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Feuerstein's Biotech Mailbag: ImClone

This column originally posted on at 6:59 a.m. EDT. For more information about subscribing to RealMoney , please click here.

Welcome back to the Biotech Mailbag. What a week, eh?

The biotechs were holding up fairly well on Monday and Tuesday, but then came Wednesday, and, well, it's a day I'd rather forget. For me, the worst was seeing big-caps sell off hard. I expect to see tons of downward pressure in more speculative, small-cap biotechs, but Celgene (CELG) was down 8% on no news (other than a collapsing global financial market, of course), and Genentech (DNA) fell from $93 to $89 on fears that Roche wouldn't be able to raise enough debt to complete its planned acquisiton.

When you see stuff like that, it's means there is panic in the market, and big funds are being forced to sell the good with the bad. It goes right along with all the rumors of various health care funds liquidating as they go out of business.

Thursday wasn't much better. As I finish up this column at midday, the markets overall are rallying just a bit, but the biotech sector is still lagging. And again, there is very heavy selling pressure on big-caps -- Celgene, Gilead Sciences (GILD), OSI Pharmaceuticals (OSIP) and Amgen (AMGN).

When I was finally able to peel my eyes from my computer screen Wednesday night (it was like watching a bad horror flick -- you don't want to watch, but you must), I reminded myself that a Wall Street meltdown doesn't stop people from getting sick, nor does it lessen the need for new, life-saving drugs. In other words, Lehman and Merrill and AIG and whoever is next to blow up can't derail biotech forever.

Moving to your emails. First up, Raji N.

"In August, you wrote that Bristol-Myers Squibb (BMY) would have to raise the takeover offer for ImClone Systems (IMCL) from $60 to $70 a share. Yet today, ImClone is trading around $60. Why doesn't the market believe that ImClone is worth more money? Have you changed your mind about ImClone?"

Raji sent me this email on Tuesday. I wonder how he felt Wednesday when the stock closed at $57.63!

I've tempered my view on ImClone because of the latest twists to the story, most notably Bristol's claim that it has rights to the Erbitux follow-up on drug IMC-11F8. That claim, to me, is a game-changer and gives the negotiating edge to Bristol, not ImClone.

For those without a RealMoney subscription, this is what I wrote on Sept. 11, minutes after Bristol's CEO made public the letter written to ImClone's Chairman Carl Icahn in which Bristol said it had no intention of raising its $60-a-share bid and claimed rights to IMC-11F8:

"Let me explain a bit more about the importance of BMY's claim to IMC-11F8.

As I said, the drug is a fully humanized version of Erbitux, which means that it won't cause the severe allergic reactions that occur in some patients who take Erbitux. Theoretically, IMC-11F8 should also be equally effective.

By claiming 100% rights to IMC-11F8, IMCL held an important bargaining chip over BMY. IF IMCL were to be acquired by someone else and they gained control of IMC-11F8, it could conceivably decimate the Erbitux franchise. (Docs would presumably rather use IMC-11F8 than Erbitux.)

But if BMY, in fact, does have marketing rights to IMC-11F8, that makes IMCL a lot less attractive to an outside suitor and strengthens BMY's position.

Now, clearly, IMCL is going to assert that BMY has no rights to IMC-11F8. That's been their position for some time. Who decides? I guess the courts, ultimately, if it gets that far. But if I were a potential suitor for IMCL, wouldn't I be a bit nervous now that I know that one of the big assets I thought I was buying outright may not be 100% mine after all?"

I know that Icahn says he has a mystery pharmaceutical company in his pocket willing to offer $70 a share for ImClone, but c'mon. Given Icahn's shenanigans with Biogen Idec (BIIB), it's not inconceivable that the dealmaker extraordinaire is simply bluffing in the hopes that Bristol raises the bid. On Tuesday, Bristol's CFO was quoted saying the company could walk away from its ImClone offer.

Clearly, there is a lot of posturing and bluster on display here from both sides. At the end of the day, an equitable deal should be struck. Back in August, I said $70 a share makes sense, because that's what Bristol paid for its original ImClone stake, but I also said a compromise price in the mid-to-high $60s was more likely.

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