Last week, OSI Pharmaceuticals (NASDAQ:OSIP) reported a huge quarter that caught many investors by surprise. Total Q3 revenue for the company rose 77% year over year, topping Wall Street estimates by more than 15%. As a result, shares surged almost 14% on Friday.

Amazingly enough, there's room for further growth at OSI. The drugmaker announced 32% year-over-year improvement in worldwide net sales of the company's oncology drug, Tarceva, which it co-markets with Genentech (NYSE:DNA) and Roche. However, OSI noted that it experienced "unusually high" product returns in the U.S., related to expired inventory during Q3. This occurrence leads me to believe that the company could have more in store from Tarceva in subsequent quarters.

The rest of OSI's operations have continued in a healthy direction. The company saw a big spike in its license, milestone, and other revenue category. Key drivers of this advance included the amortization of an upfront license fee related to a licensing agreement granted to Eli Lilly (NYSE:LLY), and license revenue tied to an agreement between Renovo and Shire (NASDAQ:SHPGY). OSI also remains on track to complete the divestiture of its eye-disease business by the end of 2007. Once complete, it will mark the end of a short-lived venture which proved more of a hindrance than a help to the company's bottom line.

OSI really seems to have turned the corner since reporting a Q3 loss in 2006. In addition to the strong global sales improvement from Tarceva, and the exit from its eye disease business, OSI has an up-and-coming pipeline of drug candidates including PSN9301, a promising type 2 diabetes drug in phase 2 clinical trials.  Friday's results will likely bring about heightened expecations for OSI, but the company seems well-prepared for the challenge.

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Fool contributor Billy Fisher does not own shares of any of the companies mentioned. Eli Lilly is a selection of the Income Investor newsletter. The Fool maintains a healthy disclosure policy.