shares of Common Stock of the Company. Prior to the date on which a Stock Bonus award is required to be paid under an Award Agreement, the Stock Bonus award shall constitute an unfunded, unsecured promise by the Company to distribute Common Stock in the future.

10. Minimum Vesting Provisions

     No Restricted Stock Award or Stock Bonus Award shall vest more favorably than ratably over a three year period and no part of a Stock Bonus Award, the payment of which is conditioned

6

on the satisfaction of a performance measure, shall vest earlier than one year from the date of grant; provided, however, that the foregoing restrictions shall not apply to Stock Awards issued in the aggregate under the Plan with respect to a number of shares equal to ten percent of the number of shares that may be issued or transferred under the Plan pursuant to Section 4, as such number may be adjusted under Section 11.

11. Adjustments in the Event of Recapitalization

     In the event that dividends payable in Common Stock during any fiscal year of the Company exceed in the aggregate five percent of the Common Stock issued and outstanding at the beginning of the year, or in the event there is during any fiscal year of the Company one or more splits, subdivisions, or combinations of shares of Common Stock resulting in an increase or decrease by more than five percent of the shares outstanding at the beginning of the year, the number of shares available under the Plan shall be increased or decreased proportionately, as the case may be, and the number of shares issuable under Stock Awards theretofore granted shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price that may be applicable thereto. Common Stock dividends, splits, subdivisions, or combinations during any fiscal year that do not exceed in the aggregate five percent of the Common Stock issued and outstanding at the beginning of such year shall be ignored for purposes of the Plan. All adjustments shall be made as of the day such action necessitating such adjustment becomes effective.

12. Withholding of Applicable Taxes

     It shall be a condition to the performance of the Company’s obligation to issue or transfer Common Stock or make a payment of cash pursuant to any Stock Award that the award recipient pay, or make provision satisfactory to the Company for the payment of, any taxes (other than stock transfer taxes) the Company or any subsidiary is obligated to collect with respect to the issuance or transfer of Common Stock or the payment of cash under such Stock Award, including any applicable federal, state, or local withholding or employment taxes.

13. General Restrictions

     Each Stock Award granted under the Plan shall be subject to the requirement that, if at any time the Board of Directors shall determine, in its discretion, that the listing, registration, or qualification of the shares of Common Stock issuable or transferable under the Stock Award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of the Stock Award or the issue or transfer, of shares of Common Stock thereunder, shares of Common Stock issuable or transferable under any Stock Award shall not be issued or transferred, in whole or in part, unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors.

     The Company shall not be obligated to sell or issue any shares of Common Stock in any manner in contravention of the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the rules and regulations of the Securities and Exchange Commission, any state

7

securities law, the rules and regulations promulgated thereunder or the rules and regulations of any securities exchange or over the counter market on which the Common Stock is listed or in which it is included for quotation. The Board of Directors may, in connection with the granting of Stock Awards, require the individual to whom the award is to be granted to enter into an agreement with the Company stating that as a condition precedent to the receipt of shares of Common Stock issuable or transferable under the Stock Award, in whole or in part, he shall, if then required by the Company, represent to the Company in writing that such receipt is for investment only and not with a view to distribution, and also setting forth such other terms and conditions as the Committee may prescribe. Such agreements may also, in the discretion of the Committee, contain provisions requiring the forfeiture of any Stock Awards granted and/or Common Stock held, in the event of the termination of employment or association, as the case may be, of the award recipient with the Company. Upon any forfeiture of Common Stock pursuant to an agreement authorized by the preceding sentence, the Company shall pay consideration for such Common Stock to the award recipient , pursuant to any such agreement, without interest thereon.

14. Termination and Amendment of the Plan and Stock Awards

     The Board of Directors or the Committee shall have the right to amend, suspend, or terminate the Plan or any Stock Award at any time; provided, however, that no such action shall affect or in any way impair the rights of a recipient under any Stock Award theretofore granted under the Plan; and, provided, further, that unless first duly approved by the stockholders of the Company entitled to vote thereon at a meeting (which may be the annual meeting) duly called and held for such purpose: (i) except as provided in Section 11, no amendment or change shall be made in the Plan that increases the total number of shares which may be issued or transferred under the Plan, materially increases the benefits to Plan participants or modifies the requirements as to eligibility for participation in the Plan; and (ii) no amendment or change shall be made to any Stock Award that waives any restriction or vesting period under the Stock Award except in the case of a change of control, or the death, disability, layoff, termination without cause, termination for good reason or retirement of the Stock Award recipient, as such may be determined in the discretion of the Board of Directors or the Committee.

15. Term of the Plan

     The Plan shall terminate on June 12, 2011, or on such earlier date as the Board of Directors or the Committee may determine. Any Stock Award outstanding at the termination date shall remain outstanding until it has either expired or been exercised or cancelled pursuant to its terms.

16. Compliance with Rule 16b-3

     With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors. To the extent any provision of the Plan or action by the Committee (or any other person on behalf of the Committee or the Company) fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

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17. Rights as a Stockholder

     A recipient of a Stock Award shall have no rights as a stockholder with respect to any shares issuable or transferable thereunder until the date a stock certificate is issued to him for such shares unless otherwise provided in the Award Agreement under the Plan. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.

18. Options Granted to Employees and Directors of any Subsidiary in the UK

     In addition to the provisions above, the provisions of this Section 18 shall apply as herein set out to options granted to employees and directors of any subsidiary in the United Kingdom. The provisions of this Section 18 enable the Plan to be used in a tax efficient manner in the United Kingdom.

            (a) In this Section 18, the following terms have the meanings ascribed to them:

            “Election” means an election in the form envisaged in Paragraph 3B(1) of Schedule 1 to SSCBA and acceptable to the UK Subsidiary to the effect that any Secondary NIC arising on the exercise, assignment or release of a UK Option shall be the liability of the recipient and not the liability of the UK Subsidiary

            “Independent Transfer Agent” means any person (other than the Company or any company affiliated with the Company or any individual affiliated with any such company) who is registered as a broker-dealer with the U.S. Securities and Exchange Commission and who is thereby able to sell and transfer shares in the Company on behalf of the Optionholder

            “Optionholder” means an employee or director of the UK Subsidiary who is the holder of a UK Option

            “Secondary NIC” means secondary national insurance contributions as defined in the SSCBA

            “SSCBA” means the Social Security Contributions and Benefits Act 1992 of the United Kingdom

            “UK Option” means an option granted to an employee of the UK Subsidiary

            “UK Subsidiary” means OSI Pharmaceuticals (UK) Limited (a company incorporated in England under company number 1709877) and any other UK Subsidiary of the Company from time to time.

            (b) To the extent that it is lawful to do so, a UK Option may be granted subject to a condition that any liability of the UK Subsidiary (as employer or former employer of the relevant Optionholder) to pay Secondary NIC in respect of the exercise, assignment or release of that UK Option shall be the liability of the relevant Optionholder and payable by that Optionholder and that the Optionholder shall not be entitled to exercise the UK Option until he

9

has entered into an Election to that effect when required to do so by the UK Subsidiary provided that the Committee may in its discretion at any time or times release the Optionholder from this liability or reduce his liability thereunder unless that Election has been entered into between the UK Subsidiary and that Optionholder and that Election (or the legislation which provides for such an Election to be effective) does not allow for such an Election to be subsequently varied.

               (c) If a UK Option is granted subject to the condition referred to in paragraph (b) above then the Optionholder shall by completing the Election grant to the UK Subsidiary (as employer or former employer of the relevant Optionholder) the irrevocable authority, as agent of the Optionholder and on his behalf, to appoint an Independent Transfer Agent, to act as agent of the Optionholder and on his behalf, to sell or procure the sale of sufficient of the Stock subject to the UK Option and remit the net sale proceeds to the UK Subsidiary so that the net proceeds payable to the UK Subsidiary are so far as possible equal to but not less than the amount of the Secondary NIC for which the Optionholder is liable under the terms of the Election and the UK Subsidiary shall account to the Optionholder for any balance.

                   No Stock shall be allotted or transferred to the Optionholder by the Company until the UK Subsidiary has received an amount in cash equal to the amount of the Secondary NIC for which the Optionholder is liable under the terms of the Election.

               (d) If a UK Option is exercised and the Optionholder is liable to tax duties or other amounts on such exercise and the UK Subsidiary (as his employer or former employer) is liable to make a payment to the appropriate authorities on account of that liability, then the Optionholder shall by having completed the option agreement grant to the UK Subsidiary (as employer or former employer of the relevant Optionholder) the irrevocable authority, as agent of the Optionholder and on his behalf, to appoint an Independent Transfer Agent, to act as agent of the Optionholder and on his behalf, to sell or procure the sale of sufficient of the Shares subject to the UK Option and remit the net sale proceeds to the UK Subsidiary so that the net proceeds payable to the UK Subsidiary are so far as possible equal to but not less than the amount payable to the appropriate authorities and the UK Subsidiary shall account to the Optionholder for any balance.

                   No Stock shall be allotted or transferred to the Optionholder by the Company until the UK Subsidiary has received an amount in cash equal to the amount of any liability of the UK Subsidiary referred to in this paragraph (d).

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EX-10.2

Exhibit 10.2

ADDENDUM TO EMPLOYMENT OFFER
FOR LINDA E. AMPER, PH.D.

CHANGE OF CONTROL AGREEMENT

This Agreement, dated October 4, 2001, between OSI Pharmaceuticals and Linda E. Amper, Ph.D.:

In the event OSI is sold or merged with another Company resulting in a change of control (CHANGE OF CONTROL), and your employment with the Controlling Company is terminated (including if you voluntarily terminate your employment for “Good reason”*) at any time within six (6) months following a CHANGE OF CONTROL transaction, unless such term is for “cause”, death, disability or you voluntarily leave without “Good Reason”, you will be entitled to receive the benefits described below.

1. In lieu of any further salary and bonus payments to you for periods subsequent to the date of termination, the Controlling Company shall pay you the following benefits:

     (a) A lump sum severance payment equal to your annual salary for a period of twelve (12) months; and,

     (b) All unpaid, accrued vacation through the date of termination.

2. After the termination, the Controlling Company shall arrange to provide you and your dependents, as may be the case, with health benefits substantially similar to those which you and your dependents were receiving immediately prior to the sale or Change of Control and up to one (1) year after the sale or Change of Control.

*     Good Reason for termination of employment includes (i) a decrease in your total compensation package, (ii) the assignment of duties or responsibilities which are not commensurate with your position immediately prior to the sale or Change of Control, or (iii) you are required to relocate to an office or facility more than forty (40) miles from your present location or forty (40) miles from your home.

OSI Pharmaceuticals, Inc.

By:	/s/ Colin Goddard	/s/ Linda E. Amper
	Colin Goddard     CEO and Chairman	Linda E. Amper, Ph.D.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

          I, Colin Goddard, certify that:

          1. I have reviewed this Quarterly Report on Form 10-Q of OSI Pharmaceuticals, Inc.;

          2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

          3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

          4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

        a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

        c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

          5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the

42

     audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

        a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

        b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2007
	/s/ Colin Goddard, Ph.D. Colin Goddard, Ph.D. Chief Executive Officer

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EX-31.2

EXHIBIT 31.2

CERTIFICATION

          I, Michael G. Atieh, certify that:

          1. I have reviewed this Quarterly Report on Form 10-Q of OSI Pharmaceuticals, Inc.;

          2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

          3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

          4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

        a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

        b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

        c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

        d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

44

          5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

        a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

        b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2007
	/s/ Michael G. Atieh
	Michael G. Atieh Executive Vice President, Chief Financial Officer and Treasurer

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EX-32.1

EXHIBIT 32.1

OSI PHARMACEUTICALS, INC.

CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of OSI Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Colin Goddard, Ph.D., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 7, 2007
	/s/ Colin Goddard, Ph.D.  Colin Goddard, Ph.D. Chief Executive Officer

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EX-32.2

EXHIBIT 32.2

OSI PHARMACEUTICALS, INC.

CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of OSI Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael G. Atieh, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: November 7, 2007
	/s/ Michael G. Atieh
	Michael G. Atieh Executive Vice President, Chief Financial Officer and Treasurer

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