Imclone's Spot at the Podium May Be a Tip-Off It Has a Cancer Drug Hit

Imclone Systems (IMCL Quote - Cramer on IMCL - Stock Picks) has landed one of several high-profile slots at an upcoming cancer meeting where it will take the wraps off promising results for a novel treatment to stop tumor growth.

The American Society of Clinical Oncology annual meeting -- held next month in San Francisco -- is the Super Bowl of cancer research confabs, watched closely by the medical and investment community. And like any good sporting event, the handicapping of who will score and who will punt at ASCO has already started.

The early scouting report looks good for biotech firm Imclone. The company said this week that it has a choice spot on the first day of the conference in which to make its presentation. Competition to nab a primo spot is intense, mainly because more than 3,500 research papers will be presented in four days. Prominent positioning is seen as a blessing conferred by the research community that carries weight with investors as well.

Imclone will present its research on May 12, the first day of the conference, alongside several rivals developing similar cancer treatments. But the company is expected to be the first to file a new drug application with U.S. regulators, and the first company to grab a piece of a new $6 billion to $10 billion market opportunity.

"There is substantial buzz around Imclone in the oncology community," says John McCamant, editor of the Medical Technology Stock Letter, who is long the stock. "I think you're going to see a lot of investor interest in this company because the presentation at ASCO is expected to be strong."

The buzz has yet to work its way into Imclone's share price. Shares in biotechnology companies typically move up or down on news regarding the development of new drugs. Imclone, like other biotech firms, has taken a beating on Wall Street since last fall. The stock is down 63% from its 52-week high, closing at $28.19 Tuesday.

The gem in Imclone's drug development pipeline -- and the subject of its ASCO presentation -- is called IMC-C225, a monoclonal antibody that's used to treat patients with colon cancer who are not responding to traditional chemotherapy. Colon cancer is the second-leading cause of cancer death in the U.S. IMC-C225 is not a cure, but in early tests where the drug is added to chemotherapy treatments, it is shrinking tumors and slowing progression of the disease, according to the company.

Based on these early tests, the Food and Drug Administration said in February that it was placing IMC-C225 on the fast track to approval as a new treatment for colon cancer. Robert Toth, an analyst with Prudential Vector, says in a recent research report that if the new drug is approved by early next year, it will generate sales of $130 million in 2002, and as much as $581 million by 2005. (Toth rates Imclone accumulate, and his firm has done underwriting for the company.)

Imclone is also testing IMC-C225 on other cancers, including ones of the head, neck and pancreas, which could push sales even higher.

What sets Imclone's story apart from many other biotech firms is that the company is not sharing the lucrative North American rights to IMC-C225 with a major pharmaceutical partner. It has inked a licensing deal with a Merck KGaA , a midsize German pharmaceutical company (unrelated to the U.S.-based Merck), to sell the drug in Europe.

Small biotech firms often turn to larger drug partners to help manufacture and market new drugs, giving up a large share of the profits in the process. But Imclone is building its own manufacturing plant and sales force.

"Imclone is going through a major transformation from a development-stage company to a small pharmaceutical company with its own sales and marketing team," says Stuart Weisbrod, chief investment officer of Merlin Biomed Group, a health care hedge fund. "That's why the data being presented at ASCO is so pivotal for the company and its product." (Weisbrod is long Imclone.)

The market for new cancer drugs is littered with the debris of companies that failed to deliver on early promises. But Wall Street analysts and the medical community are watching Imclone closely because IMC-C225 allows doctors to fight cancer in a new way.

Simply put, the antibody works by blocking the receptor attached to epidermal growth factor, a common cell protein that somehow goes haywire in cancer cells. By targeting cancer cells that "express" for epidermal growth factor, IMC-C225 seems to stop or shrink tumor growth without the nasty, and potentially fatal, side effects of chemotherapy drugs.

This avenue of research is hot because as many as 60% of all cancers, or 3.5 million patients, could be treated with this new class of drugs, according to analyst Toth.

And there's precedent that lends credence to the optimism. Genentech's (DNA Quote - Cramer on DNA - Stock Picks) best-selling breast cancer drug, Herceptin, works by acting against a close cousin to epidermal growth factor.

In addition to Imclone, AstraZeneca (AZN Quote - Cramer on AZN - Stock Picks), a joint venture between OSI Pharmaceuticals (OSIP Quote - Cramer on OSIP - Stock Picks) and Genentech, and Abgenix(ABGX Quote - Cramer on ABGX - Stock Picks) are also well along in developing new treatments that focus on blocking epidermal growth factor in cancer cells. AstraZeneca, OSI and Genentech are all presenting testing data at the ASCO meeting, but Imclone is the only company that is expected to file a new drug application this year.

"We can think of no other potential market opportunity that is as robust, bearing enough opportunity -- at least 12 different cancers are likely targets for [epidermal growth factor receptor] inhibit therapy -- for several companies to successfully deploy their own technologies," says Toth, adding that the size of the market could reach $6 billion to $10 billion, or 80% of the size of the existing cancer drug market.

While Imclone seems destined to delight the gathered oncologists at ASCO, its ability to wow regulators at the FDA is less sure, injecting a healthy dose of risk into the stock. Despite its fast-track status, government regulators could still ask Imclone to conduct more tests before approving IMC-C225.

"The FDA has been getting a lot of negative publicity for hasty approvals of new drugs, so it's not out of the question that the FDA could ask Imclone for more research," says McCamant of the Medical Technology Stock Letter, who adds that he doesn't believe it will happen.

But given the way investors are punishing companies that dish up bad news, any hiccups Imclone experiences with the FDA will hurt.