OSI Shares Seen With Limited Long-Term Downside

Bear Stearns said recent trial data reported by OSI Pharmaceuticals (Nasdaq stock symbol OSIP) were encouraging for investors and maintained an "outperform" rating on the biotech company.

OSI (Nasdaq stock symbol OSIP) reported full results from a Phase IIa study of experimental diabetes drug PSN9301 late Monday at a meeting of the American Diabetes Association.

Results indicated that PSN9301 lowered glucose area under the curve 24% to 42% compared to placebo. The drug was well tolerated by patients.

Data showed that three daily doses with meals reduced glucose levels by as much as 42%, compared to placebo. The drug was also well tolerated by the 56 patients participating in the small study.

"We continue to believe that OSI represents an attractive investment with limited downside for longer-term investors," wrote Bear Stearns analyst Akhtar Samad in a report sent to clients on Tuesday.

"We believe that the downside on Macugen is largely reflected at current levels and expect Tarceva growth from future price hikes, Medicare Part D reform, and potential combination use with Avastin in NSCLC [non small-cell lung cancer] over time."

However, one biotech analyst was not convinced. Wachovia Securities analyst George Farmer reiterated an "underperform" rating on the stock.

The analyst said investors may be overestimating the impact of recent data released for cancer drug Tarceva, calling the Phase II trial of Avastin and Tarceva in lung cancer "inconclusive."

"Furthermore, with approval of Avastin expected in front-line NSCLC sometime this year or next, we do not believe such a combination would be widely used in the second-line setting for as long as chemotherapy remains front-line standard of care," he noted.

"Hence, we caution investors not to over-interpret this trial and become convinced that Tarceva use in NSCLC will suddenly surge based on its result."

Avastin is marketed by Genentech (Nasdaq stock symbol DNA)