ImClone 'Eager' for Erbitux Data Release

Since I featured ImClone Systems(IMCL Quote - Cramer on IMCL - Stock Picks) in my weekend Biotech Stock Mailbag just over two weeks ago, the biotech stock has taken a hit.

ImClone was expected to be the big news at the American Society of Clinical Oncology annual meeting, but its stock has now fallen from $47 to $42.

So what happened, you ask? Let's review with a litte hypothetical Q&A.

ImClone is weak because investors are worried about the upcoming presentation of the Erbitux lung cancer data from the so-called FLEX study at the ASCO meeting. Some of these concerns were sparked by Morgan Stanley analysts, who have published research notes casting doubt on the strength of the FLEX data in the past two weeks.

What is Morgan Stanley saying?

On Monday, analyst Steve Harr downgraded ImClone to underweight (read: sell), from equal weight. He put a $38 price target on the stock.

Harr's bearishness on ImClone boils down to his belief that a four-to-five-week survival benefit for Erbitux in lung cancer patients will be viewed as "mediocre" by Wall Street and practicing oncologists. Erbitux's future in lung cancer will be further clouded by lackluster results from key, secondary endpoints of the FLEX study: Patients in the Erbitux arm are not likely to show a benefit on progression-free survival (PFS) or tumor response rate, predicts Harr.

Let me quote from Harr's note:

"The combination of these outcomes could lead to the emergence of questions on the actual validity of the survival benefit seen with these data and whether or not the benefit was driven by Erbitux or subsequent therapies. ... Therefore, investors would need to take down forward sales expectations and/or put a higher discount rate because of greater uncertainty," writes Harr.

Is he right?

I hope not, and I suspect he's being a bit too negative. I was on a Cowen conference call Friday with a couple of lung cancer specialists. Both doctors said that a four-to-five-week survival benefit for Erbitux would be viewed favorably and would lead to significant use in the lung cancer market. There are more than enough lung cancer patients who are not treated with Genentech's (DNA Quote - Cramer on DNA - Stock Picks) Avastin for Erbitux to do quite well without having to compete head-on for Avastin patients.

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