The same day ImClone Systems Inc. reported its second-quarter earnings - boosted by a 25 increase in Erbitux sales over the first quarter - the company revised its deal with Merck KGaA to include a larger royalty rate.

In exchange for consenting to Merck's sublicense of certain intellectual property relating to an investigational EGFR-targeting antibody, matuzumab, ImClone expects to receive €2.5 million (US$3.1 million) upon execution of the agreements, plus €5 million for providing written consent to the sublicense. Merck also agreed to increase ImClone's royalty rate to 9.5 percent for all sales of Erbitux outside the U.S. and Canada.

The new rate, which went into effect July 1, replaced "a tiered royalty percentage" that had "historically approximated 7 [percent] to 7.5 percent," Joe Fischer, interim CEO of New York-based ImClone, said during the company's earnings call.

The amendment to the 1998 deal resulted from an alliance Merck signed in September 2005 with Tokyo-based Takeda Pharmaceutical Co. Ltd. for development and commercialization of matuzumab. Under the terms, the companies also will share information relating to the development of matuzumab outside the U.S. by Merck and Takeda, and of IMC-11F8, a fully human EGFR-targeted IgG1 monoclonal antibody being developed in the U.S. and Canada by ImClone. IMC-11F8 is in Phase I in solid tumors.

In short, Fischer said, the amended deal is a "step toward resolving issues relevant to each company's ongoing development of a future generation EGFR-targeted therapy," while providing "us with added financial value as it relates to Erbitux."

ImClone initially signed Darmstadt, Germany-based Merck in 1998 as its European partner for Erbitux (cetuximab), a monoclonal antibody that inhibits epidermal growth factor receptor (EGFR). That deal was valued at about $90 million. (See BioWorld Today, Dec. 16, 1998.)

Erbitux was launched in the European Union for colorectal cancer in mid-2004. Merck, which has not yet reported revenue for the most recent quarter, showed first-quarter Erbitux sales of €74 million. At the end of the first quarter, Merck gained European regulatory approval for the drug in head and neck cancer, as well.

In the U.S., sales of Erbitux for the quarter totaled $172.8 million, a 25 percent increase over the first quarter and a 77 percent increase over the second quarter of 2005. Fischer attributed the growth to the "rapid uptake in head and neck cancer " since the FDA approved that second indication in March. Erbitux previously gained approval in colorectal cancer. (See BioWorld Today, March 3, 2006.)

ImClone receives 39 percent of the gross U.S. sales from New York-based Bristol-Myers Squibb Co., its marketing partner for the U.S. and Canada.

In addition to its approved indications, Erbitux is in late-stage development for pancreatic cancer, non-small-cell lung cancer and earlier-stage colorectal cancer. However, the drug soon may face competition in the space if Thousand Oaks, Calif.-based Amgen Inc.'s panitumumab gains approval. Panitumumab also targets EGFR, but likely would require less frequent dosing.

ImClone's total revenue for the quarter was $149.9 million, with about half of that - $76.4 million - coming from product royalties. The company reported net income of $37.2 million, or 42 cents per share. That beat analysts' estimates of 38 cents per share. As of June 30, its cash, cash equivalents and securities available for sale totaled $964 million.

In January, the New York-based firm said it had begun reviewing strategic options to "maximize shareholder value," and hired investment bank Lazard, of New York, to examine alternatives such as a merger, sale or strategic alliance. (See BioWorld Today, Jan. 25, 2006.)

Fischer declined to provide any update to that announcement, except to say that the "process is ongoing."

Shares of ImClone (NASDAQ:IMCL) closed at $35.82 Thursday, down $2.04.