ImClone Beats; Shares Slide

Earnings exceed expectations, but U.S. Erbitux sales disappoint.
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ImClone Systems


released third-quarter financial results Thursday that soundly beat Wall Street estimates, thanks to strong sales from its colon cancer drug Erbitux, but its stock fell just the same.

The New York-based biotech earned $39.8 million, or 45 cents a share, on revenue of $94.8 million for the three months ended Sept. 30. The consensus of analysts polled by Thomson First Call was for a profit of $32.4 million, or 33 cents a share, on revenue of $83 million.

For the same period last year, ImClone lost $16.5 million, or 22 cents a share, on revenue of $23.6 million.

But ImClone shares fell about 10% in premarket trading because third-quarter U.S. sales of its colon cancer drug Erbitux totaled $84 million. That was about $3 million short of Wall Street's expectations. ImClone shares were down $5.34, or 10.43%, to $45.86 in recent trading.

ImClone does not record end-user Erbitux sales on its income statement. Instead, the company's Erbitux-related revenue comes from a passel of sources, including license fees, milestone payments, royalties on sales and manufacturing revenue from its marketing partners,

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All of these moving parts on ImClone's income statement are very difficult to model accurately, which explains the wide discrepancy in earnings estimates published by sell-side analysts with coverage on the company.

On its conference call Thursday morning, ImClone management declined to give specific top-line or bottom-line financial guidance, but the company did provide forecasts for other financial metrics as well as detailed historical Erbitux sales and market share data in an effort to help investors better forecast the company's financial picture moving forward.

Earlier this week, SG Cowen sent ImClone shares sharply lower after the investment bank lowered its 2005-09 Erbitux sales forecast, citing a proprietary physician survey that showed Erbitux had a 56% market penetration in colon cancer patients, primarily patients taking Erbitux as second- and third-line treatments. This higher-than-expected market share, so soon after launch, led SG Cowen to conclude that Erbitux sales growth moving forward would slow. Cowen does not rate individual stocks, and the firm has no banking relationship with the company.

But on its call Thursday, ImClone executives made a point to say that their own research showed Erbitux with just 39% market penetration in second and third-line colon cancer patients.

"We see no evidence of deceleration of the

Erbitux sales trend," said CFO Michael Howerton.

Calculated by sales per day, Howerton said Erbitux sales increased 1% in July, 2% in August and 6% in September.

ImClone also announced that it had established a sales force "to maximize potential commercial opportunities" for Erbitux "and to serve as a foundation for the marketing of future products." The first 13 sales representatives were redeployed from an ImClone unit called Scientific Services Liaisons, which calls on researchers "to enhance the base of pre-clinical knowledge and studies" involving Erbitux. Creating this sales force from existing personnel "did not have a material impact" on corporate expenses in the third quarter, ImClone said.

By year-end, the company said it expects to have 43 sales representatives and six members of the liaison unit, which likely will increase expenses by about $10 million in the fourth quarter.