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January 21, 2002
ImClone's Woes Cast a Broader Biotech Shadow
By ANDREW POLLACK
ImClone's Shares Decline 13.5% (January 10, 2002)
Amgen-Immunex Deal Spurs Forecasts About Others (December 18, 2001)
Amgen Buys Biotech Rival Immunex for $16 Billion (December 17, 2001)
Drugs to Spur New Cells, and Without the Politics (December 13, 2001)
Biotech Drug for Angina Is Promising, Doctors Say (November 15, 2001)
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controversy surrounding ImClone Systems (news/quote) is casting a cloud over the biotechnology industry, some analysts say.
With the House Energy and Commerce Committee saying on Friday that it will investigate whether the company misled investors, the industry may now be treated to its own little version of the Enron (news/quote) debacle, with juicy memos about ImClone coming to light one after the other.
Even before the committee announced its inquiry plans, the ImClone situation had been making some investors wary of the risks of biotechnology.
ImClone's colorectal cancer drug had been greeted by analysts and doctors as a potential breakthrough, and it was expected to be perhaps the hottest biotechnology industry product to reach the market in 2002. But in December, the Food and Drug Administration refused to even consider the company's application for permission to market the drug.
"It's really created a confidence crisis in the ability of biotech companies to get drugs through the F.D.A.," said Larry Feinberg of Oracle Partners, a health care investment fund that has long owned stock in ImClone.
The risks have been underlined in recent days as a flurry of companies, including Dendreon (news/quote), Cubist Pharmaceuticals (news/quote) and Inspire Pharmaceuticals (news/quote) reported failures or setbacks in clinical trials, sending their share prices down as much as 75 percent. The American Stock Exchange biotechnology index has fallen 11.1 since the beginning of the year compared with a 1 percent decline in the Nasdaq composite index.
Some biotechnology executives think what happens to one company does not affect others, but others think it can.
Indeed, in November, Samuel D. Waksal, ImClone's chief executive, was toasted by fellow industry executives at a dinner in New York. Two months earlier, Bristol-Myers Squibb (news/quote) had agreed to pay $2 billion for a 20 percent stake in ImClone and the rights to sell ImClone's cancer drug, known as Erbitux, or C225. That raised the bar for how much a big pharmaceutical company would pay for a small biotechnology company's product, so Dr. Waksal's fellow executives were elated.
Now, there is fear that big drug companies will be more hesitant to offer big amounts of money for the products of biotechnology companies.
If the House committee has any new information about what went on with ImClone, it has not let on. The letters it sent Friday to ImClone, Bristol-Myers and the F.D.A. rely for the description of events on published news reports.
After the F.D.A. rejection of the company's application, Dr. Waksal told investors that the agency's only real concern was a lack of certain documentation, which could probably be quickly remedied.
But The Cancer Letter, published in Washington, obtained a copy of the F.D.A.'s letter to ImClone and reported that the agency had more extensive concerns. The letter indicated that new clinical trials might be needed and that ImClone had been told of problems in its clinical trial design many months before, even as it continued to assure people it was in sync with the F.D.A.
Moreover, regulatory filings show that Dr. Waksal and his brother Harlan W. Waksal, the company's chief operating officer, sold a total of more than $150 million of stock at peak prices in the months before the F.D.A. rebuff.
The Waksals have said they were required to sell the shares to Bristol- Myers because they were recommending that others do so as well. They say they had no inkling of the F.D.A. rejection and that the other problems cited in the F.D.A. letter were not significant.
The company has other defenders, who say it is not unusual for biotechnology concerns to misread signals from the F.D.A. They say the Waksals would not have been stupid enough to blatantly sell shares if they knew that bad news was coming.
John Mendelsohn, president of the M. D. Anderson Cancer Center in Houston, who sits on ImClone's board, said it was not right to compare ImClone to Enron, on whose board he also sits. While Enron's problems are big, ImClone's, he said, would mean only a "small delay" in the 20-year process of bringing Erbitux, which Dr. Mendelsohn developed, to market.
And doctors involved in the clinical trials say the drug did seem to prolong the lives of some desperate patients who had run out of other options. "I have no doubt, I have seen it work," said Dr. Howard Hochster of New York University.
Among the questions the House committee will explore, one of them, it said Friday, is how Bristol-Myers, with a reputation as a cancer drug specialist, missed the deficiencies in ImClone's application. The application was submitted late in October, more than a month after Bristol- Myers and ImClone made their deal.
Harlan Waksal said in an interview two weeks ago that while Bristol-Myers was not involved in writing the application, "obviously they did look at it." Bristol-Myers has declined to comment on this matter.
The structure of the deal with Bristol-Myers might also draw questions. Bristol paid $1 billion to acquire nearly 20 percent of ImClone at a 40 percent premium to the market price on Sept. 18.
Often in such deals, the big company buys newly issued shares so the money strengthens the financial resources of the smaller company. In this case, the money went to existing shareholders, and regulatory filings show it was Sam Waksal who insisted that Bristol-Myers buy ImClone's stock and suggested it be from existing shareholders. Analysts said Bristol-Myers probably agreed because ImClone had enough money already and was to receive as much as $1 billion more for the rights to Erbitux.
While this structure rewarded existing shareholders, whom the management represents, it also allowed the Waksals to sell about 20 percent of their holdings to Bristol-Myers. The brothers borrowed more than $30 million from the company so they could exercise stock options and acquire about 4.2 million shares between them in July, when the deal was being negotiated but had not been announced. That apparently increased the number of shares they could then sell to Bristol-Myers.
Central questions seem to revolve around whether ImClone knew about the F.D.A. concerns regarding its clinical trials. To get Erbitux on the market quickly, ImClone applied for approval to treat colorectal cancer patients who had not responded to existing chemotherapy drugs, particularly one known as irinotecan. Drugs meant as a last resort can often be approved more easily than those for initial treatment.
But instead of trying just Erbitux, it gave the patients Erbitux plus irinotecan. This was because data from animal and test-tube studies showed that Erbitux by itself was not very good at killing tumors but could make the tumors more vulnerable to another drug.
In such a clinical trial design, though, it is imperative to confirm that the patients had not responded to irinotecan alone. Otherwise, the improvements later seen might be due solely to irinotecan, not Erbitux. On the other hand, the F.D.A. asked ImClone to show that irinotecan, which is toxic, was even needed — that the same results could not be achieved by Erbitux alone.
The company acknowledges it did not submit the data to the F.D.A. clearly documenting that irinotecan alone had failed in the patients in the trial. But it did run a study using Erbitux alone, which worked in only half the patients as the combination of Erbitux and irinotecan. Still, the F.D.A. letter said the trials had not sufficiently separated the contributions of irinotecan and Erbitux.
