OSI Pharmaceuticals

(OSIP)

, best known for its oncology drugs, announced that its Prosidion Limited unit bought a platform of DP-IV drugs from Probiodrug of Germany for $35 million.

The purchase, announced Friday morning, expands OSI's offerings beyond cancer drugs like Tarceva, which is used to treat late-stage lung cancer and has helped boost OSI's shares, despite the fact that the company's earnings have been disappointing of late. OSI will make milestone payments in addition to paying $35 million in cash for P93/01, a drug based on the DP-IV platform, which is entering phase II testing as a type-2 diabetes treatment.

"The acquisition of P93/01 and the associated intellectual property estate will allow us to assume development of an exciting phase II development candidate in a prominent area of diabetes research and development," said Anker Lundemose, CEO of Prosidion. "This combination of a clinical candidate and the DP-IV medical use patent estate will add significant value to the growing Prosidion asset base."

In reaction to the news, shares of OSI fell 5 cents, or 0.1%, to $67.58.

Indeed, along with the rights to P93/01, Prosidion will receive a number of associated patents, both pending and issued, as well as the three nonexclusive license agreements for the patents.

With the promise of the P93/01 drug, OSI said it will also up its investment in its Prosidion unit, authorizing a $50 million investment, over and above the $10 million it invested in the unit in April. Following the closing of the deal, OSI will own 96% of Prosidion and the transaction will be part of OSI's ongoing R&D expenses in fiscal 2004.

"The acquisition of the DP-IV platform and our follow-on investment positions Prosidion as an important business unit within OSI," said Colin Goddard, CEO of OSI and chairman of Prosidion.

The news comes in the wake of positive data about Tarceva, which is a venture between OSI,

Genentech

(DNA)

and Swiss pharma company

Roche

. On June 5, a study showed the drug boosted survival rates in refractory lung cancer patients by two months. In the wake of the study, Merrill Lynch upgraded the company to buy from neutral, setting a new price target of $108.

Despite the good news, shares of OSI are off 26% since April 26, when a positive phase III Tarceva study sent shares up 141%. OSI's valuation is something of an issue, especially when it comes to analyst estimates, which have proved overly optimistic.

In May, the company posted a second-quarter loss that was deeper than last year and missed Wall Street estimates -- for the fourth-straight quarter.