By Randall Osborne

Editor

Something good happened in New York last week.

As the city cleaned up after a terrorist attack on the World Trade Center, as the nation mourned and prepared for war, ImClone Systems Inc. – headquartered on Varick Street, about a mile from the rubble in which thousands perished – said it had nailed down a potential $2 billion deal with Bristol-Myers Squibb Co., the likes of which had never been seen in biotechnology.

Samuel Waksal, ImClone's president and CEO, watched from his office window as the twin towers fell.

"It's so sad," he said. "You would hope you're living in an age that's more enlightened, with science changing the ways people are living, and this makes you look around and say, 'OK, we have to work even harder to do these kinds of good things.' The business of America is not just to do business, but to help people."

For ImClone, the first $1 billion from Bristol-Myers is to come in the form of development milestones related to IMC-225, a monoclonal antibody that targets and blocks the epidermal growth factor receptor in various cancers. ImClone got $200 million at the signing of the deal, another $300 million when the biologics license application for the drug is completed and submitted, and the final $500 million when the FDA approves IMC-225.

Bristol-Myers not only signed up for the whopper milestones, but also pledged to buy about 14.4 million shares of ImClone for $70 each – beefing up the arrangement by $1 billion. Even better, Bristol-Myers is buying the stock from ImClone shareholders.

In other words, no dilution. Just money.

"Every shareholder gets treated equally," Waksal said, so that none benefits more than another.

ImClone negotiated a practically unheard of 39 percent fee from Bristol-Myers off net sales in the U.S. and Canada. Bristol-Myers had forecast sales as high as $1.5 billion in the fifth year. Costs and profits are split evenly in Japan.

And ImClone insisted on manufacturing the drug, selling it to Bristol-Myers at what Waksal described as "a small mark-up."

He said he refused to do a traditional deal, hewing to a pledge from long ago.

"We decided early on that we were never going to do a licensing deal," Waksal said, adding that even a normal equity sale was not satisfactory.

"When biotech companies sell equity to big pharma, even at a premium, basically they're just doing a financing," he said. "It's good and it's fine, but it's just a financing. We've done all the work [on IMC-225]. This is our drug, and it's going to be a huge drug."

ImClone, founded in 1986 by Waksal and his brother, Harlan (chief operating officer), went public in 1991 after a failed try in 1987, raising $35 million, but nearly landed in bankruptcy during the industry's hard times three years later.

"We literally had zero cash in the bank, and our stock was at $1.50," Waksal said. "We couldn't raise money, because we didn't have any."

The Waksals held tight to their belief in IMC-225. Created by John Mendelsohn, president of Houston's M.D. Anderson Cancer Center, it was licensed by Hybritech Inc. in 1990. Eli Lilly and Co., Hybritech's parent firm, opted not to continue developing IMC-225, which was then a fully mouse monoclonal antibody.

The timing was just right, and ImClone got hold of the raw product and took over the work of refining it.

"[Mendelsohn] was working on it for years, looking at antibodies as payloads to deliver agents, bind to the tumors and do 'something,'" Waksal said. "We began to look at them as drugs themselves. We were looking at the ability of an antibody to very specifically bind to the extracellular domain of the receptor, and downregulate the signaling mechanism. That was really new at the time."

In early 1995, ImClone sold its interest in spin-off Cadus Pharmaceutical Corp. for $6 million to high-profile private investor Carl Icahn.

"It was a real cowboy thing to do," Waksal said. "We bet that the money we raised, a little over $6 million, could take us through our Phase I trials, and show enough efficacy and safety that we could present it at [the American Society of Clinical Oncology meeting] in 1995." There wasn't much else to do, he said.

ImClone stepped up the trials, and finished them in time.

"Our stock had reached its low of the year, going into ASCO," Waksal said. "It was less than a dollar. But the very next day [after the presentation], our stock started going up, and it was being bought not by hedge fund managers, but by oncologists who had seen the data."

A test of Waksal's resolve arose during the ASCO meeting, he recalled. Officials of a major pharmaceutical company wanted to make a partnership.

"We had a $150 million deal [offered] at that ASCO meeting, most of it back-ended," Waksal told BioWorld Financial Watch. "I said, 'Why would we do that?' They said, 'Your stock will go up, and you'll be able to raise more money.' I said, 'I think we'll let the data do that.'"

It did. Now, the chimerized antibody IMC-225 has been studied against pancreatic, head and neck, and colon cancers in separate Phase II trials, from which ImClone disclosed data this year. Phase II studies are under way in non-small-cell lung cancer, too. In Phase III trials, the drug is being tested with chemotherapy and separately with radiotherapy, as a first-line treatment for head and neck cancer. More Phase III studies are about to begin in pancreatic, colorectal and ovarian cancers.

Bristol-Myers is picking up the tab for all trials, except Phase IV follow-ups, for which ImClone is paying half.

The first indication targeted is irinotecan-refractory colorectal cancer, for which ImClone was granted fast-track status with IMC-225 in February. Four months later, the firm began a rolling biologics license application, submitting data in pieces as they become available. The BLA is expected to be finished in a few weeks, with a likely evaluation by the Oncologic Drugs Advisory Committee in February, and approval hoped for next year.

If the FDA says yes, ImClone will get the benefit of Bristol-Myers' powerhouse oncology sales force, with 240 members, pushing IMC-225.

"Their sales force is a fixed cost, so this is a win for them, too," Waksal noted.

Merck KGaA, of Darmstadt, Germany, issued a press statement Thursday, "welcoming" ImClone's pact with Bristol-Myers, and Merck said it sought to clarify a few things.

"The release was very sweet," Waksal said. "It says they gave up some rights in Japan, which they did." Merck and Bristol-Myers, he added, "have a good relationship because of Glucophage [metformin]," a Merck drug for diabetes for which Bristol-Myers is the U.S. licensee.

On the subject of IMC-225, Merck noted that it had acquired the rights from ImClone to develop and commercialize the drug outside the U.S. and Canada in December 1998, and has co-development and co-marketing rights for the drug in Japan.

As part of the Bristol-Myers deal, Merck agreed to give up certain rights to C225 in the U.S. to ImClone and Bristol-Myers, in return for a reduction of royalty payments due ImClone. Merck, which owns about 3 percent of ImClone, had agreed several years ago to pay ImClone about $60 million, including up-front fees and milestone payments, for development and marketing rights to the drug.

By late last week, ImClone's stock was nearing $60. The market fallout of the terrorist attack could only do so much, and ImClone has traveled far since the one-dollar days of scrabbling for a foothold in the market.

Eric Schmidt, analyst with S.G. Cowen Securities Corp., said observers are still making their measurements of the impact of the attack.

"We tried to do something to that effect" on the first day of trading after the chaos, he told BioWorld Financial Watch. "We checked into all of our companies. Obviously, the drug model is recession-resistant, and resistant to downturns. If we're entering a choppy market in the wake of [the attacks], the high-priced stocks are the first to be sold, as people fly toward a more defensive evaluation of their investments."

But the industry is growing stronger despite all, he said.

"In the intermediate term, this will outweigh the negatives," Schmidt said of stocks in the sector. "Eventually, we'll find a valuation at which people want to own these things."

Meanwhile, few investors could be blamed for wanting to own ImClone, and Waksal was as humble as he could manage. He agreed that many biotechnology firms would be pleased enough with just the $1 billion milestone portion of the Bristol-Myers deal, and might not even have tried for the lucrative remainder of the package.

"But," he said, "we're not most biotech firms."