Sam Waksal, CEO of ImClone Systems , has predicted many
times in public that his company's highly publicized but still
experimental cancer drug, Erbitux, "is going to be one of the biggest
drugs in the history of oncology."
Friday night, that boast was put on ice -- at least temporarily.
In a stunning rebuke to Imclone and its partner
Bristol-Myers
Squibb , the Food and Drug Administration refused to
accept the application for approval of Erbitux, which the companies
filed on Oct. 31.
The approval and launch of Erbitux to treat colon cancer patients
was ballyhooed as the biggest biotech success story of early 2002. Not
anymore. The FDA has thrown that timeline out the window, raising
the real possibility that this potential blockbuster of a drug
doesn't see pharmacy shelves until well into 2003 or beyond.
ImClone issued a public statement about the FDA rejection at 7:14
p.m. EST Friday night, confirming almost
two weeks of negative rumors that had driven shares of the biotech company lower by 21%.
ImClone closed Friday at $55.25 per
share. The stock fell another $5.25, or 9.5%, to $50 per share, in
after-hours trading.
Waksal was quick to start damage control, telling
Reuters
Friday night that the FDA refused to accept the Erbitux application
because the agency wanted more "annotation and measurement" information
about how Imclone conducted its clinical trials.
Specifically, Waksal
told
Reuters, the FDA wants ImClone to shed more light on how the company verified that patients in its clinical trials had failed
previous drug therapies. Regulators also want to verify that Erbitux was actually responsible for shrinking patients' tumors.
Waksal insisted that Erbitux's safety and efficacy are not being
called into question, and that the additional information will take
only six weeks to 10 weeks to compile. The company's hoped for April 2002 approval and subsequent May launch of the drug will now likely be
delayed only until the third quarter, he told
Reuters. (Company
officials did not return calls for comment from
TheStreet.com
Friday night.)
But all this might be wishful thinking on Waksal's part.
The ImClone CEO has been very vocal about not only Erbitux's
potential as a multibillion dollar drug, but in how quickly the FDA
would issue an approval. Beginning in June, ImClone filed what is known
as a Rolling Biologic License Application for Erbitux, meaning the
company submitted its application piecemeal as each section was
completed. By doing that, ImClone executives told
TheStreet.com at
that time, the company would get continuous feedback from the FDA on the
status of the application, thereby avoiding unforeseen problems and
speeding up the approval process.
But if ImClone was working so closely with the FDA on Erbitux's
application, why are regulators now surprising ImClone and its
shareholders with new requests for information?
Waksal's statement that the FDA is now looking deeper into the way
ImClone conducted its clinical trial for Erbitux and apparently
questioning the company's results, suggests regulators are, in fact,
concerned about Erbitux's safety and efficacy. Simply put, the FDA wants
to make sure that Erbitux does what ImClone claims it does.
This supports the long-standing bear case against the drug. ImClone
critics concede Erbitux appears to be a real drug, but they say the
company has taken short cuts in its clinical trials and hasn't provided
enough evidence to support its approval. The FDA, they believe, is
likely to ask Imclone to submit additional testing data for Erbitux, a
process that could dramatically delay the drug's approval.
One hedge fund manager who's been shorting ImClone says his sources
tell him that there's a power struggle within the FDA concerning
Erbitux. More risk-tolerant regulators within the agency were pushing to accept the drug's application as-is, but their risk-averse colleagues
were not impressed and wanted to wait until ImClone completed more
extensive and robust clinical trials of Erbitux, some of which have
started, and others which are expected to start soon.
"[Friday's] decision by the FDA lends credence to what I was
hearing, and tells me that the slow-moving, bureaucratic side of the FDA
won out," he says. "This could be very bad for Imclone," he adds,
because regardless of what the FDA requests from Imclone to get its
application accepted, regulators could be signaling that they will want
still more clinical trial data before they actually approve the drug.
If that happens, Erbitux might not be approved until well into 2003 or beyond.
And, of course, what's bad for ImClone is bad for Bristol-Myers
Squibb, the struggling drug giant that bet $2 billion on Erbitux in
September to resurrect its flagging cancer drug franchise. Bristol-Myers took a 20% stake in ImClone and secured marketing rights to Erbitux, giving it 40% of the drug's eventual profits. Some Wall Street drug analysts questioned the high cost of the deal when it was announced, but Bristol-Myers defended the move, insisting that its own due diligence led it to believe that Erbitux would be approved early in 2002.
Oh well, so much for that due diligence.
"How stupid does Bristol-Myers look now," says another hedge fund
manager. "Investors believed that Bristol-Myers and ImClone were going
to stroll right into the FDA and get Erbitux approved without any
questions. Well, what the FDA made clear [Friday] is that it's not about
to just bend over." This hedge fund manager is short ImClone and has no
position in Bristol-Myers.
As ImClone shares sink because of the Erbitux delay -- no matter
how long it ends up being -- investors who are losing money also are
going to be reminded that Sam Waksal, his brother and company COO Harlan
Waksal, as well as other Imclone executives, already have hit the best
kind of jackpot -- tens of millions of dollars in cash that isn't
impacted one bit by Erbitux's problems.
As part of Bristol-Myers' tender offer for 20% of ImClone, the
company's executives were able to cash out a significant portion of
their shares -- something
first reported by
TheStreet.com in September. Sam Waksal's take:
approximately $36 million, according to company documents filed by the
SEC. Harlan Waksal cashed out to the tune of $54 million, while
company chairman Robert Goldhammer netted $25.5 million.
Ordinary investors also won because they were able to sell roughly
20% of their ImClone stake to Bristol-Myers, and at a healthy premium.
But investors didn't get their ImClone shares for free, as did the
Waksal brothers and other company executives -- who benefited mightily
from stock purchases last summer financed with loans from the company -- at the same time they were negotiating the Bristol-Myers deal.
ImClone executives scheduled a conference call for analysts and
investors Monday morning to discuss the Erbitux delay in more detail,
and hopefully, to end the rampant speculation that has dogged the
company for two weeks.
CIBC World Markets biotech analyst Matt Geller
said he believes any delay will be short and will not require additional
clinical trials. Of course, Geller said earlier that he believed the FDA would accept the Erbitux application. (Geller rates ImClone a strong buy and his firm hasn't done underwriting for the company.)
Merrill Lynch biotech analyst Eric Hecht also downplayed problems.
In a research note written Thursday, Hecht said FDA "refuse to file"
letters are common and that any problems ImClone might be having would
likely be minor and easily corrected. (Hecht rates Imclone buy and his
firm has done underwriting for the company.)
Another source -- someone familiar with the Erbitux clinical trials
and who correctly predicted the delay before the rumors hit Wall Street
-- told
TheStreet.com he also believes the delay is relatively minor. The source has no position in Imclone.
"ImClone was not able to audit some of its clinical trial data on
time, as it was supposed to be," he says. The company can get this done
relatively quickly, which should satisfy FDA concerns and allow the
Erbitux application to be accepted, he added.
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