The biggest winners in Wednesday's $2 billion deal between

Bristol-Myers Squibb

(BMY) - Get Report

and

ImClone

(IMCL)

might just be ImClone's top executives.

ImClone's CEO Sam Waksal and his brother and COO Harlan Waksal will reap tens of millions of dollars from the Bristol-Myers deal, thanks to sweetheart loans from their company enabling them to exercise stock options in July for shares they can now sell at a huge premium.

Bristol-Myers will spend $1 billion to acquire 14.4 million shares, or 20% of ImClone's common shares through a tender offer to the company's shareholders. The tender offer values ImClone at $70 a share, a 40% premium to its Tuesday closing price of $50 a share.

The drug giant will also pay $1 billion to ImClone in three separate milestone payments tied to the development and approval of the company's cancer drug, known as IMC-C225. Bristol-Myers gets the exclusive right to sell the drug in the U.S. and Canada, and will give ImClone 60% of the profits, net certain costs.

We'll get to the pros and cons of the deal for Bristol-Myers in a second, but let's focus first on just how lucrative and risk-free this deal is for Sam and Harlan Waksal.

On July 12, ImClone loaned President and CEO Sam Waksal almost $18.2 million to exercise options and warrants on more than 2 million shares of ImClone common stock, according to the company's second-quarter 10-Q. The loan came in the form of an interest-bearing promissory note from ImClone to Waksal. The net gain on those shares was valued at $67.5 million, based on the company stock price of $41.61 a share and an exercise price in the single digits.

On the same day, ImClone COO and Executive Vice President Harlan Waksal was loaned -- also through a promissory note -- more than $15.7 million to exercise options and warrants on 780,000 shares. Harlan Waksal's net gain on those shares? More than $28.5 million.

Sam Waksal owns or has options on 4.5 million shares of ImClone -- 6.6% of the company. Harlan Waksal owns or has options on 3.6 million shares.

On an analyst conference call discussing the Bristol-Myers deal, Sam Waksal said he and his brother would be tendering a portion of their shares in the deal, along with other directors and executives. The tender offer will take place over the next 10 days and will be completed regardless of whether C225 gets approved.

Given that Bristol-Myers is buying 20% of ImClone for $70 a share, it's entirely reasonable for Sam to tender 20% of the shares he picked up for "free" on July 12. When he does, he'll make almost $29 million.

If Harlan does the same, he'll rake in almost $11 million.

Of course, both executives stand to gain even more as their remaining ImClone holdings increase in value as the company's share price rises. Shares of ImClone jumped $6.59, or 13%, to $56.60 in Wednesday trading.

"I think it's certainly reasonable to raise questions about the timing of all this," says Morningstar analyst Amy Arnott. "It's a legitimate question to ask whether this deal was as much about the Waksals' personal financial gain as it was about the financial interest of other shareholders." Morningstar doesn't rate stocks, but Arnott has raised concerns that ImClone is overvalued, despite C225's promise.

Reached for comment, Sam Waksal bristles at the suggestion that he and his brother are profiting unfairly, or that there was some connection between the granting of the promissory notes in July and negotiations ongoing with Bristol-Myers at that time. He says the granting of promissory notes to help executives exercise shares is a common business practice and ImClone received legal advice that concluded the deals were entirely above board.

"This was a perfectly reasonable thing to do," Sam Waksal says. "The company was never out any cash; in fact, it's making money through interest payments because we were given promissory notes, not cash

to exercise our shares."

Waksal was asked whether ImClone executives considered placing restrictions on their ability to tender shares to Bristol-Myers to avoid any conflict-of-interest questions being raised.

"No," he says. "In fact, I and other executives and directors have to tender our shares if we're recommending to our shareholders that they do the same. To not tender our shares would send the wrong message. We have a lot of shareholders who believe that our stock will go much higher than $70 when the FDA approves

C225."

But asked whether outside ImClone shareholders really need convincing to take a 40% premium for just 20% of their holdings, especially in a slumping stock market, Waksal concedes the point. "I guess it won't take much convincing, but it also doesn't change the fact that

the Bristol-Myers deal is creating great value for our shareholders."

One biotech fund manager with no position in ImClone doesn't necessarily disagree with the latter point but is still a bit queasy with the Waksals' profit-taking.

"Look, Sam and Harlan deserve to make some money for shouldering the risk of taking C225 this far through the development process, but there is something questionable about these guys cashing out before we even know if this drug is going to get approved."

That leads to another question: Is this a good deal for Bristol-Myers?

The New York-based pharmaceutical giant has seen its share of the lucrative cancer-drug market erode in recent years. That made ImClone a juicy target because C225 is one of the most talked about new cancer treatments under development. C225 is one of a new class of experimental drugs that work by blocking a protein called the epidermal growth factor receptor present in large quantities on many cancer cells.

But the $2 billion deal is a lot of money to shell out for a drug that some biotech observers believe will have a tough time getting approved by the Food and Drug Administration early next year, as Wall Street expects.

And Bristol-Myers says it based its decision, partly, on expectations that C225 will reach annual sales of more than $1.5 billion by 2005, even though there are several other competing drugs right behind it.

"It really remains to be seen whether this is a good deal for Bristol-Myers," says Morningstar's Arnott. "C225 is a promising drug, but the $1.5 billion sales projection is pretty optimistic, especially when you consider that there is no guarantee that the drug gets approved on schedule." Arnott gives Bristol-Myers four stars in Morningstar's rating process, in which five stars is the highest.

On its own conference call with analysts, Bristol-Myers executives said their due diligence has led them to believe that C225 will be approved early next year, and that when the drug is launched, it will quickly reach blockbuster status. ImClone executives added their confidence that the drug will be reviewed favorably by an FDA advisory panel in February.

ImClone bears don't argue with the fact that C225 is a promising drug that will be approved eventually. But based on the drug's results released so far, there stands a good chance that the FDA will ask ImClone, and now Bristol-Myers, to conduct more tests, delaying C225's development.

And the deal will be dilutive to Bristol-Myers' earnings by between 5 cents a share and 7 cents a share for each of the next two years, before bolstering earnings in 2004 and beyond.

But while Bristol-Myers appears to be paying a lot today, they stand to profit handsomely if C225 lives up to its promise. ImClone is seeking approval for the drug for colon cancer patients who are failing other treatments. The company has already conducted promising studies to expand the drug's use into other cancers, possibly pushing C225 sales into the multibillion-dollar category.

Shares of Bristol-Myers fell 49 cents to $56 a share Wednesday.