ImClone Soars On Revised Bristol-Myers Erbitux Deal

Updated from March 5

Shares of Imclone Systems(IMCL Quote) soared 22% Wednesday after the company and Bristol-Myers Squibb(BMY Quote) renegotiated terms of their sometimes acrimonious partnership for the experimental cancer drug, Erbitux.

The new deal has the whiff of compromise, and eliminates speculation that Bristol-Myers will walk away from ImClone as it tries to get the delayed Erbitux application accepted by the Food and Drug Administration.

Imclone was up $5.18, or almost 22%, to $29 per share in recent trading. Bristol-Myers was up $1.59, or 3%, to $50.02. The rise in Imclone shares was aided by positive analyst comments from Lehman Brothers and Thomas Weisel Partners, and an upgrade to outperform from Stephens.

Under terms of the new arrangement, Bristol-Myers will pay ImClone about $100 million less in milestone payments, and will delay some of the other payments. The drug giant is also taking a larger role in Erbitux's development.

But ImClone gets some money sooner and retains its lucrative cut of Erbitux sales, if and when it gains FDA approval.

"I think this agreement indicates that both companies gave a little," says Hemant Shah, a pharmaceutical analyst with HKS & Co. "But more importantly, it removes the uncertainty about the partnership, which should benefit ImClone."

But there's always winners and losers, and in this case, ImClone likely came out on top because Bristol-Myers was seeking much larger changes to the partnership, Shah adds. He is long Bristol-Myers and has no position in ImClone.

Bristol-Myers was supposed to pay ImClone $300 million upon FDA acceptance of the Erbitux application. Now, ImClone will get $140 million when the new partnership agreement is signed, and $60 million on its one-year anniversary, whether or not Erbitux's application is accepted.

If and when the FDA approves Erbitux, Bristol-Myers will pay ImClone $250 million. Another $250 million payment will be come after Erbitux receives approval for its second disease indication. The original deal called for Bristol-Myers to pay $500 million to ImClone upon the initial FDA approval.

ImClone will also receive a distribution fee based on a flat rate of 39% of product revenues in North America.

Last month, Bristol-Myers executives sought to eliminate completely milestone payments and wanted ImClone executives Sam and Harlan Waksal to step aside from any involvement with Erbitux's approval process, or it threatened to walk away from the partnership. ImClone rejected the demands.