OSI Pharmaceuticals

(OSIP)

and

Genentech

(DNA)

said Friday that an experimental drug had been granted orphan drug status by the Food and Drug Administration.

OSI's drug, Tarceva, is being closely watched by physicians and analysts alike for several cancer therapies. The drug received the orphan drug designation for its use in treating malignant glioma, a form of brain cancer that affects approximately 7,000 people in the U.S. each year.

Orphan drug designations, designed to encourage companies to produce medications that affect fewer than 200,000 people per year in the U.S., can provide researchers with tax credits, marketing exclusivity and even financial assistance for clinical development.

The FDA's action coincided with the companies' reporting that they had begun Phase II trials of the drug on malignant glioma patients. Phase II trials are the second round of three sets of clinical tests on the path to FDA approval.

"Currently, there are very few treatment options for patients with malignant glioma," said Gwen Fyfe, vice president for clinical hematology/oncology for Genentech, based in South San Francisco.

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Although several analysts issued reports Friday saying the latest news was positive, they added that more crucial information is still pending over Tarceva's effect on patients with lung cancer and pancreatic cancer.

OSI, based in Melville, N.Y., is working on one Phase III trial with Genentech and another Phase III trial with

Hoffmann La Roche

that examines Tarceva's treatment of nonsmall cell lung cancer. Tarceva is being used as a first-line therapy in combination with approved chemotherapy agents.

"We expect the results of the first of the two trials in front-line therapy in the next four

to six weeks, and continue to believe these studies are high risk," said Steven Harr, of Morgan Stanley, in a research report.

Harr has an overweight rating on OSI's stock. He doesn't own shares. Morgan Stanley reports that it expects in the next three months to receive or intends to seek compensation for investment banking services from OSI.

Another Phase III trial is being conducted with the National Cancer Institute Canada Clinical Trials Group in assessing Tarceva's effectiveness alone as a second- or third-line therapy for nonsmall cell lung cancer.

The company also is working with the Canadian group in a Phase III test of Tarceva in patients with previously untreated advanced pancreatic cancer. The trial is examining the effect of Tarceva and an existing pancreatic chemotherapy drug.

OSI's stock closed Friday at $29.85, down 6 cents. Genentech's stock dropped 41 cents, closing at $75.39.