Excluding Freak Detour, ImClone's Gain is Modest

Updated from 8:25 a.m. EST

ImClone(IMCL Quote) drifted higher Friday, one day after the FDA approved its Erbitux for treatment of advanced colorectal cancer.

The shares were recently fetching $44.98 on Instinet, up $10.98, or 32% from their Thursday close -- although the size of the gain is being exaggerated because of freak trading in the shares Thursday. Erbitux was cleared under the FDA's accelerated review program, which allows the approval of products for life-threatening diseases based on early evidence of their effectiveness. ImClone said it expects the drug to be available to patients in two weeks.

Howard Liang, one of a handful of analysts who follow ImClone, said Friday that Erbitux should get a boost from the FDA's approving it as a single therapy for colorectal cancer as well as for a combined therapy with the chemotherapy drug irinotecan. In both cases, the drug was approved for treating colorectal patients whose cancer had spread and/or who hadn't responded to other therapies.

The extra approval is "significant and not necessarily expected," Liang said in a research report to his clients. Liang of JMP Securities, predicts Erbitux could produce more than $150 million in sales this year and break the $1 billion sales mark in 2007.

Liang began tracking the stock in late January, and on Friday he maintained his market outperform rating on ImClone. He doesn't own shares; his firm is a market maker in the stock.

ImClone found itself engulfed in another controversy Thursday when its shares plunged more than $10 in the four minutes before the FDA's approval was disseminated and trading halted at about 1:34 p.m. EST. The Securities and Exchange Commission has directed the Nasdaq to investigate the plunge, which was eventually reversed when ImClone opened in Thursday's after-hours session.

Since ImClone wasn't reopened for trading before Thursday's close, Friday's 32% gain is from its level just after the plunge -- a fall that was immediately corrected when the shares reopened in the aftermarket. The shares are currently trading only about a dollar above where they were for most of yesterday's session.

Nasdaq characterized Thursday's trading halt as routine and said trades carried out before its enactment were valid. Asked if the Nasdaq believed trading occurred on its systems or any other platform after the halt, Nasdaq spokeswoman Betsy Sherman said "no," adding: "This is a routine halt due to company news pending."

A person close to Nasdaq, speaking on condition of anonymity, said 12 trades that were made after the halt would be canceled. Both the spokeswoman and the source said no Nasdaq systems errors played a role in any late trade.

Approval of the drug was widely expected in the market and many traders had professed an intention to "sell the news" when formal word of it hit. Still, Thursday's plunge was too extreme to be chalked up to normal market dynamics, and indeed occurred before the FDA posted the press release on its site.

Timothy Ghriskey, president of Ghriskey Capital Management, called ImClone a "cult stock" that often gets whipped around by rumors. The problem with rumors is they're not always right. That appears to be what happened Thursday.