ImClone: Hammered on the Block?

The maker of cancer drug Erbitux appears to be sparking little interest with potential buyers. This outfit could be a tough sell

It's been a long, strange trip for ImClone Systems (IMCL), and it may finally be drawing to a close. Twenty years after its founding, and two years after its first and only product won Food & Drug Administration approval, the controversial New York-based biotech company announced on Jan. 24 that it has hired investment bank Lazard to explore a possible sale, merger, or strategic alliance.

But industry analysts are skeptical that the company will succeed in its quest for a mate. "When you are serious about selling a company you approach likely buyers in a non-public manner," says S.G. Cowen analyst Eric Schmidt. "The history of these kinds of announcements is that they rarely lead to a definite transaction."

Just ask Serono. The Swiss biotech, which specializes in multiple sclerosis and infertility drugs, has been trying to sell itself since November, with no luck. On the same day that ImClone announced its own availability, Serono reported that it was continuing to examine strategic options, a sign that the Jan. 20 deadline it set for bidders came and went without anyone coming forward.


  ImClone and Serono have the same liabilities: a limited number of drugs on the market and thin pipelines of hopefuls. ImClone has the added disadvantage of imminent competition. Sales of Erbitux, ImClone's first-in-class drug for colon cancer, have been steadily increasing since it hit the market in 2004.

Bristol-Myers Squibb (BMY) markets the drug in the U.S., and in the fourth quarter of 2005 royalty payments for Erbitux rose to $52.6 million from $36.5 million a year earlier. But biotech giant Amgen (AMGN) has a rival drug, Panitumumab, that is widely expected to win FDA approval in 2006. If and when it does, Erbitux sales are likely to slow.

It appears that ImClone's existing partner isn't keen on any closer ties. After ImClone announced that it was on the block, Bristol-Myers issued a statement saying that it recently learned of ImClone's decision "and we understand that as the process moves forward they will continue to consult with their partners, including BMS." Hardly an expression of overwhelming interest.


  Bristol may still have a bitter taste in its mouth from paying an eye-popping $2 billion for a 20% stake in ImClone and marketing rights to Erbitux back in September, 2001. Three months later, the FDA refused to accept ImClone's application for the drug, because it didn't like the design of the clinical trials used to prove Erbitux's efficacy. The stock price plummeted and the ensuing insider-trading scandal landed ImClone founder Samuel Waksal in jail, along with his close friend Martha Stewart (see BW Online, 7/16/04, "A Split Sentence for Martha").

ImClone's stock has been on a roller coaster ever since, dropping as low as $5.24 in mid-2002 , when Waksal went to jail, and soaring to more than $80 in mid-2004, shortly after Erbitux reached the market. On the day ImClone announced that it had hired Lazard, the stock rose almost 4% to close at $35.36.

ImClone also announced a new acting CEO, the fourth chief executive in its history. The first was Sam Waksal, followed by his brother and co-founder, Harlan. Former CFO Daniel Lynch took over in 2002 and then left in November, 2005 for unspecified reasons. Philip Frost was named interim CEO at the time, but now Joseph Fischer, a member of ImClone's board since 2003, takes the helm. Frost will stay on as executive vice-president and chief scientific officer.


  While Lazard shakes the bushes, ImClone continues to look for new markets for its Erbitux. In October, the company filed an application with the FDA to allow the drug's use against head and neck cancer as well as colon cancer.

This time, the application was accepted without any problems (see BW Online, 6/9/05, "Erbitux: ImClone Makes Headway"). It was welcome news amid a turbulent few years for ImClone. If would-be buyers stay on the sidelines, there may be more rough patches in store for what could be the final leg of ImClone's long trip.

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