Shares of

Imclone Systems

(IMCL)

shot up almost 8% after the company said colon cancer drug Erbitux is seeing wider use. But analysts worry about the company's stagnant top line.

In its conference call on Tuesday, the company cited increased colorectal cancer market penetration for Erbitux, reflecting the number of patients treated in so-called second- and third-line settings. Second-line treatment takes place when the first treatment a patient takes doesn't work.

Ronald Martell, Imclone's senior vice president for commercial operations, says Erbitux showed 11% penetration in second-line use and 29% in third-line use in the latest quarter. That's up from 8% and 25% in the fourth quarter.

Imclone calculates Erbitux market penetration based on the number of patients treated using the drug for each line of therapy. Erbitux is most commonly used in second- and third-line treatment, meaning it is the second or third drug a doctor would prescribe for colorectal cancer.

The company also posted a gain in the use of Erbitux as a monotherapy, with 19% of first-quarter users taking Erbitux alone. Some doctors new to prescribing the drug choose to prescribe it alone before using it in combination with other drugs. However, the company says data don't indicate whether this is a trend or an anomaly.

Despite encouragement from market penetration increase and Imclone's optimism about the drug's effectiveness in treating other tumor types, the company says it doesn't promote off-label use of the drug, which increased to 8% in the first quarter from 5% in the fourth quarter.

Erbitux is currently in trials for treatment of cancers of the pancreas, ovary, prostate and breast, and in advanced non-small cell lung cancer and advanced colorectal cancer. Trials also include a combination therapy with

Genentech's

(DNA)

Avastin, with or without chemotherapy.

The company expects increased research and development expenses from further Erbitux trials and the development of two pipeline products currently in phase I trials, one awaiting phase I trials and two awaiting investigational new drug applications to the Food and Drug Administration.

Erbitux is currently in phase III trials for pancreas, lung and colorectal cancer. Its trial for metastatic pancreatic cancer is currently enrolling about 40 patients per month, the company says. It expects the trial to be fully enrolled in the first quarter of 2006, and Mark Augustine of Credit Suisse First Boston expects to hear results by mid-2006.

Imclone expects to release further data on 16 Erbitux trials, including 10 on colorectal cancer, three on head and neck cancer, two on non-small cell lung cancer and one on ovarian cancer, at the annual meeting of the American Society of Clinical Oncology, Augustine says. The ASCO meeting will be held in Orlando, Fla., May 13-17.

The company reported earnings for the first quarter at $28.8 million, or 33 cents a share, compared with $62.7 million, or 76 cents a share, a year ago. Sales were $85.8 million, compared with $110.2 million a year ago. The first quarter of 2005 saw a $43 million decline in license fees and milestone revenue due to amortization from a $250 million milestone payment received last year from

Bristol-Myers Squibb

(BMY) - Get Report

for Erbitux. Analysts expected net income of $29 million on sales of $93 million.

The company blamed disappointing sales on the gain in use of Erbitux alone, since dosing for monotherapy takes six weeks, compared to 16 weeks in combination with chemotherapy. The company also attributed flat sales to pricing. In the first quarter, Erbitux was sold at half its 2004 price.

Augustine, who gives the shares a neutral rating, lowered his earnings expectations from $1.60 to $1.08, saying, "It remains to be seen how sluggish Erbitux sales trends reflect the changing CRC market dynamics." Augustine's firm does and seeks to business with the companies it covers.

But Smith Barney's Yaron Werber rates the stock sell, citing competition from Genentech's Avastin and Imclone's dependence on Erbitux sales for the foreseeable future.

The potential sales of Erbitux remains unknown, he says, because the colorectal cancer market is smaller than originally expected. Smith Barney's parent, Citigroup Global Markets, does and seeks to do business with the companies it covers.

"Sales have been relatively flat over the past several months and new clinical data is required to reaccelerate sales," says Werber. "However, new clinical data from studies of pancreatic and non-small cell lung caner might not be available until 2006/07."