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Erbitux: ImClone Makes Headway

By Catherine Arnst ImClone Systems (IMCL) evidently still had something to prove to Wall Street. On June 8, the company's stock price jumped nearly 17%, to $35.27, after it announced that an independent panel of experts had verified a study first reported a year ago showing that Erbitux, its colon cancer drug, is also effective in checking the spread of cancerous tumors in the head and neck.

The stock's gains also followed news that financier Carl Icahn, a longtime ImClone investor, had filed with regulators to raise his stake in the company up to 18% (as of March, he held almost 6% of the company's shares). Bristol-Myers-Squibb (BMY) is currently ImClone's largest shareholder, with 17% of its stock.

LEGAL RUN-INS Nevertheless, analysts attributed the stock's movement primarily to the head and neck cancer data, though some of these same analysts were scratching their heads, given that the results were old news. But verification by an independent panel adds an extra level of assurance that the drug's activity against head and neck cancers is real -- a security blanket some ImClone investors may want, given the company's troubled history with the Food & Drug Administration (FDA).

The agency famously rejected ImClone's initial application for Erbitux, an innovative cancer drug, back in December, 2001, saying the clinical trial didn't meet standards and the patient data was sloppy. Erbitux finally won approval for the treatment of colon cancer in February, 2004, based on another clinical trial run by Merck KgGA of Germany.

By then, however, ImClone co-founder Samuel Waksal was in jail for securities fraud, and his good friend, Martha Stewart, was indicted on charges of lying to federal investigators about her own sales of ImClone stock.

Erbitux is one of the first of a new generation of targeted cancer drugs, and analysts had once expected it to reach blockbuster status in a short time. But the treatment's sales have been flat for the last three quarters as it faced competition from Genentech's (DNA) Avastin, another targeted therapy approved late last year. "We would expect an approval in head and neck to add $300 million to $350 million in sales to Erbitux," says S.G. Cowen Securities analyst Eric Schmidt.

"CRITICAL STEP." The American Cancer Society estimates that 40,000 Americans will be diagnosed with cancers of the head, neck, and mouth this year, and 11,000 will die of the disease. No new treatments have been approved for more than a decade.

The FDA told ImClone last summer that it wanted its late-stage trial of Erbitux in head and neck cancer to be reviewed by an independent panel of radiologists and oncologists. In March, the stock took a beating when ImClone announced that it would delay seeking a head and neck approval for Erbitux. But the company now says it will meet with the FDA shortly to discuss going forward with the application.

Based on a study of 424 patients, the review panel verified that tumors did not spread after two years in 56% of those who received Erbitux combined with radiation, compared with 48% of patients who received radiation alone. "This independent review was a critical step toward the filing" of an application for using Erbitux in head and neck cancer, says Dr. Eric K. Rowinsky, ImClone's chief medical officer. Such verification has certainly helped treat a case of investor anxiety. Arnst is a senior writer for BusinessWeek in New York

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