ImClone Jumps, and the Biotech Sector Surges

Several stocks in the group are posting hefty gains in late-morning trading.
By Chris Nichols ,

Updated from 11:41 a.m. EDT

ImClone Systems

(IMCLE)

got a boost Tuesday morning when the company received a $6 million payment from Germany's

Merck KGaA

for achieving a manufacturing milestone under the firms' license agreement for the prospective cancer treatment Erbitux.

After receiving the payment, ImClone issued 334,471 common shares to Merck at a 10% premium. In December 1998, Merck KGaA licensed the right to develop Erbitux outside the U.S. and Canada and the co-exclusive right to develop the drug in Japan.

Last month, Merck received approval from the German state regulatory authority in Darmstadt to import Erbitux made at ImClone's facilities in Somerville, N.J.

Shares of ImClone were climbing $2.63, or 13%, to $22.48 in Nasdaq trading. Since the start of the year, ImClone's share price has doubled.

The company is certainly grateful to be making headlines for Erbitux, considering that for much of 2002, ImClone's appearance in the news often centered on a insider-trading scandal that led to the resignation of then-CEO Sam Waksal and also ensnared home and lifestyle expert Martha Stewart.

Just weeks ago, Harlan Waksal, who took over as CEO following his brother's departure from the post, and Chairman Robert Goldhammer quit in connection with a federal tax probe.

Adam Feuerstein, a columnist for

TheStreet.com's

sister site

RealMoney.com

,

reported recently that sources familiar with Erbitux said the drug's performance in a European clinical trial was more positive than preliminary results had initially indicated. Erbitux's development has created substantial interest among global health care industry observers and investors.

The drug, a potential treatment for colon cancer, was rejected by the Food and Drug Administration in December 2001 after regulators refused to accept ImClone's approval application. ImClone is also seeking European approval for Erbitux through partner Merck KGaA, which has been conducting its own clinical trials.

ImClone wasn't the only stock in the biotech group collecting sizeable gains. The Amex Biotech Index was climbing 4.1%, and the Nasdaq Biotech Index was adding 3.8%.

Among individual issues,

Human Genome Sciences

(HGSI)

was rising almost 9%.

Chiron

(CHIR) - Get Report

was up 6%, and

Biogen

(BGEN)

was up 5%.

Amgen

(AMGN) - Get Report

was higher by 3%.

Gilead Sciences

(GILD) - Get Report

was gaining 5%, and

Genentech

(DNA)

was tacking on 4%.

Adam Walsh, a biotech analyst with Jefferies & Co., said the broad rally was being driven by a number of factors, including earnings growth out of the profitable companies in the sector, short-covering, the belief that the FDA is more willing to work faster on drug approvals, and the important

American Society of Clinical Oncology meeting that starts Saturday.

"The rally has been led by the bellwethers," Walsh said. "Often what you see is the bellwethers will lead, and the development-stage companies will follow."

Both Walsh and Banc of America's Michael King indicated that recent drug approvals, such as

AstraZeneca's

(AZN) - Get Report

Iressa and

Millennium Pharmaceuticals'

(MLNM)

Velcade, both cancer treatments, have helped spur investor interest in the group.

Another positive development came out of Genentech, which

earlier this month said its experimental drug Avastin "markedly" improved the survival of patients with colon cancer when used alongside chemotherapy.

"I think it's pretty clear that things are improving, particularly at the FDA level," King said.

Adam Feuerstein and James Cramer both wrote about Genentech today on

RealMoney

. If you already subscribe to

RealMoney

, please click here for their commentary. For readers who would like a free trial, please click here.

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