Despite a market cap of close to $3 billion and a 58 percent increase in Erbitux revenues in 2005, ImClone Systems Inc. is exploring strategic options that could include the sale of the company.

The New York-based firm engaged the investment bank Lazard, also of New York, to review the company's alternatives to "maximize shareholder value." Those alternatives could include a merger, sale or strategic alliance. But analyst Eric Schmidt, of SG Cowen & Co., of New York, said the announcement reflects poorly on the company.

"We view IMCL's decision to put itself up for sale as a sign of weakness and corporate turmoil," he said in a research note. "We view a company with minority ownership of a product facing increasing competition and little to no cash flow as an unattractive acquisition candidate."

The view on Wall Street is that if anyone bought out ImClone, it would be the company's North American partner for Erbitux, Bristol-Myers Squibb Co., but Cory Kasimov, analyst with Oppenheimer & Co. in New York, said that "some have speculated that Bristol is not interested, and that is why [ImClone is] putting itself in the open market like this."

ImClone said it needs to operate on a larger scale. In addition to Erbitux, it has four products, IMC-11F8, IMC-A12, IMC-18F1 and IMC-1121b, in Phase I, and one product, CDP-791, in Phase II, for various tumors.

"Our current size, combined with the time and resources required to realize a commercial benefit from our existing pipeline, may limit our ability to achieve our full potential," said Joseph Fischer, the company's newly named interim CEO. "For this reason, we feel that it is now appropriate to initiate a process of exploring ways to enhance shareholder value and unlock the potential of our assets."

ImClone's shares (NASDAQ:IMCL) rose $1.30 Tuesday to close at $35.36. The stock, which fell as low as $6 in 2002 amid an SEC investigation, ran in the mid-$80s in the summer of 2004, shortly after Erbitux received FDA approval for third-line colorectal cancer.

Since then, the drug - which costs about $30,000 for eight weeks of treatment -has done well, earning total sales for 2005 of $413.1 million, a 58 percent increase over 2004's sales of $260.8 million. ImClone receives a 39 percent royalty from Bristol-Myers Squibb, of New York, and a range of 6.5 percent to 7.5 percent in royalties from its rest-of-world partner, Merck KGaA, of Darmstadt, Germany.

ImClone on Tuesday reported total revenues - including Erbitux royalties - for 2005 of $382.9 million, operating expenses of $303.9 million, net income of $98.9 million and earnings per diluted share of $1.14. That compares to 2004's figures of $388.7 million in revenues, $263.4 million in operating expenses, $113.7 million net income and $1.33 EPS - indicating the company is spending more, but earning less.

Yet Kasimov said the bottom line figures are lower than expected because of light license fees and collaborative revenue, which ImClone will eventually recognize.

"The only number that we're keenly focused on is Erbitux, and the Erbitux number was solid," Kasimov said.

Erbitux is an attractive asset for a potential buyer, as is ImClone's biologics manufacturing capacity. But the competitive threat of Thousand Oaks, Calif.-based Amgen Inc.'s cancer drug, panitumumab, ImClone's existing relationship with Bristol-Myers, and its $3 billion market cap may make it "difficult for a deal to get done," Kasimov said. But, he added, after seeing OSI Pharmaceuticals buy Eyetech, one should "never say never."

Melville, N.Y.-based OSI bought Eyetech Pharmaceuticals Inc. in November for $935 million in cash and stock in a widely scrutinized deal. (See BioWorld Today, Nov. 15, 2005.)

As in previous years, ImClone declined to give guidance on Erbitux sales for the upcoming year, citing uncertainties over the potential impact of panitumumab, as well as the "current uncertainty with respect to the commercial benefits of the potential new head and neck indication for Erbitux," said Michael Howerton, the company's senior vice president and chief financial officer.

ImClone's shares fell 20.6 percent in November when the top-line Phase III data of panitumumab were announced. A biologics license application for panitumumab is expected to be filed this quarter. (See BioWorld Today, Nov. 4, 2005.)

Before approval, many considered Erbitux to have blockbuster potential, and head and neck cancer is another indication for which Erbitux might gain approval. It represents a $300 million to $500 million annual opportunity for ImClone. The company filed an sBLA in August, and an FDA decision is expected early this year. (See BioWorld Today, Aug. 31, 2005.)

In terms of safety and efficacy, research showed that Erbitux and panitumumab are "relatively equal," Kasimov said. But Erbitux is dosed every week, whereas panitumumab is every other week or once every third week, providing Amgen with an opportunity to provide a product with a similar mechanism of action, but one that is materially cheaper.

"At that point, payers may step in and encourage the use of one over another," Kasimov said. His firm has a "neutral" rating on ImClone.

Not SG Cowen. Schmidt wrote, "We believe it unlikely that any transaction would create meaningful shareholder value. We continue to view shares as 30 percent overvalued and recommend investors sell IMCL."

More Erbitux Work Ahead

ImClone expects to have mature survival data of Erbitux in first-, second- and third-line colorectal cancer and in first-line pancreatic cancer this year. Other clinical trials are nearing full accrual in non-small-cell lung cancer and in metastatic head and neck cancer. The company plans to initiate a number of new studies of Erbitux, including one combining it with South San Francisco-based Genentech Inc.'s Avastin.

Fischer, a member of the company's board since 2003, will replace Philip Frost who served as interim CEO since November. Fischer has served in senior management positions at Johnson & Johnson, of New Brunswick, N.J.

Frost will remain ImClone's executive vice president and chief scientific officer. He had replaced Daniel Lynch as CEO, who took the position in April 2003 after Harlan Waksal stepped down in lieu of an internal review related to the company's failure to withhold $60 million in taxes on executive stock options. Waksal and his brother, Samuel Waksal, who preceded him as CEO, founded ImClone in 1984, but Samuel is serving prison time for bank and securities fraud in an insider trading controversy. The Waksal brothers are no longer associated with the company, which went public in November 1991.

ImClone has about 83.6 million shares outstanding, $3.4 million in cash and cash equivalents and $753 million in securities available for sale.

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