Biotechnology company OSI Pharmaceuticals, Inc. (OSIP) announced that a randomized phase III study evaluating Avastin in combination with Tarceva in patients with advanced non-small cell lung cancer failed to meet its primary endpoint of improving overall survival compared to Tarceva in combination with a placebo. We believe the data will have a negative effect on the share price in the short term and since the price has already achieved our target, we are downgrading the shares from Buy to Hold.

However, we think the impact of the data is limited in the long run, as the results do not affect Tarceva’s approved indication for non-small cell lung cancer, and the median survival actually supports the role of Tarceva in the treatment of the advanced indication. Strong domestic sales and robust growth in ex-U.S. sales have us modeling over $1.1 billion in Tarceva sales in 2008 and beyond.

We remain excited about the revenue from the New York-based company’s DPP-IV estate. Additionally, the company’s pipeline targets diseases like diabetes, obesity and cancer, the very specific areas where its strengths lie. With $435 million in cash and cash equivalents, OSI may bolster its pipeline by acquiring research assets / additional technology in the near future. Keeping these factors in mind, we still think OSIP is a core holding in biotech portfolio. Our target price of $46.

Read the full analyst report on OSIP

“OSIP” Free Stock Analysis: Buy? Sell? Hold?
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