ImClone Systems Inc. turned a profit.
Revenue related to initial sales of Erbitux (cetuximab) drove the New York-based cancer drug developer into the black, allowing the company to begin what it believes will be a period of continued profitability. Its total revenues jumped to $109.6 million for the quarter ended March 31, up $90 million from a year earlier, with a large portion due to milestones related to the product's approval and launch. Net income totaled $62.7 million, with basic earnings per common share of 83 cents and diluted earnings per common share of 76 cents. Last year, ImClone posted a $34.8 million net loss, equal to 47 cents per basic and diluted common share.
"The company's results are indicative of a new and evolving business model characterized by growth and profitability," Michael Howerton, ImClone's acting chief financial officer, said during a conference call. "We expect to remain a profitable entity as the year progresses, although in absolute terms we do not expect to achieve the levels of profitability recorded in the first quarter of this year, principally as the result of reductions in the amortization of license fees and milestone revenues."
To date, he said the company has received $650 million in aggregate milestone payments from partner Bristol-Myers Squibb Co. Part of a $250 million payment makes up one of four components to ImClone's revenues. It recorded license fees and milestone revenues of $67.5 million, manufacturing revenue of $25.5 million, collaborative agreement revenue of $9.5 million and royalty revenue of $7.1 million. The royalty revenue includes $6.8 million of in-market Erbitux net sales from Bristol-Myers, or 39 percent of $17.5 million booked by BMS.
"The sales came in above our expectations," Brian Rye, analyst with Janney Montgomery Scott LLC in Philadelphia, told BioWorld Today. "We had been looking for just over $11 million in first-quarter sales. But when you launch a drug like this, it's really hard to grasp exactly what the initial numbers are going to be . . . It's going to take a little while to get a good feel for what the actual demand is and how it's being used, whether primarily in combination with irinotecan or if there's a meaningful amount of use as a monotherapy."
He added that it would probably take a couple of more quarters before ImClone or BMS comments on the drug's specific use or provides future sales projections. ImClone did note that no reimbursement issues have arisen to date. All of the drug's first-quarter sales were recorded from the beginning of distribution on Feb. 24, just after it received FDA approval for late-stage colorectal cancer. (See BioWorld Today, Feb. 13, 2004.)
"Erbitux has already turned the company profitable," Rye said, "and it should continue to remain profitable based not only on the drug itself, but also the remarkably positive economics of the deal they have in place with Bristol-Myers."
The in-market sales, reflecting a drop-ship distribution methodology, represent Erbitux shipments to end-user accounts only, with no wholesaler stocking. Howerton said ImClone sells the product to its partners, New York-based BMS and Darmstadt, Germany-based Merck KGaA, at a 10 percent mark-up to manufacturing cost. Approved in Switzerland, Erbitux is not yet approved in the European Union, where it would be marketed by Merck. ImClone would receive about 8 percent of the gross profit on sales there, Rye said, adding that EU approval is expected in the middle of this year.
"Certainly, a dollar of North American sales means a lot more to ImClone than a dollar of European sales," he added.
Once enveloped in an insider-trading controversy, during which shares in the company fell to single-digit values, ImClone has more than rebounded over the past year in terms of stock performance. Tuesday the shares (NASDAQ:IMCL) lost $3.15 to close at $69.94.
Total operating expenses dropped to $38.8 million from $53.9 million in last year's first quarter. Research and development expenses were down to $20.2 million from $39 million. Clinical and regulatory expenses fell $500,000 to $7.1 million, while marketing, general and administrative expenses climbed to $13.1 million from $7.2 million. The company's effective tax rate was estimated at 10 percent. Howerton called the company's quarterly R&D spending indicative of the remainder of the year, and predicted that clinical and regulatory expenses could more than double by the third quarter as part of continued spending growth. He added that marketing, general and administrative expenses also would climb.
The company ended the three-month period with about $287 million in cash, cash equivalents and marketable securities, as well as about 84.8 million diluted shares outstanding.
Going forward, Erbitux development will focus on its use in treating earlier-stage colorectal cancer as well as other tumor types, including head and neck, non-small-cell lung and pancreatic cancers. Data from clinical studies in such indications will be reported at June's American Society of Clinical Oncology meeting in New Orleans. Future plans include evaluating its use in ovarian, cervical, endometrial and esophageal cancers. All three partners would participate in continued clinical development.
Other ImClone programs planned to move forward include four other cancer antibodies scheduled to move into clinical development next year.