Analysts react

Reaction to the OSI-Eyetech merger varied from analyst to analyst, with some expressing shock that OSI would pay so much for a company that will face strong competition from ranibizumab (Lucentis). That drug, in development by Genentech, has generated impressive data showing it might even improve vision in patients with wet age-related macular degeneration (AMD) although trials of the drugs were radically different and cannot be compared.

The analysts' concern about ranibizumab is two-fold: they speculate if the products do compete head to head, ranibizumab is bound to emerge the winner if it, unlike pegaptanib sodium (Macugen), truly can reverse AMD damage. In any case, analysts worried that consorting with Genentech's primary competitor might damage an existing OSI-Genentech partnership on the lung cancer drug, erlotinib (Tarceva). A Genentech spokeswoman declined to comment on the deal.

Drs. Guyer and Goddard said they were not concerned about the Genentech relationship since it is common for firms to link in one area while competing in another. In fact, OSI already competes with Genentech within oncology, they said.

Karl Thiel, senior analyst with The Motley Fool's "Rule Breakers" investment newsletter service, said each of OSI's product areas will require its own set of sales representatives for very different clientele.

"It seems like a strange fit for me, but I will say I'm sure they have their reasons," Thiel said.

Eric J. Ende, of Merrill Lynch, said in a research report that he did not see the strategic benefit to OSI but believed investors were overreacting. Investors are failing to account for significant royalties OSI will earn, and even if ranibizumab sales conquer the market in 2007 and 2008, OSI officials expect pegaptanib sodium will retain a 10% share, he said.

"Importantly, since the deal is strictly financially motivated, if pegaptanib sodium sales are weaker than expected, significant cost-cutting at Eyetech is likely to maintain EPS (earnings per share) accretion," Ende wrote.

Furthermore, Ende anticipates pegaptanib sodium will recapture significant sales if it successfully launches the drug as a first-to-market treatment for diabetic macular edema.