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“We have now assembled all of the essential
elements that make up a world-class oncology franchise, and we are
confident that we have done all that we can to maximize our prospects
for success with Tarceva™, a product with the potential to
make a real difference in the lives of cancer patients.”
Colin Goddard, Ph.D.
CEO
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has been a year of significant progress for OSI
as we have continued the process of aggressively building a comprehensive
and first-class oncology franchise around our flagship Tarceva™
program. With Tarceva™ continuing to emerge as a unique drug
candidate in the anti-HER1/EGFR field, key components of our strategy
going into 2003 included obtaining marketed oncology products and
clinical development candidates to both enrich our later-stage pipeline
and provide a vehicle for seeding a core commercial organization.
We have successfully executed this strategy with the timely completion
of three major transactions: the addition of Novantrone® to
our product portfolio, the acquisition of Cell Pathways, Inc. and
a convertible debt financing allowing us to maintain a strong cash
position.
2003 was also a year full of momentum in the biotech sector, fueling
renewal of investor enthusiasm following one of the most difficult
years in the sector’s history. In 2003, we witnessed a cascade
of high-profile product approvals and clinical trial successes together
with the appointment of a Food and Drug Administration (FDA) commissioner,
in Mark McClellan, committed to reducing the duration of the product
review and approval process. We also saw passage of the landmark
Medicare reform bill which has introduced a prescription drug benefit
for Medicare patients but also delivered a tough challenge for oncologists
in limiting the reimbursement received for IV (intravenous) chemotherapy
they administer to cancer patients in their offices. Ironically,
both provisions are good news for our flagship product Tarceva™.
Assuming approval of Tarceva™ by the FDA, Medicare patients
will be able to receive coverage for Tarceva™ taken in the
comfort of their own homes. With the change in the reimbursement
structure to oncologists, we are also likely to encounter a sea
change away from the historical bias of using IV drugs toward innovative
and effective oral anti-cancer therapies, like Tarceva™.
Firmly in the vanguard of our oncology franchise is Tarceva™,
a potent, selective and orally active inhibitor of HER1/EGFR, a
receptor that is over-expressed or mutated in a wide variety of
solid tumors, including those of the lung, brain, liver, ovary and
pancreas. Together with our partners, Genentech and Roche, we have
made significant strides forward with our comprehensive global development
program, which was carefully designed to study Tarceva™ both
in a monotherapy setting and in combination with standard cytotoxics.
We were disappointed, but not surprised, to report in October 2003
the failure of the two front-line, non-small cell lung cancer (NSCLC)
studies conducted by our partners, Genentech and Roche. These studies
were designed to assess the concurrent use of Tarceva™ with
conventional chemotherapy versus chemotherapy alone in front-line
NSCLC; the primary endpoint of both trials was improvement of overall
survival. Following the earlier failure of an oral EGFR product
being developed by a competitor in August 2002, we anticipated similar
results for Tarceva™ and communicated this expectation to
our shareholders. Further work is clearly needed to provide more
insight into the scheduling and use of EGFR inhibitors in combination
with other chemotherapy agents.
Our principal registration study is a worldwide Phase III trial
testing Tarceva™ as a monotherapy versus placebo in a second/third-line
non-small cell lung cancer setting. The study design was based on
the encouraging survival data demonstrated in a Phase II Tarceva™
trial in refractory NSCLC. The study completed enrollment of 730
patients in January 2003, and OSI has been granted Fast Track status
from the FDA for this indication. The primary endpoint in the study
is improvement in patient survival. We now anticipate top-line data
from this Phase III study early in the second quarter of 2004. We
believe our Phase II data, the correlations we have observed between
dose, rash and survival (which support our high-dose strategy) and
the extended timelines we now anticipate to arrive at top-line survival
data all support a good level of confidence in a positive outcome
for this study. There can be no guarantees until we unblind the
data but, assuming positive results, we expect to complete a new
drug application (NDA) filing for Tarceva™ by mid-year 2004
and project an approval by the FDA before year’s end.
A second Phase III study is evaluating Tarceva™ in pancreatic
cancer and compares Tarceva™ in combination with gemcitabine
(Gemzar©) versus chemotherapy alone. However, with the previous
failure of Tarceva™ in combination with chemotherapy in NSCLC,
we consider this study to have a low probability of meeting its
survival endpoint.
Clinical data demonstrating encouraging indications of anti-tumor
activity for monotherapy Tarceva™ in two disease settings
generally considered to be unresponsive to chemotherapy, bronchioloalveolar
cell carcinoma (BAC) and glioblastoma multiforme (GBM), were generated
in 2003. Genentech, in collaboration with Accelerate Brain Cancer
Cure (ABC2) Clinical Network, has initiated a Phase II study assessing
monotherapy Tarceva™ for the treatment of glioblastoma patients.
Behind these registration oriented programs, we have built a comprehensive
clinical support program including additional OSI sponsored trials
in lung cancer focused on dosing-to-rash and treating earlier stage
patients, Genentech sponsored trials combining Tarceva™ with
Avastin™ (a novel anti-angiogenic agent) and over 100 supplemental
clinical trials investigating Tarceva™ use in different cancer
settings and in combination with other cancer treatments.
In March 2003, we entered into an agreement with Serono S.A. for
OSI to market and promote the drug Novantrone® for oncology
uses in the United States. We believe that this was an essential
step in the transformation of OSI into a commercial organization,
allowing us to plan for sole direct U.S. marketing of future products
behind Tarceva™, compete for late-stage development and co-promote
license opportunities, and furthermore to provide a framework of
commercial support and benefit to Genentech, our U.S. partner for
Tarceva™. OSI will receive commissions on net sales of Novantrone®
in the U.S. for oncology indications, providing us with a steady
cash flow opportunity. Through the first two quarters of promotion
by our sales force we have exceeded our revenue targets and expect
to generate in excess of $30 million in revenues from this product
during 2004.
Around this transaction, we have built a core commercial operation
comprising approximately 60 sales, marketing, medical affairs, commercial
planning and support personnel including an approximately 30-person
sales force. This infrastructure supported the successful re-launch
of Novantrone® in the third quarter of 2003 following our first
OSI national sales meeting held over the summer.
The second major transaction in 2003 was the acquisition of Cell
Pathways in June. Although this acquisition was undertaken primarily
to gain access to a well-protected technology platform in apoptosis
(one of the key areas of our cancer research and development efforts),
it also provided us with an additional oncology product, Gelclair®.
This bioadherent oral gel provides relief for the pain associated
with oral mucositis, a debilitating side effect often seen in cancer
patients undergoing radiation or chemotherapy treatments. Cell Pathways
struggled to launch Gelclair® in 2003 through a partnership
with Celgene Corporation. Following the closing of the deal, OSI
concluded arrangements with Celgene for the return of full North
American rights and re-launched the product with our U.S. sales
force at the end of the year.
Overall we consider the acquisitions of Novantrone® and Gelclair®
to be a pivotal accomplishment in the transformation of the Company
into a full-fledged commercial organization. With the re-launch
of Novantrone® and Gelclair®, we join a relatively small
group of some 30 biotech companies who are promoting more than one
product.
The third major transaction of the year was the conclusion of a
$150 million offering of subordinated convertible bonds in a private
placement for net proceeds of $145.1 million. We used approximately
$19 million of these proceeds to re-purchase 503,800 shares of OSI
Common Stock in the market with the remainder contributed to our
ongoing strategic emphasis on maintaining a strong cash position.
We ended our fiscal year with approximately $404 million in cash
and investments. We consider this to be a solid accomplishment given
the rapid growth of the business and active deal making that we
have undertaken over recent years.
Behind Tarceva™ we have a diversified pipeline with product
candidates focused in three areas: next-generation targeted therapies,
products that induce apoptosis and differentiated cytotoxics.
OSI received two drug candidates from the Cell Pathways acquisition
which are currently in clinical development: Aptosyn® and OSI-461.
Both are mixed c-GMP phosphodiesterase inhibitors, which cause sustained
apoptosis (or programmed cell death). Cell Pathways had completed
enrollment of a Phase III study for Aptosyn® in second-line
NSCLC prior to the closing of the acquisition. Due to the poor potency
of Aptosyn® and the paucity of supporting data, we consider
this a high-risk program and it was heavily discounted in the acquisition
cost of Cell Pathways. Data will be available in the second half
of 2004. We believe that OSI-461, the second Cell Pathways drug
candidate, along with additional follow-on molecules, will represent
more potent and promising apoptosis drug candidates for treating
cancer. Although we are undertaking further Phase I clinical work
to optimize dose, exploratory Phase II studies in chronic lymphocytic
leukemia, hormone-refractory prostate cancer and renal cell carcinoma
are ongoing.
Chemotherapeutic agents have been the mainstay of cancer treatment
for decades, and will in our view form a significant component in
the physician’s arsenal for many years to come. Our differentiated
cytotoxic drug candidates are designed to improve upon currently
marketed products with similar mechanisms of action. The most advanced
of these drug candidates is OSI-7904L, a liposomal formulation of
a thymidylate synthase inhibitor. This well-established class of
agents is often used to treat metastatic gastrointestinal (including
colorectal) and breast cancers. OSI-7904L is currently in a Phase
II program, which includes a monotherapy Phase II trial in gastric
and gastric-esophageal junction cancers and combination Phase I
trials with other chemotherapy agents.
On the targeted therapies front, we have advanced a promising c-kit/KDR
dual kinase inhibitor into late stage pre-clinical development and
three molecules are in clinical trials arising from our historical
drug discovery program with Pfizer: CP-547,632, a potent and selective
inhibitor of the vascular endothelial growth factor receptor (VEGFR),
a promising anti-angiogenic agent, which is undergoing a Phase II
program; CP-724,714 (designed to target the HER2 gene); and CP-868,596
(designed to target the platelet-derived growth factor receptor).
The latter two are both currently in Phase I clinical trials.
We have continued to strengthen the leadership of the Company and
our Board of Directors. In May, we appointed Gabriel Leung as Executive
Vice President and President, Oncology Business. Before joining
OSI, Gabe was with Pharmacia Corporation, where he was a Group Vice
President, Global Prescription Business and Head of the successful
Pharmacia Global Oncology franchise. Gabe now heads our high-quality
core commercial unit which supports marketing, sales and business
development.
In June, we appointed Michael G. Atieh to our Board of Directors.
Mike is currently Group President of Dendrite International and
prior to this was a senior financial executive at Merck & Company.
In October, Mike assumed chairmanship of OSI’s audit committee.
Mike’s credentials and experience on the financial side of
the pharmaceutical business should provide shareholders with the
reassurance that our Audit Committee provides qualified oversight.
We steadfastly heed our goal of building an organization whose moral
compass is pointed in the right direction. 2003 has seen us embrace
a code of conduct, institute required Sarbanes- Oxley reforms ahead
of schedule and emphasize integrity in pursuit of our mission. We
are also proud of the spirit of volunteerism amongst our employees
as we have proactively reached out to our local communities in support
and sponsorship of cancer charity benefits and other worthy fund-raising
events.
OSI’s momentum going into 2004 is driven by the fact that
we now have all of the elements in place to allow us to capitalize
on the anticipated success of Tarceva™, our flagship program.
We have established a winning business model focused on quality
and supported by our ability to raise capital and tactically implement
an M&A program. This, together with our first-class research
and development, regulatory, sales, marketing and commercialization
teams, gives us the confidence that we have done all that we can
to allow for the successful development and registration of Tarceva™,
a product that has the potential to help thousands of cancer patients
today and millions more tomorrow. 2003 stands as one of the most
momentous years in the history of OSI as we are now solidly positioned
for an exciting future as a leading oncology company. Going into
2004, our commitment to you, our shareholders, is that we will be
relentless in our drive for excellence as we pursue, on your behalf,
our goal of bringing new medicine and new hope to the millions of
patients around the world who suffer from cancer. In doing so, we
will reward the trust you have invested in us.
Chief Executive Officer
Chairman of the Board
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